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Golstein v Bishop & Anor

[2016] EWHC 2187 (Ch)

Neutral Citation Number: [2016] EWHC 2187 (Ch)
Case No: CH-2016-000013
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION

ON APPEAL FROM CENTRAL LONDON COUNTY COURT

IN THE MATTER OF COLIN MICHAEL ARTHUR BISHOP

AND THE INSOLVENCY ACT 1986

Royal Courts of Justice

The Rolls Building

7 Rolls Buildings

Fetter Lane

London, EC4A 1NL

Date: 02/09/2016

Before :

MR JUSTICE WARREN

Between :

JOSEPH GOLSTEIN

Applicant/

Appellant

- and -

(1) COLIN MICHAEL ARTHUR BISHOP

(2) NICHOLAS BARNETT

Respondents

Robert Salis (instructed by Simons, Muirhead and Burton) for the Applicant

Richard Ascroft (instructed by YVA Solicitors LLP) for the Respondents

Hearing date: 19 April 2016

Approved Judgment

I direct that pursuant to CPR PD 39A para 6.1 no official shorthand note shall be taken of this Judgment and that copies of this version as handed down may be treated as authentic.

.............................

MR JUSTICE WARREN

Mr Justice Warren :

1.

This is an appeal from a decision of DJ Hart sitting in the Central London County Court. Her decision was given on 21 December 2015 after a 2-day hearing in November. She refused the application of Mr Golstein, the applicant, the appellant in this appeal, for revocation of a decision (“the approval decision”) dated 31 May 2012 passing the proposal by Mr Bishop, the first respondent to the application and to this appeal, to enter into an Individual Voluntary Arrangement (an “IVA”).

2.

Mr Golstein’s application before DJ Hart was based on three grounds, two of which are pursued in this appeal:

i)

There was a material irregularity at the meeting on 31 May 2012 when the proposal decision was passed in that Mr Barnett, the second respondent to the application and to this appeal, who was the nominee for the purposes of the IVA, treated the entirety of Mr Golstein’s claims in pending proceedings in the High Court (“the Partnership Proceedings”) against Mr Bishop as giving rise for voting purposes only to unliquidated claims and attributing to the claims the sum of £1. The Partnership Proceedings, I should record, arose out of the termination, in acrimonious circumstances, of the solicitors’ partnership between him and Mr Bishop with effect from 30 June 2010; they were commenced soon after that termination and sought wide ranging relief.

ii)

There was material non-disclosure by Mr Bishop in his proposal, which should have led to the revocation of the approval decision. This failure to disclose was a material irregularity for the purposes of section 262 Insolvency Act 1986.

3.

DJ Hart rejected both of those grounds. She held that the claims were unliquidated claims and that Mr Barnett was right to attribute to them a value of only £1. She held that Mr Golstein had failed to establish material irregularity under section 262. Mr Golstein now appeals from both of those decisions:

i)

Ground 1 is to the effect that DJ Hart erred in law in determining that Mr Golstein’s claim against Mr Bishop in the sum of some £122,000 odd by way of unpaid salary was an unliquidated claim, as opposed to determining that it was a liquidated claim which should be marked as “objected to”.

ii)

Ground 2 is to the effect that DJ Hart erred in law in finding that the failure by Mr Bishop to disclose in his IVA proposal the fact that he was subject to disciplinary proceedings before the Solicitors Disciplinary Tribunal (“the SDT”), proceedings which ultimately led to his being struck off the Roll of Solicitors for dishonesty, was not a material omission, on the grounds that the proposal would have been passed even if the disclosure had been made.

4.

So far as Ground 1 of the present appeal is concerned, it is necessary to focus in particular on the provisions of the partnership agreement which deal with the division of profits. The agreement is found in a document dated 17 September 2007 headed “HEADS OF AGREEMENT” (“the HoA”). It is not a particularly well-drafted document but that is, perhaps, not surprising since according to its own terms, at clause 23, a formal Deed of Partnership was envisaged, although never prepared and executed. I propose to identify the relevant provisions of the HoA at the outset. I will then look at the statutory provisions concerning IVAs and voting on IVA proposals, before turning to the facts and the Grounds of Appeal.

The Heads of Agreement

5.

The material provisions of the HoA are as follows:

i)

Clause 2.1: this provides for the profit shares to be 30% to Mr Golstein and 70% to Mr Bishop. Capital profits are to be held in the same percentages. This is subject to clauses 2.2 and 2.3.

ii)

Clause 2.2 reads as follows:

“2.2 Notwithstanding clause 2.1 Mr Golstein shall be entitled to by way of a first charge upon profits of the New Firm

(a) An annual guaranteed salary of £120,000 (irrespective of the profit percentages or the profits made by the New Firm) out of which Mr Golstein shall meet his wife’s secretarial fees of £20,000, but she will be an employee of the New Firm and dealt with accordingly……….”

iii)

Paragraphs (b) and (c) provide for certain savings resulting from the relocation of premises to be added to Mr Golstein’s profit share and for him to keep a contingency fee arranged by him.

iv)

Clause 2.3.2 reads as follows:

“Mr Bishop undertakes to indemnify Mr Golstein for his guaranteed salary and against all Liabilities and additionally any claims [relating to the Premises at the merger date] …”

“Liabilities” are defined as the existing and contingent debts claims and demands of the parties incurred prior and up to the merger date. These do not, it is to be noted, fall within the charge on profits under clause 2.2.

v)

Clause 8 concerns drawings. It provides in clause 8.1 as follows:

“Monthly drawings from the New Firm on account of profits will be as follows:

i) Mr Golstein £10,000

ii) Mr Bishop £10,000”

vi)

It can be seen that, as a matter of fact, the amounts of Mr Golstein’s payments on account exactly match the amount of his “annual guaranteed salary”.

Statutory Provisions

6.

For the purposes of Ground 1 of the appeal, it is necessary to refer to Rules 5.21 and 5.22 of the Insolvency Rules 1986. Reference in this judgment to a Rule is to those Rules. These rules concern voting at the creditors’ meeting summoned by the nominee for the purpose of considering the debtor’s proposal. Even a person who has only an unliquidated claim of an uncertain amount is a “creditor” who is entitled to vote at the meeting. Reference to Rule 5.21(3) (see below) makes that clear.

7.

Rule 5.21(2) makes provision for the calculation of votes. The present case falls within Rule 5.21(2)(b) since Mr Bishop was not an undischarged bankrupt and an interim order was not in force at the date of the meeting. Accordingly, the prima facie position is that the creditor is entitled to vote “by reference to the amount of the debt owed to him at the date of the meeting”.

8.

Under Rule 5.21(3), however, it is provided as follows:

“A creditor may vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained, and for the purposes of voting (but not otherwise) his debt shall be valued at £1 unless the chairman agrees to put a higher value on it.”

9.

Under Rules 5.22(1) and (2), the chairman admits or rejects a person’s claim to vote and may do so in whole or in part. Rule 5.22(4) provides as follows:

“If the chairman is in doubt about whether a claim should be admitted or rejected, he shall mark it as objected to and allow votes to be cast in respect of it, subject to such votes being subsequently declared invalid if the objection to the claim is sustained.”

10.

Any decision under Rule 5.22 or under Rule 5.21(3) is subject to appeal to the court by any creditor or by the debtor, under Rule 5.22(3).

11.

Rule 5.22(5) makes provision for what is to happen if, on appeal, the chairman’s decision is reversed or varied. The court may then order another meeting to be summoned or make such other order as it thinks fit. But the court’s power under this paragraph is exercisable only if it considers that the circumstances giving rise to the appeal are such as to give rise to unfair prejudice or material irregularity.

The judgment of Christopher Nugee QC

12.

Certain aspects of the Partnership Proceedings came before Mr Christopher Nugee QC (as he then was) sitting as a deputy judge of this Division. Following a 6-day hearing in October and November 2012, he gave a reserved judgment which was handed down on 2 May 2013, a judgment described as “masterly and painstakingly detailed” by the Court of Appeal when certain aspects of his decision (not relevant to the present appeals) came before that Court. In the course of his judgment, Mr Nugee rejected Mr Bishop’s claim that he and Mr Golstein had agreed that Mr Golstein’s guaranteed annual salary had been reduced on a permanent basis. The result of that was that Mr Golstein’s drawings from the partnership had, for a period of several months, been less than that to which he was entitled and accordingly less than the rate of his guaranteed annual salary of £120,000. The total shortfall, the nature of which is central to Ground 1 of this appeal, amounts to some £122,000 odd. It is to be noted that Mr Nugee’s conclusions were not known at the time of the approval decision on 31 May 2012.

13.

Mr Nugee had something to say about the claim to this shortfall in [178] to [180] of his judgment under Issue (xii), one of the many issues he had to decide. I need to set those paragraphs out in full:

Issue (xii)

178. Issue (xii) is in these terms:

"How much of such monies as may be found by the Court to be owed to [Mr Golstein] [are] payable by [Mr Bishop] personally as opposed to the partnership?"

179. At first blush this issue is not entirely happily worded as once the accounts have been taken they will show a balance due one way or the other; and if there are monies due to Mr Golstein, he will no doubt be able to claim them from Mr Bishop personally. But the intention behind this issue is to determine the nature of Mr Bishop's liability for Mr Golstein's salary under clause 2.3.2.

