Kaye v South Oxfordshire District Council & Anor

This is my extemporary judgment in the matter of Certain Exhibitions Limited, number 4115 of 2013. I have to decide a short but important point of law concerning the incidence of business rates in a company voluntary arrangement. Although the instant case relates to a company voluntary arrangement, it seems to me that similar considerations would apply in any form of corporate insolvency, including liquidation. This decision is, therefore, of potential interest to all insolvency practitioners and billing authorities for business rates. It is also of potentially wider interest because, on the evidence, it would appear that billing authorities have been in receipt of advice that the arrears of business rates outstanding for the purposes of insolvency are to be treated in the same way as arrears of council tax, and that, in both cases, the debt provable in the insolvency is that due up to the date of the insolvency event, unless the debtor has previously defaulted, in which case it is the debt for the whole of the relevant financial year, that is considered to be due, and to become payable and provable in the insolvency. It is the correctness of that view which falls for decision by this court.

The present application was issued by Mr David Norman Kaye, in his capacity as the supervisor of a company voluntary arrangement, on 18^th October 2013. The respondents to the application are: first, the South Oxfordshire District Council as the relevant billing authority; and, secondly, the company itself, Certain Exhibitions Limited. The application is supported by a short witness statement from Mr Joseph Oliver Byrne, dated 18^th October 2013, together with exhibit JOB1, which exhibits all the relevant documentation, including the applicable company voluntary arrangement. The applicant is represented by Mr David Mohyuddin (of counsel), instructed by Freeth Cartwright, the firm in which Mr Byrne is a solicitor and partner. The first respondent, South Oxfordshire District Council, is represented by Mr Jonathan French (also of counsel), who is instructed by the district council itself. The second respondent has played no part in the hearing of this application.

The application first came on for hearing in the applications list in Manchester before me on 1^st November 2013. It was adjourned, at the request of the first respondent, to the applications list on the following Friday, 8^th November, again before me, due to the shortness of service of the papers on the first respondent. Before the matter could come on for hearing in the following week’s applications list, the active parties to the application had sensibly agreed the terms of a further order adjourning the effective hearing to come on as an application by order because it was anticipated that the arguments required might take longer than the time available in the ordinary applications list.

In fact, due to the comprehensive nature of both counsel’s written skeleton arguments, which I have had the opportunity of pre-reading, the hearing before me has taken less than an hour. Mr Mohyuddin has opened the application, identifying the issue before the court in a neutral fashion, as befits the role of the supervisor of a company voluntary arrangement; and Mr French, for the respondent billing authority, has addressed me even more briefly, again maintaining a neutral and non-partisan stance. Both counsel have sought to ensure that the relevant legislation and case law authority have been put before the court in an entirely neutral manner. I am satisfied that I have had full and appropriate argument on the point.

The background to the present application can be quite shortly stated. The application notice itself seeks directions as to the level that the district council, as the relevant billing authority, should be allowed to prove for within the company voluntary arrangement and, consequently, whether the full amount of the outstanding non-domestic rates due for the year 1^st April 2013 to 31^st March 2014 is caught within the terms of the voluntary arrangement, so as to preclude the billing authority from taking any enforcement action in respect of the same against the company. In summary, the supervisor seeks a direction as to the amount for which the claim of the first respondent district council in respect of non-domestic rates is bound by the CVA.

The second respondent company is an exhibition stand and design company which operated from premises within the area of the South Oxfordshire District Council. On 21^st April 2013 a fire started in neighbouring warehouse premises to the company’s storage facility which completely destroyed all of the company’s property, together with some clients’ material. The company has a substantial claim in respect of the damage caused by that fire. However, the disruption to the company’s business activities caused by the fire led it to enter into a company voluntary arrangement. Non-domestic rates (or business rates) were payable in respect of the company’s premises.

On 12^th March 2013, the first respondent district council issued a notice in respect of non-domestic rates (or business rates) for the company’s workshop and premises. It set out a calculation in respect of business rates for the year from 1^st April 2013 to 31^st March 2014 in the total sum of £25,905. Accompanying that rates bill was a notice and direct debit confirmation which stated that, in accordance with the Local Government Finance Act 1988, it was the company’s statutory right to pay by instalments. Details were set out of the payments that would be made under the company’s direct debit arrangement with the council. That arrangement provided for a single payment of £2,586 to be made on 15^th April 2013, and for nine further payments, each of £2,591, to be made at monthly intervals on the 15^th day of each month, starting on 15^th May 2013 and ending on 15^th January 2014.

The company entered into a voluntary arrangement at a meeting of creditors held on 10^th July 2013. The proposal was accepted by creditors at a meeting on that day, and ratified by the members of the company in general meeting on the same day. A report on the meeting of creditors was signed by Mr Kaye, the chairman of the meeting and supervisor of the voluntary arrangement, on 11^th July 2013.

It would appear that on 11^th July 2013 a reminder notice was addressed to the company alerting it to the fact that the monthly instalments due on 15^th June and 15^th July had not been paid and that unless the outstanding amount was paid by 21^st July 2013, the full balance for the 2013 to 2014 charging year would become due. After a further seven days, legal proceedings were threatened. That notification was not apparently received by the applicant until after the issue of the present application.

