One Source Dec 19 Deputy Director

Tower Hamlets Dec 19 Updated 600 3

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Secretary of State fails in High Court bid to wind up business rates mitigation companies

The High Court has refused to wind up two business rates mitigation companies alleged by the Secretary of State for Business, Energy and Industrial Strategy to be engaged in an abuse of the liquidation process.

Sitting at the Business & Property Courts in Manchester, HHJ Stephen Davies said in Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd [2019] EWHC 2890 (Ch) that PAG Asset Preservation and MB Vacant Property Solutions were not engaged in exactly the same form of business as companies earlier wound up by a court.

The Secretary of State petitioned under section 124A of the Insolvency Act 1986 to wind up the two companies on the public interest ground that they existed to operate a rates avoidance scheme.

Their service allowed landlords to avoid paying business rates by leasing property to a special purpose vehicle incorporated by the companies which is then placed into members' voluntary liquidation.

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The judge said: “The effect of the lease is that the SPV becomes the owner of the property in place of the landlords for the purpose of liability for business rates.

“The effect of the MVL [members' voluntary liquidation] is that the SPV is relieved of liability to pay business rates, because one of the exemptions from such liability as provided by the rating legislation is for companies which are being wound up, whether compulsorily or voluntarily.”

He said that while the Secretary of State did not contend these leases were contrary to any specific provisions of the insolvency or rating legislation or were sham transactions, “nonetheless she contends in summary that the business model adopted by both companies subverts the purpose of liquidations and that such misuse of the insolvency legislation demonstrates a lack of commercial probity such that it is just and equitable to wind up the companies”.

Companies operated by the owners of these two companies had earlier been wound up by the courts but they argued that there present scheme was materially different from those.

“Having considered the evidence and the submissions my decision is that the Secretary of State has not made out her case that the companies or either of them should be wound up on public interest grounds,” the judge said.

He said the difference was “the provision in the leases relating to the determination premium”.

Insolvency legislation is not misused, the judge said, where member voluntary liquidations involve the collection, realisation and distribution of assets, even though the process is designed to achieve that objective and deploys the use of artificial assets for that very purpose.

“Alternatively, to the extent that it might be said that there is a misuse, it is not sufficiently reprehensible when set against the whole of the factual and legislative context to justify a conclusion that the activities of the companies are so clearly lacking in commercial probity or otherwise so clearly against the public interest as to justify their being wound up on public interest grounds,” he concluded.

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