Section 262(1) of the IA 1986 provides that a debtor, creditor or nominee may apply to the court where: (a) a voluntary arrangement approved by a creditors’ meeting summoned under section 257 unfairly prejudices the interests of a creditor of the debtor, or (b) there has been some material irregularity at or in relation to such a meeting.
The court may, if satisfied that a relevant ground has been made out, revoke or suspend any approval given at a creditors meeting or give a direction for the summoning of a further meeting (s.262(4)). However, s.262(8) also provides that ‘except in pursuance of the preceding provisions of this section, an approval given at a creditors’ meeting summoned under section 257 is not invalidated by any irregularity at or in relation to the meeting’.
Two rival interpretations of section 262(1) and (8) had emerged from a variety of first instance decisions on such applications:
- A narrow interpretation that “material irregularity” means some irregularity which does not of itself render the approval of the IVA a nullity; consequently, irregularities which were so serious that the approval was a nullity were not saved by s.262(8).
- A broader interpretation that s.262 applied to regulate the validity (or otherwise) of an IVA wherever the invalidating events occurs at or in connection with a creditors’ meeting. Consequently, the approval was valid unless the court exercised its discretion to revoke the approval under s.262(4).
The Court of Appeal has now resolved this dispute in Nirandas-Girdhar v Bradstock; the broader interpretation is to be preferred.
In Nirandas-Girdhar v Bradstock, a debtor attempted to set aside his modified IVA proposal on the basis that it had not been validly approved by creditors at the creditors meeting. HMRC, unaware of the debtor’s modifications to the IVA, had sent a proxy form in favour of the IVA to the chairman. The chairman cast HMRC’s proxy vote in favour of the modified IVA. HMRC received the chairman’s report of the meeting which included the full list of modifications and a list showing how the votes had been cast. HMRC also received further notification of the amendments on the two occasions when the debtor applied to vary his payments. At first instance the judge held that HMRC’s lack of objection constituted ratification of the unauthorised use of its proxy.
On appeal the debtor argued that: (1) his proposal had been conditional upon the approval of his wife’s IVA proposal (which had been rejected); (2) the Chairman had unlawfully cast HMRC’s vote and (3) the irregularity was a “material irregularity” not caught by the saving provision at s.262(8).
The Court of Appeal rejected the appeal having found that the proposal had not been conditional and that HMRC had ratified the actions of the chairman. Strictly speaking there was no irregularity and therefore section 262 was irrelevant. However, Briggs LJ gave a detailed review of the authorities before clarifying how s.262 operates.
The Court of Appeal preferred a broader interpretation of s.262: The section assumes that “material irregularity”may include an irregularity which would be sufficiently serious to nullify the IVA were it not for the ‘statutory ban’which sub-section (8) imposes. Therefore even material irregularity at or in connection with a creditors’ meeting did not invalidate the approval given at that meeting, unless the court chose to exercise its discretion to revoke the approval pursuant to s.262(4)).
Briggs LJ went on to emphasise that not all irregularities fall to be challenged under s.262:
“. That is not to say that s.262 is entirely at large as a basis for challenging the validity of an IVA. The qualifying requirements are that the irregularity should be material (which I suppose means more than de minimis or irrelevant) and that it should have occurred at or in connection with a creditors meeting summoned under s.257. Thus I mean to cast no doubt on the outcome of Fletcher v Vooght, Vlieland-Boddy v Dexter Ltd or IRC v Sargent."
The judgment provides welcome clarification as to when an irregularity can form the basis of a challenge to the validity of an IVA under s.262. Parties considering a challenge should bear in mind that it is not sufficient that the irregularity is material, it must also be in connection with the creditor’s meeting; an error in the proposal as in IRC v Bland and Sargent  EWHC 1068 (Ch) itself is not an irregularity ‘in connection’ with the creditors’ meeting.