Tradition (UK) Ltd v Ahmed & Ors

On an appeal against the admission of creditors’ claims for voting purposes in an IVA, the court determines each claim on the balance of probabilities. The burden lies on the creditor asserting the debt. If the court remains in doubt, the claim must be rejected.

A nominee must provide independent professional scrutiny. Where the debtor’s information, particularly related-party liabilities, has reasonably come into question and those liabilities are critical to approval, the nominee must make reasonable further enquiries before recommending that a creditors’ meeting be summoned. A chairman’s functions at the meeting are summary. The rules do not confer a general power to adjourn for detailed investigation of disputed claims.

Tradition (UK) Ltd appealed against the chairman’s admission of claims by family members and associated companies at a creditors’ meeting convened to consider Eaitisham Ahmed’s individual voluntary arrangement. The claims were material because the IVA required a majority exceeding 75 per cent by value and the disputed creditors’ votes supplied that majority.

Tradition also alleged material errors and omissions in the proposal and Statement of Affairs, and sought findings that the nominee and chairman, Andrew Andronikou, had failed to meet the standard expected of a reasonably competent insolvency practitioner.

The central issues were whether the disputed debts were proved, whether the voting irregularities justified relief, whether a further meeting should be summoned, and whether Mr Andronikou’s conduct fell below the required professional standard.

1. Disputed claims. On an appeal under rule 5.22(3), the court must determine on the balance of probabilities whether each claim was established and, if so, in what amount. The creditor bears the burden of proving the debt. If the evidence leaves the court in doubt, the claim must be rejected. The court may consider admissible evidence adduced at the appeal, whether or not it was before the chairman.

2. The claims of Kashif, Samina, Saeeda and DDW were established only in reduced amounts. The claims of Hornby Street and Mr Bhatti were not established and should have been rejected entirely. In assessing the evidence, the court focused on contemporary documents and reliable corroboration. Suspicion of a coordinated attempt to secure the necessary majority was relevant to scrutiny, but did not replace proof of each individual claim.

3. Effect of the voting error. Once the claims were corrected, the IVA would have received only 73.52 per cent of the votes by value. This constituted a material irregularity under rule 5.22(5) and Insolvency Act 1986, section 262(1)(b). A further meeting would have been futile because the evidence showed that the IVA would not then obtain the required majority. The approval was therefore revoked and no further meeting was directed.

4. Errors and omissions. The applicable question was whether disclosure of the true position would objectively have made a material difference to the creditors’ assessment, namely whether there was a substantial chance that they would not have approved the IVA. On the evidence, the alleged errors and omissions would not have altered AIB’s vote and this ground would have failed.

5. Nominee’s report. The nominee’s role is to provide independent professional scrutiny of the debtor’s proposal and to ensure that interference with creditors’ bankruptcy rights is justified. Applying the guidance in Re a Debtor (No 140 IO of 1995) (Greystoke v Hamilton-Smith) [1996] 2 BCLC 429, the nominee must take reasonable steps, where doubts properly arise, to satisfy himself that the debtor’s position is not materially misstated, that the proposal has a real prospect of implementation, and that no manifest unfairness is inherent in the voting process.

   In the particular circumstances, the related-party claims were vulnerable to manipulation, had materially changed, were essential to approval, and had not been adequately investigated. Mr Andronikou therefore fell below the expected professional standard by recommending that the meeting be summoned prematurely.

6. Adjournment. Rule 5.24 did not permit an adjournment for detailed investigation when the requisite majority had already been obtained. The residual common-law power recognised in Byng v London Life Association Ltd [1990] Ch 170 is confined to ensuring that a meeting can function properly, such as preserving order or dealing with logistical difficulties. Even if a wider power existed, an adjournment would not have been required because the chairman’s rule 5.22 functions are intended to be summary and subject to appeal.

7. Mr Andronikou’s provision of lead evidence for the respondents on the disputed debts, despite lacking first-hand knowledge and having marked the claims as objected to, was manifestly inappropriate and created an appearance of partisanship. Reliance on legal advice did not excuse the conduct on the evidence. The court made adverse findings on his preparation of the nominee’s report and conduct during the proceedings, but rejected the allegation concerning the conduct of the creditors’ meeting.

First-instance application under Insolvency Act 1986, section 262(1)(b), and rule 5.22(3) of the Insolvency Rules 1986. The court allowed the appeals against the admission of the disputed claims to the specified extent, revoked approval of the IVA, and directed that no further creditors’ meeting be summoned.