This is an application by Dr Dewji for permission to appeal against Orders made by Master Cook, with the appeal to follow if permission is granted. On 26^th June, 2013, the Master exercised his discretion to permit the Respondent, Mr Banwaitt, to continue execution of a judgment against Dr Dewji for a sum of just under US$2 million (inclusive of interest) or approximately £1,428,000, notwithstanding the fact that an Interim Order under s.252 of the Insolvency Act 1986 was in force. The Master then made final the interim charging orders that had been granted in favour of Mr Banwaitt on 1^st May 2013 over three properties which Dr Dewji owns or in which he is beneficially interested, to which I shall refer as “Whitworth Lane”, “Hilltops” and “Dale Street”.

The purpose of an Interim Order under s.252 is to impose a moratorium on proceedings against an insolvent debtor so as enable the debtor’s proposal for an Individual Voluntary Arrangement (“IVA”) to be considered by his creditors. When an Interim Order is made, it precludes any creditor of the applicant debtor from presenting or proceeding with any bankruptcy petition against him and, by s.252(2)(b), no other proceedings, and no execution or other legal process, may be commenced or continued against the debtor of his property except with the leave of the Court (the statute does not use the word “permission,” though it amounts to the same thing). There is therefore a judicial discretion to permit a creditor to continue to execute a judgment in his favour, despite the existence of an Interim Order.

The jurisdiction to grant such leave is not confined to the Court that granted the Interim Order – see e.g. Hall & Another v Van Der Heiden [2010] EWHC 537 (TCC). One of the key issues arising in this case relates to the circumstances in which leave to continue with execution can properly be granted under s.252(2)(b). Perhaps surprisingly, there appears to be no authority directly in point. Obviously any Court considering whether or not to exercise the judicial discretion to lift the prohibition on a particular creditor doing what he wishes to do, must take proper account of the underlying objectives of the statutory moratorium. This is a matter of some importance, to which I shall return later in this Judgment.

Mr Cullen QC, who appeared for Mr Banwaitt, took the preliminary objection that the three Appellant’s Notices filed by Dr Dewji are confined to appealing against the making of the final Charging Orders, whereas in substance the complaint of Dr Dewji is about the exercise of the discretion to lift the prohibition on execution, and there is no appeal against the order that effected that. Thus, he submitted, the application for permission to appeal falls at the first hurdle, because if the discretion to grant leave to continue with execution was properly exercised, there was no arguable basis upon which to challenge the exercise of the discretion to make the charging orders final. In support of that submission Mr Cullen pointed to the fact that section 5 of each Appellant’s Notice stated that “the order [being appealed] is one of three orders over the Appellant’s properties, each of which is being appealed under separate Appellant’s Notices issued on the same day”.

Mr Hunter QC, who appeared for Dr Dewji, submitted that this was an unduly technical argument and that it lacked any merit. As is apparent from section 5 of each Appellant’s Notice, the orders of the Master had not been drawn up at the time when the Appellant’s Notices were served. Mr Hunter explained that the application to lift the prohibition on execution had been made orally to the Master at the hearing itself. When the orders were drawn up, for some inexplicable reason the grant of leave under s.252 was not recorded in them or in a separate order, and there is still no order recording the grant of leave. Plainly this omission should be remedied, and as it is too late to do anything to rectify the orders that have already been perfected, I shall direct that a separate order be drawn up to record the grant of leave.

The Grounds of Appeal recite, in paragraph 4, that at the hearing on 26^th June 2013, Master Cook (1) gave Mr Banwaitt permission pursuant to s.252(2)(b) of the Insolvency Act and then proceeded (2) to make the Interim charging orders final. In the next paragraph, it is stated that Master Cook’s decisions (plural) were “wrong” because he proceeded under what are alleged to have been two important misconceptions. Mr Hunter submitted that the “decisions” referred to in paragraph 5 were obviously the two decisions recited in paragraph 4; Mr Cullen riposted that in context the “decisions” were the decisions to make each of the three charging orders final, because those were the decisions under challenge, referred to earlier in the Grounds of Appeal.

In my judgment, Mr Hunter is right about this, and reading the Appellant’s Notices as a whole it is obvious that the substantive cause for complaint is the exercise of the Master’s discretion to grant leave to Mr Banwaitt to pursue his application for the charging orders to be made final. The alleged “misconceptions” stated in the Grounds were matters that went directly to the validity of the exercise of that discretion. In any event, the decision to grant permission is inextricably linked with the exercise of the discretion to make the charging orders final, because once leave was granted, there was no other reason to refuse to accede to Mr Banwaitt’s substantive application. Mr Cullen’s arguments may have had more force if the orders had all been drawn up by the time the Appellant’s Notices were lodged, and if it had been clear that leave under s.252(2)(b) was the subject of a separate order. However, if the orders had been drawn up in their present form before the Appellant’s Notices were lodged, no doubt Dr Dewji’s legal team would have spotted that none of them recorded that leave had been granted under s.252. They would either have gone back to the Master under the slip rule to get the orders amended, or amended the Appellant’s Notices to encompass any separate order dealing solely with the grant of leave.

