CFL Finance Ltd v David Rubin and Others
| Jurisdiction | England & Wales |
| Judge | H.H. Judge Keyser |
| Judgment Date | 27 January 2017 |
| Neutral Citation | [2017] EWHC 111 (Ch) |
| Court | Chancery Division |
| Date | 27 January 2017 |
| Docket Number | Case No. 3482 of 2015 / BR-2015-02338 |
[2017] EWHC 111 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
IN THE MATTER OF MOISES GERTNER
AND IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Rolls Building, 7 Rolls Buildings
Fetter Lane, London, EC4A 1NL
His Honour Judge Keyser Q.C.
sitting as a Judge of the High Court
Case No. 3482 of 2015 / BR-2015-02338
Stephen Atherton QC and Blair Leahy (instructed by Mishcon de Reya LLP) for the Applicant
Tiran Nersessian (instructed by Edwin Coe LLP) for the First Respondent
Orlando Fraser QC and James Knott (instructed by Teacher Stern LLP) for the Third Respondent
Hearing dates: 29 and 30 November, 1 and 2 December 2016
Judgment Approved
H.H. Judge Keyser Q.C.:
Introduction
The Third Respondent, Mr Moises Gertner, is a property consultant and businessman. In 2015 the Applicant, CFL Finance Limited ("CFL"), petitioned for Mr Gertner's bankruptcy. Mr Gertner, who disputed that he was indebted to CFL as alleged, took advice from the First Respondent, Mr Rubin, and the Second Respondent, Mr Buchler, who are both licensed insolvency practitioners, and in consequence of that advice made a proposal ("the Proposal") for an Individual Voluntary Arrangement ("IVA") under Part VIII of the Insolvency Act 1986 ("the Act"). Mr Gertner's Estimated Statement of Affairs showed that, in addition to Crown creditors and connected creditors, he owed £582,809,270 to unsecured creditors. The essence of the Proposal was that a third party would make a one-off payment of £487,500 to the Supervisors of the IVA, which would be used to discharge in full the liability to HMRC, to make a distribution to the other creditors, and to meet the costs of the IVA. It was envisaged that this would result in a dividend to unsecured creditors of 0.07p in the pound. The Proposal showed that Mr Gertner had no assets and only a relatively modest income and contended that the Proposal would lead to a better result for creditors than they would achieve via bankruptcy. As a result of the Proposal, CFL's petition was adjourned to await the outcome of the meeting of Mr Gertner's creditors. CFL completed a proof of debt for that meeting.
The creditors' meeting was held on 17 December 2015, when the Proposal was approved and Mr Rubin and Mr Buchler were appointed to be the Joint Supervisors of the IVA 1. The report of Mr Rubin as Chairman of the meeting, pursuant to r. 5.27 of the Insolvency Rules 1986 ("the Rules"), shows that the proposal was approved by 97.85% of the creditors by value and that Kaupthing hf. ("Kaupthing"), an Icelandic public limited company that was at the time of the creditors' meeting undergoing winding-up proceedings in Iceland, constituted 90.43% of the creditors by value (£557,467,416). Two creditors, with a combined value of 2.15%, voted to reject the proposal; one of these was CFL, with a debt of £12,283,904 (1.99% of the creditors by value). If Kaupthing's debt were excluded, the value of the debts of the two creditors who voted against the proposal would exceed 50% of the value of the unconnected creditors' claims.
By this application, filed on 15 January 2016, CFL applies for an order under section 262 of the Act revoking the approval to the IVA or an order under rule 5.22 of the Rules reversing or varying Mr Rubin's decision to admit Kaupthing to vote at all, or to do so on the basis that it was a creditor for more than a nominal amount. The orders are sought on the ground that there was a material irregularity at or in relation to the creditors' meeting or alternatively that the IVA is unfairly prejudicial to the interests of CFL as a creditor of Mr Gertner. That case was advanced at the hearing on the basis that on 11 December 2015 Mr Gertner and Kaupthing had executed a Settlement Agreement ("the KSA") in full and final settlement of his liabilities to Kaupthing on terms that I shall explain below; the KSA was not disclosed to the creditors' meeting. In those circumstances, it is said, either Kaupthing was no longer properly to be considered a creditor, or the debt was to be treated as only of nominal value, or Kaupthing ought to have been excluded from voting on the Proposal because for it to vote would have been a breach of the good faith owed among creditors.
Behind CFL's application lies its belief that Mr Gertner's true financial position has not hitherto been adequately investigated and was not accurately disclosed to the creditors in connection with the Proposal, but that he shelters considerable personal wealth behind a complex network of trusts and companies, largely overseas. Some of the matters relied on in this regard are listed in an Appendix, headed "IVA versus Reality", to CFL's written submissions, though CFL maintains that the full reality remains unexplored. CFL considers that the best prospects of recovery for Mr Gertner's creditors lie in bankruptcy proceedings.
Mr Buchler resigned as a Supervisor of the IVA in April 2016 on account of ill health, and the proceedings have been stayed as against him other than for the purposes of the costs of the proceedings. As for Mr Rubin, at an earlier stage of these proceedings CFL gave particulars of alleged breaches of duty on his part. Those allegations were not pursued at the hearing. For the purposes of this judgment, Mr Rubin's involvement in the matters giving rise to this application is simply part of the factual background.
