PPI compensation and the "voluntary" insolvency

The decision from the Court of Appeal in England on Wednesday (Green -v- Wright – click the link if you want a good bedtime read) comes hot on the heels (relatively, it has to be said, it was 13th July) of a similar decision from the Court of Session in Scotland (Dooneen Limited -v- Mond - again, click through if you want to sleep well tonight).

I say “voluntary”, of course, because both IVAs and Trust Deeds are exclusively at the instigation of the Debtor and this voluntary act has often affected (or, in some cases, “clouded”) the approach taken to issues which in a bankruptcy or sequestration would be relatively clear-cut.

Mr Wright had entered an IVA, had complied with all the requirements incumbent upon him and had received his discharge. Mr Davidson (the second pursuer in the Scottish case) had signed a trust deed, complied with all the duties incumbent upon him and his trustee had made a “final distribution” to the creditors. In each case, however, the Insolvency Practitioner then became aware of compensation that was due to the individual for the mis-selling of PPI.

In both cases it was accepted that the effect of both an IVA and a Trust Deed is to transfer to the office holder, as trustee for the creditors, the assets of the individual (subject to any specific exclusions) and certain assets acquired by the individual during the process, whether these assets are known about (or in existence) at the time. This emphasis is the crux of these two cases. The other key point is that the appointment and function of both the Supervisor of an IVA and the Trustee under a Trust Deed does not come to an end upon the discharge of the individual. That discharge brings to an end both the individuals liabilities for the debts that existed at the time of entering the process and also their obligations incurred as a result of entering the process. The office holder, however, continues in post to complete the process (adjudicate upon and pay creditors, etc.).

The Court of Appeal’s view was that the claim to compensation could have been made at the time of the IVA and so it was property that was included in the IVA. It also pointed out that the only provision relating to the termination of the trust so created was as a result of a failure of the IVA, not its successful completion. Following on from this, therefore, it seems obvious that it decided that the property remained in the trust and was for the Supervisor to realise and to distribute.

In the Court of Session, the arguments were very similar. It was agreed that the claim for compensation, whether known to the parties at the time of the entering into the Trust Deed or not, vested in the Trustee. The key question was the same: had the trust (unlike the one in Green -v- Wright) come to an end? In Scotland, it should be remembered that a Trustee appointed under a Trust Deed specifically requests their discharge as trustee once they have (I suppose that we should say: “so far as they are aware”) completed the administration of the estate under their control. The Court of Session has, separately, confirmed my view that once discharged, the re-appointment of a trustee is not the relatively simple matter that it is in a sequestration.

In Dooneen Limited -v- Mond, the Court of Session was satisfied that the terms of the trust deed were quite clear. Unlike in the Arrangement in Green -v- Wright, there was a specific provision that “the trust deed shall terminate on … the final distribution of my Estate” and the use by the Trustee of the phrase “final distribution” should be read in light of that provision. The pedantic might point out that bringing the trust to an end when a final distribution has been made leaves the (now former) trustee (if there is no trust, how can there be a trustee?) in a rather strange “no man’s land” – obligations to perform but no authority to do so. Leaving that to one side (the topic of an undergraduate dissertation, perhaps?) we should focus on the positives:

1.            PPI compensation vests in a Supervisor and a Trustee, whether or not it was known about at the time that the IVA or Trust Deed was entered into;

2.            the trust created by both processes continues until a defined point, to be provided for (or not) in the process documentation;

3.            the law in England and in Scotland is helpfully (and thankfully!) the same.

I hope that this brief analysis of the two decisions is helpful but if any questions arise as a result of this analysis, please do let me know.

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