The council submitted a claim in the voluntary arrangement for the sum of £1,918.26 for the period 1^st April to 10^th July 2013. Mr Kaye, the supervisor and applicant, wrote to the district council on 25^th July questioning how that sum had been calculated and observing that the district council’s claim should be for the full year’s business rates. The reason for that was said to be that the full year’s rates had fallen due on 1^st April 2013, and the full year liability should, therefore, rank as an unsecured creditor in the company voluntary arrangement.

The district council’s response to that, on 29^th July 2013, was to enclose the council’s proof of debt for the balance of £1,918.26, covering a period of outstanding business rates from 1^st April to 9^th July, when the company entered into the CVA. Details of the calculation were given. The supervisor was advised that the district council’s claim for the period was correct as although the annual bill was issued in April, full payment was not then required, and the ratepayer was given ten statutory instalments to clear the balance. As those instalments were still in place at the date of the company’s CVA, the amount due was said to be only up until that date.

The supervisor responded on 13^th August, stating that whilst he understood the arithmetic of the district council’s calculation, he did not agree with its basis. He asked, rhetorically, whether it was not the case that business rates for the 2013 to 2014 year fell due for payment on 1^st April 2013. He understood that, by concession, the rates payable might be split over ten instalments throughout the year; but that was said not to detract from the fact that the rates had fallen due on 1^st April 2013. The situation was said to be, in principle, no different from that of any other creditor. If, for example, goods had been supplied prior to the CVA then, absent any retention of title claim, the full debt was said to rank as an unsecured creditor within the CVA, and the company would be entitled to retain the goods. It was said that the same would be true of the supply of services, or even in the treatment of taxation relating to a period ending prior to the CVA. It might well be that the district council’s pro rata approach was generally accepted as a matter of convenience; but, in the supervisor’s opinion, it was flawed. He, therefore, sought confirmation that the business rates for the entire year 2013 to 2014 would rank as a creditor within the CVA, and not as an ongoing expense of the company.

The district council’s response was dated 20^th August 2013. The writer made the point that an instalment option had been given, and that statutory instalment option had been adopted by the company, with payment on a ten monthly basis, commencing in April 2013. The annual charge was not, therefore, enforced to allow the instalment facility to continue. It was said that as the statutory instalments were still in place at the time the company entered into the creditor’s voluntary arrangement on 10^th July, the council’s debt ceased on that day. To enable the remainder of the year’s charge to have been included within the CVA, a reminder notice would have needed to have been issued, and no payment made in respect of that reminder for a period of 14 days. The council’s claim in the CVA therefore remained at £1,918.26.

On 18^th September 2013 the council issued a summons for non-payment of domestic rates in the Oxford Magistrates’ Court in the sum of £18,807.74, together with costs of £75. That summons was originally returnable at Oxford Magistrates’ Court on 21^st October 2013, but I understand that the hearing has been successively adjourned to await the outcome of the present application.

Following receipt of that summons, on 27^th September 2013 the supervisor’s solicitors, Freeth Cartwright, wrote to the district council acknowledging service of the summons. The writer stated that as the district council was aware, the company had entered into a company voluntary arrangement on 10^th July 2013. The rates for the year commencing 1^st April 2013 were said to have become due on that date. Accordingly, any balance outstanding at the date of the approval of the voluntary arrangement was said to have been caught as an unsecured claim within the voluntary arrangement. A ‘debt’ was defined as any debt or liability to which the company was subject as at the date the company entered into the voluntary arrangement, which was said clearly to cover the sums due for non-domestic rates for the year commencing 1^st April 2013, which had become payable upon that date. The fact that the council was prepared to allow staged payments of that debt was said not to mean that it was not due as at that date; rather it was said to be forbearance on behalf of the council. The effect of approval of the voluntary arrangement was said to bind every person who, in accordance with the Insolvency Rules was entitled to vote at that meeting. Reference was made to section 5(2)(b) of the Insolvency Act 1986. Accordingly, the district council’s confirmation was requested by return that the council accepted that it was bound by the terms of the voluntary arrangement and would withdraw the summons. In the absence of that, it was said that the supervisor would apply for declaratory relief from the court confirming the same, and would seek the costs of the application from the district council.

On 30^th September 2013 the council responded saying that, as previously advised, as the company was still entitled to the statutory instalments on the date of their voluntary arrangement being approved, the account was closed, and the balance of business rates for the period 1^st April to 9^th July 2013 was claimed in the CVA. Should the right to pay by instalments have been lost at the time of the CVA being approved, the whole year’s balance would have been due, and that would, therefore, have been the council’s claim within the CVA. From 10^th July 2013, a new account had been raised from the company post voluntary arrangement, and payments from that date were said to be due and payable. As no business rates payments had been received against the post CVA account, the summons was said to have been correctly issued, and the council asked to be contacted as a matter of urgency regarding the payment of the outstanding balance.

The supervisor’s position was reiterated in his solicitors’ letter of 7^th October. It was said that it was his intention to apply to the court for a direction as to whether the council was bound by the terms of the voluntary arrangement, or whether it was entitled to proceed to seek enforcement for sums that it claimed were due for a period post approval of the CVA, but within the calendar year beginning 1^st April 2013. Details of the proposed proceedings were given.

