Liquidators of HCL Social Care Limited (HCL) made an application for directions as to the entitlement to a business rates rebate realised during the liquidation.
HCL traded from premises pursuant to a lease, but during the Covid-19 pandemic, was obliged to close. In certain circumstances, companies subject to enforced closure were entitled to rebates of non-domestic rates.
Subsequent to the insolvent liquidation of HCL, the relevant authority issued demands for unpaid non-domestic rates for the premises. The demands were issued to HCL's parent company, Health Care Resourcing Group Limited (HCRG). HCRG had also occupied the premises and had previously paid all rate demands. HCRG made payment to avoid the threatened enforcement action, but while challenging the authority's right to collect payment from HCRG.
Ultimately, the authority credited a rebate to an account in HCL's name, from which a payment was made to HCL's liquidators. HCRG claimed to be entitled to the refund. The landlord of the premises, a major creditor of HCL, considered the rebate to be an asset available to creditors. The liquidators sought to understand the basis on which HCRG had made the payment, which had been described as having been made as a gesture of goodwill to ensure time to sort out the relief available.
In the application pursuant to section 112 of the Insolvency Act 1986, the liquidators were neutral as to the distribution of the fund. While it was observed that the rebate may not have been available had HCRG not made the payment, the legal basis on which HCRG claimed to be entitled to the refund was uncertain. Key issues for the Court included why the rebate was initially credited to HCL, about which there was limited evidence; whether the rebate can only be linked to the payment by HCRG; whether a trust is established for HCRG, and if so, whether a Berkley Applegate order is appropriate.
The Judge noted that the authorities make it clear that it is a requirement for a person to be an officer of the Court to be within the scope of Ex parte James, even though it was noted that voluntary liquidators perform much the same function and that there was no convincing reason not to include voluntary liquidators within the ambit of the rule in Ex parte James. However, the Judge drew specific attention to the rationale for the rule in Ex Parte James being that the recipient of money cannot, in all conscience, retain it given the circumstances in which it was paid, because to do so would amount to unjust enrichment of their estate.
The Judge found that a restitutionary analysis provided the answer to the issue of entitlement to the rebate in this case. The Judge found it was clear that the reason for the payment by HCRG was on the footing that that rate relief would in due course come back to HCRG. HCL had been unjustly enriched by the receipt of the rebate. The Judge also made a Berkley Applegate order.
This decision appears to be the first explicit application of a restitutionary analysis of Ex parte James, and, while fact specific, may provide guidance to voluntary liquidators on the treatment of assets where there are good arguments that the insolvent estate has been unjustly enriched by their receipt.
