Insolvency Act 1986, section 262

Challenge of creditors' decision

Part VIII Individual Voluntary Arrangements

(1)Subject to this section, an application to the court may be made, by any of the persons specified below, on one or both of the following grounds, namely—

(a)that a voluntary arrangement approved by [F634a decision of the debtor's creditors pursuant toF634] section 257 unfairly prejudices the interests of a creditor of the debtor;

(b)that there has been some material irregularity [F635in relation to a creditors' decision procedure instigated under that sectionF635] .

(2)The persons who may apply under this section are—

(a)the debtor;

[F636 (b)a person who—

(i)was entitled, in accordance with the rules, to vote [F637 in the creditors' decision procedureF637] , or

(ii)would have been so entitled if he had had notice of itF636]

(c)the nominee (or his replacement under section [F638256(3), 256A(4)F638] or 258(3)); and

(d)if the debtor is an undischarged bankrupt, the trustee of his estate or the official receiver.

(3)An application under this section shall not be made

[F639 (a)F639] after the end of the period of 28 days beginning with the day on which [F640the creditors decided whether to approve the proposed voluntary arrangement or, where a report was required to be made to the court under section 259(1)(b), the day on which the report was madeF640][F639 or

(b)in the case of a person who was not given notice of the [F641 creditors' decision procedureF641] , after the end of the period of 28 days beginning with the day on which he became aware that [F642 a decision as to whether to approve the proposed voluntary arrangement had been madeF642] ,

but (subject to that) an application made by a person within subsection (2)(b)(ii) on the ground that the arrangement prejudices his interests may be made after the arrangement has ceased to have effect, unless it has come to an end prematurely.F639]

(4)Where on an application under this section the court is satisfied as to either of the grounds mentioned in subsection (1), it may do one or both of the following, namely—

(a)revoke or suspend any approval given by [F643a decision of the debtor's creditorsF643] ;

[F644 (b)direct any person to seek a decision from the debtor's creditors (using a creditors' decision procedure) as to whether they approve—

(i)any revised proposal the debtor may make, or

(ii)in a case falling within subsection (1)(b), the debtor's original proposal.F644]

(5)Where at any time after giving a direction under subsection (4)(b) [F645in relation toF645] a revised proposal the court is satisfied that the debtor does not intend to submit such a proposal, the court shall revoke the direction and revoke or suspend any approval [F646previously given by the debtor's creditorsF646] .

(6)Where the court gives a direction under subsection (4)(b), it may also give a direction continuing or, as the case may require, renewing, for such period as may be specified in the direction, the effect in relation to the debtor of any interim order.

(7)In any case where the court, on an application made under this section with respect to a creditors’ [F647decisionF647] , gives a direction under subsection (4)(b) or revokes or suspends an approval under subsection (4)(a) or (5), the court may give such supplemental directions as it thinks fit and, in particular, directions with respect to—

(a)things done since the [F647decisionF647] under any voluntary arrangement approved by the meeting, and

(b)such things done since the [F647decisionF647] as could not have been done if any interim order had been in force in relation to the debtor when they were done.

(8)Except in pursuance of the preceding provisions of this section, [F648the approval of a voluntary arrangement by a decision of the debtor's creditors pursuant to section 257 is not invalidated by any irregularity in relation to the creditors' decision procedure by which the decision was made.F648]

Definitions used in section 262 1

the debtor

(2) In Schedule 6 “the debtor” means the company or the individual concerned.

Defined in s.386(2) · see it in the full Act

Cases considering section 262 29

Gertner v CFL Finance Ltd & Anor

[2018] EWCA Civ 1781 · 30 July 2018Limits

The unfair-prejudice ground was raised by cross-appeal, but the Court found it unnecessary to determine whether objections arising from the collateral agreement fell within it (see paras [42]-[43]; [82]). The good faith principle colours the meaning of material irregularity. Counting the decisive vote of a creditor disqualified by an undisclosed collateral advantage was a material irregularity at or in relation to the creditors’ meeting (see paras [70]-[72]; [80]-[82]). The provision supports legal certainty by preventing challenges to an approved arrangement for irregularity outside the statutory procedures (see para [69]).

