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Inland Revenue Commissioners v Adam & Partners Ltd (2000)

Summary

The absence of any realistic prospect of a dividend being paid to preferential and unsecured creditors did not invalidate a proposal for a voluntary arrangement under s.1 Insolvency Act 1986. Although the arrangement did not amount to a composition under s.1(1) of the Act, it did amount to a scheme of arrangement.

Facts

Appeal by the Inland Revenue Commissioners ('the Commissioners') from the order of Nicholas Warren QC dismissing their application for a declaration that no voluntary arrangement within the meaning of s.1(1) Insolvency Act 1996 had taken effect in relation to the respondent company. A proposal for a company voluntary arrangement was approved by a majority vote at a creditors meeting on 4 December 1998. Under the terms of the proposal the company's major creditor would receive a better return under their fixed and floating charges than under any alternative insolvency procedure, neither non-preferential nor preferential creditors would receive any dividend at all, and there was a moratorium in respect of the prosecution by creditors of recovery actions against the company. The Commissioners had voted against the proposal and sought a declaration that there was no effective voluntary arrangement pursuant to s.1(1) of the Act on the grounds that: (i) the proposal could not be characterised as a composition as no dividends would be received, and (ii) there was no scheme of arrangement because there was no genuine element of "give and take", it was simply a moratorium in return for nothing.

Held

(1) The proposal was not a composition within the meaning of s.1(1) of the Act. According to ordinary English usage and the relevant authorities, a composition meant an agreement to pay part of a debt in satisfaction of the whole. See In Re Bradley-Hole (A Bankrupt) (1995) 1 WLR 1097. As no payment was to be made under the proposal it could not amount to a composition. (2) A moratorium qualified as a scheme of arrangement, see March Estates plc v Gunmark Ltd (1996) 2 BCLC 1, and on the facts of the case the proposal took place as a scheme of arrangement and therefore a valid voluntary arrangement. (3) The legislation had left the terms of any moratorium to be decided by creditors and in this case the majority had approved the terms.

Appeal dismissed.

Court of Appeal
Peter Gibson LJ, Mummery LJ, Latham LJ
Judgment date
9 October 2000
References

LTL 9/10/2000: (2000) BCC 513 : (2001) 1 BCLC

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