Overview Of Bare Assertion Not Good Enough

Bare assertion not good enough was a highlight of the case Karapetian v Duffy [2022] EWHC1053 (Ch).

It referred to two key points when a creditor wishes to prove in an insolvent estate to ensure that their claim remains alive and kicking:

get your proof of debt in before the creditors meeting if you want to vote
creditors cannot rely upon bare assertion and must supply supporting documents when called upon

At a Meeting of Creditors (“the Meeting”), Mr Heorhii Rossi’s (“the debtor”) Individual Voluntary Arrangement (“IVA”) proposal was firmly fixed in the starting blocks for nine months, unlike for example 6,384 IVAs that marched on with alacrity having been approved in the three months ended February 2022. As it happens Mr Rossi’s IVA proposal was never successfully launched as it was rejected by creditors and the Judge was not persuaded to overturn the Meeting’s decision.

As a general observation, the debtor’s case appears to highlight the pedestrian pace of dispute resolution of such matters through HM Courts & Tribunals Service. The Meeting was held on 19 July 2021 and the matter was not heard until 25 February 2022. It was not until 6 May 2022 that the Judgment was handed down. So for something like nine months the matter of the IVA was in effect up the air for both the debtor and his creditors.

Material Irregularity At The Meeting

One of the creditors, Arsen Karapetian (“AK”) claimed that he was owed £1,687,000 but the Nominee of the IVA, Mr Duffy admitted it for $500,000 at the Meeting.

AK submitted an application to the Court for consideration of the voting of the IVA proposal at the Meeting due to an alleged material irregularity at the creditors’ meeting.

The Court resolves such disputes through a new pair of objective lenses. So with fresh eyes, the Court absorbs and scrutinises all the evidence, all the submissions of the parties, including any new information that might not have been available for consideration by the Chairman of the Meeting, and then if it so chooses can formulate a whole new vista on what ought to be the result:

In summary then, the chair of a meeting must consider the claims presented to him or her. If the chair is satisfied that the claim is good at the time, it is admitted. If the chair is satisfied that the claim is bad, it is rejected. If there is doubt, it is admitted and marked that it is objected to and the creditor will be allowed to vote. Where the claim admitted is for an unascertained or unliquidated amount it will be valued at £1 unless the chair can safely place a higher minimum value on it. He or she does not need to investigate the claim but must consider the evidence provided to determine whether it is established. It is clear from the wording of the rules that it is for the creditor to make a claim and substantiate it to the chair’s satisfaction. On an appeal by a dissatisfied creditor the court will consider whether, on the balance of probabilities, the debt is established and is not limited to reviewing the decision of chair. The legal burden of proving the existence of the debt is on the creditor.

The problem for AK is that he was unable to persuade the Court that he had provided valuable consideration that would enable him to call upon the Personal Guarantee from the debtor:

I accept for the purposes of this judgment that an agreement to continue to provide guarantees to suppliers under which Mr Karapetian incurred personal liability himself could amount to good consideration for a promise to meet the obligations of TGR. There is, however, simply no evidence of Mr Karapetian having given such assurances or guarantees, beyond bare assertion. Indeed, not a single example is given or evidenced. Strikingly, Mr Rossi does not say that he entered into the Personal Guarantee in return for this continuing support, whether in the form of persuasion, assurances or upstream guarantees. He does not mention it at all. Given the shifts in Mr Karapetian’s case on why the debt should be regarded as due to him personally and the unparticularised “persuasion”, “assurances” or “guarantees” offered I would have expected him to offer illustrations and evidence of these. This is all the more so given that he was an investor in the projects underlying the contracts between TGR and AutoSale. If he is seeking to rely on something less than undertaking personal liability the court has to know what it was, whether it was done before or after the Personal Guarantee and whether it appears that it was done because he was an investor or in consideration of the Personal Guarantee. The validity of the Personal Guarantee and the consideration given for it were all put in issue in Mr Foster’s witness statement in answer to the application but remained inadequately addressed. As it is, I am unable to accept Mr Karapetian’s latest account at face value without supporting evidence and his assertions are far too vague to determine whether the actions he asserts could amount to good consideration in context.

Creditor Needs To Submit Their Proof Of Debt

It is imperative that a creditor gets their Proof of Debt submitted in good time for a creditors’ meeting otherwise their ability to vote and exercise their rights will usually be restricted.

This position was highlighted by the Judge as follows:

Nor do I consider that the alleged refusal to look at messages on Mr Rossi’s mobile phone or to have those forwarded to him could amount to a material irregularity. It is understandable that the nominee should not place reliance upon the documents not supplied directly to him by the creditor. The creditor must make out his claim by returning the proof and supporting documentation. For the same reason I do not consider that there is anything in the point that Mr Duffy should have queried why the documents sent to him by Mr Karapetian showed a sum less than that set out in the proposal itself. While a proposal will set out what is believed by the debtor to be due to his creditors, it remains the obligation of the creditor to prove for his or her debt. If they do not do so, it is not for the chair to second guess that decision. Here the chair went the extra mile to ask Mr Karapetian to give full details of his claim. He did not receive an answer for over four hours, by which time the meeting was long over.

Oliver Elliot Observation: Bare Assertion Not Good Enough

Submission of a proof of debt on time is not a particularly onerous task. There is usually plenty of time to fill the form in and email it over to the relevant Insolvency Practitioner dealing with the case.

Creditors will struggle to complain after the event if they do not comply with this requirement to enable them to participate, vote and receive money from an insolvent estate.

Are you a creditor looking to recover your money?

If you are a creditor of an insolvent company or a bankruptcy, Oliver Elliot can help you. We Know Insolvency Inside Out.

Contents

Share This Page!

What Next?

Expert Advice Is Just A Click Away

If you have any questions in relation to Bare Assertion Not Good Enough then contact us as soon as possible for advice. Oliver Elliot offers a fresh approach to insolvency and the liquidation of a company by offering specialist advice and services across a wide range of insolvency procedures.

Our expertise is at your fingertips.

Disclaimer: Bare Assertion Not Good Enough

This page Bare Assertion Not Good Enough is not legal advice and should not be relied upon as such. This article Bare Assertion Not Good Enough is provided for information purposes only. You can contact us on the specific facts of your case to obtain relevant advice via a Free Initial Consultation.