Mortgagors proposing individual voluntary arrangements – Mortgagee owed £266,000 – Mortgagee placing value of £210,000 on property and providing for balance under arrangements – Mortgagee receiving small dividend under arrangements – Mortgagors seeking to redeem on tendering £210,000 plus interest – Mortgagee claiming repayment in full – Judgment for mortgagee
In October 1990 the claimants, a married couple, executed a charge over their matrimonial home in Langley, Slough (the property), in favour of the defendant, to secure an advance of £201,768. In May 1994 the claimants, having experienced financial difficulties, entered into materially identical individual voluntary arrangements (IVAs) under the provisions of the Insolvency Act 1986. The arrangements incorporated the Coopers & Lybrand model conditions (1994 ed). In May 1997, with the mortgage debt standing at more than £266,000, the defendant obtained a valuation of the property at £210,000 and agreed to participate in the arrangements as an unsecured creditor for the perceived shortfall of £58,451.
In July 1997 the supervisor appointed under the arrangements announced a final dividend of 0.891p in the pound, and paid the sum of £520.96 to the defendant. Subsequently, the claimants sought to redeem the property on the payment of £210,000 plus accrued interest. While accepting that its claim as an unsecured creditor had been discharged on receipt of the dividend, the defendant maintained that the property remained security for all amounts otherwise owing under the mortgage debt.
Before the court, the claimants contended that: (i) the defendant’s position had crystallised on the expiry of the IVAs in July 1997; and (ii) relying, inter alia, on Couldery v Bartrum (1881) 19 ChD 394 and Societe Generale de Paris v Green (1883) 8 App Cas 606, the defendant had, by assessing its security at £210,000 and receiving the dividend, irrevocably elected to limit the secured portion of the debt accordingly.
Held: Judgment was given for the defendant.
1. Applying the model conditions, it could not be said that the IVAs had come to an end for all purposes, as the property falling within the arrangements (the house) was still held by the debtors.
2. It was clear from the model conditions that the position of a secured creditor was governed by rr 6.115-6.119 of the Insolvency Rules, which permitted the creditor, in certain circumstances, to revise the value that it had, in its proof of debt, put upon its security. The automatic crystallisation contended for by the claimants was inconsistent with those provisions; likewise the authorities upon which they relied, these being based upon bankruptcy rules that had ceased to apply as early as 1883. Under the modern rules, an IVA could not affect the position of a secured creditor, save to the extent that it had expressly agreed to forego its security. No such agreement could be found in the present case.
Clare Stanley (instructed by Wedlake Saint) appeared for the claimants; Antony Zacaroli (instructed by Lightfoots, of Thame) appeared for the defendant.
Alan Cooklin, barrister
