England and Wales Court of Appeal (Civil Division) Decisions

Case No: B3/2000/2743/A

IN THE SUPREME COURT OF JUDICATURE

COURT OF APPEAL (CIVIL DIVISION)

ON APPEAL FROM THE HIGH COURT OF JUSTICE

CHANCERY DIVISION (MR ANTHONY BOSWOOD QC)

Royal Courts of Justice

Strand, London, WC2A 2LL

Wednesday 20 December 2000

LORD JUSTICE ROBERT WALKER:

1. This is an appeal, with the permission of the deputy judge, from an order of Mr Anthony Boswood QC made on 20 July 2000 when he was sitting as a deputy judge of the Chancery Division of the High Court. The order was a bankruptcy order in respect of Mr Alimudin Somji, the petitioning creditor being Cadbury Schweppes plc ("Cadbury"). Cadbury had previously been a dissentient creditor in relation to an individual voluntary arrangement ("IVA") which was proposed by Mr Somji and was the subject of a controversial creditors' meeting finally held, after adjournments, on 20 December 1999. The appeal raises questions of some general importance as to how votes at creditors' meetings under Part VIII of the Insolvency Act 1986 ("the Act") can be challenged, either directly under s.262 of the Act, or indirectly by a bankruptcy petition under s.276(1)(b) of the Act.

2. Part VIII of the Act contains a new regime for IVAs, adopting most but not all of the recommendations of the Review Committee on Insolvency Law and Practice, chaired by Sir Kenneth Cork, which reported in 1982 (Cmnd 8558). The general scheme of the legislation was described by Peter Gibson LJ in Raja v Rubin [2000] Ch 274, 283:

"As is well known, Part VIII of the Act of 1986 enacted wholly new provisions. The obvious intention was that debtors should conclude arrangements with their creditors outside formal bankruptcy. To that end the Act laid down a statutory procedure by which an insolvent individual can obtain from his creditors or a specified majority of them an agreement binding them to an arrangement with himself which he has proposed. If the statutory procedure is duly observed and a meeting of creditors approves the arrangement, with or without modifications, then by section 260(2):

"(2) The approved arrangement - (a) takes effect as if made by the debtor at the meeting, and (b) binds every person who in accordance with the rules had notice of, and was entitled to vote at, the meeting (whether or not he was present or represented at it) as if he were a party to the arrangement."

There can be a challenge to the decision of the meeting by means of an application to the court under section 262. The supervisor is charged with implementing and supervising the voluntary arrangement once approved, subject to the court's powers on an application to it under section 263."

3. Section 262 of the Act (headed `Challenge of meeting's decision') contains the following provisions relevant to this appeal:

"(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 -

(a) that a voluntary arrangement approved by a creditors' meeting summoned under section 257 unfairly prejudices the interests of a creditor of the debtor;

(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 -

(a) the debtor;

(b) a person entitled, in accordance with the rules, to vote at the creditors' meeting; ...

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

(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; ...

.....

(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."

4. By the combined effect of ss.264(1)(c) and s.276(1) of the Act a creditor bound by an IVA may present a bankruptcy petition, but only (so far as is now relevant) if the court is satisfied (s.276(1)(b))

"that information which was false or misleading in any material particular or which contained material omissions -

(i) was contained in any statement of affairs or other document supplied by the debtor under Part VIII to any person, or

(ii) was otherwise made available by the debtor to his creditors at or in connection with a meeting summoned under that Part,.."

5. The primary facts of the case are not in dispute, although there is acute controversy as to how they should be characterised (the judge accepted Cadbury's submission that there was a secret deal to influence the vote at the creditors' meeting; on behalf of Mr Somji it is said, with some support from the supervisor, Mr Neil Cooper of Kroll Buchler Phillips, that it was a proper commercial transaction in the developing market for distressed debt).

6. Mr Somji is a businessman who was engaged in international trade, especially with Russia. In 1999 he was admittedly insolvent and was facing a bankruptcy petition. His statement of affairs as at 20 October 1999 disclosed assets of US $1000 and creditors' claims of US $8,381,000. He was indebted as guarantor of corporate indebtedness to a number of banks including Barclays Bank plc, London Trust Bank, Belgolaise SA, Byblos Bank Europe SA ("Byblos"), Banque Traditionel-Credit Lyonnais, Banque Francais de l'Orient ("BFO") and Credit Lyonnais Russia. He was also indebted to Cadbury and its Portuguese subsidiary (which can for the present purposes be equated with Cadbury) in the total sum of US $1.717m.