180. There is no dispute that Mr Bishop is liable under this clause to pay for any shortfall in the salary. But the question is whether Mr Bishop is primarily liable for the salary, or whether he is only liable to make good any shortfall. Mr Salis accepts that if Mr Golstein has been paid his salary by way of drawings, he cannot claim the same amount over again from Mr Bishop, but he submitted that Mr Bishop was primarily liable for the whole sum, with the right to deduct or set off whatever had already been paid. Miss Eilledge by contrast said that one first had to assess what was due from the firm, and Mr Bishop was then only liable for the shortfall. It is not clear to me to what extent this is a live issue in practical terms: I have not been asked to assess precisely what Mr Golstein has already received, and this must await the taking of the accounts; I therefore do not think there is any question of entering judgment against Mr Bishop until that has been done. If there is then money remaining due from the firm, either it will be paid or it will not; if it is not, it does not seem to me to be disputed that Mr Bishop will be personally liable for whatever is not paid, whichever analysis is correct. But taking the issue on its merits, I prefer Miss Eilledge's submission: clause 2.3.2 is not expressed as a guarantee or as a primary obligation but as an undertaking to indemnify, and the natural meaning of an obligation to indemnify is I think to make a payment to cover a loss. I therefore consider that Mr Bishop's obligation is only to make good any shortfall in salary once any such shortfall has been identified.

Ground 1

14.

In addressing Ground 1, I need to consider certain aspects of the law:

i)

The function of the appeal court under Rule 5.22(3) and the evidence which is to be taken into account.

ii)

What obligations on the part of the debtor qualify as a debt owed to the creditor at the date of the meeting within Rule 5.21(2)(b) and the value to be attributed to such debts. In the context of that question, it is necessary to ask what it means for a debt to be for a liquidated amount.

The function of the court on an appeal under Rule 5.22(3)

15.

In IRC v Maxwell [2010] EWHC Civ 1379, [2011] 2 BCLC301 (“Maxwell), the Court of Appeal was concerned, among other matters, with the function of the court in hearing an appeal under Rule 2.39(2). That Rule is concerned with the admission and rejection of any creditor’s claim for the purposes of voting a meeting summoned by an administrator under Rule 2.35. Rule 2.38 deals with entitlement to vote; Rule 2.39 deals with admission and rejection of claims. These provisions are similar to those applicable to voting on proposals for an IVA under Rules 5.21 and 5.22. In particular:

i)

Rule 2.38(4) provides for votes to be calculated according to the amount of a creditor’s claim as at the date on which the company entered into administration. This compares with Rule 5.21(2)(b) which provides for the amount to be calculated by reference to the amount of the debt at the date of the creditors’ meeting.

ii)

Rule 2.38(5) provides that a creditor shall not vote in respect of a debt for an unliquidated amount, or any debt whose value is not ascertained, except where the chairman agrees to put on the debt an estimated minimum value for voting purposes and admits the claim for that purpose.

iii)

Rule 2.39(1) gives the chairman power to admit or reject a creditor’s claim for the purposes of entitlement to vote.

iv)

Rule 2.39(3) provides that, if the chairman is in doubt whether a claim should be admitted or rejected, he shall mark it as objected to and allow the creditor to vote.

v)

Rule 2.39(2) provides for a right of appeal to the court in relation to a decision of the chairman under Rule 2.38 or Rule 2.39.

16.

The Court recorded the common ground that the function of the judge on an appeal under Rule 2.39(2) is not simply to review the decision of the chairman which is sought to be impugned: the judge should form his or her own view, based on the evidence and arguments advanced in court. That common ground appears to me to be entirely correct. The same approach, I consider, applies to an appeal under Rule 5.22(3), the applicable Rule in the present case. That was common ground before DJ Hart (see [29] of her decision).

17.

Nonetheless, characterisation and quantification of any debt, in the case of administration, for the purposes of Rules 2.38(4) and (5), and Rules 2.39(1) and (3) are to be effected as at the date the company went into administration rather than at the date of the meeting: see the first part of [52] of Lord Neuberger’s judgment in Maxwell.

18.

By parity of reasoning, I consider that the characterisation and quantification of a debt for the purposes of Rules 5.21(b) and (2) and Rules 5.22(2) and (4) is to be effected at the date of the creditors’ meeting and not at some other time. Quantification is not, however, the same as valuation. It is well established in the context of liquidation (and as a result of Maxwell, administration) that, when valuing a debt for the purposes of voting, subsequent events can be taken into account: see the second part of [52].

Debts, liquidated amounts and values

19.

The terms “liquidated”, “unliquidated” and “unascertained” are not defined either in the relevant legislation. The question was addressed to some extent by Lord Neuberger in Maxwell at [57]:

“[57] Just how clearly quantified a debt has to be before it is liquidated and ascertained is not a question which it is easy to answer. It is clear from Rule 2.39(3) that it does not have to be undisputable. Some guidance may be found in Ex parte Ruffle, Re Dummelow (a case concerning section 16(3) of the Bankruptcy Act 1869), where Mellish LJ said that:

'an unliquidated debt' includes not only all cases of damages to be ascertained by a jury, but beyond that, extends to any debt where the creditor fairly admits that he cannot state the amount. In that case there must be some further enquiry before he can vote.”

However, there is little subsequent authority which takes matters much further. A claim for damages and a contingent claim have (unsurprisingly) been held to be unliquidated or unascertained claims – see Re Cranley Mansions Ltd, Saigol v Goldstein, Doorbar v Alltime Securities Ltd and Re Newlands (Seaford) Educational Trust.

20.

A more detailed analysis is to be found in the decision of the Court of Appeal in McGuinness v Norwich and Peterborough Building Society [2011] 1 WLR 613 (“McGuinness”). After providing an extensive analysis of previous cases the Court concluded as follows:

“These authorities indicate and I think establish that a debt for a liquidated sum must be a pre-ascertained liability under the agreement which gives rise to it. This can include a contractual liability where the amount due is to be ascertained in accordance with a contractual formula or contractual machinery which, when operated, will produce a figure.”

21.

Although, in the context of an administration, a claim may give rise only to a claim for an unliquidated or uncertain amount at the time of the administration, subsequent events may establish the precise extent of the claim and transform what was unliquidated or uncertain into something which can properly be described as liquidated and certain. This was the case in Maxwell. Certain claims to corporation tax were, at the date when the company entered into administration, held to be claims for unliquidated amounts because, in order to calculate what was owing,

“one would have had to trawl through figures in the company’s accounts, investigate the law relating to EBTs and payments to directors, and carry out calculations which were not straightforward. In many damages claims, one could work out the amount likely to be assessed by the court, but that does not mean that an unresolved damages claim is a liquidated or ascertained debt.”

22.

Nonetheless, once HMRC had issued notices of amendment to the company’s tax returns for the relevant periods, the sums in those amendments were liquidated and ascertained sums. And so, at [60], Lord Neuberger held that, although the sums claimed were not liquidated ascertained debts at the date the company went into administration, they had become so by the date of the creditors’ meeting. This did not mean that the claims could, retrospectively, be treated as liquidated claims at the date of the commencement of the administration. Rather, they remained debts within Rule 2.38(5). But the amount which the judge below should have attributed to the claims was not nil, but was the full amount of the tax which had become due by the time of the creditors’ meeting. On the facts, HMRC were entitled to vote for the full amount of their claim.

Guarantees and indemnities

23.

In the light of some of the arguments presented to me, it is necessary to say something about the general nature of guarantees and indemnities, not least because the word “guaranteed” and “indemnify” both appear in clause 2 of the HoA. There is a helpful general description of contracts of suretyship, including the two main categories, namely contracts of guarantee and contracts of indemnity, in the judgment of Sir William Blackburne in Vossloh Aktiengesellschaft v Alpha Trains (UK) Ltd [2010] EWHC 2443 (Ch) [2011] 2 All ER (Comm) 301 (“VAG”) at [19] to [25]. I do not propose to cite those paragraphs at length but they repay reading. It is worth noting the judge’s preliminary observation at [20], which is highly apposite in the present case, that contracts of suretyship are an area of law bedevilled by imprecise terminology and where it is important not to confuse the label given by the parties to the surety’s obligation with the substance of the obligation (although the label may be indicative of what the parties intended). Each case depends on a true construction of the agreement.

24.

Sir William described a contract of surety as, in essence, a contract by which one person, the surety, agrees to answer for some existing or future liability of another, the principal or principal debtor, to a third party, the creditor, and by which the surety’s liability is in addition to, and not in substitution for, the liability of the principal. As he points out, even the use of the words creditor and debtor can be misleading, for the liability guaranteed may consist of some obligation other than the payment of money and it does not have to be a contractual obligation.

25.

He identified a contract of guarantee in the true sense as one where the guarantor promises the creditor to be responsible for the performance by the principal of his existing or future obligations to the creditor if the principal fails to perform any of them. Sometimes, the obligation may be no more than to discharge the liability of the principal if the principal himself does not discharge it. The guarantor’s liability in such a case is conditional upon the principal’s failure to pay the particular debt so that if the condition is fulfilled, the guarantor’s liability will then sound in debt.

26.

In other cases, perhaps the more usual type of case, the guarantor’s obligation is of a “see to it” obligation under which the guarantor undertakes that the principal will carry out his obligations and will answer for the principal’s default. If for any reason the principal fails in his obligations as required by his own contract, he not only breaches that contract but puts the guarantor in breach of his contract of guarantee thus entitling the creditor to sue the guarantor, not for the debt but for damages for breach of his contract. The damages are for the loss suffered by the creditor due to the principal having failed to do what the guarantor undertook that he would do: see Lord Reid in Moschi Lep Air Services Ltd [1973] AC 331 at 344-345 (“Moschi”).

27.

An essential feature of either type of guarantee is that the liability of the guarantor is always ancillary, or secondary, to that of the principal who remains primarily liable. There is no liability on the guarantor unless and until the principal has failed to perform his obligation.

28.

To be contrasted with the contract of guarantee is the contract of indemnity. This is where there can be confusion over language, since in a sense all contracts of guarantee are contracts of indemnity. As Sir William put it

“in its widest sense, an indemnity is an obligation imposed by operation of law or by agreement of the parties. In the narrower sense in which, in the current context, the expression occurs, a contract of indemnity denotes a contract where the person who gives the indemnity undertakes his indemnity obligation by way of security for the performance of an obligation by another.

