Neutral Citation Number: [2007] EWHC 400 (Ch)
Case No: 5116 OF 2006
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
COMPANIES COURT

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 02/03/2007

Before:

MR JUSTICE DAVID RICHARDS
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Between:

	Exeter City Council	Applicant	
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	1.	Vivian Murray Bairstow
2.	James Patrick Martin
3.	Trident Fashions plc	Respondents	

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William Trower QC and Paul French (instructed by Stones) for the Applicant
Nicholas Briggs (instructed by The Treasury Solicitor) as Advocate to the Court
The Respondents did not appear and were not represented 

Hearing dates: 18, 19 and 20 December 2006
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Judgment
The Honourable Mr Justice David Richards:
Introduction 
1.	This is an application by Exeter City Council for a declaration that non-domestic rates in respect of retail premises occupied by Trident Fashions plc (the company) while it was in administration are payable as expenses of the administration. Neither the company, which is now in liquidation, nor its former administrators have taken part in the final hearing of the application. The issue is of general importance for local authorities and companies in administration under the regime contained in schedule B1 to the Insolvency Act 1986 (the 1986 Act), introduced with effect from 15 September 2003, and has not been the subject of any decision by the courts. For those reasons, the Attorney General agreed to the appointment of an Advocate to the Court. Mr Nicholas Briggs was instructed for this purpose and has presented submissions in opposition to the case made by Exeter City Council. He has also, with the permission of the Attorney General, adduced evidence from a senior insolvency practitioner as to the importance of the issue to the conduct of administrators and its impact on the rescue culture which underpins the administration regime. I am very grateful to Mr Briggs and to counsel for the City Council for their assistance.
2.	Applying two decisions of the House of Lords, the position as regards rates is clear in the case of premises occupied by a company in liquidation, and is also clear where the premises have been occupied by a company in an administration commencing before 15 September 2003 under the previous regime contained in Part II of the 1986 Act. Rates accruing on premises occupied by a company while in liquidation are payable as an expense of the liquidation, by reason of the terms of rule 4.218 of the Insolvency Rules 1986: In re Toshoku Finance UK plc [2002] 1 WLR 671. Rates accruing on premises occupied by a company while in an old-style administration are not payable as an expense of the administration: Centre Reinsurance International Co v Freakley [2006] 1 WLR 2863. In such administrations there was no provision equivalent to rule 4.218 and the issue turned on section 19 of the 1986 Act. In relation to new-style administrations, section 19 is substantially re-enacted as paragraph 99 of schedule B1 but there has also been introduced rule 2.67. Rule 2.67 is in substantially similar terms to rule 4.218 and was introduced well after the decision of the House of Lords in In re Toshoku Finance UK plc. The issue is whether rule 2.67 is to be given a different interpretation from rule 4.218, against the background of the purposes and provisions of the administration regime in schedule B1.
3.	The declarations sought by the City Council are in the following terms:
“1 A declaration that the non-domestic rates that have accrued in respect of the occupation by the Third Respondent, Trident Fashions Limited ("the Company") of 240 High Street, Exeter, Devon EX4 3NZ ("the Premises") since 20th April 2004 are: 
1.1 expenses properly incurred by the First Respondent, Vivian Murray Bairstow, and the Second Respondent, James Patrick Martin (together "the Administrators") in performing their functions in the administration of the Company within the meaning of rule 2.67(1)( a) of the Insolvency Rules 1986 ("the Rules"); alternatively 
1.2 necessary disbursements by the Administrators in the course of the administration of the Company within the meaning of rule 2.67(1)(f) of the Rules. 
2 A declaration that, upon the Administrators ceasing to be administrators of the Company, the non-domestic rates that have accrued and remain unpaid in respect of the occupation by the Company of the Premises during the period of office of the Administrators fall within the former administrators' expenses within the meaning of paragraph 99(3) of Schedule B1 to the Insolvency Act 1986.”

The facts
4.	The facts are not in dispute and the following account is based on the agreed statement of facts.
5.	The company was incorporated on 29 March 2001. It purchased the assets of a company known as Ciro Citterio Menswear plc from administrators and commenced trading on 12 June 2001. It traded from 98 retail units throughout the United Kingdom and Ireland. One of the retail units, which it occupied as lessee, was at 240 High Street Exeter (the Exeter Property). The City Council is responsible for levying and collecting non-domestic rates in respect of the Exeter Property.
6.	The company made profits until 1 February 2002 but made a loss in the following year. On 17 September 2003 an administration order was made and three partners in Kroll Buchler Phillips were appointed as joint administrators (the Kroll Administrators). This administration was one of the first ‘new-style’ administrations. At the time of the administration order the company owned the leasehold interest in all or most of the 98 retail units, but there were some which it no longer occupied. There were others which it ceased to occupy during the course of the administration.
7.	At a meeting held on 1 December 2003 the creditors approved a creditors’ voluntary arrangement (the CVA). The Kroll Administrators informed creditors that the CVA was intended to provide “a more advantageous outcome for creditors” and to be an “exit route” from administration. The Kroll Administrators were appointed joint supervisors of the CVA. There appears to have been an unsuccessful challenge to the CVA in the High Court in January 2004. 
8.	The Kroll Administrators resigned as administrators on 20 April 2004. On the same day the first and second respondents to the present application, Vivian Bairstow and James Martin of Begbies Traynor (the Begbies Administrators), were appointed joint administrators in their place. 
9.	During the period of the administration both sets of administrators continued the company’s occupation of the Exeter Property, and continued to carry on the business of the company there and elsewhere. They did so as agents of the company: para 69 of schedule B1.
10.	On 13 September 2004 the Begbies Administrators obtained an order under paragraph 76 of schedule B1 extending the term of the administration until 17 March 2005. On 17 March 2005 the administration expired but on 22 March 2005 the company filed a notice of intention to appoint further administrators.
11.	On 7 April 2005 the company’s only qualifying floating chargeholder appointed two partners of BDO Stoy Hayward as joint administrators. This administration did not last long. A winding-up petition had been presented by a creditor on 21 March 2005. The new administrators quickly concluded that the administration could not achieve the statutory purposes and applied to the court for an order that their appointment should cease to have effect.  On 27 April 2005 their appointment was discharged and the company was ordered to be wound up.
12.	The non-domestic business rates on the Exeter Property accrued at a daily rate of approximately £136, totalling £73,846 from the commencement of the administration on 17 September 2003 to its termination on 17 March 2005. There were no unpaid arrears of rates at the commencement of the administration. Rates in respect of the year ending 31 March 2004 were treated for the purposes of the CVA as an ordinary unsecured liability of the company. This included rates accruing in that year after the appointment of the administrators, by reason of section 43 of the Local Government Finance Act 1988 which creates liabilities for rates “in respect of a chargeable financial year”, and the prior service of a demand for the year under the relevant regulations. Rating authorities, including Exeter City Council, were invited to submit proofs of debt on this basis. Exeter City Council submitted a proof for £26,049.21 in respect of the period 17 September 2003 to 31 March 2004 and in January 2005 received a dividend of £4,115.78. No relief is sought in respect of those rates on this application, which is confined to the rates accruing while the Begbies Administrators were in office, from 20 April 2004 to 17 March 2005. Those rates amount to £45,074. In addition to Exeter City Council, there are a further 57 local authorities with claims for unpaid business rates amounting to some £2,687,000.
13.	For the purposes of this judgment it is unnecessary to consider the course and outcome of the administration, which Mr Trower QC for the City Council described as disastrous. Nor is it necessary to consider the steps which may be open to Exeter City Council to recover the unpaid business rates if the declarations sought are made. In March 2006, the Court of Appeal held that Exeter City Council was entitled to seek the first declaration against the Begbies Administrators, for the reasons given in the judgment of Sir Martin Nourse: see [2006] EWCA Civ 203. The Begbies Administrators and the liquidator have been notified of the intention to seek the second declaration and have not indicated any interest in participating in the application.
14.	In this judgment I will first summarise the relevant provisions of rating law. Because the position of expenses in an old-style administration and in a liquidation are not only background but directly relevant to the issue raised on this application, I will address them before turning to the issue on this application and the submissions advanced by counsel.
