Case No: A2/2011/0288
Neutral Citation Number: [2011] EWCA Civ 1083
IN THE COURT OF APPEAL (CIVIL DIVISION)
ON APPEAL FROM THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
His Honour Judge Hodge QC

Royal Courts of Justice
Strand, London, WC2A 2LL

Date: 05/10/2011
Before :

LORD JUSTICE PILL
LORD JUSTICE ETHERTON
and
SIR MARK POTTER
- - - - - - - - - - - - - - - - - - - - -
Between :

	CHARNESH KAPOOR	Appellant	
	- and -		
	(1) NATIONAL WESTMINSTER BANK PLC
(2) KIAN SENG TAN	Respondents	

- - - - - - - - - - - - - - - - - - - - -
(Transcript of the Handed Down Judgment of
WordWave International Limited
A Merrill Communications Company
165 Fleet Street, London EC4A 2DY
Tel No:  020 7404 1400, Fax No: 020 7404 1424
Official Shorthand Writers to the Court)
- - - - - - - - - - - - - - - - - - - - -

Gwilym Harbottle (instructed by Davenport Lyons) for the Appellant
Tom Smith (instructed by DLA Piper UK LLP) for the First Respondent

Hearing dates : Friday 29th July 2011
- - - - - - - - - - - - - - - - - - - - -
Judgment
LORD JUSTICE ETHERTON
Introduction
1.	This appeal concerns two issues of principle relating to the approval of an individual voluntary arrangement (“IVA”).  One is as to whether, where there has been an assignment of part of a debt, which can only take effect in equity, the person entitled to vote at the creditors’ meeting called to approve the IVA is the assignor or the assignee.  The second is whether there has been a “material irregularity” at or in relation to such a meeting within the Insolvency Act 1986 (“IA”) section 262(1)(b) if account has been taken of the vote of a creditor who has taken an assignment of part of a debt from an associate of the debtor, the assignment was for no commercial purpose and on uncommercial terms, and was solely for the purpose of enabling the assignee to vote in favour of the IVA, and, had the vote been left out of account, the IVA would not have secured the majority of votes required under the Insolvency Rules 1986  (“IRR”) r.5.23(4).
2.	The appeal is from an order dated 20 January 2011 of His Honour Judge Hodge QC, on an application by the first respondent, National Westminster Bank plc (“the Bank”).  Pursuant to IA s. 262(1)(b) the Judge revoked the approval of the IVA in respect of the appellant, Charnesh Kapoor (“Mr Kapoor”) on the ground that there had been a material irregularity at or in relation to the meeting of Mr Kapoor’s creditors called to approve his IVA.  In the alternative, pursuant to IRR r.5.22(3) the Judge set aside the decision of the second respondent, Kian Seng Tan (“Mr Tan”), the chairman of the meeting, to admit the claim of Sanjeev Chouhen (“Mr Chouhen”) as a creditor.  The Judge further ordered that the Bank be at liberty to present a petition for Mr Kapoor’s bankruptcy.
3.	Mr Tan did not appear, and was not represented, before the Judge, and he has played no part on this appeal.  He is willing to comply with any order and directions of the court on the matters in issue.
The legal framework
4.	IRR rr.5.21 and 5.22 provide as follows, so far as relevant to this appeal, as regards the entitlement of creditors to vote at the creditors’ meeting called by the Nominee to consider the debtor’s proposal.
“5.21 Entitlement to vote
(1)	Subject as follows, every creditor who has notice of the creditors’ meeting is entitled to vote at the meeting or any adjournment of it.
(2)	A creditor’s entitlement to vote is calculated as follows-
(a) where the debtor is not an undischarged bankrupt and an interim order is in force, by reference to the amount of the debt owed to him as at the date of the interim order; 
	(b) ...
	(c) ...
(3)	A creditor may vote in respect of a debt for an unliquidated amount or any debt whose value is not ascertained, and for the purposes of voting (but not otherwise) his debt shall be valued at £1 unless the chairman agrees to put a higher value on it.”
“5.22 Procedure for admission of creditors’ claims for voting purposes
(1)	Subject as follows, at the creditors’ meeting the chairman shall ascertain the entitlement of persons wishing to vote and shall admit or reject their claims accordingly.
(2)	The chairman may admit or reject a claim in whole or in part.
(3)	The chairman’s decision on any matter under this Rule or under paragraph (3) of Rule 5.21 is subject to appeal to the court by any creditor of the debtor.
(4)	If the chairman is in doubt whether a claim should be admitted or rejected, he shall mark it as objected to and allow votes to be cast in respect of it, subject to such votes being subsequently declared invalid if the objection to the claim is sustained.
(5)	If on an appeal the chairman’s decision is reversed or varied, or votes are declared invalid, the court may order another meeting to be summoned, or make such order as it thinks just.
The court’s power to make an order under this paragraph is exercisable only if it considers that the circumstances giving rise to the appeal are such as to give rise to unfair prejudice or material irregularity. ”
5.	IRR r.5.23 provides as follows, so far as relevant, as to the majorities required in order to pass a resolution to approve an IVA:
“5.23		Requisite majorities
(1)	Subject to paragraph (2), at the creditors' meeting, a resolution is passed when a majority (in value) of those present and voting in person or by proxy have voted in favour of it.
(2)	A resolution to approve the proposal or a modification is passed when a majority of three-quarters or more (in value) of those present and voting in person or by proxy have voted in favour of it.
	…
(4)	Any resolution is invalid if those voting against it include more than half in value of the creditors, counting in these latter only those—
(a)	who have notice of the meeting;
(b) 	… ; and
(c)	who are not, to the best of the chairman's belief, 			associates of the debtor.
(5) …
(6) …
(7) The chairman’s decision on any matter under this Rule is subject to appeal to the court by any creditor …”
6.	It is common ground that the effect of IRR r.5.23 is that a resolution to approve a proposal for an IVA must be supported by (1) 75 per cent in value of the total debt, and (2) over 50 per cent in value of the “independent” debt, that is the debt owed to persons who are not “associates” of the debtor as defined in IA s.435.  
7.	IA s.262 provides as follows, so far as relevant:
262 Challenge of meeting’s decision
(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) 	…
	(b) 	a person who
(i) was entitled, in accordance with the rules, to vote at the creditors’ meeting, …
(3) …
(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 at the meeting; …” 	
The factual background
8.	Mr Kapoor is indebted to the Bank as a result of guarantees which he gave in respect of the liabilities owed to the Bank by certain companies of which he was a director.  On 26 June 2008 the Bank served a statutory demand on Mr Kapoor in the sum of £1,821,850.38.  On 2 June 2009 Mr Kapoor’s application to set aside the statutory demand was dismissed.  Registrar Derrett authorised the Bank to present a bankruptcy petition not before 23 June 2009.  On that day Mr Kapoor made an application to the court for an interim order in connection with a proposed IVA.  The essence of the IVA proposal (“the Proposal”) was that members of Mr Kapoor’s family, through a family trust, would make available £10,000 per month for a period of 60 months for the benefit of Mr Kapoor’s creditors.  It was said that the resulting sum of £600,000 would result in a dividend to creditors of approximately 5.48p in the £, and that would be a better result for creditors than the nil dividend which would otherwise be available in a bankruptcy.  The Proposal claimed that Mr Kapoor had no assets at all as against creditors of £10,385,646.
