IP Briefing: Tax Avoidance Challenges (Again)

Probably every generation of insolvency practitioner or lawyer has particular challenges that are in a measure unique to their time; it seems that tax avoidance schemes and unpicking them do really belong to this generation. Since the UK Supreme Court decision in Rangers in 2017, IPs have been grappling with director liability and unpicking tax avoidance schemes that have been entered into, to the detriment of companies.

Very often challenges surround assessing quantum, but imaginative defences are also put forward. The latest decision on the topic comes from the English High Court in the case of Implement Consulting Ltd (in liquidation) in a judgement given on 30 October 2019.

Implement Consulting Ltd (in Liquidation)

The facts of this case are relatively common. The directors had decided they wanted to extract profit from the company and mitigate the tax on that profit extraction. They were effectively sold an EBT Tax Avoidance Scheme. This Scheme followed a strategy the promotor called “Aikido.” Its aim was to achieve a tax free dividend “in the hands of the recipient.” It involved the creation of an Employee Benefit Trust and related sub funds.

A number of years after the Scheme was set up the company entered into insolvency. There are a number of interesting lessons that can be learnt from the chief insolvency in companies court judge, Briggs’s decision:

  1. if a challenge is made to an EBT or similar tax avoidance scheme the court will look at the substance of what actually happened rather than how the documentation tried to dress it up. In reality in this case the Scheme was really an unlawful return of capital to members.

  2. The effect of the UK Supreme Court decision in Rangers was held to be that the law has always been the way it is now. It is therefore no defence of itself to say that directors of a company thought a scheme was legal. In assessing whether a company is insolvent regard has to be had for the continuing tax liability (including interest) created by the tax avoidance scheme- even when that tax liability was not thought likely at the time.

  3. The directors of a company cannot rely on a professional advice defence if actually all they had was a standard template warning from the promotor of the scheme.


Whilst this decision is only a first instance English decision, and therefore not binding, it is helpful in setting out the way that the Courts continue to approach tax avoidance schemes in insolvency. It is helpful reading for insolvency practitioners.

BBM Solicitors specialise in advising IP’s in both contentious and non-contentious matters (including transactional work). Contact: Eric Baijal (emb [AT] bbmsolicitors [DOT] co [DOT] uk).This briefing note is current as at 31st October 2019 and is our understanding of the position described at that date. Legal advice ought to be taken before relying on its terms (particularly to ensure the law has not changed).