Council tax liability and bankruptcy petitions—Okon v London Borough of Lewisham

What does the decision in Okon v London Borough of Lewisham tell us about the approach the court will take to appeals to set aside bankruptcy orders in relation to council tax liability orders? Tania Clench, legal director at Shakespeare Martineau, offers her thoughts on this judgment.

Original news

Okon v London Borough of Lewisham [2016] EWHC 864 (Ch), [2016] All ER (D) 123 (Apr)

The Chancery Division held that, providing the claimant gave certain undertakings, it would grant permission to appeal and allow an appeal and set aside a bankruptcy order made in respect of the claimant on the petition of a local authority. The petition had been based on council tax liability orders, which the claimant disputed. The court held that the judge ought to have adjourned the bankruptcy petition in order to await the outcome of the claimant's appeal to the Valuation Tribunal in respect of the liability orders.

What was the background to the case?

The applicant in this case was adjudged bankrupt off the back of a number of liability orders which were made as a result of unpaid council tax in respect of properties she owned. Her argument was that the liability orders should not have been made on the basis that the properties were tenanted. She argued that the tenants were responsible for paying council tax. The applicant had sought to set aside the liability orders prior to her bankruptcy via the magistrates’ court. What she did not realise was that if she wanted to challenge the merits of the liability orders the correct procedure was to make an application to the Valuation Tribunal appealing against them.

The relevant provisions to have regard to are section 16 of the Local Government Finance Act 1992 (LGFA 1992) and regulation 57(1) of the Council Tax (Administration and Enforcement) Regulations 1992, SI 1992/613 (the Council Tax Regulations). LGFA 1992, s 16 provides that a person may appeal to a Valuation Tribunal if they are aggrieved by ‘any decision of a billing authority that a dwelling is a chargeable dwelling, or that he is liable to pay council tax in respect of such a dwelling’. Regulation 57(1) of the Council Tax Regulations limits the ability to appeal an order stating that ‘any matter which could be subject of an appeal under section 16 of the Act may not be raised in proceedings under this Part’ (ie Part VI: Enforcement which includes reg 34 (application for a liability order).

What did the High Court have to decide in determining whether or not to set aside the bankruptcy order made on the basis of the council tax liability orders?

If the debtor has a bona fide appeal in existence at the time when the bankruptcy petition came on for hearing, then it was usual practice to adjourn the hearing of the petition until the appeal had been had been decided. It was said that this is the appropriate way of dealing with a challenge to a liability order in respect of unpaid council tax on the hearing of a petition. If there is an appeal to the Valuation Tribunal pending, the debtor can ask for the hearing of the petition to be adjourned pending the final determination of the appeal. The judge at the hearing of the petition did not have regard to whether the applicant’s intended appeal to the Valuation Tribunal was bona fide and substantial and whether in the exercise of her discretion she should adjourn the petition pending the outcome of the appeal. As that did not happen, Hollington QC was satisfied that he should exercise the discretion of the court ‘afresh’.

What order did the judge make and on what conditions?

Hollington QC stated that:

  • the magistrates’ court had failed to make the procedure clear to the applicant as regards challenging the merits of the liability orders
  • she was not to blame for the delay in making the appeal to the Valuation Tribunal—she should have been advised by both the relevant County Court and magistrates’ court that this was a necessary part of challenging her council tax liability

Further, he said (at para [25]):

In my judgment, the right course is as follows. Provided the Applicant undertakes to the court (1) to prosecute with all reasonable expedition and diligence that appeal, together with any application it needs to make to the Valuation Agency in respect of the registration of 18A Hillbrow Road as a rateable property, and (2) not, without the prior written consent of the Respondent or the leave of the court, to sell or otherwise dispose of any interest in any of the properties (otherwise than by way of arm's length short term lettings which do not confer security of tenure), I propose to allow the appeal, set aside the orders dated 2nd and 9 June 2015, and adjourn the bankruptcy petition. I will hear argument as to when the petition should be relisted. I considered taking the alternative course of leaving both the bankruptcy order and the stay in place pending the appeal, but that course has no significant advantage over the course I propose to take and it has the significant disadvantage of uncertainty.

The judge accepted that this was an area of considerable confusion for both councils and council tax payers alike as to the proper procedure to follow, what do you think about his obiter comments in relation to wider information to be given both to the courts and signposting to sources of legal advice?

It is confusing enough for the lawyers, let alone litigants in person! It always makes sense to increase awareness and/or provide training when an issue like this comes up as it will save time, expense and a certain degree of stress. There is a need for caution, however, to ensure that the court is not placed in the position of advising applicants. There is a world of difference between signposting applicants and advising them.

Tania Clench is the legal director at Shakespeare Martineau. Tania is a contentious insolvency specialist who represents a variety of clients including insolvency practitioners, company directors and individuals in both personal and corporate insolvency matters. Much of her practice centres around director protection to include advising on director’s duties and defending directors in respect of all manner of claims or proceedings.

This article first appeared on LexisPSL Local Government

Interviewed by Lucy Karsten.

The views expressed by our Legal Analysis interviewees are not necessarily those of the proprietor.

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