Administrators face business rate burden

An impending test case could see council business rate charges paid ahead of
administrators’ remuneration, in a move that could return UK insolvency
proceedings to practices dropped 20 years ago.

The case, to be heard in the new year, involves Exeter City Council’s fight
for payment of non-domestic (known as ‘business’) rate arrears from the
administrators of Trident Fashions.

The issue of whether administrators should or should not pay business rates
has proved to be highly contentious. Some administrators will pay business rates
if there are enough funds available.

If not, then business rates are usually considered non-preferential and fall
by the wayside.

If the council wins the claim, then administrators could end up out of pocket
when managing businesses with multiple sites, such as retailers, due to business
rate costs.

The precedence of business rates over adminstrators’ remuneration was dropped
in the 1986 Insolvency Act, and reverting to it could put pressure on
practitioners managing struggling retailers.

Business recovery experts might then shy away from handling multiple-site
businesses all together, some have suggested.

Solicitors for the administrators could argue that a decision in favour of
the council would fly in the face of the Enterprise Act, which puts attempts to
save struggling businesses on a par with the interests of creditors, according
to Carolyn Swain, partner in the insolvency practice at Halliwells.

‘Parliament saw fit to drop the creditor status for business rates in 1986,
and this point could also be argued by administrators,’ she adds.

Swain suggests that business recovery experts would attempt to sell more
retailers through pre-packs – where the sale of the business is arranged prior
to administration – in an attempt to avoid accruing business rates in an ongoing
administration. ‘There is the risk of administrators having to pay these
expenses in the future.’

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