IVA is a special form of contract
Liquidators asked the court whether sums sought by the insolvent company’s landlords were payable and or provable. Under an IVA, the copany had been paying reduced rents, but the arrangement document provided that the full rents would be restored on its cessation. The liquidators challenged the clause as a penalty.
Held: The additional sums falling due to Prudential upon the termination of the CVA were payable as an administration expense or administration expenses for the period during which the (original) administrators were in possession of the premises for the purposes of the administration. Although the arrangement was a contract, not all laws applicable to contracs applied to it. The law of penaties applied to protect a party suffering after some oppressive contract creation circumstance. An IVA was a creature of statute, and its terms set by the company’s representatives, and no element of negotiation arose and therefore there was no opportunity to argue repression of for a penalty.
Christopher Pymont QC
[2018] EWHC 402 (Ch), [2018] WLR(D) 143
Bailii, WLRD
Insolvency Act 1986 112
England and Wales
Citing:
Cited – Johnson and Another v Davis and Another CA 18-Mar-1998
The court was asked: ‘whether or not the appellants were released from their obligation under a covenant to indemnify the respondents against claims arising under a lease by reason of the terms of an individual voluntary arrangement made under part . .
Cited – Commissioners of Inland Revenue v Adam and Partners Ltd ChD 2000
. .
Cited – Lloyds Bank Plc v Ellicott CA 8-Feb-2002
A voluntary arrangement has contractual effect. . .
Cited – Cooden Engineering Co Ltd v Stanford CA 1953
A payment to be made on a wrongful termination of a lease by a tenant, will attract consideration of the law of penalties, for notwithstanding the requirement for acceptance of it, the amount to be paid is, ‘plainly a sum to be paid in consequence . .
Mentioned – Campbell Discount Company Ltd v Bridge HL 1962
The parties disputed the validity of a clause in a car hire contract relating to the consequences of a breach.
Held: (Majority) The agreement had been terminated by breach rather than by the exercise of an option, so that the stipulated . .
Cited – Tanner v Everitt ChD 2004
Mann J discussed the status of an IVA in contract law: ‘The arrangement is therefore contractually based, with the statute providing the consent or deemed consent of the otherwise dissenting parties’ . .
Cited – Chartbrook Ltd v Persimmon Homes Ltd and Others HL 1-Jul-2009
Mutual Knowledge admissible to construe contract
The parties had entered into a development contract in respect of a site in Wandsworth, under which balancing compensation was to be paid. They disagreed as to its calculation. Persimmon sought rectification to reflect the negotiations.
Held: . .
Cited – Thompson v Hudson HL 1869
An agreement is not penalty if it simply reserves to a creditor the right to have his debt paid in full in the event that his debtor does not pay on a due date a smaller sum that he has agreed to accept in satisfaction
Lord Hatherley said: ‘I . .
Cited – Everitt v Budhram and Another ChD 20-May-2009
The trustee in bankruptcy appealed against rejection of his claim for the sale of the home in which the bankrupts each held a one half share. The bankruptcies arose from non payment of council tax. The principle sums had been repaid, and the . .
Cited – Cavendish Square Holding Bv v Talal El Makdessi; ParkingEye Ltd v Beavis SC 4-Nov-2015
The court reconsidered the law relating to penalty clauses in contracts. The first appeal, Cavendish Square Holding BV v Talal El Makdessi, raised the issue in relation to two clauses in a substantial commercial contract. The second appeal, . .
Cited – Philips (Hong Kong) Ltd v The Attorney General of Hong Kong PC 9-Feb-1993
After referring to two Australian cases on penalty clauses in contracts: ‘These statements assist by making it clear that the court should not adopt an approach to provisions as to liquidated damages which could, as indicated earlier, defeat their . .
Cited – Sea Voyager Maritime Inc and Others v Bielecki trading as Hughes Hooker and Co ChD 23-Oct-1998
The creditor alleged a right to recover against the estate citing an unfair prejudice from the IVA.
