Local authority – Grant – State aid – Central government fund supporting certain businesses during Covid-19 pandemic – Local authorities administering fund – Undertaking in difficulty not eligible for grant – Conditions for bringing collective insolvency proceedings against claimant fulfilled but not yet commenced – Defendant refusing application for grant – Claimant applying for judicial review – Whether claimant an “undertaking in difficulty” – Whether commencement of bankruptcy proceedings required – Application dismissed
The Retail, Hospitality and Leisure Grant Fund (RHLGF) (now ended) was created as a result of grants made by the secretary of state for business, energy and industrial strategy to local authorities pursuant to section 31 of the Local Government Act 2003. Its purpose was to support businesses in the retail, hospitality and leisure sectors with their business costs during the coronavirus pandemic.
The administration of the RHLGF by local authorities was governed by the guidance issued to them by the Department for Business, Energy and Industrial Strategy (BEIS), which contained conditions pursuant to which the funding was provided to local authorities and by which they awarded grants.
The RHLGF was a form of state aid and so was subject to the requirements of EU law. It was a measure aimed at remedying the liquidity shortage faced by undertakings and ensuring that disruptions caused by the Covid-19 outbreak did not undermine businesses’ viability. Aid might be granted under the measure only to undertakings that were not in difficulty, within the meaning of EU Commission Regulation 651/2014 (GBER), on 31 December 2019.
Article 2(18)(c) of the GBER provided that an “undertaking in difficulty” (or undertaking in distress) was: where the undertaking was subject to collective insolvency proceedings or fulfilled the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors.
The defendant local authority refused the claimant’s application for a grant under the RHLGF for a property at New Street, Huddersfield, on the basis that the claimant was an undertaking in difficulty at the relevant date. As at 31 December 2019, there was a statutory demand against him, and his attempt to set aside the statutory demand and liability order had failed. The claimant applied for judicial review.
Held: The application was dismissed.
(1) The starting point was a careful consideration of the wording of article 2(18)(c). It drew a specific distinction between: (i) the position where an undertaking “is subject to collective insolvency proceedings”; and (ii) the situation where the undertaking “fulfils the criteria under its domestic law for being placed in collective insolvency proceedings at the request of its creditors”. It specifically did not require a bankruptcy order to have been made.
It was clear that the first part of article 2(18)(c) referred to the situation where collective insolvency proceedings had actually commenced. That was what the words “is subject to” meant in that context. The second part referred to the situation where the statutory conditions under domestic law for the bringing of collective insolvency proceedings by creditors were fulfilled, but such proceedings had not yet commenced. That was what the words “fulfils the criteria under domestic law for being placed in collective insolvency proceedings” meant. Those words, in particular “for being placed”, looked to the future and to proceedings which had not yet commenced, but could commence because domestic law criteria were satisfied.
In the present case, the claimant qualified as an undertaking in distress as at 31 December 2019. Section 267 of the Insolvency Act 1986 set out the grounds for a creditor’s position. By section 267(1) a creditor’s petition had to be in respect of one or more debts owed by the debtor, and the petitioning creditor or each of the petitioning creditors had to be a person to whom the debt, or at least one of the debts, was owed. Section 267(2) then set out further conditions, including that the amount of the debt, or the aggregate amount of the debts, was equal to or exceeded the bankruptcy level (£5,000) (section 267(2)(a)); the debt, or each of the debts, was a debt which the debtor appeared either to be unable to pay or to have no reasonable prospect of being able to pay (section 267(2)(c)); and there was no outstanding application to set aside a statutory demand served (under section 268) in respect of the debt or any of the debts.
(2) Section 268 defined “inability to pay”. In essence, it required the debtor to have been served with a statutory demand requiring payment which had remained unsatisfied for three weeks, or a statutory demand served on the debtor requiring him to show there was reasonable prospect of him paying, but again he had failed to do so within three weeks. Thus, if there was any unsatisfied statutory demand for at least £5,000 within the terms of section 268 then a bankruptcy petition could be presented to the court and the debtor was an undertaking that “fulfils the criteria under domestic law for being placed in collective insolvency proceedings”.
It followed that the defendant was right to conclude that the claimant was an undertaking in distress within article 2(18)(c) because a statutory demand for more than £5,000 had been served upon him which had not been set aside and had not been satisfied within three weeks. He was therefore liable to be made subject to bankruptcy proceedings at the defendant’s election and those were agreed to be collective insolvency proceedings for the purposes of the GBER. The fact that the defendant would have to satisfy a number of procedural rules in order to commence the proceedings did not prevent the claimant having the status of an undertaking in difficulty at the relevant date.
That was consistent with other prescribed definitions of “undertakings in difficulty” in article 2(18) because most, if not all, of those definitions referred to an entity’s status, and did not require legal proceedings to have been instituted before the undertaking was one in difficulty.
Therefore, by failing to satisfy the statutory demand against him, according to English law, in particular section 268 of the 1986 Act, it was taken to be proved that the claimant was unable to pay the significant debt which he owed to the defendant. Taking a common-sense view of when an undertaking was in difficulty, an inability to pay such a debt satisfied such a description, irrespective of whether bankruptcy proceedings had actually commenced.
Rashid Ahmed (instructed by Ashwells Law LLP of Bradford) appeared for the claimant; Aidan Reay (instructed by Kirklees Borough Council) appeared for the defendant.
Eileen O’Grady, barrister
Click here to read a transcript of R (on the application of Hussain) v Kirklees Borough Council
