Mond v MBNA Europe Bank Ltd
| Jurisdiction | England & Wales |
| Judge | Sir William Blackburne |
| Judgment Date | 09 July 2010 |
| Neutral Citation | [2010] EWHC 1710 (Ch) |
| Date | 09 July 2010 |
| Court | Chancery Division |
| Docket Number | Case No: HC09C02293 |
[2010] EWHC 1710 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Before: Sir William Blackburne
(Sitting as a Judge of the High Court)
Case No: HC09C02293
Stephen Davies QC and Paul French (instructed by RHF Solicitors) for the Claimants
Matthew Collings QC (instructed by Denton Wilde Sapte) for the Defendant
Hearing dates: 15, 16, 17, 18 and 21 June 2010
Sir William Blackburne:
Introduction
By these proceedings, started by a claim form issued on 3 July 2009, the claimants seek declarations that the defendant, which is a provider of consumer credit by means of credit card accounts, contravened various terms of the so-called IVA Protocol (“the Protocol”) when voting against the proposal for an IVA put forward by a debtor whom I will refer to simply as C. (For reasons which will appear it was suggested by counsel, and I agreed, that the debtor should not be identified by name.)
Clause 1.1 of the Protocol, headed “Purpose of the protocol”, states that “The purpose of the protocol is to facilitate the efficient handling of straightforward consumer individual voluntary arrangements …The protocol recognises that the IVA supports a valid public policy objective by providing debt relief for individuals in financial distress. It also recognises that at the centre of this process there is a person, who needs to understand the process and the associated paperwork and the impact that the IVA will have on their lives”. Clause 2.1, headed “Scope of the protocol”, states that it is “a voluntary agreement which provides an agreed standard framework for dealing with straightforward consumer IVAs and applies to both IVA providers and creditors”. It goes on to state that “[b]y accepting the content of the protocol IVA providers and creditors agree to follow the processes and agreed documentation that forms part of the protocol.”
It appears that by what is described as an “Open Letter to Insolvency Service” dated 18 December 2007, Eric Leenders, Executive Director of the British Bankers Association (“the BBA”) wrote to confirm the “continuing support of our members” for the Protocol and that “[i]n practice that means that our members are expected to abide by the terms of the protocol in relation to proposals drawn up on the basis of the protocol”. This is reflected in clause 2.2 of the Protocol. The defendant, which I shall refer to simply as MBNA, is a member of the BBA and is a “creditor” within the meaning of the Protocol.
The Protocol became effective on 1 February 2008.
The claimants are both “IVA providers” within the meaning of the Protocol. The first claimant, Mr Mond, is a licensed insolvency practitioner and senior partner of Hodgsons Chartered Accountants, a firm which Mr Mond describes in his first witness statement as “one of the leading independent business rescue and corporate personal insolvency specialists in the North West of England”. Mr Mond states that he has specialised in personal and business insolvency and related matters for about 40 years. He has been a member of several professional and other bodies concerned with insolvency law and practice, especially in the field of business recovery, and with projects for the review and reform of the law and its practical implementation. Those bodies include the Council of the Association of Business Recovery Professionals, the Debt Resolution Forum, the Consumer Finance Forum and the Joint BBA/Insolvency standing committee on the Protocol (whose functions are, among others, to monitor and review the operation of the Protocol and to communicate and consult on its future development). He is also the founder and chief executive of the second claimant, ClearDebt, which, according to Mr Mond's first witness statement, “is a provider of debt solutions for individuals, whether IVAs (in accordance with the Protocol or otherwise) or debt management plans (“DMPs”).
IVAs need no introduction. They are governed by Part VIII of the Insolvency Act 1986 (“the IA”) and Part 5 of the Insolvency Rules 1986 (“the IRules”). DMPs do need some introduction. They are informal arrangements between a debtor and his creditors. They are not supervised (in the way that an IVA, if approved, has a supervisor) and are not regulated in any way. In substance a DMP is a non-binding agreement between a debtor and his creditor for the payment of the debtor's debt over a longer period than that provided by the terms of the underlying indebtedness. They are designed to enable the debtor to repay his indebtedness, usually by periodic instalments, over an agreed period without the need for a formal insolvency procedure such as an IVA or bankruptcy. Because they are non-binding, the creditor can change his mind and pull out of the arrangement, or at any rate seek to do so. The creditor may or may not “freeze” or “suspend” interest payments on the debt; similarly, the amount of the periodic payment can be altered from time to time. There are essentially two species of DMP: one that is between the debtor and a single creditor (referred to in the evidence before me as an “internal DMP”) and one that is entered into by the debtor with all of his creditors. In the latter case it is likely that the debtor will need the assistance of a specialist provider to set it up. One of the members of the group to which ClearDebt belongs, a company known as Abacus (Financial Consultants) Ltd, is just such a provider.
