Re Trident Fashions Plc
| Jurisdiction | England & Wales |
| Judge | MR JUSTICE DAVID RICHARDS,Mr Justice David Richards |
| Judgment Date | 02 March 2007 |
| Neutral Citation | [2007] EWHC 400 (Ch) |
| Docket Number | Case No: 5116 OF 2006 |
| Court | Chancery Division |
| Date | 02 March 2007 |
[2007] EWHC 400 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT
Mr Justice David Richards
Case No: 5116 OF 2006
William Trower QC and Paul French (instructed by Stones) for the Applicant
Nicholas Briggs (instructed by The Treasury Solicitor) as Advocate to the Court
The Respondents did not appear and were not represented
Hearing dates: 18, 19 and 20 December 2006
Approved Judgment
I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.
The Honourable
Introduction
This is an application by Exeter City Council for a declaration that non-domestic rates in respect of retail premises occupied by Trident Fashions plc (the company) while it was in administration are payable as expenses of the administration. Neither the company, which is now in liquidation, nor its former administrators have taken part in the final hearing of the application. The issue is of general importance for local authorities and companies in administration under the regime contained in schedule B1 to the Insolvency Act 1986 (the 1986 Act), introduced with effect from 15 September 2003, and has not been the subject of any decision by the courts. For those reasons, the Attorney General agreed to the appointment of an Advocate to the Court. Mr Nicholas Briggs was instructed for this purpose and has presented submissions in opposition to the case made by Exeter City Council. He has also, with the permission of the Attorney General, adduced evidence from a senior insolvency practitioner as to the importance of the issue to the conduct of administrators and its impact on the rescue culture which underpins the administration regime. I am very grateful to Mr Briggs and to counsel for the City Council for their assistance.
Applying two decisions of the House of Lords, the position as regards rates is clear in the case of premises occupied by a company in liquidation, and is also clear where the premises have been occupied by a company in an administration commencing before 15 September 2003 under the previous regime contained in Part II of the 1986 Act. Rates accruing on premises occupied by a company while in liquidation are payable as an expense of the liquidation, by reason of the terms of rule 4.218 of the Insolvency Rules 1986: In re Toshoku Finance UK plc [2002] 1 WLR 671. Rates accruing on premises occupied by a company while in an old-style administration are not payable as an expense of the administration: Centre Reinsurance International Co v Freakley [2006] 1 WLR 2863. In such administrations there was no provision equivalent to rule 4.218 and the issue turned on section 19 of the 1986 Act. In relation to new-style administrations, section 19 is substantially re-enacted as paragraph 99 of schedule B1 but there has also been introduced rule 2.67. Rule 2.67 is in substantially similar terms to rule 4.218 and was introduced well after the decision of the House of Lords in In re Toshoku Finance UK plc. The issue is whether rule 2.67 is to be given a different interpretation from rule 4.218, against the background of the purposes and provisions of the administration regime in schedule B1.
The declarations sought by the City Council are in the following terms:
“1 A declaration that the non-domestic rates that have accrued in respect of the occupation by the Third Respondent, Trident Fashions Limited (“the Company”) of 240 High Street, Exeter, Devon EX4 3NZ (“the Premises”) since 20 th April 2004 are:
1.1 expenses properly incurred by the First Respondent, Vivian Murray Bairstow, and the Second Respondent, James Patrick Martin (together “the Administrators”) in performing their functions in the administration of the Company within the meaning of rule 2.67(1)(a) of the Insolvency Rules 1986 (“the Rules”); alternatively
1.2 necessary disbursements by the Administrators in the course of the administration of the Company within the meaning of rule 2.67(1)(f) of the Rules.
2 A declaration that, upon the Administrators ceasing to be administrators of the Company, the non-domestic rates that have accrued and remain unpaid in respect of the occupation by the Company of the Premises during the period of office of the Administrators fall within the former administrators' expenses within the meaning of paragraph 99(3) of Schedule B1 to the Insolvency Act 1986.”
The facts
The facts are not in dispute and the following account is based on the agreed statement of facts.