I need refer to only one additional document, which is an e-mail that was received by the court from Mr Paul Howden, for and on behalf of the district council, on the date of the first hearing in the applications list of the application on 1^st November 2013. Having pointed out that the council had only received notification of the case on the previous Tuesday, 29^th October, the council sought an adjournment which, as I have mentioned, was agreed. But the e-mail also asked the court to take into consideration: (1) e-mails from the Insolvency Service in January and February of 2010, confirming advice that it had given to official receivers on the treatment of debt; and (2) what was said to be the current view of the Institute of Revenues and Valuation. The e-mail stated that in the light of that, the council was of the view that ‘arrears outstanding’ was the debt due up to the date of the CVA, unless the debtor had previously defaulted (which it had not in the instant case) and the debt for the whole of the financial year was, accordingly, due and payable and provable.

The attached advice from the Insolvency Service in January and February of 2010, which related to claims for council tax in individual insolvency, was that a claim for council tax for the portion of the year after bankruptcy would be rejected by the official receiver unless the bankrupt had failed to comply with a reminder notice. The e-mail went on to say that the writer was aware of the difficulties and confusion which existed following what was described as ‘the Mohammed judgment’. The writer therefore said that she would be raising the issue with the Insolvency Service’s Policy Unit to discuss a way forward, whether by issuing guidance to local authorities (as well as official receivers and insolvency practitioners) or, as appropriate, seeking to bring a test case. There is no evidence before the court as to whether the matter was taken forward in the manner envisaged.

The other document, said to be the current view of the Institute of Revenues and Valuation, was that as non-domestic rate was payable by instalments, the amount due at any particular date was, if the right to pay by instalments had not been forfeited, the instalments that had fallen due. However, if instalments had been forfeited (because a reminder notice had been served and the debtor had failed to bring his instalments up-to-date within seven days), the whole balance would be deemed to have fallen due, in which case that was said to be the amount covered by the insolvency and the amount to be claimed. I am not, of course, bound by those expressions of opinion.

There was no dispute before me as to the relevant law. I was taken through the primary and secondary legislation by Mr Mohyuddin. He first of all took me through the non-domestic rate legislation. In respect of occupied hereditaments, such as that of the company in the present case, the Local Government Finance Act 1988, by section 43, prescribed the liability to pay a non-domestic rate. Section 43(1) provides:

“A person (the ratepayer) shall as regards a hereditament be subject to a non-domestic rate in respect of a chargeable financial year if the following conditions are fulfilled in respect of any day in the year: (a) on the day the ratepayer is in occupation of all or part of the hereditament, and (b) the hereditament is shown for the day in a local non-domestic rating list in force for the year.”

Mr Mohyuddin points out that by section 145(1), ‘chargeable financial years’ are financial years beginning in 1990 and subsequent years; and, by section 145(3), a ‘financial year’ is a period of twelve months beginning with 1^st April. Section 43(2) provides that in such a case as is mentioned in subsection (1):

“…the ratepayer shall be liable to pay an amount calculated by: (a) finding the chargeable amount for each chargeable day, and (b) aggregating the amounts found under paragraph (a) above.”

By section 43(3):

“A chargeable day is one which falls within the financial year and in respect of which the conditions mentioned in subsection (1) above are fulfilled.”

Section 43(4) and following go on to define ‘chargeable amount’.

In reliance upon those provisions, Mr Mohyuddin observes that the liability to pay non-domestic rate appears to accrue daily. Thus, if occupation ceases during the course of a chargeable financial year, the ratepayer will be entitled to a rebate starting from the first day on which it ceased to be in occupation of any of the hereditament. As for payment, subsections 43(7) and 43(8) provide as follows:

“(7)

The amount the ratepayer is liable to pay under this section shall be paid to the billing authority in whose local non-domestic rating list the hereditament is shown.

(8)

The liability to pay any such amount shall be discharged by making a payment or payments in accordance with regulations under Schedule 9 below.”

By paragraph 1 of Schedule 9 to the Local Government Finance Act 1988:

“The Secretary of State may make regulations containing such provision as he sees fit in relation to the collection and recovery of amounts persons are liable to pay under sections 43”

amongst other provisions.

The applicable Regulations are the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989, Statutory Instrument 1989/1058. Regulation 3 provides, in sub-regulation (1), that:

“In this Part ‘the amount payable’ for a chargeable financial year or part of a chargeable financial year in relation to a ratepayer, a billing authority and a hereditament means: (a) the amount the ratepayer is liable to pay to the authority as regards the hereditament in respect of the year or part under section 43… of the Act.”

Mr Mohyuddin observes that it may therefore be said that the amount payable is one single amount for the year or part thereof. Regulation 4 requires the authority to serve on the ratepayer a notice in writing in relation to the year. The notice is to be served with respect to the amount payable for every hereditament as regards which a person is a ratepayer.

Regulation 6(1) provides (so far as material) that:

“If a demand notice is issued before or during the relevant year and it appears to the billing authority that the conditions mentioned in section 43(1)… of the Act are fulfilled… in respect of the day on which the notice is issued as regards the ratepayer and the hereditament to which it relates, the notice shall require payment of an amount equal to the billing authority’s estimate of the amount payable for the year, made as respects periods after the issue of the notice on the assumption that the conditions concerned will continue to be fulfilled on every day after that day.”

By Regulation 7 the demand notice is to require payment by instalments in accordance with Part I of Schedule 1 to the Collection and Enforcement Regulations, and where such instalments are required, Part II of the Schedule applies for their cessation or adjustment in the circumstances described in that Part. Paragraph 1 of Schedule 1 to the Collection and Enforcement Regulations provides for the aggregate amount to be payable in no more than ten monthly instalments. The ‘aggregate amount’ is the amount of the estimate referred to in Regulation 6(1). The months in which instalments are payable must be uninterrupted.

