Timmins v Conn

In an individual voluntary arrangement, a power allowing a supervisor to exclude property considered onerous ordinarily controls property entering the arrangement, including after-acquired property. It does not permit the supervisor unilaterally to release property already accepted into the arrangement and held on trust for creditors. Such property may be removed only under the arrangement’s variation machinery, with the required creditor approval and debtor’s consent. Exclusion also requires an actual exercise of the power. A decision not to pursue a sale does not itself release the property. Where the debtor is not a party to proceedings under the Insolvency Act 1986, a declaration affecting the arrangement or trust may serve no practical purpose, and compensation cannot be ordered without determining the relevant act, loss and recoverability.

George Timmins applied under section 263(3) of the Insolvency Act 1986 against Stephen Conn, the supervisor of Roger Fogg’s individual voluntary arrangement. The arrangement, as modified by the creditors, required Fogg’s interest in his matrimonial home to be realised for creditors and imposed a trust over arrangement assets. Conn later treated the property as excluded on the basis that a second charge left no equity, and the arrangement was subsequently reported as successfully completed.

Fogg was initially joined as a respondent, but the application was amended so that no relief was sought against him and it was dismissed as against him. The High Court held that Conn had power under the onerous-property clause to exclude Fogg’s interest and dismissed the application. The central issues on appeal were whether that power could release property already subject to the arrangement, whether it had been exercised, and whether relief could be granted against Conn alone.

1. Appeal dismissed. The order below was varied by dismissing the application below and setting aside the costs orders against the applicant; there was no order for costs on the appeal.
2. The onerous-property clause did not empower the supervisor unilaterally to release property already accepted under the approved proposals and subjected to the trust for creditors. Its purpose was to control property which would otherwise enter the arrangement, particularly after-acquired property such as windfalls.
3. If property already within the arrangement was to be removed, the proper route was the variation machinery, requiring the prescribed creditor approval and the debtor’s consent. The supervisor could not unilaterally exclude property accepted by creditors as beneficial to them.
4. Property having no present value because it was subject to charges could not be treated as onerous merely because it was unsaleable or not readily saleable. The High Court’s contrary construction was wrong.
5. In any event, the power had not been exercised. The supervisor had not directed his mind to the clause, and the letter relied upon merely stated that he would not seek a sale. It did not purport to exercise an exclusion power or release the creditors’ beneficial interest.
6. The property therefore remained subject to the trust and the arrangement had not achieved a successful conclusion. However, a declaration that the arrangement was incomplete and that the completion notice was invalid would have no purpose in proceedings to which Fogg was not a party, particularly because such a declaration could affect his liability for the original debts and the continuing trust.
7. Without that declaration there was no foundation for compensation against Conn alone. The court left open whether section 263(3)(c) could support compensation in an appropriate case. Any order would first require consideration of whether the supervisor’s act or decision should be confirmed, reversed or modified, and of the loss and its extent. Possible tracing and uncertain recoverability made quantification impossible.

• Court of Appeal (Civil Division): [2004] EWCA Civ 1761 — appeal dismissed. The order below was varied, with the application dismissed and the costs directions below set aside.
• High Court, Chancery Division, Manchester District Registry, His Honour Judge Maddocks: order dated 7 May 2004 — application dismissed with costs; the judge held that the supervisor could exclude the debtor’s interest in the property under the onerous-property clause.