7. On 20 October Mr Somji proposed an IVA with Mr Cooper as supervisor. The proposal was that Mr Somji's father would contribute to the IVA by a gift of US $300,000, payable by three instalments over two years. Mr Somji himself would not make any contribution out of his salary of £36,000 a year. The expected dividend to the creditors was approximately four cents in the dollar.

8. A creditors' meeting was called for 6 December 1999. On 24 November Mr Cooper sent a letter to creditors increasing the father's offer to US $380,000, with a forecast dividend of approximately 5 cents in the dollar. The meeting was attended by representatives of (among other creditors) Byblos, BFO and Cadbury. Cadbury was represented by Mr Tim Owen, Cadbury's Director of Treasury. Mr Cooper held various proxies in favour of the resolution to approve the proposed IVA, but it became apparent that there was only about a 55 per cent majority in favour, as against the 75 per cent majority required by rule 5.18 of the Insolvency Rules 1986. The opposition consisted of Byblos (with 8.48 per cent of the votes), BFO (with 13.68 per cent) and Cadbury (with 22.7 per cent). These creditors' representatives urged Mr Somji to come up with a better offer, and the meeting was adjourned.

9. The date for the adjourned meeting was postponed until 16 December, when Mr Somji put forward the offer of a further contingent contribution (contingent in part on a Somji family company being successful in litigation against Cadbury). This offer was not acceptable to the three dissentient creditors, Byblos (which attended the meeting by Mr Elias Abousleiman), BFO (which attended by Mr Martin Lynch) and Cadbury (which attended by Mr Owen). The meeting was again adjourned until 4 pm on Monday 20 December 1999, which was the very last day on which a meeting could be held to approve the proposed IVA, unless an extension of time were to be obtained.

10. By this time Mr Naushad Jivraj had come to be playing an important part in the matter. He has said in his witness statement that he and Mr Somji had been social acquaintances for many years, and that in May 1999 he approached Mr Somji with a view to cooperation in possible business ventures, the nature of which has not been specified. By September 1999 one particular opportunity had been identified and appeared likely to be profitable. When Mr Jivraj discussed it with Mr Somji, the latter said that he was threatened with bankruptcy. The proposal for an IVA was mentioned.

11. Mr Jivraj (who had a good relationship with Byblos) has described in his witness statement how initially he tried to persuade Byblos that it was "inappropriate, unnecessary and commercially pointless" to reject the IVA and see Mr Somji go bankrupt. At that stage (in October 1999) there was no suggestion of an assignment of Byblos's debt. But this suggestion emerged, Mr Jivraj has stated, on 15 December. He wanted to help because he valued the Somji family interest (through a company called Shallan (UK) Ltd) as a future joint venture partner. He obtained particulars of the creditors from Mr Somji and (as he has stated in his witness statement):

"It was clear to me that in order for the requisite majority of creditors to approve the voluntary arrangement, both Byblos and BFO or Cadbury Schweppes alone would have to vote in favour of the proposal. In a further conversation with Byblos, I learned that Byblos and BFO had been acting mainly in concert in relation to the voluntary arrangement and Byblos agreed to act as a go-between with BFO.

Byblos confirmed to me that BFO was in agreement with the concept of selling its debt. Initially, Mr Lynch of BFO wanted to meet with me, but wanted me to obtain Mr Somji's prior authority. I told him that as far as I was concerned, I did not need to be authorised by Mr Somji to speak with BFO concerning the possible purchase of the debts owing to BFO by Primedeck and Mr Somji. I explained to Mr Lynch that these were assets of BFO which BFO was free to deal with. On reflection, he agreed with my analysis and agreed to meet with me and we met on 16 December 1999 to discuss the possibility of a deal."

Primedeck Enterprises Ltd ("Primedeck") is or was a Jersey company for whose indebtedness Mr Somji was liable as guarantor.