29.

In contrast with a contract of guarantee, a primary liability falls, under an indemnity, on the indemnifier so that his liability is independent of any liability as between the principal and the creditor.

30.

The decision of the Court of Appeal in McGuinness shows a slightly different use of language, emphasising the importance of establishing precisely what the contract under consideration, on its true construction, actually provides. Thus one finds under the heading “Liability under a guarantee” starting at [7] of Patten LJ’s judgment, the identification of four types of “guarantee of a loan”:

i)

A “see to it obligation”, described as an undertaking by the guarantor that the principal debtor will perform his own contract with the creditor.

ii)

A conditional payment obligation, described as a promise by the guarantor to pay the instalments of principal and interest which fall due if the principal debtor fails to make those payments.

iii)

An indemnity.

iv)

A concurrent liability with the debtor for what is due under the contract of loan.

31.

Types i) and ii) fall within the types of guarantee described by Sir William Blackburne in VAG. Patten LJ saw an indemnity (in whatever sense he was using that word) as a type of guarantee, whereas Sir William had seen a guarantee as a type of indemnity. I do not think it matters at all what label is given to these different types of obligation provided that the obligation to which the label is attached is clearly identified. In that way, it is possible to avoid the error of treating features of an obligation described by one person as an indemnity as being features of a different obligation which another person also describes as an indemnity. The difficulty, of course, is in deciding the meaning of a contractual provision which itself uses the word “guarantee” or “indemnity” or the like since it will not always be clear in what sense the chosen word is being used.

32.

Patten LJ identified types ii) and iv) as creating a liability in debt. Unless and until the principal defaults, however, there is under ii) only a contingent future debt. As to type i), he referred, like Sir William Blackburne in VAG, to Moschi to show that this creates a liability in damages.

33.

As to type iii), Patten LJ stated that it is well established than an indemnity is enforceable by way of action for unliquidated damages, referring to Firma C-Trade SA v Newcastle P&I Association [1991] 2 AC 1 (“Firma C-Trade”) where the defendant P&I Club had undertaken to protect and indemnify the claimant against certain liabilities. As he put it, the liability arises from the failure of the indemnified to prevent the person indemnified from suffering the type of loss specified in the contract. I have no difficulty with the proposition that an action for unliquidated damages is the appropriate course in the case of an indemnity, provided that the nature of the indemnity considered by the House of Lords is borne in mind (and must have been the type of indemnity which Patten LJ was referring to). As Lord Goff put it at p 35f-36A:

… I accept that, at common law, a contract of indemnity gives rise to an action for unliquidated damages, arising from the failure of the indemnifier to prevent the indemnified person from suffering damage, for example, by having to pay a third party. I also accept that, at common law, the cause of action does not (unless the contract provides otherwise) arise until the indemnified person can show actual loss: see Collinge v. Heywood (1839) 9 Ad. & E. 633. This is, as I understand it, because a promise of indemnity is simply a promise to hold the indemnified person harmless against a specified loss or expense. On this basis, no debt can arise before the loss is suffered or the expense incurred; however, once the loss is suffered or the expense incurred, the indemnifier is in breach of contract for having failed to hold the indemnified person harmless against the relevant loss or expense. …..”

34.

If the contract, properly interpreted, creates an indemnity obligation of that sort, then the claim is only for unliquidated damages. But if, in spite of the use of the word “indemnify” in an agreement, the obligation falls into type ii) or type iv) of Patten LJ’s categorisation, the claim will sound in debt. Even in the context of a loan or other obligation on the part of a principal, it is not always easy to determine which type of obligation is created. The cases which I have been referred to all concern obligations of a principal in relation to which a third party has entered into a surety obligation. Thus in VAG, McGuinness and Firma C-Trade, there was an obligation of a principal which a third party had guaranteed or indemnified. In VAG, the obligation was that of another group company under a master purchase agreement; in McGuinness, it was the mortgage liabilities of the appellant’s brother; and in Firma C-Trade it was the obligation of the ship-owner to the cargo owners.

35.

In the present case, however, there is no such principal obligation. Instead, what is to be found in clause 2.2 is a charge on profits for Mr Golstein’s salary (although it is unclear whether Mr Golstein would be entitled to any shortfall out of the profits of a later year, a point which has not been argued before me). In this context, this means simply that Mr Golstein is entitled to an annual share of profit of £120,000 in priority to Mr Bishop’s percentage share.

36.

It is to be noted that this charge on profits is expressed to be for a guaranteed annual salary, language which suggests two things: first, that Mr Golstein should receive that salary come what may and secondly, that the salary should actually be paid each year.

37.

As to the first of those matters, there is clearly a tension between the conclusion that Mr Golstein should receive his salary come what may out of the firm’s assets in the case of an insufficiency of profits on the one hand, and the opening words of clause 2.2 creating only a charge on profits on the other hand. That tension, however, is resolved by clause 2.3.2. One result of clause 2.3.2, in the context of an ongoing partnership, is clearly that Mr Bishop is liable at least for any shortfall in profits below £120,000 each year. It is therefore unnecessary to regard clause 2.2 as imposing any personal liability on Mr Bishop other than his partnership obligation to allow Mr Golstein to receive his annual guaranteed salary in priority to any other division of profits.

38.

As to the second of those matters, it is inherent in the concept of an annual salary that it is paid at least annually, even more so where the annual salary is “guaranteed”. Consistently with that, and on the assumption of an adequacy of profits, Mr Golstein’s entitlement to drawings precisely matches the guaranteed amount. It might, therefore, be expected, again on that assumption, that Mr Golstein ought to be able, in some way, to enforce a distribution of profits to satisfy his guaranteed annual salary and entitlement to drawings.

39.

However, even if that is so, it seems to me that Mr Golstein’s rights under clause 2.2 would not give rise to a claim in debt against Mr Bishop. Rather, he would be entitled either to a claim in damages (for failure by Mr Bishop to allow him to make drawings of £10,000 per month) or by way of an action for an account and payment of what is found owing with an order for payment of what is found owing (taking account of the £120,000 guaranteed annual salary). The scope of the account which would be appropriate would be an account of the profits for the period in question. In either case – damages, or account and payment – the claim would not give rise to a claim for a liquidated amount, at least until the amount had been ascertained, in the absence of agreement, by a court order in the case of damages or by the settling of the account for the relevant period. The position once the partnership was dissolved is a fortiori. Indeed, if anything, it is clearer that there is no claim for a liquidated amount since the final account will reflect what is owing in each direction in relation to all aspects of the partnership and its dealings.

40.

I have been referred to a number of authorities (in particular the decisions of the Court of Appeal in Brown v Rivlin (unreported) 1 February 1983 and Marshall v Bullock (unreported) 27 March 1998) identifying and explaining the conventional approach to dealing with financial disputes between partners, namely the taking of an account, and the exceptions to that approach; and I have also been referred to passages from Lindley & Banks on Partnership (19th ed). I have not found those authorities or Lindley & Banks of much assistance in resolving the issue before me other than as (i) lending support to the view that Mr Golstein’s rights under clause 2.2 are best vindicated through an action for an account and (ii) identifying three exceptions to the conventional approach. The third exception (the only one which could possibly be of relevance in the present case) is that an account will not be appropriate where it would serve no useful purpose (Brown v Rivlin being an example of such a case). Apart from the impact of clause 2.3.2 (to which I come next) there is nothing which would have brought the case within that exception at the time of the creditors’ meeting. At that time, it had not been established that the profits of the firm were sufficient to meet Mr Golstein’s guaranteed annual salary however likely it might have appeared that that would transpire to be the position. The appropriate way of ascertaining whether or not that was so would be by the taking of an account.

41.

Accordingly, subject to the impact of clause 2.3.2, the position, to repeat, is that Mr Golstein had during the currency of the partnership, and has following its dissolution, only a claim in damages or for an account which gave rise only to unliquidated claims unless and until quantified.

42.

At this stage, I say something more about the chronology of the litigation between Mr Golstein and Mr Bishop:

i)

On 3 May 2013, Mr Nugee handed down his judgment.

ii)

On 18 September 2013, Mr Bishop served draft partnership accounts.

iii)

On 15 November 2012, Mr Golstein served objections to those draft accounts.

iv)

On 16 January 2014, Mr Bishop served a response to Mr Golstein’s objections.

v)

On 23 and 24 November 2015, the hearing by DJ Hart of the section 262 application was held. Judgment was handed down on 21 December 2015.

vi)

On 15 and 16 December 2015, Chief Master Marsh held a hearing in the course of the Account and Inquiry in the action. The Chief Master gave certain rulings on disputed issues. Mr Golstein was directed to file and serve verified partnership accounts by 29 January 2016

vii)

On 27 January 2016, partnership accounts were finalised by Mr Golstein with the professional assistance of independent Chartered Accountants Master Finance Limited. These were subsequently filed with the Court.

viii)

On 29 February 2016, judgment was issued against Mr Bishop ordering payment of a significant sum to Mr Golstein.

43.

The accounts had not, therefore, been finalised when the matter came before DJ Hart. Further, although Chief Master Marsh had made his rulings before DJ Hart gave her decision, she was not informed prior to giving her judgment that he had done so. As it happens, those accounts show that, in each of the years in respect of which Mr Golstein claims to recover the shortfall in payment of his guaranteed annual salary, the profits of the firm were more than sufficient to meet the guaranteed amount. But that had not been established by the time of DJ Hart’s decision.

44.

