New High Court ruling on Council tax/rates liability in bankruptcy/insolvency

fermi

From CAG a short while ago...

Re: David Kaye v South Oxfordshire District Council & Certain Exhibitions Ltd

Yesterday a highly important Judgment was handed down in the High Court of Justice (Manchester District Registry) regarding the position with arrears of council tax/Non Domestic rates in cases where an individual debtor or company file for either personal bankruptcy, a Debt Relief Order, Individual Voluntary Arrangement, Liquidation or a Company Voluntary Arrangement.

Background

A company by the name of Certain Exhibitions Ltd suffered a serious fire on 21st April 2013 which destroyed their storage facility and led to the disruption to their business. Three weeks earlier on 12th March 2013 the respondent; South Oxfordshire District Council issued the company with a notice in respect of non domestic rates for the period 1st April 2013 to 31st March 2014 in the sum of £25,905.

Of significance is that accompanying this statement from the local authority was a direct debit confirmation which stated that in accordance with the Local Government Finance Act 1988 the company had a statutory right if they wished to pay the sum (of £25,905) by instalments with a 1st payment of £2,586 by 15th April 2013 and nine further payments of £2,591 on the 15th day of each month ending on 15th January 2014.

Due to the effect to the business of the fire damage the exhibition company entered into a Company Voluntary Arrangement (CVA) on 10th July 2013. The proposal was accepted by creditors at a meeting on that same day. The following day (11th July 2013) the exhibition company received a reminder notice from the local authority stating that the payment due of £2,591 for the June instalment had not been paid and that if this payment AND the one due on 15th July was not paid by 21st July 2013 that a summons would be issued and the full balance for the year to 31st March 2014 would become due.

The Insolvency Practitioner wrote to all creditors asking them to “prove” their debt and the local authority responded on 29th July 2012 to claim under the CVA a sum of just £1,918.26 which represented the period 1st April 2013 to 10th July 2013 (which is the date on which the CVA had been agreed).

The Supervisor to the CVA; Mr David Kaye wrote to the local authority questioning how the sum had been calculated and stating that the claim should be for the full year’s business rates and not just the amount up to the date on which the CVA had started. His reasoning being that the full year’s rates had become due on 1st April 2013, and accordingly, the full year’s liability should therefore rank as an unsecured creditor in the CVA.

The local authority argued that because the annual bill has been issued on 1st April full payment was not required on that date and instead, the ratepayer could if they wish pay the debt of £25,905 by way of ten instalments and furthermore; that at the date of the CVA the instalment option was still applicable. Neither party could agree and subsequently, in September the local authority issued a summons for approx £20,000 and the Supervisor issued proceedings in the High Court to resolve the legal position.

Conclusion:

After considering submissions from both parties, His Honour Judge Hodge QC confirmed in paragraph 56 of the Judgment that the local authority were wrong and that the correct position was that the full amount of the non domestic rates for the period 1st March 2013 through to 1st April 2014 must be a “provable”debt in the company voluntary arrangement.

Of huge significance is that under Paragraph 56 HH Judge Hodge QC also confirmed that his decision would be applicable to company liquidations AND also for personal bankruptcies (which will include IVA's and Debt Relief Orders).

It is my understanding that the Insolvency Service have confirmed today that they will be now be issuing a notice confirming that a council tax/non domestic “holiday” will now be able to be included as a debt in ANY form of insolvency including personal bankruptcy and Debt Relief Orders. This will mean that any individual or company declaring insolvency on or after 1st April 2014 will be able to include the ENTIRE year’s 2014 to 2015 council tax /non domestic rates as a debt.

Note:

If a company or an individual file for an insolvency scheme on for instance; 1st February 2014 they can include as a creditor council tax or non domestic for the period 1st Feb 2014 to 31st March 2014. However, if they wait a few weeks until 1st April 2014 (when the new council tax bill is issued) they can include in the insolvency not only any arrears for this current year but ALSO the whole of the year's council tax for the period 1st April 2014 through to 31st March 2015 !!!

The full judgment can be read here:

http://www.bailii.org/ew/cases/EWHC/Ch/2013/4165.html

debt_doctor

Hmmm... interesting.


So it appears that the whole of the council tax year will become proveable without the need to lose the right to pay by instalments first, as is / was the case.
Local authorities will not be happy - I feel an appeal coming on!


I do find the ruling a little odd, as my thoughts were that until the right to pay by instalments had happened then the full amount was NOT due and payable under the Local Government Finance Act.


It does, however, put it in line with rates based water bills were due and payable 1st April - go Br or DRO on 2nd April, the full years water goes in.


... and thanks Fermi, I wasn't aware of it.


DD

CIS

I do find the ruling a little odd, as my thoughts were that until the right to pay by instalments had happened then the full amount was NOT due and payable under the Local Government Finance Act

.

