Insolvency – Administration – Proposals for sale of land acquired with funds distributed under Landfill Tax Regulations 1996 – Proceeds to be used to pay unsecured creditors and in remuneration of administrators – Whether proposals contrary to regulation 33A(1)(b) – Whether proceeds of sale “income derived from” qualifying contribution such that required to be applied to approved objects – Applications determined
These were two applications to determine issues that arose from the insolvency and administration of a company and the proposed sale by the administrators (the second applicants) of public amenity land that it held under the Landfill Tax Regulations 1996. The land had been purchased by the company with funds provided to it by distributive approved bodies, including the first applicant, out of tax deductible donations made by landfill operators to the Landfill Communities Fund. Following the insolvency, the company’s creditors approved proposals by the administrators to sell the land and to use the proceeds of sale to discharge their remuneration and to pay unsecured creditors. The administrators found a buyer and were ready to exchange contracts. However, the relevant regulatory body, ENTRUST, considered that such a sale would infringe the 1996 Regulations, possibly leading to a clawback of the tax credits granted to the landfill operators and litigation by those operators against the first applicant and/or the administrators. It took the view that the proceeds of sale would be “income derived from” a qualifying contribution for the purposes of regulations 30 to 33, such that it had to be applied for approved objects pursuant to regulation 33A(1)(b), and that the remuneration of the administrators or the payment of creditors would not comply.
The administrators brought proceedings for a “Berkeley Applegate” order, confirming that they would be entitled to their remuneration from the proceeds of sale in so far as the land was held on trust. Subsequently, the two applications under consideration were made by: (i) the first applicant, to vary the order in terms that brought into question the administrators’ right to sell the land for non-approved purposes; and (ii) the administrators, in response, for directions as to whether they should enter into the contracts for sale and as to their remuneration.
Held: The first application was dismissed; the second application was granted.
The proceeds of sale of the land were capital rather than income according to the usual meaning of “income”. The 1996 Regulations did not show that “income” was being used in any unusual sense. It took its ordinary meaning and referred to something that derived from the qualifying contribution; that did not include the proceeds of sale of the property acquired with the qualifying contribution. There was no reason to stretch the meaning of income so as to enlarge the right of clawback of tax credits against the original landfill operator under regulation 36 and so give rise to a potential liability to the landfill operator many years after the particular contribution was made.
Consequently, the proceeds of sale did not have to be applied to the approved objects and their use to pay creditors and/or pay the remuneration of the administrators was not contrary to the 1996 Regulations. There was no reason why the statutory regime of the Insolvency Act 1986 should not take its course; the administrators were authorised to enter into the contracts for the sale of the land.
Colin Thomann appeared for the first applicant; Hugh Jory (instructed by Collier Bristow) appeared for the second applicant administrators.
Sally Dobson, barrister
