21 January 2014
[2014] EWCA Civ 26
Court of Appeal (Arden, Sullivan and Davis LJJ)

Following suspension of IVAs, all creditors were bound by varied IVAs approved at a further creditors' meeting directed by the court, even if they had become creditors after the initial suspension.

The Appellant husband and wife (Ps) were creditors of the Respondent husband and wife (Ds).  Ds had obtained interim orders under s.252 of the Insolvency Act 1986 and IVAs were approved at a creditors’ meeting.  At the creditors’ meeting, the chairman valued Ps’ claim at £1.  Ps challenged that valuation in Court.   Ps prevailed on that challenge; the District Judge discharged the interim order, suspended the creditors’ approvals of the IVAs at the original meeting and ordered a further creditors’ meeting under s.262(4)(b).  Suspension would end upon creditor approvals of varied IVAs, which occurred at the further meeting.

As a result of their successful challenge Ps had become further creditors of Ds in respect of their costs, which Ds had been ordered to pay.  Ps did not vote in respect of this debt at the further creditors’ meeting, at which the varied IVAs were approved by the requisite majority.

Ps then served statutory demands on Ds in respect of the costs debt.  The Court of Appeal had to consider whether Ps were bound by the terms of the varied IVAs in respect of that debt.

Ps argued that the consequence of suspension of the original approval was that only creditors bound by the original IVAs were bound by the varied IVAs.  In the premises, Ps argued, they were not bound in respect of the costs because they became entitled to them after the original IVAs.  The Court ruled that the District Judge’s order did not bear that interpretation in the context.  A distinction between ‘suspension’ and ‘revocation’ was, in this instance, unnecessary.

The Court considered whether s.260 bound creditors to IVAs agreed at a further meeting under s.262.  Despite acknowledging that a literal reading of s.260 indicates that only IVAs agreed at the original meeting are binding, the court ruled that such an interpretation creates anomalies that Parliament could not have intended.  For instance, the application of s.260 to a creditors' meeting summoned under s.257 but not to a further meeting summoned under s.262 to reconsider the same proposal would render Part VIII of the Act incoherent.  There was no policy reason to restrict s.260 to the original meeting.  Reference to ‘a "further meeting" in s.262(4)(b) in relation to a nominee is to be read as a "further meeting under s.257"’.

Ps were therefore bound by Ds’ varied IVAs in respect of their costs, and the judge was right to set aside the statutory demands.

This case shows that the Court will take a pragmatic approach when interpreting statutes in unusual circumstances. The debt upon which Ps based their statutory demand post-dated the original creditors’ meeting but not the meeting at which the IVAs, as final approved, were considered. It would have been unjust to allow Ps to petition for bankruptcy on the basis of such debt.