Yang v The Official Receiver

The Court of Appeal dismissed the appellant's challenge to the decision below. The court held that the statutory demand was validly served, applying Insolvency Rules 1986 r6.3(2) and the Practice Direction (2000) on substituted service. The court further held that the subsequent setting aside of council tax liability orders did not amount to a ground "existing at the time the [bankruptcy] order was made" for the purposes of section 282(1)(a) of the Insolvency Act 1986, because reg 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 statutorily deemed the liability orders to constitute legally enforceable debts until set aside. Accordingly the correct remedy was rescission under section 375(1) rather than annulment under section 282(1)(a). The court also refused to disturb the costs orders below, concluding they were not consequential on the decision to rescind rather than annul and had been properly reached having regard to the appellant's conduct.

Background and parties. The appellant owned rental properties in Manchester. Manchester City Council (second respondent) obtained council tax liability orders in 2006-2007. A statutory demand was served by substituted service in May 2009 and a creditor's petition followed; a bankruptcy order was made on 30 November 2009. The Official Receiver (first respondent) suspended automatic discharge and a trustee in bankruptcy (third respondent) was appointed. The appellant brought successive applications seeking annulment of the bankruptcy order; the present appeal challenges the order of HHJ Hodge QC dismissing an earlier appeal from DJ Khan.

Nature of the application and issues. The appellant sought annulment or rescission of the bankruptcy order. The Court of Appeal identified three issues for determination: (i) whether the statutory demand was properly served; (ii) whether the bankruptcy order should be annulled under s282(1)(a) IA 1986 (either because the SD was not properly served or because the liability orders were subsequently set aside) rather than rescinded under s375(1) IA 1986; and (iii) whether the costs orders below should be reopened if the appellant succeeded on the substantive points.

Procedure and submissions. The appellant did not attend the hearing and had dis-instructed counsel shortly before the hearing; the court proceeded on written submissions previously filed. The second respondent argued that service complied with r6.3(2) Insolvency Rules and the 2000 Practice Direction and that reg 49(1) CTR deemed the liability orders to be debts until set aside, so annulment under s282(1)(a) was not engaged. The appellant argued that a different test applied to substituted service, and that by analogy with cases concerning default judgments the subsequent setting aside of the liability orders should permit annulment.

Court's reasoning and conclusion. The court upheld the factual and evaluative conclusions below that the statutory demand had been validly served at the appellant's last known residential address and that there was no obligation to attempt service at a mere correspondence address. On the central statutory issue, the court concluded that reg 49(1) CTR statutorily deemed liability orders to give rise to enforceable debts until set aside, so the subsequent setting aside in August 2012 did not constitute a ground "existing at the time the order was made" for s282(1)(a). The court preferred the reasoning in Cassells and JSC Bank of Moscow v Kekhman over the dicta in Farley and related authorities, and concluded that the appropriate remedy for the later setting aside of the liability orders was rescission under s375(1), not annulment. The court refused to disturb the costs orders, which were not dependent on whether the order was rescinded or annulled. The appeal was dismissed.

Appeal dismissed. The Court of Appeal held (1) the statutory demand was validly served in accordance with Insolvency Rules r6.3(2) and the Practice Direction (2000); (2) reg 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 deemed liability orders to be legally enforceable debts until set aside, so the subsequent setting aside of those orders was not a ground "existing at the time the [bankruptcy] order was made" for annulment under section 282(1)(a) IA 1986; and (3) the correct remedy was rescission under section 375(1) IA 1986 rather than annulment, with no basis to disturb the costs orders below.

Appeal from the High Court (Manchester District Registry). The bankruptcy order was made on 30 November 2009. DJ Khan heard the third annulment/rescission application and made his order on 12 November 2012. His order was upheld by HHJ Hodge QC on 18 November 2013. Permission to appeal to the Court of Appeal was granted by Patten and Briggs LJJ on 22 April 2015. This Court heard the appeal and delivered judgment on 10 October 2017 ([2017] EWCA Civ 1465).