In the second of our articles about issues where we think that monitors are being a little over-zealous, we look at whether late claims should be excluded from IVAs and the wider issue of how you should apply successive versions of the IVA protocol.
We have recently seen a couple of visits where monitors were suggesting that under paragraph 13(5) of the 2010 version of the IVA Protocol, creditors who have not claimed after 4 months should be excluded. We don’t think that the position is as clear-cut as the monitors are trying to make it appear on visits. Although we think that the old protocol gave the power to exclude creditors, the standard terms made it likely that many “excluded” creditors would subsequently be entitled to a catch up dividend. In addition, you should now be using the 2012 standard terms and 2013 revised Protocol, which use different wording and make it even more likely that late claims will have to be admitted.
Before we annoy the regulators too much, we have to make it clear that we are not advocating that you should make regular provisions for potential claims. We believe that you should pay a dividend to all of those who have admitted claims at the time that you declare the dividend, only providing for any currently unresolved or disputed debts. If a major creditor agent cannot get its act together and claim in 4 months then they should wait and receive a catch-up dividend at a later date if there are sufficient funds when they finally get around to claiming.
However, we have seen inspectors requiring IPs to follow paragraph 13(5) of the 2010 protocol to the letter and exclude creditors after 4 months. We believe that this is clearly wrong within the terms of the 2010 Protocol itself, as it says:
“Creditors not submitting claims within 4 months of the meeting to approve the proposal will be excluded from participating in dividend payments, unless a reasonable explanation is provided for why this delay has occurred. In cases where the supervisor accepts the explanation is reasonable, those creditors will be entitled to receive their full share of dividends, notwithstanding the fact that some distributions may have been made prior to the submission of the claim.”
Thus it is clear that creditors can provide a reasonable explanation and be entitled to a catch-up dividend.
More to the point, paragraph 13(5) of the revised protocol issued in January 2013 says:
“Creditors not submitting claims within 4 months of the meeting to approve the proposal or by the date of the first dividend (whichever is the later) will be entitled to participate and receive their full share of dividends (subject to the requirement for the supervisor to adjudicate the authenticity and value of the claim), but are not entitled to disturb a distribution made prior to the submission of their claim.”
This puts a greater emphasis on the acceptance of late claims and makes permanent exclusion less likely.
This led us, not for the first time, to consider how the profession should treat successive versions of the Protocol. In our opinion, the whole idea of the protocol is to allow creditors and IPs to manage the changing nature of IVAs by consensus. Accordingly, if the Protocol is changed, any such changes should, where reasonable and fair to all parties and where they affect the administration of the arrangement and not the contractual terms, be applied as far as possible to all cases and not just those commenced after the particular variation is approved. In this case, if IPs and creditors have, via the standing committee, agreed to a more inclusive approach to allow debt buyers and their agents to make later claims without disrupting prior distributions, then that principle should be extended back to arrangements commenced under the 2010 version of the Protocol, as long as it does not unfairly prejudice creditors or the debtor.
We think this is only fair since before the arrangement was approved the money was owed to that creditor and they were entitled to it. Excluding them on a technicality merely because the debt has changed hands and it has taken time to identify the claims and submit sufficient evidence is unfair. By applying the revised Protocol’s presumption that they can claim as long as the supervisor is happy with the authenticity and value of the claim, the balance is restored.
Hopefully the standing committee will see fit to comment, even if they tell us we are talking hogwash and you have to stick strictly to the dates of each version of the Protocol! It would be a shame if the regulators felt that it was necessary to enforce an old version of the Protocol, which has always been a more flexible tool, in some rigid way as if it was a statutory requirement.