Relevant provisions of rating law
15.	There was no disagreement between counsel as to the relevant provisions and principles of rating law. Rates on non-domestic property are governed by Part III of the Local Government Finance Act 1988. Local authorities are no longer responsible for setting non-domestic rates. Instead non-domestic rates are charged at a uniform business rate and remitted to central government for redistribution among local authorities in accordance with set criteria. There are two categories of business rates, for occupied property and for unoccupied property. Both are a personal charge, levied on the “occupier” in the former case and the “owner” in the latter case. 
16.	Occupation for these purposes requires four characteristics. It must be actual, exclusive, beneficial and have some degree of permanence. These characteristics are conveniently summarised in Lightman & Moss: The Law of Receivers and Administrators of Companies (3rd ed, 2000) at paragraph 20-002:
“(a) there must be actual occupation, in the sense of some actual use or enjoyment, however slight;
(b) the occupation must be exclusive in the sense that a person using it may prevent others using it in the same way;
(c) the occupation must be beneficial in the sense of being of some value or benefit to the occupier; and
(d) the occupation must have some degree of permanence, and not be entirely transient or intermittent.”
17.	The company was at all relevant times operating the Exeter Property as a retail shop and there is no dispute that the company was in occupation for rating purposes. In the context of the issue raised by this application, it is worth noting that actual occupation can result from only slight acts of user, and that occupation need not be profitable in order to be beneficial. Where a liquidator engaged a caretaker to take possession of a company’s premises and the plant on the premises to prevent trespass and injury, but no business was carried on, there was beneficial occupation for rating purposes: In re Blazer Fire Lighter Ltd [1895] 1 Ch 403 (see now section 65(5) of the Local Government Finance Act 1988 as regards the presence of plant, machinery or equipment). Counsel were agreed that the storage of goods would constitute beneficial occupation. Thus, a company in administration could be liable for rates as an occupier of premises even though the administrator did not use the premises, but simply did not remove goods already stored on the premises.
18.	Unoccupied property rates are payable on premises which are totally unoccupied and satisfy certain criteria, in particular that they have been unoccupied for a continuous period of at least three months. There are certain exemptions, one of which applies where the owner is a company in liquidation: paragraph 2(2)(k) of the Non-Domestic Rating (Unoccupied Property) Regulations 1989. There is no equivalent for a company in administration.
19.	The recovery of non-domestic rates is governed by the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989, as amended. Rates are recoverable either by distress, following the making of a liability order by a magistrates’ court, or by an action for the recovery of a civil debt in the High Court or the county court.
Administration: the original regime   
20.	Administration was introduced by the Insolvency Act 1985 and became effective as Part II of the 1986 Act. This followed the recommendation of the Report of the Review Committee on Insolvency Law and Practice (Cmnd 8558, 1982) (the Cork Report). The background and the underlying purpose were explained by Lord Browne-Wilkinson in Powdrill v Watson [1995] 2AC 394 at pp 441-442:
“Chapter 9 of the [Cork] report draws attention to an advantage which attaches to cases where an out-of-court receiver is appointed, viz., the ability of the receiver to carry on the profitable parts of the business of the company with a view either to procuring its recovery or to its disposal as a going concern. It said, at p. 117, para. 495, that such "preservation of the profitable parts of the enterprise has been of advantage to the employees, the commercial community, and the general public." The report states that where a receiver had not been appointed by a debenture holder, in a significant number of cases companies had been forced into liquidation and potentially viable businesses capable of being rescued had been closed down. To meet this need, the committee recommended the creation of a court-appointed administrator who should have similar powers to those customarily conferred on a receiver appointed out of court. Part II of the Act of 1986 implements that recommendation. This "rescue culture" which seeks to preserve viable businesses was and is fundamental to much of the Act of 1986. Its significance in the present case is that, given the importance attached to receivers and administrators being able to continue to run a business, it is unlikely that Parliament would have intended to produce a regime as to employees' rights which renders any attempt at such rescue either extremely hazardous or impossible.”
Among the points of central importance in construing the provisions of Part II of the 1986 Act as they related to the claims of employees, Lord Browne-Wilkinson identified at pp 443-444:
“Fourth, the rescue culture designed to promote the ability to continue the company's business was a basic feature of the Act of 1986. Fifth, any provision which loads the company in administration or receivership with imponderable liabilities to employees who are continued in employment renders it extremely hazardous for administrators or receivers to continue the company's business, i.e. if the judgments appealed from are correct they militate against the rescue culture.”
21.	The underlying purpose of administrations in promoting a rescue culture was in particular achieved by the provisions in section 11 of the 1986 Act for a moratorium on the enforcement of security and certain proprietary rights and on claims against the company, subject to the power of the court to order otherwise. The administrator was required to manage the business and property of the company (section 17(2)) and did so as agent of the company (section 14(5)). The assets under the control of an administrator included those subject to a floating charge (section 15).
22.	The only substantial provision for liabilities and expenses incurred in the course of the administration was contained in section 19 of the 1986 Act. Section 19(1) and (2) provided for the vacation of office by an administrator. Section 19 (3)-(6) (as amended by the Insolvency Act 1994) provided as follows:
“(3) Where at any time a person ceases to be administrator, the following subsections apply. 
(4) His remuneration and any expenses properly incurred by him shall be charged on and paid out of any property of the company which is in his custody or under his control at that time in priority to any security to which section l5(1) then applies. 
(5) Any sums payable in respect of debts or liabilities incurred, while he was administrator, under contracts entered into by him or a predecessor of his in the carrying out of his or the predecessor’s functions shall be charged on and paid out of any such property as is mentioned in subsection (4) in priority to any charge arising under that subsection, 
(6) Any sums payable in respect of liabilities incurred, while he was administrator, under contracts of employment adopted by him or a predecessor of his in the carrying out of his or the predecessor’s functions shall, to the extent that the liabilities are qualifying liabilities, be charged on and paid out of any such property as is mentioned in subsection (4) and enjoy the same priority as any sums to which subsection (5) applies.
For this purpose the administrator is not to be taken to have adopted a contract of employment by reason of anything done or omitted to be done within 14 days after his appointment.”
The remaining provisions related only to section 19(6).
23.	Section 19 therefore gave a super-priority to liabilities incurred during the administration under contracts entered into by the administrator in carrying out his functions and to qualifying liabilities under contracts of employment adopted by him. Those liabilities ranked ahead of the administrator’s remuneration and expenses, which were given priority over other liabilities by section 19(4).
24.	Neither the 1986 Act nor the Insolvency Rules contained any definition of expenses for the purposes of section 19(4). This was in contrast to liquidations for which expenses were, and remain, defined by rule 4.218 of the Insolvency Rules. In Centre Reinsurance International Co v Freakley, the House of Lords considered section 19(4) and (5). Under the terms of an insurance policy issued to T&N Limited before it went into administration, the insurers had the exclusive right to handle and defend claims after various events including the presentation of an administration petition. In entering into contracts in the course of handling claims, for example the engagement of solicitors, the insurers acted as agents of the company. The House of Lords rejected the insurers’ claim to super-priority for the reimbursement of payments made under such contracts. Although the contracts were, through the agency of the insurers, made by T&N Limited while in administration, they were not contracts entered into by the administrator as required by section 19(5). The decision of the Court of Appeal, that the liabilities under the contracts were to be treated as liabilities incurred by the administrator in carrying out his functions, was reversed on the grounds that the administrator had nothing to do with either the contracts under which the liabilities were incurred or the contract which authorised the insurer to make such contracts on behalf of the company.
25.	As to the effect of section 19(4) and (5), Lord Hoffmann in the only reasoned speech said:
“9. Thus subsection (4) deals with claims against the company by the administrator himself and subsection (5) deals with claims against the company by third parties. Claims by the administrator may be either for remuneration or for expenses, that is to say, for goods and services supplied to the company for which the administrator has paid or chosen to make himself liable but for which he has not yet reimbursed himself out of the company’s assets. Subsection (5) deals with debts and liabilities incurred by the administrator which have not been discharged and which were incurred under contracts entered into by the administrator “in the carrying out of his … functions”. But the supplier will have the benefit of section 14(6), which provides that a person dealing with the administrator in good faith and for value “is not concerned to inquire whether the administrator is acting within his powers.”
