Gertner & Anor v CFL Finance Ltd

The court’s discretion to stay bankruptcy-petition proceedings in favour of an individual voluntary arrangement is broad, but must be exercised by reference to the statutory insolvency scheme. Where the proposal would inevitably be approved by the statutory majority, the court should not second-guess the creditors’ commercial judgment by relying on the small dividend, the desirability of fuller investigation, or the creditor’s circumstances, unless the good-faith rule is engaged.

That rule is not a free-standing common-law requirement applicable to every participant. It operates through Insolvency Act 1986 sections 262 and 276 and principally concerns transparency by the debtor and arrangements giving an approving creditor an illicit collateral benefit over the creditor class. A contractual settlement does not provide credit merely because payment is structured over time, and a settlement scheduled to a Tomlin order remains contractual.

CFL Finance Limited presented a bankruptcy petition against Moises Gertner based on liabilities arising from a 2011 settlement agreement. An earlier individual voluntary arrangement had been approved but later set aside because Kaupthing, the principal voting creditor, had received undisclosed collateral benefits under a settlement agreement.

After Kaupthing assigned relevant rights to Laser Trust, Mr Gertner proposed a second voluntary arrangement. Laser Trust held more than 90% of the debt and intended to support it. Chief Insolvency and Companies Court Judge Briggs refused to stay the bankruptcy petition and made a bankruptcy order. Mr Gertner and Laser Trust appealed, challenging the treatment of the debt, the penalty issue, the scope of the good-faith rule, and the exercise of the stay discretion.

1. Debt challenges. The appeal succeeded on the procedural point that Mr Gertner was not barred from raising arguments merely because he could have applied to set aside the statutory demand. The Turner principle prevents a party from re-running arguments already determined and permits the court to ask why an available argument was not raised earlier; it does not create an automatic bar where no statutory-demand application was made.
2. The settlement agreement was not a regulated credit agreement under sections 8 and 9 of the Consumer Credit Act 1974. It extinguished the disputed guarantee claim and replaced it with a fresh promise to pay. A structured timetable for payment did not constitute the provision of credit or financial accommodation. The fact that the agreement was scheduled to a Tomlin order did not alter its contractual character.
3. The default provisions were not penalties. Applying the approach in Cavendish Square Holding BV v Makdessi [2015] UKSC 67, the relevant question was whether the secondary obligation imposed a detriment out of all proportion to CFL’s legitimate interest. The parties were advised, the rates reflected the original short-term lending, and the acceleration provision protected a legitimate interest in performance. Proper construction of the crediting provision also gave effect to payments already made.
4. Stay discretion. Section 266(3) of the Insolvency Act 1986 confers a general judicial discretion. Insolvency is a class remedy, but where the statutory majority would inevitably approve the proposal, the court should not substitute its own value judgment concerning the dividend, the extent of investigation, the assignee’s history, or the creditor’s alternative means of recovery.
5. Good faith. The rule is an aspect of the statutory machinery governing voluntary arrangements, not a general free-standing duty derived from Interfoto Picture Library Ltd v Stiletto Visual Programmes Ltd [1989] QB 433. It principally requires debtor transparency and prevents an approving creditor from acting under an arrangement that gives it an illicit collateral benefit unavailable to the class. Laser Trust’s assignment of ordinary assignable claims did not establish such a benefit.
6. The appeals were allowed. Judge Briggs’s order was set aside, and the bankruptcy-petition proceedings were stayed in favour of a creditors’ meeting at which the second proposal could be considered.

• High Court (Chancery Division): appeals from the order of Chief Insolvency and Companies Court Judge Briggs dated 15 July 2019 were allowed. The order was set aside and the bankruptcy petition was stayed in favour of a creditors’ meeting.
• Earlier proceedings: the first voluntary arrangement had been set aside by Judge Keyser, whose decision, [2017] EWHC 111 (Ch), was affirmed in part by the Court of Appeal, [2018] EWCA Civ 1781. Those decisions concerned earlier stages of the same litigation.