Large Award Of Damages And/or Equitable Compensation Ordered Against The Perpetrators Of A Labour Supply Fraud (Umbrella Care Ltd V Nisa And Ors)

• Published date: 26 December 2022
• Subject Matter: Corporate/Commercial Law, Litigation, Mediation & Arbitration, Corporate and Company Law, Directors and Officers, Arbitration & Dispute Resolution, Trials & Appeals & Compensation
• Law Firm: Gatehouse Chambers
• Author: Mr Phillip Patterson

Dispute Resolution analysis: A large award of damages and/or equitable compensation has been made against the directors and connected companies of a company which was used to perpetrate a large scale labour supply fraud against HMRC.

Umbrella Care Ltd v Nisa and ors [2022] EWHC 3139 (Ch)

What are the practical implications of this case?

This is an interesting decision, not least given the very large sums ordered to be paid by way of damages and/or equitable compensation in a breach of duty claim. It also offers guidance on the appropriate methodology for the calculation of damages and/or equitable compensation in such claims. The methodology involved holding that the compensation should equal the insolvent company's liability to HMRC as proved, but that credit should be given for any realisable assets of the company. This is likely to be important in many ongoing cases in which, for example through the use of EBT-based tax schemes, directors are exposing their companies to the risk of substantial claims from HMRC or other similar creditors.

What was the background?

Umbrella Care Limited, a company in liquidation (the "Company") was alleged by its liquidators to have been used to operate a large labour supply fraud. The fraud involved PAYE and NIC being deducted from the wages of employees and the receipt of VAT from customers but with little or no accounting to HMRC in respect of those taxes. The liquidators caused the Company to issue claims against the husband and wife who acted as directors of the Company ("Mrs Nisa and Mr Raja"), as well as another individual who acted as a director for a short period ("Mr Cervenak") and then various companies who received funds paid out of the Company which should have been paid to HMRC. The Company was able to trace only some of the payments made pursuant to this alleged fraud. At the hearing of an application for summary judgment, the Court found that Mrs Nisa and Mr Raja were both in breach of their duties as directors of the Company, in causing or permitting the removal of funds from the Company which should have been used to satisfy its liability to HMRC. Judgment was entered for damages and/or equitable compensation against Mrs Nisa and Mr Raja, with the amount of such damages and/or equitable compensation to be assessed. Other companies, known as Dynamic, Universal Real and Universal Total were held liable as knowing recipients, with the amount of equitable compensation payable by those companies to be...