10. The administrator’s remuneration and expenses under subsection (4) have priority over a floating charge and of course over unsecured creditors if there is a liquidation. The outside creditors’ debts under subsection (5) have “super-priority” over the administrator as well.”
Lord Hoffmann said at para 16:
“16. There seems to me no reason of policy why such obligations (which may or may not be in the interests of the administration) should be given priority over the company’s other debts. As I have said, the purpose of administration under the 1986 Act was simply to impose a moratorium to allow time to find a way of saving the business or realising it to better advantage than in a liquidation. It was not intended to alter substantive rights or priorities more than was necessary to enable this objective to be achieved. The provisions of section 19(4) and (5) entrust to the administrator (subject to the supervision of the court) the power to decide what expenditure is necessary for the purposes of the administration and should therefore receive priority. But there is no reason to extend that priority to expenditure which neither the administrator nor the court has specifically approved.”
26.	The effect of section 19(4) and (5) was therefore that unless the administrator had decided to incur the expenditure in question, either by undertaking it personally or by making a contract on behalf of the company, a liability incurred by the company during the administration would not rank for priority under section 19(4) or super-priority under section 19(5). This was subject only to the power of the court to direct the administrator to make payment. Such power would be exercised in accordance with principles established by the Court of Appeal in In re Atlantic Computer Systems plc [1992] Ch 505.
27.	In its judgment in In re Atlantic Computer Systems plc, the Court of Appeal laid down a flexible approach to the circumstances in which administrators should be required to pay liabilities, whether under pre-administration engagements or arising during the administration (except, of course, where the liabilities attracted super-priority under section 19). In particular, the principles applicable in liquidations were to be applied flexibly, with no automatic presumption that, for example, the rent on premises let to the company before the administration but used by the company during, and for the benefit of, the administration should be paid as an expense.
28.	In the judgment of the court, given by Nicholls LJ, the approach to be taken in administration and the reasons for it were explained at pp 528-529:
“In contrast, an administration is intended to be only an interim and temporary regime. There is to be a breathing space while the company, under new management in the person of the administrator, seeks to achieve one or more of the purposes set out in section 8(3). There is a moratorium on the enforcement of debts and rights, proprietary and otherwise, against the company, so as to give the administrator time to formulate proposals and lay them before the creditors, and then implement any proposals approved by the creditors. In some cases winding up will follow, in others it will not. Whether those whose land or goods are being used by the company during this interim period should be given leave to enforce their proprietary rights forthwith or should be paid ahead of everyone else must depend on all the circumstances, which will vary widely from one case to the next. We do not think that Parliament intended, for example, that if a company's factory or offices are leasehold, and the administrator continues to carry on the business on those premises, the court as a matter of course would always give leave to re-enter, or to distrain in respect of rent accruing from the date of the administration order, or make a direction for payment of the rent in full as an expense of the administration. Likewise in respect of vehicles or machinery which are in the company's possession under hire-purchase agreements and which are being used by a company in the course of carrying on its business. Parliament must have intended, for instance, that, in appropriate circumstances, and for a strictly limited period, such a lessor or owner of goods might not be given leave if giving leave would cause disruption and loss out of all proportion to the loss which the lessor or the owner of goods would suffer if leave were refused. Indeed, Parliament must have intended that when exercising its discretion the court should have due regard to the property rights of those concerned. But Parliament must also have intended that the court should have regard to all the other circumstances, such as the consequences which the grant or refusal of leave would have, the financial position of the company, the period for which the administration order is expected to remain in force, the end result sought to be achieved, and the prospects of that result being achieved.
If this flexible approach is right, there is no room in administrations for the application of a rigid principle that, if land or goods in the company's possession under an existing lease or hire-purchase agreement are used for the purposes of an administration, the continuing rent or hire charges will rank automatically as expenses of the administration and as such be payable by the administrator ahead (so it would seem) of the pre-administration creditors. Nor, even, for a principle that leave to take proceedings will be granted as of course. Such rigid principles would be inconsistent with the flexibility that, by giving the court a wide discretion, Parliament must have intended should apply.
This conclusion is consistent with section 19(5). If an administrator adopts an existing contract of employment, the liabilities arising under that contract are automatically payable as provided in that subsection. As to other existing contracts "adopted" by an administrator, creditors have no automatic preference or priority.
We recognise that if a lessor or owner of goods is not to have any such automatic priority, this will be a powerful factor in favour of leave being granted to him to enforce his proprietary rights. So be it. At a later stage we shall turn to consider the principles guiding the exercise of the discretion to grant or withhold leave. ”
Although the passage cited above deals with the payment of liabilities arising from pre-administration contracts, the same principle applied to liabilities arising in the administration which were not covered by section 19, as confirmed by Lord Hoffmann in Centre Reinsurance Co v Freakley at para 17 of his speech.
29.	The House of Lords in In re Toshoku Finance UK plc rejected the exposition in In re Atlantic Computer Systems plc of the “liquidation expenses” principle as applied to expenses falling within rule 4.218(1) of the Insolvency Rules. That does not, however, affect its application to liabilities arising in the course of an old-style administration. The flexibility inherent in this approach meant that the main purpose of administration could be promoted without causing unfairness to creditors where the particular circumstances made it appropriate for their claim to be paid as an expense. 
30.	It follows that rates on premises occupied by a company in administration, and rates on unoccupied premises, would not be automatically payable, but in an appropriate case the court could direct their payment as an expense.
31.	This result was consistent with the effect of an administration as imposing a moratorium while not affecting the company’s capacity to continue to trade and incur liabilities. It avoided any damage to the policy of promoting where possible the rescue and survival of companies or their businesses. The power of the court to direct payment, or to permit enforcement, ensured that the company in administration could not take unfair advantage of its continued occupation of premises at the expense of local authorities and the general body of ratepayers.
Expenses in a liquidation
32.	Section 115 of the 1986 Act provides  as regards a voluntary winding-up:
“All expenses properly incurred in the winding up, including the remuneration of the liquidator, are payable out of the company’s assets in priority to all other claims”
There is no direct equivalent in the 1986 Act as regards a winding-up by the court, but the position is the same: see sections 156 and 175(2).
33.	The rule-making power enables the Insolvency Rules to make provision “as to the fees, costs, charges and other expenses that may be treated as the expenses of a winding up”: schedule 8 para 17. Pursuant to that power, rule 4.218(1) provides that “the expenses of the liquidation are payable out of the assets in the following order of priority” and sets out a list of expenses. It applies in both compulsory and voluntary liquidations. The expenses include:
“(m)     any necessary disbursements by the liquidator in the course of his administration (including any expenses incurred by members of the liquidation committee or their representatives and allowed by the liquidator under Rule 4.169, but not including any payment of corporation tax in circumstances referred to in sub-paragraph (p) below);
(n)     the remuneration or emoluments of any person who has been employed by the liquidator to perform any services for the company, as required or authorised by or under the Act or the Rules;
(o)     the remuneration of the liquidator, up to any amount not exceeding that which is payable under Schedule 6;
(p)     the amount of any corporation tax on chargeable gains accruing on the realisation of any asset of the company (without regard to whether the realisation is effected by the liquidator, a secured creditor, or a receiver or manager appointed to deal with a security);
(q)     the balance, after payment of any sums due under sub-paragraph (o) above, of any remuneration due to the liquidator;
(r)     any other expenses properly chargeable by the liquidator in carrying out his functions in the liquidation.”
The court has power to alter the order of priority: section 156 (compulsory liquidation) which is exercisable in a voluntary liquidation under section 112.
34.	In In re Toshoku Finance UK plc, the issue was whether corporation tax assessed on profits arising in the winding up were payable as expenses of the winding-up. The House of Lords held that it was so payable, even though in that case the relevant profits were deemed by statute to have arisen but had not in fact done so. It was held that rule 4.218 defined the expenses of the winding-up as well as their order of priority and that no expenses listed in the rule could be denied the status of an expense of the winding-up.