9.	Appendix 5 to the Proposal identified four creditors of Mr Kapoor: (1) the Bank for £1,850,646; (2) HMRC for £35,000; (3) Crosswood Limited (“Crosswood”) for £4.5 million; and (4) Mr Chouhen for £4 million.  It is common ground that Crosswood was an associate of Mr Kapoor for the purposes of IRR r.5.23(4)(c), being a company owned by a family trust.  It is also common ground that Mr Chouhen was not an associate of Mr Kapoor.
10.	On 10 July 2009 Mr Tan, as the Nominee, produced his report recommending that a meeting of creditors be convened on 7 August 2009 to consider the Proposal.  In the event, the first meeting took place on 22 October 2009.
11.	An Interim Order was made on 22 July 2009.
12.	The Bank completed its proxy to vote against the Proposal.  Its decision was made in light of the lack of explanation as to why it was that Mr Kapoor owned no assets at all and the lack of evidence to support the claims of the two alleged creditors, Crosswood and Mr Chouhen, in the total sum of £8.5 million.  HMRC also completed its proxy to vote against the Proposal.  Crosswood and Mr Chouhen both completed proxies in favour of the Proposal.
13.	Both the proxy submitted by Crosswood and the proxy submitted by Mr Chouhen included a copy of a deed of assignment (“the Assignment”). Mr Chouhen’s proof of debt accompanying his proxy stated that the Assignment was dated 26 June 2009.  The Judge was told, however, that was a mistake and the Assignment was in fact executed on 23 June 2009, that is to say on the same day as the application for an interim order.
14.	The Assignment recited, among other things, that Mr Kapoor was indebted to Crosswood in the amount of £8.5 million (“the Crosswood Debt”); Crosswood had been advised that Mr Kapoor intended to propose an IVA in respect of his debts;  and Mr Chouhen had agreed to acquire from Crosswood £4 million of the Crosswood Debt (“the Assigned Debt”).  Clause 1.1 of the Assignment provided:
“In consideration of the agreement of the Assignee [Mr Chouhen] to pay to the Assignor [Crosswood] the sum of £50,000 on the dates and in the tranches mentioned in Clause 2, the Assignor HEREBY ASSIGNS to the Assignee with full title guarantee absolutely the Assigned Debt (together with all amounts in respect of such amount thereof) to the intent that on completion of this Assignment the Crosswood Debt shall be reduced to £4,500,000.”
15.	By clause 1.2 of the Assignment Crosswood agreed with Mr Chouhen that, at any meeting of Mr Kapoor’s creditors to consider any proposals for an IVA and any other meeting of creditors of Mr Kapoor, it would not exercise any rights of a creditor in respect of the Assigned Debt.
16.	  Clause 2.2 provided as follows
“In consideration of the assignment of the Assigned Debt to the Assignee the Assignee hereby undertakes to pay to the Assignor the following amounts:
	2.1	the sum of £100,000, £50,000 of which shall be paid on the signature of this agreement and £50,000 of which shall be paid within six months of the date hereof; and,
	2.2	an amount equal to 80% of all sums which may be received or recovered by the Assignee in respect of the Assigned Debt whether in any IVA of the Debtor; in his bankruptcy; or otherwise (“dividends”), which shall be paid to the Assignor by the Assignee within 28 days of each receipt of a dividend.” 
17.	It is common ground that the commercial effect of the Assignment was that Mr Chouhen was paying Crosswood £275,360 (being £100,000 plus 80 per cent of the dividend of 5.48p in the £ on £4 million) whilst being entitled to receive £219,200 (being the dividend of 5.48p in the £ on £4 million); or, put another way, Mr Chouhen was paying £100,000 in order to receive £43,840.
18.	The Judge found as facts that the sole purpose of the assignment was to circumvent the consequences of Crosswood being an associate of Mr Kapoor and so having the entirety of its claim being disallowed for voting purposes; it was always the intention of Mr Chouhen to vote in favour of the IVA, and that was the basis on which the Assignment was executed; there was no commercial reason for Mr Chouhen to enter into the arrangement, and his agreement to the arrangement was wholly uncommercial; the arrangement with Mr Chouhen was promoted by Mr Kapoor, and Mr Kapoor was intimately involved in it.  There has been no appeal against those findings.  Furthermore, the effect of clause 2.2. of the Assignment was to leave Crosswood with the overwhelming economic or financial benefit of the assigned debt.    
19.	The creditors’ meeting on 22 October 2009 was adjourned so that Mr Tan could obtain further evidence relating to the Crosswood Debt.  At the next meeting held on 27 October 2009 Mr Tan declared himself satisfied with the Proposal and recommended its approval.  He valued Crosswood’s claim at £4.5 million, and Mr Chouhen’s claim at £4 million.  HMRC and the Bank each voted against the Proposal.  Crosswood and Mr Chouhen each voted in favour of it.  Crosswood was treated as an associate of Mr Kapoor for the purposes of IRR 5.23(4)(c).  Mr Chouhen was not.  On that basis, the resolution to approve the Proposal was passed.  If the vote of Mr Chouhen had been left out of account, the resolution approving Mr Kapoor’s IVA would have been invalid under IRR r.5.23(4) since more than half in value of the creditors who were not associates of Mr Kapoor would have voted against it.  
The Bank’s application and the Judge’s judgment
20.	The Bank applied by an ordinary application dated 17 December 2009 for an order pursuant to IA s. 262(1)(b) that, among other relief not relevant to this appeal, the approval given at the creditors’ meeting on 27 October 2009 to the IVA be revoked on the ground that there was a material irregularity; further or alternatively, an order pursuant to IRR r.5.22(3) that Mr Tan’s decision to admit the claim of Mr Chouhen be set aside; and that the Bank be at liberty to present a petition for Mr Kapoor’s bankruptcy.  As I have said, the Judge made an order granting that relief.
21.	On the hearing of the application the Bank disputed that the Crosswood Debt had originally been £8.5 million, and claimed that it was for an unliquidated or unascertained amount which Mr Tan should have valued at £1 for voting purposes pursuant to IRR r.5.21(3). The Judge held ([96]) that Mr Tan could safely have attributed a value “in excess of £6,000,000 and probably in the order of £7.45 million” to the original Crosswood Debt.  Had Mr Tan allowed the meeting to proceed on that basis, that is to say that £4 million of the £6 million or £7.45 million had been assigned to Mr Chouhen, the resolution approving the IVA would still have been passed.
