Exeter City Council v Bairstow & Ors

Under the new administration regime, business rates accruing on property occupied by a company in administration are payable as expenses of the administration as necessary disbursements under rule 2.67(1)(f) of the Insolvency Rules 1986.

The provision is materially aligned with rule 4.218(1)(m), which the House of Lords construed as defining liquidation expenses without requiring a separate benefit to the estate. The rescue culture underlying administration is relevant to statutory construction, but cannot justify disregarding the wording deliberately adopted by the rule-making authority.

Rates do not fall within rule 2.67(1)(a), which concerns expenses personally incurred by the administrator. The same reasoning provisionally applies to unoccupied property rates.

Exeter City Council sought declarations that business rates accruing on premises occupied by Trident Fashions plc during its administration were administration expenses payable under rule 2.67(1)(a) or (f) of the Insolvency Rules 1986, and fell within the former administrators’ expenses under paragraph 99(3) of Schedule B1 to the Insolvency Act 1986.

The administration began under the new regime introduced on 15 September 2003. The administrators continued to occupy and trade from the premises. The respondents did not participate in the final hearing, and an Advocate to the Court opposed the Council’s case.

The central issue was whether the new administration provisions should receive a different construction from the materially similar liquidation provisions considered in In re Toshoku Finance UK plc [2002] 1 WLR 671, having regard to the rescue purpose of administration.

1. Declarations granted. The rates accruing during the relevant period were expenses of the administration and fell within paragraph 99(3) of Schedule B1 to the Insolvency Act 1986.
2. Rates did not fall within rule 2.67(1)(a). That provision substantially reproduces the language of section 19(4), construed in Centre Reinsurance International Co v Freakley [2006] 1 WLR 2863 as covering expenses for which the administrator made himself personally liable. Rates are liabilities of the company and are not generally such personal expenses.
3. The material question was whether rates were necessary disbursements under rule 2.67(1)(f). Rule 2.67 was closely modelled on rule 4.218. In In re Toshoku Finance UK plc [2002] 1 WLR 671, the House of Lords held that the liquidation rule defined expenses as well as their priority, and that rates accruing during liquidation were necessary disbursements. The same words in rule 2.67 should ordinarily have the same meaning.
4. The rescue culture remains an important contextual consideration. It cannot, however, justify imposing on rule 2.67 a discretionary qualification rejected in the construction of rule 4.218. The policy balance was for the rule-making authorities under Schedule 8, paragraph 18 of the Insolvency Act 1986, not for the court.
5. Accordingly, occupied-property rates accruing during an administration are payable as expenses under rule 2.67(1)(f). Although unoccupied-property rates were not formally in issue, no relevant distinction had been identified and the judge’s provisional view was that they too were payable under that provision.