I turn now to the meaning and effect of clause 2.3.2. Here I am constrained by Mr Nugee’s judgment. His conclusion in [180] of his judgment has not been appealed and is binding on me. However, it is not entirely clear to me what his conclusion entails. And it is fair to point out that he dealt with the point very briefly. He does not appear to have had the advantage of the argument which I have heard about the nature of guarantees and indemnities. Given how thorough and detailed his judgment is on other aspects, it would be surprising, if he had had full submissions, for him not to have addressed them. The whole issue is dealt with in the two short final sentences of [180]. Miss Eilledge (representing Mr Bishop) had argued that one first had to assess what was due from the firm. Mr Bishop was then, but only then, liable for the shortfall and no more. Mr Nugee preferred that submission to the submission on behalf of Mr Golstein which was that Mr Bishop was prima facie liable for the whole sum. Mr Nugee’s reasoning is found in these words:

“…clause 2.3.2 is not expressed as a guarantee or as a primary obligation but as an undertaking to indemnify, and the natural meaning of an obligation to indemnify is I think to make a payment to cover a loss. I therefore consider that Mr Bishop's obligation is only to make good any shortfall in salary once any such shortfall has been identified.

45.

This demonstrates how the law in this area is bedevilled with imprecise terminology. Mr Nugee is using the word guarantee in the sense of an obligation which imposes a primary obligation: but this is precisely the reverse of how Sir William Blackburne described an indemnity as understood in this area of the law: see [25]ff above, and in particular [29].

46.

In contrast, Mr Nugee sees the natural meaning of an obligation to indemnify as to make a payment to cover a loss. He does not say so, but it is implicit in what he says, that he sees an indemnity as creating a secondary obligation, whereas a guarantee (used in the sense which contrasts with an indemnity) actually creates a primary liability so that his liability is “independent of any liability as between the principal and the creditor” to use the words of Sir William Blackburne describing a primary liability in VAG. It is true that, in McGuinness, Patten LJ considered that an indemnity of the type to which he was referring created a liability in damages. But the sort of case there under consideration was one where the right to damages arose from the failure of the indemnifier to prevent the indemnified person from suffering damage, for example by having to pay a third party. That analysis cannot, in my view, apply to Mr Bishop’s obligations under clause 2.3.2. This is because clause 2.2 does not contain a promise by Mr Bishop that profits would be sufficient to meet the £120,000 guaranteed annual salary. Mr Golstein has no claim against Mr Bishop for damages under clause 2.2 in a case of insufficiency of profits. There is no loss of the sort which was in the contemplation of Lord Goff in Firma C-Trade to which Patten LJ referred in McGuinness.

47.

There are four other points which I would make about clause 2.3.2.

i)

The first is that Mr Bishop’s obligation under clause 2.3.2 is to indemnify Mr Golstein “for” his guaranteed salary whereas it is to indemnify him “against” all Liabilities and other specified claims. That contrast suggests to me that there is no relevant similarity between an indemnity of the sort considered by Lord Goff and Patten LJ and the sort of indemnity contemplated by clause 2.3.2.

ii)

The second is to emphasise that the subject matter of the indemnity is “his guaranteed salary”, that is to say the “guaranteed annual salary” referred to in clause 2.2. As I have already observed, the use of the phrase “guaranteed annual salary” suggests that Mr Golstein is to become entitled to that salary in the year in respect of which it accrues and not have to wait for possibly years until accounts are taken and a balance struck. One might, as I do, question how it is that the payment by Mr Bishop after the taking of an account possibly a considerable time after the year in question is a sufficient vindication of Mr Golstein’s right to be indemnified for his annual salary.

iii)

The third is to note that Mr Nugee referred to an obligation to make a payment to cover a loss. A general statement of that sort, however, does not really tell us much. A guarantee of a loan of each of types ii) and iv) identified by Patten LJ in McGuinness creates an obligation to make a payment to cover a loss, that is to say the non-payment of monies due under the loan agreement. An indemnity of type iii) identified by Patten LJ (that is to say, the sort of indemnity analysed by Lord Goff in Firma C-Trade) is also an undertaking to cover a loss, but the loss in such a case is one which has been suffered by the person indemnified as the result of the actions or potential actions of a third party. In the present case, there is no “loss” of that sort at all. Clauses 2.2 and 2.3.2 of the HoA make no reference to “loss” at all. Mr Nugee introduces “loss” to describe the effect of an indemnity. The logic of his reasoning (“I therefore consider….”) is that because the concept of indemnity is an obligation to cover a loss, therefore Mr Bishop’s obligation is to make good the shortfall only once it has been identified. But that would follow only if the shortfall were somehow analogous to a loss. Mr Nugee does not explain why it should be categorised in that way. I would have thought that an obligation to indemnify a person against a loss (for instance, an insurer’s obligation to his insured) is a very different creature from an obligation to “indemnify” (that is to say, keep harmless) for an amount (in the present case, a guaranteed annual salary) which is identified in the relevant contract (in the present case, the HoA) where the person indemnified has never suffered a loss in the sense relevant to the sort of indemnity considered by Patten LJ and Lord Goff.

iv)

The fourth is that clause 2.3.2 is applicable as much while the firm is ongoing as while it is in winding-up; indeed, one might think that the primary focus of the provision is on the former. In the context of an ongoing firm, the only account which would need to be taken to ascertain Mr Bishop’s liability to pay any shortfall of the guaranteed annual salary would be an account of profits for the year in question: there would be no need for the wider account taken on a dissolution. Mr Nugee, however, appears to contemplate a need for the dissolution account to be completed before the shortfall can be identified.

48.

Although, as can be seen, I have misgivings about Mr Nugee’s conclusion on the meaning and effect of clause 2.3.2, I am bound by it since it was part of his decision and not simply obiter observation. I am, however, bound only so far as it goes. It appears to go no further than to decide that Mr Bishop has a contractual obligation under clause 2.3.2 to make good the shortfall only once it has been identified. Mr Nugee says nothing expressly about the nature of Mr Golstein’s claim once the shortfall had been identified or even before; in particular he does not say whether it would be a claim for a liquidated amount or for an unliquidated or uncertain amount. Mr Salis submits that Mr Nugee says nothing which is inconsistent with the proposition that the claim under clause 2.3.2 is for a liquidated amount.

49.

It is, however, clear that Mr Golstein’s rights under clause 2.2 (apart from the impact of clause 2.3.2) give rise only to unliquidated claims. To ascertain what he is entitled to, it is necessary to establish the profits for the period in question. At least until that is done, Mr Golstein has no liquidated claim.

50.

Further, even if it had been established that the profit exceeded £120,000, it does not follow that Mr Bishop would be liable under clause 2.2 for the shortfall in what Mr Golstein has actually received. For example, the profit might be represented by the balance in a bank account in the firm’s name which Mr Bishop refused to be drawn on. In that case, Mr Golstein might be entitled to an order entitling him to draw his salary out of that account, but that is not the same as an entitlement to an order that Mr Bishop personally should pay that salary. Or to take another example, suppose that cash-flow difficulties make it impossible for the firm to meet the shortfall. In that case, it is not easy to see why Mr Golstein should have a claim against Mr Bishop under clause 2.2 for the shortfall. However, the difficulty facing Mr Golstein is that, as a matter of fact, the amount to which he was entitled under clause 2.2(a) was not known even by the time of DJ Hart’s decision. The necessary account had not been concluded. Just as a claim in damages is not for a liquidated amount until the court has ruled (or agreement has been reached) even though one can have a very good idea of the amount likely to be awarded (or even something approaching certainty that the sum will be above some ascertained minimum amount) so too, a claim under clause 2.2 is not for a liquidated amount until the necessary account has been concluded.

51.

I understand the argument that clause 2.3.2 casts contractual obligations on Mr Bishop to pay to Mr Golstein any shortfall below £120,000 pa which Mr Golstein actually receives and to make such payment within a reasonable time after the year-end. I cannot accept that argument: Mr Nugee’s decision, is inconsistent with it. He has held that the obligation under clause 2.3.2 only arises once the shortfall had been established, by which he meant the shortfall in what was due from the firm, not the shortfall in what had actually been paid by the firm. For reasons which I have given, any liability which Mr Bishop may have had at the time of the hearing before DJ Hart under clause 2.2 was for an unliquidated or uncertain amount. It follows logically, in my view, from Mr Nugee’s conclusion that, at least until the amount owing under clause 2.2 has been identified, a claim for the shortfall under clause 2.3.2 is also for an unliquidated or an unascertained amount (in the language of Rule 5.21(3), a debt whose value is unascertained).

52.

There is, nonetheless, a strong case for saying that the claim is for a liquidated (and certainly an ascertained) amount once the shortfall has been identified and nothing in Mr Nugee’s conclusion or reasoning is inconsistent with that conclusion. Unfortunately for Mr Golstein, not only had the dissolution account not been finalised when the matter came before DJ Hart, but also it had not been established that the profits of the firm (for the periods in respect of which Mr Golstein claims under the indemnity) were insufficient to meet the guaranteed annual salary. It cannot, therefore, be said that Mr Golstein’s claim for an unliquidated and/or unascertained amount had, by the time of the hearing before DJ Hart, become liquidated or that it remained anything other than unascertained. Accordingly, I consider that Mr Nugee’s decision compels me to hold that Mr Golstein’s claim under clause 2.3.2 at the date of DJ Hart’s decision was for an unliquidated and unascertained amount. Further, Mr Salis’ submission to Mr Nugee was to the effect that Mr Bishop was primarily liable for the whole sum (ie at the rate of £120,000 pa) with Mr Bishop being entitled to set-off what had already been paid on account. Mr Nugee’s rejection of Mr Salis’ submission again makes it impossible for me to conclude that Mr Golstein had or has a liquidated claim.

53.

Moreover, I must reject the argument along the following lines:

i)

Come what may, Mr Golstein was entitled to receive from Mr Bishop, the shortfall claimed because he would be entitled either under clause 2.2 (if profits were sufficient) or under clause 2.3.2 (if they were not).

ii)

Although it might not be known until accounts were taken under which clause he was entitled, combining the two rights together gives a claim for the whole of the shortfall.

iii)

Since that amount can be ascertained under the terms of the HoA, it fulfils the requirement for there to be a liquidated amount set out in McGuinness namely that there must be a pre-ascertained liability under the agreement which gives rise to it.

