Since the decision of the Local Government Ombudsman ("LGO") in complaint number 06/B/16600 against Wolverhampton City Council on 31 March 2008 and a number of subsequent LGO decisions adverse to local authorities, local authorities have been hesitant of using bankruptcy proceedings as a means of recovering arrears of council tax.

In fact, in the Wolverhampton complaint the LGO did not say that bankruptcy (as a means of recovering arrears of council tax) should never be contemplated but rather that where it is contemplated the local authority should have a rigorous policy in place to ensure that bankruptcy was used as a last resort.

Two subsequent decisions by the Courts have reaffirmed that local authorities do have the right to present a bankruptcy petition.

• In Lonergan -v- Gedling BC [2009] EWCA Civ 1569 the Court of Appeal were considering an application for permission to appeal. In giving her Judgment Lady Justice Arden stated:"In my judgment it has not been shown that to take bankruptcy proceedings was more draconian than to take a Charging Order... it is not essential as I see it that the local authority should choose one remedy rather than another, and in any event it must have some measure of discretion to choose the appropriate course".
• In Nottingham City Council -v- Pennant [2009] EWHC 2437 His Honour Judge Perle QC held that the Council had not been unreasonable in rejecting an offer from the debtor to grant a charging order over his property because a charging order would involve the Council in further expense should it require Enforcement. Further, a charging order is not something which can be enforced as of right as the Court has a discretion to enforce.

Therefore, apart from the old case law, recent decisions following the Wolverhampton case also support local authorities using bankruptcy as a means of recovering arrears of council tax and enforcing liability orders.  Local authorities must however adopt robust procedures to illustrate that they have used bankruptcy as a last resort. We would recommend that

• You keep records of all the steps that have been taken to bring the debtor "to the negotiating table" so that you can show the procedure was chosen as a last resort.
• Consider the use of Charging Orders and record why it was not felt to be appropriate.
• Prior to referring the matter to solicitors to commence bankruptcy proceedings send a letter to the debtor explaining that their failure to address the issue of the arrears of Council Tax could lead to their bankruptcy and the possession of the home.
• Explain in the letter to the debtor the likely level of costs that may be incurred in pursuing bankruptcy and possession.
• Ensure that your solicitors explain the effects of bankruptcy to the debtor.

To assist our local authority clients we have developed a checklist of steps which should be taken and which can be tailored to suit your specific requirements. This can then be used to support your decision to petition for bankruptcy. We are also happy to review your procedures prior to issuing the petition should you wish.

If you require further information, please contact:

Mark Taylor - Head of Department & Business Development

Richard Powell - Business Development Executive