12. At this stage there was the adjourned meeting of 16 December at which nothing was achieved. Mr Jivraj stated that negotiations continued on 17 December (which was a Friday). Mr Jivraj asked Leaf Holdings Ltd ("Leaf"), a Jersey company with which he was associated through a Guernsey trust, to instruct Mr Jeremy Goldring of Baker & McKenzie to send a draft agreement to Byblos and BFO under which they would agree to support the IVA and, if it was approved, to assign their debts on advantageous terms. But at the close of business on Friday 17 December the sums offered by Leaf were not acceptable.

13. At this juncture Mr Jivraj decided to approach Cadbury, and he did so over the weekend of 18-19 December. After numerous telephone calls he eventually managed to speak to Mr David Nevill, a commercial director of a Cadbury subsidiary, on the Sunday afternoon. He offered Mr Nevill US $250,000 for an assignment of Cadbury's debt. Mr Nevill referred the matter to Mr Owen who on the morning of Monday 20 December telephoned Mr Somji and told him (in Mr Owen's words) that Cadbury "would not be accepting his offer as we felt that any funds which were available should be offered to all creditors pro rata." The offer of US $250,000 compared with an expected dividend under the IVA of about US $86,000. Mr Jivraj at once reverted to Leaf and obtained authority to increase its offer to the two banks.

14. Mr Jivraj's witness statement is not precise about the timing of all the events of that Monday, but (from para 16 of his witness statement made on 9 March 2000) it seems likely that agreement on quantum was reached at a fairly early stage, and that the discussions then focused on the practicalities of effecting deposits in an acceptable currency. This is how Mr Jivraj put it in paras 16 to 18:

"During the day, long discussions ensued about the deposits. Byblos and BFO insisted that the deposit monies be received by them if a binding agreement was to be reached. This caused Leaf some problems because Leaf did not have US dollars available and any foreign exchange transaction involving buying US dollars would take two days. Leaf did, however, have Portuguese Escudos and these were easily convertible to Euros. It took some time for BFO to agree to Euros as a deposit. Finally, Byblos and BFO agreed for equivalent Euros to be transferred as deposits.

In a telephone conversation with Jeremy Goldring at Baker & McKenzie at approximately 3.45pm, I was informed that confirmation of receipt of the deposits had not been obtained and as far as he was aware the parties had not executed the counter-part agreements. At approximately 3.55pm Mr Somji telephoned me and asked me if my discussions with the banks had come to anything - I told him that although I had been hopeful that during the course of the day the deal would have been concluded by 4.00pm, nevertheless it appeared that time had run out.

After the meeting, Mr Somji telephoned me and said that the banks had voted in favour and that the voluntary arrangement proposal had been approved. At about 4.30pm, Jeremy Goldring telephoned me and told me that he had received confirmation from the parties that the agreements had been executed and that the money had been received and that, accordingly, completion had taken place. This had been achieved by telephone conversations between him, Byblos and BFO's solicitors at just after 4.00pm."

15. Mr Somji's perception of these events is set out in paras 18 to 20 of his witness statement made on 9 March 2000:

"On my way to the creditors meeting on 20th December, I phoned Mr Jivraj to ask if there had been last minute miracles, to which he replied that there had been various discussions but that nothing had been resolved, and given the time, it was now unlikely for anything to happen. I spoke to him once more prior to the commencement of the meeting, and he confirmed that discussions were still continuing but there were various issues which had not been resolved, and that it was impossible to say whether he would be successful or not. He did not elaborate.

At 4.00pm, Adam Cohen of Buchler Phillips proceeded to invite the creditors into the meeting room. However he did not return immediately. After a while Andrew Foster of Buchler Phillips left the meeting room to call the creditors in, but only Tim Owen of Cadbury Schweppes was sitting in the reception, and the other two had gone to the cloakroom. As soon as the three of them were ready, they came into the room and the meeting began. At this stage I categorically did not know if any deal had been struck between Naushad Jivraj and the banks. Neil Cooper recapped why we were gathered, and told the creditors that I had no further offers to make. Mr Elias of Byblos Bank interrupted Neil Cooper and said that he had received instructions from his bank to vote in favour of the proposal, to which Mr Lynch of BFO then added that BFO would likewise vote in favour. Neil Cooper then proceeded to take a formal vote, in which BFO and Byblos Bank voted in favour and Cadbury Schweppes voted no.

