Royal Bank Of Scotland Plc v Munikwa & Ors

In an individual voluntary arrangement, creditors may propose modifications of the debtor’s proposal, subject to the statutory limits and the debtor’s consent. The nominee may discuss proposed modifications with the debtor and creditors, but neither the nominee nor the chair may adjudicate on, suppress or disregard a modification because it conflicts with the original proposal or the insolvency practitioner’s preferred fee structure. The chair must put the debtor’s proposal, modified or unmodified, to creditors and must follow a proxy-holder’s clear voting instructions. Where instructions are genuinely unclear, consultation should be undertaken. A contractual term cannot confer powers inconsistent with the Insolvency Act 1986 and the applicable Rules.

Royal Bank of Scotland brought applications under section 262(1)(b) of the Insolvency Act 1986 concerning individual voluntary arrangements administered by Creditfix Limited. The applications challenged the chair’s treatment of creditor-proposed modifications to nominee and supervisor fees.

The individual applications were compromised by arrangements for further meetings and reimbursement of certain fees. RBS nevertheless pursued a wider declaration concerning paragraph 10.17 of Creditfix’s standard proposals. The central issue was whether that paragraph authorised the nominee or chair to disregard modifications proposed by creditors and to treat conditional proxy instructions as votes in favour of the unmodified proposal.

1. Declaration granted. Paragraph 10.17 conferred no authority upon the nominee or chair to disregard creditor-proposed modifications.
2. Paragraph 10.17 was an operative term. It described how the nominee was to deal with proposed fee modifications and was connected with rule 8.22(3)(d) of the Insolvency (England and Wales) Rules 1986. It did not confer an adjudicatory power on the chair.
3. The statutory scheme permits creditors to propose modifications of any kind, subject to the statutory limits. The debtor must consent to each modification, and creditors then vote on the proposal as modified or unmodified. Neither the nominee nor the chair decides whether a modification should prevail. Their function is to discuss the modification with the debtor and relevant creditors and to put the debtor’s proposal, in its agreed form, to creditors.
4. There may be a residual power to prevent an illegal modification, or one which would take the proposal outside Part VIII of the Insolvency Act 1986. That limited point did not justify Creditfix’s approach to fee modifications.
5. A conflict between a proposed modification and the original proposal is not a reason to disregard it. Nor is the possibility that the modification would produce lower fees. The fee structure is for the debtor and creditors to determine through the statutory voting process.
6. The chair acted with material irregularity by voting in favour of proposals despite clear instructions to do so only if RBS’s modifications were agreed and included. Creditfix’s financial interests and fee model could not justify that conduct. Any genuine ambiguity in a proxy required consultation with the creditor.
7. The court considered that declaratory relief was appropriate because there was a real and present dispute about the existence and extent of a legal right. A copy of the judgment was directed to be provided to the supervisor’s regulatory body.