This judgment is on an application for permission to appeal. As directed on 5 February 2009, the application was adjourned to an inter partes hearing. The application was made out of time. In the light of the applicant’s explanation for delay there was no opposition to the grant of an extension of time.

At the end of the oral hearing the parties were informed that permission to appeal would be refused for reasons to be put in writing. The application raised points on the use of insolvency proceedings by local authorities in the case of companies from which council tax is due. The use of insolvency proceedings is a topic on which there has been recent media coverage, highlighting the extreme nature of the remedy and the high level of legal costs incurred. (Cases of personal bankruptcy for unpaid council tax are now reaching this court.) The winding up petition in this case was only one of a number of petitions based on unsatisfied statutory demands for unpaid council tax and presented by the local authority against various companies.

Although the appeal in this case has no real prospect of succeeding, the points taken by the applicant could crop up in other cases. They are worth noting for future reference and therefore this judgment should be treated as falling within the exception in para 6.1. of Practice Direction (Citation of Authorities) [2001] 1 WLR 346.

The proposed appeal is by Dennis Rye Limited (the Company) against which the Bolsover District Council (the Council) presented a winding up petition on 29 February 2008. The petition was based on a statutory demand dated 10 January 2008 for payment of arrears of council tax in respect of various properties, including some called “New Terrace”, and late payment penalty charges. The demand totalled £16,846.26.

A succession of liability orders for the unpaid council tax had been made by the magistrates’ court. The Company did not comply with the orders, or appeal against them, or take any steps to have them set aside. Where a liability order has been made against a company the amount due is deemed to be a debt for the purposes of section 122(1)(f) of the Insolvency Act 1986 (winding up of companies by the court for being unable to pay debts): regulation 49 of The Council Tax (Administration and Enforcement) Regulations 1992. As Lindsay J noted in Re Bydand Ltd [1997] BCC 915 at 918 liability orders are orders of the court like ordinary civil judgments. If a winding up petition is based on such orders the court will seldom look into them, or go behind them, in the absence of fraud, or in the absence of jurisdiction in the court that made the orders, or “some other truly compelling circumstance.”

In these winding up proceedings the Company disputed the debt demanded and stated that it was in a position to pay its debts, including the amount claimed on the winding up petition. It asserted a cross-claim that would exceed the balance of the amount claimed by the Council. It submitted that the petition should be dismissed and that the Council should pay the Company’s costs in resisting it.

In his judgment on 6 November 2008 the judge, HHJ Cooke, rejected the Company’s contention that it had a genuine and serious cross-claim against the Council. As the evidence of the cross-claim was insufficient to establish that it was genuine and serious, the judge disregarded it and found that the sum £4,852.25 was due from the Company to the Council.

Immediately after the judge’s ruling the Company paid that sum to the Council. On 10 November 2008 the judge made an order for the substitution of supporting creditors, gave permission to amend the petition and directed re-advertisement of the petition. He also made an order that the Company pay 80% of the Council’s costs on the basis that, although the Council had succeeded in establishing a debt which exceeded the insolvency threshold, it had taken two points on which it had lost. He refused to grant permission to appeal.

The Company’s case is that, contrary to the conclusion of the judge, it has a genuine and serious cross-claim against the Council for repayment of the sum of £8,085.59. After the presentation of the petition the Company paid the Council £10,775.37 on 13 May 2008. Next day the Company’s solicitors put it to the Council that there was no real point in it continuing with the winding up petition. The Council did not agree, continued with the petition and established that it was owed £4,852.25 by the Company.

The Company’s case on the cross-claim was that, in the sum of £10,775.37, there was mistakenly included £8,085.59. As it was paid under a mistake and overtopped the sum which the judge found was due from the Company to the Council, it was contended that the Company had a genuine and serious cross-claim for restitution. The judge ought to have dismissed the petition with costs instead of putting the Company in the position in which it had to pay the sum of £4,852.25 in order to avoid a winding up order and making an order against the Company to pay 80% of the costs.

The Company submitted that its mistake related to the relevant category of exemption from council tax for properties in New Terrace. It alleged that the properties were kept unoccupied, because they were effectively blighted in consequence of impending compulsory purchase orders. They fell within an exemption from council tax, namely Class G of the Council Tax (Exempt Dwellings) Order 1992. The Company contended that the 25 liability orders should not have been made because Class G applies to

The judge commented that there was no evidence that the Company had taken any action about its cross claim, either by way of appeal from, or to set aside, the liability orders, or in any other way contest the orders pursuant to which it had made the payment to the Council. The Company had not given a precise date from which it says that the council tax exemption operated. The extent of the cross-claim was uncertain.

The judge concluded that the cross-claim asserted by the Company was not of a sufficient character to persuade the court not to exercise its discretion to make a winding up order. A debt was established as due to the Council. The judge allowed the Company time to pay that debt by adjourning the petition from 6 November to 10 November. On payment of that debt the Council ceased to be a petitioning creditor. The petition was continued on the basis of other debts alleged to be due from the Company to the substituted petitioners.

In its notice of appeal the Company seeks an order dismissing the petition and an order for the payment of its costs.

