Newlon Housing Trust & Anor v Mizen Design/Build Ltd & Ors

In applications challenging a company voluntary arrangement, material irregularity depends on whether the relevant information, if accurately disclosed, would probably have made a material difference to creditors’ assessment of the proposal. The assessment is objective, although the known views of particular creditors may assist.

Unfair prejudice requires consideration of all the circumstances. The court should compare the position under the arrangement with the relevant alternative insolvency process and examine the treatment of different creditor groups. Differential treatment is not inherently unfair, but it requires justification, particularly where unimpaired or differently treated creditors determine the outcome. A compromise may be necessary for business rescue without making its particular allocation or disclosure fair.

Mizen Design/Build Ltd proposed a company voluntary arrangement after financial difficulties in its construction business. Newlon Housing Trust and Peabody Construction Ltd applied under section 6 of the Insolvency Act 1986, alleging material irregularity and unfair prejudice.

Newlon’s claims were treated as contingent claims compromised at £1. Peabody had disputed claims connected with the Rosebank and Valley House projects, including claims affected by shareholder guarantees. The CVA paid critical creditors in full, paid non-critical creditors approximately 1.2 or 1.3 per cent, and compromised guarantee rights with an additional proposed return.

The central issues were whether the proposal contained material failures of disclosure and whether its treatment of Peabody and Newlon was unfairly prejudicial.

1. Newlon’s application dismissed; Peabody’s application allowed. The court applied the objective materiality test: whether truthful disclosure would probably have made a material difference to the way creditors considered and assessed the proposed arrangement. A substantial chance that creditors would not have approved the CVA in its presented form may establish materiality.
2. The proposal’s description of voting rules contained an inaccurate cross-reference, but the rules were otherwise identified and available. The error was not material. Other complaints concerning voting treatment, correspondence, Peabody’s classification and funding visibility either were not irregularities or would not have affected the outcome.
3. The disclosure concerning the shareholder’s financial position and guarantees was materially inadequate. The shareholder’s estimated outcome statement did not disclose its financial position sufficiently, omitted or failed to explain a significant disposal, and did not explain the contingent guarantee claims. The company’s duty under rule 2.3 of the Insolvency (England and Wales) Rules 2016 required sufficient information for creditors, including guarantee creditors, to make an informed decision.
4. Unfair prejudice is assessed by considering all the circumstances, including the vertical comparator—the relevant alternative insolvency process—and the horizontal comparator—the treatment of other creditors. Differential treatment may be justified by business continuity, but it is not automatically fair.
5. Peabody’s guarantee rights were compromised with inadequate information, while critical creditors were paid in full and the guarantee creditors were outvoted. The proposed return was uncertain and potentially reduced by costs. Although compromising the guarantee rights was necessary to prevent indemnity claims and preserve the company, that necessity did not justify the relative impact or deficient disclosure.
6. Newlon was not unfairly prejudiced. The stark differential treatment was supported by the proposal’s stated business-continuity rationale, and the evidence did not establish that the arrangement was inherently unviable. The proposal was serious and capable of implementation when assessed on information available at the voting date.

First-instance decision. The judgment records no prior appellate decision.