Mond & Anor v MBNA Europe Bank Ltd

The IVA Protocol was a voluntary industry code of best practice, not a legally enforceable contract between IVA providers and creditors. Its requirement that a creditor disclose reasons for voting against a protocol-compliant proposal did not qualify the creditor’s express right to vote for or against the proposal. A creditor was therefore entitled to prefer a debt management plan where it reasonably considered that option preferable, including by reference to its own interests, provided the stated reason was disclosed. The disclosure had to identify the basis of rejection sufficiently to permit the debtor and IVA provider to understand it, but did not require every factor in the creditor’s reasoning to be disclosed. Declaratory relief remained discretionary and was inappropriate where the proposal had been withdrawn and the relevant debtor and other creditors were not parties.

The claimants, an insolvency practitioner and his IVA-provider company, sought declarations that MBNA had contravened the IVA Protocol by opposing a proposed individual voluntary arrangement for an unnamed debtor. MBNA preferred an informal debt management plan, relying principally on the debtor’s disposable income and the manageable number of creditors. The proposal was withdrawn, and the debtor subsequently entered into separate arrangements with all five creditors.

The claim raised the nature and effect of the Protocol, the extent of a creditor’s freedom to vote against a protocol-compliant IVA proposal, and the scope of the obligation to disclose reasons for rejection. It also raised whether declaratory relief should be granted in the circumstances.

1. Nature of the Protocol. The Protocol was a voluntary industry standard or code of best practice. Its language was frequently imprecise and aspirational. It did not create contractual obligations enforceable by IVA providers against creditors. Nevertheless, its practical importance meant that the court could, in principle, consider its meaning when exercising the jurisdiction to grant declaratory relief.
2. Declaratory relief. The jurisdiction under Senior Courts Act 1981, section 19, and CPR r 40.20 was discretionary. The court had to consider whether there was a real dispute, whether the parties were affected, whether all sides of the argument were properly before the court, and whether a declaration would serve a useful purpose. Formal declarations were inappropriate here because the IVA proposal had been withdrawn, the debtor and the other creditors were not parties, and the claim principally sought guidance on an industry-wide code rather than relief concerning an extant dispute.
3. Voting against a PCIVA. Clause 13.1 expressly preserved the creditor’s right to vote for or against an IVA proposal. Clause 13.2, requiring the reason for a vote against to be disclosed, did not impose a requirement that the creditor have a good reason, nor did it prevent the creditor from preferring a debt management plan. The Protocol contained no express restriction on the statutory voting right and no stated consequence for an allegedly wrongful vote.
4. Creditor’s approach. There was no intrinsic reason why a protocol-compliant IVA could not be rejected because a creditor considered a debt management plan preferable. A creditor could have regard to its own interests, provided it did not seek an unfair advantage over the other creditors. The court found MBNA’s pro rata approach and consideration of a debt management plan of up to ten years not unreasonable on the evidence.
5. Disclosure. Clause 13.2 required a sufficient description of each reason to enable the debtor and IVA provider to understand the basis of rejection. It did not require disclosure of every factor considered. “Disposable income available for a DMP” was sufficient, although it could have been expressed more fully. “Minimal number of creditors” was not a freestanding reason but a factor relevant to the feasibility of a debt management plan.
6. The court declined to grant the declarations sought. It nevertheless stated that the Protocol would need amendment if creditors were intended to reject protocol-compliant proposals only for good reason.