Claim No:  36-I0-2009
Neutral citation number: [2011] EWHC 255 (Ch)
IN THE HIGH COURT OF JUSTICE
CHANCERY DIVISION
Court No: 36
The Royal Courts of Justice
Strand
London
WC2A 2LL

Date: Thursday, 20th January 2011

Before:
HIS HONOUR JUDGE HODGE QC
sitting as a Judge of the High Court
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B E T W E E N:

	NATIONAL WESTMINSTER BANK PLC	Applicant	
	and		
	(1) CHARNESH KAPOOR (2) KIAN SENG TANG	Respondents	
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Transcript from a recording by Ubiqus
Cliffords Inn, Fetter Lane, London EC4A 1LD
Tel: 020 7269 0370
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MR TOM SMITH appeared on behalf of the Applicant
MR GWILYM HARBOTTLE appeared on behalf of the First Respondent
The Second Respondent was unrepresented and was content to be bound by the Court’s findings
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JUDGMENT

JUDGE HODGE QC:

1.	This oral judgment is divided into seven sections as follows – (1) Introduction. (2) The evidence. (3) The law relating to individual voluntary arrangements. (4) The characterisation of the debtor’s liability to Crosswood Limited. (5) The effect of the assignment to Mr Chouhen. (6) Material irregularity; and (7) Conclusion.
I: Introduction
2.	By an ordinary application issued on 24th November 2009, National Westminster Bank Plc, the applicant, seeks the following relief:
1. An order pursuant to Section 262(1)(b) of the Insolvency Act 1986 that the court revoke the approval given at a meeting of creditors held on 27th October 2009 to a proposed individual voluntary arrangement in respect of Charnesh Kapoor, the debtor, on the grounds that there was a material irregularity at or in relation to such meeting.
2. Further or alternatively, an order pursuant to Rule 5.22(3) of the Insolvency Rules 1986 that each of the following decisions of the Chairman of the said meeting be said aside;
a. To admit the claim of Crosswood
b. To admit the claim of Sanjev Chouhen.
3. Further or alternatively, an order pursuant to Rule 5.23(7) of the Rules that the decision of the chairman of the said meeting to treat the claim of Sanjev Chouhen as a claim not associated with Mr Kapoor for the purposes of Rule 5.23(4)(c) of the Rules be set aside.
4 An order that the applicant be at liberty to present a petition for the bankruptcy of the debtor.
5. An order pursuant to Section 376 of the Act extending the time for the making of this application.
6. An order providing for the applicant’s costs of and incidental to this application.
7. Such further or other relief as the court thinks fit.
3.	The application raises interesting, novel, and not entirely straightforward issues as to the law and practice of creditors’ meetings summoned for the purpose of deciding whether to approve a proposed individual voluntary arrangement, and, more generally, of the status for the purposes of the Insolvency Act and Rules 1986 of an equitable assignee of part of a debt.
4.	The respondents to the application are, first, Mr Charnesh Kapoor, the debtor, and secondly, Mr Kian Sen Tang, the supervisor of the individual voluntary arrangement, who was also the nominee for the purposes of the proposal and the chairman of the creditors’ meeting.  
5.	By an order dated 9th July 2010 Registrar Barber directed that the application should be listed for hearing before a judge with a time estimate of one and a half days for the hearing, and half a day for pre-reading.  The hearing began at 10.30 on Tuesday 18th January 2011 and it concluded at about 3.45 on the afternoon of Wednesday 19th January 2011, when I indicated that I would deliver judgment at 10.30 this morning, Thursday 20th January.
6.	The applicant is represented by Mr Tom Smith of counsel, instructed by DLA Piper UK LLP.  The debtor is represented by Mr Gwilym Harbottle of counsel, instructed by McGrath LLP.  The second respondent has not served any evidence and has played no active part in these proceedings.  He has indicated that he is content to abide by the decision of the court.  A representative of the second respondent has attended this hearing, albeit in the capacity of an observer.
7.	It will have been noted that paragraph 5 of the ordinary application seeks an order pursuant to Section 376 of the 1986 Act extending the time for the making of the application.  Section 376, headed ‘Time-limits’, provides that where by any provision in this Group of Parts or by the Rules the time for doing anything is limited, the court may extend the time, either before or after it has expired, on such terms, if any, as it thinks fit.
8.	Pursuant to Section 262(3)(a) of the 1986 Act, an application under Section 262 is not to be made after the end of the period of 28 days beginning with the day on which the report of the creditors’ meeting was made to the court under Section 259.  In the present case, it appears that the report was made to the court on 27th October 2009, so the present application, made on 24th November, was one day late.  The court has a general power to extend time; and Mr Smith, for the applicant, submits that this is an appropriate case for an extension of time given, first, the seriousness of the application; secondly, the need to take instructions and prepare it; thirdly, the merits of the case; fourthly, the shortness of the delay; and fifthly, the lack of any prejudice to the debtor.  For the first respondent, Mr Harbottle does not oppose the extension of time; and I hereby grant such extension.
II: The Evidence
9.	The background to this application is set out in the supporting witness statement of Mr Michael Jonathan Fiddy dated 24th November 2009.  He is a solicitor and a partner in the limited liability partnership of DLA Piper UK, the applicant’s solicitors.  His witness statement, together with exhibit MJF1, which appears as bundle B, comprises the only evidence in support of the application.  His evidence is uncontroversial, and he was not required to attend for cross-examination.  I adopt parts of his witness statement by way of background to the application itself.
10.	At paragraphs 5 and 6, Mr Fiddy relates that the applicant had provided lending facilities to three companies of which the debtor had been director and his wife company secretary, namely Monocrown Limited, Junecross Management Limited and Edenwood Properties Limited.  Those facilities have been provided over many years and, as part of a refinancing of them, those three companies had each entered into cross‑guarantees pursuant to a composite guarantee.
11.	At paragraphs 7 through to 10, Mr Fiddy relates that, as part of the refinancing, the debtor and his wife had entered into various guarantees, the details of which it is unnecessary for me to set out.  At paragraphs 11 through to 17, Mr Fiddy sets out the companies’ liabilities to the bank, and at paragraph 18 the liabilities of the debtor to the bank.  Essentially, as at 28th November 2008, the debtor is said to have owed the applicant sums in excess of some £1.85 million.
12.	On 26th June 2008 the bank had served statutory demands on the debtor and his wife.  They made applications to set aside the statutory demands; and those applications came on for hearing before Registrar Christine Derrett on 2nd June 2009.  For reasons which it is unnecessary to go into, the applications to set aside the statutory demands were dismissed; and the Registrar authorised the applicant to present a bankruptcy petition not before 23rd June 2009.  However, on that day, Mr Kapoor, the debtor, made an application to the court for an interim order in connection with a proposed individual voluntary arrangement. Copies of the application, the proposal and the debtor’s supporting affidavit can be found within exhibit MJF1.  
13.	The proposal stated that Mr Kapoor, the debtor, was currently insolvent, with an estimated deficiency to creditors in excess of £10.385 million.  The proposal proceeded on the basis that the debtor had no assets at all, and creditors in that amount.  Four creditors were identified: the applicant for just over £1.85 million, Her Majesty’s Revenue and Customs for £35,000, Crosswood Limited for £4.5 million and Sanjev Chouhen for £4,000,000.  
14.	In relation to the latter two creditors, the proposal stated, in paragraphs 9 and 10, ‘I am also indebted to Crosswood Limited and a third party in respect of loans made to me by Crosswood Limited.  The loans were made available to me in November 2007.  The funds were loaned to me to invest on a joint venture basis whereby I would make the appropriate investments and select properties which would then be owned 50/50 with Crosswood Limited.  At that time, the Indian property market was very hot and the trustees of the family trusts wanted the funds to be invested in India.  Unfortunately, all of the investments were caught up in the maelstrom which affected the property market internationally.  As a consequence, the funds were lost.’
15.	The debtor asserts that Crosswood is a company owned by a trust of which his sister and his mother are the trustees.  The proposal did not disclose that the alleged loan had originally been made by Crosswood to the debtor in the entire sum of £8.5 million and that only subsequently had £4,000,000 been assigned to the third party, Mr Chouhen.  In fact, it appears from the proxy and proof of debts subsequently submitted by Mr Chouhen that the assignment was only dated 26th June 2009.  It is therefore said that the proposal dated 23rd June 2009 was on any view misleading and incorrect in suggesting that £4,000,000 was owing to Mr Chouhen at that time.
16.	The proposal suggested that the loan of £8.5 million made to the debtor had been entirely lost, first by investment in land in Karavar in Karnataka State in India; secondly, £2.25 million had been invested in the purchase of a portfolio of shares in construction companies which had become over-extended and lost all their equity; thirdly, £3.5 million had been lost by way of a forfeited deposit and acquisition costs on the purchase of a shopping centre in Punjab State; and, fourthly, £1.15 million had been spent on acquisition costs, presumably for the shopping centre, including professional fees, commissions and builder’s mobilisation payments.  The proposal did not explain why it was that the debtor had, as he claimed, no assets at all aside from his personal effects.
17.	Under the terms of the proposal, it was proposed that members of Mr Kapoor’s family would make available the sum of £10,000 per month for a period of 60 months for the benefit of his creditors.  It was said that this would result in a sum of £600,000 being available to creditors, resulting in a dividend of approximately 5.48 pence in the pound. That was said to be better than the nil dividend which would otherwise be available in a bankruptcy.
18.	On 10th July, the nominee, the second respondent, produced his report recommending that a meeting of creditors be convened to consider the proposal; and in due course an interim order was made to enable a meeting of creditors to be held.  That meeting was subsequently moved.  The bank considered the proposal carefully, but it entertained a number of serious concerns about it, including the lack of any clear explanation as to why it was that the debtor 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.  For those reasons, the bank decided to vote against the proposal, and it submitted a signed form of proxy to that effect.  
19.	Both Crosswood and Mr Chouhen submitted forms of proxy voting in favour of the proposal.  The form of proxy for Crosswood included a one page unsigned letter, dated 29th November 2007, which purported to set out the basis on which Crosswood would lend the debtor £8.5 million, the repayment of which was apparently contingent upon a return.  That letter was written on Crosswood’s headed notepaper and was addressed to the debtor, identified as Mr Bobby Kapoor, of a flat in Eaton Place, SW1.  The letter read, 
‘Dear Bobby, 
Following discussions with my mother and my grandmother, as the trustees of the KK trust, and our discussions I confirm Crosswood Limited has agreed to lend to you £8.5 million for co-investment in the various Indian projects we have been discussing on the following bases:

1.	You will make the appropriate investments in such vehicles as you may determine and advise to us.
2.	The loans shall be interest free and repayable by you out of your share of the profits derived from the ventures.
3.	We shall be entitled to receive 50% of the profit derived from each investment made by you with the funds loaned by us as above.
4.	We shall obviously document our participation in each venture and the precise format of our involvement in greater detail on a case by case basis but the shareholders are keen for us to proceed as quickly as possible, hence this letter of confirmation.’

20.	Contrary to what appears from the letter itself, the loans had by then already been made.  Both the forms of proxy for Crosswood and for Mr Chouhen included an assignment agreement under which £4,000,000 of the loan was purportedly assigned to Mr Chouhen. The date of the assignment is illegible on the document but, according to Mr Chouhen’s proof of debt, the date of the assignment was 26th June 2009.
21.	The assignment is expressed to be made by Crosswood in favour of Mr Chouhen, whose address is stated to be in the state of Victoria in Australia.  Under the heading ‘background’, there are five recitals lettered A through to E: 
A. ‘Charnesh Kapoor of’ - and an address is then given - ‘the debtor, is indebted to the assignor, Crosswood, in the amount of £8,500,000. (the amount of such debt as intended to be reduced by the assignment to be effected hereby being hereinafter called ‘the Crosswood debt’)
B. On 2nd June 2009 National Westminster Bank Plc were given leave to issue a bankruptcy petition against the debtor in respect of a debt of £1,853,000 (‘the Nat West debt’)
C. So far as the assignor is aware and having made inquiry, the Nat West debt and the Crosswood debt together represent over 95% of the total indebtedness of the debtor and the value of the debtor’s total assets, excluding personal effects, does not exceed £50,000
D. The assignor is advised the debtor intends to propose an individual voluntary arrangement (‘IVA’) in respect of his debts to his creditors and to offer to his creditors a payment in aggregate of five pence in the pound representing an estimated recovery to the assignor of around £600,000
E. The assignee has agreed to acquire from the assignor £4,000,000 of the Crosswood debt (‘the assigned debt’) for the consideration hereinafter mentioned’.

There is then the heading ‘Assignment’.  Clause 1 is headed ‘Assignment of debt/undertaking’.  It provides as follows: 

‘1.1 In consideration of the agreement of the assignee to pay to the assignor the sum of £50,000 on the dates and in the tranches mentioned in clause 2, the assignor hereby assigns the assignee with full title guarantee absolutely the assigned debt together with all rights 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.
1.2 The assignor hereby undertakes with the assignee that
1.2.1 at none of
1.2.1.1 any meeting of the creditors of the debtor to consider any proposals for an IVA
1.2.1. any other meeting of the creditors of the debtor either before or after his being adjudicated bankrupt 
will it prove for, vote in respect of, or otherwise assert that the amount of the Crosswood debt is in excess of £4,500,000 plus interest thereon as permitted by law
1.2.2 It will not hereafter exercise any rights of the creditor in respect of the assigned debt.
2 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 will 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 his bankruptcy or otherwise (‘dividends’) which shall be paid to the assignor by the assignee within 28 days of each receipt of a dividend.’

