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New High Court ruling on Council tax/rates liability in bankruptcy/insolvency
Originally posted on CAG:
Re: David Kaye v South Oxfordshire District Council & Certain Exhibitions Ltd
Yesterday a highly important Judgment was handed down in the High Court of Justice (Manchester District Registry) regarding the position with arrears of council tax/Non Domestic rates in cases where an individual debtor or company file for either personal bankruptcy, a Debt Relief Order, Individual Voluntary Arrangement, Liquidation or a Company Voluntary Arrangement.
Background
A company by the name of Certain Exhibitions Ltd suffered a serious fire on 21st April 2013 which destroyed their storage facility and led to the disruption to their business. Three weeks earlier on 12th March 2013 the respondent; South Oxfordshire District Council issued the company with a notice in respect of non domestic rates for the period 1st April 2013 to 31st March 2014 in the sum of £25,905.
Of significance is that accompanying this statement from the local authority was a direct debit confirmation which stated that in accordance with the Local Government Finance Act 1988 the company had a statutory right if they wished to pay the sum (of £25,905) by instalments with a 1st payment of £2,586 by 15th April 2013 and nine further payments of £2,591 on the 15th day of each month ending on 15th January 2014.
Due to the effect to the business of the fire damage the exhibition company entered into a Company Voluntary Arrangement (CVA) on 10th July 2013. The proposal was accepted by creditors at a meeting on that same day. The following day (11th July 2013) the exhibition company received a reminder notice from the local authority stating that the payment due of £2,591 for the June instalment had not been paid and that if this payment AND the one due on 15th July was not paid by 21st July 2013 that a summons would be issued and the full balance for the year to 31st March 2014 would become due.
The Insolvency Practitioner wrote to all creditors asking them to “prove” their debt and the local authority responded on 29th July 2012 to claim under the CVA a sum of just £1,918.26 which represented the period 1st April 2013 to 10th July 2013 (which is the date on which the CVA had been agreed).
The Supervisor to the CVA; Mr David Kaye wrote to the local authority questioning how the sum had been calculated and stating that the claim should be for the full year’s business rates and not just the amount up to the date on which the CVA had started. His reasoning being that the full year’s rates had become due on 1st April 2013, and accordingly, the full year’s liability should therefore rank as an unsecured creditor in the CVA.
The local authority argued that because the annual bill has been issued on 1st April full payment was not required on that date and instead, the ratepayer could if they wish pay the debt of £25,905 by way of ten instalments and furthermore; that at the date of the CVA the instalment option was still applicable. Neither party could agree and subsequently, in September the local authority issued a summons for approx £20,000 and the Supervisor issued proceedings in the High Court to resolve the legal position.
Conclusion:
After considering submissions from both parties, His Honour Judge Hodge QC confirmed in paragraph 56 of the Judgment that the local authority were wrong and that the correct position was that the full amount of the non domestic rates for the period 1st March 2013 through to 1st April 2014 must be a “provable”debt in the company voluntary arrangement.
Of huge significance is that under Paragraph 56 HH Judge Hodge QC also confirmed that his decision would be applicable to company liquidations AND also for personal bankruptcies (which will include IVA's and Debt Relief Orders).
It is my understanding that the Insolvency Service have confirmed today that they will be now be issuing a notice confirming that a council tax/non domestic “holiday” will now be able to be included as a debt in ANY form of insolvency including personal bankruptcy and Debt Relief Orders. This will mean that any individual or company declaring insolvency on or after 1st April 2014 will be able to include the ENTIRE year’s 2014 to 2015 council tax /non domestic rates as a debt.
Note:
If a company or an individual file for an insolvency scheme on for instance; 1st February 2014 they can include as a creditor council tax or non domestic for the period 1st Feb 2014 to 31st March 2014. However, if they wait a few weeks until 1st April 2014 (when the new council tax bill is issued) they can include in the insolvency not only any arrears for this current year but ALSO the whole of the year's council tax for the period 1st April 2014 through to 31st March 2015 !!!