22.	The Judge gave a long oral judgment on the day following the conclusion of a two day hearing.  The Judge set out in great detail the factual background and evidence, the relevant legal principles, the submissions of the parties, and his analysis of the application of the law to the facts as he had found them.  It was common ground that the assignment of part of a legal debt can only take effect in equity.  The Judge rejected Mr Kapoor’s argument that Mr Chouhen, as the equitable assignee of the Assigned Debt, was the creditor entitled to vote in respect of that debt rather than Crosswood, the assignor, which retained the legal title to the chose in action.  On that issue, the Judge, having referred to the decision of the Privy Council in Parmalat Capital Finance Limited v Food Holdings Limited [2008] UKPC 23 and to the summary in Halsbury's Laws of England (5th ed) Vol 13, said:
“[105]	Mr Harbottle [counsel for Mr Kapoor] submits that it follows from all of that that where notice of the equitable assignment has been given, the assignee, and not the assignor, is the correct party to prove in the IVA. It seems to me that that cannot be reconciled with the decision of the Privy Council in the Parmalat case. That decision seems to me clearly to recognise that the assignor of an equitable assignment is a 'creditor' for the purposes of the insolvency legislation. It seems to me that one has to go back and consider what is meant by a 'creditor'. There is guidance as to that contained in the Insolvency Act itself. The concept of a 'bankruptcy debt' is addressed in Section 382, which provides (by sub-section (1)), that 'bankruptcy debt', in relation to a bankrupt, means (subject to the next sub-section) any of the following, including, relevantly, 'any debt or liability to which he is subject at the commencement of the bankruptcy'. The definition of 'creditor' is addressed in Section 383(1) and it means, in relation to a bankrupt, 'a person to whom any of the bankruptcy debts is owed'. In other words, the relevant question is whether an equitable assignee of part of a debt is a person to whom the relevant part of the debt is owed. 
[107]	In my opinion, he [viz. Mr Chouhen] is not. As the passage from Halsbury makes clear at paragraph 71, the assignee cannot give a good discharge for the debt. It seems to me that Mr Marcus Smith's [the author of a work on the law of assignment] analysis is correct, and that an equitable assignee of part of a debt is entitled in equity, but not at law; and that it is the assignor who must enforce his claim against the debtor, albeit for the benefit of the assignee. The normal principle, although it admits of exceptions, in the law of trusts is that the beneficiary under a trust cannot sue in relation to the trust property. It is the trustee who must sue, and he can recover more than merely nominal damages. It therefore seems to me that it was wrong for the chairman to have treated Mr Chouhen as a creditor. It seems to me that the creditor was Crosswood Limited, which of course was an associate of the debtor. …”
23.	As regards the issue of material irregularity, the heart of the Judge’s analysis and his conclusion can most conveniently be found in the following two paragraphs of his judgment:
“[124] … It seems to me that the irregularity consisted in the counting of Mr Chouhen's vote, when he was an equitable assignee of part of a liability to which the debtor was subject, in favour of an associate, in circumstances where Mr Chouhen had taken an assignment on terms which, from his perspective, were wholly non-commercial, and in circumstances where he did so with the express intention, and objective, of voting for the IVA proposal in circumstances where the equitable assignor's vote would fall to be discounted as that of an associate. It seems to me, in such circumstances, that there is a lack of good faith on the part of Mr Kapoor, as the debtor, in promoting such an arrangement; and a lack of good faith on the part of Mr Chouhen, as an alleged creditor, in participating in the arrangement. On the evidence, it is quite clear that Mr Kapoor, the debtor, was intimately involved in the making of these arrangements. Indeed, it was he who promoted the assignment with the express object of seeking to get around the restrictions imposed by Rule 5.23(4)(c). 
[125] If endorsed by the court, the somewhat unusual facts of the present case might become a commonplace in circumstances where a debtor seeking to promote an IVA is faced with an obstacle, in the form of the discounting of the votes of an associated creditor. That, it seems to me, would clearly undermine the policy objective which underlies Insolvency Rule 5.23(4)(c). In the particular circumstances of this case, where the whole arrangement was promoted by the debtor with a compliant friend, and with the express objective of enabling a debt to be counted which should not strictly be counted, it seems to me that that demonstrates a lack of good faith, contrary to the principles applicable to the promotion of an individual voluntary arrangement. I am therefore satisfied that, in that sense, there was a 'material irregularity'; and that the resulting vote at the meeting in favour of the IVA proposal should be set aside.”
The appeal
24.	The Judge was, in my judgment, correct in his conclusion on the issue of material irregularity, but incorrect in deciding that Mr Chouhen was not the creditor entitled to vote at the creditors’ meeting in respect of the Assigned Debt. 
25.	In his skeleton argument and oral submissions on the appeal Mr Tom Smith, counsel for the Bank, addressed the issue of material irregularity before the assignment issue because, he said, it was the main way in which the Bank has always put its case.  Logically, however, the question whether Mr Chouhen or Crosswood was the creditor entitled to vote in respect of the Assigned Debt comes first, since the issue of material irregularity due to lack of good faith only arises if Mr Chouhen was that creditor (the resolution approving the IVA being bound to be revoked if Crosswood, Mr Kapoor’s associate, ought to have been regarded by Mr Tan as the only creditor in respect of the entire Crosswood Debt).  That was the order in which the Judge and Mr Gwilym Harbottle, counsel for Mr Kapoor, addressed the issues, and I shall do the same.
Mr Chouhen’s creditor status as a result of the Assignment
26.	IRR r.5.21(1) provides that every creditor who has notice of the creditors’ meeting to approve the proposal for the IVA is entitled to vote at it. IRR r.5.21(2)(a) provides that, where (as here) the debtor is not an undischarged bankrupt and an interim order is in force, the creditor’s entitlement to vote is by reference to the amount of the debt “owed to him” as at the date of the interim order.  Neither the IA nor the IRR contain a definition of “creditor” for this purpose.  IA s.383(1) defines a creditor in relation to a bankrupt as “ a person to whom any of the bankruptcy debts is owed”.  The obvious inference from these provisions is that a creditor “owed” a debt by the debtor is entitled to vote at the creditors’ meeting.
27.	The analysis of the Judge, and the submission of Mr Smith, is that Crosswood, and Crosswood alone, was “owed” the entire £8.5 million Crosswood Debt both before and after the Assignment.  Their explanation, simply put, is that, as the assignment of part of the Crosswood Debt to Mr Chouhen took effect in equity only, the legal title to the entire Crosswood Debt remained vested throughout in Crosswood.  An equitable assignee of part of a legal debt, the Judge said, cannot give a good discharge for the debt, and, in accordance with ordinary trust principles, it was only Crosswood, as the legal owner of the whole of the Crosswood Debt, which could enforce it.  In support of that analysis, the Judge, and Mr Smith, referred to Parmalat and also to the commentary in paras. 6.26-6.31 of “The Law of Assignment: the Creation and Transfer of Choses in Action” by Marcus Smith (unrelated to the Bank’s Counsel, Mr Smith).