22.	The document is then executed as a deed.  In the case of Crosswood, it is executed by Kanav Puri, director, and Mary Moran, company secretary; and it is then executed as a deed by Mr Chouhen himself.  I should add that Mr Kanav Puri was the signatory on behalf of Crosswood to the letter of 29th November 2007.
23.	Returning to Mr Fiddy’s witness statement, he records that on 8th September 2009 Her Majesty’s Revenue and Customs submitted a form of proxy voting against the IVA proposal.  There were then various meetings of creditors.  The first meeting took place on 9th September and was adjourned to 21st September.  That meeting was then further adjourned to 23rd September.  By a court order, it was adjourned again to 22nd October.  In the meantime, DLA, the applicant’s solicitors, had written to the debtor’s solicitors asking for various information relating to his affairs, and the debtor’s solicitors had replied to that letter.
24.	The meeting duly took place on 22nd October 2009.  It became apparent from that meeting that the debtor had not fully disclosed his true financial position. In particular, it was revealed by him that he had a personal HSBC bank account which had not featured in his statement of affairs.  
25.	The further adjourned meeting of creditors took place on 27th October 2009.  Prior to that, on 26th October, DLA had written to Mr Tang, the nominee and proposed supervisor of the IVA, recording his acceptance that the purported assignment from Crosswood to Mr Chouhen had been a mechanism designed to ensure that the IVA was accepted by the debtor’s creditors.  
26.	The adjourned meeting of creditors then took place on 27th October.  It was the applicant’s position at that meeting that there was insufficient evidence regarding at least the following:  the purported debt owed by the debtor to Crosswood, the alleged assignment to Mr Chouhen, the debtor’s personal HSBC account; and the debtor’s share portfolio. But notwithstanding those issues, the supervisor and chairman declared that he was satisfied with the proposed IVA, which was not amended in any way.  He therefore recommended the proposed IVA to creditors at the meeting.  Given the proxies which had been tendered by Crosswood and Mr Chouhen, the IVA was therefore purportedly approved.
27.	At paragraph 57 onwards of his witness statement, Mr Fiddy sets out the bank’s position, which is that even if there was a valid debt due from Mr Kapoor to Crosswood, then the purported assignment of part of this debt from Crosswood to Mr Chouhen, after the proposal had been signed, had been an improper device designed to evade the voting requirements in the Rules.  Further, there was said to be in any event insufficient evidence for the nominee to have admitted the claims of Crosswood and Mr Chouhen for voting purposes.  The information which had been supplied by the debtor in his proposal and by his solicitors in connection therewith was also said to be misleading and/or to contain material omissions.
28.	At paragraph 60 onwards, Mr Fiddy sets out the relief sought by the applicant.  The bank contends that this is a case where there has been a material irregularity at or in relation to the meeting of creditors convened to consider the proposal within the meaning of Section 262(1)(b) of the Act.  In particular, it is said that the purported assignment between Crosswood and Mr Chouhen was plainly a device designed to enable the rules governing the treatment of the votes of associated creditors contained in Rule 5.23 of the Rules to be circumvented.  The nominee agreed that this was the purpose of the assignment, but said that he saw nothing wrong in this.  The applicant disagrees.  
29.	The applicant submits that in these circumstances, it is a material irregularity for an associated creditor to enter into an assignment of part of its claim with a person who may not be so associated for the purpose of evading the voting rules.  That is said to be all the more the case where the assignment was entered into after the proposal has been put forward, and the assignor associated creditor seeks to retain a very substantial economic interest in the assigned claim.  
30.	Mr Fiddy also notes that under the terms of the purported assignment, Crosswood retained a very significant economic interest in the assignment claim by virtue of its entitlement to 80% of all sums received in respect of the assigned debt.  Given that Crosswood retained the principal economic interest in the claim, notwithstanding the assignment, Mr Fiddy suggests that Crosswood should have been treated as the creditor in respect of the claim for the purposes of the ‘associate’ voting rule in Rule 5.23.  He says that it appears that the effect of clause 2.2 of the assignment is to render Mr Chouhen a trustee for Crosswood to the extent of the moneys which he undertakes to pay to Crosswood, and therefore an associate of Mr Kapoor pursuant to Section 435(5) of the Act.  
31.	The bank further or alternatively seeks orders pursuant to Rules 5.22(3) and 5.23(7) of the Insolvency Rules that each of the following decisions of Mr Tang as chairman of the meeting of creditors be set aside: first to admit the claim of Crosswood, secondly to admit the claim of Sanjev Chouhen, and thirdly to treat the claim of Sanjev Chouhen as a claim not associated with the debtor for the purposes of Rule 5.23(4)(c).  
32.	It is said that there was insufficient evidence from which Mr Tang could properly be satisfied that Crosswood had a claim against Mr Kapoor for £8.5 million.  It followed from this, so it was said, that Mr Tang could also not have been satisfied that Mr Chouhen had acquired £4,000,000 of this alleged claim by way of assignment.  It is said that the decision of Mr Tang to admit those claims should be set aside under Rule 5.22(3).  It is further said that the bank’s primary case is that the purported assignment to Mr Chouhen was merely a device for evading the operation of the provisions of Rule 5.23 of the Rules, and that the admission of the claim, and its treatment as not associated with Mr Kapoor, amounted to a material irregularity within the meaning of Section 262.  Alternatively, the bank contends that the decision of Mr Tang to admit the claim and to treat it as not associated should be set aside under Rule 5.23(7).  Pursuant to all of those matters, the bank seeks an order that the approval of the IVA proposal be revoked and that the bank be given permission to present forthwith a petition for Mr Kapoor’s bankruptcy.
33.	Finally, at paragraph 72, Mr Fiddy addresses the need for an extension of time, which I have already granted.
34.	Evidence in answer to the bank’s application initially consisted of four witness statements, together with a composite bundle of documents which is now bundle C of the hearing bundles.  The first witness statement, dated 15th March 2010, is from Mr Kapoor, the debtor himself.  There is then a witness statement from Mrs Savitri Kapoor, also dated 15th March 2010.  She is the mother of the debtor and has been the sole director of Crosswood since 18th November 2009.  There is a witness statement from Mr Kanav Puri, also dated 15th March 2010.  He was, until 18th November 2009, a director of Crosswood.  He is a nephew of the debtor.  He is in fact the son of the debtor’s sister, Angelica Puri.  The final witness statement originally served was that of the purported assignee, Mr Sanjev Singh Chouhen, dated 16th March 2010.
35.	Paragraph 2 of Registrar Barber’s order of 9th July 2010 had directed that both Charnesh Kapoor and Sanjev Singh Chouhen should attend for cross-examination, failing which their witness statements should not be admitted in evidence; and the order went on to give permission for Mr Chouhen to give evidence by video link.  Notwithstanding that, however, by agreement between the parties only the debtor was required to attend court for cross-examination.  Given that Mr Chouhen accepted the primary facts on which the applicant relied, that the commentary and inference in his witness statement with which the applicant disagreed could be challenged by submission, and the potential disruption to the trial which would be occasioned by the need for Mr Chouhen to give evidence by video link, the bank decided to proceed without cross-examining Mr Chouhen.
36.	The applicant apparently never intended either to cross-examine Mr Puri, or to cross-examine the debtor’s mother, since their evidence was said to be of only tangential relevance.  It follows that the only live witness to be cross-examined before me was the debtor himself. 
37.	Shortly before the hearing, two developments took place.  The first was that various additional documents were disclosed by the supervisor after the lodging of the original hearing bundles.  They can now be found in bundle E.  Secondly, a second witness statement from the debtor, dated 14th January 2011, was served, together with exhibit CK2.  Initially, the applicant objected to this late evidence; but, on further reflection, that objection was withdrawn on the footing that, according to the applicant, this further evidence merely served to emphasise the unreliability of the debtor’s evidence generally.  At this point, it is appropriate for me to summarise the evidence for the first respondent, the debtor.
38.	In his first witness statement, at paragraph 9, the debtor sets out that it was the common understanding between himself and Crosswood that the loans would be demand loans but that they would be repaid by the earlier of either sale or refinancing of the relevant assets once they had been acquired, so that both Crosswood and the debtor would, in effect, share any equity in the investments on a 50/50 basis.  He explains that Crosswood and he had not addressed the mechanism by which that would be achieved.  That they would leave to the lawyers and accountants to advise upon.  He explains that it was that arrangement to which he referred in his affidavit sworn in connection with his application for the IVA.  
39.	At paragraph 13, the debtor explains that in November 2007, as a half year of Crosswood approached, he recalled a discussion that he had with Mr Puri in London when he mentioned to the debtor that his attention had been drawn to the total absence of any documentation relating to the loans.  Mr Puri said that even though this was a family business, there ought to be some brief recording of the arrangements.  The debtor agreed, and just before the half year end Mr Puri produced to the debtor, and the debtor countersigned, the letter of 29th November 2007, the terms of which I have already recited.
40.	At paragraph 14, the debtor explains that in his own mind, his relationship to Crosswood with regard to the loans remained constant and it was this: 
a.	‘I had borrowed £8,500,000 from Crosswood to invest in real estate or related projects in India
b.	Once the money had been invested, I was personally obliged to repay this amount if the projects failed or became valueless or to the extent that I was unable to finance or sell the projects to raise at least sufficient to repay Crosswood
c.	If the project succeeded, I would procure that 50% of the profits were paid to Crosswood or that it received ownership which gave it 50% of the equity; and these three core propositions remained in the forefront of my mind during the latter part of 2008 and the first half of 2009.’

41.	He then refers to a letter from Mr Puri to himself dated 15th May 2008.  That letter is again on Crosswood’s headed notepaper and is signed by Mr Puri on behalf of Crosswood.  It is addressed to the debtor at his flat in Eaton Place. It reads as follows:  (For ease of reference, I have inserted numbers for the paragraphs).  
1.	‘I recently discussed with Raj’ - it was explained that he was Crosswood’s accountant - ‘year end accounts for Crosswood.  As you know, we are approaching year end.
2.	Ref. the £8.5 million JV loan that was made and agreed last year, Raj has pointed out to me that this will need to be re-characterised in the accounts to more accurately reflect our true intention and agreement.
3.	What mom and badi mani’ - it was explained that that was a reference to Mr Puri’s mother and to his grandmother, Mr Kapoor’s own mother - ‘asked the company to do and what it was happy to do was to allow you to invest a lot of the family’s money for the various Indian projects on the basis that you would guarantee any losses on the original investments if they went pear shaped.
4.	Raj has pointed out that as documented last year, it could be interpreted that we had made straight loans on day one to you and possibly thus rendered ourselves liable to tax on the amounts loaned depending on your status under the trust.
5.	That of course was not what was agreed.
6.	We were content to partner you and advance money on such basis set out above as long as you guaranteed the payment to us of any part of the £8.5 million that was lost.
7.	It was that that was agreed.
8.	Rather than long detailed documentation the auditors will, I believe, be happy for this letter to record the accurate agreement between us, to be precise that if any part of the £8.5 million advanced by us to you should be lost (and in this respect an amount will be deemed lost if we reasonably determine that it has been lost) you guarantee that you will on our demand pay to us the amount lost or determined to be lost up to a maximum amount of £8.5 million.
9.	Please countersign the attached copy of this letter to formally record agreement and your guarantee as above.’

42.	Below the description of Mr Puri, there appears in italics, above the signature and name of the debtor and the date 20th May 2008, the following.  
‘I confirm my agreement to the above and guarantee the payment to Crosswood Limited of any part of the £8.5 million referred to above advanced by it to me on Crosswood’s first demand.  I undertake to execute a more detailed document of guarantee if required to do so.’

43.	In his first witness statement, the debtor explains that in 2009, when the losses he had incurred and his remorse for having incurred these were at the forefront of his mind, he had no recollection of that letter.  It was only when it was put to him by Mr Tang, the supervisor of his IVA, in December 2009 that the accounts of Crosswood for the year ended 31st May 2008 had characterised the, as it turned out, £8.45 million loans as joint venture investments by Crosswood, and for which no provision had been made as at 31st May 2008, that, after discussions with Mr Puri, the debtor recalled what had occurred in May 2008. He then proceeds to endorse Mr Puri’s explanation of that.
44.	At paragraph 16, what the debtor says is this:  
‘What I ask the court to accept is that I regarded the letter of 15th May 2008 as a pure accounting mechanism for the benefit of Crosswood which in no way affected in my own mind the core of my obligations to Crosswood.  These were as I set out above.  From the time that it started to become clear to me that I had lost a substantial part of the monies loaned to me, and as through 2008 and 2009 it became increasingly clear that all of the money had been effectively lost and during the time that the proposal for my IVA was being drawn up and subsequently approved, my mind was focused not only on the threat of bankruptcy from National Westminster Bank but also on the damage that I had done to my family as a result of these losses.  I did not address the capacity in which I had ended up owing Crosswood £8.5 million, rather that I had lost this amount.’