Provision is made for a failure to pay by instalments by Regulation 8:

“(1)

Where: (a) a demand notice has been served by a billing authority on a ratepayer, (b) instalments are payable under the notice in accordance with Schedule 1…, and (c) any such instalment is not paid in accordance with Schedule 1… the billing authority shall (unless all the instalments have fallen due) serve a further notice on the ratepayer stating the instalments required to be paid.

(2)

If, after the service of a further notice under paragraph (1), the ratepayer: (a) fails to pay, before the expiry of the period of seven days beginning with the day of service of the further notice, any instalments which fall due before the expiry of that period under the demand notice concerned, or (b) fails to pay any instalment which falls due after the expiry of that period under the demand notice concerned on or before the day on which it so falls due, the unpaid balance of the estimated amount shall become payable by him at the expiry of a further period of seven days beginning with the day of the failure.”

If payment of the sum due under Regulation 8(2) is not made, the authority may apply for a liability order: see Regulation 12. Such an order may found a bankruptcy or winding up petition: see Regulation 18.

Mr Mohyuddin then went on to address the material terms of the company voluntary arrangement. This was in evidence before me as part of exhibit JOB1 to Mr Byrne’s witness statement. The proposal to deal with creditors’ claims and distribution to creditors was sent out in Appendix I to the CVA. Paragraph 13 provides as follows:

“It is proposed that funds paid to and the proceeds of assets realised by the Supervisor shall be distributed in the following order…

13.4.

In paying a dividend to Unsecured Creditors whose claims shall be calculated as at the date of the creditors’ meeting approving this proposal by creditors, but without interest.

14.

In admitting proofs of debt under the proposal, the Supervisor shall apply, wherever applicable and subject to the provisions of the proposal, those provisions of the Act and the Rules relating to the admission and payment of proofs of debt by a liquidator in a creditors’ voluntary liquidation…

14.1.

The amount of any indebtedness owed by the Company to any creditor shall be the total amount owing as at the date of the approval of this proposal by the creditors.”

Appendix IX to the CVA set out the standard conditions. Of these, conditions 19 and 20 are of potential relevance. Condition 19 is headed, “Proof of debts and dividends”:

“Unless stated otherwise, provided for in the Proposal or the context of the Proposal otherwise demands, the following provisions of the Act shall apply to the Proposal: Rules 4.73 to 4.79 inclusive; and Rules 4.82 to 4.94 inclusive; with such modifications as shall be appropriate to make and render the same relevant to the Proposal, provided that unless the Proposal so provides no creditor’s claim shall carry interest for any period commencing with the day on which the Proposal is approved by the Creditors’ Meeting. Creditors’ claims shall be calculated as at such date.”

Condition 20, “Agreement of claims”:

“… In admitting proofs of debt under the CVA, the Supervisor shall apply, wherever applicable and subject to the provisions of the CVA, those provisions of the Act and the Rules relating to the admission and payment of proofs of debt by a liquidator in a winding up. For the avoidance of doubt, the Supervisor is empowered to serve Notice of Intended Dividend on CVA creditors.”

Thus, it may be seen that condition 19 of the standard conditions incorporates expressly Insolvency Rule 4.94, headed, “Debt payable at future time”:

“A creditor may prove for a debt of which payment was not yet due on the date when the company went into liquidation or, if the liquidation was immediately preceded by an administration, on the date that the company entered into administration, but subject to Rule 11.13 in Part 11 of the Rules (adjustment of dividend where payment made before time).”

Mr Mohyuddin submits that condition 20 also incorporates the statutory definition of ‘debt’ in Insolvency Rule 13.12. Insolvency Rule 13.12(1) defines ‘debt’ in relation to the winding up of a company as meaning (subject to the next following paragraph, which has no present application) any of the following:

“(a)

any debt or liability to which the company is subject - (i) in the case of a winding up which was not immediately preceded by an administration, at the date on which the company went into liquidation; (ii) in the case of a winding up which was immediately preceded by an administration, at the date on which the company entered administration; (b) any debt or liability to which the company may become subject after that date by reason of any obligation incurred before that date; and (c) any interest provable as mentioned in Rule 4.93(1).”

Subrule 13.12(3) provides:

“For the purposes of references in any provision of the Act or the Rules about winding up to a debt or liability, it is immaterial whether the debt or liability is present or future, whether it is certain or contingent, or whether its amount is fixed or liquidated, or is capable of being ascertained by fixed rules or as a matter of opinion; and references in any such provision to owing a debt are to be read accordingly.”

Subrule 13.12(4):

“In any provision of the Act or the Rules about winding up, except in so far as the context otherwise requires, ‘liability’ means (subject to paragraph (3) above) a liability to pay money or money's worth, including any liability under an enactment, any liability for breach of trust, any liability in contract, tort or bailment, and any liability arising out of an obligation to make restitution.”

I accept Mr Mohyuddin’s submission that Insolvency Rule 13.12 is incorporated into the company voluntary arrangement by virtue of condition 20 of the standard conditions within Appendix IX.

