To Implement or Not to Implement – that is the EBT Question

Friday 15th November, 2019


The recent High Court judgment handed down in Re Implement Consulting Limited (in liquidation); Toone v Ross & Bell [2019] EWHC 2855 (Ch) is somewhat of a watershed moment in the context of employee benefit trusts (“EBTs”). It will be welcomed by insolvency practitioners, but not by directors or the architects or proponents of such vehicles.

The case serves to clarify the characterisation of payments by companies, ostensibly to reward employees, into EBTs and interest in possession funds (“IIP Funds”). The judgment confirms that payments of this type will constitute unlawful distributions if the relevant statutory codes are not complied with. If such a case, such payments will be unlawful, ultra vires and void. This decision should be a clear warning to company directors and shareholders (as well as their advisers) of the potential consequences of this type of arrangement, leaving open as it very clearly does the potential for wrongful payments to be recovered personally from the directors and shareholders involved.

The facts

The respondents, two directors (who were also shareholders) of Implement Consulting Limited (the “Company”), established two EBTs and made payments to themselves and a third shareholder employee through the vehicles in proportion to their respective shareholdings between October 2009 and March 2010.

No provision was made for the payment to HMRC of the PAYE and NIC deductions due in respect of the payments. In June 2011, HMRC made an offer to settle the Company’s liabilities that had arisen pursuant to the EBTs. These liabilities were left unsettled, and instead the respondents paid further Company money into another scheme, an IIP Fund, in March 2012.

The Company ceased trading on 30 September 2012 and HMRC raised PAYE and NIC assessments from March 2013 onwards. Despite these, the respondents extracted further funds from the Company during the period between March and June 2013, ultimately leaving it with just £3,968.43 in its bank account. The tax liabilities were not paid, nor was an appeal lodged in respect of the amounts claimed by HMRC. The Company went into creditors’ voluntary liquidation on 26 November 2016.


Chief ICCJ Briggs agreed with the applicants (who were the liquidators) that the payments made through the EBTs and the IIP Fund were distributions by another name and were unlawful because the requisite formalities in the Companies Act 2006 had not been complied with, namely that the Company did not have distributable reserves available for the purpose of making such payments. Consequently, the respondents were ordered to repay to the Company in liquidation all amounts which had been paid into the schemes, a total of some £3 million.

The implications of this judgment

The case makes clear that when directors or shareholders pay themselves through EBTs, IIP Funds and the like, which are essentially tax avoidance schemes, such payments could constitute disguised distributions and, if the proper formalities have not been followed, could be void. Consequently, directors can no longer claim such payments as rewards or incentives for employees.

The judgement also confirms that tax on disguised distributions will be due and owing as soon as monies are paid into schemes of this type. This means directors cannot claim that the obligation to pay tax on these amounts does not crystallise until some later date, such as when determined by the courts.

Practically speaking, the judgment provides insolvency practitioners with another tool to address wrongful behaviour by directors. Wrongful distributions, with the personal liability they bring, can now be pursued in appropriate circumstances alongside other more established means of challenging transactions which facilitate the unlawful extraction of monies and value from a company to the detriment of its creditors.


This article is current as of the date of its publication. The information and any commentary contained in this article is for general information purposes only and does not constitute legal or any other type of professional advice.  Marriott Harrison LLP does not accept and, to the extent permitted by law, excludes liability to any person for any loss which may arise from relying upon or otherwise using the information contained in this article.