Caution Issued To Challenged IVA Creditors: Moorgate Industries UK Ltd v Mittal & Anor [2022] EWHC 3009 (Ch)

The judgment of Chief Insolvency and Companies Court Judge Briggs was handed down in Moorgate Industries UK Ltd v Mittal & Anor [2022] EWHC 3009 (Ch) on 25 November 2022. The case concerned a challenge to the individual voluntary arrangement (“IVA”) of Pramod Mittal, by one of his creditors, Moorgate Industries UK Limited (“Moorgate”) (the “Challenge Application”). The Challenge Application sought to revoke the IVA on the basis of material irregularity pursuant to section 262 of the Insolvency Act 1986 or, in the alternative, that the creditors approving the IVA (the “Challenged Creditors”) had not acted in good faith.

Whilst the factual matrix of the Challenge Application was complicated, Moorgate’s case essentially challenged the debts of the Challenged Creditors who had approved the IVA at the meeting of creditors on 26 October 2020.

At the Case Management Conference in June 2021, Deputy ICC Judge Agnello KC distinguished between the role of the chairman at the meeting of creditors as compared to the role of the court in a challenge application, citing Lord Neuberger MR in Re Mercury Tax Group [2010] EWCA Civil 1379 at [63]: “Where the decision is that of the chairman of the meeting, this may often, indeed even normally, be something of a rough and ready or quick and dirty exercise. However, where the matter is referred to the court, the exercise must inevitably involve greater examination of the factual and legal basis of a claim”.

The Judge, at the CMC, went on to question the procedural fairness of Moorgate’s decision not to join the Challenged Creditors to the Challenge Application, stating: “I was a little surprised to see that none of the creditors whose claims you are objecting to have been joined as respondents. That is the way that you do it. You join them as a respondents because of course the decision made by the court affects them.”

Accepting that the Joint Supervisors’ position in the Challenge Application was one of neutrality and that no relief was sought against them, it was ordered that the Joint Supervisors were not required to attend the trial for cross-examination, but that they had permission to attend for the purposes of taking a note. Accordingly, only Moorgate and Mr Mittal were represented by counsel at the trial.

In giving his judgment, the Judge, recognising the different task of nominees, explained the task of the court and made clear reference to the useful observation of Blackburn J in Re A Company (No 004537 of 1993) [1995] 1 BCLC 459:

“In my view, the task of the Court, on an appeal under r.4.70(4) of the Insolvency Rules 1986, is simply to examine the evidence placed before it on the matter and to come to a conclusion whether, on balance, the claim against the company is established and, if so, in what amount. I would only add that, in considering the matter, the Court is not confined to the evidence that was before the chairman at the time that he made his decision, but it is entitled to consider whatever admissible evidence on the issue the parties to the appeal choose to place before the Court.”

On the matter of procedure, the Judge accepted that creditors whose debts are challenged should have an opportunity to discharge the burden of proof that rests on them: “The logic is unimpeachable.” In this case, the Judge was satisfied that, whilst the Challenged Creditors had not been joined to the Challenge Application as parties, they had been provided notice of the Challenge Application and, at a directions hearing, given permission to put in evidence. None of the Challenged Creditors produced any sworn evidence to support their position.

In his judgment, the Judge held that the Challenged Creditors’ lack of evidence “was not a mere technicality but a matter of substance”. The debts claimed by the Challenged Creditors had not been substantiated with evidence at the trial and so the Challenged Creditors had failed to discharge the burden of proof required to satisfy the court. It was held that this constituted a material irregularity. Accordingly, the Judge revoked the IVA. He found it unnecessary to deal with the issue of good faith.

Whilst a stark caution has been issued to IVA creditors whose debts are challenged, the matter of procedure is seemingly still at large with the Judge concluding: “Creditors should be warned that if their claimed debts are challenged on an appeal from a nominee, they should be joined to the proceedings and take advantage of any order made by the Court to permit them to file and serve sworn evidence.”

Sophia Bompas of Edwin Coe LLP advised the Joint Supervisors, Allister Manson and Steven Parker of Opus Restructuring LLP.

If you have any questions regarding this subject please contact Sophia Bompas, or any member of the Restructuring & Insolvency team.

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