Creditor’s collateral advantage breached good faith principle (Gertner v CFL Finance Ltd and another)

Creditor’s collateral advantage breached good faith principle (Gertner v CFL Finance Ltd and another)

Stephen Atherton QC, of 20 Essex Street, examines a Court of Appeal decision that a settlement agreement between the appellant debtor and a bank had given the bank a collateral advantage not available to other creditors—such as the first respondent—which had placed it in a position of conflict with their interests. This had breached the good faith principle and should have prevented it from voting on an individual voluntary arrangement (IVA) proposal to the potential detriment of the first respondent and the remaining creditors.

Gertner v CFL Finance Ltd and another [2018] EWCA Civ 1781, [2018] All ER (D) 169 (Jul)

What are the practical implications of the judgment?

The decision is important as it cements in place the judge-made good faith principle (as between debtor and creditor and as between the creditors themselves) as part of the codified insolvency regime under the Insolvency Act 1986 (IA 1986), the Insolvency Rules 1986 (IR 1986), SI 1986/1925, and the Insolvency (England and Wales) Rules 2016 (IR 2016), SI 2016/1024.

The Court of Appeal also made clear that the good faith principle is of general application, and is not limited to the specific factual circumstances exemplified in the recent cases in which it has received recognition, nor is it inapplicable or to be disapplied in circumstances where the collateral benefit or advantage received by a creditor derives from a third party and not the debtor.

The decision may also have implications as regards the meaning of ‘material’ when determining if there has indeed been a ‘material irregularity’ at or in relation to a meeting of creditors. The Court of Appeal did not consider that the meaning of ‘material’ was as restricted as was argued for by the appellant, and rejected the suggestion that in this context it meant that any irregularity was only relevant if it had a defining effect on the outcome of

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About the author:

Neeta has been working as a paralegal in Banking and Insolvency for the past 4 and a half years.

She started her legal career at Allen & Overy in 2008 in the midst of the global financial crisis and the collapse of Lehmans where she gained most of her experience.

Neeta also did a short stint in litigation at the Revenue and Customs Prosecutions Office. Neeta graduated with a 2:1 honours degree from University of London, Queen Mary College and went on to obtain a distinction from the College of Law in the Legal Practice Course. She moved to Lexis®PSL in April 2013.