45.	The debtor then goes on to explain the position of an Indian private company, Vesta Holdings Pte Limited, and then to provide evidence that the Crosswood loan was outstanding.  At paragraph 24 and following, the debtor explains what happened to the loans and why he says he is unable to repay them.  It is unnecessary for me to set out that explanation in full.
46.	At paragraph 45, the debtor addresses the assignment to Mr Chouhen.  He says that he has seen the draft witness statement of his friend, Mr Chouhen, in respect of the assignment in June 2009 of £4,000,000 worth of the Crosswood debt as between Crosswood and Mr Chouhen.  Insofar as he has common knowledge with Mr Chouhen as to the contents of his witness statement, the debtor confirms that it is true.  He goes on to address the allegation that paragraph 9 of his original IVA proposal was misleading and incorrect in that the proposal referred to Mr Chouhen as a creditor when in fact the assignment was made three days later.  He explains that at the time he made the proposal, he understood from Mr Puri that the assignment had completed, and that appeared to have been the case.  Mr Puri would seem merely to have put the wrong date on it.  At paragraph 48, he invites the court to dismiss the application, which he maintains to be misconceived in all the circumstances.
47.	In her witness statement, the debtor’s mother, Mrs Kapoor, explains that she is a director of Crosswood and has been the sole director since 18th November 2009.  She identifies herself as the debtor’s mother.  She says that he is her only son and she has instilled a lot of faith in him with regards to the family businesses.  She explains in paragraph 3 that her daughter, Angelica Puri, and she are the trustees of the Kuldip Kapoor Discretionary Trust.  As such, they wanted to be supportive of her son’s aspirations.  
48.	She goes on to relate the circumstances of the Crosswood loan, as she refers to it.  She says that she has seen the witness statements of Mr Puri and her son prepared with regard to the history of the loans from Crosswood to Charnesh (the debtor), and she verifies what both have said in those statements with regard to the loans, and specifically that the arrangement was made, albeit with the agreement of Mr Puri, at her urging and with the approval of both her daughter, Angelica, and the mother.  For the avoidance of any doubt, she confirms that the loan extended to the debtor by Crosswood in the sum of £8.5 million has not been repaid to the company.  She also confirms, as she says is implicit, that no member of the family wishes to see the debtor made bankrupt, and that is why her co-trustee and she had agreed not only to support the IVA but also to provide the funds necessary to support it.
49.	At paragraph 9, she states that her co-trustee and she also approved the assignment by Crosswood of part of the Crosswood loan to the debtor’s old friend, Mr Chouhen, which was embarked upon in accordance with advice received to ensure that the debtor’s IVA proposal had a good prospect of being passed and approved by his creditors, the creditors essentially being made up of Crosswood, Mr Chouhen, the applicant, and Her Majesty’s Revenue and Customs in the UK.  She says that her son had been through enough and she did not want to see him made bankrupt.
50.	She says that she shall exhibit to a supplementary witness statement, as soon as they are signed off, a copy of the Crosswood accounts for the year ended 31st May 2009.
51.	In his witness statement, Mr Puri states that he was a director of Crosswood from 8th February 2006 up until 17th November 2009.  He explains the circumstances of the Crosswood loan.  At the end of paragraph 9, he states that since he had always respected his uncle’s business acumen, and also because 100% of the shares in Crosswood were effectively owned by the trustees in any event, he agreed to go along with the proposal that Crosswood should back the debtor by lending him the money he wanted up to around £10,000,000 for investment in India.  
52.	He says that by the end of 2006, the following had been agreed with the entire approval, indeed urging, of the trustees: (a) That Crosswood would lend money to the debtor for specific ad hoc property or property-based investment projects in India on the basis that the monies would be loaned on an interest free joint venture basis which was that one half of the profit in each deal would belong to his uncle and one half would belong to Crosswood; (b) he understood profit to mean the net value of the relevant assets after debt, it being his understanding that Crosswood’s loans would be repaid immediately sufficient money could be borrowed to repay the loans made.  He said that he did not address or focus on the mechanics of either the investment or the repayment, leaving it for those to evolve.  His sole concern was that the loans should be to his uncle, and that he should accept responsibility for their repayment in the event of them going bad or becoming un-fundable or un-saleable. 
53.	Mr Puri later goes on to say that at the time the loans were being negotiated and monies extended, neither he nor his uncle applied their minds as to what might happen if the investment projects did not produce a profit.  However he says that it went without saying that if they made a loss or became un-fundable or illiquid, then, in such an event, his uncle was expected to reimburse the loans in full, obviously with no profit element.
54.	At paragraph 13, Mr Puri explains that in early May 2008, as the Crosswood year end approached, he had detailed discussion with the accountants and explained to them the loans and the background to them.  Their reaction was that for accounting reasons, which Mr Puri cannot now recall in detail, but which he says had something to do with withholding tax, it was more beneficial that the transactions became characterised in Crosswood’s balance sheet as joint venture investments through the medium of Vesta Holdings Pte Limited, which was wholly owned by the discretionary trust, and which in turn was said to own 100% of Nirab[?] Investments Limited, which in turn owned 100% of Crosswood.  It is said that that was indeed what his uncle had done with part of the money advanced to him, with the repayment of the monies loaned to be guaranteed by his uncle.  The accountants pointed out that, on analysis, this was in essence what had actually taken place, and that the core effect, namely that his uncle be responsible for any loss, was achieved by the guarantee.  The company’s internal accounting staff concurred in that view, and again a letter was drafted for him by one of the accountants, which he signed and delivered to his uncle.
55.	Mr Puri explains that he is clear that his uncle had totally forgotten about this variation and re-characterisation of his obligation to Crosswood in May 2008.  It was only when Mr Puri discussed with him the supervisor’s reference to the treatment of the indebtedness in the accounts of Crosswood, and he reminded the debtor of it, that his uncle had recalled it.
56.	At paragraph 19, Mr Puri recounts that in the third week of May 2009, he met his uncle.  The debtor confirmed to Mr Puri that which he had already learned from his own mother, namely that the Crosswood loans were in effect lost, and that whilst he was sure that his family were not going to make him bankrupt in respect of that debt, he was possibly going to suffer that fate at the hands of the applicant as the result of an adverse decision that was going to be handed down in early June in the bankruptcy court and which was said to relate to a long running dispute.  Mr Puri said that he saw no point in that.  He knew that his uncle had no real assets, and lived from the trust; and in any event, given that he did owe Crosswood £8.5 million, whatever any trustee in bankruptcy did recover would go virtually 80% to Crosswood.  
57.	Mr Puri relates that his uncle outlined to him that he had discussed the whole position with his mother and his sister and an insolvency practitioner in the context of an IVA; and that he had also poured out his woes to one of his oldest friends, Mr Chouhen.  In the course of their discussion, it became clear that the only impediment his uncle had been advised to an IVA was that Crosswood, which would manifestly support an IVA, would have its vote disregarded as an associate when it came to approving this.  The applicant, it was assumed, would not vote for an IVA.  Mr Puri recounts that his uncle went on to indicate that Mr Chouhen had agreed he would do whatever he properly could to prevent one of his oldest friends going bankrupt; and, having taken advice, and Mr Puri presumes having spoken to Mr Chouhen, his uncle indicated that he had been advised that a possible route to get through an IVA was if Crosswood transferred part of its debt to Mr Chouhen, who could then vote for the IVA.  Mr Puri recounts that he discussed that with his mother and his grandmother, as trustees and as members of the family, and that he also spoke at length with Mr Chouhen. 
58.	The eventual result of all of those discussions was fully summarised in a board minute of Crosswood.  The assignment deed referred to in that minute was agreed by Mr Chouhen and returned by him in the early part of June, duly signed but undated.  When Crosswood was ready to sign its part of the agreement, Mr Puri called Mr Chouhen and told him; and Mr Chouhen subsequently authorised him, during the weekend of 20th June, to date it on the date that Mr Puri requested, which was 23rd June.  The assignment was erroneously dated the 26th June.  Mr Puri says he has no idea why, but he surmises that he just got the date wrong.  He says that the payments from Mr Chouhen were subsequently received, the first being at his request payment to one of Crosswood’s contractors.  He does not identify when or how the second payment was made.  He merely refers to a particular letter, which it seems to me does not amount to evidence of the second payment.
59.	The fourth of the original witness statements came from Mr Chouhen.  He explains his relationship with the debtor at paragraph 5.  He says that he has known him for over 35 years, that they became close friends at school in Delhi, and they have remained close friends ever since.  He then relates his participation in Mr Kapoor’s individual voluntary arrangement.  At paragraph 10, he explains that at some point in the middle of the week commencing 18th May he spoke with the debtor.  The debtor was very depressed and explained to Mr Chouhen that he had been advised that the bankruptcy hearing had gone against him; and that when the judgment was issued, the bank would probably make him bankrupt.  Mr Chouhen said that the debtor was very upset, and Mr Chouhen asked him whether that could be avoided.  After all, Mr Chouhen said, most of the debts were owed to a company owned by his family.  Did they not have any say?  
60.	The debtor went on to explain that he had consulted an accountant and apparently, under the English Bankruptcy Rules, there was some sort of arrangement - which Mr Chouhen now knows to be an IVA - that the debtor could enter into so as to avoid bankruptcy, under which his creditors could agree to accept X% of their debt; but the debtor said that even that route was barred to him because, apparently, the debt he owed to the company was deemed to be an associated debt and, as such, did not count in the necessary voting to approve the proposed IVA.  They left that particular conversation on the basis that if there was anything that Mr Chouhen could do to help, the debtor knew that Mr Chouhen would, and the debtor should let Mr Chouhen know.
61.	Mr Chouhen then goes on to address the assignment of the Crosswood debt.  The day after that conversation, or perhaps the day after that, he again spoke with the debtor.  The debtor said there was a route by which he could possibly secure an IVA, and avoid bankruptcy, if Mr Chouhen was prepared to assist and participate in an IVA.  He said that his mother and sister were prepared to make available, over a five year period, around a net £550,000 (around £110,000 a year) for all his creditors, which he summarised as being, in essence, the debtor’s family UK company, which he identified as Crosswood, being owed £8.5 million, and the bank, which he identified as the claimants, for £2,000,000 to £1,500,000 in total.  The debtor then explained that, in essence, if Mr Chouhen held more than 51% of the debt, excluding the debt owed to Crosswood, on the final vote, Mr Chouhen could approve the IVA since he would not be an associate of his, which Crosswood, he had been advised, was. The debtor asked Mr Chouhen to consider that.  Mr Chouhen’s unambiguous response was that, after 35 years of friendship, if there was anything he could lawfully do, and at any reasonable cost, to help the debtor, he would do so. 
62.	Mr Chouhen relates that the debtor then talked through the actual numbers.  He said that if he bought, say, around half the Crosswood debt (£4,000,000), when the Crosswood residual debt of £4,500,000 was disregarded, Mr Chouhen would represent more than 51% of his creditors, and he could get the IVA approved.  Mr Chouhen would then be entitled to receive just under £210,000, albeit over five years, from the family trust.  He went on to explain that having spoken to his nephew, Mr Puri, who Mr Chouhen had met in India on a number of occasions, and who was at that time the director of Crosswood, he, Mr Puri, had explained that in order for Crosswood to commercially sell Mr Chouhen any part of the debt at a discount, its overall financial position would have to be better than it just getting over five years the £480,000 it would get as its share of the whole £550,000.  They discussed the matter, and Mr Puri said that if he agreed to pay, say, £100,000 to Crosswood for its right to receive the £210,000 mentioned above, Crosswood would still receive around £230,000 from the family and £100,000 from him, which would be £330,000.  If Mr Chouhen turned over to Crosswood a percentage of the £210,000 as and when he received it so as to place it in a better position overall, surely that would help.  Mr Chouhen says he did not expect to make anything from the arrangement, and he was indeed happy to lay out the money to help his closest friend.  
63.	He recounts that the debtor thanked him profusely and said he wanted to think through the numbers and discuss the matter with the accountant and with Mr Puri.  The debtor reverted to Mr Chouhen by the beginning of the weekend and asked him if he would agree to pay to Crosswood 80% of the £210,000 he was to receive.  The debtor explained that that would mean that he would, in effect, be out of pocket to the extent of £50,000, but that Crosswood would get around £490,000 in total, more than the £440,000 they had been discussing before.  Mr Chouhen said that he regarded, and continues to regard, that £50,000 as an acceptable price for him to pay for saving such a close friend from bankruptcy, so he said he readily agreed, on the basis that £50,000 of the £100,000 could be paid a period of months after the first £50,000.  It is that which is the genesis of the assignment.  
64.	At paragraph 14, Mr Chouhen indicates that they calculated that he would have paid out £50,000 net to save the debtor from bankruptcy, which Mr Chouhen regarded as an acceptable price.  They left matters on the footing that either Mr Puri or the debtor would get to Mr Chouhen a formal agreement reflecting the above; and Mr Chouhen confirmed that as long as that document reflected their agreement, the debtor could rely upon him to sign it. Some days later, a form of agreement arrived.  Mr Chouhen reviewed it, took advice on its effect, and signed and sent it back, undated, by email in early June.  He subsequently received a call from Mr Puri, during the week ending on the 20th June, asking Mr Chouhen for authority to date the document immediately.  The date Mr Puri said he wanted the agreement to bear was the 23rd June; and Mr Chouhen says he gave Mr Puri the requested confirmation and authority to date the document as he indicated.  He says he has no idea why a date of the 26th June was inserted; but he confirms his affirmation of the agreement, and his agreement to operate in accordance with its terms.  He says that he subsequently paid the first payment of £50,000 payable under the agreement by making arrangements for direct payment, at Mr Puri’s request, to one of Crosswood’s contractors.  There is no assertion that he made payment of the second £50,000.
65.	At paragraph 17, Mr Chouhen refers to Mr Fiddy’s assertion that his acquisition of £4,000,000 was merely a device for evading the operation of the Insolvency Rules.  He accepts that that is a matter for the court to decide, but Mr Chouhen does not view what happened as a device.  He says it was simply a lawful manner in which his legitimate wish to help his friend could be effected.  He says he found it extraordinary that a debt owed by the debtor to a family company, over which he had no control at all, and which constituted over 85% of his total indebtedness, could be disregarded in the making of a decision as to whether the debtor should be made bankrupt.
66.	Finally, I should refer to the second witness statement of the debtor, which is dated 14th January 2011.  The debtor says that he makes it to address, by way of correction, explanation and amplification, matters stated in his affidavit in connection with his proposals for the IVA.  He addresses first his asset position, and his position with regard to Indian family companies.  He then addresses inconsistencies in the figures.  He says that the affidavit sworn in support of the IVA was compiled under pressure, and the figures stated there as representing the use of the £8.5 million he had borrowed from Crosswood were based to a large extent on his memory, primarily of the headline numbers.  He then proceeds to correct certain of the figures.  He also explains that, when compiling the schedule of his expenses, he had relied on figures supplied to him by his office in India in response to specific headed questions.  
