Summary

Appropriate orders as to costs arising out of the collapse of three applications centring upon the "extraordinary" circumstances in which a debtor came to propose a new voluntary arrangement within months of completing a previous one: nominee's liability arising out of his failure to exercise a proper and critical judgment of the debtor's proposals.

Facts

Decision as to costs following the collapse of three applications all arising out of the admitted indebtedness of the first respondent ('C') to the applicant under a judgment debt in the sum of £6,500 odd. The first application was a bankruptcy petition by the applicant based upon that judgment debt. After the presentation of that petition C proposed an individual voluntary arrangement ('IVA'), in respect of which the second respondent ('R') was the nominee and proposed supervisor. The proposal for that IVA followed closely upon an earlier IVA which C had only just completed. The principal debtor in relation to the proposed IVA was said to be one K, to whom C allegedly owed in excess of £270,000 in respect of a credit agreement professedly entered into during the currency of the earlier IVA. R, in his capacity as nominee, relied entirely upon information provided by C as to his alleged financial position, and in particular did not conduct any audit or independent verification, nor did he query the circumstances in which the agreement with, and subsequent indebtedness to, K had come into existence. At the creditors' meeting the applicant queried the genuineness of C's debt to K. Following an adjournment, the proposal was overwhelmingly approved on K's vote. The applicant thereafter commenced the second and third applications, namely an appeal under r.5.17 Insolvency Rules 1986 against R's decision as chairman to allow K to vote, and an application under s.262 Insolvency Act 1986 for an order setting aside the approval of the IVA, on the ground that allowing K to vote constituted a "material irregularity". At a very late stage in the proceedings, C paid the applicant in full, and all three applications were therefore dismissed. Issues then arose as to costs, and in particular as to whether C or R should pay all or any part of the applicant's costs.

Held

As to the costs of the petition, the applicant was clearly entitled to have his costs paid by C. As to the other two applications, they had both now become academic, and it had not been necessary for the court to reach a final view upon either of them. Although R had failed to exercise a proper degree of critical judgment as to both the "extraordinary" circumstances in which C had come to advance proposals for a second IVA within months of completing an earlier arrangement and also as to how C had managed to obtain £250,000 of credit whilst the subject of the earlier IVA, nothing which R had done or had failed to do had increased the costs which the applicant would otherwise have had to incur. In the circumstances, the proper order as between the applicant and the respondents was that there should be no order, but R would be allowed to recoup only 75 per cent of his costs from the assets in the IVA.

Order accordingly.