Green v Wright

Posted on: March 1st, 2017

The Court of Appeal have held that where the supervisor of an individual voluntary arrangement has issued a completion certificate and assets of the debtor come to light after the issue of the completion certificate, they are caught by the terms of the trust in the debtor’s proposal.

In August 2007 Mr Wright proposed an individual voluntary arrangement which was approved by creditors subject to modifications in October 2007.  The proposal incorporated the R3 Standard Conditions (November 2004).  It included all the debtor’s assets except for his car and his interest in his matrimonial home and provided that the assets were held on trust for the purposes of the IVA. The modifications included modifications to the standard conditions concerning after acquired assets and the termination of the IVA trusts.  The debtor complied with the terms of the IVA.  In addition, the debtor realised three PPI claims which were paid into the IVA.  However, the debtor made two further PPI claims which were refused.  As the debtor had complied with the terms of the IVA, the supervisor issued a certificate of due completion in January 2013 which stated: “the arrangement is now completed and the debtor is released from all liabilities to creditors bound by the arrangement”.  Subsequently, in September and October 2013 the supervisor received two payments totalling £24,500 from two banks in settlement of the two PPI claims which had initially been refused but were then accepted.  It was common ground that the claims were property subject to the terms of the IVA and the trusts of the debtor’s assets in the IVA.

The debtor claimed the funds which had been received by the supervisor.  As the matter could not be resolved by way of correspondence, the supervisor issued an application for directions.  The district judge in the Burnley County Court held that on the issue of the completion certificate, the IVA was concluded, there was no trust, no beneficiaries and the funds should be paid to the debtor.  The supervisor appealed to the Manchester District Registry.

The matter came before HHJ Hodge QC.  The supervisor submitted that the district judge had erred in law in construing the standard terms and that the Court of Appeal decision in Re NT Gallagher that the IVA trusts continued and that the payments received by the supervisor after the issuing of the completion certificate were caught by the IVA trusts and should be paid to the supervisor for the benefit of the creditors. The debtor submitted that the completion certificate released the debtor from his debts, as there were no debts there were no creditors, and as there were no creditors no one was entitled to a dividend. He also submitted that Re NT Gallagher did not apply to the case and that whilst there was no provision terminating the IVA trusts, there was no provision extending them.  The High Court held that Re NT Gallagher dealt with the position on the failure of the CVA and not upon its completion.  The judge felt that the key question was what was the meaning of paragraph 9(2) of the standard conditions which provided that upon the issue of the completion certificate, the debtor was released from all the debts which are subject to the IVA.  The judge held that the debtor had been released from all debts subject to the IVA, that the creditors could no longer be treated as creditors and as such were not entitled to any further dividends.

The supervisor appealed to the Court of Appeal on the grounds that the judge’s decision was wrong in law.  He submitted that the analysis of the standard conditions was flawed.  Whilst the issuing of the completion certificate terminated the debtor’s liability for the debts in the IVA, this did not mean that the IVA ended for all purposes.  The balance of the debts remained unsatisfied but not extinguished.  The liability of the debtor for the debts was discharged and replaced by a right of the creditors to participate in the IVA.  The debtor was under an obligation to account to the supervisor for the proceeds of the PPI claims.  The debtor submitted that there is no clause that expressly terminated the IVA trusts or continued them beyond the certificate of completion.  The purpose of the IVA trusts is to distribute the funds paid to the IVA creditors.  The IVA was a full and final settlement.  Upon the issue of the completion certificate, the debtor was released from all debts.  As a result, the debtor was entitled to the PPI refunds on the basis that there are no debts, no creditors and there can therefore be no dividend.

The Court of Appeal noted that the underlying purpose of the IVA was that in return for a moratorium on the enforcement by creditors of their claims and in return for being able to retain his matrimonial home and car, the debtor agreed to make available to the creditors all his other assets which would have fallen into his bankruptcy estate together with agreed monthly contributions for 60 months.  The PPI mis-selling claims were an asset which was available to creditors.  If the debtor had been made bankrupt, they would have been comprised in his bankruptcy estate until they were realised by the trustee in bankruptcy.  The Court of Appeal were assisted the judgment in Re: NT Gallagher: if a fully constituted trust is to terminate, there need to be provisions requiring it to do so and specifying what is to happen to the trust assets.  The Court of Appeal noted that the IVA contained a provision to bring the IVA trusts to an end on termination of the IVA, but that there was no such provision in respect of the completion of the IVA.

The Court of Appeal noted that a creditor in the IVA was defined as “a person bound by the Arrangement to whom a Debt is owed”.  Debt had the meaning set out in Section 382 Insolvency Act 1986 “with modifications necessary to refer to a voluntary arrangement”.  Creditors were fixed by reference to whether a debt or liability was owed to them as at the commencement of the IVA in October 2007.  Whilst any part of the debt remains unpaid, the claimant continued to be a creditor and a beneficiary of the IVA trusts.  The Court of Appeal then considered what was the effect of issuing a certificate of completion.  Whilst the debtor was released from the debts on the issuing of the completion certificate, the Court of Appeal held that the release was directly analogous to discharge in bankruptcy where the debts continue to exist but the bankrupt ceases to be personally liable for them.  The Court of Appeal noted that the assets subject to the IVA continued to be held on the IVA trusts and the debts continued to exist for the purposes of defining the rights of creditors under the IVA trusts.  Completion of the IVA means that the debtor has fully performed all his obligations under the IVA, but is does not mean that the IVA trusts come to an end unless there is an express provision to the effect. 

The decision in Green v Wright helpfully clarifies the effect of a certificate of completion and the position of the IVA trusts where there is no provision for termination of the trusts.  Supervisors can now deal with the large number of cases which have been waiting for the outcome of the case.

Ed Bible is an Associate Solicitor in Coffin Mew’s Insolvency and Business Recovery Team, he advises Insolvency Practitioners on all aspects of Insolvency.