Insolvency – Winding-up petition – Petition sums representing unpaid council tax in respect of which respondent council obtaining liability orders – Appellant asserting cross-claim for restitution of sums paid on ground that certain properties exempted from council tax – Judge finding no genuine and serious cross-claim and finding debt established – Whether judge required to determine whether claimed exemption applying – Whether judge should have found appellant having arguable case on cross-claim – Permission to appeal refused
The respondent council obtained a series of liability orders against the appellant in the magistrates’ court in respect of unpaid council tax on various properties. The appellant did not comply with those orders, nor did it appeal against them or take any steps to have them set aside. In February 2008, the respondents presented a winding-up petition against the appellant, based on a statutory demand, dated January 2008, for unpaid arrears of council tax, together with late-payment penalty charges in the sum of £16,846.26. The appellant paid more than £10,000 to the respondents, but the latter proceeded with the petition.
The appellant disputed the debt and asserted the existence of a cross-claim for restitution in respect of the sums it had already paid, contending that more than £8,000 had been paid erroneously because it related to properties that were exempt from council tax under the Council Tax (Exempt Dwellings) Order 1992. It contended that the petition should be dismissed and costs ordered against the respondents. Rejecting that contention, the judge found that the appellant did not have a genuine and serious cross-claim and held that £4,852.25 was due to the respondents. He further ordered the appellant to pay 80% of the respondents’ costs. He refused permission to appeal. The petition was adjourned to give the appellant time to pay the sum, which it did. The petition continued in respect of other debts alleged to be due to other creditors substituted for the respondents.
The appellant applied to the Court of Appeal for permission to appeal. It contended that the judge: (i) had wrongly failed to reach any decision on whether the relevant properties were exempt from council tax under the 1992 Order; (ii) should have found that they were exempt, such that the respondents had no claim for such sums and the liability orders should not have been made; and (iii) alternatively, should have held that it was at least arguable that the appellant had a genuine and serious cross-claim that exceeded the balance of the outstanding petition debt as at the hearing date.
Held: The application was refused.
It was the established practice of the Companies Court that if a company had a genuine and serious cross-claim that was likely to exceed the petition debt the court would normally exercise its discretion by dismissing the winding-up petition and allowing the company the opportunity to establish its cross-claim in ordinary civil proceedings: Montgomery v Wanda Modes Ltd [2003] BPIR 457 applied. A company was not prevented from raising a cross-claim in winding-up proceedings merely because it could have raised or litigated the claim before the presentation of the petition or it had delayed in bringing proceedings on the cross-claim; the failure to litigate the such a was not necessarily fatal to a genuine and serious cross-claim defeating a winding-up petition. However, in deciding whether it was satisfied that the cross-claim was genuine and serious, the court was entitled to take into account all the relevant circumstances, such as the fact that a company had not attempted to litigate the cross-claim or that there were reasons why it had not done so.
The issue before the judge was whether there was sufficient evidence satisfy him that the appellant’s cross-claim was not merely arguable but was genuine and serious. In the circumstances of the case, where the appellant had not claimed the exemption when served with the council tax bills, or exercised its right to appeal to the Valuation Tribunal, or contested the making of the liability orders in the magistrates’ court, or even raised the exemption it relied upon in its initial evidence in opposition to the winding-up petition, the judge had been entitled to conclude that the appellant’s evidence was insufficient to establish a genuine and serious case for exemption from council tax owing under the liability orders. He had not erred in law in reaching that conclusion. He had not been obliged to go further and decide other issues such as whether: (i) the exemption applied or from what date; (ii) the liability orders were properly obtained; or (iii) any sum paid by the appellant could be recovered in an action for restitution.
Note: The Court of Appeal considered that the points taken in the case were worth noting for future reference and that its judgment on the application for permission to appeal should therefore be treated as falling within the exception in para 6.1 of Practice Direction (Citation of Authorities).
Paul Joseph (instructed by Lewis Onions Solicitors, of Birmingham) appeared for the appellant; James Morgan (instructed by Summers Nigh Law LLP, of Northampton) appeared for the respondent.
Sally Dobson, barrister