28.	With respect to the Judge and Mr Smith, that explanation and its conclusion are out of step with the reality of the factual situation in the present case and the present state of the authorities binding on this Court. 
29.	The factual situation at the creditors’ meeting at which Mr Kapoor’s IVA was approved was that, by the terms of the Assignment, Crosswood had expressly agreed that it would not prove for, or vote in respect of, or assert any claim to any part of the Crosswood Debt in excess of £4.5 million, and it would not exercise any rights of a creditor in respect of the Assigned Debt.  Mr Chouhen had agreed to pay a considerable sum for those promises.  The implicit agreement was that Mr Chouhen alone would be entitled to vote in respect of the Assigned Debt.  By sending their respective proxies, with the Assignment attached, both Crosswood and Mr Chouhen notified Mr Tan of their agreement.  The Judge found ([124]) that Mr Kapoor “was intimately involved” in the making of the arrangements which were given effect by the Assignment.  He attended the creditors’ meeting, and was obviously content with the Assignment and the proxies of Crosswood and Mr Chouhen since he had promoted them and they were intended for his benefit so as to achieve the passing of the resolution to approve the IVA.  The Proposal itself was written on the basis that Mr Chouhen was a creditor in respect of £4 million, and entitled to vote in respect of that value of debt.  In the circumstances, from a purely practical and non-technical perspective, there is no reason why Mr Tan should not have been willing, and indeed bound, to recognise Mr Chouhen as the person entitled to vote in respect of the Assigned Debt.  He was not at any risk of any criticism, or exposed to any legal recrimination, from Mr Kapoor, Mr Chouhen or Crosswood if he did so.
30.	 The law does not, in my judgment, require a different conclusion.  The current state of the authorities, binding on this court, is that an equitable assignee of debt is entitled in its own right and name to bring proceedings for the debt.  The equitable assignee will usually be required to join the assignor to the proceedings in order to ensure that the debtor is not exposed to double recovery, but that is a purely procedural requirement and can be dispensed with by the Court.  By contrast, the assignor cannot bring proceedings to recover the assigned debt in the assignor’s own name for the assignor’s own account.  The assignor can sue as trustee for the assignee if the assignee agrees, and, in that event the claim must disclose the assignor’s representative capacity.  In any other case, the assignor must join the assignee, not because of a mere procedural rule but as a matter of substantive law in view of the insufficiency of the assignor’s title.  These points emerge clearly from the following authorities.
31.	In Central Insurance Co Ltd v Seacalf Shipping Corporation (The “Aiolos”) [1983] 2 Lloyd’s Rep 25 Oliver LJ, with whom Ackner LJ agreed, said (at pp. 33 and 34):
“That there is a long-standing practice that, before giving judgment in an action at the suit of an equitable assignee, the Court will normally require him to bring his assignor before the Court is beyond doubt.  But it does not follow from that that there is no cause of action vested in the assignee and capable of being asserted by him alone or, indeed, that the assignor has in all cases, and necessarily to be a party.  The reason for the requirement is not that the assignee has no right which he can assert independently, but that the debtor ought to be protected from the possibility of any further claim by the assignor who should therefore be bound by the judgment.  A further reason given by Lord Justice Chitty in Durham Brothers v Robertson, [1898] 1 QB 765 is that the assignor ought to be given the opportunity to challenge the assignment if he wishes, though this probably comes to the same thing.  The concept behind the rule is that the debtor should not be put in double jeopardy.
…
These cases by themselves demonstrate the subsistence of a cause of action in the assignee, but in fact the authorities go further.  In William Brandt’s Son & Co Ltd v Dunlop Rubber Co Ltd [1905] AC 454, judgment was given for the assignee although the assignor was not made party to the action.  The case was, it is true, an exceptional one, for the debtor had in fact settled with the assignor and disclaimed any desire to have him there.  Nevertheless, it demonstrates that the requirement is a procedural and not a substantive one upon which the assignee’s cause of action depends.”
32.	In Three Rivers District Council v Governor and Company of the Bank of England [1996] QB 292 Staughton LJ said (at p. 303B) that he accepted that The Aiolos established that an equitable assignee has a cause of action which it can enforce on its own.  He said that it is a cause of action in equity; and, if the assignee chooses to exercise it, its claim prevails over that of the assignor.  The same point was made by Peter Gibson LJ, with whom Waite LJ agreed.  Peter Gibson LJ said (at p. 307C):
“It is now more that 120 years since the confluence of the separate streams of common law and equity through the Judicature Act 1873. As its modern version (section 49 of the Supreme Court Act 1981) makes clear, every civil court has to administer law and equity on the basis that whenever there is any conflict between common law and equity, the rules of equity shall prevail, every court is to continue to give effect to equitable rights and subject thereto to common law rights and the court's jurisdiction is to be exercised so as to secure that as far as possible all matters in dispute are completely and finally determined and multiplicity of proceedings is avoided.”
33.	Peter Gibson LJ then said (at pp. 307H-308B):
“For my part, I regard it as sufficient to look at the position as established by the authorities since 1873. In doing so, it is important to distinguish between what is a requirement of substantive law and what is merely a procedural requirement. It is, in my judgment, elementary that where, as here, there is an agreement to assign a legal chose, in equity the assignee becomes the owner and controller of the legal chose. He is entitled to sue for the recovery of the chose, but as a matter of practice he will normally be required by the court to join the assignor either as plaintiff or, if he refuses to give his consent to this, as defendant.  All this seems to me to be in conformity with section 49 of the Act of 1981.  An assignor, if the assignment is known, will not be allowed to sue in his own name for himself. He may sue as trustee for the assignee if the assignee so wishes, but in that event he should reveal his representative capacity … and if he attempts to recover for himself, even if, for example, only part of the debt has been assigned, he will be required to join the assignee.”
34.	The reference in those passages to the Supreme Court Act 1981 s.49 is a reference to what is now the Senior Courts Act 1981 s.49.
35.	Peter Gibson LJ then referred to William Brandt’s Son & Co v Dunlop Rubber Co [1905] AC 454, Performing Right Society Ltd v London Theatre of Varieties Ltd  [1924] AC 1, Walter & Sullivan Ltd v Murphy & Sons Ltd [1955] 2 QB 584, The Aiolos, Weddell v JA Pearce & Major [1988] Ch 26 and Deposit Protection Board v Dalia [1994] 2 AC 367.  He then said (at p. 313F):
“These authorities, in my judgment, clearly establish that the equitable assignee can be regarded realistically as the person entitled to the assigned chose and is able to sue the debtor on that chose, but that save in special circumstances the court will require him to join the assignor as a procedural requirement so that the assignor might be bound and the debtor protected. If, unusually, the assignor sues, he will not be allowed to maintain the action in the absence of the assignee.”
