Dennis Rye Ltd v Bolsover District Council

The Court of Appeal refused permission to appeal against HHJ Cooke's refusal to dismiss a winding up petition presented by a local authority for unpaid council tax. The court applied the established Companies Court practice that a company may defeat a winding up petition by showing a genuine and serious cross-claim likely to exceed the petition debt, but held that the company had not adduced sufficient evidence to meet that threshold. The judge was entitled to take into account the company’s failure to challenge liability orders or to bring ordinary civil proceedings to establish the alleged cross-claim. Relevant provisions considered included section 122(1)(f) of the Insolvency Act 1986 and regulation 49 of the Council Tax (Administration and Enforcement) Regulations 1992.

Background and parties: Dennis Rye Limited (the company) was the subject of a winding up petition presented by Bolsover District Council based on a statutory demand for unpaid council tax and penalty charges. A number of liability orders had been made by the magistrates' court. The company disputed the debt and asserted a cross-claim for restitution arising from an alleged mistaken overpayment, relying in part on an asserted Class G exemption under the Council Tax (Exempt Dwellings) Order 1992.

Procedural posture: The petition was heard in the Companies Court before HHJ Cooke, who found the company’s evidence of a cross-claim insufficient and held that £4,852.25 was due. The company paid that sum, the petition was continued on other petitioners, and the company applied for permission to appeal to this court. The application for permission to appeal was made out of time but an extension was granted for that point.

Nature of the application: The company sought permission to appeal the judge's finding that its cross-claim was not genuine and serious and asked for dismissal of the petition with an order for costs in its favour.

Issues framed by the court:

• Whether the Companies Court should have dismissed the winding up petition because the company had a genuine and serious cross-claim exceeding the petition debt;
• Whether the company was required, as a matter of law, to have previously litigated or otherwise taken steps to establish its claimed exemption or to challenge the liability orders before relying on the cross-claim in the insolvency proceedings;
• Whether the judge erred in law in the approach to the evidential threshold for a genuine and serious cross-claim.

Court’s reasoning and conclusion: The Court of Appeal observed the settled practice that a genuine and serious cross-claim will normally, but not automatically, lead to dismissal of a petition. In assessing whether a cross-claim is genuine and serious the court may take into account all relevant circumstances, including whether the company has attempted to litigate the cross-claim. The company had not appealed liability orders, had not taken steps before the petition to establish the Class G exemption or to litigate restitution, and had provided insufficient evidence of the causal link, relevant periods of non-occupation and the precise amount of the asserted cross-claim. The judge therefore did not err in concluding the cross-claim was insufficient to prevent the winding up petition from proceeding. The application for permission to appeal was refused and the company was ordered to pay the council’s costs of the permission application.

Subsidiary findings: The court noted it was unnecessary to decide whether Class G applied, from what date any exemption might run, whether liability orders were properly obtained or whether any overpayment could be recovered in restitution, because the threshold question for the Companies Court was the sufficiency of the evidence of a genuine and serious cross-claim.

Permission to appeal was refused. The Court of Appeal held that the judge did not err in law in finding that the company had not demonstrated a genuine and serious cross-claim likely to exceed the petition debt. The company’s failure to challenge liability orders or to bring ordinary civil proceedings to establish its alleged exemption or restitution was a relevant factor in assessing the sufficiency of the cross-claim, and the Companies Court was not the appropriate forum to determine the detailed merits of the asserted council tax exemption.

This was an application to the Court of Appeal for permission to appeal from the decision of HHJ Cooke (Birmingham District Registry, No 6721 of 2008) given on 6 November 2008. The permission application was heard inter partes on 27 March 2009 and refused by the Court of Appeal on 6 May 2009. The Court noted the application for extension of time had been allowed.