Mr Mohyuddin then went on to consider the question of liability for non-domestic rates. Is the liability a single liability for the whole of the relevant chargeable financial year, or is the liability one for payment as each instalment falls due because of the statutory arrangements for payment by instalments? To give the supervisor the directions he seeks, Mr Mohyuddin invites the court to answer the question whether the liability for non-domestic rates is one liability falling due for the entire chargeable year (albeit one that is capable of being discharged by instalments), or is the liability a series of up to ten smaller liabilities which fall due period by period? Mr Mohyuddin emphasises that the supervisor’s observations are by way of an attempt to assist the court in determining that question, rather than by way of arguing for any particular result.

Mr Mohyuddin has taken me to two authorities. The first is the decision of His Honour Judge Weeks QC, sitting as a judge of the Chancery Division, in the case of Re Nolton Business Centres Limited [1996] BCC 500. That was an application by the company’s liquidator for directions as to how non-domestic rates payable for the period after the company went into liquidation, and up to the end of the local authority’s financial year, should rank in the liquidation. The facts, as accurately set out in the headnote, were as follows: The company had entered into liquidation on 29^th October 1990 and a liquidator had been appointed on that day. He had continued to trade from the company’s premises until 30^th June 1991. The local authority’s financial year for the purposes of non-domestic rates ran from 1^st April in each year. It was common ground that the local authority must prove in the liquidation for the period 1^st April to 29^th October 1990, and that the non-domestic rates for the period 1^st April to 30^th June 1991 must be paid as liquidation expenses in priority to preferential and other debts of the company. The dispute concerned how that part of the 1990 to 1991 non-domestic rates attributable to the period between 30^th October 1990 and 31^st March 1991 should be treated, since the bill in relation to the financial year had been sent to the company before it went into liquidation and the company had been paying by a series of instalments intended to run (for two parts of the premises respectively) from April 1990 to January 1991 and from May 1990 to February 1991. Judge Weeks held that the non-domestic rates instalments falling due for payment after the company went into liquidation were sums which became due after the commencement of the winding up in respect of property of which the liquidator retained possession for the purposes of the company and, accordingly, should be paid in full as liquidation expenses.

The Nolton case, therefore, concerned a liquidation, rather than a company voluntary arrangement; but it seems to me that that is no relevant ground for distinguishing the case. What the case was concerned with, however, was, effectively, the application of what has been described as ‘the liquidation expenses principle’, as first stated by Mr Justice Fry in the case of Re South Kensington Co-operative Stores (1881) 17 Ch D 161. Judge Weeks began his judgment by recording that he had to decide what he described as “a short but important point concerning the incidence of business rates in a liquidation”. At page 501, letter G, he referred to the liquidation expenses principle. At 502, between letters A and B, he referred to the earlier decision of Mr Justice Kay in Re Wearmouth Crown Glass Company (1882) 19 Ch D 640, who had dismissed summarily an attempt to have rates apportioned under the Apportionment Act 1870 in the same way as rent. At page 502, beginning at letter C, the judge referred to the Local Government Finance Act 1988 which, he said, had made fundamental changes to the collection of rates, replacing domestic rates by the community charge, better known in its time as ‘the poll-tax’.

Judge Weeks referred to the earlier decision of Sir Donald Nicholls, then the Vice-Chancellor, in Re Kentish Homes Limited [1993] BCC 212 where, according to Judge Weeks, Sir Donald Nicholls had had, “the happy task of grappling with the interaction of the community charge legislation and the Insolvency Act 1986”. At page 502, between letters F and G, Judge Weeks respectfully agreed with Sir Donald Nicholls that liability to the community charge did accrue on a daily basis; but Judge Weeks said that it did not follow that the same was true of non-domestic rates introduced in Part III of the Local Government Finance Act 1988.

Judge Weeks set out the provisions of section 43(1) and (2); and he observed that subsections (3), (4) and (5) defined ‘chargeable day’ and ‘chargeable amount’. At page 502, below letter H, Judge Weeks recorded the submission of Mr Christopher Lewsley for the relevant billing authority, the Common Council of the City of London, to the effect that section 43 also imposed a liability which accrued daily. As to that submission, Judge Weeks observed this (at page 502, letter H, to 503, letter A):

“I have not found the section easy to construe, but on balance I think it imposes one liability to a single amount which can only be finally determined at the end of the chargeable financial year.”

The judge went on to observe that whichever view was correct, some provision for payment on account had to be made unless the rates were to be paid daily or at the end of the year. He then proceeded to set out the way in which that provision for payment on account had been achieved.

Having set out the relevant statutory provisions, at page 504, beginning at letter E, Judge Weeks returned to the liquidation expenses principle. He cited from the judgment of Lord Justice Bowen in Re National Arms and Ammunition Co (1885) 28 Ch D 474 at 479:

“A broad line is to be drawn between obligations which have accrued before the commencement of the winding up and those which accrue after the commencement of the winding up. Persons having claims which have accrued due before the winding up must come in as creditors pari passu. But on principle there is no reason why a debt properly incurred by the liquidator after the commencement of the winding up should not be paid in full, nor can I see why sums becoming due after the commencement of the winding up, in respect of property of which the liquidator retains possession for the purposes of the company, should not be paid.”

Judge Weeks acknowledged that even the words of Lord Justice Bowen were not to be construed as a statute, but he said that he took the view that they accurately set out the principle to be applied.