67.	At paragraph 11, the debtor addresses the discrepancies between the figures set out in the assignment and the actual IVA proposal.  He explains that, certainly for his part, but he believes also from Mr Chouhen’s perspective, their conversations, and Mr Chouhen’s willingness to assist, were general.  They took place on the telephone and were not, given the genesis of the arrangement, negotiated with the degree of precision that would be expected in the case of an arm’s length commercial deal.  They were not based on precise mathematics, but rather on Mr Chouhen’s willingness to enter into an arrangement which would give him a sufficient seat at the debtor’s IVA meeting to get the proposal through; that they would represent a deal which was commercially justifiable to Crosswood, and which would leave Mr Chouhen out of pocket by a sum which was in the broad order of £50,000.  The assignment which was executed, and which was the definitive arrangement, was said to leave Mr Chouhen out of pocket to the extent of £58,000.
68.	The debtor then addresses Crosswood’s financial statements for the year ended 31st May 2009.  He says that it has been drawn to his attention that those accounts have to be finalised by the auditors and were about to be filed.  A copy of them had, at the debtor’s mother’s request, been sent to the supervisor of his IVA.  A review of those accounts would show that the company had only provided for £7.45 million of the £8.45 million Crosswood had loaned to the debtor.  That, Mr Kapoor believed, was the result of a post balance sheet event which might - although this was said not to be certain - lead to the recovery of £1,000,000 or thereabouts in respect of the loss made in respect of one of the investments in Karnataka State.  The circumstances of that loss were as he had described.  
69.	The debtor said he had, as was his duty, since the previous year been endeavouring to make recovery of as much money as he could of the money he had caused to be lost; and he said that after both the approval of the IVA and the date of his witness statement, a family company had issued suit against various parties.  He says that the plaintiff had been advised that its case was a very strong one in law.  The debtor acknowledges that it is one thing to have a strong case but another for such a case to be likely to produce money, absent any obvious assets against which to enforce any judgment that may ultimately be obtained; but he says that, some two weeks earlier, he was informed that, in interlocutory proceedings, the plaintiff had obtained restraining orders in respect of certain real estate assets of real value owned by the various defendants, the effect of which, in broad terms, he was advised, was that the relevant assets could not be sold or encumbered pending trial.  He says that nothing guaranteed recovery, and it was subject to the vicissitudes of litigation in India; but these developments clearly made the potential for the recovery of something, certainly in the view of Crosswood, more than a pipedream.  In his oral evidence, under cross-examination, the debtor indicated that he expected there to be a recovery of at least £1,000,000 out of the relevant £1,600,000 investment.
70.	The debtor was cross-examined on his two witness statements.  He gave evidence in total for about three and a quarter hours, beginning on the morning of day one and extending into the afternoon of that day.  I found the manner and the content of the debtor’s evidence to be somewhat unsatisfactory.  The debtor appeared to be suffering from a cold, which affected his ability to answer questions. In addition, however, he displayed an apparent inability to understand certain of the documents, and also certain of the questions that were being put to him.  I am satisfied that the debtor was not being deliberately obtuse or difficult, and that he was genuinely trying to assist the court; but his answers in relation, in particular, to the letter of  15th May 2008 I found difficult either to follow or to accept.  He acknowledged that he had read the letter before signing it, and at times, in his evidence, he accepted that the letter correctly described the true nature of the arrangements between himself and Crosswood; but, at other times, he seemed to me to resile from that position, stating, in particular, that the fifth paragraph of the letter (stating “that of course was not what was agreed”) was incorrect, and should have been qualified by him before he assented to the letter.  He asserted that the loans had been made to him on the footing that he would invest them, that Crosswood would be entitled to half of any profits, but that if there were any losses, he would make those losses good.  He indicated that it was not a ‘straight loan’ because Crosswood was entitled to a profit if one was made.  
71.	When it was put to him that the IVA proposal made no mention of any guarantee, the debtor said he had said that he was indebted, and he did indeed owe Crosswood money.  He said his understanding was that a debt was a debt, whether it arose under a loan or under a guarantee.  Later, he said that his agreement with Crosswood was that he would guarantee the loan.  
72.	When asked about Crosswood’s accounts for the year ending 31st May 2008, he was directed to the statement of debtors, which contained no reference to these monies; rather the monies said to have been lent to the debtor were referred to as a fixed asset investment in the note numbered 3 to the 2008 accounts.  They were described as representing joint ventures in the sum of £8.425 million. The debtor said that if it was a loan, it should have appeared under the heading ‘debtors’.
73.	It was put to the debtor that since the joint venture sum was given as £8.425 million as at 31st May 2008, as of that date Crosswood could not have considered that any part of that sum was irrecoverable; and the debtor agreed with that.  The point was then made that although the accounts were for the year ending 31st May 2008, the accounts had in fact not been approved by Mr Puri as the director until 12th November 2009, yet there was no note or qualification in the accounts in relation to the stated value of the joint venture.  It was put to the debtor that if at that time, in November 2009, that had been considered to be irrecoverable, that should have been reflected in a note to the accounts; and the debtor, whilst making it clear that he was not a director of Crosswood, indicated that if he had been a director, his view was that at least a note should have been included in the accounts.  It was then put to him that as at 12th November 2009, Crosswood had not considered that there was a total loss, and the debtor’s response was that that question would have to be directed to the company.  It was shortly after that that the debtor indicated that recovery, in his view, and in the light of recent developments, should be in a sum of at least £1,000,000, forming a large part of the relevant part of the investment of £1,600,000.  
74.	In relation to the assignment to Mr Chouhen, it was put to the debtor that its purpose had been to avoid the consequences of Crosswood being an associate of the debtor’s; and the debtor accepted that and said that he believed that he had mentioned that in his witness statement.  He said that the purpose had been to avoid the possibility of Crosswood’s claim being disallowed for voting purposes in the IVA.  The purpose of the assignment was to avoid that consequence.  It was put to the debtor that it had always been Mr Chouhen’s intention to vote in favour of the IVA, and the debtor accepted that.  It was put to him that Mr Chouhen had made that clear to the debtor, and he accepted that.  He said ‘absolutely’.  It was put to the debtor that that was the basis upon which the assignment had been entered into, and he said that was the basis when he spoke to Mr Chouhen:  ‘He spoke to my mother and my sister and they seemed to accept that.  Mr Chouhen would help the debtor to avoid going bankrupt.  He would do anything he could to avoid that.’  I fully accept that part of Mr Kapoor’s evidence.  
75.	My conclusion, having seen the debtor cross-examined, was that in his IVA proposal and the documentation in support, he was not seeking deliberately to mislead by their terms. Having said that, I also formed the view that he was not particularly scrupulous about the terms in which his IVA proposal was expressed.  He was not particularly concerned about its exact accuracy.  That was because he expected the applicant, and probably also Her Majesty’s Revenue and Customs, to vote against the IVA proposal in whatever terms it was expressed; and he also expected Crosswood and Mr Chouhen to vote in favour of the IVA proposal, again in whatever terms it was expressed.  From the debtor’s perspective, the precise terms of the IVA proposal and its supporting evidence really were not a matter of any great moment.
III: The Law Relating to Individual Voluntary Arrangements
76.	I accept Mr Smith’s submission that there are three aspects of the legal principles relating to individual voluntary arrangements which are relevant to the present application, although I propose to address them in a slightly different order:  First, the provisions of the legislation governing the ability of a creditor to challenge the decision of a meeting of creditors approving an IVA proposal.  Secondly, the general requirement, in the context of such arrangements, for complete good faith between a debtor and his creditors; and, thirdly, the provisions of the Insolvency Rules regarding the manner in which votes at a meeting convened to consider an IVA proposal are to be admitted.
77.	So far as challenges to the decision of a meeting are concerned, Section 262(1) of the 1986 Act provides that, subject to that section, an application to the court may be made by any of the persons specified therein 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.  In the present case, the applicant relies on material irregularity under paragraph (b).  The persons entitled to apply include any persons who are entitled, in accordance with the Rules, to vote at a creditors’ meeting; and the present applicant is undoubtedly such a person, and so has the necessary standing to challenge a material irregularity at or in relation to a creditors’ meeting.  
78.	Section 262(4) provides that where, on an application under the section, the court is satisfied as to either of the grounds mentioned in sub-section (1), it may do one or both of the following, namely (a) revoke or suspend any approval given by the meeting; (b) give a direction to any person for the summoning of a further meeting of the debtor’s creditors to consider any revised proposal he may make or, in a case falling within sub-section(1)(b), to reconsider his original proposal.  
79.	As to the meaning of ‘material irregularity’, allowing someone to vote at a creditors’ meeting who is not so entitled is capable of amounting to a material irregularity; and to that extent there is an overlap between Section 262(1)(b) and Rule 5.22(3), which deals specifically with voting; but I accept that the concept of ‘material irregularity’ is not limited to voting matters.  The words ‘in relation to’ show that the scope of the provision is wider than that, such that it also encompasses, for example, irregularities in the debtor’s proposal or statement of affairs.  That is apparent from the judgment of Mr Justice Rimer in the case of Re a debtor (No. 87 of 1993) (No. 2) [1996] 1 BCLC 63 at page 95 letters E to F.  There Mr Justice Rimer expressed his view that Section 262 forms a coherent and comprehensive code of remedies.  Section 262(1)(a) permits a challenge based on the substantive terms of the arrangement; and Section 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 Section 257 meeting, as well as in the convening and conducting of such meetings.
80.	I also accept Mr Smith’s submission that the content of the concept of ‘material irregularity’ is to be informed by the requirement for complete good faith and transparency identified in the case of Somji v Cadbury Schweppes Plc [2001] 1 BCLC 498, also reported in the Court of Appeal at [2001] 1 WLR 615.  Sitting at first instance in that case, Mr Anthony Boswood QC, at paragraph 23, referred to the equally fundamental rule that there should be complete good faith between the debtor and his creditors, and between the creditors into se.  
81.	In the Court of Appeal, at paragraph 24, Lord Justice Robert Walker referred to the Deputy Judge’s impressive survey of the old law as showing 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.  He said that there was no strong presumption that a similar principle must be found in the new regime under the Insolvency Act 1986, but (to put it at its lowest) he said it would be no great surprise to find it there in one form or another.
82.	Lord Justice Judge (as he then was), at paragraph 40, expressed his agreement with Lord Justice Robert Walker, and he added a few words of his own by way of emphasis.  He said that, in his judgment, the effect of Section 276 of the Insolvency Act, and the rules made under it, was to ensure that every proposal for an individual voluntary arrangement should be characterised by complete transparency and good faith by the debtor.
83.	I accept Mr Smith’s submission that if there is conduct at or in relation to a creditors’ meeting which infringes the requirement for good faith and transparency, then that might amount to a material irregularity for the purposes of Section 262(1)(b) of the 1986 Act.
84.	I turn then to the provisions relating to voting at creditors’ meetings.  The entitlement to vote is set out at Rule 5.21.  By sub-rule (1), every creditor who has notice of the creditors’ meeting is entitled to vote at the meeting or any adjournment of it.  Sub-rule (2) addresses the calculation of a creditor’s entitlement to vote, and it emphasises the concept of a ‘debt owed’ to a creditor.  Rule 5.21(3) provides that a creditor may vote in respect of a debt for an unliquidated amount, or any debt whose value was not ascertained; and for the purposes of voting (but not otherwise) his debt should be valued at £1 unless the chairman agreed to put a higher value on it.
85.	The test to be applied for these purposes is to be found in the decision of Sir Andrew Morritt, the Chancellor of the High Court, in the case of Re Newlands(Seaford) Educational Trust [2006] EWHC 1511(Ch), [2006] Bankruptcy and Personal Insolvency Reports 1230.  Speaking in relation to the equivalent provision for company voluntary arrangements, at paragraphs 27 to 28 the Chancellor said that the initial question for the chairman of the meeting was whether he was prepared to put a value on an unascertained claim higher than £1.  The issue of ‘higher value’ was literally different to the issue of an estimated minimum value, but the context remained one of an unliquidated or unascertained claim, for which a minimum value was now prescribed by the rule. Thus, the comparator implicit in the word ‘higher’ was said to be the minimum value of £1.  The Chancellor said that the chairman should not speculate, nor was he obliged to investigate the creditor’s claim; but he must examine such evidence - and the Chancellor did not use that word in any technical sense - as the creditor put forward, and any relevant evidence provided by any other creditor or the debtor.  If the totality of that evidence led the chairman to the conclusion that he could safely attribute to the claim a minimum value higher than £1, then he should do so.
86.	The admission of creditors’ claims for voting purposes is dealt with by Rule 5.22 of the Insolvency Rules.  That provides that, subject as follows, at the creditors’ meeting the chairman is to ascertain the entitlement of persons wishing to vote and to admit or reject their claims accordingly. He may admit or reject a claim in whole or in part; but his decision on any matter is subject to appeal to the court by any creditor or by the debtor.  If the chairman is in doubt whether a claim should be admitted or rejected, he should 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.  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 that 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.
87.	The nature of the exercise which the court conducts on an appeal under Rule 5.22(3) was explained by Mr Justice Blackburne in Re a Company (No. 004539 of 1993), [1995] 1 BCLC 459 at page 466 between letters B and C:  “In my view, the task of the court, on an appeal under Rule 4.70(4) of the Insolvency Rules 1986, is simply to examine the evidence placed before it on the matter and come to a conclusion whether, on balance, the claim against the company is established and, if so, in what amount.  I would only add that, in considering the matter, the court is not confined to the evidence that was before the chairman at the time that he made his decision but is entitled to consider whatever admissible evidence on the issue the parties to the appeal choose to place before the court.”  That was a liquidation case, but I am satisfied that the same principles apply in the case of personal insolvency.  
