Companies in administration are to get a permanent exemption from empty property rates, Local Government Minister, John Healey, announced on 17 December. His decision on companies in administration was a consistent view put to the Department for Communities and Local Government in consultation and brings such businesses into line with those in liquidation and individuals subject to bankruptcy proceedings who already enjoy exemptions:

"We are committed to the promotion of a rescue culture which provides opportunities for insolvent companies that have viable underlying businesses to be rescued wherever possible. A permanent exemption will remove any potential for decisions about whether to enter administration to be distorted by differences in rates liability."

The department is now drafting the relevant secondary legislation to give effect to the reforms on empty property relief including introducing the new six month exemption from empty property rates for vacant industrial and warehouse properties, as announced in the 2007 Budget. The aim is to lay this secondary legislation before Parliament so that all aspects of the new reforms to empty property relief can come into effect on 1 April 2008.

R3, the Association of Business Recovery Professionals, notes here that the decision will overturn the controversial decision in the Trident Fashions case - Exeter City Council v Bairstow & Ors [2007] EWHC 400 (Ch) (02 March 2007). Commenting on the Government's move, the President of R3, Patricia Godfrey, said:

"This decision couldn't have come at a better time. With the effects of the credit crunch increasingly likely to be felt in the New Year, this move will help administrators save business and jobs."

The effects of the Trident decision and how it might be mitigated are discussed in our previous post here.

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We mention in a previous post and, briefly, in comments (here) the decision in the Trident Fashions case, Exeter City Council v Bairstow & Ors [2007] EWHC 400 (Ch) (02 March 2007), that the administrators were found liable to pay rates as an administration expense. The decision applies to administration cases generally and, in addition to causing consternation with its retrospective effect, it has significantly increased the cost of administration where there are substantial property assets.

The impact can sometimes be mitigated by applying to the court under para 79(1), Schedule B1, Insolvency Act 1986, for an order that the administrators be discharged with effect from the passing of a resolution to put the company into creditors' voluntary liquidation. Such was the decision in Re TM Kingdom Limited, as reported here by Theo Anderton and in the Law Society of Scotland's Journal here by Alistair Burrow. Sylvia Yendall notes here that it was also held in Re OM Recoveries Limited that an administrator may apply to court under para 79(1) when he considers it necessary or desirable.

Advantages of liquidation in thses circumstances are that unoccupied property rates are not a liquidation expense and a liquidator is able to disclaim onerous property.

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