I therefore treat the application before me as an application for permission to appeal both against the exercise of the Master’s discretion to grant leave under s.252 and against the exercise of his discretion to make the charging orders final, decisions which were founded upon the same underlying premises and subject to the same reasoning. In this case, the consideration of the merits of the application for permission inevitably involves the determination of the substantive grounds of appeal, to the extent that they challenge the exercise of the Master’s discretion. However, a determination in Dr Dewji’s favour to that extent would only get him over the permission threshold, because the Court would then be faced with the task of exercising its discretion afresh.

Mr Hunter proposed at the outset of the hearing that I should approach the matter in two discrete stages; first, by determining the merits of the challenge to the exercise of the Master’s discretion, and then, if and only if the question of exercising my own discretion arose, considering the evidence and making that decision. The second stage would also involve consideration as to whether I should admit further evidence. Mr Cullen did not oppose the pragmatic suggestion that I should hear legal argument from both Counsel solely on the challenge to the Master’s decisions and then take stock of the situation and decide how to proceed. Having heard both Counsels’ submissions, I adjourned the hearing to consider whether I should go on to hear argument on the question of how I should exercise my own discretion in substitution for that of the Master, or whether I should deliver judgment refusing permission to appeal. For the reasons that will appear in this judgment, and despite the attractive manner in which the arguments for Dr Dewji were presented by Mr Hunter, I have decided to take the latter course.

As the proposed appeal is against the exercise of judicial discretion, and is by way of review, Dr Dewji faces a high hurdle, as Mr Hunter fairly acknowledged. There was no dispute as to the test in Tanfern Ltd v Cameron McDonald [2000] 1 WLR 1311 per Brooke LJ in para 32. The Master must have “exceeded the generous ambit within which a reasonable disagreement is possible”. Mr Hunter, however, prayed in aid the equally well-established alternative test for challenging the exercise of a discretion, namely, whether the Master erred in principle in his approach, took into account factors he should not have taken into account, omitted to take into account factors he should have taken into account, or failed to give the competing factors appropriate weight in the balancing exercise when reaching his decision.

Before turning to the competing submissions I should briefly set out the chronology of key events. On 13^th April 2013, Mr Banwaitt obtained judgment from Sir Raymond Jack in proceedings he had brought against Dr Dewji for fraudulent misrepresentation pertaining to an agreement to invest in land in Cambodia. I shall refer to this as the “substantive judgment”. Mr Banwaitt had paid Dr Dewji $1.75 million towards the purchase of the land. Dr Dewji had also received substantial sums from other individuals (“the Investors”) to invest in the project, and he put in some of his own money. As foreign nationals are not allowed to hold land in Cambodia, Dr Dewji made arrangements with a Cambodian national named Narong Men to implement the purchase. The money was paid into a bank account in the name of Narong Men’s wife. It subsequently transpired that Narong Men had made a deal with the owner of the land to buy it for around half the sum he had told Dr Dewji and obtained from him as the purchase price.

After Dr Dewji became suspicious, Narong Men was arrested. In legal proceedings in Cambodia, which went all the way to the Supreme Court, he was ordered to pay just over $10 million to Dr Dewji. The Court in Cambodia has frozen properties belonging to Narong Men and/or his wife which may be available to satisfy the Cambodian judgment (although, it would appear, not the whole of it). It is said by Dr Dewji that the process of realisation of the Cambodian judgment debt is complex. It will be costly, because of the need to pay Cambodian lawyers, and may take up to three years. Nevertheless it is anticipated that a net figure of around $3.3 million could be realised from the frozen properties if further steps are taken in Cambodia to execute the Cambodian judgment.

Mr Banwaitt’s primary cause of action against Dr Dewji, and the one which succeeded at trial, was that he was induced to part with his money by false representations. In this regard, at least so far as the evidence before this Court is concerned, Mr Banwaitt appears to be in a different position from all the other Investors, none of whom has so far claimed that Dr Dewji made any misrepresentations to him or her. There was an alternative pleaded claim that Dr Dewji held the benefit of the orders of the Cambodian Court in trust for him, but, as the Judge recorded in paragraph 77 of the substantive judgment, it was Mr Banwaitt’s position, as articulated by Mr Cullen who also represented him in those proceedings, that this fell away if the original agreement was rescinded for fraudulent misrepresentation (as, in the event, it was). None of the other Investors has taken steps to recover any money from Dr Dewji. However, Dr Dewji accepts, as he did at the trial, that he is liable to account to the Investors pari passu for any sums he recovers from Narong Men and/or Narong Men’s wife, including from the realisation of the frozen properties in Cambodia.

The order on judgment required Dr Dewji to pay Mr Banwaitt the sum of US$1,748,212.85 or the sterling equivalent within 14 days, plus interest, compounded quarterly, costs on the indemnity basis, and interest on costs. No part of that order has been satisfied.

On 1 May 2013, Master Fontaine granted Interim Charging Orders on the three properties, with a return date of 26^th June 2013. On 18 June 2013, Dr Dewji filed an appellant’s notice out of time against the substantive judgment, Sir Raymond Jack having refused permission to appeal on the limited grounds on which it was sought before him. Dr Dewji also sought a stay of execution from the Court of Appeal.

