Moises Gertner v CFL Finance Ltd
| Jurisdiction | England & Wales |
| Judge | Lord Justice Patten,Lord Justice Floyd,Lord Justice Coulson |
| Judgment Date | 30 July 2018 |
| Neutral Citation | [2018] EWCA Civ 1781 |
| Court | Court of Appeal (Civil Division) |
| Docket Number | Case No: A2/2017/0792 |
| Date | 30 July 2018 |
[2018] EWCA Civ 1781
Lord Justice Patten
Lord Justice Floyd
and
Lord Justice Coulson
Case No: A2/2017/0792
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
HH JUDGE KEYSER QC
3482 of 2017/BR-2015-02338
IN THE MATTER OF MR MOISES GERTNER
IN THE MATTER OF THE INSOLVENCY ACT 1986
Royal Courts of Justice
Strand, London, WC2A 2LL
Mr Gabriel Moss QC and Mr James Knott (instructed by Teacher Stern LLP) for the Appellant
Mr Stephen Atherton QC and Ms Blair Leahy (instructed by Mishcon de Reya LLP) appeared for the First Respondent
Hearing dates: 17 and 18 April 2018
Judgment Approved
In June 2008 the First Respondent, CFL Finance Limited (“CFL”), lent the sum of £3.5m to a Gibraltar company called Lanza Holdings Limited (“Lanza”). Lanza is owned and controlled by certain Gertner family trusts and the appellant, Mr Gertner, provided a personal guarantee for the debt. Lanza defaulted and in November 2010 CFL sued Mr Gertner on his guarantee for some £1.7m together with compound interest from June 2008 which was payable under the loan agreement in the event of a default.
In October 2011 the proceedings were compromised on terms recorded in a Tomlin Order under which Mr Gertner agreed to pay £2m to CFL by instalments together with a further £50,000 on account of its costs. It was a term of the settlement that if Mr Gertner failed to make the instalment payments as agreed then the entire amount claimed in the proceedings would become due and payable. By early 2013 that had happened. Later in March 2015 Mr Gertner's solicitors, Teacher Stern, offered CFL the sum of £10,000 in full and final settlement of the debt which was stated then to amount to £2,185,973. With interest this would have increased to £10,857,183 but Mr Gertner disputes his liability for interest even though under the terms of the settlement with CFL interest was payable.
In the event the negotiations came to nothing and on 11 September 2015 CFL served a statutory demand on Mr Gertner in respect of the debt which with interest was then over £11m. An offer was made to settle the debt with a payment of £487,500 which was rejected but no application was made by Mr Gertner to set aside the statutory demand. CFL presented a bankruptcy petition on 6 October 2015 which was served on 22 October 2015 and the hearing of the petition was fixed for 23 November 2015.
On 20 November 2015 CFL was served with a proposal by Mr Gertner for an IVA. This included CFL as a creditor in a sum of £11,128,611. Although no application had been made for an interim order, CFL agreed to the hearing of the bankruptcy petition being adjourned over the creditors' meeting and it now stands adjourned generally with liberty for it to be restored.
In Mr Gertner's Estimated Statement of Affairs attached to his IVA proposal his father was shown as a creditor in the sum of £28,666,666. The proposal stated that his father had agreed to subordinate his claim for dividend purposes to those of the other unsecured creditors whose claims totalled £582,809,270. Of these the largest debt was £547,261,182 owed to Kaupthing Bank hf (“Kaupthing”).
Mr Gertner's liability to Kaupthing is based on a personal guarantee dated 19 September 2008 which was given to secure loans made to Crosslet Vale Limited (“Crosslet Vale”) which was another Gertner family company. The loans had been made to finance various investments by Crosslet Vale including in September 2008 the purchase of some 18.5m shares in Kaupthing. Crosslet Vale also defaulted and proceedings for the recovery of the loans and under the guarantee were commenced by Kaupthing in October 2010. Mr Gertner was sued for over £300m. The proceedings were stayed by agreement and negotiations took place. Mr Gertner has asserted in evidence that the loan made in September 2008 was part of a fraud on the part of Kaupthing's directors and was therefore unenforceable. But that point has never been pursued in the litigation and no discount was made on account of it when formulating the IVA proposal.
Mr Gertner's IVA proposal was prepared with the advice and assistance of the Second Respondent, Mr Rubin. He is a well-known insolvency practitioner and was consulted by Mr Gertner on the advice of his solicitors. Mr Rubin has filed evidence in which he says that he had not acted for Mr Gertner or his wife prior to November 2015 and that he was and is independent of the parties. According to his evidence, he was personally responsible for undertaking the investigations into Mr Gertner's affairs which preceded the formulation of the IVA proposal and for the investigations which have taken place since then in response to the present proceedings.
