Narandas -Girdhar & Anor v Bradstock

Where retained contractual wording is ambiguous, a clause replaced by an agreed modification may assist construction if it shows what the parties did not agree. The inference must be drawn with care, particularly where a whole clause has been replaced.

For an individual voluntary arrangement, a creditor's informed and deliberate decision not to disown an unauthorised proxy vote can amount to ratification. Mere passive inaction cannot.

A material irregularity at or in relation to a creditors' meeting summoned under Insolvency Act 1986, s.257 falls within the statutory challenge regime in s.262, even if it might otherwise invalidate the arrangement. The 28-day limit and the statutory bar prevent a later collateral challenge. Defects antecedent or extraneous to such a meeting remain outside that regime.

Mr Parekh sought a declaration that his individual voluntary arrangement (IVA), approved at a creditors' meeting in December 1999, was invalid. He contended that his modified proposal remained conditional on approval of his wife's IVA, which her creditors rejected. He also alleged that HMRC's decisive vote had been cast by a proxy without authority.

The Deputy Judge dismissed the claim. He held that the modification removed the condition, that HMRC had ratified the unauthorised vote, and that any defect was in any event a material irregularity subject to the time limit and statutory bar in s.262 of the Insolvency Act 1986. Mr Parekh appealed from [2014] EWHC 1321 (Ch).

The appeal raised the proper construction of the modified proposal, ratification by conduct, and the scope of the statutory regime for challenging an IVA.

1. Appeal dismissed unanimously. Briggs LJ, with whom Black and Ryder LJJ agreed, upheld the Deputy Judge's conclusions on each issue.

2. The modified proposal was not conditional on the approval of the wife's IVA. The retained references to a joint dividend were ambiguous. In those circumstances, it was legitimate to consider the replacement of the original clause 4.3. The substitution removed the condition altogether and replaced the contribution terms with a lower fixed payment. It therefore showed that conditionality had not been agreed. There was no factual basis for the appellant's alternative case of fundamental mistake.

3. HMRC ratified the unauthorised use of its proxy. The judge was entitled to infer that HMRC received information showing both that its vote had secured approval and that the unauthorised modification had been made. Its informed failure to object, despite repeated later opportunities, was a conscious and deliberate decision rather than mere passive silence. That conduct was capable of ratification.

4. In any event, misuse of a decisive proxy at a creditors' meeting summoned under s.257 was a material irregularity within s.262 of the Insolvency Act 1986. The broader construction of s.262 was preferred. Section 262(8), read with the 28-day limit in s.262(3), can bar a challenge even where the irregularity might otherwise invalidate the IVA. A narrower construction would defeat the section's flexible remedial powers and permit stale collateral challenges.

5. The regime does not cover every defect. The irregularity must be material and occur at or in connection with a meeting summoned under s.257. Defects arising before, or extraneous to, the lawful summoning of such a meeting remain outside s.262. Re Plummer was wrongly decided, but the outcomes in the earlier cases involving antecedent defects were not disturbed.

• Court of Appeal (Civil Division): dismissed Mr Parekh's appeal and upheld the validity of the IVA: [2016] EWCA Civ 88.
• High Court, Chancery Division: the Deputy Judge dismissed the claim to set aside the IVA: [2014] EWHC 1321 (Ch).