Yang v The Official Receiver

For annulment under section 282(1)(a) of the Insolvency Act 1986, the relevant ground must exist when the bankruptcy order is made. A liability order remains a statutorily enforceable debt under regulation 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 until set aside. Its later setting aside supports rescission under section 375, not annulment.

A statutory demand is properly served where the creditor takes all reasonable steps to bring it to the debtor’s attention and personal service is impracticable. Substituted service at the debtor’s last known residential address can suffice. A separate correspondence address need not be used if it is neither residential nor a business address.

Jenny Yang appealed against HHJ Hodge QC’s order of 18 November 2013, which dismissed her appeal from DJ Khan’s order of 12 November 2012. The bankruptcy order had been founded on council tax liability orders. After the bankruptcy order, the Valuation Tribunal decided that the property should not have been designated as a house in multiple occupation, and the liability orders were treated as set aside.

DJ Khan rescinded the bankruptcy order, refused to annul it, and ordered that the trustee’s remuneration and expenses and the council’s costs be paid from Yang’s estate. The appeal concerned the validity of substituted service of the statutory demand, whether the later setting aside of the liability orders engaged annulment under section 282(1)(a) of the Insolvency Act 1986 or only rescission, and whether the costs decisions should be disturbed.

The appeal was dismissed unanimously. Sir Patrick Elias agreed with the judgment of Lady Justice Gloster.

1. Service of the statutory demand. Rule 6.3(2) of the Insolvency Rules 1986 required the creditor to take all reasonable steps to bring the demand to Yang’s attention and, where practicable, to effect personal service. The process server attempted personal service, gave advance notice of a further attendance, and then inserted the demand through the letterbox at Yang’s last known residential address. Those steps complied with the rule and the relevant practice direction. The fact that Yang later notified the council that she had moved was irrelevant. Her correspondence address was also irrelevant because it was neither a residential nor a business address.
2. Annulment and rescission. Section 282(1)(a) of the Insolvency Act 1986 concerns grounds existing when the bankruptcy order was made. Regulation 49(1) of the Council Tax (Administration and Enforcement) Regulations 1992 deemed the liability orders to be debts for the purposes of section 267 of the Act. They therefore constituted legally enforceable debts until set aside under the statutory procedure. Their later setting aside did not create a ground existing at the date of the bankruptcy order. The bankruptcy court should not go behind liability orders, save in cases such as fraud or a miscarriage of justice.
3. The reasoning in HM Revenue and Customs v Cassells [2008] EWHC 3180 (Ch) and JSC Bank of Moscow v Kekhman [2015] EWHC 396 (Ch) was preferred to the approach in Hoare v Inland Revenue Commissioners [2002] EWHC 775 (Ch). RBS v Farley [1996] BPIR 638 concerned a default judgment and its obiter suggestion did not govern liability orders imposed by statute.
4. Rescission and costs. Section 375 of the Insolvency Act 1986 permits rescission where there is new material or a material change of circumstances. The subsequent setting aside of the liability orders therefore justified rescission, not annulment. The costs decisions were based on independent matters, including Yang’s conduct, and would have been the same even if annulment had been ordered. There was no basis to interfere, and permission to appeal on costs was refused.

1. Court of Appeal (Civil Division): dismissed Yang’s appeal and refused permission to appeal in relation to the costs decisions.
2. High Court of Justice, Manchester District Registry: HHJ Hodge QC dismissed Yang’s appeal from DJ Khan’s order on 18 November 2013.
3. District Judge: on 12 November 2012, DJ Khan rescinded the bankruptcy order, refused annulment, and ordered payment of the trustee’s remuneration and expenses and the council’s costs from Yang’s estate.