High Court Ruling Emphasizes Criteria for Bankruptcy Over IVA Proposal

Citation: [2024] EWHC 444 (Ch)
Judgment on


In “EFG Private Bank Limited v Kambiz Babaee,” the High Court of Justice dealt extensively with the criteria for adjudging a debtor bankrupt in light of an Individual Voluntary Arrangement (IVA) proposal. The judgement, handed down by ICC Judge Barber, offers salient commentary on the factors influencing the decision to bypass a last-minute IVA in favor of immediate bankruptcy proceedings.

Key Facts

Kambiz Babaee (the Debtor) faced a bankruptcy petition from EFG Private Bank Limited (the Petitioner) concerning debts arising from two interest-only loans totalling £5,950,000, which were secured on properties owned by the Debtor. Despite several attempts at refinancing or sale, the Debtor had been unsuccessful, and a statutory demand remained unpaid. A proposed IVA surfaced late in the proceedings, which the Petitioner contested as neither serious nor viable. Supporting creditors, opposed by the Debtor, rallied for the bankruptcy order.

The case hinged on several key legal principles:

  1. Statutory Demand and Bankruptcy Threshold: The judgment affirmed that a statutory demand sets the stage for subsequent bankruptcy proceedings should the indebted party fail to settle the outstanding amounts or reach an arrangement to address them.

  2. Seriousness and Viability of IVA Proposals: This case scrutinized the “seriousness and viability” test established in prior case law, including “Hook v Jewson” and “Davidson v Stanley.” In assessing the merits of an IVA proposal, the court emphasized the debtor’s contractual obligations, historical indebtedness, and the practicality of proposed future income sources.

  3. Role of a Nominee in IVA Proposals: The report of the IVA nominee, while considered, is not decisive. The court maintained its discretion to determine the appropriateness of an interim order despite the nominee’s recommendations.

  4. Stay of Bankruptcy Proceedings Under Section 254 of the Insolvency Act 1986: The judgment expounded upon the discretionary nature of a stay under s254, which hinges on the substance and timing of an interim order application, and the broader impact on creditors and court resources.

  5. Creditor Hierarchy and Preferential Claims: The decision considered the position of matrimonial judgments within the proposed IVA, highlighting that such debts ordinarily survive bankruptcy but may not remain payable in an IVA, potentially leading to unfair treatment of creditors.

  6. Influences on Creditors’ Decisions: The court underscored that it is not its function to resolve questions pertaining to the adequacy of disclosure by the debtor, as this falls within the purview of the creditors’ meeting.


The court found the IVA proposal neither serious nor viable, citing unsubstantiated income projections, speculative sources for debt repayment, misrepresentation of ongoing legal claims, and unsatisfactory treatment of matrimonial debts. The last-minute nature of the proposal and its introduction mere days before the hearing further eroded its standing. As a result, the court adjudged the Debtor bankrupt, facilitating an immediate investigation of the Debtor’s affairs by an officer of the court.


”EFG Private Bank Limited v Kambiz Babaee” serves as a pivotal benchmark for bankruptcy adjudications in the presence of IVA proposals. The ruling reiterates that courts will act as a filter to prevent debtors from unjustly avoiding bankruptcy under the guise of unconvincing IVA proposals, thereby safeguarding the interests of creditors and preserving the integrity of the insolvency process. The complexity of this case underscores the importance for debtors to provide credible, well-substantiated plans when proposing an IVA, and for legal professionals to carefully evaluate the legitimacy and practicality of such arrangements.

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