I did not know at that stage what arrangements were being made between Mr Jivraj and the banks. He did not consult me about the negotiations or inform me of the detail of what he was doing or of what he had done. My understanding was that he was planning to buy the bank's debts; I assumed that he had done so (and it transpires that I was right). As far as I was concerned he was doing the deal because it suited him to do so. He was in no sense doing it on my behalf, and I should make it categorically clear that he was not doing it with any asset of mine."

16. Mr Owen's perception appears from paras 15-17 of his first witness statement made on 20 January 2000:

"I was the first to arrive at the third creditors' meeting on 20 December 1999 at Buchler Phillips offices. I waited in reception and Mr Abousleiman for Byblos Bank and Mr Lynch for BFO arrived just after me. They both headed to the cloakroom to take their coats off and returned 2-3 minutes later. Mr Abousleiman came over and spoke to me. He said that he wanted me to know that his bank had changed its vote and was going to vote in favour of the proposal. He said that it was not his decision but that of senior management at the bank. We then went into the meeting. Mr Abousleiman and Mr Lynch announced that Byblos Bank and BFO were now voting in favour of the proposal. There was no discussion as to why. I had intended to tell the meeting of Mr Jivraj's offer to Cadbury Schweppes over the weekend, but in the event I was so stunned that I decided not to say anything until I had taken legal advice. As Byblos Bank and BFO together represented approximately 22% of the vote this enabled Mr Somji to obtain the 75% approval required for his voluntary arrangement and the proposal was passed. The meeting lasted approximately 10 minutes. No other creditors attended.

Immediately after the meeting, I spoke to the Byblos Bank representative Mr Abousleiman. He told me that his bank had been approached and offered additional money. I told him that we had also been approached but had decided not to accept. He told me that their approach had come from someone who was already known to them and that they had checked as far as they could that he was independent of Mr Somji. He said that the first contact had taken place prior to the second meeting of creditors, that they had signed a legal agreement with the party concerned and had already received some of the money. He said that they intended to use the money to fund further investigation into the affairs of Mr Nooreddin Valimahomed (in bankruptcy). Mr Valimahomed was a business associate of Mr Somji's and many creditors (including Byblos Bank and BFO) have debts outstanding from both of them.

I then spoke to the BFO representative, Mr Lynch. I asked him whether they too had accepted additional money, but he was tight-lipped and said very little. On the many occasions I had met him prior to the third meeting he had been very open and friendly, and had previously thanked me warmly for supporting BFO in opposing the voluntary arrangement. On this occasion his attitude was completely different. He was very evasive, his body language conveyed the impression that he felt very uneasy, he avoided eye contact as much as possible and whilst he did not confirm that BFO had taken money, he did not refute my allegations. I believe it highly likely that BFO were also offered and have accepted money. I do not understand why else they would have voted to accept the 4.5 cents to the US dollar offer. Previously they had been firmly opposed to it and had also considered the contingent improvement offer (which was not even mentioned at the third meeting or incorporated into the final proposal) inadequate at the earlier meeting."

17. In the first few days after the meeting there were some oral and written recriminations, interrupted no doubt by the holiday season. On 19 January 2000 Mr Abousleiman of Byblos wrote a letter to Mr Owen which the deputy judge criticised as untruthful. That criticism was in my view justified, but it is unnecessary to go further into that. The outcome was that on 20 January 2000 Cadbury issued an ordinary application under s.262 of the Act asking that the creditors' approval of the IVA given at the meeting on 20 December 1999 should be revoked on the ground that it unfairly prejudiced the interests of Cadbury. On 1 June 2000 Cadbury followed its s.262 application with a bankruptcy petition alleging that the IVA was void as having been obtained by collateral secret payments to two creditors, or alternatively that

"there was a material omission from the proposal presented to creditors, both in written and oral form, in that contrary to the true position, the proposal did not refer to the fact that secret collateral payments were being offered to some creditors with the debtor's knowledge."

By that time the terms of the agreement between Leaf, BFO and Byblos were known, as Mr Jivraj's witness statement exhibited the deed of agreement of 20 December 1999 ("the agreement").