On 21 June, which was a Friday, and less than three working days before the return date of the application for the charging orders to be made final, Dr Dewji submitted a proposal for an IVA and an application for an Interim Order to Milton Keynes County Court. No advance warning of that application was given to Mr Banwaitt or his solicitors. The Interim Order was granted by District Judge Hickman on the same date. The District Judge set a deadline of 3 July 2013 for the report of the Nominee to be submitted and delivered by him to the Court.

The Interim Order was served on Mr Banwaitt’s solicitors on the following Monday, 24^th June, with a request that they consent to the dismissal or adjournment of the applications scheduled to be heard on Wednesday 26^th June. They responded by seeking sight of the application to the County Court, and a copy of this and the IVA proposal was provided to them later that day.

On 26^th June, the hearing of the application to make the charging orders final came on before Master Cook. Both parties were represented by solicitors. Mr Banwaitt’s solicitor, Mr Fairbairn, orally sought the leave of the Court to proceed under s.252(2)(b) of the Insolvency Act. In the light of the timing of the Interim Order and its service, it is understandable why a formal application was not issued in advance of the hearing. Dr Dewji’s solicitors would hardly have been taken by surprise by that application, since they knew that the hearing of the substantive application could not go ahead without such leave. Dr Dewji’s solicitor, Mr Sheeley, sought the immediate discharge of the interim charging orders, or alternatively an adjournment of the application to make the orders final. The Master refused the adjournment, and as I have already indicated, granted leave under s.252(2)(b) and exercised his discretion in favour of making the charging orders final. There has been no appeal against the decision to refuse the adjournment.

One of the criticisms of the Master’s judgment is that he made the charging orders final notwithstanding that there was, at the time, an extant application to the Court of Appeal for a stay of execution. Mr Hunter very fairly did not put this at the forefront of his arguments, and the point can be dismissed very shortly. There was no stay of execution currently in place. The Master could not pre-empt what the Court of Appeal would decide. He was asked to adjourn the applications before him until after the Court of Appeal had determined the application for a stay, presumably on the basis that if the stay were granted after the charging orders had been made final it would be of little or no value to Dr Dewji. However, that argument was misconceived, since an operative stay of execution would still preclude an order for sale. The Master refused the adjournment, and there is no appeal against that decision, which in any event was a matter well within the exercise of his discretion and case management powers.

Shortly before the expiry of the deadline for filing of the Nominee’s report on 3 July 2013 the Nominee, Mr Kevin Goldfarb of Griffins, lodged an interim report dated 2 July 2013. Mr Goldfarb applied for and was granted an extension of time for the delivery of his full report to 22 August 2013. The Interim Order was also extended to expire at 4pm on 28 August 2013. In the event, that deadline expired without the Nominee providing a final report. It appears from the interim report of 2nd July 2013 that the reason for this was the final charging orders granted by Master Cook. Mr Goldfarb states that “until the outcome of the appeal [against the orders of Master Cook] is known the terms of the IVA Proposal cannot be finalised and a meaningful Nominee’s Report cannot be prepared.”

On 5 July 2013, Longmore LJ granted an extension of time for appealing and permission to appeal against the substantive judgment. He also granted a stay of execution conditional upon Dr Dewji paying into Court, or otherwise securing, £50,000 by 10 September 2013. He observed that Dr Dewji “should be prepared to show his seriousness in mounting what is on any view a difficult appeal”. Dr Dewji has not complied with that condition. He made a further application to the Court of Appeal, which was heard by Longmore LJ on 13 September 2013, in which he sought to argue that the existence of the final charging orders was sufficient compliance with the condition, or alternatively that he was unable to comply with it because of the charging orders over the three properties and that the Court of Appeal should order the discharge of some or all of the charges to enable him to raise money on the security of the properties. Longmore LJ was not persuaded by those arguments and merely extended time for compliance with the conditions until 1st November 2013, making it plain that the sum of £50,000 had to be paid into Court or secured by first class bank guarantee (by necessary implication, notwithstanding the existence of the charging orders over the properties).

On 18^th October 2013 Dr Dewji’s solicitors wrote to Mr Banwaitt’s solicitors seeking their agreement that the time for compliance with those conditions be further extended until after the hearing of this appeal. They refused. Accordingly, there is no stay of execution pending the appeal against the substantive judgment, which is listed to be heard in December. Dr Dewji still maintains that he cannot afford to bring £50,000 into Court or put up a guarantee for that amount unless the charging orders are set aside.

Dr Dewji and the Nominee have applied for and obtained further extensions of the Interim Order from the County Court. The latest order, which is dated 31 October 2013, extends the Interim Order to 22 January 2014 and adjourns the date for consideration of the Nominee’s report to 21 January 2014. The application for that extension was supported by a letter from Mr Goldfarb who stated that “the form and content of the IVA proposal that Dr Dewji will put to creditors will be materially affected by the outcome of these ongoing appeals.” That must be a reference to this appeal and the appeal against the substantive judgment, though if the latter succeeds it is difficult to understand why Dr Dewji would want or need to go ahead with the IVA.

In the normal course of events, if there are a number of competing creditors and the debtor has unencumbered assets that could be used to meet a judgment debt in whole or in part, there is nothing to stop the first creditor to obtain judgment from executing it against those assets even if this means the other creditors get nothing. In Pritchard v Westminster Bank [1969] 1 WLR 547 Lord Denning said at 549D: “the general principle when there is no insolvency is that the person who gets in first gets the fruits of his diligence”. However different considerations may apply when the judgment debtor is insolvent.

