KF Concept: Kevin Foster
17 June 2005
This is the sixteenth public statement that we (the FSA) have made about KF Concept. It is an update on the position reached in the bankruptcy proceedings against Mr Kevin Foster (Mr Foster). It also provides further information about our response to the possibility of an Individual Voluntary Arrangement as an alternative to bankruptcy proceedings, as well as further questions and answers to help readers understand the current position.
Individual Voluntary Arrangement (IVA)
Mr Foster has continued to indicate to us that he wishes to pursue an IVA. We have set out our concerns about this to the proposed Supervisor of the IVA.
Following this correspondence, the proposed Supervisor and the proposed Supervisor's legal representatives asked for the release of funds to conduct a feasibility study and to address the FSA's concerns. On that basis, we consented in April 2005 to the release of funds to enable the feasibility study to be conducted.
The proposed Supervisor's legal representatives have indicated that, in their view, there will be insufficient time for them to send the proposals to us for our response and to circulate them before the bankruptcy hearing (due to start on 27 June). Accordingly, they have asked us to consent to a short adjournment of the bankruptcy proceedings – otherwise Mr Foster will be forced to apply to the Court for an interim order to stay (suspend) the bankruptcy proceedings pending an IVA proposal being put to all Creditors.
We do not consider that either of these courses is appropriate. We consider that this is a matter best decided by the High Court Judge at the start of the bankruptcy hearing later this month.
It remains the case that many of our concerns have not been addressed and our view is accordingly unaltered, namely that the appointment of a Trustee in bankruptcy is appropriate in all the circumstances.
Under the Insolvency Act 1986 a Trustee is given wide-ranging statutory powers to recover monies on behalf of Creditors that a Supervisor of an IVA will not have. This includes the ability to challenge contracts that have been entered into by the Debtor (in this case, Mr Foster). Additionally, a bankruptcy order will place various obligations upon the Debtor during the course of his bankruptcy to cooperate with the Trustee in bankruptcy.
A failure by the Debtor to comply with his post-bankruptcy obligations can in some cases amount to a criminal offence. However, an IVA cannot contain similar sanctions and a breach of the IVA by Mr Foster could only result in the Supervisor being obliged to certify a failure of the IVA and Mr Foster being made bankrupt. A failed IVA would result in further delay and cost (which would ultimately be borne by the Creditors).
We have brought these proceedings in the public interest and under our statutory objective to protect consumers. We do not consider that an IVA would provide the protection to Creditors available through bankruptcy proceedings and, accordingly, believe the matter should be decided by the Judge in the bankruptcy proceedings.
Any interested Creditor would then have the opportunity of hearing the case put forward by both the FSA and Mr Foster, together with any findings that the Judge may make.
Any Creditor who has filed a notice of intention to oppose the bankruptcy in line with the Court's previous orders could indicate whether they wish to maintain that objection on a fully informed basis.
Questions and answers
Q.1 Have the civil proceedings started by the FSA in 2004 been discontinued?
A.1 No. The interim orders granted by the High Court on 4 February 2004, as varied in February and March 2004, to restrain certain activities and to freeze certain assets remain in place. Furthermore, we have not obtained or received information which would suggest removing those orders was warranted.
Q.2 Has an Interim IVA order already been made by the Court?
A.2 Misleading reports that an Interim IVA order had been put in place appeared on a website on Friday 10 June. No such order had been made or applied for.
Mr Foster had, however, made an application to the Court to adjourn the bankruptcy hearing that is scheduled to begin on 27 June. This application was heard by Registrar Jaques at the High Court on Tuesday 14 June. Mr Foster did not appear at the hearing of this application, nor was he legally represented. The application was dismissed, with costs awarded to the FSA. We have not sought to enforce this – i.e. pursued costs – as this would be detrimental to Creditors' interests.
Q.3 Has the FSA received a copy of any draft proposal by Mr Foster for an IVA with his Creditors?
A.3 Yes. We have been provided with copies of Mr Foster's draft IVA proposal and the draft Nominee's Report. We are giving our comments on these documents to the Nominee (who would become the IVA Supervisor if the IVA was approved), who we are in regular contact with.
Q.4 Is Mr Foster restrained from communicating with members of the KF Concept?
A.4 No and it is evident that he communicates with members regularly. However, the High Court order obtained in February 2004 does restrain Mr Foster from making false, misleading or deceptive statements to induce a person to make an investment or deposit.
Q.5 I'm a Creditor and am unsure of the potential advantages and disadvantages to me of either a Bankruptcy order being made or an IVA being approved?
A.5 We continue to recommend that if that Mr Foster seeks an interim IVA or proposes an IVA at the bankruptcy hearing, anyone who is a Creditor of Mr Foster should seek their own independent legal advice on the proposal before deciding whether to support or oppose it. You could do this with other Creditors to reduce the cost of advice to each individual. It is important that you are aware of all of the risks involved in any court process.
Q.6 How would an IVA be approved and operate?
A.6 We are aware that some Creditors are unclear as to the process of how any IVA would be approved. Our fifteenth statement sets out the mechanism under which an IVA could be approved.
The proposed Supervisor of the IVA, Mr Nedim Ailyan of Begbies Traynor, has already received representations from some Creditors regarding the IVA proposal. It has been claimed that individuals representing a significant number of Mr Foster's Creditors have already been in contact with Mr Ailyan to indicate that they support the IVA. If you object to the IVA or have any queries regarding its operation you may wish to consider contacting Mr Ailyan for further information.
Q.7 If the IVA is approved, will the Supervisor be able to return any money I have invested?
A.7 The Supervisor will not be able to return all of your money. It is a requirement of an IVA that the Debtor admits that he/she is insolvent and can petition for his/her own bankruptcy. The Supervisor will also be bound by the terms of the IVA and must pay Creditors in line with its terms. Once an IVA is concluded the Debtor is then legally released from any legal obligation to make further payments to the Creditors.
Q.8 Where can I get further information on insolvency process and procedure?
A.8 The Insolvency Service is an executive agency of the Department of Trade and Industry. Its website www.insolvency.gov.uk provides information and guidance on insolvency procedures.
Q.9 Has Mr Foster given his approval for the FSA to disclose to members all the evidence filed in relation to the bankruptcy petition?
A.9 No, not yet. We understand he will do so at the same time as any IVA proposal is circulated to Creditors.