Receivers let off the hook on rates again

Insolvency practitioners can breathe a sigh of relief as their personal accountability for property rates was further diminished by a recent decision of the court of appeal.

In Re Beck Foods Ltd [2001] EWCA 1935, the court held that, despite the termination of receivers’ status as agents of the company in relation to which they have been appointed, on the company’s liquidation (pursuant to section 44(1)(a) Insolvency Act 1986), they cannot be held personally liable for the payment of rates on non-domestic properties.

The facts of the case are as follows:

Beck Foods Ltd (“Beck”) carried on a meat and burger-processing business. Pursuant to a debenture, a bank, the debenture-holder, appointed administrative receivers. The receivers closed down Beck’s meat-processing business but continued to run the burger-processing business. Beck was later placed into creditors’ voluntary liquidation, and subsequently sold, with the receivers and the liquidator executing the sale documents. The local authority then issued the receivers with a demand for payment of non-domestic property rates in respect of the premises, for the period from the commencement of the liquidation.

The receivers applied, under s.35 Insolvency Act 1986, for a declaration as to whether or not they should be personally liable for the payment of the rates. The court held that the actions of the receivers in managing the company’s business did not amount to a rateable occupation of a company’s premises. The occupation enjoyed by a receiver was actually occupation by the company, and in this case even though the receivers’ agency had terminated when the company went into liquidation, there was no change of occupation. The receivers were therefore not in rateable occupation and not personally liable for non-domestic rates.

Re Beck is the latest case in a line of authorities following attempts by local authorities to establish receivers’ personal liability for rates. The rationale behind such cases lies in the fact that until 1986, property rates were a preferential debt, payable out of the assets of a company in liquidation. The Insolvency Act 1986 removed local authorities’ status as preferential creditors, so they were required to look elsewhere for any rates which had not been paid, in the case of companies with insufficient assets to satisfy amounts due (which is usually the case where a company is in liquidation).

In Re Beck the statutory provision imposing liability for non-domestic rates in question was section 43(1) Local Government Finance Act 1988, which provides that a person shall be liable for non-domestic rates if they are in “occupation” of premises in respect of which rates are payable.

Although there is no statutory guidance as to the meaning of rateable occupation (which the court held was similar to the definition of “possession” referred to in previous cases), the court referred to four requirements for rateable occupation set out in Halsbury’s Laws of England, 4th Edition Reissue:-

1. actual occupation;

2. the occupation must be exclusive for the particular purpose of the possessor;

3. the possession must be of some value or benefit to the possessor; and

4. the possession must not be for too transient a period.

Previous authorities had established that no two parties could be in rateable occupation of a property at the same time. As receivers acted as agents of the company in relation to which they had been appointed (whether by a debenture holder, or by an order of the court), a receiver’s occupation of a property was to be treated as that of his principal, the company.

Therefore, the key question in Re Beck was whether or not, once a company had been put into liquidation, receivers could be liable for property rates as their agency had terminated. The council argued that the termination of the receivers’ agency meant that they occupied the property as principals and could therefore satisfy the four-fold test, rendering them personally liable for rates.

However, the court held that the termination of the receivers’ agency on the liquidation of the company was not effective to “dispossess” the company of rateable occupation of the premises. The presiding judge, Parker LJ, cited the authorities of Gyton v Palmour [1944] 1 KB 426 and National Provincial Bank of England v United Electric Theatres [1916] All ER 106 where it was held that a change in status of receivers was insufficient to make them “occupants” of rateable property (these cases dealt with court-appointed receivers but were applied by analogy by Parker LJ).

The court also followed the judgement of Slade LJ in Ratford v Northavon District Council (C.A.) [1987] QB 357, in finding that “the mere fact that a receiver has entered on a company’s premises for the purpose of managing and carrying on its business does not necessarily mean that the company has been dispossessed or has ceased to occupy the premises for rating purposes. If it is to be shown that a change of rateable occupation has occurred, this conclusion must be derived from the terms of the receiver’s appointment or from what he has actually done, or from both together.”

The local authority further submitted that the receivers’ powers to manage the business and affairs of the company, granted pursuant to the debenture under which they had been appointed, had terminated at the point at which the company went into liquidation. However, the court held that powers granted to receivers pursuant to a debenture to exploit a company’s business and assets continued unaffected despite any subsequent liquidation, so that the receivers could carry on the business of the company regardless of the change in their status.

The court therefore avoided the issue of the termination of receivers’ agency by providing that a company’s rateable occupation of a property could not be displaced merely by a change in status of receivers.

For further information about this article please contact Vicky Thompson of the Corporate Recovery Team on +44 (0) 7367 3025 or at [email protected]