Moorgate Industries UK Limited v Pramod Mittal (in bankruptcy) & Anor.

An individual voluntary arrangement may be challenged where creditor votes rest on debts that have not been proved. A challenged creditor should have an opportunity to participate and provide sworn evidence, but the absence of such evidence may justify adverse inferences and rejection of the claim on the balance of probabilities.

In assessing untested evidence, the court may consider the whole evidential background and reject evidence that is inherently implausible or manifestly incredible. A signed document should not be labelled a sham without a proper basis for dishonesty, but its existence does not relieve the creditor of proving the debt.

For the purposes of Insolvency Act 1986, the concept of control is broad. A protector with extensive powers over a trust may control trust assets and a company held by the trust.

Moorgate Industries UK Limited applied to revoke an individual voluntary arrangement proposed by Pramod Mittal after he had been adjudged bankrupt. The IVA had been approved by creditors whose votes depended principally on alleged loans, assignments and compound interest claims made by connected companies and individuals.

Moorgate alleged material irregularity and unfair prejudice. The central issues were whether the challenged debts had been proved, whether the assignees were entitled to vote, and whether Mittal and Direct Investments Limited were associates so that Direct Investments’ voting rights were affected.

1. Challenge to the IVA. Under section 262(1) of the Insolvency Act 1986, an IVA may be challenged for unfair prejudice or material irregularity. Rule 15.35 of the Insolvency Rules 2016 permits the court to vary, reverse or declare invalid the decision approving the proposal and to make consequential orders.
2. Proof of debt. Where a creditor’s vote is challenged, the creditor must substantiate the claim. The court determines whether the debt is proved on the balance of probabilities and may consider admissible evidence placed before it, whether or not that evidence was before the chairman. Procedural fairness ordinarily requires the challenged creditor to be joined or given an opportunity to file evidence.
3. The challenged creditors had notice of the proceedings and were given opportunities to provide evidence. They supplied none. The only supporting evidence came principally from Mittal, who had a vested interest. The court was entitled to draw adverse inferences and concluded that the alleged loans and assignments had not been proved.
4. Untested evidence and documents. The absence of cross-examination does not invariably prevent the court from resolving an issue. Evidence must be assessed against all admissible material, and inherently implausible evidence may be rejected. However, the court could not make a finding that the signed loan documents or assignments were shams without a proper basis for dishonesty and cross-examination. That limitation did not prevent the court from finding that the debts had not been established.
5. Associate and control. Section 435 adopts a broad concept of control. Mittal’s extensive powers as protector of the Prasan Trust enabled him to control the trust’s assets, including Direct Investments Limited. The evidence also established that the directors of Direct Investments were accustomed to act on his instructions. Mittal was therefore an associate of Direct Investments within section 435.
6. There was consequently a material irregularity in the creditors’ decision procedure. The IVA was revoked. It was unnecessary to determine the separate good-faith issue.

First-instance decision. The judgment records earlier bankruptcy and IVA proceedings but does not state any appeal from the present decision.