Summary

An interim order made under the Insolvency Act 1986 s.252, imposing a moratorium on proceedings against a judgment debtor, where there was no petition for bankruptcy but there was an individual voluntary arrangement pending consideration could not be equated to the situation where a statutory scheme was already in place.

Facts

The applicant debtor (D) applied for permission to appeal against decisions to grant the respondent creditor (B) leave to continue to execute a judgment against him, and to make charging orders against his property final.

B and other individuals had paid D money, and D had used some of his own money, to purchase land in Cambodia via a third party. However, the land was purchased by the third party for approximately half that amount. D brought proceedings against the third party in Cambodia to recover the money. B brought proceedings in England against D alleging fraudulent misrepresentation. D was ordered to pay B but failed to do so and interim charging orders were granted against D's properties. D submitted a proposal for an individual voluntary arrangement under which he would deduct from the proceeds of the Cambodian recovery a percentage representing his own investment in the Cambodian project before providing for distribution to others. He also wished to exclude some properties from the IVA and instead use one to fund the recovery process in Cambodia. He obtained an interim order under the Insolvency Act 1986 s.252, preventing proceedings from being taken against him without the court's leave. A master later granted B leave under s.252(2)(b) to continue execution of the judgment against D and exercised his discretion to make the charging orders final.

D argued that (1) the court's approach should be the same as if a statutory scheme for pari passu distribution were already in place and it should refuse to make the charging orders final; (2) the decision dealt a fatal blow to the IVA before there was any opportunity for his creditors to consider the IVA proposal on its merits, which was in direct contravention of the policy underlying s.252; (3) the master erroneously believed that the properties were wholly excluded from the IVA.

Held

(1) There was no direct authority as to how the discretion should be exercised in circumstances such as these, where there was no petition for bankruptcy but there was an interim order under s.252 pending consideration of an IVA proposal. That section was enacted to provide a simple mechanism for creating a moratorium in circumstances in which no statutory scheme was in place. Even if there was no winding-up petition, but there was already a proposal on foot for a scheme of arrangement which proposed to deal equally with all creditors, a creditor who broke ranks and decided to steal a march on the others might be refused a final order because it was clearly a wrecking tactic, Hudson's Concrete Products v Evans (DB) (Bilston) (1961) 105 S.J. 281 and Wilson (D) (Birmingham) v Metropolitan Property Developments [1975] 2 All E.R. 814 considered. However, D's submission equating the interim order to a statutory scheme set the bar too high and ignored the fact that Parliament had expressly allowed for the possibility that leave to continue to execute a judgment might be granted under s.252(2)(b) notwithstanding the making of an interim order (see paras 32, 35, 39 of judgment). (2) There was much force in the argument that if an interim order under s.252 was made final, the court should normally approach the exercise of its discretion in a similar way as it would if there had been a bankruptcy order or a resolution or petition for winding up the judgment debtor instead of an interim order. However, IVAs were necessarily more flexible than the situation that arose on insolvency. Each case had to turn on its own facts. Under the instant IVA proposal not all of D's creditors were to be treated equally. A whole class of creditors, namely the investors, were to be treated more generously than others, albeit it was proposed that in future they would be treated pari passu as between themselves and D. That feature was enough to take the case outside the policy underlying the imposition of the statutory moratorium. The master had to determine, not whether it was unfair to let B have an advantage over the general body of creditors, but whether it was unfair to let him obtain final charging orders over property that was not going to be distributed between D's creditors but would be used to raise money to pay foreign lawyers to try to recover a substantial sum of money that would then be shared equally between D and some of those creditors, including B. The most that B could hope to recover, if any, was a ninth share in the net recovery from Cambodia but, if things went badly, his efforts to recover his money might have been in vain. Therefore, the master's decisions were within the ambit of reasonable decisions open to him, Tanfern Ltd v Cameron-MacDonald [2000] 1 W.L.R. 1311 applied (paras 40, 45-48). (3) The point that carried weight with the master was that properties were being deliberately excluded from the IVA, and that in those circumstances it did not lie in D's mouth to complain that B was acting selfishly by obtaining a charge over them. He was entitled to exercise his discretion in the way that he did on that ground alone (para.54).

Application refused