Child Maintenance and Enforcement Commission v Beesley & Anor

Arrears of child maintenance are liabilities capable of falling within the statutory concept of a bankruptcy debt and are not excluded from the voting and binding provisions of the individual voluntary arrangement regime. The Child Maintenance and Enforcement Commission is therefore a creditor for IVA purposes and may vote at the creditors’ meeting. An approved IVA may nevertheless be revoked where its terms unfairly prejudice the Commission by requiring it to accept a dividend in full and final settlement of arrears which would remain enforceable despite bankruptcy and discharge. The relevant prejudice lies in losing the opportunity to enforce the arrears in full, not in proving that enforcement would have produced a greater recovery.

The Applicant sought declarations and relief concerning an IVA approved in respect of the Second Respondent, whose debts consisted predominantly of child-maintenance arrears. The Applicant argued that it was not a creditor for IVA purposes and was therefore not bound by the arrangement. Alternatively, it sought revocation under Insolvency Act 1986, section 262, on the basis that the IVA unfairly prejudiced its interests.

The central issues were whether child-maintenance arrears made the Applicant a creditor entitled to vote at the creditors’ meeting, and whether the particular IVA unfairly prejudiced the Applicant by treating those arrears as ordinary debts payable by a dividend in full and final settlement.

1. Creditor status. The application under section 263(3) of the Insolvency Act 1986 was dismissed. The Applicant was a creditor for the purposes of the IVA regime and was entitled to attend and vote, or vote by proxy, at the creditors’ meeting. The statutory provisions did not expressly exclude child-maintenance arrears from that regime.
2. Nature of the liability. Although the arrears were not provable in bankruptcy, they remained a liability to pay money under an enactment and therefore fell within the definition of bankruptcy debt. Non-provability did not prevent the arrears from being bankruptcy debts for the relevant statutory purpose. The statutory inability to agree a lesser sum outside the statutory review, supersession or appeal mechanisms did not alter that conclusion.
3. Unfair prejudice. The application under section 262 succeeded. The IVA unfairly prejudiced the Applicant because it deprived the Applicant of the right and opportunity to collect or enforce the arrears, irrespective of bankruptcy, while requiring acceptance of a dividend in full and final settlement. The prejudice arose from the terms of this particular IVA, rather than merely from the existence of the IVA system.
4. The practical possibility that enforcement might recover no more than the IVA dividend, or that the arrears might later be reduced, did not remove the prejudice. The relevant loss was the opportunity to pursue the whole accrued liability.
5. The approval of the IVA was revoked. There was provisionally no order as to costs, subject to public funding assessment, and permission to appeal was refused to both parties.

First-instance decision. No earlier decision in the same proceedings is stated.