[2025] EWHC 2336 (Ch)

Because the defendant argued that, in order to succeed on this point, the claimants must show an element of acting unlawfully and abusing procedures provided by company and insolvency law, I consider those matters separately in this section of my judgment.

In Rossendale at paragraph 44 the Supreme Court stated:

“…a voluntary liquidation conducted in accordance with the applicable rules, and for the purpose of the orderly winding up of the affairs of the SPV, would not achieve the scheme’s objective of obtaining a substantial financial benefit for the landlord of the property and the promoter of the scheme. Liquidators would be appointed. They would quickly realise that the leases were onerous and disclaim them. The landlord of the property would then become entitled to possession again. To delay this, the scheme was arranged so as to secure that the liquidations would continue rather than proceed to a conclusion.”

I accept and adopt the observations of Norris J in re PAG Management Services Ltd [2015] EWHC 2404 (Ch) where he said

“In my judgment the purpose of liquidation is the collection, realisation (though not invariably) and distribution of assets in satisfaction of the claims of creditors and the entitlements of members…I hold that there is a clear public interest in ensuring that the purpose of liquidations is not subverted, as I consider it is by treating a company in liquidation as a shelter (and seeking to prolong its continuation as such.”

It was argued that this was wrong and per incuriam, because there is nothing in the Insolvency Act 1986 which provides that the members of the company must have any particular purpose in mind when deciding to put that company into MVL; and that Act is not concerned with questions of tax or tax avoidance; while section 91(1) of the 1986 Act refers to the liquidators being appointed for the purpose of winding up the company’s affairs and distributing its assets, this originated from s 133(2) of the Companies Act 1862 Act which did no more than define the consequences ensuing upon a voluntary winding up - so that it has nothing to do with the purposes of a liquidation, only with the functions of the liquidator.

I do not accept this submission. It entails ignoring the reasons why the legislation is in place at all. Moreover, the express provision about the functions of a liquidator illuminates the purpose of a liquidation.

Section 91 Insolvency Act 1986 requires a company in members voluntary winding up to appoint one or more liquidators for the purpose of winding up the company’s affairs and distributing its assets. The requirement is unqualified. In my judgment, to put a company into members voluntary winding up on the basis that no liquidator will be appointed, which is the basis of scheme 1, the Wigan scheme, represents a misuse of the insolvency process and legislation.

In relation to scheme 2, the Trafford scheme, Mr Mather accepted that the liquidator was selected by PAG, and selected on the basis of willingness to conform with the scheme, the essence of which was that the scheme lease should not be disclaimed. Accordingly, in my judgment there was an abuse of the insolvency legislation.

It is no answer, in my judgment, to say that NDR was avoided, not because of the insolvency legislation, but because of the winding up exemption, which was a feature of the rating legislation. The misuse was of the insolvency legislation, to gain the benefit of the winding up exemption for purposes for which it was not provided. It was an abuse of both. Nor it is anything to the point to say that there is nothing inherently wrong or unusual about the incorporation of an SPV to act as an asset shelter for the purpose of some artificial transaction device designed to avoid tax. The incorporation of the SPV is not, on its own, the objectionable feature. I do not need to decide whether the liquidators acted improperly: the question is the propriety of the scheme in the context of the legislation and its purposes.

The defendant submitted that since each element of the scheme was (it was said) not a misuse of legal process, or otherwise unlawful, it was impossible to see how the schemes might be criticised when each of those lawful elements was added together. I do not accept this either. It is the combination of the parts which is objectionable.

It was argued on behalf of the defendant that an important distinction was to be drawn between MVLs and any other kind of winding up, because MVLs were always to be treated as a private affair of the company’s members, with limited if any consideration given to the interests of creditors or other third party stakeholders. That being so, it was hard to say that the schemes represented a misuse of the insolvency process. The avoidance of NDR was a byproduct, and should be regarded as a completely separate matter. However, this argument cannot stand with Rossendale, and I need say no more about it.

Leading Counsel for the defendant also submitted that if the SPVs, with the immediate legal right to possession under the scheme leases, were not liable for NDR, there is a question as to who is liable. Rossendale at [50] suggests you go up the “tenurial chain, starting with the freeholder and working downwards.” But if PAG is to be regarded as having a real and practical ability to possess the relevant hereditament, but does not have the legal right to do so because of the scheme leases, it is hard to see how the Rossendale test could be satisfied at all, and the case must have been wrongly decided.

He accepted, nonetheless, that this court is bound by Rossendale, and did not invite me to engage with this supposed paradox. I note, however, that Rossendale stated that

“The Act requires someone to be identified as the owner. That will be the person who, in any tenurial chain, starting with the freeholder and working downwards, has not disposed of the entitlement to possession of the property in question.”

Accordingly, I conclude that neither scheme was effective to avoid NDR and that PAG is in principle the person liable for NDR.