Key points

  • The right to appeal against tax assessments was not property capable of being sold within the meaning of the Insolvency Act 1986, Sch. 4, Part III, Paragraph 6.
  • As such, a liquidator may not assign the conduct of such an appeal to the company's former directors

The facts

The liquidator ("L") sought directions concerning the assignment of a tax appeal by the company in liquidation (GP Aviation) to GP Aviation's former directors. L had already brought misfeasance proceedings against the former directors of GP Aviation ("D") when HMRC raised discovery assessments against GP Aviation for corporation tax. On the instruction of D, L caused GP Aviation to appeal against these assessments. L had, however, stated to D that, in the event that the appeal failed, L would state in the misfeasance claim that D were liable to account to GP Aviation for the debts created by the assessments. D requested that L assign the right of appeal to D. The right of appeal could only be assigned by L if it was property capable of being sold within the meaning of the Insolvency Act 1986, Sch. 4, Part III, Paragraph 6.

Decision

The central issue was, under s. 436 of the Insolvency Act, whether the right of appeal could be considered a property. Judge Pelling Q.C. considered the following arguments.

Firstly, a right to appeal against what would otherwise be a liability did not satisfy the traditional definition of a chose in action. The right to appeal was not a right that could be claimed by action, but a right unconditionally conferred on GP Aviation. It was also not a property right that could only be enforced. As such, the right to appeal was inherently not a 'property'.

Secondly, there was a difference between a chose in action and the remedies available for its enforcement. Judge Pelling Q.C. held that the right of remedy was a consequence of ownership of the chose. The remedy was not itself an item which was capable of being assigned separately from the chose to which it relates.

Finally, it was held that denying the right of appeal as a property for the purposes of s. 436 of the Insolvency Act 1986 this was consistent with the law regarding a bankrupt's right to appeal. The right of appeal available to a bankrupt is lost on bankruptcy – the bankrupt's right of appeal vested in the assets which now vest in the bankruptcy trustee. As such, the bankrupt was dependent on the bankruptcy trustee to bring any appeal and there was no such obligation on the trustee. Similarly, a right of appeal available to GP Aviation could be exercised by L. However this was not because the right of appeal was treated as a transferrable property, but because the underlying chose in action which established the right to appeal remained vested in GP Aviation. As such, the right of appeal was not itself a 'property'.

As such, it was held that it was not open to L to assign GP Aviation's right to appeal to D.

Comment

From a practical perspective, this case provides a timely reminder that a liquidator is not always able to assign the right of appeal, or other non-proprietary rights, to be pursued by directors or creditors. Such rights are not to be assumed as a proprietary for the purposes of s. 436 of the Insolvency Act.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.