Government lose court battle to wind up business rates’ mitigation schemes


The Government has lost two important cases in the High Court in an attempt to wind up two companies it accused of running rates’ avoidance schemes.

The Secretary of State for Business, Energy and Industrial Strategy (SoS) – under section 124A of the Insolvency Act 1986 – petitioned to wind up the two companies, PAG Asset Preservation Limited (PAGAPL) and MB Vacant Property Solutions Limited (MBV) on public interest grounds. The matters were in front of Judge Steven Davies.

PAGAPL has operated, and MBV continues to operate, what the SoS described as a rates’ avoidance scheme but the companies disputed this and claimed they were rates’ mitigation schemes – a huge distinction.

Under the scheme employed, the owners of commercial property can avoid paying business rates on empty commercial properties owned by them by leasing the property to a Special Purpose Vehicle company (SPV) incorporated by the Companies which is then placed into Members’ Voluntary Liquidation (MVL). The effect of the lease is that the SPV becomes the owner of the property in place of the landlord for the purpose of liability for business rates.

The effect of the MVL is that the SPV is relieved of liability to pay business rates, because one of the exemptions from such liability as provided by the rating legislation is for companies which are being wound up, whether compulsorily or voluntarily.

The SoS didn’t argue that the incorporation of the SPVs, the grant of the leases or the entry into MVLs were contrary to any specific provisions of the insolvency or rating legislation or should be treated as sham transactions. However, she did contend that the business model adopted by both companies subverted the purpose of liquidations. The argument ran that such misuse of the insolvency legislation demonstrated a lack of commercial probity, so much so that it was just and equitable to wind up the Companies.

In pursuing this legal contention, the SoS submitted that the scheme was no different in its essential elements from a previous scheme operated by PAG Management Services Limited (PAGMS) where the previous SoS had succeeded in a petition to wind up PAGMS on public interest grounds. This followed a trial in 2015 before the then Vice-Chancellor Norris J. He judged back then that PAGMS should be wound up on the insolvency misuse grounds.

In counter arguments, the companies contended that the differences between the PAGAPL’s Scheme 3 and Scheme 2 as operated by PAGMS were so significant that the reasons which led to the 2015 judgment did not apply to Scheme 3.

A number of witnesses from both companies were called over the 5-day trial, as well as written and oral submissions from legal experts. Having heard the evidence Judge Davies concluded the SoS had not made out her case that the Companies or either of them should be wound up on public interest grounds.

He cited several reasons for his decision referring to the witnesses, relevant rating legislation, the purpose of MVLs, the legal principles of public interest winding up as well as the Norris J judgement in the original PAGMS case.

The full 34-page ruling can be downloaded here: Rates Mitigation Scheme High Court Ruling 12.19