The company was incorporated on 29 March 2001. It purchased the assets of a company known as Ciro Citterio Menswear plc from administrators and commenced trading on 12 June 2001. It traded from 98 retail units throughout the United Kingdom and Ireland. One of the retail units, which it occupied as lessee, was at 240 High Street Exeter (the Exeter Property). The City Council is responsible for levying and collecting non-domestic rates in respect of the Exeter Property.
The company made profits until 1 February 2002 but made a loss in the following year. On 17 September 2003 an administration order was made and three partners in Kroll Buchler Phillips were appointed as joint administrators (the Kroll Administrators). This administration was one of the first 'new-style' administrations. At the time of the administration order the company owned the leasehold interest in all or most of the 98 retail units, but there were some which it no longer occupied. There were others which it ceased to occupy during the course of the administration.
At a meeting held on 1 December 2003 the creditors approved a creditors' voluntary arrangement (the CVA). The Kroll Administrators informed creditors that the CVA was intended to provide “a more advantageous outcome for creditors” and to be an “exit route” from administration. The Kroll Administrators were appointed joint supervisors of the CVA. There appears to have been an unsuccessful challenge to the CVA in the High Court in January 2004.
The Kroll Administrators resigned as administrators on 20 April 2004. On the same day the first and second respondents to the present application, Vivian Bairstow and James Martin of Begbies Traynor (the Begbies Administrators), were appointed joint administrators in their place.
During the period of the administration both sets of administrators continued the company's occupation of the Exeter Property, and continued to carry on the business of the company there and elsewhere. They did so as agents of the company: para 69 of schedule B1.
On 13 September 2004 the Begbies Administrators obtained an order under paragraph 76 of schedule B1 extending the term of the administration until 17 March 2005. On 17 March 2005 the administration expired but on 22 March 2005 the company filed a notice of intention to appoint further administrators.
On 7 April 2005 the company's only qualifying floating chargeholder appointed two partners of BDO Stoy Hayward as joint administrators. This administration did not last long. A winding-up petition had been presented by a creditor on 21 March 2005. The new administrators quickly concluded that the administration could not achieve the statutory purposes and applied to the court for an order that their appointment should cease to have effect. On 27 April 2005 their appointment was discharged and the company was ordered to be wound up.
The non-domestic business rates on the Exeter Property accrued at a daily rate of approximately £136, totalling £73,846 from the commencement of the administration on 17 September 2003 to its termination on 17 March 2005. There were no unpaid arrears of rates at the commencement of the administration. Rates in respect of the year ending 31 March 2004 were treated for the purposes of the CVA as an ordinary unsecured liability of the company. This included rates accruing in that year after the appointment of the administrators, by reason of section 43 of the Local Government Finance Act 1988 which creates liabilities for rates “in respect of a chargeable financial year”, and the prior service of a demand for the year under the relevant regulations. Rating authorities, including Exeter City Council, were invited to submit proofs of debt on this basis. Exeter City Council submitted a proof for £26,049.21 in respect of the period 17 September 2003 to 31 March 2004 and in January 2005 received a dividend of £4,115.78. No relief is sought in respect of those rates on this application, which is confined to the rates accruing while the Begbies Administrators were in office, from 20 April 2004 to 17 March 2005. Those rates amount to £45,074. In addition to Exeter City Council, there are a further 57 local authorities with claims for unpaid business rates amounting to some £2,687,000.
For the purposes of this judgment it is unnecessary to consider the course and outcome of the administration, which Mr Trower QC for the City Council described as disastrous. Nor is it necessary to consider the steps which may be open to Exeter City Council to recover the unpaid business rates if the declarations sought are made. In March 2006, the Court of Appeal held that Exeter City Council was entitled to seek the first declaration against the Begbies Administrators, for the reasons given in the judgment of Sir Martin Nourse: see [2006] EWCA Civ 203. The Begbies Administrators and the liquidator have been notified of the intention to seek the second declaration and have not indicated any interest in participating in the application.
In this judgment I will first summarise the relevant...
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