Smurthwaite v Simpson-Smith & Anor

An insolvency practitioner must act independently of both debtor and creditors. Admitting a person to vote in an individual voluntary arrangement on the basis of a supposed debt, while that person retains a beneficial claim against the arrangement’s assets, may fall below the standard expected of a reasonable insolvency practitioner acting reasonably.

A costs order may be set aside where subsequent evidence shows that it was made on a materially false factual basis, although the original judge acted reasonably on the information then available. A later application to reopen the whole disclosure issue remains misconceived where the applicant already has the relevant affidavits.

Three appeals arose from proceedings concerning an individual voluntary arrangement proposed by Robin Simpson-Smith. Jolyon Smurthwaite appealed against an order dismissing an interim application for specific disclosure and awarding costs, and against Laddie J’s dismissal of an application under section 375 of the Insolvency Act 1986 to review that order. David Mond, the nominee and supervisor of the arrangement, appealed against an order setting it aside and making him personally responsible for 50 per cent of specified costs.

The High Court had set aside the arrangement because Miss Williams had been admitted to vote on a claimed debt arising from a supposed compromise of her beneficial interest in property, while reserving that interest. The central questions were whether Mr Mond’s conduct fell below the applicable professional standard, and whether the earlier costs order should be revisited in light of later affidavits.

1. Mr Mond’s appeal dismissed. It was obviously wrong to admit Miss Williams to vote in an amount which might secure approval of the IVA while allowing her, after approval, to assert a beneficial interest in the principal asset to the detriment of other creditors. The arrangement did not convert that interest into a debt. Mr Mond’s conduct therefore fell below the standard expected of a reasonable insolvency practitioner acting reasonably, and the order making him responsible for 50 per cent of the relevant costs was justified.
2. The costs order made by Mr Warren QC on 13 December 2004 was made on a false basis as matters later appeared. The judge had understood that the undertakings and affidavits would confirm that no further documents existed, whereas the affidavits disclosed additional documents, including a material file note. Had that position been known, the application would have produced some benefit. The order requiring Mr Smurthwaite to pay £6,000 was therefore set aside, but no order for costs was substituted because the application had sought substantially more disclosure than would have been ordered.
3. The appeal from Laddie J’s order dated 25 February 2005 was dismissed. The application under section 375 was misconceived because it sought to reopen the whole disclosure question. Mr Smurthwaite already had the affidavits and, if further disclosure of particular categories was required, he could make a focused application for that purpose.
4. Lord Justice Jacob added that insolvency practitioners should preserve their independence from every party, whether debtor or creditor. Lord Justices Longmore and Jacob agreed with Lord Justice Chadwick’s judgment.

• High Court, Chancery Division: Mr Nicholas Warren QC dismissed the specific-disclosure application and ordered Mr Smurthwaite to pay £6,000 costs. Laddie J dismissed the section 375 review application. HHJ Rich QC set aside the IVA and made a costs order against Mr Mond.
• Court of Appeal (Civil Division): The appeal against the 13 December 2004 order was allowed in part by setting aside the costs order and making no order for costs. The appeal against the 25 February 2005 order and Mr Mond’s appeal against the 23 April 2005 order were dismissed.