18. The agreement contained recitals of Primedeck's indebtedness to BFO and Byblos, of Mr Somji's parallel indebtedness to those companies as guarantor, and of the bankruptcy petition which BFO had presented. The operative part of the deed contained five clauses. Clause 1 contained an unconditional undertaking by BFO and Byblos to vote in favour of the proposed IVA, which was identified by reference to the original creditors' meeting on 6 December. Clause 2 contained a conditional undertaking by Leaf to take assignments of (i) the principal and guarantor's liabilities to BFO for US $285,000 (payable as to US $150,000 on completion and as to the balance quarterly over twelve months) and (ii) the principal and guarantor's liabilities to Byblos for US $200,000 (payable as to US $100,000 on completion and as to the balance quarterly over twelve months, although there seems to have been a typographical error in the deed as executed) The conditions on which these assignments and payments depended were that the IVA was approved and was not challenged under s.262 within the 28-day period mentioned in s.262(3). Clause 3 provided for refundable deposits to be made in Euros on execution of the agreement. Clause 4 provided for any necessary currency exchange adjustment. Clause 5 provided for confidentiality:

"BFO and Byblos undertake to keep the terms of this agreement confidential except in relation to such steps as may be necessary for the purpose of giving notice of the assignments contemplated hereby to [Mr Somji]."

19. In his judgment the deputy judge began by way of introduction with a citation from Malins V-C in McKewan v Sanderson (1875) 20 Eq 65, 72:

"Now I take it to be thoroughly settled, both in Courts of Law and Equity, that where there is a bankruptcy, or an arrangement with creditors by composition or insolvency, when insolvency exists as contradistinguished from bankruptcy, it is the duty of all creditors who have once taken part in the proceedings of bankruptcy or composition to stand to share and share alike. Equality is the only principle that can be applied, and if one creditor, unknown to the other creditors - not unknown to one or two, but to the general body - enters into an arrangement by which he gets for himself from the debtor, or from any one on behalf of the debtor, any collateral advantage whatever, that is a fraud upon the other creditors ..."

The deputy judge said that he had to establish whether there had been a secret deal; if so, whether the principle stated by Malins V-C in 1875 remains good law; and how the principle should be given effect to having regard to Parts VIII and IX of the Act.

20. The deputy judge then set out the facts much as they are set out above, ending with some observations about Mr Somji's knowledge of the progress of Mr Jivraj's negotiations:

"Mr Jivraj kept Mr Somji informed of the progress of these negotiations. He told him on the morning of 20^th December 1999 of Cadbury Schweppes' rejection of the proposals. The two men spoke just before the meeting. Even if, as he says, Mr Somji did not know before the meeting resumed at 4 pm of the exact terms of the agreement he was plainly aware (and, to be fair, does not seek to deny) that he realised a deal had been done as soon as the meeting commenced."

21. The deputy judge recorded the two sets of proceedings commenced by Cadbury, and then embarked on a discussion of the old authorities, starting with Cockshott v Bennett (1788) 2 TR 763 and ending with Re EAB [1902] 1 KB 457. He extracted from the old cases six principles, set out in para 23 of the judgment, of which the fifth was that in addition to the need for equality between creditors in the distribution of the debtor's assets, there was a further basic requirement for complete good faith between a debtor and his creditors, and between the creditors as between themselves; and that it was therefore irrelevant that an inducement to a creditor might come from a third party, and not out of a debtor's estate.

22. The deputy judge then asked himself whether the principles continued to apply under the new insolvency regime brought in by the Act, and he decided that it did. It was on that basis that, while dismissing Cadbury's application based on s.262(1)(a) (and in the absence of any reliance on s.262(1)(b)) he nevertheless reached the conclusion, embodied in para 4 of his order, that the approval of the IVA given on 20 December 1999 was void. He also made a bankruptcy order under s.276(1)(b).

23. Mr Robin Potts QC, appearing with Mr Nigel Dougherty for Mr Somji, has criticised the deputy judge's approach as having started from the wrong starting point and reached the wrong conclusion. Mr Potts submitted that the right starting point is the new statutory regime introduced by the Act. Millett J said in Re M C Bacon Ltd [1990] BCC 78, 87, a case on voidable preferences,

"I therefore emphatically protest against the citation of cases decided under the old law. They cannot be of any assistance when the language of the statute has been so completely and deliberately changed. It may be that many of the cases which will come before the courts in future will be decided in the same way that they would have been decided under the old law. That may be so, but the grounds of decision will be different. What the court has to do is to interpret the language of the statute and apply it."

