Our thanks to Giles Frampton and Simon Knight for bringing this little nugget to our attention. Due to what the Insolvency Service have confirmed is a drafting error, there is no limit to the period in which a creditor could appeal the result of an IVA approval meeting if you have taken the non-interim order, non-court route. The way section 262(3) is worded is that it sets a deadline after which an application by a creditor cannot be made, that is “after the end of the period of 28 days beginning with the day on which the report of the creditors’ meeting was made under section 259”. The problem is that section 259 only applies to reports to court under the interim order route.
As you are aware, if you use the non-interim order, non-court route to enter an IVA, you never file a chairman’s report at court when the arrangement is approved. As a result, the effect of this drafting error is that the deadline can never occur, such that an application under section 262(3) can be made at any time after approval of the arrangement in non-interim order cases. The Insolvency Service considers that appeals are rare and this error is unlikely to have any impact before they can amend the legislation with the other changes currently proposed for October 2013.
If you consider that the problem is bigger than the Insolvency Service believe, then you could play safe and do all of your IVAs via the interim order route, but this would soon tie up a lot of court time and we are not sure that it is necessary in the vast majority of cases. We think that once the legislative error is pointed out the court would be fairly likely to take a robust view of any appeal brought outside 28 days of approval without good reason.
There is, however, a potentially more significant problem that arises from the same legislative lacuna. We are aware of at least one case where a judge was not prepared to annul a bankruptcy after an IVA had been approved. Section 261(3) says that an application for annulment may not be made “during the period specified in section 262(3)(a) during which the decision of the creditors’ meeting can be challenged…”. In the unreported case, the judge noted the problem with section 262(3) in non-court cases and said that under the circumstances he could not grant the annulment because the potential appeal period remained open.
We don’t know if this will be the court’s position in all cases, but what should you do to avoid finding out the hard way? We considered whether simply filing a copy of the chairman’s report voluntarily would suffice, but we feel that this would not be “a report of the creditors’ meeting under section 259”, and so would not qualify. It therefore appears that the only safe way to deal with this where the debtor is bankrupt, is to apply for an interim order and use the court route, just so that your report qualifies under section 259 and therefore starts the potential appeal period under section 262(3).
