Getting In First?

The High Court has confirmed attempts to obtain an Individual Voluntary Arrangement will not automatically block legitimate enforcement of a judgment.

Successful enforcement of a judgment usually depends on the debtor’s financial position and how quickly a creditor can act.   As far back as the 1960’s Lord Denning ruled “the general principle when there is no insolvency is that the person who gets in first gets the fruits of his diligence”.

 In contrast, the “pari passu“ principle underpinning the Insolvency Act requires unsecured creditors to be treated equally so  they all receive  the same dividend.  This is known as the “statutory scheme”.

 The commencement of insolvency procedures (this includes both bankruptcy and attempts to seek an Individual Voluntary Arrangement) can therefore prejudice a creditor who wishes to or has even started to enforce a judgment.

 In the recent case of Dewji v Banwaitt [2013] EWHC, Mr Banwaitt obtained Interim Charging Orders over properties owned by Mr Dewji before Mr Dewji himself obtained an Interim Order (without giving notice to Mr Banwaitt) under Section 252 of the Insolvency Act .  An Interim Order is the usual first step taken by an individual who wants to reach an Individual Voluntary Arrangement (“IVA”) with his creditors.  At the hearing to decide whether or not to make the Interim Charging Orders final, Mr Dewji relied on the usual argument that the moratorium provided by Section 252 precluded further enforcement and thus Mr Banwaitt should be deprived of his security.

 At first instance the Master rejected Mr Dewji’s argument and awarded the Final Charging Orders.  Mr Dewji appealed to the High Court where Mr Justice Andrews emphasised that Section 252 does not actually prohibit further enforcement but merely obliges a creditor to obtain the court’s permission to continue. Whether to award permission required an examination of the IVA proposals. Mr Dewji’s proposal wanted to treat certain creditors differently and exclude those properties against which the Interim Charging Orders had been obtained.  Accordingly the court ruled that Mr Dewji could not have the protection of the statutory scheme when his own proposal did not conform to the policy underlying it.

 The Judge also noted that in contrast with  other creditors, Mr Banwaitt  “alone has chosen to expend costs in pursuing its recovery from Mr Dewji“ and that his  opposition to the IVA proposal would in all likelihood lead to its rejection.

 As a result the High Court upheld the Final Charging Orders and confirmed the Master was entitled to accept Mr Banwaitt’s description of the IVA proposal as “nothing more than a cynical attempt to derail the execution of the judgment”. 

 This welcome decision highlights that creditors should not assume that enforcement activity is automatically thwarted by a Section 252 Interim Order.

This article appeared in The Consumer Credit Magazine V69 No.2

For further information please contact Jeremy Bouchier, Senior Solicitor.

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