Green v Wright

Whether property discovered after the issue of a certificate of completion of an IVA fell into the trust in favour of the creditors

Personal Insolvency – trusts – IVAs – termination – completion – debts – discharge

The debtor entered into an IVA in October 2007 using R3’s standard terms with modifications. He complied with his obligations under the IVA and the supervisor issued a certificate of completion in January 2013. In September and October 2013, the supervisor received payments of £24,500 from two banks in settlement of PPI policy mis-selling claims. These claims were made by the debtor after the certificate of completion was issued, but related to policies taken out prior to August 2007.

It was common ground that the claims were property subject to the terms of the IVA and the trust of property created thereunder. The terms also provided that upon the issue of a certificate of completion, the debtor would be released from all debts which fell within the arrangement. No provision was made as to what should happen to the trust of property established by the IVA after completion, whereas specific provision was made that the trust would cease upon termination (as defined) of the IVA. Both the deputy district judge at first instance and the High Court considered the sums paid by the banks were not subject to the trust post completion of the IVA, the latter considering that the effect of the release of debtor from all debts upon completion under clause 9(2) of the IVA resulted in there no longer being any ‘creditors’ (i.e. beneficiaries of a trust) of the arrangement, and therefore no trust.

The Court of Appeal disagreed. On a careful consideration of the terms of the IVA, creditors were defined according to whether a debt or liability was owed at the commencement of the IVA. The release provided for by clause 9(2) did not equate to the extinction or discharge of such debts, which continued to exist but without being the debtor’s personal obligations. In the absence of specific provision in the IVA which provided for the cessation of the trusts upon completion there was no good reason (and in fact every reason) why those trusts should not come to an end. The position was directly analogous to the position in bankruptcy.

This welcome decision provides clear authority as to when (as a matter of default) trusts of property under IVAs (and, by analogy, CVAs) will continue to exist following completion of the arrangement, and therefore how pre-existing property which comes to light after the completion should be treated. It also highlights the importance of careful drafting of the terms and conditions of such arrangements to ensure that, if an outcome other than that imposed by default is desired in the event of completion, express provision is made to bring about such a result.