Winding up and the public interest test - Secretary of State for Business Innovation and Skills v PAG

Winding up and the public interest test - Secretary of State for Business Innovation and Skills v PAG

When is it just and equitable to wind up a company? Reuben Comiskey, barrister at 11 Stone Buildings, explores the recent case of Secretary of State for Business Innovation and Skills v PAG and explains that it suggests certain schemes ought to be wound up in the public interest.

Original news

Secretary of State for Business Innovation and Skills v PAG Management Services Ltd [2015] EWHC 2404 (Ch), [2015] All ER (D) 74 (Aug)

The Secretary of State presented a petition, under section 124A of the Insolvency Act 1986 (IA 1986), seeking an order that the respondent company be wound up on the basis that it would be expedient in the public interest. The Chancery Division, in allowing the application, held that misuse of insolvency legislation by the respondent's scheme demonstrated a lack of commercial probity, such that it was just and equitable to wind up the company.

What was the background to the petition briefly?

Under the Non-Domestic Rating (Unoccupied Property) (England) Regulations 2008, SI 2008/386, the occupier of business property is exempted from paying business rates on that property if it is in liquidation, either compulsory or voluntary.

Recently, a series of businesses have attempted to take advantage of this exemption to save landlords business rates on commercial properties while they are unoccupied. The method adopted by PAG Management Services Ltd is typical of these schemes. It involved the following steps:

  • PAG would incorporate a special purpose vehicle
  • PAG's client (the landlord) would grant a lease to the special purpose vehicle (SPV), generally for three years on a rent of £1 per year and with obligations as to use and repair, but terminable on seven days' notice
  • at the same time as granting the lease:
    • the landlord would waive the right to receive sums due under the lease, and
    • the SPV would be placed into members' voluntary liquidation (MVL)—so that it would be exempt from business rates
  • the MVL would proceed slowly, allowing the landlord time to refurbish and market the property without itself having to pay business rates - since the SPV was in occupation of the property
  • if a new tenant was found for it then the lease to the SPV would be te

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About the author:
Eleanor qualified in 1998 into the insolvency team at ASB law. She became a partner in 2005, and went on to head up the Recovery & Insolvency team. Whilst traditionally specialising mainly in contentious corporate insolvency matters, in recent years she has moved into the non contentious arena, in particular specialising in company administrations.