There are a number of authorities in which it has been held that where a statutory scheme is in operation for the pari passu distribution of an insolvent debtor’s assets among his creditors, the Court should decline to make a final charging order, even in favour of a judgment creditor who has already obtained an interim charging order prior to the statutory scheme taking effect. Exactly the same principles would apply to an interim third party debt order. This principle is also reflected in section 346 of the Insolvency Act, the effect of which is to deprive the judgment creditor of the benefit of the charge or third party debt order unless it has been made final before the statutory scheme came into effect. The underlying rationale is that once the statutory scheme is underway, an insolvent person’s assets should be shared equally among the general body of creditors, and therefore one creditor should not be allowed to gain an advantage by retaining or, as the case may be, perfecting a security that would both give him priority over and reduce the amount of the assets available for distribution among the other creditors.

In the case of an insolvent individual, the statutory scheme takes effect on the issue of a bankruptcy order – section 278 of the Insolvency Act. It may also take effect immediately upon his death if the estate is insolvent. In the case of a company, by contrast, it takes effect earlier - on the presentation of the petition for winding up or the passing of a resolution for voluntary winding up. The authorities demonstrate that it does not matter for these purposes whether the bankruptcy or winding up petition has been instigated by the insolvent party or by a competing creditor.

In the leading case of Roberts Petroleum Ltd. v Kenny Ltd. [1983] 2 AC 192, after the judgment creditor obtained a charging order nisi, the insolvent debtor, a company, passed resolutions for its winding up and appointed a liquidator. The issue was what considerations should govern the exercise of judicial discretion to make or decline to make the charging order absolute. Lord Brightman said that if the statutory scheme for dealing with the assets of the company has been irrevocably imposed on the company by resolution or winding up order before the Court has irrevocably determined to give the creditor the benefit of a charging order, the statutory scheme should prevail: “I do not see why a creditor should gain an advantage merely because he has a revocable order for security at the time when the statutory scheme comes into existence” (emphasis added).

Where the debtor is an individual, if the statutory scheme is not yet underway, but a bankruptcy petition has been filed by a rival creditor or by the judgment debtor himself, similar policy considerations may lead to the judgment creditor being refused a final charging order as a matter of discretion, but much will depend on the facts of the individual case. If the Court considers on the evidence that a bankruptcy order is inevitable and in such event the judgment creditor would rank pari passu with the other creditors, it may consider that it would be unfair, and contrary to the intent of the statutory scheme, to let him gain an advantage over them by perfecting his security. However, there may be considerations which lead to the opposite conclusion.

For example, in a case such as the present, where the judgment creditor is seeking to recover the money that he paid the judgment debtor under a contract that has been rescinded for fraud, together with interest, the Court might take the view when exercising its discretion that it would not be in the interests of justice to allow the debtor’s other creditors to participate in that share of his estate that was increased at the expense of the party he deceived. That is so whether or not the original claim was a claim for damages or in restitution and regardless of the absence of any proprietary claim to trace the money into the hands of the wrongdoer. In those circumstances, given that no bankruptcy order was yet in place, the Court might consider that it would be wrong to deprive the judgment creditor of the opportunity to recover as much of the money as he can.

Likewise, if the Court considers that the judgment debtor has petitioned for his own bankruptcy purely to frustrate the judgment creditor from obtaining the fruits of his judgment, or where the judgment creditor is the only substantive creditor and the bankruptcy would simply reduce the amount of his recovery by the costs of the Trustee, or where the Court has reason to be sceptical about the existence or validity of the claims of the other alleged creditors against his estate, it may decide to make the charging order final. The fact that it is ultimately for the Trustee in Bankruptcy to accept or reject those claims does not preclude the Court from forming a view about their legitimacy on the evidence before it.

It is clear that where there is no statutory scheme yet in place, the “first past the post” rule may still be applied even if the judgment debtor is or appears to be insolvent – see e.g. FG Hemisphere Associates LLC v The Republic of Congo [2005] EWHC 3103 (Comm). That was a case in which the creditor had obtained an interim third party debt order. The judgment debtor was a sovereign state, and there could be no applicable insolvency scheme. It was contended that the Court should apply the policy which underlies the statutes which set up such schemes and that under the terms of CPR r.72 all the English judgment creditors should be treated pari passu. Although Cooke J. doubted whether the sovereign state was in fact insolvent, he rejected that argument even on the assumption that it was.

There is no direct authority as to how the discretion should be exercised in circumstances like the present, where there is no petition for bankruptcy, (and, I was told, unlikely to be one because it would be to no-one’s advantage) but there is an Interim Order in place under s.252 of the Insolvency Act pending consideration of an IVA proposal. That section was enacted to provide a simple mechanism for creating a moratorium in circumstances in which no statutory scheme is in place. Mr Hunter submitted that since the purpose of the moratorium is to facilitate a consensual scheme for the pari passu distribution of assets among the general body of creditors, which would be a better course than bankruptcy, in principle the approach of the Court should be the same as if a statutory scheme were already in place.