The full judgment can be read here:
http://www.bailii.org/ew/cases/EWHC/Ch/2013/4165.html
Yesterday a highly important Judgment was handed down in the High Court of Justice (Manchester District Registry) regarding the position with arrears of council tax/Non Domestic rates in cases where an individual debtor or company file for either personal bankruptcy, a Debt Relief Order, Individual Voluntary Arrangement, Liquidation or a Company Voluntary Arrangement.
Background
A company by the name of Certain Exhibitions Ltd suffered a serious fire on 21st April 2013 which destroyed their storage facility and led to the disruption to their business. Three weeks earlier on 12th March 2013 the respondent; South Oxfordshire District Council issued the company with a notice in respect of non domestic rates for the period 1st April 2013 to 31st March 2014 in the sum of £25,905.
Of significance is that accompanying this statement from the local authority was a direct debit confirmation which stated that in accordance with the Local Government Finance Act 1988 the company had a statutory right if they wished to pay the sum (of £25,905) by instalments with a 1st payment of £2,586 by 15th April 2013 and nine further payments of £2,591 on the 15th day of each month ending on 15th January 2014.
Due to the effect to the business of the fire damage the exhibition company entered into a Company Voluntary Arrangement (CVA) on 10th July 2013. The proposal was accepted by creditors at a meeting on that same day. The following day (11th July 2013) the exhibition company received a reminder notice from the local authority stating that the payment due of £2,591 for the June instalment had not been paid and that if this payment AND the one due on 15th July was not paid by 21st July 2013 that a summons would be issued and the full balance for the year to 31st March 2014 would become due.
The Insolvency Practitioner wrote to all creditors asking them to “prove” their debt and the local authority responded on 29th July 2012 to claim under the CVA a sum of just £1,918.26 which represented the period 1st April 2013 to 10th July 2013 (which is the date on which the CVA had been agreed).
The Supervisor to the CVA; Mr David Kaye wrote to the local authority questioning how the sum had been calculated and stating that the claim should be for the full year’s business rates and not just the amount up to the date on which the CVA had started. His reasoning being that the full year’s rates had become due on 1st April 2013, and accordingly, the full year’s liability should therefore rank as an unsecured creditor in the CVA.
The local authority argued that because the annual bill has been issued on 1st April full payment was not required on that date and instead, the ratepayer could if they wish pay the debt of £25,905 by way of ten instalments and furthermore; that at the date of the CVA the instalment option was still applicable. Neither party could agree and subsequently, in September the local authority issued a summons for approx £20,000 and the Supervisor issued proceedings in the High Court to resolve the legal position.
Conclusion:
After considering submissions from both parties, His Honour Judge Hodge QC confirmed in paragraph 56 of the Judgment that the local authority were wrong and that the correct position was that the full amount of the non domestic rates for the period 1st March 2013 through to 1st April 2014 must be a “provable”debt in the company voluntary arrangement.
Of huge significance is that under Paragraph 56 HH Judge Hodge QC also confirmed that his decision would be applicable to company liquidations AND also for personal bankruptcies (which will include IVA's and Debt Relief Orders).
It is my understanding that the Insolvency Service have confirmed today that they will be now be issuing a notice confirming that a council tax/non domestic “holiday” will now be able to be included as a debt in ANY form of insolvency including personal bankruptcy and Debt Relief Orders. This will mean that any individual or company declaring insolvency on or after 1st April 2014 will be able to include the ENTIRE year’s 2014 to 2015 council tax /non domestic rates as a debt.
Note:
If a company or an individual file for an insolvency scheme on for instance; 1st February 2014 they can include as a creditor council tax or non domestic for the period 1st Feb 2014 to 31st March 2014. However, if they wait a few weeks until 1st April 2014 (when the new council tax bill is issued) they can include in the insolvency not only any arrears for this current year but ALSO the whole of the year's council tax for the period 1st April 2014 through to 31st March 2015 !!!
The full judgment can be read here:
http://www.bailii.org/ew/cases/EWHC/Ch/2013/4165.html
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