High Court aids creditor wrongly denied a vote at IVA meeting

In a case of interest to insolvency practitioners, the High Court has come to the aid of a creditor who was left out in the cold when its objection to an individual voluntary arrangement (IVA) was ruled out of contention at a creditors’ meeting.

The creditor claimed to be owed almost £480,000 by a businessman pursuant to a personal guarantee that he had signed in respect of his company’s trade debts. It had submitted a proxy form to the meeting with instructions to vote against the proposal that the businessman should be granted the protection of an IVA.

The businessman disputed the debt on the basis that he had been coerced or unduly influenced into entering into the guarantee or that the creditor had promised to release him from the same. In those circumstances, the chairman of the meeting – an insolvency practitioner – admitted the creditor’s claim with a nominal value of just £1 and the IVA was subsequently approved.

In upholding the creditor’s challenge to that decision, the Court found that its vote should have been given full weight at the meeting. There was no evidence that the businessman had been subjected to duress and the guarantee was clearly valid and enforceable. In the circumstances, the Court found that the proposal should have been defeated and the IVA was overturned.

There was no basis on which it could have been concluded that the creditor’s claim was obviously bad and a more cautious chairman would have marked it as objected to whilst permitting the creditor to vote. In the circumstances, the chairman was ordered to pay half of the creditor’s legal costs of the case.