88.	Those observations of Mr Justice Blackburne were recently approved by Lord Neuberger, the Master of the Rolls, speaking with the agreement of Lords Justices Carnwath and Sullivan, in the case of Her Majesty’s Revenue and Customs v Maxwell [2010] EWCA Civ. 1379, reported briefly in ‘The Times’ for 19th January 2011.  At paragraphs 42 through to 47, the Master of the Rolls addressed the judge’s function. He said that there was no dispute between counsel.  Both agreed that the judge should not merely review the decision of the chairman which was sought to be impugned, but the judge should form his or her own view based on the evidence and arguments advanced in court.  In the Master of the Rolls’s view, that agreement correctly reflected the law.  He made the point that the rules referred to an appeal, as opposed to a review, which suggested that a fresh decision was envisaged.  Further, as the facts of the instant case showed, it was said to be unsatisfactory and unfair in some circumstances if the judge were to be confined to reviewing the chairman’s decision.  The Master of the Rolls referred to the first instance authority of Mr Justice Blackburne’s observations as supporting that view.  He commented that that analysis had been applied in a number of subsequent cases concerned with similar provisions of the 1986 Rules.  The Master of the Rolls concluded that since the judge had not correctly applied that principle, the Court of Appeal must consider the issue afresh for itself.  It is also common ground that if the court has any doubts as to whether the relevant claims are established, then it should reject them because the burden of establishing a claim against any debtor lies on the creditor alleging it.
89.	Finally, for present purposes, Rule 5.23 of the Insolvency Rules deals with the majorities required in order to pass a resolution to approve an IVA proposal; and in this context it deals with the position of associated creditors.  Sub-rules (1) and (2) provide that at the creditors’ meeting, a resolution is passed when a majority in value of the creditors present and voting in person or by proxy have voted in favour of it; but a resolution to approve the proposal or any 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.  By sub-rule (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) whose votes are not to be left out of account under paragraph (3); and (c) who are not, to the best of the chairman’s belief, associates of the debtor’.  By sub-rule (7), the chairman’s decision on any matter under the rule is subject to appeal to the court by any creditor or by the debtor; and paragraphs (5) to (7) of Rule 5.22 apply as regards such an appeal.
90.	For the purposes of Rule 5.23(4), an ‘associate’ is defined in sub-section 435 of the 1986 Act.  By sub-section (1), for the purposes of the Act any question whether a person is an ‘associate’ of another person is to be determined in accordance with the following provisions of the section (any provision that a person is an associate of another person being taken to mean that they are associates of each other).  By sub-section 435(5), omitting irrelevant words, a person in his capacity as trustee of a trust is an associate of another person if the beneficiaries of the trust include, or the terms of the trust confer a power that may be exercised for the benefit of, that other person or an associate of that other person.  It is common ground between the parties that Crosswood is an associate of the debtor by the operation of Section 435(5).
91.	The effect of the requisite majorities provisions in Rule 5.23 has been considered by Sealy and Milman in their commentary on the rule at page 947.  There, the editors write that the proposal for an IVA must attract the support of the holders of 75% of the debt, and of more than 50% of the independent debt.  In his book on Company Voluntary Arrangements, published in 2003, Geoffrey Weisgard addresses the issue of creditors who are connected (in the field of corporate insolvency) at paragraph 6.80.  He writes that the majorities required at creditors’ meetings are described in the corresponding provision of the Insolvency Rules, Rule 1.19(4).  I am satisfied that it is in materially the same terms as the subject rule 5.23(4).  The writer describes the wording as confused and as involving double or treble negatives.  In general terms, however, he says that a proposal cannot be approved unless it is approved by both (1) more than 50% by value of all unconnected unsecured creditors who have given notice of their claim to the chairman (whether or not they actually vote); and(2) 75% by value of all voting unsecured creditors.
92.	I was initially troubled by whether the phrase ‘counting in these latter’ referred back to the words ‘the creditors’ or referred to those voting against the resolution; but I am now satisfied that the reference to ‘counting in these latter’ governs the word ‘creditors’ rather than the phrase ‘those voting against the resolution’.  I do so, first, because that is the view expressed both in Sealy and Milman and in Weisgard; secondly because it seems to me to be the clear grammatical effect of the wording; and, thirdly, because if the phrase ‘counting in these latter’ were to qualify those voting against it, I can see little need for sub-paragraph (a) of Rule 5.23(4), counting in only those who have notice of the meeting.  The alternative construction of the words ‘counting in these latter’ would seem to me to render sub-paragraph (a) of sub-rule 5.23(4) redundant.  In other words, I accept that a proposal for an IVA must attract the support of the holders of 75% of the debt, and also of more than 50% of the independent or unconnected debt.  As I say, it is common ground that Crosswood was an ‘associate’ of the debtor.
IV: The Characterisation of the Debtor’s Liability to Crosswood
93.	Whatever the position may originally have been at the time the monies were first advanced by Crosswood, I am satisfied that the effect of the letter of 15th May 2008, and the debtor’s assent thereto, was to create a guarantee liability on the part of the debtor, rather than making him directly liable to repay a loan to himself from Crosswood.  In this regard, I accept the submissions of Mr Smith.  
94.	Crosswood’s claim against the debtor was not for the repayment of a loan, but rather was in the nature of a guarantee.  It seems to me that that follows from the terms of the 15th May 2008 letter itself.  That letter makes it clear that a ‘straight loan’ was not what was agreed, but that Crosswood was content to advance money on the basis that it was to be invested in various Indian entities, and that the debtor was to guarantee the payment to Crosswood of any part of the £8.5 million that was lost.  If any part of the £8.5 million was lost - and in that respect an amount was to be deemed lost if Crosswood reasonably determined that it had been lost - the letter provided in terms that the debtor guaranteed that he would, on Crosswood’s demand, pay to it the amount lost, or determined to be lost, up to a maximum amount of £8.5 million.  
95.	I therefore accept Mr Smith’s submissions that Crosswood’s claim was thus contingent, and unliquidated and unascertained, and that it should have been treated accordingly for voting purposes pursuant to Rule 5.21(3).  However, I would reject Mr Smith’s further submission that in the present case there was no material from which a value higher than £1 could safely be attributed to any guarantee claim which Crosswood had against the debtor.  Mr Smith submitted, first, that there was no evidence of any demand having been made by Crosswood, or of any reasonable determination made by it, as to which parts, if any, of the alleged £8.5 million investment had been lost.  Secondly, that the position in relation to the alleged investments in India was, to say the least, opaque and unclear and, it seemed, evolving.  Thirdly, that the account given by the debtor of the alleged losses had changed between that set out in the proposal and that currently advanced; and, fourthly, whilst it now appeared that it might be possible to realise value which might well be significant from the investments, the amount of such value was still difficult, if not impossible, to quantify on the material presently available.  For those reasons, Mr Smith submitted that the only safe course was to apply the default position under Rule 5.21(3) and to put a value of £1 on the claim.  He submitted that Crosswood and Mr Chouhen had not discharged the burden that lay upon them of showing that a higher value could safely be attributed to the debt.  
96.	It does seem to me, from the terms of the assignment, that Crosswood had, by the time of the meeting at which the IVA proposal was considered, clearly determined that the amount of the loss should be quantified in the sum of £8,500,000.  That seems to me to be implicit in the terms of the assignment itself.  It would now appear that a lesser value should properly be placed upon the liability.  The sum in question should be reduced by at least £1,000,000; but, as Mr Harbottle submitted, the question is whether the value to be placed upon the loss is sufficient to be ‘material’; and it is only ‘immaterial’ if the liability were properly to be quantified at less than three quarters of the value of all creditors.  Mr Harbottle quantified that sum at just under £5,571,000.  He submitted that if the total liability exceeded that, any error was immaterial for voting purposes.  I am satisfied that even on the material which is currently available to the court, the chairman of the meeting could safely attribute a value to the loss, and thus the liability, in excess of £6,000,000, and probably in the order of £7.45 million.  I therefore reject the submission that only £1 should have been put on the value of the liability to Crosswood.
V: The Effect of the Assignment to Mr Chouhen
97.	The applicant submits that the supervisor was wrong not to treat Mr Chouhen’s claim as associated.  It puts its case in one of two ways.  The first is that the assignment was not an absolute assignment, and so cannot take effect under Section 136 of the Law of Property Act 1925, but can only have operated in equity.  As such, at law it is said that Crosswood remained the creditor of the debtor, holding the relevant part of the chose in action upon trust for Mr Chouhen.  Section 136, by its terms, applies only to an absolute assignment; and it is common ground between the parties that an assignment will not be absolute where it is of part only of a debt.  In the present case, the assignment was, on any view, only part of the alleged debt owed by the debtor to Crosswood and, therefore, it is said that the assignment cannot have taken effect at law, but only in equity.  
98.	Mr Smith submits that it is trite that equity cannot transfer legal title to a legal chose in action.  He therefore submits that the effect of an equitable assignment is to cause the beneficial interest to pass to the assignee, with the legal title remaining with the assignor.  It follows from this, he submits, that as the holder of the legal title to the debt, Crosswood remains the creditor in respect of all of the alleged Crosswood debt for the purposes of Rule 5.21 of the Insolvency Rules.  He says that the term ‘creditor’ is not defined in the 1986 Act, or in the 1986 Rules, but the focus is upon a person who is owed a debt by the debtor.  In this context, he refers me to Rule 5.21(2).
99.	In the course of his submissions, Mr Smith took me to the work by Marcus Smith entitled ‘The Law of Assignment: The Creation and Transfer of Choses in Action’.  At paragraph 6.06, the writer makes the point that equity cannot transfer legal title in a chose.  In the text to note 12, the writer states that any attempt to transfer title to a legal chose by equitable means must leave the legal estate vested in the original holder, the assignor.  
100.	At paragraph 6.07 onwards, the writer considers the question: what does an assignment of a legal chose transfer?  If the equitable assignment of a legal chose cannot effect an outright transfer of that chose to the assignee, the question arises as to what the assignment of a legal chose does achieve in terms of transfer.  In theory, there are said to be two possibilities.  First, and most narrowly, what is assigned could be no more than a right to sue in the name of the assignor.  Alternatively, the assignment could effect the transfer of the beneficial interest in the chose, leaving the assignor with nothing but the bare legal title.  That implies a substantive effect on the assignor’s rights, in that the beneficial interest in the chose is separated from the legal title.  In turn, this is said to imply the creation of a trust.  
101.	At paragraph 6.10, the writer concludes by suggesting that where there is an equitable assignment of a legal chose in action, the effect of the transaction is to cause the beneficial interest in the chose to pass from the assignor to the assignee, with the assignor retaining the bare legal title and holding the beneficial interest on trust.  This is illustrated in a diagram at paragraph 6.12, where it is said that after the assignment, the legal interest in the chose in action is held by the assignor as constructive trustee for the assignee, and the equitable interest in the chose is held beneficially by the assignee.  At paragraph 6.30, the writer refers to the principle that the constructive trustee, the assignor, is the person who must enforce his claim against the debtor, albeit for the benefit of his cestui que trust, the assignee.  
102.	Mr Smith also took me to the decision of the Privy Council in the case of Parmalat Capital Finance Limited v Food Holdings Limited [2008] UKPC 23, reported at [2008] BCC 371.  The opinion of the board was delivered by Lord Hoffmann.  The board included Lord Walker of Gestingthorpe.  The position there was that an entity known as Food and Dairy had presented a winding up petition.  That was objected to on grounds which included the objection that Food and Dairy had had no locus standi as petitioners because they had assigned the entire benefit of their put agreements to another entity known as Norwest.  
103.	At paragraph 6, Lord Hoffmann referred to the relevant section, Section 96 of the Companies Law in the Cayman Islands.  That clearly corresponds to the equivalent provision in the Insolvency Act 1986, which is Section 124.  Lord Hoffmann said that Section 96 of the Companies Law provides that a petition may be presented by a ‘creditor’.  He said the first question was whether Food and Dairy were creditors.  The Board considered that they were.  They were the contracting parties to the put agreements and had the right to demand payment.  They retained both the legal title and the equity of redemption.  In the opinion of the Board, the fact that they had assigned the debt by way of security to a third party did not deprive them of the status of creditors.  The Board referred to the submission that even if Food and Dairy were entitled to sue, the proceedings had not been properly constituted because the assignee, as equitable assignee, should have been joined in the proceedings.  Reliance had been placed upon the analogy of an action to recover a debt, in which it was clear that an assignor seeking to recover an assigned debt must join the equitable assignee; but the analogy was said to be a false one because a winding up order did not affect the legal rights of the creditors or the company.  It only put into effect a process of collective execution against the company’s assets for the benefit of all its creditors.  In the course of that process, the rights of creditors might have to be determined; but such a determination was not necessary at the stage when the order was made.  It was said that an equitable assignor therefore had a sufficient interest without joining the assignee.
104.	It seems to me that that decision clearly establishes that an equitable assignor is a ‘creditor’ because otherwise it would not have had the requisite standing to present a winding up petition. But it does not decide whether an assignee of part of the debt, which takes effect in equity, is not a creditor.  For the debtor, Mr Harbottle accepts that a partial assignment of the right to recover a debt can only take effect as an equitable assignment.  He notes that the precise jurisprudential effect of an equitable assignment of a legal chose in action is the subject of academic discussion in Mr Marcus Smith’s work.  He says that his conclusion is the suggestion - which he says is no more than that - that the effect is that the assignor retains the legal interest.  
105.	Mr Harbottle refers, as to the practical effect, in law, of an equitable assignment, to the position as summarised in Halsbury’s Laws of England (Fifth Edition) Volume 13 (Title: ‘Choses In Action’), 2009 edition.  He summarises the position as set out at paragraphs 68 through to 70 in the following three propositions.
1.	An equitable assignment of a legal chose passes to the assignee the right to sue for its recovery; but, as a matter of practice, he must join the assignor before he can obtain final judgment.
2.	An assignor, if the equitable assignment is known, will not be allowed to sue in his own name for himself.  He may sue as trustee for the assignee, but only if the assignee so wishes.
3.	A debtor with notice of the equitable assignment who pays the assignor without the consent of the assignee will have to pay the assignee again. 
To those three propositions, I would add a fourth, which appears from paragraph 71 of Halsbury, which is that the equitable assignee of a legal chose cannot give a valid discharge to the original debtor unless expressly empowered so to do.  

