Yang v The Official Receiver & Ors

A later setting aside of a council tax liability order does not establish that a bankruptcy order ought not to have been made under section 282(1)(a) of the Insolvency Act 1986. The appropriate remedy is ordinarily rescission under section 375(1), because the change in circumstances occurs after the bankruptcy order. A liability order is a judgment debt for insolvency purposes, but it is not equivalent to a default judgment. Challenges to the underlying council tax liability belong before the valuation tribunal. An appellate court should not interfere with a first-instance assessment of service and evidence unless the judge misdirected himself, considered an irrelevant matter, omitted a relevant matter, or was plainly wrong.

The appellant, a former bankrupt, appealed orders made by District Judge Khan on applications concerning a bankruptcy order founded on unpaid council tax liability orders. She sought annulment under section 282(1)(a) of the Insolvency Act 1986, alternatively rescission under section 375(1). After the bankruptcy order, the valuation tribunal removed her liability for the relevant council tax period. The district judge refused annulment but ordered rescission, and rejected challenges concerning service of the statutory demand and bankruptcy petition. Permission to appeal was granted on nine grounds, but the hearing concerned grounds one to six.

The appeal was dismissed on grounds one to six. The court accepted that the district judge had correctly refused annulment and that rescission was the appropriate remedy.

1. Annulment and rescission. A liability order later set aside may show that there was no liability properly founding the petition within section 282(1)(a) of the Insolvency Act 1986, but it does not follow that the bankruptcy order ought not to have been made when made. The subsequent change in facts is instead an exceptional circumstance supporting rescission under section 375(1) (paras [20]–[24]).
2. Nature of a liability order. The statutory scheme prevents the magistrates’ court, on an application for a liability order, from determining whether the property is chargeable, whether the debtor is liable, or whether the calculation is correct. Those matters are subject to the valuation tribunal appeal mechanism. A liability order converts the liability into a judgment and the amount due is deemed to be a debt for section 267 purposes. It is not equivalent to a default judgment (para [21]).
3. Pending challenge. Where a bona fide appeal to the valuation tribunal is pending when the bankruptcy petition is heard, the debtor may seek an adjournment until that appeal is finally determined. If the liability order is subsequently set aside, the appropriate application is for rescission rather than annulment (paras [22]–[23]).
4. Service and appellate restraint. Whether the creditor took all reasonable steps to bring a statutory demand to the debtor’s attention is primarily a first-instance evidential assessment. The appeal court should not interfere merely because it might have reached a different view. Intervention requires misdirection, reliance on an irrelevant matter, failure to consider a relevant matter, or a plainly wrong decision. Applying that approach, the district judge had properly considered the service rules, the available addresses and the evidence concerning email service (paras [31]–[35]).
5. The appeal was dismissed in relation to grounds one to six. Grounds seven to nine were not determined on that day (para [36]).

1. High Court (Chancery Division): District Judge Khan refused annulment under section 282(1)(a) of the Insolvency Act 1986, ordered rescission under section 375(1), and rejected the service challenges. The High Court dismissed the appeal on grounds one to six.