Smith-Evans v Smailes
| Jurisdiction | England & Wales |
| Judge | His Honour Judge Purle |
| Judgment Date | 29 July 2013 |
| Neutral Citation | [2013] EWHC 3199 (Ch) |
| Court | Chancery Division |
| Docket Number | Claim No: CH/2012/0681 |
| Date | 29 July 2013 |
[2013] EWHC 3199 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Rolls Building,
110 Fetter Lane,
London EC4 1NL
His Honour Judge Purle QC
(Sitting as a Judge of the High Court)
Claim No: CH/2012/0681
Mr Peter Knox QC (instructed by RHF Solicitors) appeared for the Appellant
Mr Adam Al-Attar (instructed by Isadore Goldman) appeared for the Respondent
Approved Judgment
Monday, 29 July 2013
THE JUDGE:
This is an application for permission to appeal, in which David Richards J has directed that the appeal shall follow immediately if permission is granted. I have now heard full argument. It is appropriate, in my judgment, to grant permission to appeal, as the points raised by Mr Knox QC for the appellant merited the full argument I have heard. I therefore proceed straightaway to consider the substantive appeal.
The appeal is against a bankruptcy order made against Christine Ann Smith-Evans of 30 November 2012. It is said that an individual voluntary arrangement ("IVA") which had, at least ostensibly, been in place since the middle of 2008, down to the events leading to the bankruptcy petition, was a nullity. Therefore, the bankruptcy order should not have been made, as the ground for the bankruptcy order was breach of the provisions of the IVA.
The procedure concerning IVAs is set out in Part 8 of the Insolvency Act 1986 ("the 1986 Act"), sections 252 to section 263G, and rules 5.1 to 5.68 of the Insolvency Rules 1986 ("the Rules"). A reference to any section or rule in this judgment is a reference to the section or rule as it stood at the material time, which, in the case of the coming into being of the IVA, was 2008.
The critical Rule for the purposes of the present appeal is Rule 5.23, which requires a majority of three quarters or more (in value) of those present and voting in person or by proxy to approve the IVA proposal.
Under sections 264(1)(c) and section 276 of the 1986 Act, a supervisor of an IVA can bring a petition to bankrupt the debtor if the debtor breaches the terms of the IVA. The IVA in this case appears, so far as one can tell, to have been initiated under section 256A of the 1986 Act, i.e. without an interim order first being made or applied for.
Section 256A(3) provides, so far as material:
"If the nominee is of the opinion that the debtor…is able to petition for his own bankruptcy, the nominee shall, within 14 days…submit a report to the court stating—
(a) whether, in his opinion, the voluntary arrangement which the debtor is proposing has a reasonable prospect of being approved and implemented,
(b) whether, in his opinion, a meeting of the debtor's creditors should be summoned to consider the debtor's proposal, and
(c) if in his opinion such a meeting should be summoned, the date on which, and time and place at which, he proposes the meeting should be held."
Section 257 provides that the consequence of a report under, amongst others, section 256A, is that a meeting should be summoned by the nominee for the time, date and place proposed in his report. The persons to be summoned are every creditor of the debtor of whose claim and address the person summoning the meeting is aware.
Section 258 provides in subsections (1) and (2):
"(1) A creditors' meeting summoned under section 257 shall decide whether to approve the proposed voluntary arrangement.
(2) The meeting may approve the proposed voluntary arrangement with modifications, but shall not do so unless the debtor consents to each modification."
Section 259 requires the chairman of the meeting to report the result of it to the court and to give notice of the result of the meeting to such persons as may be prescribed, i.e. the creditors.
Under section 260 it is provided as follows:
"(1) This section has effect where the meeting summoned under section 257 approves the proposed voluntary arrangement (with or without modifications).
(2) The approved arrangement—
(a) takes effect as if made by the debtor at the meeting, and
(b) binds every person who in accordance with the rules—
(i) was entitled to vote at the meeting (whether or not he was present or represented at it), or
(ii) would have been so entitled if he had had notice of it,
as if he were a party to the arrangement."
