Material Irregularity
Posted on 29th June 2016 by Gateleyblogs
Mr Parekh tried to have his IVA (in place for over 10 years) set aside – arguing that:
His modified IVA proposal was conditional on the acceptance of a simultaneous IVA proposal for his wife, which was rejected
That the approval of his IVA proposal depended on the vote of HMRC, whose proxy did not have authority to vote
Both the Court of Appeal and the lower Court found against Mr Parekh on both counts – the wording of the IVA proposal did not support the first assertion and HMRC had by conduct ratified the vote over the years that followed the meeting.
The Court of Appeal took the opportunity to give its opinion on the material irregularity issue.
The relevant provision (s262 Insolvency Act 1986) provides that an IVA can be challenged on grounds that there was a material irregularity at, or in relation to, the meeting of creditors summoned to approve it. Where the Court finds material irregularity, the Court can revoke or suspend creditors’ approval of the IVA – crucially, until the Court decides to do this, the IVA approval remains valid. Up to this case, lower courts had interpreted the provision in two ways:
The provision only dealt with irregularities at the meeting that were not so serious as to mean the IVA was a nullity – so irregularities which went to the heart of the IVA approval would not be within the scope of the provision; or
The provision was wide enough to cover any irregularity at the meeting which might mean that the IVA was a nullity.
In one case the example was given of a situation where a chairman wrongly calculated that 78% (enough) of creditors approved the IVA whereas only 62% in fact approved it (not enough and the IVA would normally fail).
The distinction is crucial – under the second approach, the IVA’s validity is preserved unless the Court orders otherwise. Under the first – the section does not apply and the IVA is void.
The Court of Appeal preferred the second approach, confirming that to use the material irregularity provision, the irregularity must be “material” and “at or in relation to the meeting”.
This is helpful clarification and demonstrates the willingness of the Court to keep a flexible approach in relation to IVAs.
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Narandas-Girdhar and another v Bradstock [2016] EWCA Civ 88
chrisgreenwell 