54.

The objection to this argument is that it assumes, in a case of sufficiency of profit, that Mr Bishop is liable to Mr Golstein under clause 2.2 for the difference between the amount actually paid to Mr Golstein and the amount to which he is entitled under clause 2.2. That will depend on the facts: I have given examples in [50] above where that will not be so. Unless and until appropriate accounts and inquiries are taken or agreement reached, it cannot be said that Mr Bishop is personally liable for that shortfall under clause 2.2.

55.

It follows in my judgment that DJ Hart was correct in her conclusion that Mr Golstein’s claim at the time when the matter was before her was for an unliquidated and unascertained amount. Accordingly, for voting purposes, Mr Golstein’s claim fell within Rule 5.21(3). DJ Hart concluded that Mr Barnett was correct to value the claim at only £1. There is no appeal from that part of her decision if, as I have held, Mr Golstein’s claim was for an unliquidated or unascertained amount. For my own part, I would have thought that there were arguments with real merit for saying that DJ Hart should have valued Mr Golstein’s claims at considerably more than £1 even though she correctly categorised them as unliquidated or unascertained. Since there is no appeal, I say no more about it.

56.

I should not, however, be taken as agreeing with the view which DJ Hart expressed in [68a.] of her judgment where she said that the court is not to apply the benefit of hindsight where this involved reaching conclusions that could not have been reached at the time of the meeting even if the best evidence had then been available. The impact of that statement was that she considered herself unable to take into account Mr Nugee’s conclusions that Mr Bishop’s counterclaim was to be dismissed and that Mr Golstein was entitled to a guaranteed annual salary of £120,000 rather than the reduced amount which Mr Bishop alleged. It is correct that an unliquidated claim cannot be recharacterised as a liquidated claim, but it is certainly the case that the full amount of damages awarded in respect of an unliquidated claim between the date of a vote at a creditors’ meeting and the hearing of an appeal can be taken into account. I see no difference in principle between such a case and the present case as it stood before DJ Hart. My view is consistent with the approach in Maxwell although I accept that that decision is not determinative of the issue. Mr Ascroft relies on the decision of Lewison J in Re Power Builders (Surrey) Ltd [2008] EWHC 2607 (Ch), [2009] 1 BCLC 250 at [12] to [17]. At [17], Lewison J expressed the view, in relation to Rule 4.70, that events subsequent to the meeting will not lead to an appeal against the chairman's decision being allowed. As a general proposition, I do not disagree with that. But that proposition must be qualified by the proposition, confirmed in Maxwell, that subsequent events can be taken into account when valuing a debt for voting purposes.

Conclusion on Ground 1

57.

The appeal on Ground 1 is therefore dismissed

Ground 2

58.

Ground 2 is summarised in [3] above. This Ground relies on sections 262 and 264 Insolvency Act 1986 and the majorities required to approve an IVA under Rule 5.23.

59.

Section 262, so far as material, provides as follows:

“262 Challenge of meeting’s decision

(1) Subject to this section, an application to the court may be made, by any of the persons specified below, on one or both of the following grounds, namely –

(b) that there has been some material irregularity at or in relation to such a meeting.

(2) The persons who may apply under this section are –

….

(b) a person who –

(i) was entitled, in accordance with the rules, to vote at the creditors’ meeting, …

(3) An application under this section shall not be made —

(a) after the end of the period of 28 days beginning with the day on which the report of the creditors' meeting was made to the court under section 259, or

(b) in the case of a person who was not given notice of the creditors' meeting after the end of the period of 28 days beginning with the day on which he became aware that the meeting had taken place , but (subject to that) an application made by a person within subsection (2)(b)(ii) on the ground that the arrangement prejudices his interests may be made after the arrangement has ceased to have effect, unless it has come to an end prematurely.

(4) Where on an application under this section the court is satisfied as to either of the grounds mentioned in subsection (1), it may do one or both of the following, namely —

(a) revoke or suspend any approval given by the meeting ;

(b) give a direction to any person for the summoning of a further meeting of the debtor's creditors to consider any revised proposal he may make or, in a case falling within subsection (1)(b), to reconsider his original proposal.

……

(8) Except in pursuance of the preceding provisions of this section, an approval given at a creditors' meeting summoned under section 257 is not invalidated by any irregularity at or in relation to the meeting.”

60.

The effect of Rule 5.23 is that a resolution to approve a proposal for an IVA must be supported by:

i)

75% in value of the total debt voting; and

ii)

over 50% in value of the “independent debt”, that is to say debt owed to persons who are not “associates” of the debtor as defined in section 435.

61.

Mr Ascroft has referred me to the recent decision of the Court of Appeal in Narandas-Girdhar v Bradstock [2016] EWCA Civ 88. He relies on what was said by Briggs LJ at [38]:

“The obvious purpose of these two subsections [section 262(3) and (8)], read together, is to ensure that all challenges to the validity of an IVA based upon an alleged irregularity at or in relation to a creditors’ meeting are resolved within a very tight time limit (subject to the court’s power to extend) and dealt with by more flexible court powers than the blunt weapon of a declaration of invalidity. It both prevents such challenges being made long after the event, and avoids what would otherwise be the automatic consequence of invalidity, namely the debtor and the creditors always having to re-start the IVA process again, from scratch. In particular, the court’s powers under s 262 are discretionary, so that a minor irregularity which might at common law invalidate the process could nonetheless leave the statutory outcome intact, where for example, the irregularity caused no sensible prejudice to a complainant creditor (or debtor) wishing to wreck the IVA for wholly collateral reasons.”

62.

The importance of speedy determinations of section 262 challenges was, he points out, emphasised again later in the judgment at [49]:

“[T]o maximise certainty as to the validity of an IVA, section 262 sensibly imposes a strict statutory regime designed to ensure that all challenges to validity of the approval at the meeting are raised and resolved as soon as possible.”

63.

That the granting of relief under subsection (4) is discretionary also appears from the judgment of Arden LJ in Davis v Price [2014] EWCA Civ 26; [2014] 1 WLR 2129 at [14].

64.

There is no definition of the word “material” in the Insolvency Act 1986. For guidance on the principles to be adopted when determining the existence of a material irregularity, see Fender v Commissioners of Inland Revenue [2003] BPIR 1304 at [11]. It does not add anything new to the jurisprudence, but it is useful in repeating that a debtor who puts forward an IVA “must be not only honest, but should take care to put all relevant facts before creditors”.

65.

The leading case in which the issue of materiality was considered is Somji v Cadbury Schweppes plc [2001] 1 WLR 615 (“Somji”), where it was held (see at p 626) that the correct approach for determining materiality is to consider “whether, had the truth been told, it would be likely to have made a material difference to the way in which the creditors would have considered and assessed the terms of the proposed IVA”. Mr Golstein accepts that this principle is now well established and that it is regularly applied in situations where there has been an irregularity in the way in which an IVA proposal was put before creditors.

66.

This test is one which is to be applied objectively: see Robert Walker LJ at p 626. This must mean that the subjective approach of the actual creditors is not the touchstone for assessing materiality. However, the actual vote of the actual creditors will reflect their subjective approach. It is not, therefore, correct to ask whether, had they been told the truth, the actual creditors would have considered and assessed the matter differently, let alone whether they would have voted differently. Instead, the test is to consider whether an objective creditor would have considered and assessed the matter differently depending on whether the truth had been revealed to him.

67.

I would add that the meaning of “likely” in the similar context of a CVA has been considered in Re Trident Fashions (No 2) [2004] 2 BCLC 35 at [46] where Lewison J said this:

…It seems to me, therefore, that the right test is whether there was a substantial chance that the creditors would not have approved the CVA in the form in which it was presented.

68.

There is, I think, a tension between the objective test stated by Robert Walker LJ and the way in which Lewison J articulates the test. However, it seems to me that the adoption of an objective test does not mean that the anticipated behaviour of the actual creditors is to be ignored. Thus in the case of an IVA, a creditor might be a personal friend and supporter of the individual proposing an IVA. If it were clear that, even if told the truth about something he did not previously know, he would not have changed his vote, then the non-disclosure, even if it is material according to the objective test might have no consequence. On this approach, the failure to reveal the truth might be material in the sense that an objective person would have considered and assessed the matter differently, and the court might conclude that there was a substantial (in contrast with insubstantial) chance that the objective creditor would have voted against the IVA. But the court, in its discretion under section 262(4), could nonetheless decline to provide any remedy if it were satisfied that the proposal would have been approved in any event.

69.

Putting that into the context of the present case, it may be that the non-disclosure by Mr Bishop was material in the sense that an objective creditor would have considered and assessed the IVA proposal differently if he had known the truth; but the court might nevertheless be satisfied that the IVA would have been approved because it can be sure that there were sufficient votes which would have been cast in favour of the proposal by actual creditors for whom the non-disclosure would not, subjectively, have mattered. In such a case, the irregularity, although material according to the objective test, has no consequence with the result that the court should not afford a remedy. To put the matter the other way round, imagine an entirely objective creditor who actually votes in favour of a proposal but who would have voted against it if full disclosure had been made of something which the debtor had suppressed. Clearly the non-disclosure is material so far as the objective creditor is concerned. But he might nonetheless have been outvoted, even if the truth had been known by other creditors. In my view, there would in such a case be a material irregularity but it would not have the consequence that the approval of the IVA should be revoked.

70.

Mr Salis observes that the Court of Appeal in Somji was dealing with a situation in which the material facts which were not disclosed concerned the availability of third party funding and the possibility of deals being made outside the operation of the IVA which potentially could have been of financial benefit to the creditors. The facts which were not disclosed did not go directly to the credibility and trustworthiness of the debtor making the proposal.

