Considering the options for the enforcement of Liability Orders against Foreign Registered Companies.

With annual billing a fading memory, local authorities will now be turning their attention to those ratepayers who have failed to pay following receipt of demand and reminder notices. The first Liability Order hearings of the year will be looming in the diary but on the obtaining of those Liability Orders, the perennial problem of companies being overseas and so difficult to enforce against will no doubt rear its head.

Broadly, where an overseas company fails to engage, the options for enforcement (or to at least start a dialogue with a view to an acceptable payment arrangement) can be broadly categorised as insolvency based options and security based options.

Insolvency

Considering first the insolvency based options, this is essentially the taking of winding up proceedings to enable the company’s assets to be sold for the benefit of creditors. As such, the usual weighing up of the cost of proceedings against the likelihood of repayment, as with a domestic company, should be a precursor.

In terms of jurisdiction, Regulation 18 of the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 is no less applicable to overseas companies and so deems (by Regulation 18(2)) that the Liability Order is a debt for the purposes of the Insolvency Act 1986. Regulation 18(2) in fact specifically cites section 221(5)(b) of the Insolvency Act 1986 which pertains only to the winding up of unregistered companies.

“Unregistered company” is a term defined by section 220 of the Insolvency Act 1986. Where a foreign registered company is necessarily one not registered under the Companies Act 2006, it falls squarely within the statutory definition. For the sake of completeness, it should be noted that the definition does not encompass companies incorporated in Scotland or Northern Ireland, which should not be wound up in the Courts of England and Wales.

Authorities from Re Real Estate Development Co [1991] B.C.L.C. 210 onwards have put beyond argument the application of section 221 to foreign registered companies. The Court of Appeal, in Stocznia Gdanska SA v Latreefers Inc (No 2) [2001] 2 B.C.L.C. 116, affirmed the decision of Knox J. in Re Real Estate Development Co with the effect that three things must be established for the English Courts to exercise jurisdiction in respect of a foreign registered company under section 221;

1. A sufficient connection with England and Wales;
2. A reasonable possibility of benefit to those petitioning if a winding up order is made; and,
3. The Court must be able to exercise jurisdiction over at least one of the persons interested in distribution of the company’s assets.

The third criteria will always necessarily be satisfied where the petitioner is an English or Welsh local authority, given the control that the High Court is able to exercise in reviewing the decisions of such authorities as public bodies.

The first and second criteria tend to relate to the asset position of the company, although it should be noted that assets in England and Wales are not the only means of satisfying the close connection limb.

The paradigm case is one in which the company owns the hereditament, particularly common in the case of holding companies, having been liable for empty rates by virtue of that ownership. In such a case, the holding of real property within the jurisdiction will readily satisfy the close connection test and save in cases of negative equity, the sale of that property will provide a benefit to creditors interested in the distribution. It offers a real and practical solution for local authorities to enforce the indebtedness.

More careful consideration must however be given to cases where only chattels are present in the jurisdiction, or where the company carries on business in England and Wales but has its assets overseas.

Security

The security based options, in circumstances where the company does not volunteer security in return for time to pay, is entwined with the question of whether charging orders pursuant to the Charging Orders Act 1979 can be obtained in relation to NNDR debts.

It is considered that, applying the Judgments Act 1838, liability orders can be transferred to the County Court for enforcement resulting in the making of an order for recovery of award. Upon the local authority obtaining that order, it is able to apply for a charging order over any property owned by the company in England and Wales for the amount owing and thereafter for an order for sale.

For completeness, it is acknowledged this approach is one which has recently come in for some scrutiny however to the author’s knowledge, there has not to date been any decision of the Senior Courts which confirms whether or not the approach is permissible.

Alternatively, if an overseas company is identified as a property owner and repeat non-payer, the local authority may wish to take proceedings in the County Court or High Court at first instance rather than seeking to obtain a liability order in the Magistrates’ Court. This route offers the opportunity to avoid resistance to the transfer of liability orders for enforcement, but at the cost of issuing and proceeding under the Civil Procedure Rules and so again should be given specific consideration.

On either approach, what is clear is that where a company has assets the mere fact that it is registered overseas is no reason not to take enforcement action against it. 

Alex Worthington