Golstein v Bishop & Anor

Where material irregularity in the approval of an individual voluntary arrangement is established, the court ordinarily exercises its powers to grant relief. The court retains a discretion to make no order where special circumstances justify that course. Delay will not ordinarily defeat relief where the challenge was brought within time and the applicant did not cause the delay or act unreasonably. Relevant factors include prejudice, change of position, the possibility of restoring the pre-arrangement position, the interests of creditors and the seriousness of the irregularity.

This was an appeal from the Central London County Court. The appellant had succeeded on the second ground of appeal concerning the approval of the first respondent’s individual voluntary arrangement. The hearing considered what remedy should follow under section 262 of the Insolvency Act 1986, including the effect of delay, alleged prejudice, expenditure by the supervisor and the practical consequences of revoking approval. The central issue was whether the court should revoke the approval or grant no relief.

1. The court had a discretion whether to grant relief after material irregularity had been established. Although section 262 imposes a strict and short time limit for challenging approval, an applicant who complies with it should not be penalised for subsequent delay unless the applicant contributed in an inappropriate way to that delay.

2. Absent special circumstances, a successful applicant could usually expect the court to exercise its powers under section 262(4). Special circumstances might arise where the irregularity was insufficiently serious, where objectively assessed creditor interests favoured upholding the arrangement, or where granting relief would be unfair. The irregularity in this case was serious.

3. The appellant had not acted unreasonably or abused the process by pursuing the related partnership proceedings before the section 262 application. The respondent could have sought to relist the application and, under CPR 1.3, all parties shared responsibility for assisting the court in furthering the overriding objective.

4. The alleged prejudice, change of position and supervisor’s costs carried little weight. The evidence did not establish unreasonable conduct by the appellant or that the relevant expenditure justified withholding a remedy. The seriousness of the irregularity, concerns regarding disclosure and the need for proper investigation of the respondent’s financial position favoured revocation.

5. The approval of the IVA was revoked under section 262(4)(a). The supervisor’s acts and fees were validated under section 262(7), subject to creditors’ liberty to apply. The supervisor could pay the appellant’s bankruptcy-petition costs by agreement or, failing agreement, the amount assessed by a tax judge. Further proceedings in the supervisor’s appeal from the County Court were stayed.

• High Court (Chancery Division): On appeal from the Central London County Court, the appellant had succeeded on the second ground of appeal. This judgment determined the consequential remedy and revoked approval of the IVA.