In an important recent case the High Court held that proceeds of a PPI compensation claim received after the issue of a Certificate of Completion by the supervisor of an IVA should be paid to the debtor and not paid to the supervisor for the purposes of the arrangement. In the view of the judge the effect of issuing the Certificate of Completion was to release the debtor from his liabilities with the consequence that creditors were no longer to be treated as creditors for the purposes of the arrangement. Members should note that the decision is subject to appeal to the Court of Appeal, (date to be confirmed).
Although the case concerned the proceeds of a PPI mis-selling compensation claim, it would apply in principle to any funds received, or assets coming to light, after the issue of a Certificate of Completion.
The IVA incorporated the R3 Standard Conditions (version 2), which was approved with some modifications. The debtor complied with his obligations under the terms of the IVA. In January 2013, the supervisor reported to the creditors that the debtor had fully complied with his obligations and issued a Certificate of Completion, under paragraph 9 of the Standard Conditions. In September and October, the debtor received two payments from banks, totalling some £24,500, which were the proceeds of payment protection insurance policies that had been mis-sold to him. Both the county court and the High Court declared that the funds should be paid to the debtor and not to the supervisor.
Judge Hodge QC in the Manchester District Registry reasoned as follows. Paragraph 9(2) of the Standard Conditions meant that the debtor was released from all debts which were subject to the arrangement. In the view of the judge that could only mean that the creditors were no longer to be treated as creditors for the purposes of the arrangement.
In this case the proposals were silent on whether or not a trust continued after completion of the arrangement, and no express agreement had been reached with the debtor regarding the treatment of PPI compensation payments. The judge rejected the argument that the trusts continued on the basis of the principles set out by the Court of Appeal in NT Gallagher & Son Ltd [2002] EWCA Civ 404, because Gallagher was concerned with the position on failure of the arrangement, and not on its completion.
Depending upon the terms of the voluntary arrangement this decision may raise potential difficulties for supervisors of voluntary arrangements where the arrangement is shortly due to end, not only in cases where there are unrealised assets but also where there are undistributed funds.
Members acting as supervisors in voluntary arrangements where these circumstances apply may wish to consider what steps can be taken to overcome the potential problems arising from this judgment both with regard to existing voluntary arrangements and with regard to the drafting of future proposals.
Green v Wright [2015] EWHC 993 (Ch)
The full text of the judgment is available on the British and Irish Legal Information Institute : http://www.bailii.org/ew/cases/EWHC/Ch/2015/993.html.