Key Point

Neither failure to obtain debtor's consent to modifications to an IVA proposal, prior to the creditors' meeting; nor the unauthorised exercise of a proxy at a creditors' meeting render an approved IVA a nullity.

The facts

Mr P proposed an IVA in 1999. It was approved at a creditors' meeting (the "IVA Meeting") with a modification (the "Modification"). Payments to the Supervisor were made under the IVA and it was varied at Mr P's request in 2001 and 2002. The Supervisor successfully petitioned for Mr P's bankruptcy in 2005 due to arrears of IVA payments. In 2010, Mr P sought a declaration that the IVA was a nullity. Included in Mr P's grounds were that: 1) he did not consent to the Modification; and 2) HMRC's proxy for the IVA meeting did not provide for a vote in favour of the Modification.

The Decision

The Court refused the declaration. It found against Mr P on the facts of both grounds 1 and 2. In particular, relying on the fact that HMRC must have known about the Modification but had never objected, HMRC was held to have ratified the otherwise unauthorised exercise of its proxy, and treated the IVA as being approved. Even if the facts had been found in Mr P's favour, the Court would interpret the Insolvency Act 1986 in a purposive manner and hold that (if proven) grounds 1 and 2 would each merely be a "material irregularity".

Comment

As a result, the IVA was not void. A "material irregularity" does not invalidate the decision of a meeting of creditors unless and until the court makes an order revoking or suspending any approval given by the meeting (Section 262 of the Insolvency Act 1986).

Hasumati Narandas-Girdhar & Atulkumar Parekh v. Alan Bradstock [2014] EWHC 1321 (Ch)