Insolvency set back 20 years by court ruling

A court ruling establishing that councils' business rates should be paid ahead of administrators' fees has set insolvency back 20 years and will see more retailers collapse rather than being sold on, experts claim.

The High Court last week ruled that Exeter City Council could have first claim on funds left by Trident Fashions, a retail group. The case is thought likely to set a precedent for all administrations involving businesses with property, particularly retailers.

Administrators usually hold off paying business rates for insolvent businesses, meaning they were not commonly paid. Business rates were treated as expenses ahead of administrators fees prior to the Insolvency Act 1986.

Carolyn Swain, a partner at law firm Halliwells, said administrators could be forced to pay back millions of pounds from their own fees to cover previously unpaid business rates.

‘The decision has opened up enormous liabilities that administrators may not have provided for,’ she said.

Swain added that companies expected to go into administration would be more likely to go into liquidation as a result, due to the extra liabilities.

Major retail businesses in insolvency, include Benjys. Music Zone and the Greeting Card Group have also been in administration.

Begbies Traynor’s Paul Stanley said the decision went against the spirit of insolvency rules and will act as a deterrent for administrations. ‘The job is becoming virtually impossible, business will just shut down with no jobs saved.’