Empty business rates, mitigation and a failed public interest winding up

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In October, HHJ Stephen Davies dismissed a petition presented by the Secretary of State under Section 124A Insolvency Act 1986 to wind up two companies which operate what has been described as rates mitigation scheme. Under this section, the Secretary of State may petition the Court to wind up a company if it believes it would be expedient and in the public interest to do so.

Here, both companies sought to take advantage of the business rates exemption which applies on empty properties where a company is placed into voluntary liquidation. This was done by the property owner incorporating an SPV, granting a lease to the SPV at a below market rate (of £1 per year), thereby making it liable to pay business rates, waiving the right to receive sums under the lease then placing the SPV into voluntary liquidation while the company refurbishes or remarkets the property. If remarketed, the lease was determined and a determination premium paid to the SPV based on a proportion of the business rates saved.

The Court had already wound up a company in 2015 which operated a similar model (without a determination premium), but after a 5 day trial, HHJ Stephen Davies refused to wind up both companies holding that the Secretary of State had not made out a case that either company should be wound up. Merely devising and implementing a lawful scheme for avoiding business rates which uses an insolvency process was not, without something more, lacking commercial property or contrary to the public interest as long as the purpose of the MVL was for the collection, realisation and distribution of the assets, even if the asset was artificial and placed it into some form of tax shelter.   

Permission to appeal has been sought.

Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd [2019] EWHC 2890 (Ch)

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