Bankruptcy – IVA – material irregularity – creditors’ meetings – section 262 IA1986
A creditors’ meeting in 1999 approved an IVA proposal in respect of the appellant. The proposal was approved with the support of HMRC’s proxy. In 2010 the appellant commenced proceedings seeking to set aside the IVA on the grounds, inter alia, that HMRC’s proxy did not have the requisite authority to approve the modified proposal with the result that the proposal was not validly approved.
At first instance the court held HMRC’s proxy had not been authorised to vote in favour of the IVA but that HMRC had subsequently ratified the vote. In any event it was too late to challenge the validity of the IVA as the issue concerning HMRC’s vote was a material irregularity which, pursuant to section 262 of the Insolvency Act 1986, could only be challenged (subject to the court’s power to extend time) within 28 days from the date of the report of the creditors’ meeting being made to the court. The appellant’s attempt to set aside the IVA therefore failed.
On appeal, the Court of Appeal considered the scope of section 262. After conducting a review of first instance authorities, the Court of Appeal held that the time limit in section 262(3) applied even where there was a material irregularity at or in relation to the meeting which would otherwise have invalidated the IVA so that an IVA approved in such circumstances would be valid unless the IVA was challenged in time pursuant to section 262. This wide interpretation of section 262 will prevent attempts to unsettle IVAs long after they have been approved. However, where the invalidity of the IVA arises because of defects in compliance with the statutory scheme that are antecedent or extraneous to the summoning or conduct of the meeting, section 262 will not have the effect of validating a purported IVA.
This decision shows that creditors or debtors who wish to challenge the approval of an IVA because of an irregularity at or connected with a creditors’ meeting should do so timeously as late applications are likely to face substantial difficulties, especially where others have acted in reliance upon the validity of an IVA.
