EFG Private Bank Limited v Kambiz Babaee

For an interim order or stay to facilitate an individual voluntary arrangement, the proposal must be both serious and viable. It must have substance, be capable of serious consideration by creditors, and be realistic and capable of implementation. The court acts as a filter and need not expose creditors to the cost of considering a proposal that plainly fails that threshold.

The nominee’s view does not bind the court. Where a proposal is speculative, materially inaccurate, inadequately particularised or unsupported by a realistic funding basis, the court may refuse an interim order and decline to stay bankruptcy proceedings. It may then make an immediate bankruptcy order where the petition debt is substantially unsecured, is not genuinely disputed, and there is no evidence of repayment within a reasonable time.

EFG Private Bank Limited presented a bankruptcy petition against Kambiz Babaee in respect of substantial sums due under interest-only mortgage facilities secured over property. An earlier application to set aside the statutory demand was dismissed, permission to appeal was refused, and the debtor’s alleged cross-claim was subsequently struck out.

Shortly before the final hearing, the debtor proposed an individual voluntary arrangement and sought an interim order, an adjournment and a stay of the bankruptcy proceedings. The central issues were whether the proposed arrangement was serious and viable, whether the procedural requirements for an interim order could be waived or abridged, and whether bankruptcy should be deferred to allow creditors to consider the proposal.

1. Bankruptcy petition. The petition was made out. On any realistic valuation of the secured property, at least £300,000 of the petition debt was unsecured. The debtor had raised no bona fide substantial dispute or cross-claim and had provided no evidence that the debt could be repaid within a reasonable period.
2. Interim order. Under section 255(2) of the Insolvency Act 1986, the court has a discretion whether an interim order would be appropriate to facilitate consideration and implementation of a debtor’s proposal. The established threshold is whether the proposal is serious and viable. Seriousness requires substance and a proposal capable of serious consideration by creditors. Viability requires realism and capability of implementation. The court need not determine whether creditors will approve the proposal or whether its terms are financially adequate.
3. The nominee’s conclusions do not bind the court. The court must decide whether the proposal is fit to be put to creditors. It is also entitled to filter out proposals based on speculative future income, inadequately particularised claims, material inaccuracies, deficient disclosure or no credible means of implementation.
4. Stay. The discretion under section 254 of the Insolvency Act 1986 should be exercised consistently with the same filtering function. A stay would serve no useful purpose where it would merely defer bankruptcy pending an interim-order hearing and the proposal was plainly neither serious nor viable. The failure to comply with rule 8.8(4) of the Insolvency Rules 2016 was not waived or abridged.
5. Concerns about the authenticity or amount of particular debts, and the likely voting power of creditors, would not alone have prevented a stay or interim order had the proposal otherwise crossed the threshold. The court should not pre-judge the creditors’ vote.
6. The debtor was adjudged bankrupt at 15.06 on 9 February 2024.

The judgment records that an application to set aside the statutory demand was dismissed by ICC Judge Prentis on 9 March 2023. Permission to appeal was refused by Fancourt J on 22 June 2023. The debtor’s cross-claim was struck out and dismissed by Miles J on 19 December 2023. This court then made the bankruptcy order.