Overview Of Duties Of Nominee In A Voluntary Arrangement
For the avoidance of doubt, an IVA applies to individuals and a CVA applies to companies.
In both, an IVA or a CVA creditors will be presented with a Proposal to compromise their claims against the individual or company. If the Proposal is approved it will then be an ‘Arrangement’ in the form of an IVA or CVA.
The fundamental duty of the Nominee is to safeguard transparency and fairness for creditors. Where there is a risk that this might not happen the Nominee MUST report this position to the creditors.
Individual Voluntary Arrangement
It is the Nominee’s duty in an IVA to ensure that a Proposal complies with the requirements of Rule 8.3 of the Insolvency (England and Wales) Rules 2016.
Company Voluntary Arrangement
It is the Nominee’s duty in a CVA to ensure that a Proposal complies with the requirements of Rule 2.3 of the Insolvency (England and Wales) Rules 2016.
Duty to Creditors Of A Nominee
The Nominee has a duty to ensure that the creditors have the necessary information before them in order to form a view and vote on the Proposal.
Although the Proposal will be the individual’s or company’s, in most cases it will be put together and drafted by the Insolvency Practitioner who it proposes will be the one to supervise the IVA or CVA ie. the Supervisor.
Therefore whilst the Nominee should be able to rely upon the information provided to him or her from the individual or company that is responsible for the IVA or CVA, the Nominee cannot conduct the drafting of the Proposal in an unquestioning manner.
Enquiring Mind Duty
This was highlighted by the Chief Insolvency and Companies Court Judge Briggs in the case of Elser v Sands & Ors  EWHC 32 (Ch) which was a case about a material irregularity at a creditors meeting to vote on an IVA Proposal. This case has been summarised in the article in this blog called Material Irregularity At Creditors Meeting.
Information That Should Be In A Proposal To Creditors
A Nominee has a duty to ensure that there is certain information in a Proposal to creditors:
- background and financial information on the individual or company
- why the insolvent position has arisen
- other attempts to resolve the financial difficulty
- a comparison between the outcome of an IVA / CVA being approved or not being approved
- explain the role and power of the Supervisor
- where relevant profit and cash projections
- details of any referrer fees and in any event their identity
- details of the costs of the IVA / CVA and of the Nominee and Supervisor fee
Nominee Reporting Duties
When reporting to creditors the Nominee must ensure that:
- the individual or company has received advice on the IVA / CVA
- highlights any material inconsistencies between the information in the Proposal and the true position
- detail any material unfairness in the Proposal
- confirm that the Proposal has a realistic prospect of being approved and put in place
- modifications to the Proposal must be undertaken by consent from the proposer and conceivably creditors also
Regulatory Duties Of A Nominee In A Voluntary Arrangement
The regulatory duties of a Nominee in a Voluntary Arrangement are set out as follows:
- In an IVA there is Statement of Insolvency Practice Number 3.1
- In a CVA there is Statement of Insolvency Practice Number 3.2
In both cases, these Statements of Insolvency Practice will add more flesh to the bones of this article.