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Individual Voluntary Arrangements: the need for 'good faith' & 'transparency'

Posted on 21 August 2019

Individual Voluntary Arrangements: the need for 'good faith' & 'transparency'

A recent ruling confirms the paramount importance of 'good faith' and 'transparency' in dealings as between debtor and creditor and between creditors in relation to individual voluntary arrangements. 

Chief ICC Judge Briggs stated that it was not open to Mr Moises Gertner, an ex-property tycoon owing £890 million to his creditors to propose a second Individual Voluntary Arrangement ("IVA"), the terms of which were materially similar to an IVA proposed in December 2015 and which was overturned by the Court of Appeal in July 2018, pursuant to which Mr Gertner's creditors would receive less than 0.28p/£.

The 2015 IVA was overturned on the basis that the super-majority creditor - holding c.90% of the debt- Kaupthing Bank hf had entered into a secret deal with Mr Gertner by which Kaupthing received an upside, potentially worth hundreds of millions of dollars, from arbitration proceedings ongoing in Israel. The Court of Appeal had upheld the decision of HHJ Keyser QC in the High Court that this amounted to "a breach of the good faith principle" and on this basis the 2015 IVA was set aside.

Permission to appeal to the Supreme Court was refused on 11 February 2019 and CFL subsequently sought to restore its bankruptcy petition, first presented on 6 October 2015. Before the bankruptcy petition could be heard, and without prior notice to CFL, Mr Gertner proposed his second IVA. The second IVA was in materially the same terms as the first. However, Kaupthing's debt had been assigned to a new creditor, the Laser Trust, following a payment by the Laser Trust of $6 million, which would receive a return of £280,000 out of £800 million owed. 

CFL issued an urgent application to prevent a further adjournment of the bankruptcy petition thereby challenging the Laser Trust's ability to vote on the second IVA. Chief ICC Judge Briggs found that the Laser Trust's reasons for purchasing the debt from Kaupthing were not credible. It had asserted that it had a commercial interest in the arrangement and that the IVA was a better deal for Mr Gertner's unsecured creditors than bankruptcy. Accordingly, Laser Trust's evidence did not "support the assertion that the Laser Trust is free from the influence of Mr Gertner".  The Judge stated that "the need for transparency goes hand-in-hand with the good faith principle. Without transparency there can be no good faith".   

The Judge thereby exercised his discretion and ordered Mr Gertner's bankruptcy so that a full investigation of his affairs could take place.  

Limited permission to appeal to a High Court judge has been granted in order to consider the extent of the good faith principle in this context and the bankruptcy process has been stayed pending the outcome of that appeal.

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