The High Court has considered the payment of business rates as expenses in new-style administrations. Business rates in respect of premises occupied by a company during the course of its administration are ‘necessary disbursements’ under rule 2.67(1)(f) and payable as expenses of the administration, as they are in a liquidation under rule 4.218(1)(m). Rates for unoccupied premises would also appear to be payable as administration expenses, although not as liquidation expenses. Administrators should consider seeking advice as to the recoverability of rates by local authorities in both closed and open cases, including potential retrospective claims. The corollary is whether administrators themselves may have claims to recover sums paid by mistake

Exeter City Council v Trident Fashions plc


Trident Fashions plc (the Company) was the subject of an administration order on 17 September 2003 when Kroll were appointed administrators. At that time, the Company owned the leasehold interest in all or most of the 98 retail units from which it traded, including a unit in Exeter (the Exeter property). Following a failed company voluntary arrangement, Kroll resigned as administrators and Begbies Traynor were appointed in their place (the Begbies administrators). After an extension of the term, the administration finally ended on 17 March 2005. Although a further set of administrators was subsequently appointed out of court by a secured creditor, their appointment was brief, as it was clear that the statutory purpose could not be achieved. The Company was finally ordered to be wound up on 27 April 2005.

Since the time of the administration order, both sets of administrators had continued the Company’s occupation of the Exeter property. Exeter City Council applied for relief that the rates in respect of the Exeter property, accrued while the Begbies administrators were in office, should be payable as administration expenses under two heads:

  • as expenses properly incurred by the Begbies administrators in performing their functions as administrators of the Company within the meaning of rule 2.67(1)(a) of the Insolvency Rules 1986 (the Rules); or
  • as necessary disbursements by the Begbies administrators in the course of the administration of the Company within the meaning of rule 2.67(1)(f) of the Rules.

The main issue in the case was whether rule 2.67 should be given a different interpretation from rule 4.218 (liquidation expenses) against the background of the purposes and provisions of the administration regime in schedule B1 to the Insolvency Act 1986 (the Act).


Richards J. stated that the decision as to whether rates were administration expenses was one of policy. He held that by adopting the same terms for rule 2.67 as for rule 4.218, the policy decision had been made that rates should rank as expenses in an administration (as they do in a liquidation). Although rates were not expenses properly incurred by administrators within the meaning of rule 2.67(1)(a), they were ‘necessary disbursements’ within rule 2.67(1)(f).

In reaching this view, he thought it critical that the amendments made to the Rules for the introduction of the new administration regime included, for the first time, provision as to expenses of the administration in rule 2.67 and, in particular, that paragraph (f) of that rule was for all material purposes identical to rule 4.218(1)(m

Rates as administration expenses – arguments against

The Advocate to the Court, appointed to argue in opposition to Exeter City Council because neither the administrators nor liquidators appeared at the hearing, suggested that the true meaning and intent of rule 2.67 had to be determined in the context of administrations and the policy consideration underlining them, which provided a very different context to liquidations. The overriding purpose of the administration regime is to promote rescue of companies and their businesses.

Automatically making rates an expense of an administration would seriously jeopardise that purpose. The importance of the rescue culture had been recognised in relation to new-style administrations by the Court of Appeal in In re Huddersfield Fine Worsteds Ltd. Furthermore, insolvency practitioners had voiced widespread concern about the issues raised in this case, particularly with regard to the impact on the ability to rescue companies in administration (a witness statement of Michael McLoughlin of KPMG was presented to the court).

The Advocate to the Court argued that the flexibility under the pre-Enterprise Act administration regime should continue, so that in appropriate cases the court could direct the administrator to pay liabilities arising in the administration in accordance with the Court of Appeal’s approach in In re Atlantic Computers plc. Notwithstanding the substantially identical terms of rule 2.67(1)(f) and rule 4.218(1)(m), the construction or rule 4.218(1)(m) in the context of liquidations by the House of Lords in In re Toshoku Finance UK plc was not applicable given the different context of administrations. The words ‘any necessary disbursements’ in rule 2.67(1)(f) should, he argued, mean disbursements necessary for the purposes of the administration, which was, ultimately, a matter for the court in accordance with the flexible approach in In re Atlantic Computers plc. Rates as administration expenses – the reality Richards J. agreed that it was right to construe the provisions of schedule B1 of the Act and the Rules relating to new-style administrations in the light of the underlying purpose of promoting business rescues. He also accepted that the automatic treatment of business rates as an expense of an administration would likely have an adverse effect on the achievement of rescues in ‘at least some cases’.

However, Richards J. could not accept that the court could disregard the construction put on essentially the same provisions in rule 4.218 by the House of Lords in In re Toshoku Finance UK plc and construe rule 2.67 entirely differently. By using the same terms as rule 4.218, the reasonable inference was that rule 2.67 should carry the same meaning – it could not have been intended to mean that the administrator or the court have discretion as to what were necessary disbursements when that very construction had been rejected by the House of Lords for the purposes of rule 4.218(1)(m). It could not sensibly be suggested that the Insolvency Service was not fully aware of the House of Lords’ decision when rule 2.67 was made.

Why is this relevant to you?

The decision has ramifications beyond the payment of business rates in existing and future administrations. For example, administrators will need to consider the possibility of facing claims from local authorities for the recovery of business rates in administrations that have been closed and where the administrators have obtained their discharge of liability under paragraph 98 of schedule B1 to the Act. The discharge does not prevent the exercise of the court’s powers under paragraph 75 covering misfeasance, misapplication of or being accountable for money or other property.

A range of counter-arguments will need to be considered, in a context not dissimilar to the Spectrum Plus decision re fixed/floating charges over book debts.

For example, administrators may argue that they acted on the basis of legal advice in not paying business rates (and indeed may have restitutionary defences such as change of position). However, the issue of when administrators may have been ‘on notice’ of the risk of this adverse finding will arise.

As a corollary, advice might also be sought as to whether administrators may have a claim, such as in restitution for unjust enrichment as payments made under a mistake of law. For example, could they seek to recover not only expenses paid under paragraphs (g)-(j) of rule 2.67 but also any sums paid to floating charge holders over whom the administration expenses have priority?

The judgment may perhaps be criticised for not giving sufficient weight to the policy differences between administration and liquidation, although Richards J. was clearly well aware of these. However, unless and until the decision is appealed or a change is made to the Rules or underlying rates legislation to clarify the point, in many cases administrators are likely to need to consider whether the relevant objective of the administration can continue to be achieved now that rates are payable as administration expenses.