Lord Jauncey made similar observations in Re Smith (a bankrupt) ex parte Braintree DC [1990] 2 AC 215, 238. After referring to those observations Hoffmann J said in Re a debtor (No 784 of 1991) [1992] Ch 554, 558-9

"Those authorities show that, in approaching the language of the Act of 1986, one must pay particular attention to the purposes and policies of its own provisions and be wary of simply carrying over uncritically meanings which had been given to similar words in the earlier Act. It does not, however, mean that the language of the new Act comes to one entirely free of any of the intellectual freight which was carried by words and phrases in earlier bankruptcy or other legislation."

Re a debtor (No 784 of 1991) was not cited to the court but Hoffmann J's reference to `intellectual freight' is well known to insolvency practitioners.

24. The intellectual freight least likely to be jettisoned includes the basic doctrines (such as proportionate treatment of unsecured creditors, and the principle of set-off) which have been features of English bankruptcy law since its earliest days. Although the English law of bankruptcy now has the appearance of a complete statutory code, it is built on foundations which owe much to past judicial creativity and development of far more meagre statutory material going back to Elizabethan times (the first `modern' statutes being the Bankruptcy Act 1869 and the Debtors Act 1869). The deputy judge's impressive survey of the old law shows that in relation to compositions and arrangements with creditors the court did impose a strict requirement of good faith as between competing unsecured creditors, and prohibited any secret inducement to one creditor even if that inducement did not come from the debtor's own estate. There is no strong presumption that a similar principle must be found in the new regime set out in Part VIII of the Act, but (to put it at its lowest) it would be no great surprise to find it there in one form or another.

25. In applying the terms of s.276(1)(b) to the facts of this case the deputy judge followed the approach of Rimer J in the unreported case of Apton New Homes v Tack (19 June 1998). In order to determine whether there had been a material omission he asked himself 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. I consider that that is the correct approach, so long as the question is to be answered objectively, and so long as it is borne in mind that as well as the creditors which were represented at the meeting on 20 December 1999, Mr Cooper held proxies for a number of creditors which were not present by their own representatives. Had Mr Cooper been informed on that day of an important new development which ought to be reported to those for whom he held proxies it would on the face of it have been his duty to adjourn the meeting and report to the other creditors, even if that meant having to obtain an extension of time (under s.376 of the Act).

26. The deputy judge noted that the statement in para 2.9 of the proposed IVA ("save for the contribution by my father, no third party property is proposed to be included in the Arrangement") was literally true (and it remained true down to the time of the vote at the meeting on 20 December). But the judge could not accept that it followed that there was no material omission in the information made available to Mr Somji's creditors at or in connection with the meeting:

"To my mind it is obvious that it would be likely to make a material difference to the way in which the creditors would have considered and assessed the proposed arrangement if they had been told that two of their number were being promised additional payments on the side in return for their agreement."

The deputy judge also rejected other subsidiary arguments which were relied on below, including the bold assertion that it was Mr Owen who was at fault in not disclosing to the meeting the reasons why BFO and Byblos had made such a startling last-minute change in their positions (as the deputy judge said, Mr Owen had strong suspicions but no proof, and it would have been a serious allegation to make against two banks).

27. In this court Mr Potts, while accepting the fundamental importance of the proportionate distribution of the debtor's own estate, has pointed out that money provided by Leaf was not part of Mr Somji's estate, nor was Leaf an associate of Mr Somji (within the meaning of s.435 of the Act). Nor was the money provided as part of the proposed IVA. It was provided, Mr Potts submitted, as part of a separate commercial transaction, a dealing in distressed debt, which Mr Jivraj caused Leaf to enter into for what Mr Jivraj saw as good commercial reasons.

