Green (Supervisor of the Voluntary Arrangement of Wright) v Wright

The Court of Appeal held that a trust of the debtor's assets constituted by the terms of an individual voluntary arrangement (IVA) survives the issue of a completion certificate unless the IVA itself contains an express provision bringing the trust to an end on completion. The court construed paragraph 28 (the trust of arrangement assets) together with paragraph 9(2) (effect of the completion certificate) and the definition of "Debt" (by reference to section 382 of the Insolvency Act 1986) and concluded that the completion certificate releases the debtor from personal liability but does not extinguish the debts for the purposes of defining creditors' rights under the trust. The court applied by analogy the bankruptcy framework (including section 281) and relied on Re N T Gallagher & Son Ltd as supportive authority that a fully constituted trust continues in the absence of express termination terms.

Background and factual matrix:

The appellant was the supervisor of an IVA proposed by the respondent in 2007 that adopted modified Standard Conditions (Version 2, November 2004). The IVA created a trust of the debtor's assets as at the commencement of the arrangement (paragraphs 26 and 28) and provided for a completion certificate under paragraph 9(1) and a release under paragraph 9(2). The debtor complied with the IVA and the supervisor issued a certificate of completion in January 2013. After completion the supervisor received two PPI settlement payments totalling about £24,500 which it was common ground were property to which the IVA applied.

Nature of the application:

• The supervisor sought directions whether sums recovered after issue of the completion certificate remained subject to the trust constituted by the IVA.

Issues framed by the court:

• Whether the trust created by paragraph 28 of the Conditions continued after issue of the completion certificate or whether the completion release in paragraph 9(2) had the effect of ending the trust by eliminating beneficiaries.
• How the definition of "Debt" (by reference to section 382 of the Insolvency Act 1986) and the definition of "Creditor" operated on completion.
• Whether authority in Re N T Gallagher & Son Ltd required a different result.

Procedural posture:

The deputy district judge at Burnley County Court held the post-completion payments were not subject to the trust. HH Judge Hodge QC in the High Court (Chancery Division) affirmed that decision ([2015] EWHC 993 (Ch), [2015] BPIR 806). The supervisor appealed to the Court of Appeal with permission from Lewison LJ.

Reasoning and resolution:

The Court of Appeal allowed the appeal. It accepted that paragraph 9(2) releases the debtor from personal liability in respect of the Debts subject to the IVA but held that this does not extinguish the debts for the purpose of defining creditors' rights and beneficiaries of the trust. The court emphasised that paragraph 28 constituted a fully constituted trust of assets which, absent express provision to end on completion, continues to operate to realise and distribute assets for the benefit of the creditors defined by reference to the date of commencement. The judge drew an explicit analogy with bankruptcy law (for example section 281 on discharge) to show that discharge/release of the individual does not defeat the continuing administration of the estate for creditors. The Court of Appeal treated Re N T Gallagher & Son Ltd as supportive of the proposition that a trust created by an insolvency arrangement continues unless the arrangement provides otherwise. The court rejected reliance upon guidance notes and the Scottish authorities referred to as not material to the construction of these conditions.

Subsidiary findings: the court held paragraph 28(3) operates to end trusts on termination (as defined) but that termination did not occur here; paragraph 27 (after-acquired assets) did not assist the debtor; completion leaves the supervisor's powers intact to the extent necessary to carry out duties under paragraph 14(1).

Appeal allowed. The Court of Appeal held that the completion certificate releases the debtor from personal liability but does not terminate or extinguish the debts for the purposes of defining creditors' rights under the trust created by the IVA. In the absence of express provision that the trust ends on completion, the trust constituted by paragraph 28 survives completion and the sums received after issue of the certificate are subject to that trust.

The issue was first determined by Deputy District Judge Langley in the County Court at Burnley (held that post-completion receipts were not subject to the IVA trust). HH Judge Hodge QC, sitting in the High Court (Chancery Division), affirmed that decision ([2015] EWHC 993 (Ch), [2015] BPIR 806). Permission to appeal to the Court of Appeal was granted by Lewison LJ; the Court of Appeal allowed the appeal ([2017] EWCA Civ 111).