Supreme Court
Action No. 1of 1984
21st February, 1984
Moe, C.J.

Mr. P. Zuniga for the Plaintiff.
Mr. M. Sosa for the First Defendant.
Mr. G. Brown, Solicitor General, for the Second Defendant.

Administration of Estates - Insolvent Estate - Administration expenses having priority over all other claims - What constitutes administration expenses -Priority of income tax - When does income tax rank prior to other debts of estate - When will other debts rank pari pasu with income tax.

J U D G M E N T

By these proceedings the Plaintiff, the Administratrix of the estate of Terence Keating who died on the 27th June, 1982, seeks directions as to the manner in which she ought to distribute the money left by the deceased which amounted to $7,889.47.

At the date of his death, the deceased owed the Government of Belize Income Tax assessed for the years 1973 to 1976 inclusive to an amount of $2,511.30, for the years 1977 to 1978 inclusive to an amount of $1,114.27 and for 1979, $62.89, a total of $3,688.46. On 2nd November, 1979 an information was filed to recover that sum in the Magistrates Court for Belize City and on 23rd January, 1981 the magistrate declared the deceased a judgment debtor, and ordered that he pay $4,489.18 income tax, $121.50 bailiff fees and $3.00 costs by the 31st March, 1981.

On the 20th September, 1977 the first Defendant obtained judgment against the deceased in the Supreme Court for the sum of $17,692.67 with interest at 13 percent per annum.

The Plaintiff obtained letters of administration to the deceased's estate in connection with which she incurred the following expenses:

She has also paid out $92.00 Court fees in connection with this Action for directions from the Court.

The deceased's estate is clearly insolvent and the Plaintiff now seeks direction as to (1) whether the expenses she incurred may be deducted from the money of the deceased before any other payments; and (2) whether she should pay the Royal Bank of Canada, the first Defendant and the Government of Belize and if so in what manner.

It is agreed among all concerned that section 38(1) of the Administration of Assets Ordinance Chapter 196 governs the administration of an insolvent estate. That section provides:

"(1) Where the estate of a deceased person is insolvent, his real and personal estate shall be administered in accordance with the rules set out in Part I of Schedule A to this Ordinance."

That part of Schedule A provides the following Rules as to payment of debts where the estate is insolvent:

(1) The funeral, testamentary and administration expenses have priority.

(2) Subject as aforesaid, the same rules shall prevail and be observed as to the respective rights of secured and unsecured creditors and as to debts and liabilities provable and ---- as to priorities of debts and liabilities as may be in force for the time being under the Law of Bankruptcy with respect to the assets of persons adjudged bankrupt."

By section 36(1) thereof, the Bankruptcy Ordinance, Chapter 202 provides:-

"In the distribution of the property of a bankrupt ---- there shall be in priority to all other debts -"

(a) All local rates, land and property or other tax due from the
bankrupt - at the date of the receiving order ---- and having
become due and payable within twelve months next before
such time."

By subsection 5 in applying the section to the case of a deceased person, the date of the person's death is substituted for the date of the receiving order.

Now firstly, by section 17(4) of the Estate Duty Ordinance, Chapter 45 no probate or letters of administration shall be issued from the Registrar's Office --- "unless and until a certified copy of a certificate has been issued by the Registrar that the estate duty payable in respect of the estate of a deceased person has been paid, or in lieu thereof, a certificate that arrangements have been made for the payment of such duty". Payment of estate duty was therefore a proper administration expense incurred by the Administratrix. Again legal fees incurred in connection with obtaining letters of administration and the proper administration of the estate, I hold as falling within the general costs of administering the estate. Consequently, all the expenses of the Administratrix listed above fall within those expenses which have priority by virtue of section 38(1) of Chapter 196, and the Administratrix is entitled to deduct those expenses first from the assets of the estate.

It was submitted on behalf of the Royal Bank of Canada that the amount due as income tax fell due and became payable in point of time prior to November, 1979, i.e. not within twelve months before the date of death of the deceased and therefore cannot rank before that due to the Royal Bank of Canada. For the Government of Belize the submission was that the amount claimed is for taxes due and payable even up to the date of the deceased's death, that is, the relevant tax was due and payable from the date of levy and remained a continuing debt and takes priority over the claim of the Royal Bank of Canada.

The answer to the issue raised turns on the proper interpretation to be placed on the words "having become" in the section 36(l)(a). Giving the words their natural and ordinary meaning, the words connote "having come into existence" or "having come into being." Thus while section 36(1) gives priority to rates and taxes, in order to enjoy the priority two conditions must be satisfied: (1) the rates or taxes must be due from the bankrupt or insolvent as the case may be at the date of the receiving order or the date of death; (2) the rates or taxes must have become due and payable within 12 months next before that time. The rate or tax is therefore limited to the twelve month period preceding the relevant date.

The section 36(1)(a) is identical in terms to a portion of section 33(l)(a) of the Bankruptcy Act 1914 U.K. (4 & 5 Geo. 5 at 59) which provides:

"S.33(1)(a) In the distribution of the property of a bankrupt there shall be paid in priority to all other debts - (a) all parochial or other local rates due from the bankrupt at the date of the receiving order and having become due and payable within twelve months next before that time, and all assessed taxes, land tax, property or income tax assessed on the bankrupt up to the fifth day of April next before the date of the receiving order, and not exceeding on the whole, one year's assessment;".

It will be noted that the first portion of the English legislation dealt only with rates i.e. parochial or other local rates. Section 36(l)(a) of Chapter 202 uses the same language to deal with both rates and taxes which include income tax. I take the view that the conditions and limitations laid down by section 33(l)(a) of the Bankruptcy Act 1914 U. K. with respect to priority for parochial or other local rates are the conditions and limitations laid down by section 36(l)(a) of Chapter 202 with respect to priority for both rates and taxes. The effect of the language used in relation to rates in the Bankruptcy Act 1914 U. K. is made clear in Re Pratt Ex Parte Inland Revenue Commissioners v. Phillips (1951) 1 Ch. 225 where a distinction was drawn between the effect of identical language used in relation to rates and that used in relation to taxes in that Act.

The taxes in respect of which the Government of Belize makes its claim are not related to the particular period laid down by section 36(1)(a), and therefore the conditions for enjoyment of priority thereunder are not satisfied.

Consequently section 36(9) of Chapter 202 comes into play. That provides:

"36(9) Subject to the provisions of this Ordinance all debts proved in the bankruptcy shall be paid pari passu". The debts to the Royal Bank of Canada and the Government of Belize are therefore to be paid at the same time.

It is clear that the balance of money will not satisfy in full both claims. In view of the amounts due to the two claimants, it would be fair and reasonable to pay the Government of Belize 1/9 of the balance and the Royal Bank of Canada 8/9.

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