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IVA and "material irregularity"

IVA and "material irregularity"

Postby PeteLukeSilva » Tue Feb 27, 2018 1:46 pm

Facts:
Debtor takes company loan (informal arrangement).
Later, Debtor formally agrees to repay the debt in a written binding agreement (the "letter agreement").
The due date for repayment passes. Creditor issues letters. No response. Creditor issues letter before claim. No response.

February: Creditor receives notice from Insolvency Practitioner (IP) that Debtor is the subject of an IVA.
The IP was notified in writing by the Debtor of the Creditors` debt claim 99 days previously, but did not inform Creditor.
The Creditor`s Meeting (CM) went ahead two weeks after the letter agreement was signed by the Debtor without the Creditor's knowledge (the Debtor remaining silent about this and about its other debts).

The IP has issued its notice now which states that the CM approved a dividend of 25p in the pound.
Questions:
(1) assuming the debt is £100 does this mean the Creditor will only recover £25?
(2) given that the IP notified the Creditor 99 days after being informed of the claim, does this prima facie contravene para 18 of Part VIII of the Insolvency Services IVA Protocol 2016:

PART VIII
CREDITORS WHO DO NOT HAVE NOTICE
Creditors who do not have notice
18. This voluntary arrangement will be binding on any creditor whose claim has been omitted from it, but who would have been entitled to vote if they had been notified of the creditors meeting called to approve it.
On discovering the claim of such a creditor, the Supervisor must send immediate notice requiring them to give details of their claim as at the effective date

(3) is there a claim against the Debtor based on implied false misrepresentation? Being that had the Creditor been made aware of the IVA and debt situation it would not have granted the terms it did in the letter agreement (allowing three months to repay the loan) but instead could have (and would have) deducted earnings from source - i.e. salary) the Debtor handing in notice shortly after signing the letter agreement? At first blush that conduct looks to be dishonest as surely there is an implied duty to disclose material facts (much like an insurance contract) on a fiduciary basis (relationship of trust and utmost good faith?)

Your comments would be appreciated. With thanks
P.
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Re: IVA and "material irregularity"

Postby atticus » Tue Feb 27, 2018 2:21 pm

Was the loan after the IVA was approved?

If no - the IVA is binding on you. see s260(2) Insolvency Act 1986.

If yes, then you are not a person to whom s260(2) applies, so you retain rights to pursue your debtor.
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Re: IVA and "material irregularity"

Postby atticus » Tue Feb 27, 2018 2:39 pm

Unfortunately the sad truth is you have probably lost your money. Even if you still have the right to pursue a claim, I suspect your chances of getting anything are small.
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Re: IVA and "material irregularity"

Postby PeteLukeSilva » Tue Feb 27, 2018 3:43 pm

The letter agreement was signed before the IVA was approved.

260. Effect of approval
1.This section has effect where the meeting summoned under section 257 approves the proposed voluntary arrangement (with or without modifications).
2.The approved arrangement; a.takes effect as if made by the debtor at the meeting, and
b.binds every person who in accordance with the rules had notice of, and was entitled to vote at, the meeting (whether or not he was present or represented at it) as if he were a party to the arrangement.

For the reasons already given, the Creditor did not have notice until yesterday despite the Supervisor having knowledge of the claim/debt. That would seem to be material, no?
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Re: IVA and "material irregularity"

Postby atticus » Tue Feb 27, 2018 4:42 pm

You are using an "old" version of s260. See my earlier link and the text in bold.
(2)The approved arrangement—
(a)takes effect as if made by the debtor at the meeting, and
(b)binds every person who in accordance with the rules—
(i)was entitled to vote at the meeting (whether or not he was present or represented at it), or
(ii)would have been so entitled if he had had notice of it,as if he were a party to the arrangement.
...
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Re: IVA and "material irregularity"

Postby PeteLukeSilva » Tue Feb 27, 2018 5:24 pm

Yes, thanks for the clarification. I could not get to the gov.uk website - gateway error.

So, all I have is an application pursuant to section 262(1)(a) on the grounds that the approved V.A.unfairly prejudices my interests because: (1) I was not notified of the CM; (2) had I been, the proposal may not have been approved; (3) the Debtor did not disclose IVA or proposed CM when they signed the agreement to repay the loan; (4) that agreement would not have been entered into had I known the true position; (5) the Supervisor was under an obligation to inform me "immediately" of the approval and they failed to do so, delaying by 99 days.

I agree that my chances are slim of getting my money but the Debtor is in employment so there is always the possibility of attachment of earnings. But the conduct of the Debtor appears to be dishonest maybe even criminal - obtaining a pecuniary advantage? I dont know but there may be avenues to explore

Or let go. But grates...!
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Re: IVA and "material irregularity"

Postby atticus » Tue Feb 27, 2018 5:43 pm

Sorry, but I've had cases where those highlighted words have stitched up my clients, as I think they will stitch you up. As far as I am concerned, those words create a rogue's charter.

Funnily enough, I have just 'googled' the name of one such rogue, from a 2002 case of mine - trying to see if a case report is available on line. I have just found out that in 2016 he was imprisoned for possessing and distributing indecent images of children. That sounds like karma to me.
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Re: IVA and "material irregularity"

Postby blig » Tue Feb 27, 2018 6:10 pm

No pecuniary advantage to the debtor here: had it been known that the total amount of the debt was greater because of unidentified additional creditors, the estimated rate of recovery would have dropped from 25p in the pound to a lower number.

Here's a link to make a complaint about the supervisor not complying with their obligation to inform immediately:
https://www.gov.uk/complain-about-insol ... actitioner

(wonders whether the original poster suffered a loss because of the 99 day delay by the insolvency practioner, and if there is a potential claim against the practioner - not my area though. They would usually hold insurance)
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Re: IVA and "material irregularity"

Postby PeteLukeSilva » Wed Feb 28, 2018 12:17 pm

Re pecuniary advantage, the debtor impliedly misrepresented their position - a position I relied on and I granted credit terms when I could and would have clawed back the money from salary deductions. I see a prima facie argument for a pecuniary advantage in those circumstances.

At the end of the day, a man of straw is a man of straw so what`s the point?! However, this has left me shocked frankly that a contracting party can lose its rights and remedies despite being the innocent party, and the guilty party gets away if not scot-free, then paying only a fraction of what they are legally bound to pay. Just smacks of injustice. Add in the fact that I could have incurred legal costs that would have been a complete waste of expenditure (as I was not aware of the IVA/Creditors Meeting) and the situation is not justifiable in my eyes. I must be missing something...

Hopefully this will affect the Debtor`s credit facility. I hope so anyway, and I am not usually vindictive, but their behavior has in my view been utterly dishonest, cynical even.

But thanks all - much appreciated.
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Re: IVA and "material irregularity"

Postby atticus » Wed Feb 28, 2018 12:21 pm

That is how insolvency law works. Creditors share the pain.

When giving credit, you take a risk. You need to manage that risk, e.g. by some due diligence on the debtor or by limiting the amount of credit or by taking security. Or by taking loan repayments from salary, which is what employers commonly do.
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