Held: He had been unfairly prejudiced. The IVA precluded him, like all the other unsecured creditors, from suing the debtor for the full amount . .
Cited – Welsby v Brelec Installations Limited ChD 2001
The CVA provided for the payment by the company of contributions to the supervisors for distribution to creditors. The company went on into a creditors’ voluntary liquidation.
Held: The sums held by the supervisors in trust for the CVA . .
Cited – In re Lundy Granite Co; Ex parte Heavan CA 1871
The landlord of Lundy Island, which was let to a third party, distrained upon goods of the company which had been left upon the tenant’s property. The distraint was for rent which had fallen due more than a year after the winding up order. The . .
Cited – In re Smith and Hartogs 1895
A landlord agreed to a reduction of the rent payable for the time being, with the balance in effect being added to the rent payable later in the term. The tenant failed to pay the reduced rent.
Held: The landlord was entitled to distrain for . .
Cited – In re ABC Coupler and Engineering Co Ltd (No 3) ChD 1970
The liquidator when appointed closed down the business which had been conducted on the premises, had the company’s plant and machinery valued and thought about what he should do.
Held: The rent did not become a liquidation expense until some . .
Cited – In re Downer Enterprises Ltd ChD 1974
The company was the assignee of a lease. The rent appears to have been payable in advance on the usual quarter days. The company went into liquidation in November 1971. At some time before April 1972 the liquidator instructed agents to market the . .
Cited – Belmont Park Investments Pty Ltd v BNY Corporate Trustee Services Ltd and Another SC 27-Jul-2011
Complex financial instruments insured the indebtedness of Lehman Brothers. On that company’s insolvency a claim was made. It was said that provisions in the documents offended the rule against the anti-deprivation rule. The courts below had upheld . .
Cited – Pillar Denton Ltd and Others v Jervis and Others CA 24-Feb-2014
The corporate tenant became insolvent, but the administrators continued in occupation. The parties now disputed whether the rent (payable in advance) was a provable debt or an administration expense.The court was asked whether a company in . .
Cited – Oakrock Ltd v Travelodge Hotels Ltd and Others TCC 16-Jan-2015
Application by the first defendant for summary judgment against the claimant for the whole of the claim on the ground that the claim has no real prospect of success and that there is no other compelling reason why the case should be disposed of at . .
Cited – Narandas-Girdhar and Another v Bradstock CA 16-Feb-2016
Appeal from rejection of claim to have set aside Individual Voluntary Arrangement . .
Cited – In re Silkstone and Dodworth Coal and Iron Co ChD 1881
A mining lease provided that the rent was payable half-yearly in arrears. Rent became payable after presentation of the winding-up petition and a winding-up order was made after the rent became payable. The lease was subject to a proviso for . .
Cited – Shackell v Chorlton 1895
. .
Cited – Re HH Realisations Ltd ChD 1975
The liquidator of a company ceased to be liable to pay the rent under the company’s lease in full from the time it gave notice to the landlord that it was seeking authority to disclaim the lease, even though it remained in occupation for nearly two . .
Cited – Peekay Intermark Ltd v Australia and New Zealand Banking Group Ltd CA 6-Apr-2006
Moore-Bick LJ discussed whether the court should give effect to a non-reliance clause in a contract saying: ‘It is common to include in certain kinds of contracts an express acknowledgement by each of the parties that they have not been induced to . .
Cited – Trident Turboprop (Dublin) Ltd v First Flight Couriers Ltd Comc 17-Jul-2008
Trident entered into Aircraft Operating Lease Agreements in identical terms with First Flight in respect of two ATP model aircraft. The leases represented the culmination of negotiations between a representative of the manufacturer, BAE Systems . .
Lists of cited by and citing cases may be incomplete.
Landlord and Tenant, Insolvency
Updated: 10 November 2021; Ref: scu.605847