UK: England and Wales: winding-up in the public interest

Judgment was given yesterday by HHJ Stephen Davies (sitting as a judge of the High Court) in Secretary of State for Business, Energy and Industrial Strategy v PAG Asset Preservation Ltd [2019] EWHC 2890 (Ch). The case concerned an application by the Secretary of State for the winding-up, on public interest grounds under section 124A of the Insolvency Act 1986, of two companies. Petitions under this ground often provide the opportunity for the court to consider the acceptable use to which the corporate form can be put. The current case is no exception.

The companies at the centre of the case operated a scheme the purpose of which was enable the owners of commercial property to avoid paying business rates on empty commercial property owned by them. This was achieved through the leasing of the property to a special purpose vehicle (SPV) that was then placed in members' voluntary liquidation and thereby relieved of liability to pay business rates. The Secretary of State argued that the companies' business model involved a misuse of insolvency legislation demonstrating a lack of commercial probity justifying winding-up. HHJ Davies rejected this argument, and observed (paras. [126], [127]):

.... it cannot be said that to devise and implement a lawful scheme to avoid business rates which involves the use of the insolvency legislation and process through the use of the MVL [members' voluntary liquidation] in a way which is consistent with the purpose of MVLs, even though that is achieved through the intended creation of a lease containing a term (the determination premium) which artificially creates an asset, is lacking in commercial probity or otherwise contrary to the public interest. In my judgment that would not be consistent with the accepted general principle that it is perfectly proper for companies as artificial constructs to be incorporated with a view to obtaining a fiscal advantage, to create or have transferred to them assets which are artificial from a commercial perspective to achieve the same purpose and/or to be placed into liquidation, again artificially from a commercial perspective to achieve the same purpose, so long as each transaction is a legally genuine and effective transaction and not a sham and so long as each step in the transaction is in accordance with, and not contrary to, the general purpose or a specific purpose of the legislation governing such transactions. In my judgment there has to be something more to justify a finding that the operators of such a scheme are not acting with commercial probity or otherwise contrary to the public interest."