County Durham Environmental Trust Ltd v Twizell & Anor

Proceeds from selling land acquired with qualifying contributions under the landfill tax credit regime are capital, not “income” or “income derived” from those contributions. Regulation 33A(1)(b) therefore does not require the sale proceeds to be applied to approved environmental objects. The statutory clawback mechanism in regulation 36 does not justify extending the ordinary meaning of “income”. Once no regulatory breach is established, the insolvency regime may operate and administrators may proceed with the sale, subject to the court’s control.

Groundwork Community Forests North East Developments Ltd entered administration owning land acquired partly with Landfill Communities Fund contributions. Its creditors had approved proposals to sell the land and use the proceeds towards administration expenses and unsecured creditors.

County Durham Environmental Trust Ltd sought variation of an earlier Berkeley Applegate order and opposed the proposed sale of Skerningham Woods. The administrators sought directions on whether they could exchange contracts and receive remuneration from the sale proceeds. The central issue was whether the proceeds constituted “income derived” from qualifying contributions under the Landfill Tax Regulations 1996.

1. The applications. The administrators were authorised to enter into contracts for the sale of Skerningham Woods. The parties agreed to bear their own costs.
2. Meaning of income. The proceeds of sale were capital rather than income in the ordinary sense. The references to “income” in Part VII of the Landfill Tax Regulations 1996, including regulation 30, did not justify treating the proceeds as income derived from the qualifying contributions.
3. Regulation 33A(1)(b). Because the sale proceeds were not “income derived therefrom”, the requirement to apply qualifying contributions and derived income only to approved objects was not engaged. The possible clawback under regulation 36 did not justify stretching the statutory language, particularly where that would create a potential liability many years after the contribution.
4. Mixed funding. If the proceeds had been income, the contribution from CDENT would have formed a substantial part of the purchase price and part of the proceeds could have been treated as derived from that contribution. It was unnecessary to decide whether the relevant amount would be £50,000 or a pro rata share.
5. Contractual restriction. The contractual prohibition on changing the use of the site had not yet been breached. CDENT accepted that it was unenforceable against purchasers. The contractual and regulatory objections therefore did not prevent the sale.
6. Insolvency regime. Once there was no breach of regulation 33A(1)(b), there was no reason why the statutory regime under the Insolvency Act 1986 should not take its course.

The applications were initially made in the County Court. Judge Langan QC made a Berkeley Applegate order and gave the respondents liberty to apply to vary or discharge it. The matter was then transferred to the High Court because of the issues raised.

High Court (Chancery Division): the variation and directions applications were determined by John Behrens J. The administrators were authorised to enter into contracts for sale.