71.

He goes on to submit that fundamental to any IVA proposal is the importance of trust and good faith, and the consequent duty of full and frank disclosure. The Court of Appeal in Kapoor v National Westminster Bank plc [2011] EWCA Civ 1083, [2012] 1 All ER 1201 (see [67] at p 1221) emphasises the important public policy principles behind these duties, as follows:

“…An IVA is a means by which an insolvent debtor can escape the full and rigorous consequence of a bankruptcy order, including the right of the creditors to select the trustee in bankruptcy, the supervision of the trustee by the creditors and the court, the ascertainment, collection and distribution of bankruptcy estate by the trustee, and the possibility of holding a public or private examination of the bankrupt on oath. In cases, such as the present, where independent creditors have doubts as to whether the debtor has been full and frank in the information he has provided, and, in particular, as to the full extent of his assets, an IVA has potentially severe disadvantages for those creditors.”

72.

And so Mr Salis submits that in view of the potential disadvantages which arise from the fact that the debtor’s affairs escape the rigorous scrutiny that is the consequences of a bankruptcy order, it is of paramount importance that these duties are observed: section 262A of the Insolvency Act 1986 provides for criminal penalties in the event that false statements or fraudulent omissions are made in order to secure the approval of an IVA proposal. Mr Salis further submits that these duties are not simply owed to the body of creditors but are owed to the nominee initially and the supervisor subsequently, since it is essential, if the supervisor is to fulfil the duties that come with that office, that the supervisor can place unqualified trust in the debtor: failure to make the supervisor aware that serious concerns have been raised about the honesty and integrity of the debtor undermines the whole concept of the IVA.

73.

In addition, a nominee or supervisor, if in doubt about the suitability or viability of an IVA proposal, is not obliged to take it on. In Somji and the other reported cases in which material non-disclosure was considered, the issue as to whether the nominee supervisor would have even taken on the proposal if he had been aware of the matters which should have been disclosed but which were not, was not raised. Mr Salis submits that the duties of good faith owed by the debtor to his creditors are owed also to the nominee and the supervisor of the IVA since it is essential, if the nominee and supervisor are to fulfil the duties which come with the office, that he can place unqualified trust in the debtor: the failure to make him aware that serious concerns have been raised about the honesty and integrity of the debtor undermines the whole concept of the IVA.

74.

Although there is some force in those submissions, I do not consider that, on the facts of the present case, they assist Mr Golstein’s case. This is because his challenge rests on non-disclosure of the SDT proceedings, a failure to disclose to the creditors as much as, or perhaps even more so than, to Mr Barnett. As I will explain, I consider that disclosure should have been made to the creditors and that the failure to do so was a significant failure. It adds nothing to Mr Golstein’s case to establish that the failure to disclose those same matters to Mr Barnett also constitutes a material irregularity. I do not propose, therefore, to say anything further about those particular submissions.

75.

The Court of Appeal in Kapoor v National Westminster Bank plc (see pp 1216 and 1221) expressly states that the principle of good faith is included within and colours the concept of material irregularity. Notwithstanding the fact that the assignment which gave rise to the voting rights intended by the debtor took place openly and with the knowledge of the other creditors, and notwithstanding the fact that it was a valid assignment, the Court of Appeal was nevertheless satisfied that the IVA was passed as a result of a material irregularity, since the impugned transaction was patently designed for the sole purpose of subverting the legislative policy whereby a debtor can escape the full and rigorous scrutiny that is the consequence of a bankruptcy order.

76.

In the present case, it is said on behalf of Mr Golstein that the facts in relation to the non-disclosure, were material to the extent that the non-disclosure affected the outcome of the vote. Applying the analysis which I have attempted to explain above, this means not only that the non-disclosure was material in the sense of affecting how an objective creditor would consider and assess the proposal, but also that the actual votes of some at least of the actual creditors would have been different and would have affected the outcome. The material facts about the non-disclosure are set in [88] to [91] of DJ Hart’s judgment:

i)

The allegation was that Mr Bishop dishonestly attempted to assist a client to evade the terms of a restraint order made under the Proceeds of Crime Act 2002, in that he attempted to act in connection with the disposal of the property, notwithstanding the fact that he had been served by the police with copies of the restraint order prohibiting the disposal of the property concerned. The facts found by the SDT in September 2012 involved clear dishonesty on the part of Mr Bishop.

ii)

When questioned about this transaction by officers of the Metropolitan Police, he lied and told them that he had not been served with a copy of the restraint order.

iii)

The SDT found that he had acted dishonestly and struck him off the Roll of Solicitors on 4 September 2012, some months after the IVA was approved.

iv)

Mr Bishop chose not to defend the SDT proceedings. He told DJ Hart that this was because he had in any event retired. She considered that this was not a basis for the court to doubt the findings of the SDT. I agree.

v)

The investigation was commenced on 23 February 2012. Mr Bishop accepts that he was aware of the investigation by March 2012. Notwithstanding this fact, he failed to make any mention of these proceedings in his IVA proposal dated 20 April 2012 or notify Mr Barnett of them at any time prior to the passing of the resolution to approve the IVA.

77.

DJ Hart was clearly of the view that Mr Bishop should have disclosed the existence of the disciplinary proceedings. I agree. Referring in [89] to his response to a notice of breach of the IVA on 1 August 2014 (to which I will come) she saw this as underlining that Mr Bishop had clearly either failed to understand or accept the duty he was under adding:

“Given that he had practised for many years as a solicitor, it is hard to credit that he did not read and understand the proposal that he had signed on 20 April 2012. This contained a statement that he would be liable to criminal prosecution if he failed to make full disclosure to [Mr Barnett] or disclosed false or misleading information to creditors to procure their agreement to the proposal.”

78.

Mr Bishop was aware by 25 May 2012 at the latest that the investigation had resulted in disciplinary proceedings since he was aware that a hearing had been fixed. He knew the serious nature of the allegations being made. DJ Hart concluded that Mr Bishop’s lack of disclosure was not excused by the fact that Mr Barnett also knew, by that time, that an SDT hearing was imminent. Mr Bishop, she held, was clearly in breach of his duty of full disclosure. Again, I agree. I add here that the fact that Mr Barnett knew of the pending hearing is apparent from a letter written to him or his solicitors by Mr Golstein’s solicitors dated 25 May 2012 in which they informed Mr Barnett of a pending hearing before the SDT of a complaint (not made by Mr Golstein) that Mr Bishop had acted for a client in the sale of a property contrary to the Proceeds of Crime Restraint Order.

79.

I interpose here to say something about the notice of breach which I mentioned at [77] above. On 1 August 2014, Mr Barnett gave notice to Mr Bishop of breach of the terms of the Arrangement. I do not need to go into the merits of that notice since it was of no effect, having been given after the IVA had, according to the terms of the Arrangement, terminated. That was decided by DJ Hart following a hearing in March 2015 on an application by Mr Bishop to challenge the termination of the Arrangement for breach as the result of a meeting of creditors in November 2014, her decision being that the IVA had terminated prior to that meeting by effluxion of time. In relation to that application, Mr Barnett made a witness statement dated 20 February 2015. In that witness statement, Mr Barnett says this at [20]:

[Mr Bishop] argues that he did not know what the outcome of the hearing would be and thus had no reason to disclose it or that he may not have had notice of the proceedings before the adoption of the Arrangement. It is my understanding that the application by the SRA was dated 23 February 2012. The Meeting of Creditors in relation to the Proposal did not take place until 31 May. It is clear that [Mr Bishop] was fully aware of these proceedings. [I add that it is clear from DJ Hart’s judgment that he did indeed know.] Moreover, given the nature of these proceedings it is in my opinion unquestionable that [Mr Bishop] should have disclosed this to me as Nominee. At the time, his integrity was coming under question from [Mr Golstein] who at the time was a contingent creditor, and these proceedings would clearly have added weight to such assertions. Ultimately, I think it would only have been fair for creditors to be given the chance to make an informed decision on both the Applicant and the Proposal before deciding which way to vote.

80.

Mr Barnett’s own position was set out in [28] namely

that all of Mr Bishop’s creditors were entitled to know that serious allegations of professional misconduct, including dishonesty, were pending against him. Moreover, I was entitled to know about it as well, in order to carry out my duties to the court and the creditors as set out in SIP3.”

81.

I should also mention Mr Barnett’s comments in relation to the 25 May 2012 letter. He noted in [21] of the witness statement that he inferred that a complaint had been made by a client but that the letter did not give much detail nor state (nor did he infer) that there were any accusations of dishonesty, nor that proceedings had actually already been instigated by the Solicitors Regulatory Authority (“SRA”). He adds that he did not know or appreciate the possible severity of the complaint and that, had he done so, he would have taken further action.

82.

Returning to DJ Hart’s judgment, she went on to consider whether objectively the breach made a material difference since, if it did not, the vote at the meeting should in her view be allowed to stand.

83.

Other material findings of DJ Hart are these:

i)

The other creditors were aware that Mr Bishop’s integrity was not beyond question, despite his standing as a retired solicitor, since Mr Golstein had circulated a memorandum alleging that Mr Bishop had sought the assistance of an IVA to avoid scrutiny of his affairs, had failed to account for partnership profits, was disposing of or concealing assets to avoid creditors and had retired because of problems with the SRA. DJ Hart said this at [95] of her judgment:

“Whilst a reader of the circular is likely to have concluded that there was obviously much “bad blood” between CB and G, no creditor could have been left with the impression that CB was someone whose good character should be assumed. Accordingly, I do not consider that N’s decision not to notify creditors of the contents of the SMAB letter [the letter referred to in [78] above] was outside the reasonable range in the circumstances. In those circumstances, CB’s serious breach did not objectively make a material difference to the assessment of the IVA by his creditors.”

ii)

Mr Bishop should, as the result of the SDT proceedings, have listed the SRA and HM Treasury as creditors. However, as contingent creditors in ongoing proceedings their claims should only have been valued at £1. Taking into account the likelihood that the creditors Charles Brvao Ltd (“CBL”), Margaret Bishop and Richard Anthony & Co would have voted in favour of the proposal in any event, the combined voting rights of these creditors was so great that even if Mr Golstein’s vote in respect of the petition debt had been allowed and Siemens, a creditor that had remained undecided until the last minute then decided to vote in favour of the proposal, had voted against it, the proposal would still have been approved.

iii)

The non-disclosure was therefore not material.