In support of this approach, Mr Hunter relied on the case of Hudson’s Concrete Products Ltd v DB Evans (Bilston) Ltd (1961) 105 Sol Jo 281, which is referred to with approval by Buckley LJ in Wilson v Metropolitan Property Developments Ltd [1975] 2 All ER 814 and again in Rainbow v Moorgate Properties Ltd [1975] 1 WLR 755. The facts of the Hudson’s Concrete case are set out in the first of those authorities. It was decided long before the introduction of the statutory scheme for IVAs and CVAs. The debtor company had convened a meeting of its creditors and put proposals to them for a scheme of arrangement which appeared to have received a favourable response, but one set of judgment creditors subsequently obtained a garnishee order nisi. About a month later the company took formal steps to have the Court sanction the scheme of arrangement. The garnishee order was then made absolute. The Court of Appeal set aside the garnishee order absolute on the basis that the district registrar who made it did not exercise his discretion judicially. They said “It would be wrong to allow these creditors, even though they were judgment creditors, to gain an advantage over other creditors. The garnishee order might have the effect of wrecking the scheme of arrangement because it gave the judgment creditors priority over other creditors”.

In Wilson, a case decided before Roberts Petroleum v Kenny, the debtor company had indicated by letter to the judgment creditor its intention to prepare a scheme of arrangement so that the assets of its group could be realised for the ultimate benefit of all creditors. The judgment creditor nevertheless sought and obtained a garnishee order nisi. The company then petitioned for winding up, and argued that the garnishee order could not be made absolute, because to do so would be to give the judgment creditor an advantage over all its other creditors. That argument would no doubt have prevailed whether or not the judgment creditor had started to execute his judgment against the background of a proposed scheme of arrangement, because once the statutory scheme came into effect on the issue of the winding up petition, the Court would not allow one creditor to gain an advantage over the others. However, Buckley LJ stressed that the Court, in exercising its discretion to make absolute a garnishee order in such circumstances, should pay heed to the position of the other creditors of the judgment debtor and must have regard to the fact that proceedings were on foot, and were on foot at the time when the garnishee proceedings were launched, for ensuring the distribution of the available assets of the judgment debtor pari passu.

That is an indication that even if there had been no winding up petition, but there was already a proposal on foot for a scheme of arrangement which proposed to deal equally with all creditors, the creditor who broke ranks and decided to steal a march on the others may have been refused a final order because it was a clear wrecking tactic.

None of the cases deal with the situation in which the scheme of arrangement is not proposed until after the judgment creditor has obtained his interim order from the Court, or with a situation in which there is a proposed scheme of arrangement, but no-one has yet petitioned for bankruptcy or commenced the winding up process. In Wilson the considerations may well have been different had there been no winding up petition and the scheme of arrangement had been proposed for the first time after the creditor had got his order nisi. In that situation, the Court may well have had to look more closely at the individual facts and circumstances of the case in order to decide how to exercise its discretion.

An IVA is, as its name suggests, a consensual arrangement whereby the unsecured creditors of an insolvent debtor agree to refrain from making him bankrupt for a determinate period whilst he takes pre-arranged steps that are designed to pay them back on an equal footing, usually in instalments. The incentive to agree is the prospect that the creditors will end up recovering more than they would have done by making the debtor bankrupt, after the costs of the supervisor of the IVA are taken into account. The position of secured creditors is unaffected, save to the extent that their security may be insufficient to cover the entire indebtedness, in which case they are entitled to ask to be treated as unsecured creditors for the balance. Another feature of an IVA is that a majority of those creditors with 75% or more of the votes are able to bind a dissentient minority.

The IVA proposal usually involves the insolvent individual listing all his current assets and liabilities, and then making proposals to the unsecured creditors for bringing into the ambit of the IVA his (realisable) assets, which he will then use to pay or to generate funds from which to pay his creditors fixed sums on a pari passu basis over a period of time. The Nominee is the person charged in the first instance with determining who should be admitted as a creditor for the purpose of voting on the IVA proposal. If a creditor wishes to challenge the Nominee’s decision to admit someone else as a creditor, he has to make an application to the County Court.

Mr Hunter submitted that in this context, the making of an Interim Order under s.252 was to be equated to the imposition of a statutory scheme for pari passu distribution of the creditor’s estate and thus the only legitimate way in which the Court could exercise its discretion when there was a bona fide IVA proposal under consideration would be to refuse to make the charging order final. In my judgment, that sets the bar far too high, and ignores the fact that Parliament has expressly allowed for the possibility that leave to continue to execute a judgment may be granted under s.252(2)(b) notwithstanding the making of an Interim Order. There must be some circumstances, therefore, in which it would be permissible to grant leave. One such instance would be if the asset against which the judgment creditor is seeking to execute judgment falls entirely outside the IVA, so that there is no question of it being shared between the general body of creditors. Another, quite independent, example would be where the IVA was bound to fail, either because the judgment creditor had sufficient voting power to block it by himself, or because the creditors as a whole or a majority of them were bound to regard it as unattractive.

