Case Comment: Holland v HMRC  UKSC 51
12 Wednesday Jan 2011
On 24 November 2010, the Supreme Court handed down judgment in Holland v The Commissioners for Her Majesty’s Revenue and Customs and another  UKSC 51. The panel consisted of Lords Hope, Saville, Walker, Collins and Clarke.
The case concerned whether and to what extent an individual who is a director of the sole corporate director of a second company could be a de facto director of that second company, and thereby be liable for the misuse of such company’s assets.
Between June 1997 and October 2004 the respondent, Mr Holland, and his wife operated a business administering the business and tax affairs of contractors. In February 1999, a corporate structure was put in place pursuant to which Mr Holland and his wife each held 50% of the issued share capital of a company which owned two separate subsidiaries. One of these subsidiaries was appointed as the sole corporate director of 42 further companies and the other subsidiary was appointed as the secretary of these companies. Mr and Mrs Holland were each appointed as directors of the holding company and the two subsidiaries.
Following a formal HMRC inquiry in 2003, HMRC issued assessments on the basis that the 42 companies should have been paying the higher rate of corporation tax (and not the small companies’ rate). The 42 companies went into administration in October 2004 owing approximately £3.5 million to HMRC in respect of unpaid corporation tax. HMRC alleged that Mr Holland was a de facto director of each of the 42 companies and responsible for causing these companies to pay dividends when they had insufficient distributable reserves to do so.
The Supreme Court by a majority of 3 to 2 (Lord Walker and Lord Clarke dissenting) upheld the Court of Appeal’s decision that Mr Holland had not been acting as de facto director of the 42 companies. Lord Hope concluded that, on the facts, Mr Holland had done no more than discharge his duties as the director of the corporate director of the 42 companies. As such, he could not be a de facto director of the 42 companies.
In light of the implementation of section 155 of the Companies Act 2006, which imposes a requirement on all companies to have at least one director that is a natural person, the practical significance of this judgment is fairly limited.