IVAs – a warning to challenged creditors

The court revoked an IVA (pursuant to Insolvency Act 1986 Pt VIII s.262(1)) in circumstances where there had been material irregularity at the creditors' meeting. The Court found that the challenged creditors had failed to satisfy the burden of proving their claims.

Paul Mittal (Mittal) was adjudged bankrupt in June 2020. In October 2020, creditors approved an IVA. Moorgate Industries UK Ltd (“Moorgate”) – who had been the petitioning creditor and which was owed in excess of £140m – challenged the proofs of debt submitted by a number of creditors that were connected to Mittal (“Challenged Creditors”). If Moorgate’s challenge was successful, there would be insufficient votes to carry the IVA proposal. Moorgate’s’ challenge was brought on two grounds. Firstly, that when the meeting of creditors was convened to consider the IVA proposal, there was a material irregularity in that the debts of the Challenged Creditors had not been substantiated. Secondly, the extent of the connection between Mittal and the Challenged Creditors had not been fully disclosed (which could be a breach of duty owed to the other creditors).

At no point did the Challenged Creditors provide evidence to substantiate the validity of their claims.  Further, although the Challenged Creditors were not named as respondents to the application, they had instructed solicitors and engaged in substantive correspondence in relation to the application to revoke the IVA. They did not participate in any case management hearing, nor did they apply to be joined to the proceedings. At the hearing in December 2020, ICCJ Burton made an order that the Challenged Creditors, or other interested parties, had permission to file and serve evidence. Only Mittal (a named Respondent) filed evidence.

Preferring the evidence of Moorgate to Mittal and noting that as no evidence was filed by the Challenged Creditors, it was open to the Court to draw adverse inferences, the Court allowed the application and Mittal’s IVA was revoked.

While the factual background to this case is complex and specific to the facts of this bankruptcy, the principle is clear. Creditors whose debts are challenged should engage with the process. A failure to do so means that they will not discharge their duty to prove their debt.

Moorgate Industries UK Ltd v Mittal [2022] EWHC 3009 (Ch)

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