Twizell & Anor v Entrust & Ors

The Court of Appeal dismissed Entrust's appeal and affirmed the administrators' power to sell land acquired using grants made under the Environment Credit Scheme. The court treated the sales proceeds as assets of the company and not held on trust for the grantor (CDENT) for the purposes of the orders before it. The decision rests on the interaction between the Insolvency Act 1986 sale powers and the Landfill Tax Regulations 1996 (Part VII), in particular Regulations 30–36 and Regulation 33A, and the limited enforcement role conferred on Entrust by those Regulations.

The court declined to decide in this appeal two unresolved statutory questions (whether proceeds of sale are "income derived from" a qualifying contribution and whether the duty to "apply" contributions is a continuing obligation attaching to the property representing the contribution) because they were not necessary to the outcome. Costs of the appeal were ordered against Entrust.

Background and parties: The case concerned Groundwork Community Forests North East Developments Ltd ("the Company"), an approved environmental body under the Landfill Tax Regulations 1996 Part VII which had received grants (qualifying contributions) funded by landfill operators. The Company, and two associated companies, became insolvent and administrators (Mr Twizell and Mr Martin) were appointed. The administrators proposed to sell four sites acquired with grant money. Entrust, the regulatory body approved to oversee the Environment Credit Scheme, raised concerns that the grants may have been misapplied and that proceeds should be protected pending investigation.

Procedural posture: The administrators obtained a court order authorising them to sell and to pay their remuneration out of sale proceeds; HH Judge Behrens authorised the sale of one site (Skerningham Woods) and declared its sale proceeds to be assets of the Company not held on trust for CDENT. Entrust, which was not a creditor or contributory, appealed to the Court of Appeal; the appeal was heard following permission to appeal.

Nature of the claim and relief sought: Entrust sought to set aside the authorisation to exchange contracts for sale and to challenge the declaration that the proceeds were company assets rather than held on trust for a grantor.

Issues framed by the court: (i) Whether the administrators should be authorised to exchange contracts for the particular site; and (ii) whether the proceeds of that sale were company assets or held on trust for CDENT.

Court's reasoning and conclusions: The Chancellor concluded that the administrators had the power to sell under the Insolvency Act 1986 and that the statutory scheme governing qualifying contributions did not give Entrust a right to prevent the proposed sale or an immediate proprietary claim to the sale proceeds in the circumstances before the court. The court observed that enforcement of the Landfill Tax Regulations, including recovery of credits, is vested in HMRC and that Entrust's regulatory powers lie principally in approval, condition-imposition and revocation under Regulation 34. Two statutory interpretive questions—whether sale proceeds are "income derived from" a qualifying contribution and whether the obligation to "apply qualifying contributions" is a continuing proprietary restriction—were acknowledged but left undecided because they were unnecessary to decide the appeal. The appeal was dismissed and Entrust was ordered to pay the costs of the appeal, assessed if not agreed, on an indemnity basis, with liberty to apply to vary that costs order within 14 days.

The appeal is dismissed. The Court of Appeal held that the administrators were properly authorised to exchange contracts and that the proceeds of sale of the site were assets of the company, not subject to a trust in favour of CDENT, for the purposes of the applications before the court. The court further held that Entrust does not have the enforcement powers under the Regulations to recover credits or to interpose as a creditor in place of HMRC; unresolved statutory questions about whether proceeds are "income derived from" qualifying contributions and whether the duty to "apply" contributions is a continuing proprietary obligation were left for a future case where they are directly in issue. Costs of the appeal were ordered against Entrust.

Appeal to the Court of Appeal (Civil Division) from proceedings in the Leeds District Registry. Prior procedural history included an order by HH Judge Langan QC on 26 June 2009 authorising payment of administrators' remuneration (with liberty to apply to discharge), followed by contested applications before HH Judge Behrens on 21 August 2009 who authorised the sale of Skerningham Woods and declared the proceeds to be company assets; Entrust was granted permission to appeal to the Court of Appeal (resulting judgment [2009] EWCA Civ 1192).