Cheshire East Council

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High Court rejects bid by district council to revoke CVA in business rates liability dispute

A district council has failed in a High Court bid to revoke, or alternatively suspend, approval of a company voluntary arrangement (CVA) for a company the local authority says owes tens of thousands of pounds in business rates. 

If a limited company is insolvent, it can use a CVA to pay creditors over a fixed period.” This though requires the consent of 75% of creditors by debt value.

In Richmondshire District Council v Dealmaster Ltd & Anor [2021] EWHC 2892 (Ch) HHJ Davis-White QC, sitting as a judge of the High Court, said that the council’s case failed because the CVA had not unfairly prejudiced it when one company involved was allowed to vote.

Richmondshire became a creditor of car sales firm Dealmaster over non-payment of business rates, for which it gained liability orders amounting to some £38,000.

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A company named Hightide Estates was also a creditor on the basis that it has a debt of £372,158.34.

The council presented a winding up petition against Dealmaster for £38,609.36 arising under the liability orders, which led to it entering the CVA.

Richmondshire argued Hightide should not have been permitted to vote on the CVA, which would have been defeated without its support.

HHJ Davis-White said: “I should also record that in the course of the evidence various suggestions were made at a connection between Hightide and Dealmaster/ [owner] Mr Shepherd after the purchase of the latter by Mr Shepherd's company.

“I find on the evidence before me there was no such connection, which I understand was raised as a reason to doubt the reality of the debt owed to Hightide by Dealmaster and/or its quantum.”

The judge said: “I am not satisfied that RDC has been unfairly prejudiced, even if it has been prejudiced.

“I am not persuaded that RDC would necessarily have been in a significantly better position in a liquidation or that the higher value of the joint memorandum would in reality be achieved and within a reasonable timescale, but, even if it would have been, I consider that the decision of the creditors' meeting was one that a reasonable and honest person in the same position as the applicant might reasonably have approved.”

Mark Smulian

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