Secured creditor’s ability to enforce security - Individual Voluntary Arrangements

In a case that will interest creditors with security over the assets of individuals, a provision of an Individual Voluntary Arrangement ("IVA"), seeking to prevent creditors from commencing or continuing proceedings against the debtor, has been held to be ineffective to prevent a secured creditor from enforcing its security.

In this case, the court was keen to emphasis the crucial distinction in the law of insolvency between:

1. proving and enforcing a personal liability; and
2. retaining and enforcing security for that personal liability.

The court decided that whilst the wording of the clause in the IVA (as set out below) would operate to prevent the bringing of any proceedings, execution or process to enforce the personal liability of the debtor to make payment of a sum due to a creditor, it would not preclude a secured creditor from enforcing its security. It was irrelevant for these purposes whether or not such enforcement by the secured creditor required the involvement