Are funds subject to an IVA if they are received by a debtor after a certificate of completion has been issued by the supervisor?

The case of James Green (Supervisor of the Voluntary Arrangement of James Patrick Wright) (Supervisor) v James Patrick Wright (Debtor) [2017] EWCA Civ 111 ( judgment available here) concerns an individual voluntary arrangement (IVA). The terms of the IVA provided that all of the Debtor’s assets, other than his matrimonial home and his car, would be held on trust for the purposes of the IVA in return for a moratorium on the enforcement of creditors’ claims. In addition, the Debtor was required to make monthly contributions from his salary for five years.

The Debtor complied with his obligations under the IVA and the Supervisor issued a certificate of completion. After the certificate was issued, two payments in settlement of PPI mis-selling claims were received by the Debtor. It was not disputed that these claims were property to which the IVA would apply if the IVA survived the certificate of completion. By comparison, had the Debtor been made bankrupt, the mis-selling settlements would have been part of the bankruptcy estate even after the discharge from bankruptcy. 

The Debtor applied to court to determine whether these sums were subject to the IVA. It was initially decided in the County Court and on appeal to the High Court that they were not. The courts considered that following the issue of a certificate of completion the IVA was concluded, although they accepted that if a dividend had been declared but not paid this would remain payable. A further appeal was made to the Court of Appeal by the Supervisor.

Decision of the Court of Appeal

The creditors’ rights were determined by what was owed to them at the commencement of the IVA. As such, the creditors could remain beneficiaries of the trust even after the trust had purportedly completed.

It follows that, upon issue of a certificate of completion, although the debtor is released from the debts (with no further liability to pay them) the debts themselves do not cease to exist and are not in fact discharged.

Lord Justice David Richards considered that this situation was analogous to bankruptcy where debts can continue to exist without being the personal obligation of the debtor. Therefore, the property subject to the IVA continued to be held on trust for the creditors even after completion of the IVA.

Key points for practitioners

Insolvency practitioners should be alerted to the possibility that recoveries can be made on cases which they may previously have considered to be closed. This decision may also result in confusion on the part of the lay person. In plain English one might expect complete to mean complete and assume that additional realisations would fall outside the IVA. Practitioners will want to be careful to ensure that an individual debtor understands the full implications of entering into an IVA in light of this case.