The Daily Telegraph has described how HMRC applied to a Judge for the right to liquidate a company, saying that fraud was being comitted, when actually, there was no evidence of fraud. The application was granted, and HMRC liquidated the company. Thirty two people lost there jobs as the liquidator made them redundant.

It was later found that there was not a single item that proved that anyone at Abbey Forwarding Ltd had been involved in any conspiracy to defraud HMRC, or indeed any fraud at all, and the Judge dismissed the action against the directors.

Judge Lewison was astonished when one HMRC employee admitted that he had no evidence that Abbey had been involved in fraud, but maintained that he had no proof that it was not involved in criminal activity — which, as the judge pointed out, is not grounds in law for liquidating the company.

HMRC and their lawyers were ruthless. Two months before Judge Lewison reached his decision, they sent a letter reminding the directors that they were “bound to lose all of their assets and are all likely to go bankrupt”, and that there would be actions against their “family members who have profited unduly from Abbey”.

It warned them that they could only “avoid complete ruination” by admitting their guilt and settling the case.

”We knew we were innocent,” stresses Mr Hone, a director

“We were never going to give in, not even if they took everything from us.”

And despite Judge Lewison’s ruling, they came very close to doing precisely that.

Not only did HMRC maintain they had been right to close the company, they increased the assessment of the amount owed to £7million. Ms Brittain, the liquidator appointed by HMRC and the only individual with legal standing to appeal HMRC’s assessment, refused to appeal it. HMRC’s strategy seemed to be to wear down the directors by attrition: there were further hearings, costs mounted.

Backed by the state, HMRC had infinite funds. They knew that their opponents had very limited resources.

But they did not give in. They won a series of rulings against the prevaricating tactics of HMRC. On August 4, 2011, five days before their appeal against HMRC’s assessment and tactics was finally to be heard in court, HMRC withdrew their assessment claiming that Abbey’s ex-directors owed £7 million in taxes and duties.

Last week, the directors were in court again, suing the liquidator and HMRC for damages for having wrongly frozen their personal bank accounts. After that, they hope to launch a case against HMRC for the loss caused by the liquidation of their company, which amounts to millions of pounds in legal and other fees.

What happened to Abbey Forwarding is not an isolated case. Lawyers who specialise in liquidation proceedings note that HMRC frequently use ex-parte hearings to obtain liquidation orders against companies they suspect of fraud. Of course, many are guilty as charged. But some are not.

This case illustrates how beneficial it can be to have professional fee protection insurance.