28. Mr Potts has also submitted that the unusual facts of this particular case leave no room to find any material omission of information. He stresses that on the evidence of Mr Somji and Mr Jivraj (which Cadbury did not seek to challenge in cross-examination) the banks' deal with Leaf was concluded at the very last moment, and that Mr Somji had the means of knowing that it had been concluded only when, immediately before the vote, Mr Lynch and Mr Abousleiman announced that they were now supporting the IVA. Mr Potts has submitted that Mr Somji did not make any information available to creditors at the meeting, either in documentary form or otherwise, because he simply had no information to make available.

29. Mr Potts made these submissions with admirable clarity and conciseness, but (apart from the undisputed fact that Leaf's money was not part of Mr Somji's estate) I do not accept them. The deputy judge was right to reject the suggestion that the transaction between the banks and Leaf was an ordinary debt purchase transaction. It is clear from Mr Jivraj's own account of the evolution of the transaction that it started as no more than an attempt to persuade the banks to switch their votes (as Mr Jivraj stated, in October 1999 it did not cross his mind that there was to be an assignment). The only unconditional obligations created by the agreement were the obligation undertaken by the banks to vote in favour of the IVA, and the obligation of secrecy undertaken by them. Had the assignments been completed, the assigned debts would have been taken by Leaf not in the expectation of a gain from acquiring distressed debt at a discount, but in the knowledge that the expected dividend would be only about one-fifth of the aggregate purchase price of US $485,000 (the banks struck a harder bargain with Mr Jivraj than the deal which he offered to Mr Nevill of Cadbury on Sunday 19 December).

30. The fact that on Monday 20 December Mr Jivraj was to Mr Somji's knowledge in an advanced stage of negotiations with the banks (the negotiations being concerned, it seems, with practical details of the deposits rather than with wider issues) was a highly material fact for the other creditors to be told. They would then have known that they too had some prospect of achieving more than five cents in the dollar by opening negotiations with Mr Jivraj's offshore company. They would have known that the statement in paragraph 2.9 of the IVA document, although literally true, gave a misleading impression that there was nothing further on offer from any of Mr Somji's family, friends or business acquaintances. The fact that what was on offer was not to be part of the IVA does not affect its materiality. It was not right for the secret deal between the banks and Mr Jivraj's company to be kept from the other creditors.

31. In arguing that Mr Somji had no material information to make available at the meeting on 20 December, Mr Potts submitted that no information of any sort had been communicated by or on behalf of Mr Somji at the meeting, either in documentary form or otherwise, so that s.276(1)(b) could not possibly bite. The thrust of this argument (although Mr Potts did not put it quite so starkly) was that it is impossible to omit something from nothing.

32. Even if the meeting had proceeded immediately to a vote without a single word having been spoken, I very much doubt whether that argument could succeed, if there had been material developments which affected the proposed IVA on which a vote was to be taken. But this court does not have to decide that point because Mr Somji's evidence was that Mr Cooper said before the vote that Mr Somji had no further offers to make. That statement must have been made on behalf of Mr Somji. `Take it or leave it' was the message which it gave, and it was a material omission not to state that two of the previously dissentient creditors were at an advanced stage in negotiations for a better deal outside the IVA.

33. For these reasons I consider that the deputy judge was right to conclude that he had jurisdiction to make a bankruptcy order under s.276(1)(b) of the Act. I consider (for the reasons set out in the next paragraph) that he was wrong to conclude that the IVA was void, despite his rejection of the challenge under s.262(1)(a). The supposed voidness of the IVA was one of the alternative grounds on which the bankruptcy petition was presented and the question might have arisen (although Mr Potts did not, I think, rely on this point) as to whether the deputy judge would have exercised his discretion to make a bankruptcy order if only one (and not both) of the grounds had been made out. On the general view which he took of the case, I think he would have done so. If there were any doubt about his discretion being flawed I think that this court should exercise its discretion to confirm the bankruptcy order.

34. In his conclusion that the IVA was void the deputy judge did in my respectful view err by over-reliance on the old law, to which he devoted a large part of his judgment, and by insufficient regard to the terms and policy of Part VIII of the Act. Legal certainty is important if the debtor, the creditors and the supervisor are to know where they stand. That is no doubt the reason for the short limit for challenge imposed by s.262(3), and the prohibition on other challenges on the ground of irregularity imposed by s.262(8). Mr Mark Phillips QC (appearing with Dr Fidelis Oditah for Cadbury) submitted that the secret deal found by the deputy judge was more than an `irregularity at or in relation to the meeting'.

