Re Lehman Bros International (Europe) ((in Administration)) (No 7) Lomas and Others v Revenue and Customs Commissioners
| Jurisdiction | England & Wales |
| Judge | Lady Justice Gloster,Lord Justice Patten,Lord Justice David Richards |
| Judgment Date | 19 December 2017 |
| Neutral Citation | [2017] EWCA Civ 2124 |
| Court | Court of Appeal (Civil Division) |
| Date | 19 December 2017 |
[2017] EWCA Civ 2124
COURT OF APPEAL
Before Lady Justice Gloster, Lord Justice Patten and Lord Justice David Richards
Statutory interest payable to creditors under the Insolvency Rules ranked as "yearly interest" for the purposes of section 874 of the Income Tax Act 2007 and administrators were, therefore, under an obligation to deduct basic rate income tax on making any payments to creditors.
The Court of Appeal so stated when allowing the appeal of the revenue against a decision of Mr Justice Hildyard([2017] Bus LR 520) on an application by Anthony Victor Lomas, Steven Anthony Pearson, Russell Downs and Julian Guy Parr, being the joint administrators of Lehman Brothers International (Europe), for directions on the issue.
Mr Malcolm Gammie, QC, and Ms Catherine Addy, QC, for the revenue; Mr John Gardiner, QC, and Mr Daniel Bayfield, QC, for the joint administrators.
Lord Justice Patten said that contrary to initial expectations the administration had resulted in a substantial surplus being available for creditors after payment of proved debts. The existence of a surplus entitled creditors to the payment of statutory interest on their debts. At the time of the judgment below such interest was payable under rule 2.88(7) of the Insolvency Rules 1986 (SI 1986 No 1925).
Subsequently, the Insolvency Rules (England and Wales) 2016 (SI 2016 No 1024) came into force and the payment of such statutory interest from any surplus in an administration was now governed by rule 14.23(7) of the 2016 Rules. For present purposes, that rule was not materially different from the former rule 2.88(7).
The judge's view that that statutory interest did not constitute "yearly interest" within the meaning of section 874 of the Income Tax Act 2007 was based on the need, as he saw it, to identify a payment in the nature of interest that had accrued from day to day and was payable from year to year.
Statutory interest, he held, did not have that quality of recurrence because it was paid retrospectively as compensation for the time value of money attributable to the period between the commencement of the administration and the payment of the proved debts.
There was no doubt at all that statutory interest was not a continuing liability that accrued from day to day on a prospective basis over the...
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