Company which raked in £1.8m in business mitigation scheme finally wound up

A MANCHESTER-based company that operated a business rates mitigation scheme for clients – – generating fee income of £1.8m – has finally been wound-up.

The High Court in Manchester ordered the winding up of PAG Management Services Ltd on October 9 2015 after it was found to have operated a scheme that relied on an abuse of insolvency legislation.

The order was suspended pending an appeal lodged by the company, but that appeal was formally dismissed on November 15 2016 at the company’s request.

Two associated companies, complicit in the operation of the scheme, Ashburton Solutions Ltd and Beacon Property Solutions Ltd, were also wound-up in the public interest.

The scheme operated by PAG worked as follows:

•    special purpose vehicle companies, such as Ashburton Solutions Ltd and Beacon Property Solutions Ltd, were formed and controlled by PAG Management Services Ltd
•    each special vehicle company would sign a number of leases, typically 20, relating to empty commercial properties. Each lease was for a nominal rent and contained a clause that enabled the property owner to terminate the lease on seven-days notice
•    immediately after signing the leases, the special vehicle company would be placed into members’ voluntary liquidation with the result that the properties leased to the special vehicle company became exempt from business rates otherwise payable
•    the terms of the lease enabled the owner of the property to remove the property from the scheme in the event that a genuine, rent-paying tenant was subsequently found, at which point the new tenant would become liable for the business rates

PAG Management Services generated substantial income by charging its clients – the owners of the empty commercial properties – a proportion of the business rates saved whilst the property remained in the scheme.
 
The investigation found that, during the 18-month period to March 2013, PAG generated fee income of £1.8m from its clients and that, during the same period, business rates totalling £6.4m were avoided by property owners as a consequence of the scheme’s operation.

During the trial of the winding up petition, the court heard evidence that the scheme operated by PAG continued to expand beyond March 2013 and that, by March 2015, the business rates being avoided by use of the scheme were estimated to be in the region of £12m per year.

After a full trial of the winding up petition, the court found the true objective of the voluntary liquidations engineered by PAG was to act as a shelter for the leases that were created so PAG could earn fees as a result and that this was a misuse of the insolvency legislation.

In his judgement, the vice chancellor Mr Justice Norris held that: “…there is a clear public interest in ensuring that the purpose of liquidations is not subverted, as I consider it is by treating a company in liquidation as a shelter (and seeking to prolong its continuation as such).

“This misuse of the insolvency legislation demonstrates a lack of commercial probity.

“In its own way it also subverts the proper functioning of the law and procedures of bankruptcy.”

Colin Cronin, investigation supervisor at the Inslvency Service, said: “The court has found unacceptable schemes such as that operated by PAG Management Services Ltd which seek to use the insolvency legislation for purposes other than the collection, realisation and distribution of assets.”

These proceedings show that the Insolvency Service will act robustly to ensure that the UK’s insolvency regime functions properly and that action is taken against companies which seek to subvert that proper functioning of the legislation.

Responding to the Insolvency Service’s comments, a  PAGMSL spokesperson said: “We withdrew our appeal after reaching an agreement with the Secretary of State.

“The basis for withdrawing the appeal was that the scheme in question had not been marketed since early 2014 and no longer operates.

“In withdrawing the appeal, PAGMSL made it clear it did not accept the judge’s decision as to the basis for ordering the winding up of the company.

“The Secretary of State did not dispute this.

“The judge himself accepted that his decision was based on his view of the purpose of the insolvency legislation and not on any binding legal precedent or statutory provision.

“He also accepted that business rates schemes are not by their nature contrary to the public interest nor inherently objectionable.

“Leave to appeal was granted on that basis.

“The appeal was therefore withdrawn for pragmatic reasons.

“PAGMSL has paid all costs due to the Secretary of State.”