Insolvency rules lead to retail collapse fears
A court decision determining that business rates must be paid ahead of administrators’ fees is causing convulsions in the insolvency world
The Trident fashions case, over whether council rates should be paid ahead of
administrators’ fees, is said to have put the insolvency industry back by 20
years and made liquidations more likely and administrations more difficult.
The courts recently ruled that council business rates should be treated as a
preferential creditors in an administration. The decision places a huge expense
burden on administrators attempting to save businesses paying business rates.
Retailers will be particularly hard hit by the ruling, given the large number of
properties they commonly operate from.
Justice David Richards said policy dictated that business rates for both
occupied and unoccupied properties should rank as an expense in an
administration. The profession has argued vociferously against the decision,
warning that the upshot of the extra cost could be businesses entering
liquidation rather than being saved.
The decision appears to go against the principles of government thinking. The
Enterprise Act 2003 was introduced to encourage a rescue culture for struggling
businesses.
It is unlikely Trident administrators from Begbies Traynor will appeal, but
the profession is looking to the insolvency service to rewrite the rules to
circumvent the Trident decision.
In the meantime retailers are entering administration, so insolvency
practitioners are left to make tough decisions. Surely they must pay the rates?