84.

As to findings i) and ii) above, I comment as follows. First, in relation to i), it seems to me to miss the point. The point is that Mr Bishop failed to disclose not only to the creditors but also to Mr Barnett either the seriousness of the allegations against him or the fact that the SRA had not only launched an investigation but had commenced proceedings. It may be correct that Mr Barnett was acting reasonably in not bringing the letter of 25 May 2012 to the attention of the meeting. A reader of that letter, however, would not have been alerted to the seriousness of the complaint or that proceedings had been started. This is precisely the point which Mr Barnett himself has made: see [81] above. Further, the question of “bad blood” is irrelevant. No doubt there was bad blood, but there was no prospect of the allegations themselves being seen as arising as a result of that bad blood. The fact is that, bad blood or not, the instigation of the proceedings had nothing whatsoever to with bad blood and everything to do with the objective assessment of the SRA to investigate, and then prosecute, misconduct on the part of Mr Bishop (arising, it might be added, as the result of a complaint by the Metropolitan Police). The matters being alleged were extremely serious, and potentially constituted criminal offences, since they consisted of disobeying of a Court Order, laundering the proceeds of crime and attempting to pervert the court of justice. The SDT regarded the allegations as being so serious that Mr Bishop was stuck off the Roll of Solicitors.

85.

I agree with Mr Salis’ submission that, under these circumstances the allegations are likely to have been taken far more seriously by an objective creditor than any allegations made by Mr Golstein in his memorandum. I also agree with his submission that the allegations were also highly relevant to a proposal for an IVA and its subsequent administration, since they suggested that Mr Bishop was prepared to assist dishonestly in the disposal of assets which were being claimed by others, and was prepared to disobey an Order of the Court in order to do so.

86.

I have no doubt that the non-disclosure was material for the purposes of section 262 in the sense which I have discussed above (see in particular [68] and 69]) and, if and insofar as DJ Hart is to be read as deciding otherwise, she was in my judgment wrong to do so. I am not sure that she did decide that. As has been seen, I have drawn a distinction between what is material so far as concerns an objective creditor and how the actual creditors would have voted had they known the truth. DJ Hart did not draw that distinction, concluding instead that, if the proposal would have been passed in any event, there was no material irregularity. Our different approaches should not, in practice, produce different results. However, I do consider that it is important to assess how creditors would have voted against the background of a non-disclosure which, objectively, gave rise to a material irregularity rather than to discount the seriousness of the non-disclosure, and to describe it as a mere, rather than a material, irregularity simply because the proposal would still have been approved.

87.

My conclusion, thus far, is that the Somji test (whether, had the truth been told, it would be likely to have made a material difference to the way in which the creditors would have considered and assessed the terms of the proposed IVA) applied objectively is that the non-disclosure by Mr Bishop gave rise to a material irregularity for the purposes of section 262. Applying that test objectively, the creditors, at least those who did not enjoy a strong personal relationship with Mr Bishop, would have considered and assessed the terms of the proposed IVA differently. That is not to say, however, that the result of those considerations and assessments would have resulted in their voting in a way different from their actual votes. In cases of this sort, the court will often be able to provide a remedy by directing a further meeting of creditors to be summoned to reconsider the proposal under section 262(4). There would be no point in doing so if it were clear that the vote would, in any event, be to approve the proposal.

88.

In that respect, it is important to consider, in the present case, how the creditors would or might have voted if Mr Bishop had made proper disclosure.

89.

The actual votes cast are recorded by DJ Hart at [7]. The only votes against were Mr Golstein and Quinn Insurance Ltd (each valued at £1) with Siemens Financial Service (£6,866) Richard Anthony & Co (£5,400 for accountancy), CBL (£88,092) and Mrs Bishop (£18,656) voting in favour. There were other creditors disclosed in the proposal who did not vote, amounting to £25,373 (BT £1,497), HM Treasury (SDT fine of £5,000), SRA (costs £13,115) and ING Lease (UK) Ltd (£5,760). In addition, there was a petition debt of £19,104 owing to Mr Golstein. This was paid off by a friend and neighbour of Mr Bishop the day before the adjourned meeting held on 31 May 2012. Mr Barnett did not allow either Mr Golstein or the neighbour to vote in respect of this debt. CBL was treated as an associate of Mr Bishop (relevant to the requisite majority required by Rule 5.23(4)). DJ Hart held that CBL was not an associate; there is no appeal against that.

90.

DJ Hart held, at [100], that there was no substantial chance that either Mrs Bishop or CBL would have voted against the proposal. I agree with that assessment. Similarly, I agree with her conclusion that there was no substantial chance that Richard Anthony & Co would have voted against. She concluded, in contrast, that there was a substantial chance that Siemens would have voted against the proposal. Again, I agree.

91.

As to the petition debt of £19,104, it is necessary to refer to [73] of DJ Hart’s judgment. She appears to have accepted the neighbour’s evidence to the effect that the payment was made to settle the petition debt plus interest and was motivated by her friendship with Mr and Mrs Bishop. The prospect of Mr Bishop’s bankruptcy appeared to her unjust and her motivation was to remove that threat by paying the debt. There is no doubt that the funds were paid out of the neighbour’s own free money. Mr Bishop knew, of course, that the payment was being made; indeed, he drafted the letter dated 30 May 2012 informing Mr Barnett of the payment and seeking to exercise the votes attached to that debt.

92.

In the 30 May 2012 letter, it was asserted that there had been an equitable assignment of the debt to the neighbour. DJ Hart recorded in [73] of her judgment the agreement (presumably of both sides) that the assertion of an equitable assignment of the debt from Mr Golstein to the neighbour was misconceived. The issue instead was whether the payment tendered was accepted. As to that, her clear conclusion (which is not appealed by Mr Bishop) is that Mr Golstein did not accept the payment from the neighbour at or prior to the creditors’ meeting on 31 May 2012: see [74] of her judgment. Her conclusion, in [75], was that Mr Golstein should have been allowed to vote, but with the vote being marked as objected to. She repeated in [103] that, at the creditors’ meeting, it would have been correct to permit Mr Golstein to vote in respect of that sum. I agree with her conclusion. Had that been done, then the validity of the objection could have been decided on an appeal under Rule 5.22(3). At [78], she reaches the conclusion that, unless she were to find that the payment must be held for the benefit of all of the creditors, there would no justification for the neighbour’s tender to be refused once the application before her had been determined.

93.

It is necessary to say a bit more about the purported discharge of a debt by a third party. In [73] of her judgment, DJ Hart referred to Brindle & Cox: the Law of Bank Payments (4th ed), stating, correctly, that a creditor cannot be forced to accept payment of a debt, even if his refusal of the tender is wrong. The relevant passage appears in paragraph 1-003. DJ Hart adds that the refusal may have consequences: she does not identify those consequences, but one is that the debtor may have a good defence of tender before action to a subsequent claim for payment. It may be that another consequence, where it is the debtor who makes the tender in a situation where he could properly have made the payment, is that the creditor ceases to be a creditor for the purposes of voting. But that could not possibly the case if the debtor would not have been able validly to make the payment, for instance if a bankruptcy petition had been presented: the tender, in such a case, would be futile.

94.

In contrast, if the creditor accepts payment from a third party, difficult questions may arise. This topic is considered in another section of Brindle & Cox at 1-014.

95.

I do not need to address these difficulties. They do not arise, in my judgment, where there has been no acceptance of a tender or payment as in the present case. I know of no authority which would suggest that a creditor who has refused to accept a payment from a third party, where that tender or payment is not made on behalf of the debtor, would provide the debtor with a good defence – I suppose it would be called “tender by a third party before action”. I am not aware of any principle which entitles a debtor or a third party to compel a creditor to accept payment from the third party so as to discharge the debt (unless the third party is simply acting as an agent of the debtor), even if the debtor has asked the third party to assist by making the payment.

96.

Returning to DJ Hart’s judgment, she revisited the petition debt of £19,104 at [104]. This was required, she said, because the court has to assess whether the objection by the neighbour, that she and not Mr Golstein should be allowed to vote, should be sustained. Her relevant findings are found, or summarised, in [104] as follows:

“… I have already stated that the creditors would not, had the meeting been adjourned, have been in any position to insist that the third party monies tendered be distributed pari passu, even though they should as a matter of good faith have been informed. That being so, it is now apparent that [Mr Golstein] need not have refused to accept the tender of the basis of Kapoor. As I have also indicated, there is no evidence that the funds were Mr Bishop’s own and not third party funds. At the time of the creditors’ meeting, [Mr Golstein’s solicitors] had not indicated that there was any question of not accepting such funds on professional or regulatory grounds. Accordingly, it is now clear that as of 31 May 2012, Mr Golstein was in a position to accept payment of the tendered monies and his vote of £19,104 should have passed to [the neighbour] who had applied to vote in favour by proxy. This is not, however, material as the IVA would have been passed in any event.”

97.

