A business owner who was refused a covid business grant by his local authority for being in debt has been unsuccessful in his judicial review application over the decision.
HHJ Julian Knowles said Mr Wajid Hussain's claim against Kirklees Council, which argued the council wrongly classified him as an undertaking in difficulty, therefore refusing his grant application, appeared to be a novel one.
Mr Hussain, who had debts of over £50,000, applied for a grant from the Retail, Hospitality and Leisure Grant Fund (RHLGF). The fund was created to help businesses navigate the financial impact of the Covid-19 crisis.
Local authorities were responsible for making the grants for the scheme and had guidance published by the Department of Business, Energy and Industrial Strategy (BEIS) on how to do so.
In the guidance, the BEIS states that the grant was created to provide support to "active businesses".
"Businesses that were in liquidation or were dissolved as of the 11th March will not be eligible. Businesses that fall into administration or are dissolved after 11 March and before their grant paid will also not be eligible," the guidance reads.
The guidance adds that: "Businesses which fail the undertaking in distress test on 31 December 2019 are also ineligible for payments under the COVID-19 Temporary Framework for UK Authorities, see Q84 & Q87."
In a witness statement read by HHJ Knowles, the council's Business Rates Team Manager, Bernadette Thorp, explained that Kirklees refused the man's application because he had not paid any business rates to the council for a property he occupied, which had a rateable value of over £30,000, since April 2018.
In its letter to the man informing him that his application for the business grant had been refused, the council said that the business owner was not "financially viable" as "bankruptcy proceedings are ongoing". However, although a statutory demand had been issued, proceedings had not begun. The council later said this was a result of an administrative error and apologised.
The business owner claimed that the council erred in determining that he was an undertaking in distress and refusing the grant on that basis.
He pointed out that although there was a statutory demand against him to pay his debts, there were no bankruptcy proceedings in existence against him.
He accepted in his skeleton argument that while the council could have commenced bankruptcy proceedings, proceedings had not commenced, nor had he been made bankrupt. As such, he claimed he fell outside the definition of an undertaking in distress in Article 2(18)(c) of the GBER and BEIS's guidance.
Article 2(18)(c) provides that "undertaking in difficulty" means an undertaking which is "subject to collective insolvency proceedings or fulfils the criteria under it domestic law for being placed in collective insolvency proceedings at the request of its creditors".
"His simple point," HHJ Knowles said, "is that for him to have fallen within Article 2(18)(c) bankruptcy proceedings needed to have commenced by presentation of a bankruptcy petition by the Council."
In response, the essence of Kirklees' submissions was that the making of a statutory demand pursuant to s 268 of the Insolvency Act 1986 was sufficient to bring the claimant within the scope of Article 2(18)(c) because it was then open to the council to commence bankruptcy proceedings against the claimant, he having failed to satisfy it.
In concluding, HHJ Knowles considered the wording of Article 2(18)(c). He said: "It specifically does not require a bankruptcy order to have been made."
On the question of whether the business owner qualified as an undertaking in distress, HHJ Knowles accepted the arguments of the council and considered that he was.
"It follows that in my judgment the Council was right to conclude that the Claimant was an undertaking in distress within Article 2(18)(c) of the GBER because a statutory demand for more than £5000 had been served upon him which had not been set aside and had not been satisfied within three weeks, as Ms Thorp set out in her evidence," said HHJ Knowles.
He added: "He was therefore liable to be made subject to bankruptcy proceedings at the Council's election and these, as I have said, were agreed to be collective insolvency proceedings for the purposes of the GBER".
The fact that Kirklees would have to satisfy a number of procedural rules in order to commence the proceedings did not prevent the business owner from having the status of an undertaking in distress, the judge said.
HHJ Knowles said: "Taking a step back, by failing to satisfy the statutory demand against him, according to English law, in particular s 268 of the IA 2016, it is taken to be proved that the claimant is unable to pay the significant debt which he owes to the council. Taking a common sense view of when an undertaking is 'in difficulty', an inability to pay such a debt surely satisfies such a description, irrespective of whether bankruptcy proceedings have actually commenced."