35. That submission has some force, but I do not accept it. The approval of an IVA at the creditors' meeting is of central importance to the whole of Part VIII, as appears from s.260. If a proposed IVA has apparently been approved by a creditors' meeting, the only routes to challenge or circumvent it are in my judgment a direct challenge under s.262(1) or an indirect challenge by means of a bankruptcy petition under s.276(1).

36. It is not therefore necessary to consider the point (raised in the respondent's notice) as to unfair prejudice under s.262(1)(a). The court has heard fairly full argument on it but for my part I am disinclined to give any definite or detailed view on a point which is of some general importance but is not necessary to the disposal of this appeal.

37. It is sufficient to say that there is a fairly strong line of first-instance authority, starting with the decision of Hoffmann J in Re a debtor (No. 259 of 1990) [1992] 1 WLR 226, which is uniformly in favour of limiting the effect of the provision to unfairness brought about by the terms of the IVA itself. As Hoffmann J pointed out in that case (at p.229), s.276(1) provides an alternative remedy in many cases of unfairness brought about by other causes. I am by no means convinced by Mr Phillips' arguments that this line of authority is wrong. I am doubtful whether cases on s.459 of the Companies Act 1985 are of much help as a guide to the construction of s.262(1)(a), since although the statutory language is similar, the notion of the interests of members of a company (as such) is a good deal more complex (see O'Neill v Phillips [1999] 1 WLR 1092).

38. I would therefore dismiss this appeal, except for omitting paragraphs 4 and 5 of the judge's order.

SIR CHRISTOPHER STAUGHTON:

39. I agree that this appeal should be dismissed for the reasons given by Lord Justice Robert Walker. If it were necessary to do so, I would find it difficult to define the precise boundary of unfair prejudice in section 262(1)(a). But that is not critical for our decision.

LORD JUSTICE JUDGE:

40. I agree with Robert Walker LJ, and only add some words of my own by way of emphasis. In my judgment the effect of s276 of the Insolvency Act 1986, and the Insolvency Rules 1986 made under it, is to ensure that every proposal for an individual voluntary arrangement should be characterised by complete transparency and good faith by the debtor.

41. Under the Rules the debtor is required to provide his creditors with the specific information prescribed by r5.3 He must deal with a very substantial number of matters, of which, for present purposes it is necessary only to identify,

"(d) Whether any, and if so, what guarantees have been given of the debtor's debts by other persons, specifying which (if any) of the guarantors are associates of his; ......

(j) Whether, for the purposes of the arrangement, any guarantees are to be offered by any persons other than the debtor, and whether (if so) any security is to be given or sought; ......"

42. Where relevant for present purposes, s276(1) provides:

"The court shall not make a bankruptcy order on a petition under s264(1)(c) ...... unless it is satisfied -

(b) that information which was false or misleading in any material particular or which contained material omissions -

(i) was contained in any statement of affairs or other documents supplied by the debtor under Part VIII to any person, or

(ii) was otherwise made available by the debtor to his creditors at or in connection with a meeting summoned under that Part ......"

43. This statutory language plainly provides that a debtor may be in default, and liable to a bankruptcy order, even when he has apparently complied with the Rules which govern the contents of the proposal. An accurate proposal dealing with but limited to the matters prescribed by the Rules is not sufficient of itself to establish compliance with the requirements of s276. "Information" must not be provided by the debtor which is false or misleading in any material particular, and the "information" that is provided by him must be complete. This obligation continues up to the date of and during the meeting of creditors itself. Properly fulfilled this obligation enables the creditors to make an informed decision about the proposal for a voluntary arrangement.

44. The principles laid down in the cases decided in the 18th and 19th centuries, accurately summarised by the judge below, have not, as he rightly put it, "become outmoded or unnecessary in modern times". By contrast with the simple language of the section perhaps some of the eloquent flourish in these judgments may appear a little extravagant to us. Nevertheless s276 and the Rules encapsulate the principles of transparency and good faith and make proposed secret deals or confidential arrangements of the kind referred to by Robert Walker LJ as unacceptable today as they were in Victorian England.