Golstein v Bishop & Anor

For voting on an individual voluntary arrangement, a claim is liquidated only where it is a pre-ascertained liability under the agreement giving rise to it, including a contractual formula or machinery which produces a figure. A claim requiring an account, assessment or court order remains unliquidated or unascertained until the amount is established. The court hearing an appeal from a chairman’s voting decision forms its own view, and subsequent events may be considered when valuing the debt, although they cannot retrospectively change its character.

Material non-disclosure is assessed objectively by asking whether the truth would probably have affected how creditors considered and assessed the proposal. The court may nevertheless refuse relief where the IVA would clearly have been approved despite the irregularity.

Mr Golstein appealed from DJ Hart’s decision in the Central London County Court dated 21 December 2015. She had refused his application under Insolvency Act 1986, section 262, to revoke approval of Mr Bishop’s IVA.

Ground 1 concerned the valuation of Mr Golstein’s claim for unpaid guaranteed salary under a partnership agreement. Ground 2 concerned Mr Bishop’s failure to disclose pending disciplinary proceedings before the Solicitors Disciplinary Tribunal, including allegations of dishonesty. The central issues were whether the salary claim was liquidated for voting purposes and whether the non-disclosure constituted a material irregularity warranting relief.

1. Ground 1 dismissed. On an appeal under Rule 5.22(3), the court forms its own view on the evidence and arguments. Characterisation and quantification are made as at the creditors’ meeting, but subsequent events may be taken into account when valuing the debt.
2. A liquidated debt is a pre-ascertained liability under the agreement giving rise to it. A contractual liability may qualify where a contractual formula or machinery produces the amount. A claim requiring an account of partnership profits, assessment of damages or a court order is not liquidated until the amount is ascertained.
3. The obligation in clause 2.3.2 of the Heads of Agreement had to be read in the light of the binding conclusion in the earlier partnership proceedings that Mr Bishop was liable only to make good an identified shortfall. Until the relevant accounts established the shortfall, Mr Golstein’s claim was unliquidated and unascertained. It therefore fell within Rule 5.21(3).
4. Ground 2 allowed. The omission of the pending disciplinary proceedings and serious allegations of dishonesty was a material irregularity under section 262. Applying the objective approach in Somji v Cadbury Schweppes plc, the disclosure would probably have affected how creditors assessed the IVA. The fact that some actual creditors would probably have voted in favour did not make the irregularity immaterial, although it was relevant to the discretionary remedy.
5. The third-party payment had not been accepted. The debt therefore remained owed to Mr Golstein, who was entitled to vote in respect of it. There was a substantial chance that, with proper disclosure, the proposal would have been rejected.
6. The question whether approval should be revoked, suspended or followed by a further creditors’ meeting was adjourned for further argument.

• High Court (Chancery Division): allowed Ground 2 and dismissed Ground 1. The remedy was reserved for a further hearing.
• Central London County Court: DJ Hart dismissed the section 262 application on 21 December 2015.