36.	He then referred to Warner Bros Records Inc v Rollgreen Ltd [1976] QB 430, a case heavily relied upon by Mr Smith before us.  He said (at p. 315A) that the reasoning of Roskill LJ in that case was not a complete or accurate analysis of the effect of an equitable assignment:
“as in my judgment it is clear from the line of authorities to which I have referred that an equitable assignment creates in the equitable assignee the right to sue the debtor, subject to the procedural rule requiring the joinder of the assignor.”
37.	 Peter Gibson LJ said that (p. 315B), in any event, the comments of Roskill LJ, like those of Sir John Pennycuick in Warner Bros Records, had to be read in context, namely that the decision was confined to the particular preliminary issue which it determined.
38.	Peter Gibson LJ dismissed (at p.315E-F) the view expressed by the authors of “Meagher, Gummow and Lehane on Equity: Doctrines and Remedies” (see now 4th ed at 6-520), which reflects the view expressed by Mr Marcus Smith in his work to which I have referred, that the joinder of the legal owner as a necessary party to an action by the equitable assignee is a substantive and not merely a procedural requirement.  Peter Gibson LJ took the view that Brandt’s case, which was binding on the Court of Appeal, had decided the contrary.     
39.	That view of Brandt’s case had been the view of the Court of Appeal in The Aiolos, as is shown by the second of the two paragraphs of the judgment of Oliver LJ which I have quoted earlier.  It also seems to have been the view of the Court of Appeal in Raiffeisen Zentralbank Osterreich AG v Five Star Trading LLC [2001] QB 825, in which Brandt’s case was cited in argument.  Mance LJ, with whom the other members of the court agreed, said ([60]), citing The Aiolos and Weddell :
“There is a rule of practice that the assignor should be joined, but that rule will not be insisted upon where there is no need, in particular if there is no risk of a separate claim by the assignor.”
40.	In terms of principle, I do not share the doubts and misgivings expressed by Mr Smith and the academic commentators whose opinions support his argument.  There is no good reason of policy or principle for the courts to refuse to recognise the title of the undisputed equitable assignee of part of a debt, and every good reason for the courts to refuse to recognise the bare legal title of the assignor, except where the assignor is a trustee for the assignee and expressly suing as such or the assignee joins in the proceedings.  As the Court of Appeal in Three Rivers said, that approach is entirely consistent with  section 49 of the Senior Courts Act 1981.
41.	The procedural requirement to join an assignor in an action by an equitable assignee does not prevent an equitable assignee, without joining the assignor, presenting a winding up petition since the concerns giving rise to the procedural rule have no application in such a case.  As PO Lawrence J said in Re Steel Wing Co Ltd [1921] Ch 349 (at p. 357):
“The main reason why an assignee of a part of a debt is required to join all parties interested in the debt in an action to recover the part assigned to him is in my opinion because the Court cannot adjudicate completely and finally without having such parties before it. The absence of such parties might result in the debtor being subjected to future actions in respect of the same debt, and moreover might result in conflicting decisions being arrived at concerning such debt. In my opinion, however, this reasoning does not apply to a winding up petition. After a winding up order has been made the Court in all cases when it is necessary will investigate, adjudicate upon, and settle the petitioner's debt as well as the debts of the other creditors. In the case of an assignee of part of a debt the Court in adjudicating upon his claim can and will do so in the presence of the persons entitled to the remainder of the debt, and the rights of all parties interested in the debt will be completely and finally settled once and for all.”
42.	That reasoning was applied by the Privy Council in Parmalat in holding that an equitable assignor has a sufficient interest to present a petition without joining the assignee.  As Lord Hoffmann said, delivering the judgment of the judicial committee, having quoted PO Lawrence J in Re Steel Wing:
“[8] In other words, a winding-up order does not affect the legal rights of the creditors or the company. It only puts into effect a process of collective execution against the assets of the company, for the benefit of all creditors. In the course of that process, the rights of creditors may have to be determined. But such a determination is not necessary at the stage when the order is made. An equitable assignor therefore has a sufficient interest without joining the assignee.”
43.	In the light of that explanation, I cannot agree with the Judge that Parmalat is any support for the proposition that only the equitable assignor of a debt, and not the equitable assignee, is the creditor in respect of the assigned debt for the purposes of voting at the creditors’ meeting called to approve an IVA.  Parmalat and Re Steel Wing show merely that both an equitable assignor and an equitable assignee can, for the reasons given by PO  Lawrence J and Lord Hoffmann, present a winding up petition (and, by parity of reasoning, apply for a bankruptcy order) without joining the other.  By contrast, the chairman of the creditors’ meeting called to consider the approval of the IVA will have to decide which creditor is owed a debt by the debtor and is entitled to vote in respect of it.  In my judgment, that focuses attention on the person who, subject to approval of the IVA or the debtor’s bankruptcy, would be entitled to recover the debt in court proceedings.  As the authorities I have cited clearly show, the consistent line of authority, binding on this court, is that the equitable assignee of a debt, and not the equitable assignor, has the substantive legal right to sue for the assigned debt.  Although there is a procedural requirement that the assignee should join the assignor in order to protect the debtor from successive actions and to prevent conflicting decisions, even that procedural requirement will not apply or may be dispensed with by the court in appropriate circumstances, most particularly where those concerns do not apply.
44.	By parity of reasoning, the Nominee chairing the creditors’ meeting called to consider the approval of an IVA should recognise the undisputed assignee of part of a debt as the creditor owed the assigned debt, at least in circumstances in which it is clear that the debtor has been informed of the assignment and the assignor agrees to the equitable assignee being so treated and exercising the right to vote as such creditor.  That is the situation in the present case, in which Crosswood, Mr Chouhen and Mr Kapoor all intended and agreed that Mr Chouhen alone should have the right to vote in respect of the Assigned Debt; they communicated that intention and consensus to Mr Tan, as chairman of the creditors’ meeting; and Mr Tan was at no risk of any legal challenge or recrimination from any of them by permitting Mr Chouhen to vote.  
45.	I would, therefore, set aside paragraph 3 of the Judge’s order by which he set aside the decision of Mr Tan to admit the claim of Mr Chouhen as a creditor.
Material irregularity
46.	The heart of Mr Harbottle’s argument on this issue, and of his criticism of the Judge, is that the expression “material irregularity” in IA s.262(1)(b) is directed at the documents and processes by which an IVA comes into being, and the rules in the IRR and the IA which relate to those documents and processes.  It has, he submitted, nothing to do with agreements, like the Assignment in the present case, which do not form part of those documents and processes.
