[2025] EWHC 2760 (Ch)

Cedar Securities Limited (“Cedar”) was a successful company in the business of letting and managing a portfolio of properties that it owned. Ann Cedar was the holder of 100% of the issued shares. She died intestate on 23 August 2007 and Michael Lawson, who was a partner in William Sturges LLP, was appointed as the administrator of her estate on 18 May 2009. He then became the sole director of Cedar and its sole shareholder. Steps were taken by Mr Lawson to realise most of the properties held by Cedar (and two associated companies) and by September 2016 Cedar held a cash balance of £4.7 million as well as a residue of freehold reversions with a value estimated at £5,000.

Cedar engaged PCR (London) LLP (“PCR”) to act on its behalf in connection with the proposed members voluntary liquidation. PCR provided a letter of engagement to Cedar dated 22 September 2016 with General Terms and Conditions of Business and a Service Agreement. The three documents were described collectively as the “engagement pack”. Mr Lawson countersigned the letter of engagement on 28 September 2016 to confirm Cedar’s agreement to the terms set out in the engagement pack. Cedar was placed into members voluntary liquidation on 30 September 2016 and the defendants, Mr Phillips and Ms Swan who were licensed insolvency practitioners, were appointed as joint liquidators. £4.7 million was transferred to PCR on 29 September 2016.

The claim concerns Cedar’s obligation to file a corporation tax return for the period up to 29 September 2016 in respect of its liability to tax for the period prior to liquidation and payment of the tax that fell due. The return had to be filed within 9 months of Cedar entering into voluntary liquidation although the obligation to pay any tax due arose on the date of the liquidation. The way the liability to pay tax has been described in the claim varies between the parties but, to state the obvious, the return could not have been filed prior to 29 September 2016 and equally the tax due could not have been paid until it had been assessed by HMRC. The return was for a pre-appointment period, but the process of establishing the sum due could only be undertaken after the appointment.

The claimants allege that the defendants were in breach of their duties and obligations (including fiduciary duties and obligations) that led to the late filing of Cedar’s corporation tax return. The return was not filed until 16 October 2019, three years after the defendants were appointed. Tax of £615,000 was paid on the same date the return was filed and the balance of tax due was paid on 30 November 2020. A tax penalty of £133,939.92 levied by HMRC was paid by Ann Cedar’s estate on 9 May 2022 and interest of £273,077.77 was paid by the estate on 21 September 2022. The claimants seek to recover the penalty and interest paid by the liquidators to HMRC.

Mr Lawson died in 2017 and was replaced in 2018 as administrator of Ann Cedar’s estate by the second claimant, Mr Hannon, who is also a partner in William Sturges LLP. He became the sole shareholder in Cedar.

Ms Swan retired as a liquidator on 16 June 2022, leaving Mr Phillips as the sole liquidator. PCR’s business and assets (but not the LLP) were sold to SKSi which continued to manage the liquidation with Mr Phillips in office. He was made bankrupt on a petition by HMRC on 13 September 2023 and, after a short interregnum, the first claimant, Ms Middlebrook, was appointed as sole liquidator on 23 November 2023.

A pre-action letter of claim was sent on 22 December 2022 to Mr Phillips and Ms Swan by William Sturges acting on behalf of Mr Hannon as the sole shareholder in Cedar. The letter was written pursuant to the protocol that applies to Professional Negligence claims. Kennedys Law LLP were instructed to act on behalf of the defendants and a standstill agreement was signed on 17 January 2023. Subsequently, two further standstill agreements were signed extending the period for bringing a claim until 1 November 2023. Kennedys replied to the letter of claim on 10 May 2023 and William Sturges responded on 17 July 2023. The claim was issued on 21 October 2023, originally as a derivative claim brought by Mr Hannon as the sole shareholder in Cedar against the liquidators, with Cedar joined as third defendant. Following the appointment of Ms Middlebrook as liquidator, the claim was amended to remove Cedar as a defendant and to join Cedar as the first claimant. I mention in passing that Ms Middlebrook was not a party to the standstill agreements which were signed before her appointment.

In paragraph 21 of the particulars of claim the claimants allege that the liquidators owed:

At paragraph 22 it is alleged that the duties of the liquidators arose:

In her defence, which was settled by counsel at a time when Kennedys were still acting for Ms Swan, she admitted in response to paragraph 21a of the particulars of claim that she owed a common law duty to carry out her functions with reasonable care and skill. As to paragraph 22a she admitted that a duty arose from the Engagement Agreement. She denied that any duty was owed to Mr Hannon.

Three applications were listed to be heard on 5 September 2025:

At the hearing, an oral application was made on behalf of Ms Swan pursuant to CPR rule 14 seeking permission to withdraw admissions as a necessary part of her application for permission to amend. This is my judgment relating to the Amendment Application, the application made under CPR rule 14 and the Section 212 Application. There was insufficient time to deal with the Judgment Application. However, its outcome stands or falls with the determinations made in this judgment because the issues before the court necessitate a review of the merits of the claim.

Francis Collaço Moraes appeared for the claimants/applicants and Nicholas Goodfellow appeared for the second defendant/second respondent. The first defendant is a bankrupt and the Official Receiver did not participate in the hearing. I am grateful to Mr. Moraes and to Mr. Goodfellow for their written and oral submissions.