Under section 262 it is provided as follows:
"(1) Subject to this section, an application to the court may be made, by any of the persons specified below, on one or both of the following grounds, namely—
(a) that a voluntary arrangement approved by a creditors' meeting summoned under section 257 unfairly prejudices the interests of a creditor of the debtor;
(b) that there has been some material irregularity at or in relation to such a meeting.
(2) The persons who may apply under this section are-
(a) the debtor…"
(Then other persons are mentioned.)
"(3) An application under this section shall not be made (a) after the end of the period of 28 days beginning with the day on which the report of the creditors' meeting was made to the court under section 259 or
(b) in the case of a person who was not given notice of the creditors' meeting, after the end of the period of 28 days beginning with the day on which he became aware that the meeting had taken place…
(4) Where on an application under this section the court is satisfied as to either of the grounds mentioned in subsection (1), it may do one or both of the following, namely—
(a) revoke or suspend any approval given by the meeting;
(b) give a direction to any person for the summoning of a further meeting of the debtor's creditors to consider any revised proposal he may make or, in a case falling within subsection (1)(b) [material irregularity], to reconsider his original proposal…
(8) 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."
It is said in this case that the chairman of the meeting exceeded his authority under some of the proxies he held in purporting to report that there had been approval with modifications of the proposals at the creditors' meeting. What happened is that there were a number of creditors who voted for the proposal, with modifications. HMRC were one of them. They had specified that the duration of the arrangement should not exceed 63 months. That seems to have been taken as meaning 3 years, but it seems to me that, whilst that may have been a mistake, 63 months on the face of it means 63 months. However, the proposal, as reported by the chairman, was to the effect that the arrangement was to last 3 years. That was within the HMRC amendment as it did not exceed 63 months.
Other bank creditors, HSBC (current account), HSBC (credit card), and RBS also required a modification. Each of their proxies provided that the chairman had no discretion. One such modification was to the effect that the voluntary arrangement would last for a period of 2 years from the date of the creditors' meeting, or until such earlier time as the debts, and the fees and associated costs of the arrangement, had been paid in full, whichever was the sooner.
By a letter dated 30 May 2008, but which must have been sent after 3 June, Mr Smailes, who was the nominee and the supervisor, informed the bankruptcy registrar in the Southend County Court that the proposal for the IVA was approved with modifications. All the modifications required by HMRC were recorded as accepted, but only some of those required by HSBC and RBS. Further, it was recorded that the proposed duration was 3 years rather than 2.
The HSBC and RBS proxies had been submitted through the Insolvency Exchange ("TIX"). The chairmanship of the meeting was delegated by Mr Smailes to one of his staff, Mr Meadows. Mr Meadows corresponded by email with TIX, pointing out the divergences from the instructions received, and asked in an email of 3 June 2008 as follows:
"I should be grateful if you would please review the above matters, and should you have any problems with the changes…please advise me by 4 p.m today at the latest, as I need to report to the court and all known creditors of the modifications that were made to the debtor's proposal."
There was no reply from TIX to this email, but the proposal was duly reported by the letter of 30 May 2008, which inferentially went after the 3 June email, as I have indicated.
Over 2 years later, on 21 July 2010, Mr Smailes served a certificate of breach on Mrs Smith-Evans on the basis that (1) she had not sold or remortgaged her properties, as required by one of HMRC's modifications, nor had she liaised with Mr Smailes on that point, and (2) she had not provided an income and expenditure form for the last annual report, as required by HSBC and RBS's modifications.
On 25 March 2011 the creditors voted on which of the following courses of action they wished Mr Smailes to follow, i.e. (a) issuing a certificate of determination; (b) presenting a bankruptcy petition; (c) varying the arrangement; or (d) doing nothing. HSBC and RBS through TIX voted for a certificate of determination, but HMRC voted for presentation of a petition, and their votes were sufficient to carry the day. The significance of this is that, whilst HSBC and RBS knew, through TIX, who had previously been told, that their proxies had been departed from despite their imperative terms, they nonetheless voted on the determination of the IVA upon the footing that an IVA was in place. It is thus...
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