Right to appeal against a tax liability - assignable property?

The case of Stephen John Williams (liquidator of GP Aviation Group) v Glover and Pearson (2013 EWH 1447 (CH)) considers the novel point of whether the right to bring a tax appeal is capable of assignment.

Background

The company (Aviation Group) sold its business and assets in November 2004. The respondents in this action (who are the shareholders of the company), then procured that the company distributed approximately £1.6m of those proceeds to themselves. 

The company subsequently went into members’ voluntary liquidation. 

It is clear that the creditors were not terribly happy about this, so the company was restored to the register and was wound up on a creditors’ petition in 2008. The applicant (Mr Williams) was appointed liquidator.

In October 2012 HMRC raised a discovery assessment against the company for corporation tax of £1.4million, claimed to be due as a result of the sale by the company of the assets mentioned above. The company served a notice of appeal against these assessments to HMRC but did not notify that appeal to the FTT. That notification had not been referred at the time that this High Court case was heard, and its notification was adjourned pending the outcome of the High Court hearing.

The liquidator had made it clear that he had no means to finance the conduct of the appeal, and that he doubted its substantive merits. However, he also told the respondents that if the appeal didn’t succeed, he intended to allege that the respondents are liable to account to the company for the debts created by the assessment.

This is over and above the allegations of misfeasance that the liquidator was alleging in substantive proceedings against the respondents. 

Unsurprisingly given the liquidator’s intention to claim the tax debt from them, the respondents asked the liquidator to assign the appeal to them. The liquidator doubted whether he could do so, and sought directions from the High Court.

This matter had never been resolved until this case was heard.

There is authority indicating that the power to conduct a tax appeal is not of itself capable of assignment. 

So it was a question of whether the liquidator had power to assign the appeals, which would only be the case if the right to appeal is property capable of being sold within the meaning of the relevant insolvency rules.

Pausing there, whilst this is a case on the interpretation of property within the meaning of those rules, it is Tax partner Nigel Popplewell's view that this is a more general application when considering whether a right to appeal is assignable irrespective of whether the assignor is a liquidator. The question is whether the right to appeal is a chose in action. 

The Judge reviewed a number of relevant authorities, none of which were directly on the point, and came to the conclusion that a bare right of appeal is not property within meaning of the Insolvency Act.

There are three substantive reasons for this.

Firstly, in order to be property within the definition of the Insolvency Act, the only possibility was to come within the ambit of a “chose in action”.  A classic definition of this is “…all personal rights of property which can only be claimed or enforced by action and not by taking physical possession”. A bare right to appeal against what would otherwise be a liability does not satisfy this definition.   It’s a right conferred on the company by operation of statute.  It’s not a property right that can only be enforced by action.

Secondly, and as implied above, there is a distinction between a chose in action, and the remedies available for its enforcement. The right to remedy is an incident of the ownership of the chose, but is not something that of itself is capable of being sold or assigned separately from the right to which it relates.

In coming to this conclusion, the Judge also considered whether a bankrupt is able to continue an action commenced before he was adjudicated bankrupt, in circumstances where his assets have vested in his trustee in bankruptcy. The answer, as Lord Hoffman had determined when he was a first instance Judge, is that the bankrupt does not have the ability to prosecute an appeal following his or her bankruptcy. This is not because the right to appeal is property that is vested in the trustee, but because the appeal relates to a judgement that can only be enforced against assets that are vested in the trustee. 

So if the consequence of a transfer of a right of action is that the assets against which a judgement in that action can be enforced are split away from the ownership of the person who has the right to bring the action, it is unlikely that an assignment will be effective.

Thirdly, there was nothing in the Judge’s decision which was inconsistent with the approach that Hoffman took towards a bankrupt and his ability to bring an appeal once his assets had been invested in his trustee in bankruptcy (as set out above).

It is doubtful that the decision will be appealed.