Vol 4 (2007) - Issue 3

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Exeter City Council, Vivian Murray Bairstow James Patrick Martin Trident Fashions Plc [2007] EWHC 400

On the proper construction of the Insolvency Rules 1986 rule 2.67 non-domestic rates for retail premises occupied by a company whilst in administration rank as expenses of the administration.

The background

On 2 March 2007, Mr Justice David Richards handed down the long-awaited decision in Exeter City Council v Bairstow & Others. The background to his decision was as follows. Trident Fashions (‘the Company’) was a menswear retailer that traded from a number of premises in the United Kingdom. It leased a number of properties including a retail unit in Exeter. The applicant authority, Exeter City Council (‘the Council’), was responsible for levying and collecting non-domestic rates pursuant to Part III of the Local Government Finance Act 1988 for that unit. The company went into administration and the first and second respondents were appointed as administrators (‘the Administrators’) pursuant to the provisions of Schedule B1 of the Insolvency Act 1986 (‘the Act’). For a certain period, the Administrators continued with the occupation of the Company’s premises in Exeter. During this period the non-domestic rates in respect of the premises had accrued at approximately GBP 136 per day.

The issue

The Council applied for a declaration that the nondomestic rates were payable to it as expenses of the administration. The basis of its application was that the rates were payable either as an expense of the administration within the meaning of rule 2.67 of the Insolvency Rules 1986 (‘the Rules’); or as a disbursement pursuant to rule 2.67 of the Rules.

Since the Company had now been wound up and the Administrators had been discharged, none of the respondents appeared. In light of the special importance of the issue in question (see below) a special advocate was appointed by the Attorney General to present submissions in opposition to the case made by the Council.

The importance of the issue
The old administration regime

Under the old administration regime, non-domestic rates are not automatically regarded as an expense of the administration. Instead, the court is entitled to apply the balancing test laid down in Re Atlantic Computers Systems Ltd [1992] Ch 505 in deciding whether or not they should be paid as an expense.

This result was consistent with the effect of an administration as imposing a moratorium while not affecting the company’s capacity to continue to trade and incur liabilities. It avoided any damage to the policy of promoting where possible the rescue and survival of companies or their businesses. The power of the court to direct payment, or to permit enforcement, ensured that the company in administration could not take unfair advantage of its continued occupation of premises at the expense of local authorities and the general body
of ratepayers.

Liquidation

The position in relation to the old administration regime is to be contrasted with that of a company in liquidation. Where a company is in liquidation, the provisions of rule 4.218 of the Rules govern the payment of expenses in the liquidation. Rule 4.218 of the Rules provides that ‘any necessary disbursements by the liquidator in the course of his administration’ are payable as an expense of the administration. In Re Toshoku Finance UK Plc [2002] 3 All ER 961 (at paragraph 34) Lord Hoffman held that, like corporation tax on profits, non-domestic rates accruing during a winding-up are payable as an expense of the liquidation being ‘necessary disbursements’ within rule 4.218 of the Rules.