35.	The submission that a liability falling within the rule was payable as an expense only if it arose as a result of a step taken with a view to, or for the purposes of, obtaining a benefit for the estate was rejected. Giving the only reasoned speech, Lord Hoffmann said at paragraph 30:
“Expenses incurred after the liquidation date need no further equitable reason why they should be paid. Of course it will generally be true that such expenses will have been incurred by the liquidator for the purposes of the liquidation. It is not the business of the liquidator to incur expenses for any other purpose. But this is not at all the same thing as saying that the expenses will necessarily be for the benefit of estate. They may simply be liabilities which, as liquidator, he has to pay. For example, there will be the fees payable to fund the Insolvency Service, ranking as paragraph (c) in rule 4.218(1), where the benefit to the estate may seem somewhat remote. There would be little point in a statute which specifically imposed liabilities upon a company in liquidation if they were payable only in the rare case in which it emerged with all other creditors having been paid.”
36.	The corporation tax in question was  assessable in respect of an accounting period deemed to commence on the liquidation date and, under section 108(3) of the Taxes Management Act 1970 the liquidator was the proper officer for the purposes of section 108(1):
“Everything to be done by a company under the Taxes Act shall be done by the company acting through the proper officer of the company…”
It was therefore a liability which the company acting by its liquidator was required to pay and consequently fell within rule 4.218(m) as a “necessary disbursement by the liquidator in the course of his administration”. The exception from paragraph (m) of corporation tax on chargeable gains and its relegation to paragraph (p) showed that corporation tax on profits remained within paragraph (m).
37.	In his speech, Lord Hoffmann also considered the position as regards rates:
“31. The difference between the treatment of pre-liquidation debts under the Lundy Granite Co principle and the treatment of post-liquidation liabilities emerges clearly from the nineteenth century cases on rates. In In re Watson, Kipling & Co (1883) 23 Ch D 500, which concerned an assessment for rates made after the liquidation upon property occupied by the company, Kay J rejected the submission of counsel for the rating authority, at p 506, that- 
"where a liability is incurred during the winding-up, that liability ought to be paid in full, and therefore these rates ought to be paid in full because they were made during the winding-up" 
32. He applied instead the Lundy Granite Co principle and said that it was not enough that the company was in rateable occupation. It must have retained occupation for the benefit of the estate. But in In re National Arms and Ammunition Co (1885) 28 Ch D 474 Bowen and Fry LJJ said that this was wrong. Bowen LJ said, at pp 480, 482:
"If the company retains the possession of property which would be rateable in the hands of anyone else, it is only reasonable that it should be rateable in the hands of the company...[T]he true test is whether there has been a beneficial occupation within the ordinary meaning of those words in cases as to rating." 
33. This test was applied by Vaughan-Williams J. in In re Blazer Fire Lighter Ltd [1895] 1 Ch 402. The liquidator had closed the business and done nothing on the premises except to install a caretaker to protect them from vandalism. That was sufficient to continue the company in rateable occupation. So the rates were an expense of the liquidation. 
34. It therefore did not follow that because a liquidator might in certain circumstances retain possession of leased property without having to pay the rent as an expense of the liquidation, he did not in the same circumstances have to pay the rates. In In re ABC Coupler & Engineering Co Ltd (No 3) [1970] 1 WLR 702, for example, the rent did not become a liquidation expense until some time after the winding up order, notwithstanding that the company remained in occupation. And in In re HH Realisations Ltd (1975) 31 P & CR 249 the company remained in occupation for some time after the rent had ceased to be a liquidation expense. But in both cases the company would in my opinion have been liable to pay rates on the simple ground that it was in rateable occupation. The rates would have been an obligation incurred after the liquidation which (unlike the rent) was not provable and was therefore payable in full.”
38.	In In re Kentish Homes Ltd [1993] 1 BCLC 1375, Sir Donald Nicholls V-C had held that the liability of a company in liquidation to the community charge on flats owned but not occupied by it was not an expense in the liquidation. The House of Lords in In re Toshoku Finance UK plc overruled the decision. Lord Hoffmann said:
“[41] The Court of Appeal said that they were driven to the conclusion that this case was wrongly decided. I respectfully agree. In the first place, the question of whether the community charge should count as an expense of the liquidation was not a matter for the judge's discretion. In depended upon whether it came within one of the paragraphs of r 4.218. In my opinion if, as was common ground, the company was the chargeable person, it was a necessary expense which came within para (m). If, therefore, the liquidator had sufficient assets after satisfying the liabilities coming within paras (a) to (l), he was obliged to pay it. Secondly, the Lundy Granite Co principle had no relevance. The liability did not arise out of a pre-liquidation obligation. If it came within the language of para (m), it was a liquidation expense.”
39.	Like corporation tax on profits, business rates accruing during a winding-up are therefore payable as an expense, being “necessary disbursements” within rule 4.218 (1)(m). As regards any injustice of requiring a liability to be paid as an expense of the winding-up without any corresponding or related benefit, Lord Hoffmann said at paragraph 45 that the injustice lay, if anywhere, in imposing the liability on a company in liquidation. Since the decision, amendments have been by the Finance Act 2004 to mitigate its effect in the circumstances arising in that case as regards both insolvent liquidations and insolvent administrations: see paragraph 6A inserted in schedule 9 to the Finance Act 1996. In the case of business rates, as already noted, a company in liquidation is exempted from the obligation to pay unoccupied property rates.
Administration: the new regime
40.	The new regime for administrations was introduced by the Enterprise Act 2002. The main purpose, and the most significant effect, of the changes was, in effect, to replace administrative receiverships with administrations. The Cork Report had seen great benefits in receivership as an alternative to liquidation and as a means of rescuing companies, and the original administration regime in Part II of the 1986 was based on the proposition that administration should be available where either there was no debenture holder with the power to appoint a receiver over the business and assets of the company or the debenture holder declined to do so. In the White Paper published in July 2001 (Insolvency – A Second Chance, Cm 5234), the Government’s position was that administrative receivership should generally cease to be a major insolvency procedure and should be replaced by administration, which was described as:
“Collective insolvency proceedings – proceedings in which all creditors participate, under which a duty is owed to all creditors and in which all creditors may look to an office holder for an account of his dealings with a company’s assets.”
This major change is effected by section 72A, introduced into the 1986 Act, which precludes the holders of floating changes created on or after 15 September 2003, with certain exceptions, from appointing administrative receivers. They are instead given the right to appoint administrators: schedule B1 para 14.
41.	There was clearly no change to the main purpose of administration as a means by which companies could continue to trade with a view to their rescue or, failing that, a better result for creditors than would be achieved in a liquidation. As was stated in the White Paper:
“The recognition of administration as an important tool in providing a company with a breathing space in which to put together a rescue plan or, alternatively in providing a better return to creditors than would be likely in a liquidation, has increased steadily in recent years.”
42.	A number of other changes were made. First, the process for the appointment of an administrator was greatly simplified. Secondly, strict limits were imposed on the duration of an administration. Thirdly, provision was made for distributions to creditors by administrators, subject to the court’s permission where the creditors were neither secured nor preferential.
43.	Critically for present purposes, the amendments to the Insolvency Rules introduced for the new administration regime included, for the first time in the Rules, provision as to expenses of the administration. 
44.	As already noted, provision was made in section 19 of the 1986 Act for the priority of expenses and the super-priority of liabilities under contracts made by the administrator and of certain liabilities under contracts of employment adopted by him. The provisions of section 19 of the 1986 Act were substantially reproduced in paragraph 99 of schedule B1 which provides as follows:
“(1) This paragraph applies where a person ceases to be the administrator of a company (whether because he vacates office by reason of resignation, death or otherwise, because he is removed from office or because his appointment ceases to have effect).
 (2) In this paragraph ‘the former administrator’ means the person referred to in sub-paragraph (1), and ‘cessation’ means the time when he ceases to be the company’s administrator.
(3) The former administrator’s remuneration and expenses shall be –
(a) charged on and payable out of property of which he had custody or control immediately before cessation, and
(b) payable in priority to any security to which paragraph 70 applies.
(4) A sum payable in respect of a debt or liability arising out of a contract entered into by the former administrator or a predecessor before cessation shall be –
(a) charged on and payable out of property of which the former administrator had custody or control immediately before cessation, and
(b) payable in priority to any charge arising under sub-paragraph (3).
