Edwin Coe preparing legal case on behalf of failed Eclipse avoidance scheme investors

Edwin Coe, a London law firm that specialises in tax litigation, is preparing a collective legal action on behalf of what it says are “hundreds of investors” –including some celebrities – against various parties that were involved in conceiving and marketing a film investment scheme that a UK court ruled was actually a tax avoidance vehicle. 

Among the celebrities said to have invested in the Eclipse film investment scheme were Sir Alex Ferguson, the former Manchester United manager, and Sven-Göran Eriksson and Glenn Hoddle, the former England managers.

The defendant organisations include Barclays, Bank of Ireland, HSBC and Disney, according to Edwin Coe.

The Eclipse scheme was designed to enable investors to shelter their taxable income by buying and renting back Hollywood blockbusters, such as Enchanted, to studios such as Disney.

Some 780 individuals are understood to have participated, sheltering a total of £2.2bn in income.

In April, the UK Supreme Court ruled that Eclipse 35, one of the biggest partnerships, was a tax avoidance scheme. In recent years the UK tax authorities have been proactively pursuing what it considers to be aggressive tax avoidance structures, rather than limiting themselves to tax evasion cases.

However, the case dates back to last November, when, as reported here, the news broke that almost 800 investors were facing tax charges of as much as 20 times what they  had invested in Eclipse schemes that HM Revenue & Customs has declared had been strictly designed to avoid tax. One adviser who was said to have represented hundreds of investors in one of the schemes was quoted in a Times story on the matter as saying that he believed there would be “people potentially jumping off bridges” as a result of the tax bills they were going to be hit with.

“My expectation is, out of the 780 people involved, I’d think it highly likely that up to 600 to 700 would go bankrupt,” the adviser told The Times.

At that time The Times said HMRC would be sending out its demands for payment within two months, and that those who received them would then have 90 days to pay up.

‘Seeking £150m’

In a statement issued today, Edwin Coe said it was seeking £150m in its lawsuit, on behalf of “hundreds” of the Eclipse investors, on grounds that the designers of the scheme, as well as those selling it, “misrepresented the chances of the Eclipse film investment scheme delivering tax breaks, with the result that many now face ‘life-changing’ tax bills and possible bankruptcy”.

The firm didn’t say whether Eriksson, Hoddle or Ferguson were among those it’s representing.

Edwin Coe senior partner David Greene, head of litigation at the firm, said the investors had been “misled on a wholesale basis”.

“They thought, and were advised, that they were investing into film-backed investments that had potential tax advantages.

“Now the whole façade presented appears to have been fictional.”

The investors are also being represented by tax specialists Newport Tax Management LLP.

‘Could open floodgates’?

In its report on the Eclipse case on Monday, The Times quoted unnamed experts as saying that if the Edwin Coe claim were to succeed, it could ““open the floodgates” to a “new PPI” – a reference to a major financial services fiasco that dates back more than a decade, and which saw major UK financial institutions forced to pay huge compensation bills after they were found to have missold payment protection insurance.

“Dozens of British banks have earned huge fees by financing tax avoidance schemes, including many that went on to fail” in the recent financial crisis, the Times report added.

“Barclays and Bank of Ireland provided loans enabling members to ramp up their investment, while Disney accepted millions of pounds in fees in exchange for allowing its films to be bought and leased back.

“HSBC’s private banking unit designed the Eclipse scheme, which ran between 2005 and 2007, and marketed it to some clients.”

However, the Times report quoted Mike Warburton, a well-known British tax expert, as saying he wasn’t convinced the courts would be persuaded “to find against the banks and other third parties” in the Eclipse matter, since the investors had no direct contractual relationship with them.

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