The recent case of Okon v London Borough of Lewisham considered the proper procedures to follow when bankruptcy proceedings have been commenced against a debtor for non-payment of council tax liability orders, and the debtor asserts that the liability orders are in dispute.

The Okon case concerned £14,000 worth of liability orders for council tax obtained against the debtor between March 2009 and January 2014. Bankruptcy proceedings were commenced and originally listed in February 2015. At that hearing Ms Okon attended to state that she was seeking an adjournment to allow time to apply to the Magistrates’ Court to have the liability orders set aside. This was based on her assertion that the properties concerned were tenanted, and a separate argument that one of the properties should not have been in the list.

Bromley Magistrates’ Court referred her in writing to the case of Brighton Council v Hamdan [2004].

At the hearing to set aside in May 2015, the debtor’s application was unsuccessful as it was held by the magistrates that it was not the proper forum to deal with disputes about liability.

Accordingly at the re-listed bankruptcy hearing in June 2015, a bankruptcy order was made against Ms Okon.

In the resulting appeal two important areas of clarification were provided by the court:

1. The Brighton v Hamdan case provides that there being a genuine and arguable dispute is a condition precedent for an application to be made (not a ground which has to be considered by the court). If that condition precedent is satisfied, then the court must then go on to consider the two grounds for setting aside the order:

(i) the order was made as a result of a substantial procedural error, defect or mishap and

(ii) the application to the justices for the order to be set aside is made promptly after the defendant learns that it has been made or has noticed that an order may have been made.

2. Following the little known case of Wiltshire Council v Piggin [2014] EWHC 4386 (Admin) where council tax liability is in dispute, the matter must be dealt with by the Valuation Tribunal. This is the clear authority laid out in section 16 LGFA 1992 and the accompanying regulation 57(1) of the 1992 CT Enforcement Regs.

The Magistrates’ Court is there to deal with enforcement proceedings (i.e. the granting of liability orders) not the underlying liability and any dispute about it.

Therefore the proper course to take where bankruptcy proceedings have been issued against the debtor for unpaid CT, and liability is disputed, is to adjourn the bankruptcy proceedings to allow time for the debtor to appeal to the Valuation Tribunal.