At page 504, letters G to H, Judge Weeks said this:

“In my judgment, so far as instalments fell due before the commencement of the winding up, the local authority has a claim which accrued due before the winding up and must come in as a creditor pari passu. If the City had served a notice under Regulation 8 and the seven days had elapsed before the commencement of the winding up, the whole of the estimated sum would have become due and would have had to be proved for. As it is, the instalments which fell due for payment after 29^th October 1990 are in my judgment sums becoming due after the commencement of the winding up in respect of property of which the liquidator retained possession for the purposes of the company. Accordingly, those instalments should be paid in full as liquidation expenses, and I will so direct the liquidator on this application. No apportionment is appropriate or required.”

In my judgment, Judge Weeks’s decision is of no direct assistance in determining the question which falls to be decided by this court. What Judge Weeks was concerned with was the application of the liquidation expenses principle to sums which had become due after the commencement of the winding up in respect of property of which the liquidator had retained possession for the purposes of the company. It seems to me that in the passage upon which Judge Weeks placed reliance, Lord Justice Bowen had recognised that sums might become due after the commencement of the winding up, and fall within the liquidation expenses principle, even though they related to a debt which had been properly incurred by the liquidator before the commencement of the liquidation. The question was not whether the debt had been incurred before, or after, the commencement of the winding up, but whether the sums had become due after the commencement of the winding up in respect of property of which the liquidator had retained possession for the purposes of the company.

I would also observe that Judge Weeks made no reference to Insolvency Rule 13.12 and, in particular, he made no reference to the status of contingent liabilities. That is perfectly understandable. It was entirely unnecessary for him to make such reference for the purposes of the matter which he had to decide. However, I cannot ignore the provisions of Insolvency Rule 13.12 for the purposes of the application which falls to be determined by me. Mr Jonathan French, in the course of his submissions, pointed out that the judge in the Nolton Business Centres case had distinguished between a liability and its discharge by payment. That may well be true; but for the reasons that I have given, I do not consider that Judge Weeks’s decision is determinative of the issue that I have to decide. In fairness, neither counsel suggested that it was.

The other authority to which I was taken was the decision of Miss Geraldine Andrews QC (as she then was), sitting as a deputy judge of the High Court in the Administrative Court of the Queen’s Bench Division, in the case of R (Mohammed) v London Borough of Southwark [2009] EWHC 311 (Admin),reported at [2009] BPIR 882. That was a decision on a judicial review application in the Administrative Court in which Miss Andrews delivered a reserved judgment. The case concerned the liability of a bankrupt in respect of council tax, and it involved consideration of the nature of the liability for council tax and the extent to which it was a bankruptcy debt. In particular, Miss Andrews had to consider the ability of a council to seek a liability order for both pre and post bankruptcy council tax.

In June 2005 the council had obtained a liability order against Mr Mohammed in the Magistrates’ Court for unpaid council tax in respect of the period 1^st April 2005 to 31^st March 2006. On 25^th November 2005, a bankruptcy order had been made against Mr Mohammed on the Council’s petition. It is important to appreciate that the liability order pre-dated the bankruptcy order. On 18^th August 2006, a further liability order had been obtained against Mr Mohammed for unpaid council tax totalling £1,243.47. That liability order was made up of £297.35 for 25^th November 2005 to 31^st March 2006, £881.02 for 1^st April 2006 to 31^st March 2007, and £65 costs. The second order covered periods that had already been the subject of the earlier liability order in June 2005. Mr Mohammed applied for judicial review, seeking an order that the second liability order should be quashed. That application succeeded, and the order was quashed. The first issue concerned whether the Council was the appropriate defendant to the application. It was held that it was because the Council had applied for the second liability order, and it was responsible for that order having been obtained.

The judge then went on to consider the position as at 25^th November 2005, which was the date of the bankruptcy order. Mr Mohammed was then under a legal obligation to pay council tax in respect of his future occupancy of the property. The liability to pay council tax for the rest of the financial year after the date of the bankruptcy order was contingent upon Mr Mohammed continuing to occupy the property each day until the end of the financial year; but Mr Mohammed’s liability to pay council tax for the year 2005 to 2006 was nevertheless a bankruptcy debt. It is important to bear in mind, in relation to that aspect of the decision, that there was already a liability order in place in respect of unpaid council tax for the whole of the financial year 1^st April 2005 to 31^st March 2006 at the time the bankruptcy order was made on 25^th November 2005. It is that feature which distinguishes the Mohammed case from the instant case. In the instant case, the balance of the business rates for the remainder of the 2013 to 2014 financial year had not yet fallen due pursuant to, and in accordance with, the applicable regulations governing the payment of business rates by instalments.

Miss Andrews also went on to decide that the liability to pay council tax for the financial year 2006 to 2007 was not a bankruptcy debt as there was no liability, present or future, actual or contingent, to pay it, or any part of it, on 25^th November 2005, which was the date of the bankruptcy order. She then went on to find that the second liability order had been defective for a number of reasons and that it should be quashed accordingly. I have no doubt whatsoever that the whole of Miss Andrews’s decision was correct.