The IVA proposal in this case was highly unusual in a number of respects. First, it created two separate classes of creditors: the Investors (of whom there are seven named besides Mr Banwaitt, including Dr Dewji’s wife,) and the rest. Secondly, Dr Dewji expressly states that he denies all the claims of these other Investors in their entirety but (without prejudice to this position) for the purposes of the IVA proposal they are also treated as creditors. Thirdly, Dr Dewji makes no proposals to make any payments into the IVA from his income or from his bank accounts. Fourthly, he proposes to exclude his share of the equity in Whitworth Lane (valued by him at £35,000) and his interest in Hilltops (£251,000) from the arrangement altogether, though he says that if the attempts to recover the money in Cambodia fail to realise the 5 cents in the US$ that he postulates within three years, if the Investor creditors require it, he will introduce an amount equal to the equity in Whitworth Lane (but not Hilltops) into the arrangement - for the benefit of the Investors only. Fifthly, he excludes his property in Dubai, which he says is still under construction, requires a further payment of £13,000 to complete, and is unlikely to realise more than £10,000.

Dr Dewji also states, in terms, that he proposes to exclude Dale Street from the arrangement. Dale Street is an investment property in Birmingham and the building contractors are said to be withholding completion certificates until they are paid the balance of sums due to them. However it is stated that they will release those certificates if the IVA goes ahead. Dr Dewji proposes to use up to £100,000 raised from Dale Street to fund the recovery process in Cambodia against Narong Men and his wife, and pay only £77,400 to the Supervisor of the IVA to be divided among his general creditors. If Dale Street were sold to a third party, it would be gone forever. If money were realised on the security of Dale Street, it would inevitably give the lender - presumably a bank or other financial institution - priority over other unsecured creditors in respect of Dr Dewji’s interest in that property. Thus the effect of Dr Dewji’s proposal would be that the man he has been held to have defrauded would be deprived of his existing security over Dale Street in order that someone else could acquire that property or else take security over it in his place.

So far as the £100,000 is concerned, Dr Dewji states that if he needs more money to fund the recovery process in Cambodia, he proposes to look to the Investors for additional funds and treat any such advances as a first charge on the proceeds recovered, with an “additional return” of up to 25% when repaid. If he does not complete the recovery process within 36 months, the Supervisor will prepare a report to the Investors and convene a meeting of them to determine whether it represents a failure of the arrangement. Dr Dewji also proposes, in paragraph 2.6.8, that he should himself deduct from the proceeds of the Cambodian recovery, before he pays anything to his Supervisor for distribution to the others, a percentage representing his own investment in the Cambodian project. Thus, unlike any normal IVA, the insolvent party is proposing that he should share the proceeds of the realisation of an asset pari passu with some of his creditors (the IVA proposal assumes in favour of Dr Dewji that any recovery under the judgment in Cambodia would be an asset falling within his estate rather than the subject of a trust in favour of each of the Investors).

Mr Hunter submitted that the only proper way in which the Master could have exercised his discretion was by refusing to grant permission under s.252(2)(b) at that time: he could and should have adjourned the hearing or else simply refused to make the charging orders final, leaving the interim orders in place. If the IVA proposal was not adopted by the requisite majority of Dr Dewji’s creditors then Mr Banwaitt could come back to get his charging orders made final. If it was adopted, then the interim charging orders would be discharged and Mr Banwaitt would be put on the same footing as all the other unsecured creditors and, to the extent that he would be entitled to a share in the recovery under the Cambodian judgment, the other Investors. The effect of the Master’s decision was to deal a fatal blow to the IVA before there was any opportunity for Dr Dewji’s creditors to consider the IVA proposal on its merits, and this was in direct contravention of the policy underlying s.252.

Mr Hunter further submitted that the Master did not fully understand the IVA proposal. He was under a fundamental misapprehension in two respects: he believed that the properties were wholly excluded from the IVA when they were not, and he assumed that Mr Banwaitt had sufficient voting power to veto the IVA proposal. The latter assumption, Mr Hunter submitted, was premised on the further assumption that none of the other Investors had a valid personal claim against Dr Dewji’s estate, whereas the validity of their claims was solely a matter for the Nominee to determine and he had not yet done so. None of these criticisms is justified.

Dealing first with the policy objection, there is much force in Mr Hunter’s argument that if an Interim Order under s.252 is obtained before an interim charging order or third party debtor order is made final, the Court should normally approach the exercise of its discretion in a similar way as it would if there had been a bankruptcy order or a resolution or petition for winding up the judgment debtor instead of an Interim Order. However, the two situations are not exact parallels, and IVAs are necessarily more flexible than the situation that arises on insolvency. There may be situations in which, despite the Interim Order, the “first past the post” approach is justifiable, just as it might be justifiable if there has been a bankruptcy petition (but not a bankruptcy order) in the interim. Each case must turn on its own facts.

It is plain that this was not an IVA proposal by which all of Dr Dewji’s creditors were to be treated equally. On the contrary, a whole class were to be treated more generously than others, albeit that it was proposed that in future they would be treated pari passu as between themselves and Dr Dewji. Whilst there may be understandable reasons for it, that feature in and of itself is enough to take this situation outside the policy underlying the imposition of the statutory moratorium.

