In The Commissioners for Her Majesty’s Revenue and Customs v Amran Munir and others [2015], the directors and secretary of a company were sentenced by the High Court to a term of imprisonment for contempt of court.

Summary

  • On 18th March 2014, Hildyard J appointed a provisional liquidator of Parkwell Investments Limited (Parkwell), following a petition by HMRC for a sum in excess of £7.7million for unpaid VAT.
  • ŸThe order made it clear that the provisional liquidator was an officer of the court and that it was contempt of court for any person to prevent or impede him in carrying out his duties and if they did so they were liable to be imprisoned, fined or have their assets seized.
  • ŸShortly after the provisional liquidator arrived at Parkwell's premises, accompanied by an independent solicitor and a process server, a payment to a creditor of US$293,000 was made followed by a second payment to the same creditor of US$23,322.  On the following day a third payment of US$308,303 was made. This had the effect of clearing out the cash assets of Parkwell.
  • ŸThe two directors and the company secretary admitted knowingly breaching the court order in that they authorised or permitted the payments.
  • ŸEach defendant accepted that the breaches deprived the provisional liquidator of access to these funds.
  • ŸThe judge, Norris J, in sentencing the defendants for contempt of court had in mind principles which included:
    • a contempt of court is not a wrong done to another party to litigation. It is an affront to the rule of law itself and to the court;
    • the general body of creditors had been deprived of assets which were rightfully theirs; and
    • each of the defendants was in a position of trust and each of them used that position to deprive others of what was rightfully theirs.
  • ŸThe judge said that where people in a position of trust use that privileged position to deprive others of sizeable sums of money a custodial sentence is all but inevitable in criminal cases and the same is true in civil contempt.
  • ŸWhat the defendants had done was serious because of the sums involved; because of the proportion of the Company’s assets affected by their conduct; because of the consequences for the liquidation; and because, above all, they intentionally thwarted the purpose of a court order.
  • ŸEach defendant was sentenced to six months imprisonment of which three must be spent in prison. The defendants also paid HMRC’s costs on an indemnity basis and subsequently initiated bankruptcy proceedings.

Facts

Two of the three defendants were directors of Parkwell and the third was the company secretary.

On 18th March 2014, Hildyard J appointed a provisional liquidator of Parkwell, HMRC having presented a petition for a claimed sum in excess of £7.7 million relating to a VAT fraud. The order removed Parkwell’s officers and appointed the provisional liquidator in their place to protect Parkwell’s remaining assets. The order spelt out that the provisional liquidator had been appointed by the court as an officer of the court and that it was a contempt of court for any person to prevent or impede him in carrying out his duties. The order warned that if they did so they may be held to be in contempt of court and liable to be imprisoned, fined or have their assets seized. The order also contained a warning that anyone who did anything which helped or permitted a breach of the terms of the order would likewise be liable to be held in contempt of court.

At 10.40am on the following day, the provisional liquidator, accompanied by an independent solicitor and a process server arrived at Parkwell’s premises and served the various documents on Mr Munis, one of the directors. At some point, Mr Chaudhry, the company secretary, left the room in order to call Parkwell’s tax adviser, who subsequently arrived at the premises and explained that the only option was to co-operate with the provisional liquidator.

At 11.07am, a payment of US$293,000 was made out of Parkwell’s bank account to a company based in Dubai called ‘Echo Calls’. This payment was made on the instructions of Mr Farooq, also a director.

At 14.53 a further payment of US$23,322 was made to Echo Calls. This again was made on Mr Farooq’s instructions.

The following day, 20th March, a further payment of US$308,303 was also transferred to Echo Calls. This had the effect of clearing out the cash assets of Parkwell. This transaction was undertaken upon the instructions of Mr Chaudhry, the company secretary.

There was no prospect of recovery of the monies from the Dubai recipient.

High Court proceedings

The object of the order was to enable the provisional liquidator to take possession of, to collect in and to protect the assets of Parkwell, including any third party monies in the possession of or under the control of Parkwell.

HMRC argued that each of the payments was made in contempt of court. Each of the defendants admitted of knowing and intentional breaches of the court order.

Each of the defendants claimed that the motive for their acts was a desire to preserve the trading position of the company, it being their hope that they would resume control of the company. Each of the defendants accepted that the payments deprived the provisional liquidator of access to these funds.

The judge, Norris J, had in mind the principles in relation to considering sentence for a contempt of court, which included:

  • ŸA contempt of court is not a wrong done to another party to litigation. It is an affront to the rule of law itself and to the court.
  • The object of imposing a penalty may be twofold. First, it may be to punish conduct in defiance of the court order. Secondly, it may be to serve a coercive function to seek to secure compliance with a court order as yet unperformed. In the present case only the first of those objectives was relevant.
  • Any punishment must not be manifestly different from the sentence of a criminal court for an offence based on the same facts.
  • ŸEach of the defendants had deprived the general body of creditors of assets which were rightfully theirs.
  • ŸEach of the defendants was in a position of trust as a director or secretary of Parkwell and each of them had used that position to deprive others of what was rightfully theirs.
  • ŸThere is no principle that a sentence of imprisonment is inappropriate for what may colloquially be called a ‘first offence’. The nature and consequences of the contempt must be assessed and matters of culpability weighed and then the appropriate punishment imposed.
  • ŸThe conduct was a serious and deliberate flouting of an order of the court. Each part of it deprived the court order of substantial effect and each defendant knew that the payment would have that effect at the time it was made.

Decision

The judge said that where people in a position of trust use that privileged position to deprive others of sizeable sums of money a custodial sentence is all but inevitable in criminal cases; and the same is true in civil contempt. Where officers of a company seek to thwart a liquidator in the performance of his office a clear message must be sent to the commercial community that such conduct has very serious consequences. The defendants were usurping the function of the provisional liquidator by disposing of money that did not belong to them for the benefit of a favoured creditor.

The actions of the defendants were serious because of the amounts involved; the proportion of Parkwell's assets which were affected by their conduct; the consequences for the liquidation; and because, above all, they intentionally thwarted the purpose of a court order.

From a starting point of nine months for the unlawful preference of one creditor over others, each of the defendants was sentenced to six months imprisonment of which three months had to be spent in prison. The defendants agreed to pay HMRC’s costs on an indemnity basis and subsequently petitioned for bankruptcy.

Comment

The Court accepted that the defendants were of previously good character and that the public humiliation of these events would bear heavily upon them. Also, the Court accepted that the acts were not premeditated. Defence counsel described Mr Munir as ‘acting like a headless chicken’ and that the defendants had acted precipitately and without thinking. The defendants were also given credit for their eventual (at the door of the court) admission and that they were not lining their own pockets. However, the conduct was sufficiently serious to warrant imprisonment, the custody threshold having been crossed. The moral of this story is that a breach of court order with a penal notice attached is a serious matter and a custodial sentence is inevitable where it involves a breach of trust by officers of a company even if they did not receive any personal benefit from the breach.