The grounds of appeal are that the judge wrongly failed to reach any decision whether or not the relevant properties of the Company, which were the subject of liability orders, were exempt from council tax under the 1992 Order; that he should have held that they were exempt; that the Council never had any claim for such sums; and that the liability orders ought never to have been made; alternatively, that the judge ought to have held that that was at least arguable and that the Company had a genuine and serious cross-claim for an amount that exceeded the balance of the outstanding petition debt at the date of the hearing.

As there is no extant petition to wind up the Company on the basis of outstanding council tax, one may question the point of a proposed appeal seeking an order dismissing the petition. In response to questions from the bench Mr Joseph, who appeared for the Company, accepted that the only purpose of the appeal was to recover from the Council the substantial costs of the winding up proceedings. He said that the judge ought to have held that the Company had a genuine and serious cross-claim exceeding the balance of the sum owing to the Council. The court ought therefore to have dismissed the petition with costs. Instead, it wrongly made a finding about what was due and that meant that the Company had to pay that sum and the costs of the petition.

So far as the restitution claim is concerned there was and is nothing to prevent the Company from taking civil proceedings against the Council in the normal way. I do not understand why, if the Company has such a claim, it has not taken any appropriate steps in relation to it, such as by establishing the claimed exemption, challenging the liability orders or instituting restitution proceedings. Mr Joseph accepted that the Companies Court itself could not adjudicate on those matters. It is not the appropriate forum for deciding disputed debts.

Mr Joseph’s main criticism of the judge’s decision was that it placed too much weight on the Company’s failure to bring proceedings for repayment, or to take steps to challenge the liability orders on which the Council based its statutory demand. Although Mr Joseph had to accept that that factor was relevant to the assessment of the genuine and serious character of the Company’s cross-claim, there was, he insisted, no legal requirement that the Company should take proceedings to enforce its cross-claim in order to raise it as a defence to a petition to wind it up.

Cases familiar to practitioners in the Companies Court were cited: Re Bayoil SA [1999] 1 WLR 147 at 155 per Nourse LJ; Re a Debtor (No 87 of 1999) [2000] BPIR 589 at 592H- 594G (Rimer J in a bankruptcy case); Montgomery v. Wanda Modes Ltd [2003] BPIR 457 at paragraphs 28 to 36 (Park J). The authorities are illustrations of the well established practice of the Companies Court that, if a company has a genuine and serious cross-claim, which is likely to exceed the petition debt, the court will normally exercise its discretion by dismissing the winding up petition and allowing the Company the opportunity to establish its cross-claim in ordinary civil proceedings. A company is not prevented from raising a cross-claim in winding up proceedings simply because it could have raised or litigated the claim before the presentation of the petition or it has delayed in bringing proceedings on the cross-claim. The failure to litigate the cross-claim is not necessarily fatal to a genuine and serious cross-claim defeating a winding up petition. However, in deciding whether it is satisfied that the cross-claim is genuine and serious, the court is entitled to take into account all the relevant circumstances, such as the fact that a company has not even attempted to litigate the cross-claim, or that there are reasons why it has not done so.

It is undisputed that the Company did not claim the exemption when served with the council tax bills; that the Company did not exercise its right to appeal to the Valuation Tribunal (from decisions of which there is a right of appeal to the High Court) and the Company did not contest the making of the liability orders in the magistrates’ court. In the initial evidence in opposition to the petition the Company did not even raise the Class G exemption. It relied on the Class A exemption. In relation to Class G it would be necessary for the Company to show the strength and size of the cross-claim by reference to a causal link between the lack of occupation of each of the New Terrace properties and the action taken by the Council in relation to its statutory powers of compulsory purchase; and by reference to the relevant period of lack of occupation in respect of each relevant property.

I agree with Mr James Morgan, who appeared for the Council, that the judge was entitled to reach the conclusion that the evidence adduced by the Company was insufficient to establish a genuine and serious case for exemption from council tax owing under the liability orders to the extent required. The judge correctly applied the law in saying in paragraph 28-

It was unnecessary for the judge to go further and decide other issues, such as whether the Class G exemption applied to New Terrace, or, if so, from what date any exemption applied, or whether the liability orders were properly obtained, or whether any sum paid by the Company can be recovered in an action for restitution, or whether it cannot be recovered, if it was paid under the compulsion of legal process: see Goff & Jones (7^th ed) at paragraph 4-031.

The issue for the judge was whether the evidence before him was sufficient to satisfy him that the Company’s cross-claim was not merely arguable, but was genuine and serious. He was entitled to decide that issue against the Company and did so without committing any error of law, such as by erecting an absolute requirement that the Company should have previously asserted, litigated or issued proceedings for the cross-claim, unless it had a good excuse for not doing so.

I would refuse to grant permission to appeal. I would also order the Company to pay the Council’s costs of this application, on which it appeared at the direction of the court. Mr Joseph did not contest liability, but wished to take instructions on the amount claimed. The court has been asked to make a summary assessment of the Council’s costs. I would assess them at [£6000], making some reductions in the items listed in the Council’s statement of costs, which totalled £8,417.25.

The legal costs of this appeal and of the contested winding up proceedings below running (we are told) into tens of thousands of pounds are an expensive lesson in how much time, effort and money can be wasted on a modest amount of council tax by not taking appropriate steps to pay (or contest) council tax bills on time.

I agree.