- February 20, 2017
- Posted by: Josiah Hincks Solicitors
- Category: Business Law Updates
Insolvency professionals are familiar with so-called ‘spinning top’ schemes, whereby money is moved in a perpetual circle to create an illusion of loss or investment with the sole objective of avoiding tax. The High Court delved into one such alleged scheme but rejected claims that it was unconscionable or in breach of trust.
The case concerned an insolvent limited partnership that was said to owe more than £1.3 million to company A. The debt was alleged to have arisen after company A took assignment of a loan made by company B to the partnership. The liquidators of the partnership, however, rejected company A’s proof of debt on the basis that the loan was one of a number of circular transactions designed to avoid tax.
After company A launched proceedings, however, the Court found on the basis of contractual documents that the loan was not a sham and was genuinely repayable by the partnership. The existence of a loop, or circle, was not in itself sufficient to show that no transaction had taken place or that the loan was fictional.
In the circumstances, the liquidators had failed to establish a breach of trust or that company B’s state of knowledge was such as to make it unconscionable for it to retain the benefit of the loan receipt. The debt to company A, as assignee, should thus have been accepted as proved by the liquidators. The Court directed a meeting of creditors, at which company A would propose replacement of the liquidators.