Challenging council tax liability orders in bankruptcy proceedings.
The High Court has held that a liability order under the Local Government Finance Act 1992 in respect of domestic council tax cannot be the subject of dispute at the hearing of a bankruptcy petition: the only appropriate route for a debtor faced with a bankruptcy petition based on a council tax liability order is to appeal that liability order to the relevant valuation tribunal. Consequently, on hearing a bankruptcy petition based on a liability order, the court cannot investigate the merits of the liability order or set it aside; but it can adjourn the hearing of a bankruptcy petition to allow such appeal to be made, or, if the bankruptcy order has been made, in an appropriate case, rescind the bankruptcy order.
A debtor sought to set aside liability orders under the Local Government Finance Act 1992 (1992 Act) in respect of domestic council tax at the hearing of the bankruptcy petition based upon the liability orders. In the first instance the court refused to consider the merits of the liability orders and proceeded to make a bankruptcy order.
The debtor made an application to the court for permission to appeal the decision. At the hearing of the application, the court determined the appeal and decided that, although it was correct that the court at the original hearing had no jurisdiction to consider the merits of the liability orders, it was wrong in not considering why the debtor had not lodged an appeal to the valuation tribunal and whether any such intended appeal was bona fide. The court therefore was prepared, in this case, to rescind the bankruptcy order if the debtor gave undertakings to lodge an appeal promptly with the valuation tribunal.
The decision is specific to the workings of council tax liability orders, and in particular in relation to section 16 of the 1992 Act which provides that a person aggrieved by a decision of a local authority on council tax liability may appeal to the valuation tribunal, and regulation 57 of the Council Tax (Administration and Enforcement) Regulations (SI 1992/613) (1992 Regulations), which provides that any matter which could be raised on an appeal to a valuation tribunal cannot be raised in enforcement proceedings. The court held that the combined effect of these provisions meant that the court could not investigate the merits of the liability orders, as that was a matter for a valuation tribunal.
It reiterated that the appropriate remedy for a debtor who disputes a council tax liability order is an appeal to the valuation tribunal. The hearing of a bankruptcy petition is not an appropriate forum for such an appeal. Instead, since an unpaid council tax liability order is a ground for presenting a bankruptcy petition under regulation 49 of the 1992 Regulations and section 267 of the Insolvency Act 1986, the court may have no option but to make the bankruptcy order unless the debtor can show that an appeal against it is underway or (s)he has a bona fide intention to lodge an appeal.
Case: Okon v London Borough of Lewisham  EWHC 864 (Ch) (18 April 2016)
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