Tax avoidance schemes – A landmark judgment and a stark warning to directors.

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Following the recent Judgment of Implement Consulting Limited (in liquidation; Toone v Ross & Bell [2019] EWHC 2855 (ch), it is expected that claims against directors by liqudiators will increase in circumstances where an employee benefit trust scheme has been implemented.

Implement Consulting Limited entered liquidation on 26th November 2016. Mr Toone and Mr Paourou were appointed liquidators (the Joint Liquidators) at a creditors meeting on the same date. Her Majesty’s Revenue and Customs represented the bulk of the creditor claims and lodged a proof of debt in the liquidation in the sum of £1,747,621.51. The Joint Liquidators brought proceedings against the directors of the Company, Mr Ross and Mr Bell (the Respondents), in respect of transactions that took place between 2009 and 2013. In summary, the claims arose in respect of money paid by the Company into an employment benefit trust scheme (EBT) and monies paid into an interest in possession fund (IIP). The Joint Liquidators claimed that both actions were “aggressive tax avoidance” schemes. The Joint Liquidators further asserted that the Respondents were aware they were at risk that HMRC would challenge the schemes and made no proper provision if this were to happen.

The ruling

Counsel for the Joint Liquidators successfully argued that the funds paid into these schemes were effectively dividends under a different name, and thus repayable as a result of breach of the duties of the director. It was held that the directors (a) failed to take independent legal advice and failed to read opinions from leading counsel provided to the promotor of the schemes, (b) did not seek comfort directly from HMRC before causing the Company to enter the schemes, and (c) chose to take a risk which they did not entirely understand. The lack of understanding had the effect of handicapping the directors from making decisions in accordance with their statutory obligations owed to the Company


It is expected that this Judgment will result in more liquidators litigating EBT and similar type claims. This Judgment is a stark warning to directors that it is essential that they comply with directors’ duties in accordance the Companies Act and take legal advice to satisfy themselves of the potential consequences of entering tax avoidance schemes. The Judgment further highlights the risk of transactions when a director reasonably ought to have been aware that the company was insolvent and unable to pay its debts as and when they fall due. The judgment is a major turning point for the insolvency industry and provides much needed case law in assisting liquidators to maximise the return to the creditors of an insolvent company.

The full Judgment can be read at: