New hope for recovering unpaid business rates

A landmark Judgment by the High Court will help local authorities to recover unpaid business rates from companies which go into administration.

The case involved Exeter City Council, which went to court almost two years earlier against the former administrators of Trident Fashions, which owned the Ciro Citterio group of shops.

Mr Justice David Richards made the following declarations sought by the council:

• Unpaid business rates are "necessary disbursements" by the administrators in the course of an administration within the meaning of rule 2.67(1) (f) of the Insolvency Rules 1986; and
• Business rates accrued during the aministrators' expenses fall within the meaning of paragraph 99(3) of Schedule B1 of the Insolvency Act 1986.

Mark Taylor, Business Development Manager for Incasso LLP, commented: "The Trident Fashions case confirms that it was always intended by the rule-making authorities that business rates should be a necessary disbursement, paid as an administration expense, and rank ahead of payments to the administrators. Rule 2.67(1 (f) is all but identical to Rule 40218(1) which applies to liquidations. It fully justifies the determined attitude taken by the council in pursuing this case."

Mark continued: "There was a great deal of interest in this test case from the Attorney General, insolvency practitioners and many local authorities, and its effects will be far-reaching.

"I expect that considerable sums of money will have been retained by administrators pending the outcome of this case, which should now be handed over to the local authorities.

"However, the judgment does not apply to 'old-style' administrations before September 15 2003 when the Enterprise Act came into effect.

"The effect on closed 'new-style' administrations is a little uncertain and local authorities may wish to look again at their files to see if they can claim against former administrators who have been appropriately paid.

"Former administrators may argue that they acted honestly and reasonably and should not be required to repay business rates out of their own renumeration. However, in the case of Trident Fashions, they did agree to do so.

"There is an argument that including rates as an administration expense will have an adverse effect on company rescues; consequently there could be amended legislation on this eventually. For the moment, the picture for existing and future administrations is much clearer. Local authorities should look to administrators to pay business rates or to set aside enough money to pay them at the end of the administration.

"In an extreme case, however, especially with regards to unoccupied rates, the Administrator may seek to invoke the power of the court under Rule 2.67(2) and (3) to vary the prder of priority of payment of the administration expense."

To discuss the detailed implication of this case, please contact Mark Taylor.

Seperating gold nuggets from the rest

A new online Land Registry service is helping some of our clients to identify those debtors against whom a Charging Order would b most effective.

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