Three company officials jailed for contempt in multi-million pound VAT fraud
Two Directors and a Company Secretary have been jailed for contempt of court relating to a £7.7m VAT fraud, following an investigation by HM Revenue and Customs (HMRC).
A court order appointing a Provisional Liquidator was made by the High Court in March 2014 against Parkwell Investments Ltd, based in Wilmslow, Cheshire. The order removed the company’s officers and appointed a Provisional Liquidator in their place to protect the company’s remaining assets.
The company’s officers then deliberately and knowingly acted in contempt of court by transferring £450,000 out of the reach of the Provisional Liquidator.
The funds are now very unlikely to be recovered, a point which presiding Judge Mr Justice Norris took into consideration when sentencing. He said the company officers’ actions “were an affront to the rule of law and order”.
Amran Munir, Ali Sami Farooq, and Saif Chaudhry were each sentenced to six months’ imprisonment, of which three months is to be served in prison before being granted unconditional release. Unusually, the prison sentence was given in civil, rather than criminal, proceedings.
The individuals initially defended their actions but at the eleventh hour admitted to knowing breaches of the court’s order.
Mr Justice Norris said:
Where company officers seek to thwart a liquidator, a message must be sent to the business community.
Andy Cole CBE, Specialist Investigations Director, HM Revenue and Customs (HMRC), said:
Committing contempt of court to get out of paying your VAT debts just adds insult to injury. We will relentlessly pursue those behind this type of abuse using all the means at our disposal.
Notes for Editors
- The full details of the Judgment will be available on BAILII in due course. The case has been reported on Westlaw.
- Provisional Liquidation is an application made, without notice to the company, under the provisions of the Insolvency Act 1986. It is a remedy that HMRC deploys in an extremely small number of cases where there is the most serious non-compliance. If the court agrees with HMRC’s evidence it will appoint a Provisional Liquidator to protect the assets and records of the company until there can be a full hearing of HMRC’s evidence, which the company can defend.
- In this case the company tried to argue the Provisional Liquidator should not have been appointed. The court disagreed with the company and upheld the appointment. HMRC then sought to recover its costs on the basis the company directors had no reasonable grounds for seeking to overturn the provisional liquidation, and the court agreed again with HMRC. This resulted in a personal costs order against the directors of the company. The directors then petitioned for their own bankruptcy.
- In recent cases the court has specifically ordered that breaches of its order will be contempt of court (this is called a ‘penal notice’). Furthermore, HMRC undertook within the terms of the order granted by the court to appoint an independent supervising solicitor who explains the order, its implications and its effects to the company officers when the Provisional Liquidator arrives to close the business. In Parkwell the company officers, having had that explanation, then took deliberate steps in defiance of the order to put monies out of reach of the Provisional Liquidator. This deprived the company of assets that could have been used to pay creditors, such as HMRC.
- The judgment by The Hon. Mr Justice Norris in the High Court on 7 May 2015 confirmed that the actions of Amran Munir, Ali Sami Farooq, and Saif Chaudhry constituted a contempt of court and so the prison sentence was given.