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Council Tax Liability Orders and Bankruptcy Proceedings

The High Court has recently confirmed that the hearing of a bankruptcy petition is not the correct venue to raise a challenge to liability.

Under the Council Tax (Administration and Enforcement) Regulations 1992 where an individual has failed to pay council tax for a property for which they are liable despite demands for payment being made, the local authority is able to apply to the magistrates' court for a Liability Order.

A Liability Order is a court order which can then be used by the local authority to take further action against the debtor to which it applies. This action can include applying for an attachment to earnings order so that their employer is required to deduct a regular amount from a debtor's wages toward the unpaid debt. In cases where the debtor is in receipt of benefits they can obtain a deduction from benefits. Where the Debtor owns a property a charging order may be obtained or an Enforcement Office can be instructed to take control of the debtor’s goods. It also can also form the basis of a debt upon which a bankruptcy order can be based if the debt owed is above the insolvency threshold of £5,000.

In Okon v London Borough of Lewisham EWHC 864 (Ch) the High Court considered whether a court hearing a bankruptcy petition based upon a council tax liability order had jurisdiction to consider the merits of that liability order in determining whether to make the bankruptcy order.

The High Court held that a liability order under the Local Government Finance Act 1992 in respect of domestic council tax cannot be the subject of substantive 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.

When faced with insolvency proceedings it is vital to get early advice so that as many options are kept open for you. Being made bankrupt can be a costly experience if you apply to annul the order. A bankruptcy order results in your assets automatically vesting in your Trustee in Bankruptcy and you losing control over those assets.

Mayo Wynne Baxter have specialists who can give advice on all matters arising from insolvency of individuals or companies, should you wish to discuss any issues arising from the above please contact Darren Stone, Head of Insolvency at Mayo Wynne Baxter.