The proposal was signed by Mr Gertner on 18 November 2015. In it Mr Gertner refers to his various business activities and to his having provided personal guarantees to various financial institutions:
“The major liability is in connection with a shortfall on a loan with Kaupthing Bank which was secured on my personal guarantee and some mining assets and I have been in negotiations with them for some time.
CFL Finance Limited have presented a bankruptcy petition in the High Court of Justice with a hearing date of 23 November 2015 in respect of an aggregate sum claimed of approximately £11 million, which is disputed.
In these circumstances I sought the advice of Insolvency Practitioners. I consulted David Buchler of Buchler Phillips Limited and David Rubin of David Rubin & Partners Limited and having reviewed my financial affairs, they advised me to put a proposal to my creditors for an Individual Voluntary Arrangement.”
So far as material, the IVA proposal was that:
“1. A third party will make a one-off lump sum payment to the Supervisors of £487,500 which will be used to make a distribution to creditors and meet the costs of the Arrangement. This sum will be held prior to the creditors meeting by the Nominees and will only be released to the Supervisors once the Arrangement becomes unconditional and the 28 days prescribed by section 262(3)(a) of the Insolvency Act 1986 for challenges has elapsed. This should be sufficient to pay a dividend of approximately 0.07p in the £ to unsecured creditors.
2. The claim of HM Revenue and Customs which is estimated at £32,678 will be paid in full from the one-off lump sum received by the Supervisors.
3. Should I receive any windfall/inheritance during the term of the Arrangement, details shall be notified to the Supervisor immediately and such funds shall be paid as contributions into the Arrangement up to the value of creditors' claims in full. …”
The proposal contains the usual terms about the remuneration of the Supervisor and the payment of his costs. In Appendix A Mr Gertner's assets are stated to be nil. After taking into account the liabilities to creditors (including those mentioned earlier), the deficiency as regards creditors is estimated in the sum of £611,508,614. Mr Gertner stated in the proposal that he considered a voluntary arrangement would be preferable to bankruptcy because the costs would be less than the statutory fees and bankruptcy would prevent him from continuing as a director of Fordgate Management Limited (“Fordgate”) and might jeopardise his future earning capacity. The outcome comparison contained in Appendix B shows that in the absence of the third party contribution, the creditors would receive nothing by way of dividend in a bankruptcy as opposed to the projected dividend in the IVA of 0.07p in the pound.
On 19 November 2015 Mr Rubin as a Joint Nominee made his report under s.256A(3) IA 1996 in which he recommended the proposal. In the report Mr Rubin states that the proposal is based on information provided by Mr Gertner:
“a) Debtors circumstances.
The debtor has provided information as to his present financial circumstances. Based on the information received, I am satisfied that the true position as to the debtor's assets and liabilities are not materially different from that which is represented to the creditors by the Proposal and the documents annexed thereto.
b) Basis on which assets are valued.
I have made no independent investigation of the debtor's statement of affairs. I have relied upon the debtor's comments that he has no assets and that the matrimonial home is owned by his wife.
c) Debtor's estimate of liabilities.
The claims of the creditors have been ascertained from statements available and from explanations given by the debtor. I have no reason to doubt the reliability of the debtor's estimate of the liabilities to be included in the Arrangement.
d) Debtor's co-operation.
The debtor has fully co-operated with me during my involvement in the preparation of the Proposal.
e) Discussions with any major unsecured creditors.
Kaupthing Bank hf are the major creditor and represent almost 90% in value. Their solicitors Simmons & Simmons LLP have confirmed in correspondence that their clients' current intention is to support Mr Gertner's voluntary arrangement.
…..”
On this basis Mr Rubin stated that the proposal was feasible and fair to the creditors and the debtor and was an acceptable alternative to bankruptcy.
The creditors' meeting to consider and vote on the proposal was scheduled for 17 December 2015. On 16 December 2015 CFL's solicitors, Mishcon de Reya, wrote to Mr Rubin raising a number of queries about details of the IVA proposal. They asked for information about any assets of Mr Gertner which had been placed into family trusts and for details of his earnings from Fordgate. They noted that Mr Gertner was a party to arbitration proceedings in Israel which appeared to include claims for high-value assets and asked for details of the litigation...
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