(5) Sub-paragraph (4) shall apply to a liability arising under a contract of employment which was adopted by the former administrator or a predecessor before cessation; and for that purpose –
(a) action taken within the period of 14 days after an administrator’s appointment shall not be taken to amount or contribute to the adoption of a contract,
(b) no account shall be taken of a liability which arises, or in so far as it arises, by reference to anything which is done or which occurs before the adoption of the contract of employment, and
(c) no account shall be taken of a liability to make a payment other than wages or salary.”
Sub-paragraph (6) deals with the meaning of wages or salary in sub-paragraph (5).
45.	The power to make provision in the Insolvency Rules “as to the fees, costs, charges and other expenses that may be treated as properly incurred by the administrator…of a company” (schedule 8 para 18) was exercised. Rule 2.67(1) provides as follows:
“(1)     The expenses of the administration are payable in the following order of priority—
(a)     expenses properly incurred by the administrator in performing his functions in the administration of the company;
(b)     the cost of any security provided by the administrator in accordance with the Act or the Rules;
(c)     where an administration order was made, the costs of the applicant and any person appearing on the hearing of the application and where the administrator was appointed otherwise than by order of the court, any costs and expenses of the appointor in connection with the making of the appointment and the costs and expenses incurred by any other person in giving notice of intention to appoint an administrator;
(d)     any amount payable to a person employed or authorised, under Chapter 5 of this Part of the Rules, to assist in the preparation of a statement of affairs or statement of concurrence;
(e)     any allowance made, by order of the court, towards costs on an application for release from the obligation to submit a statement of affairs or statement of concurrence;
(f)     any necessary disbursements by the administrator in the course of the administration (including any expenses incurred by members of the creditors' committee or their representatives and allowed for by the administrator under Rule 2.63, but not including any payment of corporation tax in circumstances referred to in sub-paragraph (j) below);
(g)     the remuneration or emoluments of any person who has been employed by the administrator to perform any services for the company, as required or authorised under the Act or the Rules;
(h)     the remuneration of the administrator agreed under Chapter 11 of this Part of the Rules;
(j)     the amount of any corporation tax on chargeable gains accruing on the realisation of any asset of the company (without regard to whether the realisation is effected by the administrator, a secured creditor, or a receiver or manager appointed to deal with a security).
(2)     The priorities laid down by paragraph (1) of this Rule are subject to the power of the court to make orders under paragraph (3) of this Rule where the assets are insufficient to satisfy the liabilities.
(3)     The court may, in the event of the assets being insufficient to satisfy the liabilities, make an order as to the payment out of the assets of the expenses incurred in the administration in such order of priority as the court thinks just.
(4)     For the purposes of paragraph 99(3), the former administrator's remuneration and expenses shall comprise all those items set out in paragraph (1) of this Rule.”
46.	Sub-rule (4) was inserted as from 1 April 2005, by way of clarification. Sub-rules (2) and (3) reflect the similar power in a winding-up to alter the order of priorities.
47.	As to the time for the payment of expenses and the assets out of which they are payable, paragraph 99(3) of schedule B1 provides that they are charged on and payable out of property in the administrator’s custody or control immediately before the time when he ceases to hold office. In the event of a sole or final distribution to creditors, the expenses are to be paid first: rule 2.68(3). In practice, administration expenses are frequently discharged during the administration as they fall due for payment: see Powdrill v Watson [1904] 2 All ER 513 at 522 per Dillon LJ and In re Salmet International Ltd [2001] BCC 796 at 803 per Blackburne J. It is not necessary for the purposes of this judgment to consider the precise nature of an administrator’s obligations as regards the payment of expenses.
48.	There is a close correlation between each of the defined categories of expenses in rule 2.67(1) and categories in rule 4.218(1) applicable to liquidations. In particular, paragraphs (f) and (j) of rule 2.67(1) dealing with necessary disbursements and corporation tax on chargeable gains are identical to paragraphs (m) and (p) of rule 4.218(1), except for the changes necessary to refer to administration.
49.	As both counsel accepted, rightly in my view, the introduction of rule 2.67 and the wording of paragraph 99(3) of schedule B1 means that the construction of “expenses” in section 19(4) as established by Centre Reinsurance Co v Freakley is not applicable to the new provisions. Confining the administrator’s expenses to those for which he made himself personally liable is incompatible with the list of expenses in rule 2.67(1) for which in many cases the administrator would have no personal liability. Lord Hoffmann expressly recognised in paragraph 6 of his speech that changes to administrations had been made and that he would not comment on them because they did not apply to the administration in that case.
50.	Exeter City Council submits that business rates on premises occupied by the company during the administration are payable as expenses falling within either rule 2.67(1)(a) or rule 2.67(1)(f).
Rule 2.67(1)(a)
51.	The expenses defined by rule 2.67(1)(a), and given priority by it, are:
“Expenses properly incurred by the administrator in performing his functions in the administration of the company.”
Mr Trower submitted that rates accruing during the administration are properly characterised as an expense and, if an administrator causes a company to continue the occupation of premises for the purposes of the administration, they are expenses properly incurred by the administrator in performing his functions. Mr Trower accepted that unoccupied property rates would be more difficult to bring within rule 2.67(1)(a) because the administrator does not do anything to incur the liability, although Mr Trower suggested that in some cases the administrator may retain the property unoccupied for the purposes and benefit of the administration.
52.	In my judgment, neither occupied nor unoccupied property rates fall within rule 2.67(1)(a), for reasons advanced by Mr Briggs. First, its terms (“expenses properly incurred by the administrators”) are virtually identical to the words of section 19(4) which were construed in Centre Reinsurance Co v Freakley to mean expenses for which the administrator made himself personally liable. It was objected by Mr Trower that as the administrator acts as agent for the company (schedule B1 para 69) there is no little or no scope for personal liability. However, the administrator was also an agent under the old regime considered in Centre Reinsurance Co v Freakley (section 14(5)). Notwithstanding his agency status, there may be circumstances under both regimes when the administrator considers that he must assume personal liability. This is expressly contemplated by the 1986 Act in at least one instance, the supply of utilities (section 233). There are also likely to be circumstances where the administrator has properly incurred expenses which he has paid from his own resources and for which he can claim reimbursement, typically small items such as travel expenditure: see In re A company (no 005174 of 1999) [2000] 1 WLR 502 at 513-514. Secondly, if paragraph (a) is confined in this way, its priority over other expenses is more readily explicable. Thirdly, the City Council’s construction would result in an overlap between paragraph (a) and other expenses. In particular this would apply to rates which, if the decision in In re Toshoku Finance UK plc is to be applied to administrations, would constitute necessary disbursements falling within paragraph (f). There is no sound reason for treating rates for the purposes of rule 2.67 as expenses incurred by the administrator as opposed to necessary disbursements.
Rule 2.67(1)(f)
53.	In my view, the real issue is whether rates are payable as necessary disbursements under rule 2.67(1)(f) and, if so, in what circumstances and subject to what (if any) conditions.
54.	The City Council’s submissions are straightforward. First, rule 2.67(1) is closely modelled on rule 4.218(1) and paragraph (f) is for all material purposes identical to rule 4.218(1)(m). Secondly, in In re Toshoku Finance UK plc, the House of Lords held that (a) rule 4.218(1) defined expenses as well as setting out their order of priority, (b) liabilities imposed on a company in liquidation such as corporation tax on profits and rates fell within rule 4.218(1)(m) as necessary disbursements, and (c) the payment of such expenses was not subject to any qualification that they must have been incurred for the benefit of the liquidation. Thirdly, rule 2.67 was introduced by the Insolvency (Amendment) Rules 2003, which were made on 8 August 2003, well over a year after the decision of the House of Lords in In re Toshoku Finance UK plc. It is inconceivable that the rule-making authorities were unaware of the decision. In choosing substantially the same terms as rule 4.218, the intended result for administrations must have been the same as for liquidations. The same words should be given the same meaning.
