Them’s the (Insolvency) Rules: adjourning creditors’ meetings

Posted: 27/03/2015

In Re Mark Irwin Forstater [2015] BPIR, the petitioning creditor presented a bankruptcy petition against the debtor, Mr Forstater, on 13 June 2014. It first came before the court on 30 July 2014, when it was adjourned to allow the  debtor to take legal advice. At the adjourned hearing on 12 August 2014, the debtor indicated that he intended to pursue an IVA. The hearing was adjourned again to await the outcome of a meeting of creditors. The meeting of creditors was itself adjourned for 14 days from 1 September 2014 to 15 September 2014. The meeting convened at 11.30am, was suspended at 2.45pm and reconvened by telephone at 8.00pm. Between 2.45pm and 8.00pm certain modifications were discussed and the nominee and debtor contended that the proposed IVA was approved with modifications. The debtor asked the court to adjourn the petition for a period of 14 days so that in accordance with the proposal a third party could put funds into the IVA. If the funds were not introduced by 29 September 2014, the IVA would fail. 

The petitioning creditor objected, on the following grounds:

• it was not in dispute that the meeting had already been adjourned for 14 days (the maximum permitted under Rule 5.24(3) of the Insolvency Rules 1986).
• Rule 5.24(4A) clearly states that the chairman may, without an adjournment, declare the meeting suspended for any period of up to 1 hour.
• neither side disputed that the meeting was suspended on 15 September from 2.45pm until 8pm.
• Rule 5.24(5) clearly states that, if following any final adjournment of the meeting, the proposal (with or without modifications) is not agreed to, it is deemed rejected.
• as the meeting had been suspended for more than an hour, the meeting was at an end by 3.45pm and the proposal must be deemed rejected at that time in accordance with 5.24(5). The purported approval of the IVA later that evening was therefore a nullity. 

Ms Register Derrett agreed with the petitioning creditor, and made a bankruptcy order. She did not agree with the debtor’s counter-argument that under s267(8) an approval given at a creditor’s meeting is not invalidated by any irregularity at or in relation to the meeting. She preferred the petitioning creditor’s argument that after 3.45pm there was no meeting at which the IVA proposal could be approved (with or without irregularities). She noted that “On the face of the Insolvency Rules, which are quite clear and explicit, the maximum period of suspension is 1 hour. That is what is permitted by the Rules and if the meeting is not reconvened within the hour, which on the face of the report of the meeting it was not, then the proposal is deemed to be rejected”. She also went on to rule that if the third party was still willing to introduce funds there was nothing to stop the debtor pursuing an IVA post-bankruptcy and, if it was accepted, then applying for an annulment. 

Séamas Gray and Rebecca Andrews-Walker, from the Penningtons Manches restructuring and insolvency team, acted for the successful petitioning creditor in this case. Séamas said: “This case provides welcome reassurance that the Insolvency Rules mean what they say and that the courts will apply them in a straightforward and transparent fashion. It also shows the court balancing the creditors’ need for finality with justice for the individual debtor. Insolvency practitioners should note to take care in relation to the adjournment and suspension of creditors’ meetings, which is commonly undertaken in a rather relaxed fashion.”

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