The question that the Master had to determine is not whether it would be unfair to let Mr Banwaitt have an advantage over the general body of creditors. It is whether it would be unfair to let Mr Banwaitt, (who, on the evidence before the Master, was the only Investor induced to part with his money for this project by deceit, and who alone has chosen to expend costs in pursuing its recovery from Dr Dewji) obtain final charging orders over property that was not going to be distributed between Dr Dewji’s creditors, but (in the case of one property only, Dale Street) utilised to raise money to pay foreign lawyers to try and recover a substantial sum of money that would then be shared equally between Dr Dewji himself and some of those creditors, including the judgment creditor.

The upshot of this scheme would be that the most Mr Banwaitt could ever hope to recover in around three years’ time, assuming all went well, was a ninth share in the net recovery from Cambodia. Moreover, if the £100,000 proved too little, and another Investor or Investors put up some more money towards the lawyers’ fees, they would get priority over the funds in terms of repayment of that money (with a 25% uplift). On the other hand, if things went badly, a lender would have security over the equity in Dale Street in place of Mr Banwaitt, or a third party would have bought it and the sale proceeds would all have been utilised; and Mr Banwaitt’s efforts to recover his money would all have been in vain. In the light of this, the Master’s decision is well within the ambit of reasonable decisions open to him on the Tanfern test.

Turning to the alleged “misunderstandings”, it is clear from the Master’s judgment that he looked at the IVA proposal with some care, and he was taken through its more unusual features by Mr Banwaitt’s solicitor. He cannot be criticised for observing that the judgment debtor has decided to leave out of the proposal his beneficial interest and assets in substantial properties which could affect the IVA, because that is exactly what the judgment debtor was proposing. Each one of the three properties over which an interim charging order was obtained is specifically excluded from the IVA. That is the expression used in the IVA proposal.

There was no question of Hilltops or Whitworth Lane being brought into the IVA or even used outside the IVA to raise money to distribute among the creditors, save (in the case of the latter property) that there was a vague promise that if the Investors so required in three years’ time and if the Cambodian recovery was below expectations, Dr Dewji might be willing to pay the Supervisor the equivalent of his equity in Whitworth Lane to be distributed among them. Neither property was vital to the success or failure of the IVA proposal. They were both completely irrelevant to it. There was no reason why the Master could not and should not have exercised his discretion on this ground alone so as to enable Mr Banwaitt to obtain final charging orders over those two properties.

In the course of argument on this application for permission to appeal it rapidly became clear that the focus had to be on Dale Street. Mr Hunter submitted that the Master had failed to appreciate that Dale Street was essential to the IVA, and that unless Dr Dewji could use it to raise funds to pursue the Cambodian recovery process, there was no prospect of the IVA succeeding.

The submissions that were made by Dr Dewji’s solicitor to the Master were “if there is a final charging order over the three properties... [Mr Banwaitt] will be usurping all the other creditors, and this may actually force the IVA to fail”; and “a final order could destroy the IVA being entered into and that it would actually destroy the whole reasoning for s.252 of the Insolvency Act.” Those submissions are consistent with Mr Goldfarb’s letter to the Court, referred to in paragraph 23 above, which goes no further than indicating that the form and content of the IVA will be materially affected by the outcome of this appeal. Therefore the Master was plainly alive to the risk that his decision could prove fatal to the IVA. As I have already indicated it was within the permissible bounds of exercise of his discretion in the circumstances of this case, for the Master to have granted permission under s.252(2)(b) even in the face of that risk and even if he expected that risk to materialise.

It would hardly have been surprising if the Master had failed to appreciate that Dale Street was “essential”, and that a charge over it would (rather than might) prove fatal to the IVA, since that is not how Dr Dewji’s case was put before him. It is clear from the transcript of the hearing that Dr Dewji’s solicitor did not specifically mention Dale Street at any point in his argument. He focused instead on Whitworth Lane, and after drawing attention to paragraph 2.4 of the IVA proposal and the possibility that the equity in that property might form part of the IVA in due course, he submitted that “depending on how the IVA goes [Dr Dewji] may well actually bring these properties back into the IVA”.

The Master had the IVA proposal before him. He was taken through it by Mr Banwaitt’s solicitor. The fact that he does not refer to this particular feature of it in his ex tempore judgment does not mean that he did not understand what was being proposed, or appreciate what Dr Dewji wanted to do with Dale Street instead of bringing it into the IVA. The simple point that carried weight with the Master was that all three properties were being deliberately excluded from the IVA, and that in those circumstances it did not lie in the mouth of Dr Dewji to complain that Mr Banwaitt was acting selfishly by obtaining a charge over them. In my judgment, the Master was as much entitled to take that view in respect of Dale Street as he was in respect of the other two properties. He was entitled to exercise his discretion in the way he did on that ground alone, and it is plain from his judgment that he regarded it as the crucial factor.

As to the second alleged “misunderstanding”, there is nothing in the judgment to indicate that the Master decided to give leave to continue with the execution on the basis that Mr Banwaitt would have voted down the IVA and therefore that it never stood any prospect of getting off the ground, so that there was no point in waiting for it to be put to the other creditors. It is far from clear that he had formed that view, let alone that he regarded it as a relevant consideration in the exercise of his discretion. Indeed, to have treated it as such would have flown in the face of the point he plainly regarded as central, the exclusion of the three properties from the IVA. If they were never assets available for distribution to Dr Dewji’s creditors under the IVA, and thus in principle Mr Banwaitt’s charge would not prejudice the other creditors, then the likely fate of the IVA and the impact on it of Mr Banwaitt’s vote was of no relevance at all.

