Preface (Update 30) to Individual Voluntary Arrangements
There are a few cases to report that have an impact on IVAs, one directly and the others indirectly, together with an update as to the position with PPI mis-selling claims in IVAs.
I always thought that Bramston v Haut was an odd decision. Whilst the case had a tortuous factual and procedural history, the issue was basically whether a debtor could apply for a suspension of his own discharge from bankruptcy with a view to putting forward a post-bankruptcy IVA prior to his automatic discharge. At first instance, Arnold J ( EWHC 1279 (Ch);  BPIR 672) BPIR 672 held that he could. The Court of Appeal ( EWCA Civ 1637;  BPIR Issue 1) held, rather emphatically, that he could not. Relying upon the decision of the Chancellor in Shierson and Birch v Rastogi (a bankrupt)  EWHC 1266 (Ch),  BPIR 891, the Court of Appeal held that the purpose of a suspension under s.279(3) of the Insolvency Act 1986 was plainly connected to a failure by a bankrupt to comply with his obligations under Part IX of the Act. The subsection contemplated an application being made by the trustee or the official receiver, not by the bankrupt. A purpose of the power conferred by s 279 of the Act was therefore to extend the period of the bankruptcy and to ensure that the bankrupt continued to suffer the disabilities arising from his undischarged bankruptcy until he complied with his obligations. In that sense the power was intended to be penal in character and used for purposes connected with the functions of the official receiver and the trustee and to allow the trustee to get in, realise and distribute the bankrupt's estate in accordance with the provisions of Chapter IV of the Act. The suspension of discharge had been made to give the debtor time to put an IVA proposal before the creditors in his bankruptcy and thereafter secure the annulment of his bankruptcy order. That was impermissible and outside the scope of the jurisdiction conferred by s 279(3) of the Act. There were other difficulties, not least that the nominee's report in support of the proposal did not comply with the requirements of the Act.
The decision of Bernard Livesey QC (sitting as a deputy High Court judge) in Raithatha v Williamson  EWHC 909 (Ch);  BPIR 621 has been heavily criticised. At first instance, the trustee in bankruptcy obtained an order restraining the debtor from dealing with his unelected pension rights pending the hearing of the application for an income payments order, holding that, in effect, the trustee had power to require the debtor to elect to take that pension in order to create an income for the purposes of making an income payments order. Permission to appeal was granted, but it appears that the case compromised before the hearing of the appeal. This creates a tension between bankruptcy and IVAs. Recently, there has been a tendency for debtors to make available part of their pension income to IVA creditors, in order to promote acceptance of the IVA because, in bankruptcy, that asset, especially otherwise unelected, would be unavailable to those creditors. Now, creditors considering proposals where debtors have an unelected income might be less willing to accept an IVA proposal if it is the case that a trustee in bankruptcy could force the availability of that income for the benefit of creditors in the bankruptcy. As always, those advising the debtor will have to negotiate a fine line in determining how much of that possible pension income might be made available to the IVA creditors in order to avoid potential bankruptcy.
Two matrimonial bankruptcy cases have highlighted the fact that lump sum orders in ancillary relief proceedings, whilst provable, are not discharged upon the debtor's discharge from bankruptcy. The cases, Hayes v Hayes  EWHC 1240 (Ch);  BPIR 739 and McRoberts v McRoberts  EWHC 2966 (Ch);  BPIR Issue 1, have clarified the principles to be applied when considering the debtor's application for release from such indebtedness under s 281 of the Act. Whilst the application for release can be made at any time after the date of the bankrupt's discharge, the discretion was unfettered, and has to be exercised by reference to all the relevant circumstances as they exist at the date when the application is determined, with the following circumstances being particularly relevant: (a) any lapse of time between the date when the discharge occurred and the date of any application for release, and the reasons for any delay; (b) the future earning capacity of the applicant, the possibility of some future income or capital receipt or windfall, the prospect accordingly of the obligation being fulfilled in whole or in part if not released, and in the round whether there was any good reason for maintaining the obligation; (c) the risk of the respondent to the application using the fact of the obligation (if not released) to harass the applicant, for example by seeking to diminish the applicant in the eyes of the community, or his future prospects, by reference to the stigma still relating to bankruptcy, or by bringing new and abusive bankruptcy proceedings calculated to restrict the applicant in building a new life; and (d) the duration of time that had elapsed since the relevant obligation arose. The ultimate balance is be struck was between (a) the prejudice to the respondent/obligee in releasing the obligation if otherwise there would or might be some prospect of any part of the obligation being met and (b) the potential prejudice to the applicant's realistic chance of building a viable financial future for himself and those dependent upon him if the obligation remained in place. Clearly, these are factors that will have to be taken into account in determining whether, and to what extent, any such matrimonial debt can be treated as a debt compromised by the IVA.
Finally, in the last Preface, I mentioned that it was likely that in the near future some guidance would be issued to practitioners as regards PPI mis-selling claims, and how they were to be treated in IVAs. Since then, the decision in Ward v Official Receiver  BPIR 1073 has been reported. This clarifies the extent to which such a claim vests in a trustee in bankruptcy, holding that a bankrupt debtor's claim to the Financial Ombudsman which generated a payment fell within the definition of ‘property' as laid down by s 436 of the Act because it represented an interest incidental to property. Thus, the right to complain to the Financial Ombudsman arose out of the ownership of the policy and therefore the payment received as a result of such complaint was an interest incidental to that property. Alternatively, the circumstances under which the PPI policy was sold to the debtor prior to his bankruptcy conferred a cause of action upon him and that cause of action could be viewed as ‘property' encompassed within the estate in accordance with the meaning of s 436. Against the background of this clarification, together with a large amount of discussion between interested parties, it is expected that the guidance from R3 and the RPBs will be published very shortly.
If you have any views, unreported cases or practical or technical issues that you think ought to be canvassed in the text, whether on PPI or generally, let me know. My e-mail address is firstname.lastname@example.org.
28 January 2013
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