47.	In a similar vein, Mr Harbottle submitted that Mr Tan had no discretion or entitlement to ignore the vote of Mr Chouhen since there had been no breach of the IRR or the IA and, on the basis of the IRR, Mr Chouhen was perfectly entitled to vote in respect of the assigned part of the Assigned Debt.  He submitted that there is no place in the legislative scheme for some broad principle of good faith, as applied by the Judge, unrelated to material non-compliance with the IRR or the IA.  There is no reference in the relevant provisions of the IRR or the IA to “good faith”.  He emphasised that the chairman of the creditors’ meeting will be an insolvency practitioner, and not a lawyer, and must take quick decisions in the conduct of the meeting.  IRR 5.22(1), he said, is inconsistent with any general discretion, since it requires the chairman of the creditors’ meeting, once the entitlement of those wishing to vote has been ascertained, “to admit or reject their claims accordingly”.  All those considerations indicate, he submitted, that the expression “material irregularity at or in relation to [the creditors’] meeting” in IA s.262(1)(b) is a reference to what may broadly be described as prescribed procedural matters. 
48.	In support of those points, Mr Harbottle cited the following passages in the judgment of Harman J in Re a debtor (No 222 of 1990) ex parte the Bank of Ireland [1992] BCLC 137 at (pp. 144 and 145) (in which the approval of an IVA was revoked because the chairman of the creditors’ meeting had wrongly not allowed certain creditors to vote): 
“The scheme is quite clear. The chairman has power to admit or reject; his decision is subject to appeal; and if in doubt he shall mark the vote as objected to and allow the creditor to vote. That is easily carried out upon the basis advanced by Mr Moss QC, Mr Mann and Mr Trace. It provides a simple clear rule for the chairman, not a lawyer, faced at a large meeting with speedy decisions necessary to be made to enable the meeting to reach a decision. On that basis the chairman must look at the claim; if it is plain or obvious that it is good he admits it, if it is plain or obvious that it is bad he rejects it, if there is a question, a doubt, he shall admit it but mark it as objected.”
“It was my first thought that it must be a matter giving rise plainly to prejudice if a creditor who is prima facie entitled to have his vote admitted, even if marked 'objected', was refused any right to vote in that his interest would be severely prejudiced. It further seemed to me prima facie that the exercise of a decision making power vested in the chairman was not prima facie naturally described as 'an irregularity'. I was however, greatly impressed by the argument of Mr Trace for Victoria Deep Water Terminal Ltd and Scruttons plc. He advanced the proposition that linguistically 'irregular' relates to 'rule' and that the provisions elsewhere show that voting at the meeting is a matter of the rules a departure from which is truly an 'irregularity'.”
49.	On the same point, Mr Harbottle referred to the following passage in the judgment of Rimer J in Re a debtor (No 87 of 1993) (No 2) [1996] 1 BCLC 63 at 95 :
“ … this interpretation of s 262(1)(b) results in my view in s 262 forming a coherent and comprehensive code of remedies. Section 262(1)(a) permits a challenge based on the substantive terms of the arrangement; and s 262(1)(b) permits a challenge based on the existence of irregular shortcomings in the documentation provided to creditors for the purpose of making their decision at the s 257 meeting as well in the convening and conducting of such meeting.”
50.	I do not agree that the expression “material irregularity” in IA s. 262(1)(b) is so limited as to exclude entirely the application of a principle of good faith.  Neither Harman J nor Rimer J was concerned with that issue.  It was, however, directly addressed in Cadbury Schweppes plc v Somji [2001] 1 BCLC 498 (Anthony Boswood QC, sitting as a deputy High Court Judge) and [2001] 1 WLR 615 (CA).  In that case a friend of the debtor, with the debtor’s agreement, made a secret deal with two creditor banks, under which a company with which the friend was associated was to purchase their debt and the two banks would vote in favour of the proposal for the debtor’s IVA.  The IVA was approved.  A dissentient creditor, Cadbury Schweppes plc, applied to the court under IA s.262(1)(a) for revocation of the IVA on the ground that the arrangement unfairly prejudiced its interests.  It also petitioned for the debtor’s bankruptcy on the ground that it was a person for the time being bound by an approved IVA ( IA s 264(1)(c)), and information made available by the debtor to his creditors at or in connection with the meeting to approve the IVA was false or misleading in a material respect or contained material omissions (IA s. 276(1)(b)).
51.	 At first instance, the deputy judge analysed a number of old authorities, starting with Cockshott v Bennett (1788) 2 Term Rep 763, 100 ER 411 and ending with Re EAB [1902] 1 KB 457.  He extracted from them six principles relating to secret deals made in connection with a composition, or other similar arrangement for the settlement of debts, by which a creditor was to receive more than the other creditors in return for supporting (or not opposing) the composition or arrangement.  Those principles were that (1) the deal was illegal and void; (2) its existence rendered the composition or arrangement voidable at the instance of an aggrieved creditor; (3) the deal was wholly unenforceable between the parties to it; (4) the principle was of entirely general application, and covered all forms of composition and arrangement, whether statutory or otherwise; (5) “the principle was based on the fundamental rule that there must be equality between creditors in the distribution of the debtor’s assets, and additionally on the equally fundamental rule that there should be complete good faith between the debtor and his creditors, and between the creditors inter se”, and it was therefore irrelevant that the inducement to the creditor came from a third party, and not out of the debtor’s estate; and (6) if the secret deal was not made by the debtor himself, all that was required was that it should have been made to his knowledge: [2001] BCLC 498 at 510.
52.	 The Court of Appeal considered ([34]) that the deputy judge had over-relied on the old law, and paid insufficient regard to the terms and policy of the IVA provisions in IA Part VIII in concluding that the IVA in that case was void.  Under those provisions, the only routes for challenging or circumventing the approval of an IVA at the creditors’ meeting are a direct challenge under IA s.262(1) or an indirect challenge by means of a bankruptcy petition under IA s.276(1).  Further, the Court of Appeal declined ([36]) to express any view on the deputy judge’s rejection of the application of IA s.262(1)(a).  The Court of Appeal did, however, dismiss the appeal and upheld the bankruptcy order made by the deputy judge pursuant to IA s.276(1)(b).  In doing so, Robert Walker LJ, giving the leading judgment of the Court of Appeal, with which Sir Christopher Staughton and Judge LJ agreed, referred to and relied upon the fifth principle articulated by the deputy Judge (“the good faith principle”).  He rejected the argument of counsel for the debtor, who relied on Re MC Bacon Ltd [1990] BCC 78, 87 and Re Smith (A Bankrupt), Ex p Braintree District Council [1990] 2 AC 215, 238, that the court was restricted to interpreting and applying the new statutory scheme for IVAs in the IA without reference to any of the principles derived from the earlier authorities.  He quoted the following comment of Hoffmann LJ on those cases in Re A Debtor (No 784 of 1991) [1992] Ch 554, at 558–559:
“Those authorities show that, in approaching the language of the 1986 Act, 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.”
53.	Walker LJ then continued as follows:
“[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 (32 & 33 Vict c 71) and the Debtors Act 1869 (32 & 33 Vict c 62). 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 1986 Act, but (to put it at its lowest) it would be no great surprise to find it there in one form or another.”