I turn then to the judgment for what guidance it may afford in the context of the present case, bearing in mind the important distinguishing feature which I have already identified. At paragraph 17, Miss Andrews said that it had been common ground before her that any arrears of council tax in respect of the period of occupancy up to and including 25^th November 2005 would qualify as a bankruptcy debt. However, Mr Mohammed, whom it should be noted had appeared before Miss Andrews as a litigant in person, contended that his liability to pay council tax for the whole period from the commencement of his bankruptcy until his discharge from bankruptcy a year later was a contingent liability. It was in the light of that submission that Miss Andrews proceeded to consider what was meant by the phrase ‘contingent liability’. She considered two authorities, only one of which, R (Steele) v Birmingham City Council [2005] EWCA Civ 1824, reported at [2006] 1 WLR 2380, was said to assist on the meaning of ‘contingent liability’.

At paragraph 21 of her judgment, Miss Andrews recorded that Mr Mohammed had submitted that Steele was authority that all future debts were contingent liabilities. That was said not to be correct. What Steele was said to have decided was that in order for a liability to qualify as a contingent liability for the purposes of the Insolvency Act, the bankrupt must be under an existing legal obligation as at the date of his bankruptcy, although that obligation might be contingent upon the happening of a future certain event. An example of that was said to be where the bankrupt had entered into a contract to purchase some goods on 30 days’ credit and the goods had been delivered to him, but at the time of his bankruptcy the 30 days had not yet elapsed. The seller could not yet sue him for the price, but his claim for payment was said to be a ‘bankruptcy debt’ because the legal obligation to make payment in the future had already arisen at the date of the bankruptcy.

At paragraph 22, Miss Andrews observed that it was important to bear in mind that a person who was an undischarged bankrupt might still incur fresh liabilities and run up further debts. They would not be bankruptcy debts, because they did not exist at the date of the bankruptcy, unless they arose out of a pre-existing underlying legal obligation. The creditors in respect of those fresh debts were not obliged to prove in the bankruptcy, but might pursue their own remedies, although they might be required to wait until after the bankrupt had been discharged before taking action to recover the money, so as not to prejudice the position of other creditors. If the obligation to pay council tax for any period post-dating the bankruptcy did not arise until after the date of the bankruptcy, Mr Mohammed’s discharge from bankruptcy was said not to affect his liability to pay the tax in respect of that period.

At paragraph 23, Miss Andrews identified that the key question in the case before her was whether at the time of the bankruptcy (25^th November 2005), Mr Mohammed had been under a legal obligation to pay council tax in respect of his future occupancy of the premises to which it related. The two periods covered by the order were the period from 26^th November 2005 to the end of the relevant financial year, 31^st March 2006, and the period from that date to April 2007. The answer, in Miss Andrews’s judgment, was that he was under such an obligation in respect of the first period (as was conceded by the council) but not the second.

Miss Andrews recorded that her attention had been drawn to the relevant provisions of the Local Government Finance Act 1992. At paragraph 26, she summarised the effect of those provisions. A resident of a property was liable to pay council tax in respect of each day of his residence, and the liability accrued daily, which meant that someone who moved house in the course of a financial year would be entitled to a rebate starting from the first day on which he became a non-resident.

At paragraph 27 of her judgment, Miss Andrews pointed out that local councils did not collect council tax on a daily basis or (generally) in arrears. They issued demands at the beginning of the financial year for which the tax would fall due, and then claimed payment on account, based upon an assessment of how much tax the resident would be liable to pay, on the assumption that he would remain in residence for the whole of the financial year. Individuals would usually pay sums on account of their council tax liability by instalments, although they might be allowed to make payment of the whole assessed amount in one lump sum. Whatever form the payment took, the taxpayer inevitably paid the bulk of the tax in advance, and on account of a liability that was expected to accrue in future. That was said to explain why the council was able to seek a liability order in respect of the whole of the financial year 2005 to 2006 in June 2005, and why it sought a liability order in August 2006 which included sums in respect of the period from August 2006 to 31^st March 2007. It was said that a liability order could only be sought in respect of sums which were already payable and remained unpaid in whole or in part.

Miss Andrews then proceeded to set out the regime under which liability orders were obtained, and the billing of council tax, by reference to the applicable regulations, which were the Council Tax (Administration and Enforcement) Regulations 1992. At paragraph 32, she said that it followed from those Regulations that if a resident to whom a demand for a payment on account of council tax was properly addressed failed to pay an instalment on time, or failed to respond quickly enough to a reminder notice, or a final notice, he might become liable to pay the whole balance of the estimated amount of tax for that financial year within a short period, normally seven days. The council would then be entitled to seek a liability order against him for that amount if it was wholly or partly unpaid. That is what appeared to have happened in the instant case, and that was why the council was said to have been right to concede that the £297.35 in respect of the financial year 2005 to 2006 was a bankruptcy debt, even though on the face of the summons it appeared to relate to a period after Mr Mohammed was adjudged bankrupt.

At paragraphs 33 and 34 Miss Andrews said this:

“33.

The liability that the council was seeking to enforce was an existing liability under the Council Tax Regulations to pay a sum on account of Mr Mohammed’s (future) liability to pay council tax. The liability to pay council tax for the rest of the financial year after 25^th November 2005 was contingent upon Mr Mohammed continuing to occupy the premises each day until the end of that financial year (as the Regulations assumed he would). However, the liability to make a payment on account of council tax under the Regulations arises before any liability to pay the council tax itself arises under section 2 of the Local Government Finance Act. On any view, therefore, as at 25^th November 2005 Mr Mohammed was already under a legal obligation to make a payment to the council of the full £297.35 in respect of the financial year ending on 31^st March 2006.

34.