55.	Mr Briggs submitted that the true meaning and intent of rule 2.67 had to be determined in the context of administrations and the policy considerations underlining them, which provided a very different context to liquidations. Although a liquidator can continue the business of a company, so far as may be required for its beneficial winding-up (the 1986 Act, sections 87 and 167 and schedule 4 para 5), his main purpose is to realise the assets and distribute the proceeds among creditors. In contrast, the overriding purpose of the administration regime is to promote the rescue of companies and their businesses. Automatically making rates an expense of an administration would seriously jeopardise that purpose. Particularly in cases like the present, where the company trades from a large number of premises, the potential liability for rates will be so substantial that it will act as a strong deterrent to a decision to continue the business of the company. In this respect, Mr Briggs relied on the evidence adduced by him to which I shall refer. What was required was the flexibility which existed under the old regime. In appropriate cases the court could direct the administrator to pay liabilities arising in the administration, in accordance with the approach laid down by the Court of Appeal in In re Atlantic Computers plc. 
56.	I have already referred to Powdrill v Watson in which the importance of the rescue culture was recognised. Equally, its importance has been recognised in relation to new-style administrations. In In re Huddersfield Fine Worsteds Ltd [2005] 4 All ER 886, the Court of Appeal had to determine whether protective awards under statute in certain cases of redundancy and payments in lieu of notice were awarded super-priority status by paragraph 99(5) of schedule B1. Giving the judgment of the court, Neuberger LJ referred at para 5 to the rescue culture as the background to the original introduction of administrations. He said at paragraphs 41 to 44:
“Policy considerations: the “rescue culture”
41. In reaching our conclusions so far, we have concentrated on the language of paragraph 99, and, indeed, of section 19 before it was repealed by the 2002 Act. However, it is legitimate, indeed appropriate, to consider the question of whether protective awards should indeed be given a super-priority, by reference to the wider context. In this connection, unlike Peter Smith J, Etherton J had the benefit of the evidence of one of the administrators of Ferrotech, Mr. David Duggins, an experienced insolvency practitioner, as to the effect of the decision in Huddersfield’s case.
42. He explained that, if the law was as decided in Huddersfield’s case, the administrators would not have been able to say, when seeking to put Ferrotech into administration, that the purpose of the proposed administration would have been likely to be achieved. That was because they would have anticipated having “to make the entire workforce redundant within 14 days” of their appointment, which would have “ruled out from day one the possibility of achieving a sale of the business as a going concern”. Mr. Duggins believed that, in this connection, there was nothing exceptional about the administration of Ferrotech.
43. As Mr. Oliver and Mr. Goldring put it in their skeleton argument, the decision in Huddersfield’s case would mean that “the costs to an administration arising out of the adoption of contracts of employment by administrators are likely to be substantially increased. Given the straitened circumstances of a company in administration, this will make it more difficult for administrators to adopt contracts of employment.”
44. In a passage in his judgment with which we agree, Etherton J said this:
“The clear evidence before me is that it would seriously undermine the ‘rescue culture’ which underlies the administration regime introduced by the Insolvency Act 1986 if protective awards and payments in lieu are treated as having priority under paragraph 99(4).”
57.	After citing Lord Browne-Wilkinson in Powdrill v Watson, Neuberger LJ continued:
“This "rescue culture" which seeks to preserve viable businesses was and is fundamental to much of the Act of 1986. Its significance in the present case is that, given the importance attached to receivers and administrators being able to continue to run a business, it is unlikely that Parliament would have intended to produce a regime as to employees' rights which renders any attempt at such rescue either extremely hazardous or impossible.”
58.	That the continued promotion of administration as part of the rescue culture was seen by the Government as part of the purpose of the new administration regime is apparent from the White Paper published in July 2001: see paragraph 2.7 quoted above. 
59.	It is clear also from passages in the judgment of the Court of Appeal in In re Huddersfield Fine Worsteds Ltd cited above that it is right to construe the provisions of schedule B1 and the Insolvency Rules relating to new-style administrations in the light of the underlying purpose of promoting business rescues.
60.	Evidence was put before the court in In re Huddersfield Fine Worsteds Ltd as to the adverse effects of a decision that gave super-priority to protective awards and payments in lieu of notice: see paragraphs 41 and 42 of the judgment cited above.
61.	In the present case, I have the benefit of a witness statement of Michael McLoughlin. He has been a licensed insolvency practitioner for 20 years, during which time he has taken appointments as administrator, administrative receiver or liquidator in a large number of cases, including some very substantial companies. He is global head of corporate restructuring at KPMG LLP. He volunteered his evidence, when he heard that an advocate to the court was to be appointed and his evidence is adduced by Mr Briggs with the approval of the Attorney General. From discussions with other insolvency practitioners, including representatives of PriceWaterhouse Coopers LLP, Deloitte & Touche LLP and Ernst & Young LLP, he is able to say that there is widespread concern about the issues raised in this case, particularly with regard to the impact on the ability to rescue companies as going concerns.
62.	Mr McLoughlin summarises the concerns of insolvency practitioners as follows:
“(a) If, as a result of the decision, administrators are required to pay rates as an expense of the administration in priority to the claims of the floating charge-holder and ordinary, unsecured creditors (with no analysis, on a case by case basis, regarding whether, for example, the payment of those rates actually benefits the creditors as a whole), the administrators may not be in a position to allow the company to continue its operations as a going concern, for reasons set out further below. This could ultimately lead to more companies being placed into liquidation, and their employees being made redundant, even where there is an underlying business that may otherwise have been capable of being saved. Even if ultimately the company or the business is not capable of being saved, the ability to continue to trade the business for a limited period (rather than putting the company straight into liquidation) may bring public benefits, and possibly also actual monetary benefits to creditors in the form of an increased dividend, as a result of enabling an orderly wind-down of affairs. 
(b) Furthermore, secured lenders (currently the primary source of post-administration financing in the UK) may be discouraged from funding the rescue through administration if they are concerned that the payment of rates, as a priority claim, will deplete the floating charge realisations. When deciding whether to fund the administration, the lender will often base its decision on the estimated budgets and cash forecasts which the administrator has prepared either immediately prior to appointment, or in the first few days of the administration (often on the basis of very limited information from the directors). If these cash forecasts show that significant amounts will be required to meet the company's liability to pay rates (even in circumstances where the creditors do not benefit from the payment of those rates), this may have a negative impact on the lender's decision to fund the administration. 
(c) Thirdly, depending on the category of expense that rates are determined to be, there may be insufficient floating charge realisations or unencumbered assets to pay in full (and on an ongoing basis) other expenses properly incurred by the administrators in performing their functions, such as the cost of purchasing goods or services which are essential to the business. If rates are determined to be an expense falling within Rule 2.67(1)(a), and therefore have priority to the remuneration of the administrator which falls within Rule 2.67(1)(h), it may be more difficult to find an administrator who is willing to take an appointment in circumstances where it is not clear whether the company will have sufficient assets (at least at the outset) to pay all of the administration expenses, even if administration is the most appropriate tool through which to effect a rescue.”
63.	As regards point (c), there should be noted the power of the court under rule 2.67(2) and (3) to alter the order of priorities set out in rule 2.67(1) if the assets are insufficient to meet all the expenses. The costs of purchasing goods or services essential to the business would, if supplied under contracts made by the administrators, enjoy super-priority over expenses under paragraph 99(4).
64.	As a practical consideration, Mr McLoughlin draws attention to the differences in approach and outlook between commercial creditors, such as landlords, and local authorities. While the former are frequently willing to be flexible as regards their strict legal rights, to assist the rescue of the company or to make it easier to find a new tenant, local authorities tend to take a different approach. Local authorities do, however, have power to reduce or remit a liability to rates in cases of hardship: section 49 of the Local Government Finance Act 1988.
65.	As regards the early stages of an administration, when urgent action is required, Mr McLoughlin explains that:
“If there is a risk that there could be a significant exposure to rates (as an expense of the administration) as a result of actions taken in the early days of the appointment when the outcome and the best strategy for the administration is not yet clear, this could have an impact on the administrator's willingness to cause the company to continue to trade while the administrator assesses whether a rescue of the company or its business is possible.”