54.	Walker LJ said ([29]) that the deputy judge had been right to reject the suggestion that the transactions between the bank and the company purchasing their debts was an ordinary debt purchase transaction.  He also said ([30]) that the fact that there were advanced negotiations with the banks was a highly material fact for the other creditors to be told.  He said that the fact that what was on offer was not to be part of the IVA did not affect its materiality;  it was not right for the secret deal between the banks and the company to be kept secret from the other creditors.  The nominee had said before the vote that the debtor had no further offers to make.  Walker LJ observed:
“[32] 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.”
55.	For those reasons, Walker LJ considered that the deputy judge was right to conclude that that he had jurisdiction to make a bankruptcy order under IA s. 276(1)(b).
56.	Judge LJ, agreeing with Walker LJ, said ([40]) that:
“the effect of section 276 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.”
57.	 He said ([43]) with regard to the requirements of IA s. 276:
“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.
58.	Judge LJ referred to the continuing relevance of the principles in the old cases, as follows:
“[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 section 276 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.”
59.	In his skilful submissions, Mr Harbottle, for Mr Kapoor, distinguished Somji on several grounds.  IA s. 262(1)(b) was not a ground of the application in Somji.  Moreover, all the old cases analysed by the deputy judge, and on the basis of which he extracted his six principles, were cases of secret deals.    Mr Harbottle further submitted that the analysis of the Court of Appeal in Somji did not rest on finding an independent good faith principle qualifying the statutory IVA scheme.  Rather, he argued, the Court of Appeal had found the former principle of transparency and full disclosure, and, to that extent, good faith, in the express provisions of the IRR and IA s.276.  
60.	By contrast, Mr Harbottle emphasised, there is no question in the case of Mr Kapoor’s IVA of any inaccurate or incomplete information having been given to creditors prior to the vote on his IVA.  The arrangements between Crosswood and Mr Chouhen were disclosed with their proxies.  There was no secret deal, let alone one which conferred a benefit on Mr Chouhen additional to those receivable by other creditors pursuant to the IVA.  On the contrary, by executing the Assignment, he placed himself financially in a worse position than other creditors since he was paying more for the Assigned Debt than he was projected to obtain from future distributions under the IVA. 
61.	In short, Mr Kapoor’s case is that the arrangement between Crosswood and Mr Chouhen was a perfectly open, and lawful, way to ensure that the resolution for the IVA was approved.  Mr Harbottle argued that there is nothing unlawful about a friend of an insolvent debtor voting in favour of an IVA even if it is against the friend’s financial or commercial interests. If that can be done in relation to a debt which has always been owed to the friend, there is nothing in the statutory provisions or the rules to preclude it being done in relation to an assigned part of a debt, whether that assignment was by an associate of the debtor or an independent creditor. 
62.	Further, Mr Harbottle submitted, it would be dangerous and unprincipled for the outcome to rest on the motive for the assignment.  That would create legal and commercial uncertainty, and would present difficulties in analysing and reaching conclusions about mixed motives, mental states generally and the commerciality or otherwise of different transactions.  Mr Harbottle illustrated those points with the following examples in his skeleton argument, to which he referred in the course of his oral submissions:
“For example, suppose that A and B (not being associates) have contracted jointly with C on terms that the contract terminates automatically on either A or B becoming bankrupt. A owes £250,000 to X, which has issued a statutory demand. A proposes an IVA. There are other creditors, including Y who is owed £150,000 and is hostile. There are other friendly creditors such that if B pays off Y, the IVA will go through. If B paid Y would that be an irregularity? It is submitted that that would be a surprising result to most people. Yet how does that differ from Mr Kapoor’s case?
Second, it is not clear what degree of intention would be required. Consider the case of an agreement the main aim of which is a particular object which has nothing to do with the IVA but which the parties know is bound to affect the voting: is this an irregularity?”
“Third, what transactions are included and what excluded? Can there be an irregularity even before the date of the proposal? Does a transaction many months before the proposal which is entered into in the knowledge that there may be a proposal count for these purposes?”
63.	Mr Harbottle dismissed as irrelevant the fact that the arrangement between Crosswood and Mr Chouhen was intended to avoid the consequences of IRR 5.23(4).  He referred, in that connection, to the following statement of Lord Hoffmann in Norglen Ltd v Reeds Rains Prudential Ltd [1999] 2 AC 1 (at pp. 13G-14A):
“If the question is whether a given transaction is such as to attract a statutory benefit, such as a grant or assistance like legal aid, or a statutory burden, such as income tax, I do not think that it promotes clarity of thought to use terms like stratagem or device. The question is simply whether upon its true construction, the statute applies to the transaction. Tax avoidance schemes are perhaps the best example. They either work ... or they do not ... If they do not work, the reason ... is simply that upon the true construction of the statute, the transaction which was designed to avoid the charge to tax actually comes within it. It is not that the statute has a penumbral spirit which strikes down devices or stratagems designed to avoid its terms or exploit its loopholes. There is no need for such spooky jurisprudence. ”
64.	Those are formidable submissions.  I have nevertheless reached the conclusion that the good faith principle applies to the facts of the present case and, by virtue of its application, there was a material irregularity within IA s.262(1)(b) at or in relation to the creditors’ meeting which approved Mr Kapoor’s IVA.  The irregularity was in treating the resolution approving Mr Kapoor’s IVA as passed when, for the purposes of IRR r.5.23(4), more than half in value of Mr Kapoor’s creditors voted against it, if Mr Chouhen’s vote was excluded as it should have been.  
65.	The good faith principle articulated in the authorities considered by the deputy judge in Somji, and acknowledged by the Court of Appeal in that case, is not restricted to the non-disclosure of secret deals benefiting one or some of the creditors.  Although the facts in all those authorities did concern such a situation, the good faith principle, as articulated by the deputy judge and approved by the Court of Appeal, encapsulated “the fundamental rule that there should be complete good faith between the debtor and his creditors, and between the creditors inter se”.  In Dauglish v Tennent (1866) LR 2 QB 49, for example, in which the court declared void a deed by which the defendant assigned all his estate to trustees on trust for distribution equally amongst all his creditors, Cockburn CJ said (at p. 53):
“In order that such a deed should be binding on the creditors, it is essential that there should be the most perfect good faith between the debtor and all his creditors.  ”
66.	In Mare v Sandford  Stuart V-C said (at p.926):
“The principles of this Court, which stamp a transaction of this kind with illegality, are not of a very refined kind. They are consistent with the ordinary principles of morality recognised by all mankind. And, moreover, where the Court has interfered to set aside such a transaction, it has done so on the ground of public policy, and of the transaction being such as the law should, in the highest degree, discountenance. The object of the bankrupt laws is to secure an equal distribution of property among the creditors, so that none shall have any advantage over another.”
