RBS secures victory in landmark case against IVA provider

The case focused on fees and the approach to IVAs taken by CreditFix, as well as the conduct of its insolvency practitioners including one in particular, Michael Sloper.

The case, which could set a precedent for how thousands of IVAs are set out in future, hinged on how a creditor can exercise rights over those fees and request modifications to IVA proposals.

In Royal Bank of Scotland plc v Munikwa and others, the bank had objected to the approach of IPs including Sloper working for CreditFix, specifically the fee structure they put forward in IVAs.

In one of many IVAs where RBS had 75 percent voting rights, the lender sought modifications to the fixed fees in a proposal, but Sloper tried to use a technicality to disregard them.

But ultimately, RBS succeeded in obtaining the judge’s declaration that a specific paragraph of CreditFix’s standard IVA proposals, did not give the IP (Sloper in this instance) the right to disregard any modifications RBS had requested.

But the judge, ICC Judge Prentis, went further than just finding in RBS’s favour.

He ruled that there had been "material irregularity” in CreditFix’s approach to IVA proposals, later adding that this had been brought about by “Creditfix’s promotion of its own interests.”

In fact, the irregularities were serious enough for Judge Prentis to state: “I also intend to direct that a copy of this judgment be provided to Mr Sloper’s regulatory body (The Insolvency Practitioners Association).

“The evidence is that he has caused or permitted these cases, and many others, to be conducted otherwise than in accordance with the Act and Rules; and has done so to promote his own interests and/or the interests of his employer, Creditfix. These are significant and multiple failings which ought to be the subject of further detailed consideration.”

The background
The judge described how CreditFix’s fixed-fee approach to IVAs had “been lucrative” for the firm, adding that the margins on each case are small, with “profitability depending on high levels of throughput and considerable automation.”

But case against CreditFix revealed that RBS’s complaints were replicated in 1,098 IVAs processed between April and mid-August 2019; and in each case the supervisor, if not the chair deciding the outcome of creditor voting on the IVA, was Sloper.

In one example of an IVA supervised by Sloper, which the judge highlighted, RBS had said it would approve the proposal, but this was conditional upon the debtor accepting RBS’s modifications to it.

At a meeting which determined the outcome of this IVA, the judge highlighted that the report from the chair was “quite startling.”

An issue that becomes apparent from the ruling is a lack of clarity over which of RBS’s changes the debtor had, or had not, agreed to, if any, and how that information had been communicated to the debtor in the firstplace.

Nevertheless, Sloper had “used RBS’s proxy” to vote in favour of his initial proposal.

During this process, a letter was also issued to creditors which stated that RBS’s request for fee modifications “conflicted and were incompatible with the terms set out in the proposal… this has meant that some of those proposed fee modifications have been disregarded by the chair.”

The judge went on to say that the chair’s report and the letter were “indefensible in their terms.”

Judge Prentis added that Sloper’s claim about RBS’s modifications being “incompatible” was “no bar to the statutory scheme,” adding that this was the case in most IVAs.

The judge also pointed out that an IP is not permitted to vote for his or her own remuneration, apart from the specific direction by the proxy-holder.

Judge Prentis ruled that “Creditfix has, as in the chair’s report and its accompanying letter, been fixated on fighting its own battle on the debtor’s field.”

He also ruled that the IVAs which were discussed in the case have “now been compromised”. He explained that there should be a further meeting “at which the modified proposals are put, and that Mr Sloper and his employer, Creditfix, will reimburse the debtor for any fees drawn, save insofar as they have an entitlement to those fees under a subsequently-approved arrangement.”

Jason Wilkinson, head of debt sale and external relations at Evolve Servicing Ltd, a subsidiary of Eversheds Sutherland that specialises in personal insolvency, represented RBS in this case.

He said: "We are very pleased with the outcome and to have worked in partnership with RBS to get this across the line. We have been aware of issues in the personal insolvency world for some time, and this has emerged as a recent one. We were delighted to work with a creditor willing to take this case to court. We did approach CreditFix in the first instance to try to resolve this initially, but we felt we were ignored."