106.	Mr Harbottle 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 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 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.  So I accept Mr Smith’s arguments on that point.
108.	Mr Smith has an alternative way of putting this limb of his case.  He submits that under the terms of the assignment, and in particular clause 2.2, Mr Chouhen rendered himself a trustee of the proceeds of the debt for Crosswood, and he was thereby an associate of the debtor within the meaning of Section 435(5) of the 1986 Act.  It is now common ground that, because of the wide terms of Section 435(5), if under the terms of the assignment, properly construed, Mr Chouhen did become a trustee for Crosswood Limited, then he thereby became an associate of the debtor, Mr Kapoor, because Crosswood was an associate of Mr Kapoor.  The way in which it is put by Mr Smith is that Crosswood, and Mr Chouhen, clearly understood the effect of their arrangements to be that Mr Chouhen was obliged to turn over 80% of all sums received in respect of the assigned debt to Crosswood.  Reference is made to the statement (at paragraph 12 of Mr Chouhen’s witness statement) that if he ‘turned over’ to Crosswood a percentage of the £210,000 as and when he received it, so as to place it in a better position overall, then surely that would help.  He also relies upon Crosswood’s board minutes approving the arrangements, which record that in the event of it agreeing to assign £4,000,000 of its debt as proposed to Mr Chouhen, Crosswood would receive £50,000 immediately, £50,000 within six months, £300,000 from Mr Kapoor and the IVA, and £160,000 from Mr Chouhen under the ‘turnover’ proposals made by him, in all £560,000.  Mr Smith submits, for the applicant, that the effect of those turnover arrangements, akin to a turnover trust, was that Mr Chouhen thereby rendered himself a trustee of 80% of the proceeds of the debt for Crosswood.  The fact that Mr Chouhen did not expressly agree to pay the proceeds into a separate account is said to be irrelevant.  In that context, reliance is placed upon observations by Mr Justice Millett in the case of Mills v Sportsdirect.com Retail Ltd [2010] EWHC 1072(Ch), reported at [2010] 2 BCLC 143, at paragraphs 52 through to 58.  Mr Smith submits that, in practice, the supervisor would no doubt have been directed to pay 80% of the dividends directly to Crosswood.  He submits that since Crosswood is accepted to be an associate of Mr Kapoor, Mr Chouhen thereby also became an associate of Mr Kapoor within Section 435(5).
109.	For the respondent, Mr Harbottle submits that Mr Chouhen was entirely independent of Crosswood, that he paid good consideration, and that he retained the right to vote against the IVA.  He says that the parties had set out their agreement in writing, and there is no express declaration of trust in the written assignment.  On the contrary, clause 1 expresses the assignment to be an ‘absolute’ one.  He further submits that the mere fact that there is an obligation to pay money from the proceeds of the IVA does not make the assignment anything less than absolute.  He says that Mr Chouhen is under no obligation to keep the 80% of the dividends in a separate account, or to pay over 80% of the actual monies received by way of dividends.  Rather, the obligation under clause 2.2 is to pay over a sum equal to 80% within 28 days of each receipt of a dividend.  Accordingly, he submits that in relation to the 80%, Mr Chouhen is merely Crosswood’s debtor, and that there is no trust.  Mr Harbottle submits that the cases demonstrate that where funds are permitted to be mixed, there must be extremely strong indications that a trust is intended before one will be held to arise.  He submits that there are no such indications in this case.
110.	On this issue, I prefer Mr Harbottle’s submissions to those of Mr Smith.  It seems to me quite clear that no trust relationship was contemplated or created by the terms of the assignment.  Any such trust relationship must be found in the provisions of that document, and I am satisfied that none can be derived from its terms.  The principal consideration that leads me to that conclusion is that, by clause 2.2, what is to be paid over is an amount equal to 80% of the receipts by way of dividend.  They are to be paid by Mr Chouhen to Crosswood within 28 days of each receipt of a dividend.  The document contemplates that the dividend will be paid to Mr Chouhen, and he will pay over a sum equal to 80% of it. That seems to me to create a debt liability, rather than a liability sounding in equity by way of trust.  So I reject the argument that Mr Chouhen is to be treated as an associate of the debtor because he is effectively a trustee for Crosswood, which itself is an associate of Mr Kapoor.
VI: Material Irregularity 
111.	For the applicant, Mr Smith’s first submission on the issue of material irregularity is that even if there was a valid debt due from Mr Kapoor to Crosswood, then the purported assignment of part of this debt from Crosswood to Mr Chouhen was an improper device designed to evade the voting requirements in the Insolvency Rules; and that this amounts to a ‘material irregularity’ for the purposes of Section 262(1)(b) of the Act.
112.	As to this, he submits that it is admitted on the evidence put forward by the debtor, first, that the purpose of the assignment concluded with Mr Chouhen was to avoid the effect of the provisions in the Insolvency Rules dealing with associated creditors.  Secondly, in particular, that the effect of these provisions was that, absent the assignment, a proposal would not have been approved since, as is common ground, more than half of Mr Kapoor’s creditors, excluding Crosswood as an associated creditor, would have voted against the proposal.  Thirdly, that although the assignment purported to be an absolute assignment, in fact Crosswood retained the principal economic interest in the debt by retaining the right to receive 80% of the dividends on the debt under the IVA; and, fourthly, that Mr Chouhen’s intention throughout was to vote in favour of the proposal.  
113.	Accordingly, Mr Smith submits, the position is one where Crosswood’s claim would, as is common ground, have been subject to the associated party requirements in the Insolvency Rules.  In order to avoid this consequence, the debtor procured an arrangement to be entered into between Crosswood and Mr Chouhen whereby a portion of the debt would purportedly be transferred into the name of the latter.  However, Crosswood would retain the principal economic interest in that debt.  In effect, he says that a portion of the debt was transferred into the name of the third party so that the third party could then vote in favour of the proposal without being subject to the associated creditor provisions, but with the economic interest in the debt being retained by the associated creditor.  He says that this is an abuse.  The assignment was not a genuine commercial transaction in the debt.  It was a transaction entered into for the express purpose of avoiding the effect of the associated party rules; and it was one under which, notwithstanding the purported absolute nature of the assignment, the assignor and associated creditor (Crosswood) retained the principal economic interest in the debt.  He says that the associated party provisions in the Insolvency Rules were specifically implemented by Parliament so that an IVA proposal could not be pushed through by a debtor and his associates against the wishes of genuine third party creditors of the debtor, in this case, the bank and Her Majesty’s Revenue and Customs.  If it were possible to evade these requirements simply by means of the device used in the present case, the protection offered by those rules, and in particular by Rule 5.23(4)(c), would, in effect, be meaningless.  The bank submits that this conduct infringes the strict requirement of good faith identified in the Somji case, and amounts to a ‘material irregularity’ within, and for the purposes of, Section 262(1)(b).
114.	For the respondent, Mr Harbottle accepts that the object of the assignment was to enable, but he says not to require, the IVA to be approved in circumstances where it would not otherwise have been approved.  Mr Chouhen intended, but did not bind himself, to vote in favour.  There was nothing to stop him from changing his mind if, for example, he discovered something he did not like about the proposal.  Mr Chouhen was prepared to participate in the assignment so as to rescue his old school friend from bankruptcy.  Crosswood benefited from the assignment at Mr Chouhen’s expense because Mr Chouhen paid a premium. 
115.	Cutting through the detail, the effect of the assignment was that Mr Chouhen bought £4,000,000 of Crosswood’s claim at a premium of between 25.62 and 30%, depending on which figures are adopted.  In the absence of the agreement, Crosswood would have received a dividend equivalent to 5.48% of £8.5 million, namely £465,800.  Pursuant to the assignment of £4,000,000 of Crosswood’s £8.5 million debt, Mr Chouhen is to pay Crosswood £275,360, namely the premium of £100,000, plus 80% of the dividend (which would have been £219,200), in other words £175,360.  In return, Mr Chouhen would receive £219,200, being 5.48% of £4,000,000.  Thus, Mr Chouhen is paying Crosswood a premium of £56,160 or 25.62%.  That is how Mr Harbottle characterised the matter.  Another way of looking at it is to view Mr Chouhen as paying £100,000, in two equal instalments of £50,000, in order to receive £43,840.  From Mr Chouhen’s perspective, that was not in any way a sensible commercial deal.
116.	The suggestion that Mr Chouhen might have voted against the IVA seems to me to run counter to the whole purpose, and the object, of his entry into the assignment in the first place.  As I have already indicated when reviewing the debtor’s evidence in cross-examination, the debtor accepted that Mr Chouhen had made it clear to him that it was his intention to vote in favour of the IVA.  He wanted to help the debtor to avoid going bankrupt, and he would do anything he could to that end.  
117.	Mr Harbottle further submits that Section 262(1)(b) refers to a material irregularity at or in relation to the meeting.  He submits that this is clearly directed at the documents and processes by which the IVA comes into being, and not at agreements which are not part of such documents and processes.  In this case, the agreement was made on the same day as the proposal, although it bears the date the 26th June 2009, after the date of the proposal.  On the evidence, which I accept, that was a mistake on Mr Puri’s part.  It was agreed that it would be dated the 23rd June, which was the date of the proposal itself.  However, Mr Harbottle submits that it did not form part of the documents and processes by which the IVA came into being, and it was concluded well before the vote.
118.	It seems to me that that submission really misses the point that is being made by the applicant.  What is being said is that there was a material irregularity at the meeting when the chairman accepted the assignment as validly operating to constitute Mr Chouhen a creditor of the debtor for the purpose of admitting his vote to count at the meeting in the sum of the assigned part of the debt of £4,000,000.  Mr Harbottle says that he is not aware of any authority extending the concept of a ‘material irregularity’ to something which is not part of the IVA documentation and processes.  It seems to me that the irregularity which is relied upon here is, for the reasons I have just given, part of the IVA process.  Mr Harbottle acknowledges that the case which bears the closest analogy to the present, at least in terms of the allegations made, is the Somji case; but he says that, in that case, the vice was not considered to be in the agreements themselves, but rather the fact that they were concealed and were secret.  He makes the point that no such allegation of material non-disclosure is made in the instant case because copies of the agreement were supplied before the meeting at which the IVA was approved, as Mr Fiddy accepts in his witness statement.  
119.	Mr Harbottle submits that the effect of the bank’s argument is that any agreement which affects, and is intended to affect, the votes on an actual or contemplated IVA proposal must be scrutinised for irregularity.  He submits that that construction, which he says is not supported by authority, raises a host of questions and difficulties.  First, he says that the bank contends that the purchase by a non-associate of part of a debt at a premium, with a view to enabling a proposal to go through, and thus prevent an old school friend from becoming bankrupt, is irregular.  Applying this test, he says it would presumably also be irregular for a non-associate with a commercial interest in preventing a bankruptcy to purchase a debt, or to pay off a hostile creditor, so as to enable a proposal to be voted through.  He postulates the example of A and B (not being associates) having contracted jointly with C, on terms whereby the contract is to terminate 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 off Y, would that be an irregularity?  It is submitted that that would be a surprising result to most people.  Yet, Mr Harbottle asks rhetorically, how does that differ from Mr Kapoor’s case.  
120.	As to that, it seems to me that that is not the situation with which the court is presently faced.  This is not a situation where Mr Chouhen, or anyone in his position, had a legitimate commercial interest of his own in securing the promotion of the IVA.  Mr Chouhen was acting specifically in order to circumvent the provisions of Rule 5.23(4), which prevented the vote of Crosswood from being counted for voting purposes because it was an ‘associate’ of the debtor.  That seems to me very different from the situation postulated by Mr Harbottle’s example.  It is unnecessary for me to consider what the court might do in relation to such a case.  That case is not this case.
121.	Secondly, Mr Harbottle submits that it is not clear what degree of intention would be required. He considers the case of an agreement, the main aim of which was a particular object which had nothing to do with the IVA, but which the parties knew was bound to affect the voting.  Is that, he asked rhetorically, an irregularity?  Again, that case is not this case.
122.	Thirdly, he inquires what transactions are included, and what are excluded?  Could 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 an individual voluntary arrangement proposed, count for these purposes?  It seems to me that, for the reasons I have already indicated, that is focusing upon the wrong point in time.  The irregularity of which complaint is made is the acceptance of the vote of the equitable assignee of part of the debt at the meeting at which the proposal for an IVA is considered. 
123.	Fourthly, on the bank’s approach, a transaction entered into without any involvement of the debtor, whereby a hostile creditor is paid off, would amount to an irregularity.  Why, Mr Harbottle asks, again rhetorically, should such a transaction disqualify the debtor from entering into an IVA?  Again, the point can be made in answer that that is not this case.
124.	For all of those reasons, Mr Harbottle submits that the agreement complained of is not capable of amounting to a material irregularity within the terms of the Act.  I have no hesitation in preferring the submissions of Mr Smith to those of Mr Harbottle on this aspect of the case on irregularity.  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.
126.	Mr Smith had a second limb to his argument on the issue of irregularity.  He contended, further or alternatively, that the material omissions and misleading account of the Crosswood loan, as presented in the proposal, itself amounted to a material irregularity for the purposes of Section 262(1)(b).  The position of Mr Kapoor, as stated in the proposal, that he was indebted to Crosswood under the loans made to him by Crosswood in November 2007, and that the funds which had been lent to him had been lost in their entirety, is said to have been very materially false and incorrect.  That is elaborated in paragraph 59 of Mr Smith’s written skeleton submissions; and he elaborated upon it further in his oral submissions to me.
127.	Apart from this, it is said that in the proposal, Mr Kapoor had also incorrectly led his creditors to believe that all of the funds which had been loaned to him had been lost.  That argument is developed in paragraph 61 of Mr Smith’s written submissions; and it too was developed further orally by him.  The outcome, Mr Smith submits, is that, on any view, a materially misleading account was given by Mr Kapoor to his creditors and, it seems, to the supervisor.  Mr Smith says that the proposal, and the statement of affairs and supporting affidavit, were materially inaccurate.  Rather than being in the nature of a loan, Crosswood’s claim against Mr Kapoor was in the nature of a guarantee.
128.	I reject this further submission by Mr Smith.  It seems to me that whatever inaccuracies there were in the proposal, the statement of affairs, and the debtor’s supporting affidavit, they did not, in my judgment, amount to a material irregularity in the particular circumstances of the present case.  I accept Mr Harbottle’s counter-argument that no creditor was influenced by any inaccuracy in the documentation submitted in support of the IVA proposal.  No creditor was influenced by that material in making his decision as to whether to support or to oppose the IVA, or otherwise in deciding how to cast his vote.
129.	Her Majesty’s Revenue and Customs, and also the applicant, voted against the proposal.  Mr Chouhen and Crosswood were, as I find, determined, irrespective of the terms of the documentation, to vote in favour of the IVA proposal come what may.  Thus, the terms of the documentation had no influence or effect upon the result.  In those circumstances, it seems to me that any irregularity cannot be said to have been a ‘material’ irregularity.  
130.	Even if I were wrong on that, it is clear from the terms of Section 262(4) that the court has a discretion as to what relief, if any, to grant in the event of a material irregularity having occurred.  It does not seem to me that it would be an appropriate exercise of the court’s discretion to strike down the vote in favour of an IVA proposal when any inaccuracies in the documentation leading to that vote can have had no conceivable impact whatsoever upon the result of the voting.  
VII: Conclusion
131.	For the reasons I have given, the challenge to the individual voluntary arrangement under paragraph 1 of the application notice succeeds because there was a material irregularity at or in relation to the meeting.  Such material irregularity consisted in accepting the vote of Mr Chouhen, as an equitable assignee under an assignment of part of a debt, in circumstances where that assignment was effected expressly for the purpose of circumventing the provisions of Rule 5.23(4)(c), relating to the discounting of the votes of associated creditors, and where there was no valid commercial reason for the entry into the assignment from the point of view of the equitable assignee.
132.	I reject the alternative ground that there was a material irregularity in the documentation prepared for the purposes of the meeting.  
133.	I also hold that the challenge to the decision to admit the claim of Mr Chouhen under paragraph 2 of the application notice succeeds, but on the sole ground that, as an equitable assignee of part of the debt, Mr Chouhen should not be treated as being a creditor of Mr Kapoor as debtor.  
134.	I reject Mr Smith’s alternative challenge on the basis that the only safe course had been to apply the default position under Rule 5.21(3), and to put a value of £1 on the claim.