67.	That reference to public policy is significant.  An IVA is a means by which an insolvent debtor can escape the full and rigorous consequences of a bankruptcy order, including the right of the creditors to select the trustee in bankruptcy, the supervision of the trustee by the creditors and the court, the ascertainment, collection and distribution of bankruptcy estate by the trustee, and the possibility of holding a public or private examination of the bankrupt on oath.  In cases, such as the present, where independent creditors have doubts as to whether the debtor has been full and frank in the information he has provided, and, in particular, as to the full extent of his assets, an IVA has potentially severe disadvantages for those creditors.  That is no doubt the reason why, when the new statutory scheme for IVAs was introduced by the IA, it was expressly provided in IRR r.5.23(4) that the resolution approving the IVA would be invalid if more than half in value of the independent creditors, that is non-associates of the debtor, voted against the resolution.   
68.	The arrangement given effect by the Assignment in the present case was patently intended, and intended only, for the purpose of subverting that legislative policy.   The contrary is not asserted on behalf of Mr Kapoor.  It is at one extreme end of a spectrum of transactions of questionable legitimacy, that is to say consistency with the legislative policy underlying IRR 5.23(4).  The Assignment was not a sham, but it does not fall far short of it.  Not only was the arrangement wholly uncommercial, from Mr Chouhen’s perspective, in that it inevitably involved him paying more for the assignment than he would ever realise and retain in respect of the Assigned Debt, but, as Mr Smith forcibly submitted, the obligation to return to Crosswood 80 per cent of the distributions received by Mr Chouhen under the IVA meant that in reality Crosswood only ever parted with a small part of its economic interest in the Assigned Debt.  The Assignment was designed to confer voting rights on Mr Chouhen with a value of £4 million, but to part with only a fraction of the true financial value of the Assigned Debt.
69.	The expression “material irregularity” is not defined.  I agree with Mr Smith that the well established good faith principle applicable to agreements between a debtor and creditors is capable of colouring, and should colour, the meaning of that expression.  That reflects the approach of the Court of Appeal in Somji.  In my judgment, interpreting IA s.262(1)(b) against the background of the good faith principle and the legislative policy reflected in IRR r.5.23(4), it was a “material irregularity at or in relation to … [the] meeting” approving Mr Kapoor’s IVA to take into account Mr Chouhen’s vote for the purposes of IR 5.23(4) when to do so would give effect to an arrangement solely, patently and irrefutably designed to subvert the legislative policy underlying that provision and without any commercial benefit intended or claimed for Mr Chouhen.  It was an uncommercial arrangement inconsistent with any notion of good faith between Mr Kapoor and his independent creditors, or between Mr Chouhen and Crosswood, on the one hand, and the independent creditors, on the other, and was designed solely to subvert a critical principle of legislative policy as to the conditions for approval of an IVA.   That is a perfectly apposite example of “irregularity”, giving the word one of its normal meanings as something which is lacking in conformity to rule, law or principle (see the Shorter Oxford English Dictionary).
70.	I do not consider that Lord Hoffmann’s observations about tax avoidance schemes in Norglen are of any relevance since, unlike compositions and arrangements between an insolvent debtor and the debtor’s creditors, including an IVA, there is no good faith principle between a taxpayer and the state, and between a taxpayer and other taxpayers, in relation to legal tax avoidance schemes.
71.	Nor is it necessary or appropriate to speculate about the legal consequences for the approval of an IVA of an assignment of debt or part of a debt by a debtor’s associate where the facts are different from those in the present case. This is a paradigm case.
72.	Nor does this approach present a practical difficulty for the conduct of the creditors’ meeting by the chairman.  The chairman will, in a clear case, accept or reject a vote.  If the position is unclear, the chairman will, in accordance with IRR r.5.22(4), mark it as objected to, but will allow the creditor to vote.  Any dispute about the vote will then be resolved by the court.
73.	For those reasons, I would dismiss the appeal against the Judge’s order revoking the approval of Mr Kapoor’s IVA on the ground of a material irregularity at or in relation to the creditors’ meeting, and against the Judge’s order that the Bank be at liberty to present a petition for Mr Kapoor’s bankruptcy.
Conclusion
74.	  For the reasons I have given, I would set aside paragraph 3 of the Judge’s order, but would otherwise dismiss the appeal.
SIR MARK POTTER 
75.	I agree.
LORD JUSTICE PILL 
76.	I agree with Etherton LJ on the first issue he considers and confine my remarks to the second issue, that of material irregularity.  
77.	Etherton LJ has fully set out the submissions of Mr Harbottle, for the appellant, at paragraphs 46 to 49 and 59 to 63 of his judgment.  I agree that the submissions are formidable.  A purpose of the Insolvency Act 1986 (“the 1986 Act”) and the Insolvency Rules 1986 (“the 1986 Rules”) is to provide a debtor, who follows the statutory procedures, with a means of avoiding the consequences of a bankruptcy order by making an individual voluntary arrangement (“IVA”) with that proportion of his creditors identified by Etherton LJ in paragraph 6 of his judgment.  The procedure is not necessarily invalidated by the demonstration of goodwill towards the debtor by particular creditors.  
78.	The Rules permit a situation in which a substantial body of creditors, opposed to the IVA and considering themselves adversely affected by it, may be bound by its terms.  They have a remedy under section 262(1)(a) of the 1986 Act if their interests are “unfairly prejudiced” by the IVA.  
79.	The issue in this appeal is whether there was a material irregularity, within the meaning of section 262(1)(b) of the 1986 Act, at, or in relation to, the creditors’ meeting at which the IVA was approved by appropriate majorities.  Mr Smith, for the respondents, submitted that Mr Chouhen’s vote, essential to obtaining the appropriate majority, should have been excluded.   
80.	I agree with Etherton LJ that the requirement of good faith is carried forward into the scheme of the 1986 Act (Walker LJ in Cadbury Schweppes plc v Somji [2001] 1 WLR 615).  I also agree that the requirement is not confined to a requirement of transparency, a requirement satisfied in the present case but not in Somji where there was a secret deal.  Even where all elements of the proposed arrangements are known to all creditors, the duty of good faith “between the debtor and all his creditors” (Cockburn CJ in Dauglish v Tennent (1866) LR 2 QB 49, at 53) can render irregular “at or in relation to” the creditors’ meeting an arrangement such as the present.  The concept of “unfairness” also appears in section 262(1)(a), already mentioned.  
81.	The assignment involved an act of friendship by Mr Chouhen which made no sense commercially for him.  As the judge found, the arrangement (by which in context I assume the judge meant the assignment) was promoted by the appellant and he was intimately involved in its making (paragraph 124 of judgment).  When considering the significance of the transaction, I too attach importance to the retention by Crosswood of a major economic interest in the assigned debt.  The appellant’s involvement in this transaction, effected with the purpose of conferring voting rights on Mr Chouhen, demonstrated, in this context, a lack of that good faith to creditors in general required of a person seeking an IVA.  
82.	I confine my judgment to a consideration of the present facts.  A material irregularity at or in relation to the meeting is established and I agree that the appeal should be dismissed.