At this stage the administrator has to assess whether to continue trading with a view to the survival of the company as a going concern or whether to pursue the alternative objective of achieving a better result for creditors as a whole than could be achieved in a winding-up (see schedule B1, para 3(1)). The picture is often uncertain and the administrator may wish to continue trading at least until the appropriate option becomes clearer. Mr McLoughlin states:
“Of course, the administrator would need to weigh the downside of an increased rates liability against any potential benefit to creditors of the company continuing to trade (and therefore continuing to occupy its premises). In the first few days, however, it may not always be clear what the ultimate benefit will be of the company continuing to trade and, in such cases, the administrator may be reluctant to cause the company to incur the additional liability to rates. An evaluation of the best strategy is made more complex by the fact that it may be difficult, in the early stages, for the administrator to assess what the company's potential liability for rates might be, particularly where the company has a large property portfolio. Indeed, if (as is commonly the case) the books and records of the company have not been kept up to date or are not clear in this respect, the administrator may not even know at the outset how many properties the company owns. If early concerns about potential unquantifiable rates liabilities have the consequence that more companies cease to trade and end up in liquidation, this will have a negative impact on the rescue culture.”
66.	Mr McLoughlin explains that difficulties may arise at each stage of an administration. In the early stages, the company may be in occupation of premises for rating purposes, but no trading may be taking place at those premises, while their future is assessed. Trading may continue at some premises without in the event being profitable. If the business is closed at certain premises, occupation will continue until the premises are vacated, for example by the removal of all stock. Once vacated, there is a rate-free period of three months before unoccupied property rates start to accrue. Unlike a company in liquidation, a company in administration is not exempt from such rates nor can an administrator disclaim leases. All these problems are magnified in cases such as the present where the company trades from a large number of leasehold sites.
67.	Mr McLoughlin gives a number of examples of the relevant difficulties in administrations which he or his colleagues have undertaken. He concludes that if business rates were, irrespective of the specific circumstances, always to be payable as expenses, “it could have a detrimental impact on an  administrator’s ability to rescue the company.”
68.	The City Council did not adduce evidence to rebut Mr McLoughlin’s witness statement and, while Mr Trower drew attention to the cautious and qualified terms in which he expressed his concerns, I have no difficulty in accepting the thrust of Mr McLoughlin’s evidence that the automatic treatment of business rates as an expense of an administration is likely in practice to have an adverse effect on the achievement of rescues in at least some cases.
69.	Mr Briggs submitted that rule 2.67(1) should, if possible, be construed in a way which would not damage the prospects for successful rescues. I agree with Mr Briggs that Powdrill v Watson and In re Huddersfield Fine Worsteds Ltd demonstrate the importance of this consideration in the construction of the relevant provisions. He submitted that the interests of all parties were best served by a continuation of the approach laid down by the Court of Appeal in In re Atlantic Computer Systems Ltd.
70.	Mr Briggs submitted that additional factors supported this conclusion. First, the contrary view would give rates a preferential status over other creditors, so that if the company were wound up the rates would be satisfied out of the funds in the hands of the administrator rather than simply ranking as a provable debt. This would in effect reverse the abolition of the preferential status for unpaid rates by the Insolvency Act 1985, following a recommendation in the Cork Report. It is convenient to say at this point that I do not accept this as a significant point. The status of preferential debts, now restricted to the debts itemised in schedule 6 to the 1986 Act (amended by the Enterprise Act 2002 to exclude any Crown debt), determines whether certain provable debts have priority over others in the distribution of assets after the payment of secured creditors and the costs and expenses of the liquidation. It is the case that if the assets under the control of an administrator were insufficient to meet the rates which had accrued due during the administration, the unpaid amount would rank as a provable debt in an ensuing liquidation and would not enjoy preferential status. The same is true of claims which have super-priority status under paragraph 99(4) and (5). The creation of administration as an insolvency process raises a different question: which liabilities incurred during the administration should be paid as expenses of the administration? This is a question which arises whether or not a company later goes into liquidation.
71.	A second factor to which Mr Briggs drew attention was that, unlike a liquidator, an administrator has no power to disclaim onerous property, including in particular leasehold property. This is relevant principally as regards unoccupied property rates. Mr Briggs submitted that if rule 2.67 applies to rates at all, it will apply to unoccupied property rates as well as rates on occupied property. An administrator would be in a worse position than either a liquidator or an administrative receiver. A liquidator can disclaim property and in any event a company in liquidation is exempt from unoccupied property rates. An administrative receiver is not personally liable for rates while he remains the agent of the company (Ratford v Northavon DC [1987] QB 357) nor are they payable as an expense of the receivership (In re Sobam BV [1996] 1 BCLC 446). The right to distrain on the defaulter’s goods on the premises would not assist the local authority. It has been held not to be available against goods over which a floating charge has crystallised by the appointment of a receiver (In re ELS Ltd [1995] Ch 11) and it would in any case be nugatory in the case of unoccupied premises.
72.	I should add that this difference, if it exists, between administrative receivership and administration is the more surprising because, as pointed out earlier, the main purpose of the reforms made by the Enterprise Act 2002 was to replace administrative receivership with administration, so as to improve the position of creditors generally but without undue detriment to the position of debenture holders. Paragraph 2.6 of the White Paper issued in July 2001 (Cm 5234) stated:
“In taking this step we recognise that in order to ensure the position of secured creditors within collective procedures there will need to be substantial reform to the process of administration so as to make it more effective and accessible. Whilst our aim is to guarantee unsecured creditors a greater say in the process and its outcome, secured creditors should not feel at any risk from our proposals. We see no reason why, given the changes we propose to make to the administration procedure (and which are set out below), their interests should not be protected equally well by an administrator as by an administrative receiver. Indeed we are confident that, over time, secured creditors will come to see administration as their remedy of choice for maximising value.”
The payment of rates, whether on occupied or unoccupied property, as an expense represents a potentially significant change for the worse in the position of floating charge holders. If rates are payable as an expense, it is not a change which was made or foreshadowed by the provisions of the Enterprise Act 2002, but arose from an exercise of the existing rule-making power in the 1986 Act.
73.	In the light of these various considerations, Mr Briggs submitted that, notwithstanding the substantially identical terms of the two provisions, the construction of rule 4.218(1)(m) by the House of Lords in In re Toshoku Finance UK plc was not applicable to rule 2.67(1)(f). Its different context, administration rather than liquidation, required a different construction. He submitted that the words “any necessary disbursements” meant disbursements which were necessary for the purposes of the administration. Whether disbursements were necessary for these purposes would ultimately be a matter for the court, although in practice an administrator and the creditor would usually be able to agree the issue by the application of the relevant principles. In this way, the position as regards old-style administrations, as explained in In re Atlantic Computer Systems plc and Centre Reinsurance Co v Freakley, would apply also under the new regime.
74.	Mr Briggs relied on the judgment of Lawrence Collins J in In re Allders Department Stores Ltd [2005] 2 All ER 122. The companies in that case were in administration under the new regime and the administrators applied for directions that any statutory liabilities to employees for redundancy or unfair dismissal following termination of their employment were not required to be paid as an expense under rule 2.67(1)(f) or otherwise. The application was opposed by the Attorney General who intervened on behalf of the Insolvency Service.
75.	It was common ground that these statutory liabilities were not within the definition of “wages or salary” for the purposes of super-priority under paragraph 99(5). The judge noted that certain other liabilities to employees, including remuneration under a protective award under section 189 of the Trade Union and Labour Relations (Consolidation) Act 1992 (redundancy dismissal with compensation), ranked as preferential debts on any distribution in an administration or liquidation: 1986 Act section 386 and schedule 6. It was this combination of provisions dealing specifically with employment liabilities which was the first ground for the decision. Lawrence Collins J said:
“22. The position set out in para 99 [super-priority for wages or salary] is not in my judgment affected by the general administration expenses provisions in the Insolvency Rules. The general provisions of r 2.67 of the Insolvency Rules should not be construed to override the lex specialis of para 99 in Schedule B1 to the 1986 Act.
