Kaye v South Oxfordshire District Council & Anor

For insolvency purposes, liability for non-domestic rates for an entire chargeable financial year may constitute a contingent liability existing at the date of a company voluntary arrangement. The liability arises from occupation of the hereditament and is not limited to instalments that have fallen due under the statutory collection regime. Accordingly, the billing authority may prove for the full outstanding rates for that year, subject to any later extinguishment of liability, such as cessation of occupation. The same reasoning may apply in liquidation and personal bankruptcy.

The supervisor of a company voluntary arrangement sought directions concerning the amount of non-domestic rates provable by South Oxfordshire District Council. The company occupied premises during the 2013–2014 financial year and had been permitted to pay its rates by ten monthly instalments. The company entered into the voluntary arrangement before the council had served a reminder notice causing the remaining instalments to become immediately payable.

The council proved for £1,918.26, representing rates accrued up to the date of the arrangement. The supervisor contended that the full annual liability was a debt or liability within the arrangement. The central issue was whether the statutory instalment regime divided the liability into separate debts or merely regulated payment of a single, contingent annual liability.

1. The application succeeded. The council was entitled to prove in the company voluntary arrangement for the full outstanding non-domestic rates for the 2013–2014 financial year, rather than only £1,918.26. The company would have a good defence to the pending summons insofar as it sought recovery of sums bound by the arrangement.
2. Under section 43 of the Local Government Finance Act 1988, liability is calculated by reference to chargeable days and the chargeable amount. The collection regulations provide for payment by instalments, but those provisions regulate the discharge of the liability. They do not create a series of separate liabilities corresponding to each instalment.
3. Condition 20 of the voluntary arrangement incorporated the insolvency provisions governing proof in a liquidation. Insolvency Rule 13.12 included a debt or liability arising after the relevant insolvency date from an obligation incurred before that date, and made it immaterial whether the liability was present or future, certain or contingent.
4. The company’s occupation of the premises on 1 April 2013 created an existing obligation in respect of the annual rates. The future liability was contingent because it could have been extinguished if the company vacated the premises, but it nevertheless fell within Insolvency Rule 13.12 at the date of the arrangement.
5. Re Nolton Business Centres Ltd [1996] BCC 500 was distinguished. It concerned the liquidation-expenses principle and instalments becoming due after liquidation, rather than the status of a contingent liability under Insolvency Rule 13.12. R (Mohammed) v London Borough of Southwark [2009] EWHC 311 (Admin); [2009] BPIR 882 was also distinguished because a liability order had already caused the full outstanding council tax to become payable before bankruptcy.
6. The reasoning was considered equally capable of applying in a company liquidation and, potentially, in personal bankruptcy. The parties’ costs were to be treated as an expense of the voluntary arrangement, subject to the supervisor having sufficient funds. A transcript was directed to be obtained at public expense.