Council Tax is due in full on 01 April however the concession of installments is allowed until such time as they are forfeit for non/late payments.

This is one of the reasons I was surprised that the court have not made a ruling before now in the way that the judge has - I do however think that it's going to play to those who are scamming the system (especially with business rates) and will likely be appealed against.

Local authorities will not be happy - I feel an appeal coming on!

You can't blame them if they do.

fatbelly

Thanks for the pm on this, Fermi. I hadn't heard of the case and the outcome is a surprise. I would imagine this would now be taken to the Supreme Court but not in time for April!

wba31

Thanks for sending me this link... very interesting...

Could cause problems, do we have to include the council tax? for people close to £15k it could send them over...

denso999

I got made bankrupt in August 5th 2013 and have since been summond to court in regard a property i owned that was uninhabitable after the radiators and boilers being stolen.
Apparently i owe £230 for 2012/13 and £1100 for 2013/14.
I am having real trouble getting the Bristol council tax office to tell me whether i am liable.
Can someone please help???

hallowitch

as far as im aware council tax debt should be included IF a liability order has been issued before you became bankrupt


http://www.legislation.gov.uk/uksi/1992/613/regulation/49/made

denso999

Liability order being when the bill was first created???

Thanks for your help

National_Debtline

Hello there,

Local authorities generally allow the public the ability to pay council tax in instalments, either over 10 or 12 months. If payments are missed, the authority *may* decide to request that the whole amount for the year is paid in one go. The authority would need to serve a formal demand requesting full payment. The formal demand usually gives a period of time for the payment to be made, 7 days is quite common. If payment isn't made, the authority can then apply to the Magistrates' court for a 'liability order'.

if you take a look at the link suppleid via debt doctor below, there is discussion about the current legal position.

Very best wishes,

David @ NDL.

debt_doctor

The technical manual (for bankruptcy) has now been updated on this issue, which means all of the remaining current years c/tax will go in to BR regardless of any missed payments...........



40.101 Council Tax
(Amended January 2014)
Each District Borough Council levies and collects a tax, called a council tax which is payable in respect of dwellings in its area. The occupiers of the dwellings have joint and several liability for council tax. The rules for the collection of council tax are found in the Council Tax (Administration and Enforcement) Regulations 1992 URL="http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch37-48/chapter40/part6/Notes/Notes.htm#3"][COLOR=#0066cc]Note 3[/COLOR][/URL.
At the beginning of the year the local authority issue a ‘demand notice’ in respect of the property URL="http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch37-48/chapter40/part6/Notes/Notes.htm#4"][COLOR=#0066cc]Note 4[/COLOR][/URL. This notice is an estimate of the council tax due based on the assumption that the tax payer will be in residence for the entire billing period and that the property will remain in the same council tax band. The ‘demand notice’ sets out how much an occupier should pay and when the payments should be made. This is usually by 10 instalment payments.
For the purposes of bankruptcy from 1 April the assumptions upon which the demand notice is based create a contingent liability and the whole of the (unpaid) amount for the year in which the bankruptcy order is made will be provable debt in the bankruptcy. This applies whether or not the bankrupt is in arrears at the date of the order.
As the liability is joint and several whilst the bankrupt will enjoy relief from the liability to pay council tax for the remainder of the financial year the liability to pay remains with the other occupants of the property.
If an occupier fails to make a payment set out in the ‘demand notice’ the council will issue a reminder letter. The tax payer will then have 7 days from the date the reminder was issued to pay the instalment amount. If the payment is made within the 7 days further payments will fall due as per the demand notice. Failure to pay the instalment within the 7 days will render the entire years remaining council tax liability due and payable 7 days after the date of the failure (i.e. it all becomes due and payable14 days after the date the reminder was issued) URL="http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch37-48/chapter40/part6/Notes/Notes.htm#5"][COLOR=#0066cc]Note 5[/COLOR][/URL.
If a further instalment is missed a second reminder will be issued giving the tax payer 7 days to make the payment. The consequences of the second reminder are the same as for the first.
Upon the issue of a third reminder the entire years remaining council tax liability will become due and payable immediately, a 7 day period is not allowed to make the outstanding payment URL="http://www.insolvencydirect.bis.gov.uk/technicalmanual/Ch37-48/chapter40/part6/Notes/Notes.htm#6"][COLOR=#0066cc]Note 6[/COLOR][/URL.


A liability order is only required to be obtained by the local authority for enforcement purposes (e.g. to levy distress against the property of the bankrupt) and not (as indicated above) to request the full years tax liability from the tax payer as being due and payable. A local authority is only able to levy distress for a debt provable in bankruptcy if they have obtained a liability order prior to the date of the bankruptcy order.

DD

debt_doctor

.....just for council tax going forward, the rules have changed....


https://forums.moneysavingexpert.com/discussion/4875814


DD