R3 is pleased to announce that the R3 Standard Conditions for Individual Voluntary Arrangements (‘R3 Standard Conditions’) have been amended and re-issued with effect from 20 January 2018. A copy of the revised terms can be found here. There were a number of reasons for updating and amending the R3 Standard Conditions including:
i. To incorporate the changes introduced by the Insolvency (England and Wales) Rules 2016 with particular regard to the creditor decision making procedures introduced.
ii. Responding to comments made by David Richards LJ during the appeal of the case of James Green (former Supervisor) v James Wright [2017] EWCA (Civ) 111, [2017] All ER (D) 13 (Mar)( ‘Green v Wright’) regarding the use of the terms relating to termination and closure of the voluntary arrangement to provide greater clarity of intention.
iii. Consideration of the implications for supervisors, debtors and creditors following the appeal in Green v Wright and the on-going trust of voluntary arrangement assets.
The Insolvency (England and Wales) Rules 2016
Coming into force in April 2017 the Insolvency (England and Wales) Rules 2016 (‘new Rules’) were updated to reflect more modern terminology in use today. The R3 Standard Conditions Version 4 have been similarly updated to reflect the changed terminology in use throughout the new Rules (for example Part VI now refers to proofs instead of claims).
The new Rules also introduced a number of decision making procedures at Rule 15.3 for use by office holders when seeking decisions of creditors such as electronic voting, virtual meetings and correspondence. Physical meetings are now only permitted when requested by creditors under Rule 15.6, the intention being that physical meetings of creditors would no longer be the default position. Hitherto physical meetings have been used in individual voluntary arrangements (‘IVAs’) when seeking creditor approval for the arrangement and also when seeking to vary the terms of an arrangement. The previous version of the R3 Standard Terms (Version 3) para 60 provided for physical meetings to be convened when seeking views of creditors during the term of the arrangement. In reviewing the R3 Standard Conditions the decision was taken to introduce the full range of decision making procedures introduced by the new Rules into the Standard Terms (Version 4) (see para 61). This should provide flexibility for supervisors to choose the most appropriate option for seeking creditors’ views depending on the particular circumstances of the debtor and the arrangement.
James Green (former Supervisor) v James Wright [2017] EWCA (Civ) 111, [2017] All ER (D) 13 (Mar)( ‘Green v Wright’)
The outcome of the case of Green v Wright also prompted a review of the terminology of certain terms used throughout the R3 Standard Terms. In his judgement David Richards LJ commented that greater clarity was required in the use of the words ‘termination’ and ‘full implementation’. We have accordingly taken steps to ensure that in the revised version of the Standard Terms any ambiguities with regard to the use of these terms have been removed (paras 9, 10 and 11).
Ongoing trust
Green v Wright determined that the trust of arrangement assets continued notwithstanding the completion of the arrangement and the vacation of office by the supervisor. In this case it was made clear that, in order to bring a fully constructed trust to an end, there should be a specific term to this effect, and it should also confirm what is to happen to the assets which would have been comprised in such a trust. In the absence of such provision, and following the decision in Green v Wright, the trust would continue.
In revising the R3 Standard Terms Version 4 (para 29) we have sought to provide certainty and clarity. The debtor will be released from all IVA debts on the ending of the arrangement and the issuing of a Certificate of full implementation under para 9(2). A ‘Trust realisation period’ has been introduced. This is the period of time from commencement of the arrangement and continues, notwithstanding expiry, termination or full implementation of the arrangement, until the realisation and distribution of sums to creditors under the arrangement terms.
This provides the supervisor with certainty that on the termination or full implementation of the arrangement their obligations will have also ended (para 22). In coming to this conclusion we sought the opinions of major creditor groups and were advised that they also considered that it was fairer to the debtor to provide such certainty and they welcomed the removal of the ongoing trust from the R3 Standard Terms. Any known assets will remain held on trust until the expiry of the Trust realisation period as set out in paragraph 29.
Office holders who wish to ensure that the trust continues after the end of the defined Trust realisation period may make provision to do so in the proposals agreed by the debtor and creditors however such provision, and the implications thereof, should be clearly explained to the debtor and creditors at the outset. The full terms of any such trust will also need to be set out.
R3 hopes that members will welcome the changes introduced. The R3 Standard Terms are an integral part of the voluntary arrangement and great care has been taken to ensure that they are workable and clear. If you do identify any issues however with their practical application please do not hesitate to contact me caroline.sumner@r3.org.uk.