Deputy Master Nurse has refused to set aside a judgment obtained by Manolete Partners PLC holding that the Defendant, the director of a restaurant business on the Edgware Road, had no reasonable prospects of defending the claim.
The facts of the dispute
The Defendant was a director of Palms Palace Ltd (“the Company”) which operated as a restaurant and Shisha bar. The Company was investigated in respect of suspected suppression of sales. It’s bank account records that no cash had been banked for a substantial period. HMRC had concerns that the “no sale” and “void” button on the till had been regularly used giving rise to an inference that a transaction had taken place and had not been recorded in the Company’s “z reports” which recorded sales. HMRC were also concerned about a number of negative sales, out of hours sales and under declared VAT, due to a large number of sales being declared not subject to VAT.
HMRC ultimately assessed the Company for tax and penalties, being a mixture of corporation tax and VAT in sum of £3,316,318. It also considered that £4,186,848 which it calculated as the suppressed sales should be allocated to the directors’ loan account of the Company for the Defendant. The Company went into creditors voluntary liquidation on 21 December 2017, and Miles Needham of FRP Advisory was appointed liquidator.
With no assets in the estate, the liquidator assigned the claim to Manolete. Manolete issued proceedings on 22 May 2019 and obtained judgment in default of an acknowledgment of service on 17 June 2019. The Defendant, Ismael Siza, applied to set aside the judgment on 30 July 2019 and his application was heard by deputy Master Nurse on 18 November 2019.
The Deputy Master refused the Defendant’s application. The Defendant had provided an explanation for the use of the no sale and void buttons. He has not, however, provided even a sample of the evidence he intended to rely upon notwithstanding the burden on him as an applicant. The Deputy Master concluded, “One would expect, for the purposes of this Application, at least a sample of the evidence about this that a member of staff or employee might give. But there is no such evidence before me. Furthermore, in considering, as I must, whether there might be available to the Defendant any further evidence that could reasonably be expected to be available if there was a Trial, there is nothing in any of the material before me to suggest that that such evidence will be produced in due course.”
He went onto say, “The first three of the 5 Grounds are clearly dependent almost solely on findings of fact. However, the Defendant has produced no evidence in support of this Application that could cast doubt on the findings made by HMRC.”
The Defendant’s suggestion that he relied upon his accountant for the VAT classification of items on the menu was considered fanciful by the Deputy Master because of the length of the period during which this issue arose and the fact the Defendant was the sole shareholder and director. The Deputy Master also concluded there was no ground for excusing the director’s conduct under section 1157 Companies Act 2006 for the same reasons.
Analysis and future application
The judgment is a useful reminder to applicants seeking to set aside judgments that the burden of doing so rests on them. The burden includes providing at least a sample of the evidence to be relied upon. It is not good enough to simply plead a case without providing any evidence to support it. The Court placed weight on the evidence of HMRC’s investigations which was comprehensive.
The case also serves as a useful reminder to directors, subject to disputed tax debts, that efforts ought to be made to challenge the tax debt at least directly with HMRC prior to placing a Company into liquidation. If that is not possible, they ought to, at the very least, ensure they work closely with the appointed liquidator to assist in making a challenge post liquidation.
Finally, the case also shows the effectiveness of assigning a claim to a third party such as Manolete. The assignment enabled a claim to be brought which would otherwise have been stifled due to lack of funds. The Court issue fee alone was £10,000. Manolete financed the legal costs and disbursements whilst also providing the IP and the estate with a complete indemnity on Manolete’s own balance sheet at no additional cost to the estate.
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