Challenging An IVA
This case looks at what can be done if you have been informed that an IVA has been approved, without ever having been properly served with notice of a meeting in time to vote.
Once the IVA proposal is received (albeit after the meeting) it may be the that the proposal to repay x% of the debt is satisfactory to you, in which case it will be possible to submit a proof of debt to the supervisor so that the council debt can be included.
An IVA requires 75% majority by value of creditors to approve it. Therefore, if the council’s debt does not constitute 25% or more, then it is unlikely that a challenge would be successful as the council vote would not influence the overall decision.
Background to the Case
We were instructed by a council who were owed £5,976 in unpaid council tax. A statutory demand was served on the debtor on 21 May 2018. The debtor got in touch to say that we would be hearing from a company on his behalf. Nothing further was received, but on 22 June 2018 the council received a letter dated 25 May 2018 notifying them of the proposal and meeting and a letter dated 13 June 2018 confirming that the IVA had been accepted at a virtual meeting.
The principal mode of challenging a decision to approve an IVA is section 262 Insolvency Act 1986. The application can be brought by either a creditor or the nominee (as well as a debtor, the Official Receiver or a trustee in bankruptcy). Given that the nominee can apply, the first port of call should always be to correspond with the nominee to alert them of the irregularity and invite them to apply.
The two part test from section 262 is that there must be:
- an unfair prejudice to a creditor or the debtor, or a material irregularity at or in relation to the meeting; and
- an application made within 28 days of the decision where a creditor had notice of the meeting, 28 days of a report to the court under section 259(1)(b) or 28 days from awareness of the meeting where no notice was given.
Simply failing to notify a known creditor is likely to constitute a material irregularity. The council were able to demonstrate when both letters were received. It would then be a matter for the supervisor to prove that the notifications were properly served under the Insolvency Rules, being first class post to the council’s usual place of business.
An IVA does not involve any actual court proceedings, and so the application had to be made to the county court with insolvency jurisdiction for this particular debtor.
What happens if you are out of time?
The relevant provision is section 376 of the Insolvency Act 1986 which states that “where any provision in this group of parts or by the rules time for doing anything (including anything in relation to a bankruptcy application) is limited the court may extend the time, either before or after it has expired, on such terms if any as it thinks fit”.
In the case of Tanner v Everitt 2004 EWHC 1130 (CH) Mann J stated “I have borne in mind all the relevant factors – the length of the delay, the reasons for the delay, the apparent merits of the underlying application and the prejudice to all relevant parties”. It is therefore clear that akin to most applications for an extension of time, the length of and the reason for the delay are central. Mere ignorance is unlikely to be enough. The merits of the substantive application also weigh on the decision and in this respect, a total failure to either send the notice on time or indeed failure to consider a submitted vote which would have changed the outcome, provide an underlying application with a strong prospect of success.
To rely on section 376, creditors must therefore act quickly to maximise their chances and ought to arm themselves with details of steps taken following approval of the IVA. If nothing has been done by the debtor, supervisor or other creditors, it is difficult to envisage what prejudice can be caused by the delay.
The application was served on the supervisor and listed before the court in August 2018. However, prior to the hearing, the supervisor, presumably in anticipation of the result, elected to de-register the IVA. We were therefore able to attend the hearing of the application and an order to pay all of the council’s legal costs was obtained against the supervisor, with the added condition that those costs were not to be recovered by the supervisor from the debtor concerned.