IVA revoked for unfairness

The court revoked an IVA under section 262 IA 1986 following a successful challenge based on material irregularity and unfair prejudice. The case provides a clear reminder that transparency and equal treatment of creditors are central to the IVA regime.

This decision analyses challenges under section 262 IA 1986.

The applicants succeeded on material irregularity and unfair prejudice arising from undisclosed standstill agreements. The undisclosed standstill agreements gave certain creditors enhanced rights. In particular, participating creditors had direct rights to payment from FF, while non participants were confined to IVA distributions.

The court’s reasoning proceeded in two stages.

1. Non‑disclosure: The agreements were not disclosed in the proposal or nominee’s report, and creditors received misleading assurances that there was no preferential treatment. This was a material irregularity because it was relevant to voting.
2. Unfair prejudice: The agreements conferred a collateral advantage on a subset of creditors, breaching the pari passu principle (even though the advantage derived from a third party). The key point was the post‑approval position: some creditors retained direct claims against FF, while others had only IVA rights. This inequality constituted unfair prejudice.

The court rejected arguments that creditors were aware of the arrangement. The critical requirement is full and clear disclosure within the IVA documentation itself; prior dealings cannot cure deficiencies in the formal process. 

A further irregularity arose from the nominee’s conduct. The nominee failed to act independently or properly scrutinise the proposal.

Two further challenges failed. The first was the viability of the proposal: although the court regarded the promised 100p/£ return as highly speculative and supported by weak evidence, the statutory test is low. The second was the alleged non-disclosure of assets: these allegations were not made out on the evidence. 

The decision raises several practical points of nominees and those involved in proposing or agreeing an IVA:

• The court prioritises the integrity of the integrity of the process over commercial merit. 
• All side arrangements must be clearly disclosed.
• Third‑party advantages may create unfair prejudice.
• Nominees must demonstrate independence and proper scrutiny.
• Arguments that creditors “already knew”, or that the outcome would have been the same, are unlikely to succeed, especially where core fairness and transparency are compromised.

Scio-Fund Sicav-Fis and another v Mohammed Reza Aslam Merchant and another [2026] EWHC 815 (Ch)

Our content explained