Ian Frances (Supervisor) –v- Deborah Jane Hay

2nd December 2015


Niall McCulloch

Ian Frances (Supervisor) –v- Deborah Jane Hay
High Court (Chancery Division)
Insolvency – Creditors Voluntary Arrangements: Termination Notices: Variation
[2015]EWCH 3468 (Ch)


Under the terms of an individual voluntary arrangement, the issue of a certificate of termination did not bring the IVA to an end until a supervisor had fulfilled secondary provisions triggered by the termination. In that interim period, an office holder was permitted to seek a variation of IVA terms and breathe life back into the IVA.


The applicant supervisor of an individual voluntary arrangement (IVA) sought directions in relation to the terminations provisions of the IVA and whether a certificate of termination could be withdrawn if validly served.


The respondent taxpayer (H) had fallen into significant tax arrears. A subsequent IVA, in which HMRC represented 99.47% of H's creditors, incorporated HMRC's standard conditions, as well as the standard conditions issued by the Association of Business Recovery Professionals (R3). Under cl.42 of the IVA, in the event of a conflict between the IVA terms and the standard conditions, the former would prevail. H failed to pay four quarterly contributions due under the IVA. Despite an assertion that she would remedy the breaches by a given date, they were not remedied. In an adjourned general meeting of creditors, HMRC voted by proxy to reject H's proposal to vary the terms, in favour of issuing a certificate of termination and a bankruptcy petition. A notice of termination was issued. H then stated that she had raised the arrears and was willing and able to make payments into the IVA. The issues were (i) whether a notice of breach had to be served before a certificate of termination could be issued; (ii) the effect of the service of the notice of termination.


H submitted that a failure to serve a notice of breach, which would have allowed one month to remedy any identified breach, meant that the certificate of termination was ineffective and the IVA continued. The applicant sought directions as to the effect of the notice of termination: if it brought the IVA to an end for all purposes, the court had to direct that he present a bankruptcy petition. If not, the court might direct a further meeting of creditors to resolve whether the certificate of termination ought to be withdrawn.


HELD: (1) Where there was a conflict between the R3 standard conditions and the IVA terms, the latter prevailed: cl.23.2.1 of the IVA gave the supervisor a discretion to issue a notice of breach to the debtor and there was nothing that prevented the supervisor from issuing a certificate of termination, without having served a notice of breach, provided that the supervisor was satisfied that the breach was "material". The agreed payment schedule had been the mechanism for debt recovery, and the consequence of the breach was material as that mechanism had failed, Gallaher International Ltd v Tlais Enterprises Ltd [2008] EWHC 804 (Comm) applied. The actual breaches were regular, extensive and material. The supervisor had correctly served a certificate of termination and called a meeting (see paras 24-28 of judgment). (2) Clause 23.7 of the IVA stated that "upon the issue of a Certificate of Non-Compliance the IVA shall terminate and be of no further effect": in the context of the IVA the meaning of "no further effect" was nuanced as some of the contractual provisions survived the service of a certificate of termination; such provisions might be termed secondary as they were triggered when the primary contractual provisions had been brought to an end. In the instant case, as all formal secondary steps had not been fulfilled, there had been no termination. However, if wrong on that conclusion, there was a difference between termination and cessation: when the formal steps to issue a certificate of termination had been issued, the IVA was suspended which permitted creditors to take their own action. During suspension, the IVA was not bereft of life as the supervisor was permitted to carry out his functions, City of Westminster Assurance Co v Ainis (1975) 29 P. & C.R. 469 considered. In the instant case, a reasonable person having regard to the background knowledge reasonably available to the parties at the time the IVA proposals had been agreed by creditors, would have concluded that a two stage process to end the IVA for all purposes was intended. On completion of the secondary obligations, the IVA ended, but between termination and cessation, an office holder was permitted to seek a variation of IVA terms and breathe life back into the IVA (paras 29-30, 36, 38, 40-41). (3) Accordingly, the court directed that the certificate of termination had been validly issued; the resolutions of the adjourned meeting had been valid; the supervisor could petition for H's bankruptcy; a creditors' meeting had to be convened within 14 days with no further steps to be taken in the interim; the supervisor was directed to propose a variation to allow all arrears to be paid within 30 days; and that the supervisor propose a resolution to withdraw the certificate of termination on payment of the arrears and permit the IVA to continue on terms agreed between H and the creditors (para.43).


Judgment accordingly


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