Summary

The absence of any realistic prospect of a dividend being paid to preferential and unsecured creditors did not invalidate a proposal for a voluntary arrangement under s.1 Insolvency Act 1986. Although the arrangement did not amount to a composition under s.1(1) of the Act, it did amount to a scheme of arrangement.

Facts

Appeal by the Inland Revenue Commissioners ('the Commissioners') from the order of Nicholas Warren QC dismissing their application for a declaration that no voluntary arrangement within the meaning of s.1(1) Insolvency Act 1996 had taken effect in relation to the respondent company. A proposal for a company voluntary arrangement was approved by a majority vote at a creditors meeting on 4 December 1998. Under the terms of the proposal the company's major creditor would receive a better return under their fixed and floating charges than under any alternative insolvency procedure, neither non-preferential nor preferential creditors would receive any dividend at all, and there was a moratorium in respect of the prosecution by creditors of recovery actions against the company. The Commissioners had voted against the proposal and sought a declaration that there was no effective voluntary arrangement pursuant to s.1(1) of the Act on the grounds that: (i) the proposal could not be characterised as a composition as no dividends would be received, and (ii) there was no scheme of arrangement because there was no genuine element of "give and take", it was simply a moratorium in return for nothing.

Held

(1) The proposal was not a composition within the meaning of s.1(1) of the Act. According to ordinary English usage and the relevant authorities, a composition meant an agreement to pay part of a debt in satisfaction of the whole. See In Re Bradley-Hole (A Bankrupt) (1995) 1 WLR 1097. As no payment was to be made under the proposal it could not amount to a composition. (2) A moratorium qualified as a scheme of arrangement, see March Estates plc v Gunmark Ltd (1996) 2 BCLC 1, and on the facts of the case the proposal took place as a scheme of arrangement and therefore a valid voluntary arrangement. (3) The legislation had left the terms of any moratorium to be decided by creditors and in this case the majority had approved the terms.

Appeal dismissed.