HMRC changes tack on distressed companies

The number of petitions issued by HM Revenue & Customs (HMRC) to wind-up companies and place them into liquidation in the UK has fallen 42% in the past year, according to restructuring specialists at international law firm Pinsent Masons.

Data obtained through a freedom of information request shows only 3733 petitions for winding up companies were issued by HMRC in 2012/13 compared to 6440 in 2011/12 – representing the lowest figure for 5 years.  Similarly, the number of company winding-up orders successfully obtained has fallen 25% in the past year, dropping from 3399 to 2541.

Scotland saw the biggest decreases, winding-up petitions issued by HMRC were down 68% and winding-up orders obtained fell by 48%. Northern Ireland saw a drop of 46% and 8% respectively, while England & Wales saw filed petitions drop by 37% and winding-up orders fall 20%.

In contrast, Pinsent Masons says that there has been a corresponding rise in the use of distraint by HMRC.  Distraint is the statutory right of HMRC to visit a business premises and seize goods to recover unpaid taxes. 

Change in Tack

Serena McAllister, a senior associate in the Restructuring team at Pinsent Masons, says:

"The figures speak for themselves. The drop in petitions to wind up companies and place them into liquidation, combined with evidence that suggests HMRC is increasingly using its powers to seize business assets, show that HMRC is now using distraint as its preferred method of enforcement.  Interestingly, this tactic appears to be paying off as HMRC's recovery rate has increased significantly, which is good news for the taxpayer although not so good news for businesses."   

"HMRC is becoming increasingly aggressive in the use of its powers to seize assets in order to recoup outstanding tax.  Having lost is preferential creditor status, distraint allows HMRC to effectively jump to the front of the queue of creditors and obtain priority in respect of those seized assets.  For some companies, particularly SMEs, the seizure of its assets could be the final blow and may even force businesses into insolvency in some instances."   

Pinsent Masons says that several businesses have ceased to trade following tax problems, with the likes of Comet, law firm Cobbetts, Rangers and Hearts football clubs being among several examples.