Child Maintenance and Enforcement Commission v Beesley & Anor

The Court of Appeal considered whether the Child Maintenance and Enforcement Commission (the Commission) was a "creditor" capable of being bound by an individual voluntary arrangement (IVA) within the meaning of Insolvency Act 1986 (IA) section 260(2)(b), and whether the IVA unfairly prejudiced the Commission under IA section 262(1). The court held that, although arrears of child support are "bankruptcy debts" for many purposes, a creditor who cannot lawfully compromise or release the liability cannot be treated as a creditor for the purposes of Part VIII IVA procedure. Applying that implication, the Commission was not a creditor capable of being bound by the IVA because it had no statutory power to accept or compromise arrears of child support under the Child Support Act 1991 (CSA). The court nevertheless agreed with the judge below that the particular IVA in this case did unfairly prejudice the Commission's position, but held that the Commission lacked standing to seek revocation because it was not a creditor for IVA purposes.

This appeal arose from an order of His Honour Judge Pelling QC (High Court, Chancery Division, Manchester) dated 11 March 2010. The Commission (formerly operating as the Child Support Agency) applied under IA section 263(3) and section 262(1) to challenge an IVA proposed by Darren Whyman and supervised by Mark Beesley. At the date the IVA was approved the respondent owed substantial arrears of child support under the Child Support Act 1991 (the old scheme), amounting to about 94% of his disclosed liabilities.

The issues before the Court of Appeal were:

• whether the Commission was a "creditor" entitled to be summoned to, to vote at, and to be bound by, the creditors' meeting approving an IVA (IA sections 257 and 260); and
• whether the IVA unfairly prejudiced the Commission's interests (IA section 262).

The court reviewed the statutory IVA regime (IA Part VIII and relevant Insolvency Rules), the exclusion of child support from provable debts in bankruptcy and from debt relief orders (IRR 12.3(2); IA Part 7A), and the child support enforcement code under the CSA (including the Commission's limited enforcement powers and the absence, under current law, of power to compromise arrears). Authorities considered included Department of Social Security v Butler and R (Kehoe) v Secretary of State for Work and Pensions on the limited enforcement role of the state agency, and Re Bradley-Hole on the scope of creditors' capacity to compromise periodical obligations.

Lord Justice Etherton concluded that, although child support arrears are "bankruptcy debts" in a wide statutory sense (IA s.382), IA Part VIII must be read to restrict the class of creditors who can participate in and be bound by IVAs to those who have capacity to compromise the relevant debts. The Commission had no power to compromise or accept lesser sums in full and final settlement of child support arrears under the existing statutory scheme and therefore was not a creditor for IVA purposes. For completeness the court accepted the judge's finding that the IVA in this case unfairly prejudiced the Commission, but held the Commission lacked standing to apply to set aside the IVA because it was not a creditor in the IVA sense. The appeal was allowed: the Court of Appeal substituted a declaration that the Commission was not a creditor capable of being bound by the IVA and set aside the judge's order revoking the IVA.

Appeal allowed. The court held that, although child support arrears are "bankruptcy debts" under IA section 382, the IVA regime in IA Part VIII must be read as limited to creditors who have the capacity to compromise the debt or liability. Because the Commission had no statutory power to agree to accept or to compromise child support arrears under the Child Support Act 1991, it was not a creditor capable of being bound by an IVA under IA section 260(2)(b). The court agreed that the IVA unfairly prejudiced the Commission's interests but held the Commission lacked standing to seek revocation of the IVA because it was not a creditor for IVA purposes; accordingly the judge's order revoking the IVA was set aside.

Appeal from order dated 11 March 2010 of His Honour Judge Pelling QC, High Court of Justice (Chancery Division), Manchester District Registry. There was a cross-appeal by the second respondent (Mr Whyman) which was rejected by the Court of Appeal. Neutral citation: [2010] EWCA Civ 1344.