Rey & Anor v FNCB Ltd

A restriction in a voluntary arrangement preventing creditors from commencing or continuing proceedings, execution or other legal process in respect of debts ordinarily restrains enforcement of the debtor’s personal liability. It does not, without clear language, prevent a secured creditor from enforcing security for that liability, even where enforcement requires an application to the court. The distinction between proving and enforcing personal liability and retaining or enforcing security is fundamental in insolvency law. A provision in a voluntary arrangement adversely affecting secured creditors’ rights requires their concurrence under the Insolvency Act 1986.

The appellants appealed from summary judgment granted by HHJ Cowell in the Central London County Court. The judge declared that the respondent’s charge over the appellants’ property continued to subsist and dismissed the appellants’ application for a declaration that the charge had ceased and for removal of the Land Registry caution protecting it.

Permission to appeal was refused by HHJ Cowell and, on paper, by Warren J. The appellants renewed the application before the High Court. The central issue was whether clause 22 of identical voluntary arrangements entered into under Part VIII of the Insolvency Act 1986 prevented the respondent from enforcing its security.

1. Permission to appeal refused. The court agreed with HHJ Cowell and Warren J that the proposed appeal had no real prospect of success and that there was no reason to grant permission.
2. Clause 22 prevented all creditors, whether secured or unsecured, from commencing or continuing proceedings, execution or other legal process in respect of the debtor’s liability, and from receiving payment, except for dividends payable by the supervisor under the voluntary arrangements.
3. The language of clause 22 was apt to restrain enforcement of the debtor’s personal liability to pay the debt. It was not apt to prevent a secured creditor from enforcing security for that liability. That conclusion applied even where enforcement of the security required recourse to the court, as with a charging order.
4. The distinction between proving and enforcing personal liability, and retaining and enforcing security for that liability, was crucial in insolvency law and reflected in sections 382 and 383 of the Insolvency Act 1986.
5. The inclusion of Insolvency Rule 6.115(1), which permitted a secured creditor to alter the value attributed to security in its proof of debt with the trustee’s agreement or the court’s permission, was consistent only with clause 22 leaving enforcement of security unaffected. The reduction in the respondent’s proof of debt to reflect the value of its charge led to the same conclusion.
6. Section 258(4) of the Insolvency Act 1986, requiring a secured creditor’s concurrence in a voluntary-arrangement provision adversely affecting its rights, was not engaged because clause 22 had no adverse effect on the respondent’s security rights.

• High Court (Chancery Division): Permission to appeal was refused. The court agreed with the conclusions of HHJ Cowell and Warren J that the proposed appeal had no real prospect of success.
• Central London County Court: HHJ Cowell granted summary judgment for FNCB Ltd, declared that its charge continued to subsist, and dismissed the appellants’ application for declarations that the charge had ceased and for removal of the caution.