I can agree with most of that but I have a great deal of difficulty in understanding why the fact that Mr Golstein was in a position to accept payment means that his vote should have passed to the neighbour. Once it is accepted that there was no equitable assignment (a clearly correct concession in my view, to which I would add that there could not, in the alternative, have been any constructive trust or imposition of equity bringing about the same result as an equitable assignment) the issue, as DJ Hart said in [73], is whether the payment was accepted, as to which she has correctly held that it was not.

98.

It will be apparent from my discussion of the law relating to payment by third parties that I do not understand under what principle it is said that the neighbour was entitled to pay off Mr Bishop’s debt and that Mr Golstein was obliged to accept the payment offered. The creditor at the time of the 31 May 2012 meeting was, it seems to me, Mr Golstein and not the neighbour. That is the conclusion which DJ Hart reached. Mr Golstein was not obliged to accept it and, until he did so some time after a hearing before DJ Hart on 12 January 2016, his debt remained undischarged. Mr Golstein does not need to justify his refusal to accept the payment. That being so, I disagree with the conclusion that it was the neighbour who was entitled to vote.

99.

It is said that there is no appeal against this part of DJ Hart’s decision. That, conclusion, however, was not necessary to her decision because, as she said in the last sentence of [104], it was not material as the IVA would have been passed in any event. In any case, DJ Hart’s conclusion that the vote passed to the neighbour is in my judgment simply inconsistent with her clear and correct finding that the tender was not accepted. If it was not accepted, then the debt was not discharged so that Mr Golstein, and not the neighbour, was the creditor at the time of the approval meeting. The payment by the neighbour would not have provided Mr Bishop with a defence to a claim for the debt by Mr Golstein; there would be no equivalent to a defence of tender before action. I am entitled to proceed, and do proceed, on the basis that Mr Golstein was entitled to vote at the meeting.

100.

As to the amounts of the debts owing to HM Treasury and the SRA, there are two separate elements. The first element comprises sums in respect of which they had voting rights at the date of the proposal of £5,000 and £13,115 in respect of a fine and costs in relation to earlier proceedings. HM Treasury and the SRA did not vote at the meeting. However, once it is accepted that the failure of Mr Bishop to disclose the SRA proceedings was significant (or material in the sense which I have discussed), it follows that there must be a substantial chance that, instead of abstaining, HM Treasury would have voted against the proposal had they known the truth. The position of the SRA is more problematical. They, after all, knew of the disciplinary proceedings and, indeed, were in a position to be better informed than any other creditor. I do not know anything about the internal arrangements of the SRA and the SDT: I can only properly assume, in the absence of evidence, that the creditor in respect of the costs of the earlier proceedings and the creditor claiming in the IVA are the same entity and thus that the latter creditor was fully informed about the later SDT proceedings and the allegations of dishonesty against Mr Bishop. I must assume, therefore, that this actual creditor would not have been affected by the non-disclosure to the creditors generally so that the claim remains one in respect of which no vote is cast.

101.

The second element comprises contingent fines and costs in relation to the SDT proceedings which Mr Bishop had failed to disclose. These were unliquidated amounts. DJ Hart, in her assessment of the voting outcomes in Appendix 1 to her judgment, appears to have included the second element in the sum of £1 for each claim. That is something she was entitled to do in relation to the HM Treasury debt. There is, perhaps, some illogicality in including the SRA contingent claim even for £1 when, for reasons just given, it is to be assumed that they would not have voted in respect of the costs claim. This is not a reason for revising the approach which I have adopted to the costs claim, namely to leave it out of account for the reasons given.

102.

Dr Qureshi’s claim was dealt with by DJ Hart in [48] to [57] of her judgment. It is necessary only to refer to [57] where she held that the correct creditor in relation to the claim which she had discussed was Dr Qureshi. His claim was for an unliquidated sum which fell under Rule 5.21(3) and was therefore to be valued at £1 unless it was accorded a higher value. The maximum value was £5,000 for the reason she gives. She held that there was a substantial chance (indeed it more was likely than not) that had Dr Qureshi voted, he would have voted against the IVA. Significantly, she held that this was an irregularity, leaving the question of materiality to the end of the judgment. She included the £5,000 in the votes against the IVA in the Appendix to her judgment.

103.

I have referred at [90] to the debts of £1,497 owing to BT and £5,760 owing to ING Lease (UK) Ltd. These do not appear in the Appendix to DJ Hart’s judgment. In my view they ought to have done. There must, I consider, be a substantial chance that, had BT and ING known of the matters which Mr Bishop had failed to disclose, they would have voted against the IVA. Although argument did not focus on these debts, they are covered in the general point made in paragraph 38 and 39 of Mr Salis’ skeleton argument that non-disclosure would be likely to have had an effect on all creditors who did not enjoy a strong personal relationship with Mr Bishop.

104.

On the basis of the above discussion, the column in the Appendix to DJ Hart’s judgment under the heading “Votes cast under r.5.23(2)” should contain the following entries:

In favour

Richard Anthony & Co £5,400

CBL £88,092

Margaret Ida Bishop £18,656

Sub-total £112,148

Against

Siemens Financial Services £6,866

Mr Golstein (petition debt) £19,104

Mr Golstein (contingent claims) £1

Quinn Insurance Ltd £1

Dr Qureshi £5,000

SRA (accrued and contingent claims) nil – no vote

HMT (accrued claims) £5,000

HMT (contingent claims) £1

BT £1,497

ING Lease (UK) £5,760

Sub-total £43,230

TOTAL £155,378

Percentage in favour 72.2%

105.

If BT and ING are left out of account, the overall total reduces to £148,121. The percentage in favour is then 75.7%. If the petition debt is given to the neighbour who, it is to be assumed, it to be taken as voting in favour, the total remains £155,378 but the votes in favour increase to £131,252, with the percentage in favour at 84.5%.

106.

It is important to appreciate that the Appendix to DJ Hart’s judgment was not her assessment of how creditors would actually have voted. It was part of an exercise the purpose of which was to establish whether the disclosure by Mr Bishop of the SDT proceedings would have made any different to the actual result. Thus in respect of those appearing as voting in favour it can be said with confidence that the irregularity would not have affected how they would have voted. In contrast, the entries in the table for those voting against in my revised table assume in favour of Mr Golstein that the identified creditors (other than the SRA) would actually have voted against. It is known, of course, that Mr Golstein himself would have voted against but that cannot be said of the others. All that can be said of them is that the (material) irregularity gives rise to a substantial chance (which may not even be as much as a 50% chance) that they would have voted against. I cannot be anything like sure on the evidence before me that any of those others would in fact have voted against the proposal on 31 May 2012 had they known the truth or indeed that they would do so today assuming that a meaningful vote could now be taken, although I can be sufficiently certain that the SRA would have abstained to leave its entitlement to vote out of account.

107.

It can be seen from the above figures (taking BT and ING’s debts into account, as I consider they should be) that it is critical to Mr Golstein’s case that he was entitled to exercise the votes attached to the petition debt. For the reasons given, I consider that he was entitled to do so.

108.

Accordingly, my conclusion is that there was a material irregularity in the failure by Mr Bishop to disclose the SDT proceedings in his IVA proposal and to the creditors prior to the 31 May 2012 meeting. It is material in the sense that had the truth been told, it would have been likely to have made a material difference to the way in which the creditors identified in the table above as voting against the proposal would have considered and assessed the terms of the proposed IVA. Further, if the truth had been told, it would have been likely to have made a material difference to the outcome of the vote: there would have been a substantial chance that the proposal would have been rejected.

109.

In these circumstances, Mr Salis seeks an order revoking or suspending approval of the IVA. Mr Ascroft opposes that in the light of:

i)

The significant passage of time since the creditors’ approval was obtained (now over 4 years ago).

ii)

The full performance by Mr Bishop in the meantime of his post-approval obligations under the IVA (including the realisation of the relevant assets and payment to the Supervisor of the proceeds).

iii)

The consequent inability of Mr Bishop to offer the original proposal to his creditors for reconsideration under section 262(4)(b).

110.

As to the first and second of those, I do not know the full history of Mr Golstein’s application although Mr Salis did make some submissions. The application was made as long ago as 2012. It has not been suggested that it was not made in time thus providing the opportunity for the speedy resolution of such claims which Mr Ascroft has referred to (see [56] above). The delay should, of course, be taken into account but unless Mr Golstein is to be held responsible for it, it does not immediately strike me as fair that he should be deprived of the relief to which he would otherwise be entitled.

111.

Although I have received some submissions about remedies, I do not consider that I have heard enough to be able to deal justly with the appropriate remedy in the light of my conclusions and my reasons for them. I propose, therefore, to hold a further – I hope short – hearing either when this judgment is handed down or at some other convenient time to be fixed, to hear argument about the remedies which should be granted. One remedy (under section 262(4)(b)) would be to suspend the approval of the IVA proposal and direct a further meeting to reconsider the original proposal. If that were done, a question will arise about what persons qualify as creditors and in what amounts, in relation to such a vote. In that regard, and ignoring the effect of the IVA, a question will arise about Mr Golstein’s entitlement to vote in respect of any further debts which he has established, or which have become liquidated amounts, since 31 May 2012. Another remedy would simply be to revoke the approval and leave Mr Bishop and creditors to invoke such insolvency processes as they consider appropriate.

Conclusions

112.

Ground 1 of the appeal is dismissed. In my judgment, Mr Golstein’s claim under clause 2.3.2 of the HoA was an unliquidated and uncertain claim, at least until the ascertainment of the amount of the shortfall under clause 2.2, and thus unliquidated and uncertain at the time of DJ Hart’s decision.

113.

Ground 2 of the appeal is allowed. In my judgment, there was a material irregularity in the approval meeting as the result of Mr Bishop’s failure properly to disclose the SDT proceedings and the allegations being made against him.

114.

I will leave the question of remedies in respect of ground 2 to a further hearing.

Golstein v Bishop & Anor

[2016] EWHC 2187 (Ch)

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