The position in respect of the next financial year, from 1^st April 2006 to 31^st March 2007, was different. As at 25^th November 2005, Mr Mohammed had no accrued liability to pay the council tax itself, as that liability arose day by day under the Local Government Finance Act. Nor did he have any obligation to make a payment to the council under the Regulations on account of that liability, because on 25^th November 2005, the council had not yet carried out its estimates or issued any demand notice for any ‘chargeable amount’ in respect of the financial year 2006 to 2007. Mr Mohammed was no more under a ‘contingent liability’ to pay the council tax for the next financial year, or any part of it, than he was under a ‘contingent liability’ on 25^th November 2005 to pay the next quarter’s gas or electricity or telephone bill. Applying the approach set out by the Court of Appeal in Steele there was no underlying legal obligation, at the date of the inception of the bankruptcy, to pay council tax for any period of residence in the premises on or after 1^st April 2006.”

Mr Mohyuddin pointed out that the Mohammed decision: (1) concerned council tax and not non-domestic rates; and (2) was a case in which there was a liability order which pre-dated the relevant bankruptcy order. I accept both of those grounds of distinction. As to the former, although the legislation is different, it does seem to me that it follows the same scheme; and whilst my present decision is not strictly directed to the position of council tax, as distinct from non-domestic rates, it may well be that my reasoning in the latter situation will be of application also in the former situation. Mr Mohyuddin’s second ground of distinction is an entirely valid one. Mohammed is authority for the situation in which, as a result of the service of a reminder notice under and in accordance with the applicable regulations, the whole of the outstanding instalments for the relevant financial year have become due and payable before the relevant insolvency event, in that case the making of a bankruptcy order in respect of Mr Mohammed. The Mohammed decision is of no direct application to the situation where the whole of the outstanding instalments have not yet fallen due for payment, following the service of a reminder notice and the subsequent failure to pay the instalments of which reminder has been given. It is that situation which does fall for me to decide.

In the course of her judgment, it was necessary for Miss Andrews, unlike Judge Weeks, to consider the definition of a ‘bankruptcy debt’. In the case before her, since she was dealing with a personal insolvency, and the bankruptcy regime, the relevant definition was to be found in section 382 of the Insolvency Act 1986. The relevant provisions were reproduced by Miss Andrews at paragraph 14 of her judgment. They do, however, seem to me to be in similar terms (with necessary modifications) to those contained within Insolvency Rule 13.12, which is the definition which applies in the present case of corporate insolvency.

I find myself in this situation therefore: that whilst I have some guidance that I can take from the decisions of Judge Weeks and Miss Andrews, neither decision is directly applicable to the circumstances of the present case. Mr French emphasises that in the present case, the company had not yet reached the stage envisaged by Regulation 8 by the time the company entered into the creditors’ voluntary arrangement. At the time of that arrangement, the company was still entitled to discharge its liability for non-domestic rates by the payment of monthly instalments. It had not yet lost that right, as Mr Mohammed had done by the date of his bankruptcy order. Nevertheless, it does seem to me that the liability for non-domestic rates for the whole of the 2013 to 2014 financial year was a ‘contingent liability’, to which the company was subject at the date of the creditors’ voluntary arrangement within, and for the purposes of, Insolvency Rule 13.12. By Insolvency Rule 13.12(1)(b) ‘debt’ is defined as including ‘any debt or liability to which the company may become subject after [the date of the relevant insolvency event] by reason of any obligation incurred before that date’. By Insolvency Rule 13.12(3) it is immaterial whether that debt or liability is present or future, or whether it is certain or contingent.

Under the scheme of the Act and the Regulations, the company was contingently liable for the whole of the non-domestic rates in respect of the hereditament comprising its premises for the financial year 2013 to 2014. True it is that if it were to vacate the premises during that financial year, its future liability for rates would be extinguished. But, nevertheless, its liability was an existing liability incurred by reason of its occupation of the premises on 1^st April 2013. It, therefore, seems to me that the liability does fall within Insolvency Rule 13.12. I accept Mr Mohyuddin’s submission that that provision is incorporated within the company voluntary arrangement by condition 20 of the standard conditions, whereby, in admitting proofs of debt under the CVA, the supervisor is to apply those provisions of the Act and the Rules relating to the admission and payment of proof of debts by a liquidator in a winding up.

Thus, my decision, which it seems to me would be equally applicable in a company liquidation, and also, as it seems to me, in a personal bankruptcy, is, for those reasons, that the first respondent district council should be allowed to prove within the voluntary arrangement for the full amount of the outstanding non-domestic rates for the year 2013 to 2014, and not just for the lesser sum of £1,918.26 for which it has already submitted a proof of debt. It also seems to me that the company would have a good defence to the summons for non-payment of non-domestic rates which is presently pending in the Oxford Magistrates’ Court. I will invite Mr Mohyuddin, on behalf of the applicant supervisor, to agree a minute of order to give effect to that decision with Mr French, and to submit it to the court for its approval.

Unless I hear any representations to the contrary, it would seem to me that it was entirely appropriate for this application to have been brought before the court; and, in the light of the way in which the application has been conducted by both parties, it would also seem to me to be appropriate that both parties’ costs should be treated as an expense of the company voluntary arrangement. The district council was justified in attending and participating in these proceedings given the advice that has apparently been issued to billing authorities by the Insolvency Service in the past. Mr Mohyuddin?