135.	I reject the challenge under paragraph 3 of the application notice that Mr Chouhen should have been treated as an associated creditor of Mr Kapoor because I reject the submission that Mr Chouhen held the benefit of the assignment on trust for Crosswood, which itself was an associate of Mr Kapoor.
136.	So, in the result, the challenge to the IVA succeeds; and it seems to me that the individual voluntary arrangement should be revoked, and that the applicant should have permission to present a petition for Mr Kapoor’s bankruptcy.  
I will hear counsel as to the form of my order and any consequential matters.
MR SMITH:  My Lord, I am grateful.  My Lord, first the form of orders.  I don’t think I need to address Your Lordship on that for the moment save that Your Lordship has directed that the IVA be revoked and my client’s permission to present a bankruptcy petition is given.  No doubt my learned friend and I can agree that part of the order between ourselves.  My Lord, the bank makes an order, an application for an order, for its costs-
JUDGE HODGE:  Yes.
MR SMITH:  -of this application is paid by the first respondent [inaudible] on the usual basis just that his challenge has been successful.
JUDGE HODGE:  Yes.  I do not think that you can resist that, can you, Mr Harbottle?
MR HARBOTTLE:  I don’t resist the application for an order for costs.  I have quite a lot to say about how much that should be if an application is made-
JUDGE HODGE:  Well-
MR HARBOTTLE:  -[inaudible].
JUDGE HODGE:  You are presumably, well presumably you are not going to ask for summary assessment.
MR SMITH:  No My Lord.
JUDGE HODGE:  And again, given you are going to be presenting a bankruptcy petition in the pretty near future, there is not much point in ordering a payment on account is there?
MR SMITH:  Well there is My Lord because there is always the possibility of settlement and that is always a possibility and My Lord, it would help to have our costs quantified to the extent of payment on account because, ultimately, we are going to be in a position of having to prove in the bankruptcy, but it would be of assistance, we would submit, to have that part of our claim quantified if possible.  We do have a schedule.  I wasn’t going to invite Your Lordship obviously to make a summary assessment but-
JUDGE HODGE:  The case has gone on for three days.
MR SMITH:  Indeed, My Lord.  Indeed.  I was on the other hand going to invite Your Lordship to make an order for payment on account.  The normal percentage is 50% of the amount shown on our schedule.  It is perhaps better if I hand up the schedule.
JUDGE HODGE:  Thank you.  I take it that the costs which were the subject matter of paragraph 6 of Mr Deputy Registrar Garwood’s order of the 15th April 2010 have never been assessed?
MR SMITH:  No.
JUDGE HODGE:  No.  The normal rule is that you do not get an assessment until the end of the case.
MR SMITH:  That is correct, My Lord.  My Lord, this is our schedule for the costs in the action and as I said, we indicate that we would seek an order in the usual amount, which is 50%, and obviously that would be a payment on account and the costs would fall to be assessed and-
JUDGE HODGE:  Yes.  Now I never know the position with regard to banks.  Are they registered for VAT?
MR SMITH: The bank, I don’t believe, they’re not registered for VAT.
JUDGE HODGE:  They are not?
MR SMITH:  They’re not.
JUDGE HODGE:  Right.  So VAT is an element then.  Well, what I will do is I will order a VAT exclusive amount plus VAT if appropriate.
MR SMITH:  Yes.
JUDGE HODGE:  But, essentially, the base, exclusive of VAT, is £81,000 so I suppose-
MR SMITH:  [Inaudible] My Lord.
JUDGE HODGE:  -and it may in fact be a bit more because the hearing went on longer than you anticipated.
MR SMITH:  Yes.  I think we updated this costs schedule to take account of that.
JUDGE HODGE:  Oh, this is not the one that I had yesterday?  It is a later one?
MR SMITH:  No, it’s 23 hours, it’s been updated until this morning so we may have gone over a bit in the sense of-
JUDGE HODGE:  Yes.
MR SMITH:  -it’s gone into the afternoon but-
JUDGE HODGE:  Yes.
MR SMITH:  -it’s materially correct and My Lord, the base figure is 81 so I would ask Your Lordship to make an order for £40,000-
JUDGE HODGE:  Yes.
MR SMITH:  -on the base of that.
JUDGE HODGE:  Mr Harbottle?
MR HARBOTTLE:  My Lord, I have a certain amount to say.  Starting off, I would say that this is a case where Your Lordship should consider making an issues-based costs order.  The reason I say that is because effectively there were seven issues you refer to which I’m afraid I put on a piece of paper but I haven’t, but if I can just run through them.
Firstly, the factual existence of the Crosswood liability and its amount.  Secondly, the nature of that liability, was it a loan or guarantee.  Thirdly, the factual existence of the Chouhen liability.  Fourthly, whether that gave Mr Chouhen a right to vote.  Fifthly, whether Mr Chouhen was an associate.  Sixthly, whether the Chouhen assignment, or the decision to permit Mr Chouhen to vote, was a material irregularity, and seventhly whether there were any other material irregularities in the proposal or at the meeting.
Now, in fact, issue one was probably the heaviest factor in issue, the existence of the Crosswood liability, certainly one which goes behind the estimate, took up at least half of their costs, probably less so on the other side, but it is clearly one which took up a vast amount of evidence, quite a lot of cross-examination and quite a lot of submissions as well; and that is an issue on which substantively my client won.  I accept he is not the overall successful party but he wins on that one and that’s in many ways the meat of the factual case.  The nature of the liability, issue number two, my client lost.  That was essentially a legal argument.  There was a certain amount of cross-examination directed to that point but the costs were not vast.  The third issue was the factual existence of the Chouhen assignment, not of its nature but its factual existence.  Again, quite a lot of costs incurred by my client and upon the applicant’s side on that and that was a win for my client, My Lord, in my submission.  Whether that, issue four, whether it gave Chouhen the right to vote, that was a loss, that was a legal argument, low factual involvement in that.  Issue five, whether it gave rise to a trust, also a legal argument.  My client was successful on that point.  Issue six, whether the Chouhen assignment was a material irregularity, that was essentially a legal argument.  My client failed; and finally issue seven, other material irregularities linked up to a point with the factual existence of the Crosswood liability.  Certainly quite factually heavy and my client succeeded on that.
So, on that basis, in my submission, in relation to the amount of costs incurred, it could be submitted that my client was successful on issues on which it spent at least half of its costs; and so, although entirely accepting that the applicant is the successful party overall, the court should consider making an issues-based order, probably more realistically a percentage order, reducing the applicant’s costs by a percentage before we get onto the detail of whether those costs were reasonably incurred.  So that is my first submission.
My Lord, I would say that I could easily justify a reduction in those costs by about 50%.  The applicant had a choice.  It could have simply confined its case to the legal issues but it decided not to.  It decided to put my client to proof on all these factual matters on which essentially my client succeeded.  It was really for that reason that we had a perhaps three day case rather than a half day to one day case.  So that’s my first point.  In relation to the amounts claimed, I’m not aware of the usual practice of the court awarding 50%.  I’m certainly aware of the usual practice of the court awarding 40% [inaudible] but in my submission, each case depends on its individual merits.  We are surprised to discover that the bank is not VAT registered; and there is a procedure for how one deals with that in the Practice Direction.  Where there is a dispute as to whether VAT is properly claimed, the receiving party must provide a certificate, signed by solicitors or auditors, in a particular form; and in the absence of such a certificate, in my submission, there can be no VAT taken into account.
JUDGE HODGE:  Well what I am going to do is to say an amount plus VAT if appropriate-
MR HARBOTTLE:  If appropriate.
JUDGE HODGE:  -and then if the certificate is provided-
MR HARBOTTLE:  Well obviously we would abide by that.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  In relation to the VAT free element of it, the figure is as Your Lordship said just over £80,000.  We say that is excessive and disproportionate for this case.  My solicitor’s-
MR SMITH:  Nat West VAT number.
MR HARBOTTLE:  Ah.  Well I am told that Nat West does have a VAT number.  This is based on an internet search handed to my learned friend.  I have no idea how it all works.  There may be different departments.  There may be all sorts of demands about that [inaudible].  My learned friend can respond to that in due course.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  In terms of just this overall proportionality, I don’t know if Your Lordship has a copy of my solicitor’s costs.
JUDGE HODGE:  No, I do not think I do.
MR HARBOTTLE:  Could I hand that up?  
JUDGE HODGE:  Thank you.
MR HARBOTTLE:  Your Lordship will see that it is very considerably less.  That brief sum is £53,000 as opposed to over £80,000; and when one considers who has done the more work in this case, I would submit that much more work has been done on the McGrath & Co side.  Essentially the applicant has produced Mr Fiddy’s statement which, while excellent, is essentially a narrative followed by some submissions.  On the respondent’s side, we have five witness statements between four witnesses, one of them in Australia, and [inaudible] are relatively short, they involved a very large amount of work.  So it is rather surprising on the face of it that one finds this level of disparity, particularly when the hourly rates are really not that different.
In terms of the overall detail, we are concerned that there’s been potentially considerable duplication on the applicant’s side.  One notes immediately that a team of four solicitors and one trainee appear to have been used, and we say there’s bound to have been unnecessary overlap and duplication of work.  We believe that Mr Mattiussi, who is a fee earner of grade C, went to Australia some time last year and may have been replaced by Ms Ziarati, and plainly, if that was the case, then Ms Ziarati would have had to read into the case, and that of course is mere duplication, but I find it difficult to see how it is possible to justify even three solicitors on a case of this nature.  It’s not a case even where there are a large number of witnesses to call.  There was only one witness, and that was Mr Fiddy who was actually from the firm.  Secondly, we would like to be satisfied that the statement excludes the earlier costs order which was made when Mr Kapoor applied for an extension of time in relation to his evidence because it’s expressed to be an estimate of overall costs and so that would have to be excluded.
JUDGE HODGE:  Why?
MR HARBOTTLE:  Well, in the sense that it’s-
JUDGE HODGE:  If I am ordering an interim payment on account, why should I exclude that element?
MR HARBOTTLE:  Well, we wouldn’t want duplication.  If this is a payment on account of both costs orders, fine, but-
JUDGE HODGE:  Well I think it is a payment on account of the costs generally, including that order.
MR HARBOTTLE:  Well, in that case I have no difficulty with that, but I would just like to know that I’m not going to be faced with two payments on account.
JUDGE HODGE:  Mr Smith, these are the total costs, including costs covered by that earlier order of the Deputy Registrar?
MR SMITH:  Yes.
JUDGE HODGE:  Yes.
MR SMITH:  [Inaudible].
JUDGE HODGE:  There was no on account payment ordered at that time?
MR HARBOTTLE:  No, My Lord, no; and obviously we would also seek confirmation that none of these costs relate to DLA’s involvement in the IVA process itself.  Again, I’m happy if that confirmation is given.
MR SMITH:  That’s correct My Lord.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  Moving on to the individual items, attendance on the claimant as up to about 35 hours, we say that seems very high for an institutional client.  Attendance on opponents, we say that’s not overall high but my, those behind me don’t have any recollection of talking to anybody called Mr Parker at any point, until today.  Attendance on others-
JUDGE HODGE:  Well the difficulty is that when you look at the attendances on opponents on your side, it is not all that different.
MR HARBOTTLE:  No it’s not.  I’m simply raising this point that two and a half hours appear to have been spent by a Mr Parker who, and it’s possible that that was, it is possible that that was contact with the second respondent.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  So I’m just raising the point that it may well be that there’s an answer.  Then attendance on others comes up as 65 hours I think whereas my instructing solicitors spent 17 hours on-
JUDGE HODGE:  Yes.
MR HARBOTTLE:  -attendance on others.  I don’t know why that is but it seems excessive, and then attendance on documents comes up as 140 hours.  The contrasting figure for the first respondent is 23 hours.  So 140 hours seems pretty staggering to us given that the documents which would have been prepared are essentially limited to the application notice and Mr Fiddy’s statement and also counsel probably was fairly extensively involved in those documents.  I entirely accept that some of that figure is likely to have included reading our documents, documents produced by us, but it seems very difficult to see how 140 hours could justifiably have been spent.  In terms of attendance at hearings, we have one solicitor and one trainee, which is more or less similar on this side, but for some reason we have 20 hours each when really the hearing was pushing 15 at the moment, just a small point but nevertheless.  So My Lord, on the basis of all those submissions, in my submission, while I can’t resist an interim costs order, it should be nothing like 40% or 50%.  It should be more in the region of 20% maximum.
JUDGE HODGE:  Yes.  So on that basis, you would say that it should be about 16,000?
MR HARBOTTLE:  Yes, plus any VAT which may-
JUDGE HODGE:  Yes.  Yes, Mr Smith?
MR SMITH:  My Lord, if I can deal just first of all with the idea that there ought to be an issues based order.  My Lord, we submit that that’s a little unrealistic a submission.  My Lord, part of the bank’s case here was a contention that there had been a lack of good faith.  That was the heart of the way it was put to My Lord.  That’s obviously a relatively serious allegation; and it’s somewhat unrealistic to say that that allegation could have been prosecuted successfully without looking at the facts and at least the evidence of Mr Kapoor in a little detail.
JUDGE HODGE:  On that you won.
MR SMITH:  On that we won, indeed My Lord.  My Lord, we’d also say one can’t really separate out the issues in the way my learned friend has sought to do.  For example, he said well, if we won on the fact that the Crosswood liability, and that took all the time but then they lost on the nature of the liability but that didn’t take much time; but those two issues are inextricably linked because one can’t decide the nature of the liability without having looked at the facts relating to the liability and on the third point, which I think he referred to as the facts of Mr Chouhen’s liability on the assignment, [inaudible] claim the assignment.  That was never in dispute, the fact of the assignment.  What we did obviously dispute was the legality of the assignment in a sense of whether or not it was tainted for the purposes of Section 262.  My Lord, some of the costs are a need for investigation in any event resulting from the fact that to some extent we’ve been dealing with shifting sands and change in grounds.
Your Lordship, I think, said in Your Lordship’s judgment that there was a lack of scrupulousness by Mr Kapoor in preparing some of the earlier evidence.  Well, it is that lack of scrupulousness that has led to a need to investigate some of these issues; but ultimately, My Lord, that submission is the bank’s case was one of an attempt to evade, is one of a lack of good faith, and that’s a case we have been successful on.  My Lord, so far as the detail of the costs [inaudible] obviously Your Lordship has been invited to make an interim payment on a summary assessment which in our submission involves Your Lordship looking at the matter at a relatively high level.  My Lord, we would submit £80,000 isn’t excessive and disproportionate given the nature of this case.  My Lord, so far as VAT is concerned, I understand that the bank isn’t registered for VAT.  It may be that other Nat West companies are, and I haven’t been able to check the email search which particular company is being referred to, but as I understand it, a bank doesn’t normally charge VAT for the services it provides.  I understand how Your Lordship proposes to deal with that. My Lord, duplication, there is no… charges have been included for duplication in between the handover between Mr Mattiussi and Ms Ziarati.  My Lord, overall we would maintain [inaudible] for the purposes of a payment on account, 50% of a total figure is reasonable and £40,000 plus VAT is the extent that is applicable and it is a fair outcome.
JUDGE HODGE:  Yes.  
MR HARBOTTLE:  My Lord, very briefly, one needs to look at whether these issues could have been dealt with without a huge amount of factual background simply on the basis of what was not in dispute.  In my submission, most on which the bank succeeded could have been.
JUDGE HODGE:  Yes.
137.	This morning, and earlier this afternoon, I delivered my substantive judgment in this matter.  I now have to address the question of costs.  It is not in dispute that the ultimately successful party has been the applicant rather than the first respondent.  The court has a discretion as to whether costs are payable by one party to another, but there seems to be no reason here why the court should not make an order about costs; and, on that footing, the general rule under CPR 44.3(2)(a) is that the unsuccessful party, which is the first respondent, will be ordered to pay the costs of the successful party, which is the applicant, although the court may make a different order.  
138.	In deciding what order, if any, to make about costs, I have to have regard to all the circumstances, including the conduct of all the parties, and whether a party has succeeded on part of his case, even if he has not been wholly successful.  I have not been alerted to the existence of any payment into court or admissible offer to settle and therefore that factor does not enter into my consideration.  
139.	For the applicant, Mr Smith has placed a statement of costs before me.  Exclusive of VAT, it amounts to just over £81,000.  He invites the court to order an interim payment on account of roughly half that amount, namely £40,000.  For the first respondent, Mr Harbottle contends that the payment on account should be in the much lower sum of £16,000.  He says, first of all, that the court should consider making an issues-based costs order, as contemplated by CPR 44.3(6)(f).  He also invites me to have regard to the conduct of all the parties.  
