Practice and Procedure


PUBLISHED January 9, 2004

A petition to wind up a company was granted where a debt due to the Crown in the form of excise duty and VAT assessments was supported by strong evidence of complicity by the company in a diversion fraud of excise goods.Determination of a contested winding-up petition presented against the first respondent (Arena) by the petitioners (Customs) in respect of excise duty and VAT in the sum of ?1,833,649.77 and an application by Arena's provisional liquidator for summary judgment against the second respondent (S), the beneficial owner and controller of Arena. On 14 August 2002, Customs served on Arena excise duty and VAT assessments in relation to twenty consignments of spirits and beers which, under S's direction, Arena purported to sell and transport under duty "suspended movements" from England to bonded warehouses in Belgium and Italy. Customs claimed that the consignments were not genuine commercial transactions and the goods had never arrived at their supposed destination, the relevant copy accompanying administrative documents having been falsified. Arena lodged an appeal against Customs' assessments with the VAT and duties tribunal. Customs presented a winding-up petition and, following the appointment of a provisional liquidator, proceedings were commenced against S and a without notice freezing injunction obtained. The tribunal ordered a number of preliminary issues to be determined in relation to the meaning, effect and validity of reg.7(2) Excise Duty Points (Duty Suspended Movements of Excise Goods) Regulations 2001 SI 2001/3022 and its relationship with reg.7(1), with a hearing date of 12 January 2004 provisionally arranged. In the instant proceedings Customs contended that a charge to excise duty and VAT had arisen and Arena was liable on the basis it was implicated in a diversion fraud. Consequently, since Customs was a creditor and the petition debt could not be the subject of any genuine dispute, a winding-up order should be made. Arena contended that (1) the debt is genuinely disputed on substantial grounds; (2) the proper tribunal for adjudication was the VAT and duties tribunal. The provisional liquidator submitted that (3) S had no real prospect of successfully defending the action.HELD: (1) The fraudulent diversion of duty suspended alcohol into the market without payment of duty and VAT was estimated to cost the exchequer some £450 million per annum (Re Anglo-German Breweries (2002) EWHC 2458 (Ch) considered). The present case was not one of a disputed debt. The structure of the legislation was that (a) any amount due by way of customs or excise duty could be recovered as a debt due to the Crown (see s.137(1) Customs and Excise Management Act 1979); and (b) where an amount of customs or excise duty, or VAT has been assessed and notified, it was deemed to be an amount due and could be recovered accordingly (see s.12(3) Finance Act 1994 and s.73(9) Value Added Tax Act 1994). The assessments against Arena on which the petition was based were made under reg.7(2) of the 2001 Regulations. It was not contended that Arena was primarily liable for the debt due and there was no evidence to link Arena directly to any diversion of goods. However, the principle issue on the petition was whether there was a genuine dispute as to the two conditions for Arena's liability, namely, the non-arrival of the goods at a warehouse of destination by reason of an irregularity which occurred in, or was detected in, the UK; and Arena's complicity by virtue of having "caused" the occurrence of an excise duty point. The evidence as a whole demonstrated that there was no seriously arguable case that the consignments had arrived at bonded warehouses and, in light of S's wholly implausible account of his business dealings, there was no real prospect of it emerging that Arena was engaged in genuine duty-suspended trading. The only credible picture was that Arena was involved in a diversion fraud and receiving proceeds from it in a form and manner designed to be as untraceable as possible. (2) In the circumstances there was no real prospect of a successful appeal to the tribunal and an order would be made for winding up of Arena which the court had jurisdiction to make. (3) It was not suggested on 's behalf that, if he had been complicit in a diversion fraud, he would not be liable to Arena. For the reasons given therefore S could not show any real prospect of defending the claim against him and an interim payment of damages in the sum of £500,000 would also be made. A post-judgment freezing order for the whole of the claim would also be granted.Judgment accordingly.

[2003] EWHC 3032 (Ch)