23…
24. I do not consider that the statutory liabilities for redundancy payments or unfair dismissal claims would be “necessary disbursements” for the purposes of r 2.67(1)(f). First, it would be inconsistent with the scheme of the legislation if the payments referred to in Sch 6 were to be treated as preferential, and yet all other employee-related payments are to be paid as an expense of the administration. That would be to give the Sch 6 payments (which include protective awards) a lesser priority than other types of payments, when the policy appears to have been to give them a greater priority.”
76.	Lawrence Collins J went on to deal with the submissions of counsel for the Attorney General that the statutory liabilities for redundancy and unfair dismissal fell within rule 2.67(1)(f) by analogy with rule 4.218(1)(m) as construed in In re Toshoku Finance UK plc. Those submissions, as recorded in paragraph 6 of the judgment, included the proposition that it was held in In re Toshoku that if the company incurred an obligation post liquidation for which the creditor could not prove, it would be a necessary disbursement and that this principle was to be applied to administrations. Lawrence Collins J said in paragraph 24:
“Second, there is nothing in my judgment in Re Toshoku Finance UK plc, [2002] 3 All ER 961, [2002] 1 WLR 671 which requires a different conclusion. It is not the ratio of that case that any liability imposed on a company which is not provable as a debt is thereby rendered a “necessary disbursement.” The context in which Lord Hoffmann referred to the fact that certain debts could not be proved shows that he was justifying the treatment of certain debts as expenses, and not offering a definition of what liabilities were disbursements. Even if that were the crucial test for winding up, there would be no reason to apply it to administration. Although the current regime envisages a distribution to secured and preferential creditors without a subsequent liquidation, in the normal case of an administration which does not succeed in rescuing the company, the company will go into liquidation and the statutory payment obligation will be a provable debt under r 13.12. Finally, a construction of r 2.67(1)(f) which applied it to statutory redundancy payment liabilities and other statutory liabilities would have such adverse policy consequences on the administration regime that it is impossible to see that such a result could have been intended.”
77.	It appears to me that the principal basis of the decision was that because of the special treatment of certain categories of employment-related claims under paragraph 99 and under schedule 6, it would be inconsistent to treat further categories as expenses under rule 2.67. I concur with that analysis. I also concur with the view that it is not the ratio in In re Toshoku Finance UK plc that any liability imposed on a company which is not provable as a debt is thereby rendered a necessary disbursement. Examples of liabilities which fall into neither category are liabilities in tort where the cause of action arises after the liquidation (see In re T&N Ltd [2006] 1 WLR 1728, subject now to the limited exception in rule 13.12(2)(b)) and, it would seem, orders for costs made after the commencement of liquidation in respect of pre-liquidation litigation (Glenister v Rowe [2002] Ch 76, a decision on the rules for proof in bankruptcy).
78.	Mr Briggs relied in particular on Lawrence Collins J’s reference to the adverse policy consequences for administrations if “statutory redundancy payments and other statutory liabilities” were payable as expenses. I doubt whether Lawrence Collins J, by referring to other statutory liabilities, was intending to refer to more than the other statutory liabilities with which the case was concerned. It is nonetheless a further example of construing the relevant provisions in the  light of the underlying purpose of administration.
79.	I readily accept the force of the submissions made by Mr Briggs. However, I do not see that they enable the court to disregard the construction put on essentially the same provisions in rule 4.218 by the House of Lords in In re Toshoku Finance UK plc and to conclude that rule 2.67 is to be construed in an entirely different sense. Not only that, but the construction advanced by Mr Briggs, that the status of liabilities as necessary disbursements depends on the exercise of discretion by the administrator or the court, is essentially the construction rejected by the House of Lords. If the rule was intended to have that meaning, the rule-making authorities could not have chosen a less appropriate way of achieving it. The reasonable inference is that, by adopting for rule 2.67 the same terms as rule 4.218, the intention was that it should carry the same meaning.
80.	Responsibility for the formulation of the rules and for the policies to which they give effect lies with the Insolvency Service. It cannot sensibly be suggested that the Insolvency Service was not fully aware of the House of Lords’ decision in In re Toshoku Finance UK plc when rule 2.67 was made. In the light of that decision, an intention to produce the result rejected by the House of Lords would have been evidenced by terms which made clear that the payment of expenses listed in rule 2.67(1), or at any rate necessary disbursements within paragraph (f), was to be subject to the exercise of discretion, in accordance with the principles laid down in In re Atlantic Computer Systems plc.
81.	The inclusion of paragraph (j) in rule 2.67 reflecting rule 4.218(p) is particularly striking. It provides that the expenses include:
“the amount of any corporation tax on chargeable gains accruing on the realisation of any asset of the company (without regard to whether the realisation is effected by the administrator, a  secured creditor, or a receiver or manager appointed to deal with a security).”
It is not easy to see how such tax would ever satisfy the principles for payment as an expense laid down in In re Atlantic Computer Systems plc, particularly if the asset were sold by a secured creditor or receiver. Yet the corporation tax on chargeable gains is stated to be payable as an expense, without any express qualification. From the terms of rule 2.67(f) it is clearly a “necessary disbursement” which has been relegated to a lower level in the order of priority.
82.	There was some discussion as to the connection between the new provisions as to expenses and the new provisions enabling an administrator to make distributions to creditors. If the provision for expenses was introduced because an administrator could now make distributions, Mr Briggs pointed out that distributions to ordinary unsecured creditors required the permission of the court: schedule B1 para 65(3). A distribution would be made to pre-administration creditors but, as Mr Briggs submitted, the need for the court’s permission would ensure that fair provision was made for liabilities arising in the administration. I am not satisfied that the new provisions for expenses were introduced  solely because of the new distribution provisions. They apply equally when the administrator vacates office without making a distribution. Moreover, permission is not required for distributions to preferential creditors.
83.	So far as the nature of a company’s liability for corporation tax or rates is concerned, there is no distinction between a company in liquidation and a company in administration. In both cases they are payable by the company. As regards corporation tax, the administrator, like the liquidator, is the proper officer of the company as regards any company in administration under the new regime: section 108(3)(a) of the Taxes Management Act 1970, as amended by the Finance Act 2003, section 196 and schedule 41, paras 2 and 5. The effect of amendments to section 12 of the Income and Corporation Taxes Act 1988 is that a new accounting period for corporation tax purposes begins at the  commencement of an administration and the accounting period current on termination of administration ends on that date. These amendments to the 1970 and 1988 Acts became effective on 15 September 2003 to coincide with the introduction of the new administration regime.
84.	The observations on rates, as being necessary disbursements within rule 4.218(1)(m), in In re Toshoku Finance UK plc may, strictly speaking, be obiter but all members of the House of Lords concurred in Lord Hoffmann’s speech and Mr Briggs did not suggest they were wrong. Just as rates are payable in a liquidation as a necessary disbursement, so in my judgment they are payable in an administration.
85.	The decision whether rates, corporation tax and other necessary disbursements are chargeable under paragraph 99 of schedule B1 as an expense in an administration is a policy decision. It involves balancing competing interests, including the interest in promoting corporate rescues. It is not a policy decision for the courts, but for the rule-making authorities in exercise of their power under the 1986 Act, schedule 8, para 18. In my judgment, by adopting the same terms for rule 2.67 as for rule 4.218, the policy decision was made that rates, and corporation tax, should rank as expenses in an administration.
86.	Accordingly, I will make the declarations sought by Exeter City Council.
87.	Those declarations concern business rates on occupied property. The status of unoccupied property rates is not raised for decision in this case, as Mr Trower was careful to point out. However, Mr Briggs submitted, on the basis of Mr McLoughlin's evidence, that the position regarding unoccupied property rates is a matter of widespread practical importance in administrations and he invited me to express my view. Mr Briggs submitted that if I were to decide, as I have, that the construction of rule 4.218(1)(m) adopted in In re Toshoku Finance UK plc applied also to rule 2.67(1)(f), there was no relevant distinction between business rates on occupied and unoccupied property and both would be payable as expenses in an administration. Mr Trower advanced no arguments against this submission and, in reply, accepted it as correct. I have not therefore heard any submissions to distinguish the two categories of rates in these circumstances and no basis of distinction occurs to me. As presently advised, therefore, my view is that unoccupied property rates are payable under rule 2.67(1)(f) as an expense in an administration to which schedule B1 applies.