ENF 10.7 Statutory background: the FSA's powers to challenge voluntary arrangements

Under section 357(3) of the Act (FSA's powers to participate in proceedings [individual voluntary arrangements], the FSA is entitled to attend a creditors' meeting, called to approve proposals for an individual voluntary arrangement. The FSA has no power under the Act to attend the meeting of creditors at which proposals for a company's voluntary arrangement are approved, other than in the case of certain small companies for whom a moratorium is in place under Schedule A1 to the 1986 Act (see ENF 10.7.5 G).

However, in relation to a company which is or has been an authorised person or appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition, where a member applies to the court to challenge a decision taken at the creditors' meeting, the FSA has the right to be heard by the court on that application.

1. (1)

   Under section 356 of the Act (FSA's powers to participate in proceedings [company voluntary arrangements], if a voluntary arrangement has been approved in respect of a company which is an authorised person, the FSA may make an application to the court where it considers that:

   1. (a)

      the voluntary arrangement approved at the relevant meetings of creditors unfairly prejudices the interests of a creditor, member or contributor of the company; or

   2. (b)

      there has been some material irregularity at or in relation to the meetings; or

   3. (c)

      both (a) and (b) apply.

2. (2)

   In addition, the FSA may make an application to the court if it or any of the company's creditors or any other creditor is dissatisfied by any act, omission or decision of the supervisor of the voluntary arrangement.

3. (3)

   If a person other than the FSA makes such an application to the court, the FSA is entitled to be heard at any hearing relating to the application.

4. (4)

   Section 357 contains the same provision in relation to a voluntary arrangement approved in respect of an individual who is an authorised person.

5. (5)

   In addition, the FSA is empowered to apply to the court if it or the debtor or any creditor or any other person is dissatisfied with any act, omission or decision made by the supervisor of the individual's voluntary arrangement.

Under section 358 of the Act (FSA's powers to participate in proceedings [trust deeds for creditors in Scotland]), if, in Scotland, a trustdeed has been granted by or on behalf of a debtor who is an authorised person, the FSA has the rights of a qualifying creditor under paragraph 7 of Schedule 5 to the 1985 Act. Consequently, the FSA may, subject to the time limits applying to that paragraph, petition for sequestration of the debtor's estate on the grounds of unduly prejudicial distribution of the estate.

1. (1)

   Under paragraph 44 of Schedule A1 to the 1986 Act, the FSA is empowered to apply to the court to challenge certain actions by a nominee or by directors of a company for whom a moratorium has been obtained and any voluntary arrangement subsequent to that moratorium under Schedule A1 of the 1986 Act.

2. (2)

   Schedule A1 to the 1986 Act applies to certain small companies. It does not apply to insurance companies, authorised institutions or former authorised institutions within the meaning of the Banking Act 1987 [now repealed] parties to a marketcontract, a money marketcontract or a related contract, companies whose property is subject to a market charge, money market charge or a system charge, or where the company is a participant within the meaning of the Settlement Finality Regulations or any of its properties is subject to a collateral security charge within the meaning of these Regulations.

The FSA's powers under Schedule A1 to the 1986 Act may be exercised by it in relation to a company which is or has been an authorised person or appointed representative or is carrying on or has carried on a regulated activity in contravention of the general prohibition.