Local Government Ombudsman decision that Council was guilty of “maladministration causing injustice” when it obtained a bankruptcy order in respect of unpaid Council Tax
ILA Technical Committee wishes to draw members’ attention to the decision of the Local Government Ombudsman (“LGO”) in a report on an investigation into a complaint by a bankrupt (anonymously referred to as Mr Ford) that Wolverhampton City Council was guilty of “maladministration causing injustice” when it obtained a bankruptcy order in respect of unpaid Council Tax.
The decision amounts to a direction to a local authority to fund an annulment of its debtor’s bankruptcy for failure by the authority to enforce with a lighter touch.
Background
The Local Government Ombudsman (“LGO”) has the power to investigate the way in which a local authority arrived at a particular decision but will only investigate “maladministration causing injustice”. He cannot review the decision itself solely on the grounds that the complainant does not agree with it; the complainant must have suffered an “injustice” as a consequence of poor or defective exercise by the authority of its powers. In this case, the LGO considered that he had jurisdiction to consider the complaint of Mr Ford (“F”) on the basis that the bankruptcy proceedings had been “misconceived” and caused considerable financial loss to F.
F complained at the actions of Wolverhampton City Council (“WCC”) in making him bankrupt for council tax arrears in June 2005. F had arrears of £1,105 at the time bankruptcy proceedings were commenced. As at 28 February 2008, the amount required to pay all debts in full amounted to approximately £38,000, including: creditors’ claims (WCC was understood to be the only creditor) of £1,778; legal costs in connection with the presentation of the bankruptcy petition (£2,260 plus VAT); the trustee’s remuneration (£13,459 plus VAT); and the trustee’s legal costs (£13,373 plus VAT), together with the disbursements and the costs of the OR. The trustee’s costs included the issue of proceedings for possession and sale of F’s house and of resisting F’s attempts to have the bankruptcy annulled. All proceedings were stayed pending the outcome of the LGO’s investigation.
The evidence showed that F had been on a low income and apparently had an entitlement to council tax benefit that could have significantly reduced the arrears, but no fault could be attached to WCC for not paying that benefit, which arose from F’s failure to co-operate with the claim process. The LGO accepted the right of the WCC to collect its council tax arrears and the limited options available to it in F’s case. He noted that WCC was not able to apply to the Department for Work and Pensions for a deduction of F’s incapacity benefit to repay arrears because this benefit was not one where such a method of recovery had been allowed. WCC’s attempt to use bailiffs to collect the debt from F had been without success.
The Decision
However, the LGO concluded that WCC had not followed “due process” in making F bankrupt in that WCC:
gave F inadequate warning of the consequences of bankruptcy before commencing proceedings, in breach of its usual practice; and
failed properly to consider the alternative of seeking a charging order against F’s home.
The LGO concluded that, on the balance of probabilities, had such failing not occurred F, would have made an offer of repayment to the WCC prior to commencement of proceedings.
In order to put F in the position that he would have been in had no maladministration occurred the LGO considered that the bankruptcy should be annulled and that WCC should pay for this “by arrangement with the trustee in his bankruptcy”.
However, he also considered that it would not be right for F to avoid liability for his debt. He therefore recommended that WCC should not make any payment that would lead to annulment of the bankruptcy, until F had first entered into a binding arrangement with WCC to repay £1,105 of the costs that it would incur (which is the same as F’s arrears were when WCC started the bankruptcy proceedings), and to clear that debt as soon as reasonably practicable – stipulating that that debt could be secured by way of a charge on F’s property.
Finally, the LGO recommended that WCC should review its collection policy and procedures for local tax arrears in the light of the case with a view to avoiding a repeat of the maladministration in a future case.
This decision has potentially wide-ranging implications for all local authorities, and the Committee understands that WCC have instituted proceedings seeking a judicial review.
For more information or advice on bankrupcy, please contact
Andrew Harris.