However, the Master would have been entitled to take the view on the evidence before him that it was likely that Mr Banwaitt would have had the voting power to block the IVA, and if he did take that view he would have been entitled to take it into account.

Dr Dewji had indicated in his IVA proposal that he did not accept any of the claims by the Investors, but was willing to treat them as creditors nevertheless. That leads to the curious position that Dr Dewji expected his Nominee to admit their claims for voting purposes, even though he denied that he was under any personal liability to them. Even if one were to ignore that feature, it is clear from the IVA proposal that although he itemises the value of their claims as equal to the amounts they originally invested, Dr Dewji was treating the notional “personal claims” against him by the Investors as claims to equal shares in the amount of the judgment recoverable in Cambodia. I was told by Mr Cullen that was also the approach adopted by Dr Dewji in the proceedings brought against him by Mr Banwaitt that led to the substantive judgment.

There was no evidence before the Master that any of the other Investors, besides Mr Banwaitt, had ever accused Dr Dewji of any wrongdoing, or articulated any personal claim against him, or taken any steps to recover any of the money they paid him to invest in the Cambodian land venture. In the absence of a claim for misrepresentation it is difficult to see how any Investor could have a personal claim against him for the recovery of the whole of their original investment in what appears to have been a joint venture, or how any responsible Nominee could legitimately admit the other Investors as creditors for those full amounts. Indeed there is a great deal of force in Mr Cullen’s submission that it is difficult to see how the Investors would have any personal claim against Dr Dewji or his bankrupt estate at all, as opposed to his having a liability to account to them as a trustee or agent for the proceeds of the Cambodian judgment, and that those assets did not form part of Dr Dewji’s estate in any event, but that is something I need not decide for the purposes of this application.

If the upper limit of the admissible notional claims by the other Investors would be the US$3.3 million estimate in the IVA proposal, less Dr Dewji’s share, Mr Banwaitt’s judgment debt is well over 25% of that figure. Even if that were wrong, and one were to assume that the Investors’ claims equated to the £5 million (or US$ equivalent) they originally invested in the Cambodian project, virtually all the Investors would have had to vote in favour of the IVA proposal in order to outvote Mr Banwaitt. So too would the general creditors, who were expected to be content to share a smaller sum than the £100,000 that was going to be expended on legal fees in Cambodia for the benefit of the Investors. The Master would have been entitled to regard the prospects of that happening with a considerable degree of scepticism. On either view of the value of the Investors’ claims, he would have been justified in assuming or concluding that Mr Banwaitt was more likely than not to be able to block the IVA proposal either all by himself, or by persuading sufficient other creditors to vote against it.

As I have already said, it is far from clear that the Master did make that assumption or that it played any significant part in the decision to permit Mr Banwaitt to continue with execution of his judgment. Mr Hunter’s submission seems to me to read too much into the Master’s observation in paragraph 6 of his judgment that “having regard to the size of the judgment debt and the position the judgment debtor is in, and having regard to the sequence of events set out in the helpful chronology provided by the judgment debtor’s solicitor, he must have known that any proposal for an IVA would have had to have been acceptable to the judgment creditor.” The most that the Master was saying there was that it would have been self-evident to Dr Dewji that as the largest single creditor outside the class of Investors, Mr Banwaitt’s attitude to the IVA proposal was very likely to influence the attitude of the other general creditors towards it. If he voted against it, it was unlikely that all the others would vote in favour, even if he did not have the requisite 25% to veto the proposal all by himself.

The chronology that the Master mentions in that passage self-evidently has nothing to do with Mr Banwaitt’s voting power being a trump card in favour of the exercise of the discretion in his favour. It is clearly a reference to the timing of the IVA, and the fact that no prior notice of it was given to Mr Banwaitt, as one might have expected to happen had it been a genuine attempt by Dr Dewji to enter a composition with all his creditors that would lead to a better and fairer result for them than his bankruptcy.

The Master then went on to say “In the circumstances I cannot understand why it is that the judgment debtor has decided to leave out of the proposal his beneficial interest and assets in substantial properties which could affect the IVA”. That is a further indication that the Master was concerned that Dr Dewji had not put together the sort of proposal that the Master might have expected him to put together, if this were really a genuine attempt to treat all his creditors fairly and even-handedly. The general body of creditors were only going to get £77,400 between them whilst a larger sum was to be expended on trying to recover money in Cambodia for the benefit of a different class of creditors. It seems obvious to me that the Master was accepting the submission of Mr Fairbairn that the IVA proposal was nothing more than a cynical attempt to derail the execution of the judgment. He was entitled to reach that view.

For the foregoing reasons, the Master’s exercise of his discretion is neither contrary to established principle nor outside the range of reasonable decisions open to him. It was not based on any material misapprehension about the IVA scheme nor was there any erroneous underlying factual assumption that would mean the exercise of his discretion was open to challenge on the established principles.

Dr Dewji has failed to overcome the high hurdle he needed to overcome in order to persuade the Court that the Master fell into error, and to exercise its discretion afresh. Permission to appeal is therefore refused.