Insolvency

Revocation of voluntary arrangement - unfair prejudice to creditor - court to consider range of optionsIn re a Debtor (No.

101 of 1999): ChD (Ferris J): 10 July 2000

The debtor owed approximately 440,000 to various friends 59,000 in respect of unpaid income tax and 18,000 to the Customs Commissioners.

Shortly before the presentation of a bankruptcy petition by the Revenue, the debtor submitted a proposal for a voluntary arrangement under which it was proposed that payment of a dividend to the debtors' other creditors be deferred behind the payment of a dividend to the two Crown creditors.

A third party was to provide 20,000 which, after various fees and expenses had been paid, would leave approximately 15,000 to be divided rateably between the two Crown creditors.

The other creditors' positions would be unaffected once the dividend had been paid.

Despite opposition from the Crown creditors the proposal was accepted.

The Revenue applied under s.

262 of the Insolvency Act 1986 for the approval of the voluntary arrangement to be revoked on the basis that it was unfairly prejudicial to their interests.

The judge rejected this decision.

The Revenue appealed.Philip Jones (instructed by solicitor, Inland Revenue) for the Revenue.

John Pennie, solicitor, (instructed by Dickinson Dees, Newcastle upon Tyne) for the debtor.Held, allowing the appeal, that it was not enough to say that mere differential treatment of creditors was enough to support a finding that a dissenting creditor had been unfairly prejudiced; that it was likely that the Revenue would receive a larger dividend sooner than they would in a bankruptcy; that that was not necessarily the only alternative outcome which should be considered, even where (as in the present case)the dissenting creditors intended to present a bankruptcy petition, as a creditor could equally seek to obtain and enforce a judgment or press for a more satisfactory arrangement in which there would be no differential treatment; that the judge had failed to consider that the friends had exercised their majority vote so as to force the Crown creditors to accept a reduced payment in satisfaction of their debts while leaving their own position unchanged if not improved by the elimination of competing debt; and that the judge had erred in contrasting the dissenting creditors position solely with their likely entitlement under a bankruptcy and in failing to fully analyse the position of the friends as creditors.