The rest of this judgment will be structured as follows. First, I shall set out the relevant law and explain very shortly how CFL puts its case in that legal framework. Second, I shall set out sufficient facts to place this application and the KSA in context. Third, I shall consider the terms of the KSA. Finally, I shall set out my conclusions and the reasons for them.
I am grateful to all Counsel for their helpful written and oral submissions.
The Law
The regime for IVAs is set out in Part VIII of the Act (sections 252 to 263G), as amended by the Insolvency Act 2000, and is supplemented by rules 5.1 to 5.34 of the Rules. I shall outline aspects of the regime and set out such parts of the provisions as are relevant for the purposes of this judgment.
Sections 252 to 256 deal with interim orders, which have the effect of creating a moratorium for the debtor while he prepares his proposal for an IVA. Before the Insolvency Act 2000 came into force an interim order was a prerequisite for an IVA; that is no longer so, and in the present case no application was made for an interim order. For CFL, Mr Atherton submitted that such an application could appropriately have been made and would have had the effect of giving Mr Rubin more time to conduct enquiries before the creditors' meeting. However, he did not invite a finding critical of Mr Rubin on this matter and I find no basis on which to make such a finding and no reason to say more on the point.
In the circumstances of a case such as the present, section 256A requires the debtor to submit to the nominee a document setting out the terms of the arrangement which he is proposing and a statement of his affairs. Rule 5.5 makes provision in respect of the contents of the statement of affairs, which is required to be verified by a statement of truth made by the debtor. After receipt of the proposal and statement of affairs, the nominee has fourteen days, or such longer period as the court allows upon an application in that regard, to submit a report to the creditors; if he thinks the debtor's proposal should be considered by the creditors, the report must include his proposal as to the date, time and place for the creditors' meeting and the nominee must summon that meeting in accordance with that proposal. Where there is no interim order, the date of the meeting is required to be not more than 28 days from the date on which the nominee received the debtor's proposal and statement of affairs: rule 5.17. The persons to be summoned to the meeting are every creditor of the debtor of whose claim and address the person summoning the meeting is aware: section 257(2).
The creditors' meeting decides whether to approve the proposed voluntary arrangement: section 258(1). A resolution to approve the proposal is passed when a majority of three-quarters or more (in value) of those present and voting in person or by proxy have voted in favour of it: rule 5.23(2). Rule 5.21 makes provision for entitlement to vote at the meeting:
"(1) Subject as follows, every creditor who has notice of the creditors' meeting is entitled to vote at the meeting or any adjournment of it.
(2) A creditor's entitlement to vote is calculated as follows—
…
(b) where the debtor is not an undischarged bankrupt and an interim order is not in force, by reference to the amount of the debt owed to him at the date of the meeting; …
(3) A creditor may vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained, and for the purposes of voting (but not otherwise) his debt shall be valued at £1 unless the chairman agrees to put a higher value on it."
Rule 5.22 provides as follows, so far as relevant:
"(1) Subject as follows, at the creditors' meeting the chairman shall ascertain the entitlement of persons wishing to vote and shall admit or reject their claims accordingly.
(2) The chairman may admit or reject a claim in whole or in part.
(3) The chairman's decision on any matter under this Rule or under paragraph (3) of Rule 5.21 is subject to appeal to the court by any creditor or by the debtor.
(4) If the chairman is in doubt whether a claim should be admitted or rejected, he shall mark it as objected to and allow votes to be cast in respect of it, subject to such...
To continue reading
Request your trial
-
CFL Finance Ltd v Jonathan Bass
...been set out in detail in two previous judgments. The first is the judgment of HHJ Keyser QC (sitting as a judge of the High Court) [2017] EWHC 111 (Ch) (the “First Judgment”) and the second the Court of Appeal comprising Patten, Floyd and Coulson LJJ [2018] EWCA Civ 1781 (the “Appeal Jud......
-
Moises Gertner v CFL Finance Ltd
...support for the proposal based on the KSA and the secret benefit which the KSA conferred on Kaupthing. 41 The judge held ( [2017] EWHC 111 (Ch)) that on the true construction of the KSA the debt based on Mr Gertner's guarantee liability had either been extinguished or was no longer enforce......
-
Moises Gertner v CFL Finance Ltd
...Keyser, QC, sitting as a Judge of the High Court. Judge Keyser's decision, dated 27 January 2017, has a neutral citation number [2017] EWHC 111 (Ch) and I shall refer to it as the Keyser Decision. (2) Secondly, before the Court of Appeal (Patten, Floyd and Coulson LJJ), hearing an appeal f......
-
Ulster Bank LTD and Michael Adrian Taggart and John Desmond Taggart
...that Master Kelly’s judgment was wrong on each of those points. That consensus was based on the authority of CFL Finance v Rubin [2017] EWHC 111 (Ch) (at paragraph 13) which the parties agreed set out the proper test in the following formulation: 5 “13. The function of the court on an appea......