Back in March 2013, we were the first to stick our heads above the parapet and comment in detail on how PPI claims might interact with bankruptcy and IVAs on our Blog, here. Just after that, R3 and the Regulators issued joint guidance that was largely consistent with our view and we happily sat back and let you all get on with it.
Recently, however, just as things were quietening down and everyone was getting used to the status quo, Judge Hodge QC in the Manchester District Registry, in the case of Green v Wright [2015] EWHC 993 (Ch), threw a king-sized spanner in the works that has an impact not only on PPI, but also on a range of other situations.
Summarising the judgement in an extremely simplistic fashion, he said that in cases using R3 standard terms V2 (the relevant term 9(2) also being the same in R3 standard terms V3 that now apply), once a certificate of completion is issued it releases all claims against the debtor and there are no longer any creditors. As you know, we are famous for sitting on the fence and refusing to be controversial, so we would just like to make it clear that we think this decision is wrong and illogical. We eagerly await the outcome of the planned appeal, but unfortunately we understand that any such appeal will not be heard until January 2016 at the earliest.
Until then, and possibly afterwards if another member of the judiciary can see some merit in Judge Hodge QC’s arguments, we have had to come up with a practical solution. Although it is aimed specifically at the relevant paragraph of the R3 standard terms, we have worded it to apply to all cases, whether the standard terms are protocol, R3, or bespoke, so that matters can be concluded after the debtor has been given a certificate of completion. We have done so because we consider that there is a clear delineation between the debtor completing their obligations under an arrangement, and therefore being entitled to start their rehabilitation, and a supervisor completing their obligations under the terms of the arrangement. We think that quite apart from PPI claims, which are often protracted, there are other times when it is only fair to give the debtor prompt release and let the IP and creditors tie up the loose ends afterwards. One example of this would be where there is a lump sum settlement and HMRC are a creditor. The debtor might pay over any monies in the first few days, but the IVA might have to continue for months until HMRC is in a position to complete their final claim. If the lack of logic in Judge Hodge QC’s argument is followed, then in such a case then the debtor would have to wait months until HMRC have been paid before they can have their certificate of completion even though they have complied with their obligations under the arrangement by paying over the monies and the rest of it is just administration. That is because, of course, if the supervisor issued a completion certificate as soon as the monies were received from the debtor that would cut off HMRC’s claim as a creditor and most likely result in the money having to be returned to the debtor, and HMRC complaining about the IP. However, sticking with our even-handed and sensible approach, we cannot call any such judgement bonkers.
Our proposed wording, which we are thinking of using our standard proposals the next time we update them is:
“As a result of a recent legal case, [and specifically replacing and overriding R3 standard term 9(2)](use only if it is an R3 standard terms case) this term makes it clear that any assets or potential assets, including contributions from third parties, PPI claims or similar payments that have not yet been realised when a certificate of completion is issued and would be included in the IVA trust if the IVA remained open, will still be collectable by the supervisor after a certificate of completion has been issued. The issue of a certificate of completion will release the debtor from any future claims from creditors bound by the arrangement in respect of their bound claims but will not extinguish their existing claims that were bound by the arrangement until all arrangement assets, realised or unrealised, have been collected and dealt with in accordance with the arrangement terms. The supervisor will therefore be able to issue a certificate of completion to the debtor once they have completed their obligations under the arrangement, but also be able continue to collect any outstanding assets or recoveries and deal with them as if the arrangement had continued, including but not limited to, recovering fees on the same basis as that agreed in the IVA, and making payments to creditors bound by the IVA on the same terms that applied in the IVA before the completion certificate was issued.”
Note that the above wording is just our first attempt and it has not been run past lawyers or otherwise tested to see if it works. To be honest, with the uncertainty around PPI generally, we suspect that fully binding wording would be impossible to achieve, but we this that this would probably show enough of the intention when the parties contracted to the IVA, that a judge could not follow Judge Hodge QC’s argument. But then, we did not think anyone would follow that argument with the old R3 wording either!
It may be worth trying to get arrangements varied to include similar wording before closing them if there is any chance that PPI or other asset recoveries might still be outstanding, or if you still have claims to settle and dividend to pay, or if you have other assets to deal with but you want to release the debtor.
We cannot be sure that this will defeat the argument put forward by Judge Hodge QC and we still hope that the appeal will rectify the position, but until then this should at least give you some wording to discuss with your lawyers.
There may also be a problem in protocol cases, in that several of the points made in the Green case may be interpreted as an attack on the standard IVA trust clause. We think that if the problem remains that widespread and is upheld on appeal, then the Insolvency Service should take prompt action to introduce a legislative fix to restore the trust principle.