Narandas -Girdhar & Anor v Bradstock

[2016] EWCA Civ 88 · 16 February 2016Interprets

Section 262 creates a statutory jurisdiction to address unfair prejudice and material irregularity in an IVA. The court construed the section as a coherent, time-limited regime for challenges connected with a creditors' meeting. (see paras [35]-[38]; [49]-[53]) The court treated section 262(1) as conferring relief both for material irregularity and for unfair prejudice. This supported the conclusion that the statutory jurisdiction is wider than a declaration of invalidity. (see para [36]) Section 262(3) imposes a 28-day time limit for an application under section 262, subject to extension. Read with section 262(8), it prevents stale challenges based on irregularities at or connected with a creditors' meeting. (see paras [37]-[38]; [50]) Section 262(4) gives the court flexible remedies, including revoking or suspending approval and ordering a further meeting. The availability of those remedies supported the broader construction of material irregularity. (see paras [36]; [51]) Section 262(8) bars other forms of challenge to an approval based on a material irregularity at or in relation to a meeting summoned under section 257. It can apply to an irregularity otherwise capable of invalidating the IVA, but not to antecedent or extraneous defects. (see paras [37]-[38]; [50]-[53])

Price & Anor v Davis & Anor

[2014] EWCA Civ 26 · 21 January 2014Limits

The court treated section 262 as conferring limited powers to revoke or suspend approval and to direct further creditors’ meetings following unfair prejudice or material irregularity. (see paras [14]-[16], [29]-[32]) The court identified unfair prejudice and material irregularity as the statutory grounds for an application challenging approval at a creditors’ meeting. (see paras [14], [15]) The court treated section 262(4) as giving the court the choice between revoking or suspending approval and directing, or declining to direct, a further meeting. (see paras [15], [29]-[32]) The court recognised the power to revoke or suspend approval given by the creditors’ meeting. Suspension defers the decision, while revocation ends it, although the distinction was not determinative here. (see paras [15], [29]-[34]) The court construed a further meeting directed under section 262(4)(b), where summoned by the nominee, as a further meeting under section 257. This allowed the statutory binding to attach to the varied arrangement. (see paras [3], [15], [32], [42]-[45]) The court noted that, when directing a further meeting, the court may continue or renew the effect of an interim order. The failure to renew interim protection explained why the voting-date issue arose, but did not alter the result. (see paras [3], [12], [18]) The court left open whether supplemental directions under section 262(7) could limit the class of creditors at a further meeting. It provisionally agreed that the provision could not authorise departure from mandatory provisions of the Insolvency Rules. (see para [28])

9 more judgments, and what each says about section 262, are in the case-law panel in the full Act.

Amendments and notes

18 notes from legislation.gov.uk

Amendments

  1. F633Word in s. 262 heading substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(11); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  2. F634Words in s. 262(1)(a) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(2); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  3. F635Words in s. 262(1)(b) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(3); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  4. F636S. 262(2)(b) substituted (1.1.2003) by 2000 c. 39, s. 3, Sch. 3 para. 11(1)(a); S.I. 2002/2711, art. 2 (subject to transitional provisions in arts. 3-5)
  5. F637Words in s. 262(2)(b)(i) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(4); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  6. F638Words in s. 262(2)(c) substituted (1.1.2003) by 2000 c. 39, s. 3, Sch. 3 para. 11(1)(b); S.I. 2002/2711, art. 2 (subject to transitional provisions in arts. 3-5)
  7. F639Words in s. 262(3) inserted (1.1.2003) by 2000 c. 39, s. 3, Sch. 3 para. 11(2); S.I. 2002/2711, art. 2 (subject to transitional provisions in arts. 3-5)
  8. F640Words in s. 262(3)(a) substituted (26.5.2015) by Small Business, Enterprise and Employment Act 2015 (c. 26), ss. 134, 164(3)(i)(iv)
  9. F641Words in s. 262(3)(b) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(5)(a); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  10. F642Words in s. 262(3)(b) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(5)(b); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  11. F643Words in s. 262(4)(a) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(6); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  12. F644S. 262(4)(b) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(7); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  13. F645Words in s. 262(5) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(8)(a); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  14. F646Words in s. 262(5) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(8)(b); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  15. F647Word in s. 262(7) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(9); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)
  16. F648Words in s. 262(8) substituted (26.5.2015 for specified purposes, 6.4.2017 for E.W. in so far as not already in force) by Small Business, Enterprise and Employment Act 2015 (c. 26), s. 164(1), Sch. 9 para. 69(10); S.I. 2015/1329, reg. 3(d); S.I. 2016/1020, reg. 4(e) (with reg. 5) (as amended by S.I. 2017/363, reg. 3)

Modifications

  1. C930Ss. 256–263 applied with modifications by S.I. 1986/1999, art. 3, Sch. I Pt. III
  2. C931S. 262 amended (1.12.2001) by 2000 c. 8, s. 357(5)(a); S.I. 2001/3538, art. 2(1)