Narandas -Girdhar & Anor v Bradstock

The Court of Appeal dismissed the appeal against the Deputy Judge's order refusing to set aside an Individual Voluntary Arrangement (IVA) purportedly approved on 15 December 1999. The court decided (1) that the modified proposal, read with the original proposal, was not unambiguously conditional upon the wifes IVA and that the effect of the modification was to remove the conditionality; (2) that HM Revenue & Customs (HMRC) apparent unauthorised voting at the creditors meeting was subsequently ratified by HMRCs conduct; and (3) that challenges based upon material irregularity at or in relation to creditors meetings fall within the statutory regime of s.262 of the Insolvency Act 1986 and must generally be brought within the statutory time limit, applying a purposive construction of s.262 in order to preserve commercial certainty.

This is an appeal from the Deputy Judge in the Chancery Division ([2014] EWHC 1321 (Ch)) arising from an application, issued in 2010, to have an IVA declared void where the IVA had been approved by creditors on 15 December 1999.

Parties and procedural posture:

• The appellant (second claimant below) was the debtor whose modified IVA proposal was approved by creditors in 1999; he sought a declaration that his IVA was void. The respondent was the nominated insolvency practitioner who convened the creditors meetings.
• The Deputy Judge below dismissed the claim in 2014. The debtor appealed to the Court of Appeal. This judgment is the appeal decision dated 16 February 2016.

Nature of the claim: A declaration that the IVA was invalid on grounds including (i) that the modified proposal remained conditional on the simultaneous approval of the wife's IVA, and (ii) that a critical creditor (HMRC) had its proxy used beyond the authorisation given, vitiating the creditors approval.

Issues framed by the court:

• Construction: whether the Modification to clause 4.3 left the modified proposal conditional upon the wifes IVA (such that the IVA never took effect).
• Ratification and agency: whether HMRC subsequently ratified the chairmans (Mr Woottons) vote which had exceeded the proxy authority.
• Material irregularity and s.262: whether an excess of proxy authority which changed the outcome of the meeting is a material irregularity caught by s.262 and whether s.262(3) time limits and s.262(8) operate to confine challenges.

Courts reasoning and subsidiary findings:

• On construction, the court read the Proposal together with the Modification. The Modification expressly substituted clause 4.3, removing the prior conditional wording. The remaining passages relied on by the appellant (appendix 5 and para 4.14) are ambiguous and do not compel a finding of conditionality. It was legitimate to have regard to the deleted wording to the extent it illuminated ambiguity; the court concluded the modification removed the conditionality.
• On factual findings the judge below had found the debtor to be an unreliable witness and inferred the debtor had instructed or agreed the Modification (including the new fixed contribution). Those findings were not disturbed on appeal, so there was no factual basis for a separate argument of fundamental mistake.
• On ratification, the judge inferred from the contemporaneous papers and subsequent conduct (reports sent to all creditors, HMRCs follow-up enquiries, and their later non-objection to variations and to notices of intended petition) that HMRC, as a major creditor, had received the chairmans report and had consciously and deliberately declined to disown the chairmans vote; that conduct amounted to ratification rather than mere passive silence.
• On s.262 and material irregularity, the court adopted a purposive construction. It rejected the narrower approach (that s.262 only regulates non-vitiating irregularities) and held that s.262 must be read broadly so that material irregularities at or in relation to a properly summoned s.257 meeting fall within the time-limited statutory challenge regime, preserving the courts flexible remedial powers under s.262(4) and avoiding commercial uncertainty.

Outcome: the appeal was dismissed for the stated reasons.

Appeal dismissed. The court upheld the Deputy Judge's conclusions that (a) the Modification removed any conditionality on the wife's IVA, so the modified proposal was not conditional on her approval; (b) HMRCs unauthorised favourable vote was subsequently ratified by their conduct; and (c) s.262 of the Insolvency Act 1986 should be given a purposive, relatively broad construction so that material irregularities arising at or in relation to a meeting properly summoned under s.257 fall within the time-limited statutory challenge mechanism, making this long-delayed challenge untenable.

Appeal from Mr Jonathan Klein sitting as Deputy Judge in the Chancery Division: [2014] EWHC 1321 (Ch). This Court delivered judgment on appeal in Narandas -Girdhar & Anor v Bradstock [2016] EWCA Civ 88 (the current decision).