KF Concept: Kevin Foster

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Bankruptcy proceedings

At the last hearing in the bankruptcy proceedings on 17 February 2005, Registrar Simmonds directed that Mr Foster be allowed until 4.30pm on 24 March 2005 to file further evidence in the bankruptcy proceedings. If he did not do so by then, he would be debarred from filing any further evidence in the proceedings and his evidence in opposition to the petition would be limited to the evidence filed by that time and date. (Mr Foster did not file any further evidence.)

Registrar Simmonds ordered that the FSA be allowed until 4.30pm on 28 April 2005 to file any evidence in reply to Mr Foster's evidence in opposition.

On behalf of the Concept Members Action Group (CMAG), Stephen Gilchrist requested that the FSA agree to extend the time to 31 March 2005 for the notice (Form 6.20) showing the creditors' intention to support or oppose the bankruptcy petition . The FSA agreed and, at the hearing on 17 February 2005, Registrar Simmonds approved it. On 31 March 2005 Stephen Gilchrist requested a further extension of that time to 4 April 2005 – we also agreed to this.

Individual Voluntary Arrangement (IVA)

We have continued discussing with the Insolvency Practitioner and his legal advisers whether an IVA would be a suitable procedure for Mr Foster in the circumstances. We brought the bankruptcy proceedings in pursuit of our statutory objectives, principally to protect the interests of consumers. Before accepting any proposal that involves withdrawing those proceedings, we would have to be satisfied that any alternative arrangement proposed afforded at least equal protection to consumers.

We are aware that some of Mr Foster's creditors have been asked whether they would support an IVA and that statements have been circulated to them misrepresenting the FSA's position. We are concerned that in deciding whether to support or oppose the bankruptcy petition, or an IVA, the creditors should have the fullest and most reliable information possible. So we have asked Mr Foster to allow us to disclose to the creditors all the evidence filed in all the proceedings we have brought against him. We understand that Mr Foster is willing to consent to such disclosure of that evidence with the IVA proposal when it is circulated.

We have requested his consent that creditors be given access to that evidence immediately.

The Insolvency Practitioner Mr Foster engaged to help him prepare an IVA proposal has requested that we consent to the release of monies from the bank accounts frozen by Court order. This is so he can meet the cost of applying to the Court for a variation of that Court order – to release further funds to meet the costs of investigating the feasibility of an IVA. We have expressed our concerns to the Insolvency Practitioner about the appropriateness of an IVA for Mr Foster in the circumstances. For instance, we are concerned that the assets might be dissipated by professional fees and that the evidence has not been fully disclosed to creditors. On current information, we are not prepared to consent to the Insolvency Practitioner's request for funds to meet those costs at this stage and we have asked him for more detailed information and clarification.

Questions and answers

I’m a creditor. If Mr Foster proposes an IVA do I need to take legal advice?

The FSA recommends that in the event that Mr Foster proposes an IVA, 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.

If the proposals in the IVA are restricted to some creditors of Mr Foster, what effect would this have on those who have not been included?

An IVA that has been approved by Mr Foster's creditors will bind all his creditors, provided that they would have been entitled to vote on his proposal at the creditors' meeting summoned for that purpose if they had attended it.

An IVA must be approved by a majority in excess of three-quarters in value of the creditors present (in person or by proxy) at a creditors' meeting called for the purposes of approving it and voting on the resolution.

If a creditor who did not receive notice of the creditors' meeting wishes to challenge the IVA that was approved at that meeting, they can only do so on the grounds either that:

there has been a material irregularity in respect of that creditors' meeting; or
the proposal unfairly prejudices their interests as a creditor.

What effect would an IVA have on the FSA's bankruptcy petition?

If Mr Foster does decide to propose an IVA, he may apply for an interim order from the Court. This will also stay (or prevent) any further steps being taken in the FSA's bankruptcy proceedings for 14 days while the Nominee (Insolvency Practitioner), who is the proposed

Supervisor of the IVA, reports to the court on whether the proposal has a reasonable prospect of being approved and implemented, and whether a creditors' meeting should be called for that purpose. The Nominee must also provide the court with other prescribed information obtained from the Debtor (Mr Foster). The Nominee can apply to the Court for the period of the interim order to be extended, or the FSA may apply to the Court for the stay on the bankruptcy proceedings to be lifted.

What effect would an IVA have on the FSA's claim in the proceedings for Mr Foster’s alleged breach of the Financial Services and Markets Act 2000?

On the evidence currently available to us, we believe that Mr Foster was operating an unauthorised collective investment scheme, and the IVA proposal would not alter that view. We intend obtaining a final judgment from the Court on this issue.

If Mr Foster obtained an interim order, it would prevent us and any other person taking any further steps in court proceedings against him until the interim order:

expired;
was terminated because the IVA had been approved or rejected by the creditors; or
was lifted by order of the court.

Once the interim order ceased to be effective, then either party may take further steps in the High Court proceedings.

How will the creditors’ interests be protected in the IVA procedure?

The Nominee in the IVA procedure receives the proposal from the Debtor and reports to the Court on whether it has a reasonable chance of being approved and implemented. The Nominee is under a duty to the Court and to the creditors to ensure their interests are protected and to provide an independent, objective review and assessment of the IVA proposal. This should also include taking steps to satisfy himself on the accuracy and completeness of the information the Debtor provided to him.

How will the Insolvency Practitioner’s fees for preparing the proposal be paid?

The Insolvency Practitioner has requested that funds be released from the accounts frozen by order of the Court to meet his fees in investigating the feasibility of an IVA. We have not agreed to this request and it is open to Mr Foster to apply to the Court to order the release of funds for this purpose.

If Mr Foster makes an IVA proposal, it may contain terms that provide for the Nominee (and Supervisor if appointed) to receive payment for his fees from the assets subject to the IVA in priority to the claims of the creditors. IVA proposals usually contain these terms. The proposal may specify the amount of those fees and the fees are required to be approved by any creditors' committee that has been appointed.

What happens to any assets that may have become available to Mr Foster since the FSA obtained its freezing injunction, e.g. positions in Planline or gambling wins?

If Mr Foster receives any monies, the Court orders we have obtained do not prevent him from paying those sums into the frozen accounts. The restriction contained in the Court order prevents Mr Foster, or those acting on his instructions, from disposing of his assets or otherwise dissipating them.

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