140.	He has sought to identify no less than seven separate issues; and, in relation to those, he submits that when characterised in that way, the first respondent, although ultimately unsuccessful, has been successful on slightly more issues than has the applicant; and that those issues upon which the first respondent has succeeded were more heavily fact-based, and therefore they resulted in more costs being incurred because of the need to address the evidence relevant to those issues.  He submits that that, of itself, should result in a 50% reduction in the costs.  
141.	He submits that the applicant could, and should, have simply confined its case to the legal issues, without embarking upon an investigation of the facts, and, in particular, the existence and amount of the original Crosswood liability, and the extent to which the investment made by Crosswood had been lost.  Those issues, he says, were heavily factually based and thus required consideration of much evidence.  
142.	He submits that Mr Smith is wrong to adopt 50% as the percentage to be ordered by way of payment on account of whatever is appropriate.  He submits that it should really be 40%.  He submits that £80,000, exclusive of VAT, is an excessive and disproportionate expenditure of costs.  In support of that submission, he refers to the first respondent’s statement of costs, which produces a VAT-exclusive figure of just over £53,000; and Mr Harbottle submits that in fact, it was the first respondent, rather than the claimant, who had to undertake considerably more work in relation to the assembly and analysis of evidence.  There was, in short, a lot more work to be performed for the first respondent; and yet his costs are only in the order of £53,000, as against £81,000 to the applicant.  
143.	He cautions me against making any allowance for a duplication in work between the two solicitor grade fee earners at £190 an hour.  He draws my attention to what he says are an excessive number of hours spent in attendances on the claimant, attendances on others, and work done on documents.  For all of those reasons, he submits that the appropriate amount to order by way of payment on account should be £16,000.  
144.	In response, Mr Smith submits that it is unrealistic to make an issues-based costs order, given that a lack of good faith was being asserted against the first respondent, an allegation on which the applicant has succeeded.  It is not surprising that the whole of the factual background needed to be investigated and put before the court.  That is appropriate to a serious allegation of want of good faith.  Moreover, Mr Smith submitted that one cannot realistically separate the various issues out in the way that Mr Harbottle sought to do.  The issues were inextricably linked.  Some of the factual areas needed investigation in any event because of what I referred to in my judgment as a lack of scrupulousness on the part of the first respondent in his approach to the detail of the circumstances leading to his insolvency, and in the evidence in support of his IVA proposal.  
145.	On the whole, on the question whether there should be an issues-based costs order, I prefer the submissions of Mr Smith to those of Mr Harbottle.  It does seem to me that this is an area which did require some detailed investigation.  Having said that, it does seem to me that certain of the issues as to the loss of the investments may have been the subject of over-extensive investigation by the applicant; but it seems to me that that is really an issue that properly falls to be addressed on a detailed assessment, looking to see whether work was reasonable and proportionate.  It does not seem to me that it justifies disallowing a proportion of the successful party’s costs.  It is a matter for detailed assessment rather than for an issues-based costs order.  Therefore what I propose to do is to order the first respondent to pay the applicant’s costs, to be the subject of a detailed assessment on the standard basis if not agreed.  
146.	I then need to consider the extent of the interim payment on account of costs.  In considering that, I do need to bear in mind that costs may be disallowed on a detailed assessment.  It does seem to me that there is a need to be careful to ensure, in any interim payment on account, that I am not making any allowance for any duplication of work on the part of different fee earners within the applicant’s solicitors.  
147.	I am concerned that it does seem to me, comparing and contrasting the two costs statements, and bearing in mind that it does seem to me that there is substance in Mr Harbottle’s contention that it was his client’s solicitors who bore the brunt of the work, that there is some ground for concern that the number of hours spent may have been either unreasonable or disproportionate in the areas I have identified of attendances on the applicant, attendances on others, and work done on documents.  
148.	Bearing all those factors in mind, it does seem to me that it would be wrong simply to take 50% of the figure of £80,000 so as to produce a figure of £40,000.  It seems to me that the appropriate figure to order by way of interim payment on account, bearing in mind that I should not award more than the absolute minimum that I can see will be allowed on a detailed assessment, that the appropriate figure for an on account payment - for it is no more than that - should be £25,000, plus VAT if applicable.  Therefore, that will be the amount of the interim payment on account. 
MR HARBOTTLE:  My Lord, as you might expect, there is now an application for permission to appeal.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  Your Lordship I think prefaced your judgment by saying this case raises novel and not entirely straightforward issues as to the law and practice of creditors’ meetings.  My Lord, generally, as to status for purposes of, sorry my reading-
JUDGE HODGE:  What I hope I said was that the application raised interesting, novel, and not entirely straightforward issues as to the law and practice of creditors’ meetings-
MR HARBOTTLE:  Yes.
JUDGE HODGE:  -summoned for the purpose of deciding whether to approve a proposed IVA, and, more generally, of the status for the purposes of the Insolvency Act and Rules-
MR HARBOTTLE:  Yes.
JUDGE HODGE:  -of an equitable assignee of part of a debt.
MR HARBOTTLE:  Yes, My Lord-
JUDGE HODGE:  That was one of those passages which I felt I needed to write out in order to ensure that I got it correct.
MR HARBOTTLE:  Well My Lord, plainly there are two critical issues on which Your Lordship has found against my client; they are in relation to the effect of the equitable assignment to Mr Chouhen and in relation to the material irregularity constituted, I think My Lordship has found, constituted by that assignment.  I would submit that both those issues do raise novel and difficult points, and that there is real possibility that the Court of Appeal might disagree with Your Lordship’s decision.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  In relation to the assignment, clearly there is a real difference, in my submission, in the simple sense that passages from Halsbury’s Laws [inaudible] so on seem to make clear that the person you pay is the actual assignee, and if one then looks at the terms of the assignment, one sees that the legal person retaining the legal title is Crosswood, bound itself not to vote [inaudible] in relation to that proportion of the debt; and so, on that basis, I would seek to persuade the Court of Appeal to take a different view from Your Lordship.  
In relation to the question of material irregularity, again there would be two points.  The first is whether something in or as a consequence of an agreement which is not part of the proposal itself is capable of amounting to a material irregularity having regards to the authorities, and secondly whether this particular agreement actually does amount to an agreement in bad faith given the circumstances in which it was reached and the fact that there was no attempt to conceal it.  My Lord, on that particular basis, I would seek permission to appeal [inaudible].
JUDGE HODGE:  Yes.  Thank you.  I need not trouble you, Mr Smith.
149.	I now have an application for permission to appeal.  By CPR 52.3(6) permission may be given only where (a) the court considers that the appeal would have a real prospect of success; or (b) there is some other compelling reason why the appeal should be heard.  It is not suggested that there is some other compelling reason why the appeal should be heard if the appeal would have no real prospect of success.  Therefore, it is under the first limb of the test that I have to focus: does the appeal have a real prospect of success?  By CPR 52.11(3) the appeal court will allow an appeal where the lower court’s decision was either wrong or unjust because of a serious procedural or other irregularity in the proceedings in the lower court.  It has not been suggested that there was any irregularity, still less any serious irregularity, in the proceedings before me.  Therefore, the appeal court will only allow an appeal where my decision was wrong.  The test I have to apply, therefore, is whether the first respondent has a real prospect of persuading the Court of Appeal that my decision was wrong.
150..	Mr Harbottle naturally focuses upon my preparatory observation, in section one of my judgment, that the appeal raised interesting, novel, and not entirely straightforward issues as to the law and practice of creditors’ meetings summoned for the purpose of deciding whether to approve a proposed IVA, and, more generally, of the status for the purposes of the Insolvency Act and Rules of an equitable assignee of part of a debt.  
151.	Had I decided this case against the first respondent only on the grounds that Mr Chouhen, as an equitable assignee of part of a debt, was not a creditor for the purpose of the Insolvency Act and Rules, then I might well have taken the view that the appeal had a real prospect of success.  But even if the first respondent were to succeed on appeal on that point, he would nevertheless still have to persuade the Court of Appeal that I was wrong in taking the view that there was a material irregularity for the purposes of the legislation in the chairman of the meeting upholding Mr Chouhen’s entitlement to vote in circumstances in which he had taken an assignment of part of Crosswood’s debt.  
152.	In my judgment, there is no real prospect of the first respondent succeeding in persuading the Court of Appeal that I was wrong on that issue. Since success on that issue also would be necessary for the appeal to be allowed, it seems to me to follow that there is no real prospect of an appeal succeeding.  If Mr Harbottle, on behalf of the first respondent, wishes to take the matter further, then he is, of course, entitled to apply to the Court of Appeal for permission to appeal.  I am sitting as a judge of the Chancery Division of the High Court, and therefore the appeal route is to the Court of Appeal.  The time for appealing is 21 days, and any request for permission to appeal can be included in the appeal notice.  This is a final order and an appeal lies from this judgment to the Court of Appeal; but I refuse the application for permission to appeal, and an application for permission to appeal may be made to the Court of Appeal.  
153.	I am afraid now I have to fill in the form N460 giving my reasons, so that may take a couple of minutes.  If you will just excuse me a moment.  I would normally do so on my laptop and print it out but since I cannot get anything to print out from it, I will just fill in the form here and the Court of Appeal will just have to decipher it.  So if you just wait a moment whilst I do that.
154.	Right.  What I have written is as follows: That the nature of the hearing was an application by a creditor under the Insolvency Act 1986 and Insolvency Rules to revoke the approval of an IVA in respect of the first respondent.  The result was that the IVA was revoked, and permission was given to present a bankruptcy petition. The brief reason for my decision to refuse permission to appeal is that there is no real prospect of success on appeal.  Although there may be a prospect of success on the issue of whether an equitable assignee of part of a debt is a creditor, an appeal would only succeed if the first respondent also succeeds in reversing my decision that there was a material irregularity in accepting his vote when the assignment was entirely motivated by a desire to circumvent Insolvency Rule 5.23(4)(c).  In my view, there is no real prospect of success on that issue.
155.	So if I could let you have that.  It may be sensible to photocopy it before it goes out.
MR HARBOTTLE:  My Lord, I do have one other application and that concerns the, as it were, the immediate implementation of Your Lordship’s-
JUDGE HODGE:  Well if, well my initial reaction was that I should not allow a bankruptcy petition to be presented for 28 days.  There would be 21 days maximum for the applicant’s notice-
MR HARBOTTLE:  Yes.
JUDGE HODGE:  -and that would give you a further seven days after that to seek to have it put before the judge of the Court of Appeal, effectively seeking an extension of time.
MR HARBOTTLE:  Yes.  Well My Lord, that would be precisely what [inaudible].
JUDGE HODGE:  I do not know whether Mr Smith is happy with that.
MR SMITH:  My Lord, just to address you on the terms. I don’t think we oppose the notion of a stay as such of some time.
JUDGE HODGE:  It is not really a stay.  It is just you cannot present the bankruptcy petition for 28 days.
MR SMITH:  Well it may be it’s a stay of that part of Your Lordship’s order giving us permission to present a bankruptcy petition.
JUDGE HODGE:  Well an order normally… I mean if we go to the order that Registrar Derrett made way back in the mists of time in the middle of 2009-
MR SMITH:  Yes.
JUDGE HODGE:  -it is in bundle B page 169.  What she did was to - I acknowledge that her experience in these matters is greater than mine because she deals with these things every day - but what she directed was that the creditor be authorised to present a bankruptcy petition not before a certain date.
MR SMITH:  Well, yes. I mean, the reason for that formulation My Lord is that is what I think Rule 6.5(6) of the Insolvency Rules provide, that when an application is made to set aside-
JUDGE HODGE:  Yes.
MR SMITH:  -a statutory demand, the court has to make an order in those terms.  I mean My Lord, all we were going to say is, you know, it may not matter how it’s formulated but just as to the substance of what Your Lordship is proposing, we would invite Your Lordship to make it conditional.  We would invite first of all Your Lordship to bring the time frame forwards and to shorten that to some extent because there’s no reason why the other side can’t get on and do this within say 14 days.  So that would be the first condition we would ask Your Lordship to impose.  The second condition is, My Lord, in any event, Mr Kapoor ought to pay the £25,000 Your Lordship has ordered.  Now that is due under Your Lordship’s order-
JUDGE HODGE:  14 days from today.
MR SMITH:  -14 days from today and if I could invite Your Lordship to make it a condition of the stay that that is paid within say seven days.  It is not unusual in my submission for the court to make that type of condition attaching to a stay, and we would invite Your Lordship to do it here because there’s no reason in our submission why Mr Kapoor should be able to evade the consequences of the cost order at the same time as issuing an appeal against Your Lordship’s judgment.  So My Lord, that’s all-
JUDGE HODGE:  But by doing that, am I not effectively preferring National Westminster Bank to Her Majesty’s Revenue and Customs?
MR SMITH:  Well no My Lord because at the present stage, the bankruptcy petition hasn’t been presented, but that would be an issue once, if and to the extent a bankruptcy petition was presented, but presumably there-
JUDGE HODGE:  But the whole object of this is to present a bankruptcy petition.
MR SMITH:  I mean, for all-
JUDGE HODGE:  That is what you have been fighting for vigorously over the last three years.
MR SMITH:  Yes but My Lord, for all we know, Mr Kapoor is paying all sorts of people at the moment.  He’s obviously not in bankruptcy, he’s not the subject of a bankruptcy petition so he’s no doubt carrying on living his professional and business life and paying out all sorts of creditors, potentially with reference to ourselves and indeed in [inaudible] the Revenue and Customs.
JUDGE HODGE:  Well I do not know what the present position with Revenue and Customs is.  All I know is that back in 2009 they said they were in for £30,000.
MR SMITH:  Yes.  Well we assume they haven’t been paid given that they were purportedly bound in to the IVA but My Lord, those are the conditions that we’d invite Your Lordship to attach as a quid pro quo for the indulgence of a stay.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  My Lord, as to the form of order, my learned friend is right, that that is the common form of order which is made following the dismissal of the application to set aside a statutory demand.  What I was really seeking was an order which prevented the bank from presenting a bankruptcy petition.  If I were to succeed on appeal then presumably I would be back in my IVA without too much procedural difficulty but it is the petition which is irrevocable.
JUDGE HODGE:  Yes.  Well, it seems to me that the, whether or not it is strictly required by the rules, it seems to me that wording analogous to that adopted by Registrar Derrett is probably appropriate here: that the creditor, National Westminster Bank, be authorised to present a bankruptcy petition not before a date 28 days from today, which I think is the 17th February is it?
MR HARBOTTLE:  Today is the 20th January.  Yes.
JUDGE HODGE:  So the 17th February.  It does not seem to me to be appropriate that I should make that conditional upon the payment of the on account payment for costs within seven days.  The normal rule is that a judgment debtor against whom an order for costs has been made has 14 days, but, in any event, it seems to me that it would be wrong, against the context of a contemplated bankruptcy petition, to be doing anything which might have the effect of preferring one creditor over another; and therefore I will not impose the condition that Mr Smith invites me to impose.  I mean, the interim payment on account of costs will be payable within 14 days.
MR HARBOTTLE:  Yes, but it’s not a condition-
JUDGE HODGE:  But it is not going to be a condition.
MR HARBOTTLE: My Lord, may I just check whether I need to ask for anything else?
JUDGE HODGE:  It does seem to me that as the rules allow 21 days for an appellant’s notice, and the Court of Appeal will have to consider the application, which will be included within it, effectively for a further extension of the prohibition against presenting a bankruptcy petition-
MR HARBOTTLE:  My Lord-
JUDGE HODGE:  -then I should not abridge the time in the manner suggested by Mr Smith.
MR HARBOTTLE:  We will obviously be doing this as quickly as we can.
JUDGE HODGE:  Yes.
MR HARBOTTLE:  It is in our interests to do that.  My Lord, I’m very grateful, I have no further applications.
JUDGE HODGE:  Mr Smith, do you have any further applications?
MR SMITH:  I don’t, My Lord.
JUDGE HODGE:  Well, can I invite you, Mr Smith, to prepare a draft minute of order since it is you who is going to want it-
MR SMITH:  Yes.
JUDGE HODGE:  -and let Mr Harbottle have it; and then if you could agree it with him and then submit it for my approval.  I am here all of next week, and if it comes in by email it can just be forwarded to me.  Can I return, lest I forget, Mr Smith’s Butterworth’s Insolvency Handbook to him?  There are two bundles of authorities to go back.
MR SMITH:  One each.
JUDGE HODGE:  There are the five DLA Piper bundles to go back; and this I think here is the total court file, including those two files there.  If there is nothing else, I will wish you a good afternoon.  I am afraid it took rather longer than I had anticipated yesterday.
Court rises.