C's IVA proposal.
As I have mentioned, the claimants complain that, in voting against C's proposal for an IVA (“the Proposal”), MBNA contravened various terms of the Protocol. C's circumstances were as follows.
In early February 2009 C approached ClearDebt for financial advice concerned with his loan and credit card liabilities. After ClearDebt had reviewed his financial and personal position and advised him of his options, C elected to propose an IVA to his creditors. ClearDebt's advice had been that C should enter into bankruptcy as this would secure for him the greatest measure of debt relief but C was unwilling to do so. He was then advised to propose an IVA to his creditors. Mr Mond agreed to become C's nominee for the purposes of the Proposal and to be the supervisor of the IVA upon its approval. The Proposal disclosed that C, who was 23 years old at the time, lived at home with his parents, had no significant assets other than a motorcycle which he required for travel to his place of employment as a plumber, and had unsecured liabilities totalling £18,969 made up of two loan creditors and three credit card creditors (of which MBNA was one). The smallest of the five was for £2,099 and the largest was MBNA for £5,536. (In fact MBNA's claim was for a slightly larger amount but nothing turns on this.) The Proposal also disclosed that C had a monthly income of £1,083, monthly outgoings of £860 and, in consequence, when applying what are known as the CCCS [or Consumer Credit Counselling Service] Budget Guidelines (a widely recognised standard in the field of personal insolvency), an excess of income over expenditure of £223 per month. The Proposal stated that in the event of C's bankruptcy unsecured creditors would receive nothing. By the Proposal C proposed that his IVA would last for 60 months and that he would pay into it £223 per month (being his “disposable” income, namely the excess of his likely income over his CCCS-calculated expenditure) by standing order starting within 31 days of the approval of the IVA so that the funds injected into it, if each monthly payment was made, would total £13,380. The nominee's fee, excluding VAT, would be £1500 and the supervisor's fee, again excluding VAT, would be 15% of all realisations (after the payment of the nominee's fee) and would be drawn as sums were received. In addition, 3.15% of the proposed monthly contribution would be paid to ClearDebt by way of premium for insurance to indemnify C against being unable to work owing to accident, illness or unemployment during the period of the IVA. It was anticipated that the total estimated dividend payable to creditors would amount to 46p in the £.
C was a “straightforward consumer” within the meaning of the Protocol. This is because clause 3.1 of the Protocol states that “a person suitable for a straightforward consumer IVA is likely to be: in receipt of a regular income either from employment or from a regular pension, have 3 or more lines of credit from 2 or more creditors”. C fulfilled both criteria. The Proposal went on to propose that the terms of his IVA should consist of his Proposal and the standard conditions for IVAs as published by the IVA Forum. Those standard conditions are as set out in Annex 4 to the Protocol. It was common ground before me that the Proposal was, in the jargon, “protocol-compliant” or, as it was described, a “PCIVA”.
The Proposal, in accordance with the procedure laid down by the IA and IRules where there is no intention to apply for an interim order, was sent to C's creditors under cover of a letter dated 3 March 2009 giving notice of an intended meeting of creditors on 18 March 2009. At the same time Mr Mond, as nominee, submitted a report to the court in compliance with the then requirements of section 256A of the IA. By a proxy dated 11 March 2009, MBNA (acting by its agent KPMG) instructed Mr Mond as chairman of the proposed creditors' meeting to vote against the Proposal. The following grounds for rejection were stated on a document which accompanied the proxy form: “high fees”, “disposable income available for a DMP” and “minimal number of creditors”. The document in question was prepared and sent by KPMG following instructions from Ms Karen Reddy, an employee of the defendant....
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