Arrangement Procedures
S.I. No. 226/2016 –
Personal Insolvency Act 2012 (Renewal of Authorisation of Personal Insolvency Practitioners) Regulations 2016.
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Notice of the making of this Statutory Instrument was published in
“Iris Oifigiúil” of 10th May, 2016.
The Insolvency Service of Ireland, in exercise of the powers conferred on it under section 3 and section 161 (as amended by section 94 of the Courts and Civil Law (Miscellaneous Provisions) Act 2013 (No. 32 of 2013)) of the Personal Insolvency Act 2012 (No. 44 of 2012), with the consent of the Minister for Justice and Equality and following consultation with the Minister for Finance hereby makes the following regulations:
Citation and Purpose
1. (1) These Regulations may be cited as the Personal Insolvency Act 2012 (Renewal of Authorisation of Personal Insolvency Practitioners) Regulations 2016.
(2) These Regulations are made for the purposes of section 161 and section 166 of the Act.
Scope
2. These Regulations apply to individuals who hold an authorisation to carry on practice as a personal insolvency practitioner and who wish to renew that authorisation.
Definitions
3. In these Regulations:
“Act” means the Personal Insolvency Act 2012 (No. 44 of 2012);
“accountant’s report” means a report in the prescribed form by a duly qualified accountant that appropriate financial systems and controls are still in place for the protection of moneys received from debtors by the applicant;
“applicant” means a personal insolvency practitioner applying for the renewal of his or her authorisation to carry on the practice as a personal insolvency practitioner;
“renewal of an authorisation” means renewal of an authorisation to carry on practice as a personal insolvency practitioner.
Renewal of an Authorisation
4. (1) The application form set out in the Schedule to these Regulations is hereby prescribed for the purposes of section 166(2)(a) of the Act.
(2) The accountant’s report as set out in Part G of the prescribed application form is hereby prescribed for the purposes of section 166(4)(b) of the Act.
(3) An applicant shall take all reasonable steps to ensure that the information provided in support of his or her application for renewal of an authorisation is accurate and complete.
(4) At any time before the renewal of an authorisation, or refusal to renew such an authorisation, the Insolvency Service may request the applicant to clarify the information provided or to supply further information in respect of the applicant’s character, competence or financial position or may make such enquiries as may be necessary for the purpose of evaluating the application properly and comprehensively.
(5) Failure by an applicant to comply with Regulation 4(3) or a request made pursuant to Regulation 4(4) will be taken into account by the Insolvency Service when determining an application for renewal of an authorisation and may be regarded as a reason to refuse to renew that applicant’s authorisation.
SCHEDULE
APPLICATION TO THE INSOLVENCY SERVICE OF IRELAND FOR THE RENEWAL OF AN AUTHORISATION TO CARRY ON PRACTICE AS A PERSONAL INSOLVENCY PRACTITIONER
Part A — Details of Applicant
1. Full Name
2. Trading Name or Business Name (if different to the above)
3. Address of your place of Business
4. Personal Insolvency Practitioner Authorisation Number
Part B — Professional Status
1. Please tick the appropriate professional status / qualification which applies to you:
(a) I am a solicitor in respect of whom a practising certificate (within the meaning of the Solicitors Acts 1954 to 2015) is in force. □
(b) I am a barrister at law called to the Bar of Ireland. □
(c) I am a qualified accountant and a member of a prescribed accountancy body (within the meaning of section 4 of the Companies (Auditing and Accounting) Act 2003 ). □
(d) I am a qualified financial advisor who holds a current qualification from the Life Insurance Association of Ireland (LIA), the Insurance Institute or the Bankers School of Professional Finance. □
(e) I hold a qualification in either law, business, finance or other appropriate similar qualification to the satisfaction of the Insolvency Service of Ireland recognised to at least level 7 of the National Qualifications Framework by Quality and Qualifications Ireland (or equivalent). □
If your professional status has changed since your authorisation to carry on practice as a personal insolvency practitioner, please provide details:
2. The following questions must be answered and apply to conduct in this jurisdiction and any other jurisdiction (please tick as appropriate). If the answer to any of the following questions is YES, you are required to provide full details in writing with your application.
Yes
No
(a) Has your entitlement to carry on practice as a personal insolvency practitioner since the last application made by you been suspended or subject to conditions?
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(b) Since you were last authorised as a personal insolvency practitioner have you, in any jurisdiction:
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(i) Failed to comply with the Personal Insolvency Acts 2012 to 2015, or with any regulations made under those Acts?
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(ii) Been convicted of any offence involving fraud, dishonesty, breach of trust, tax offences or of aiding and abetting tax evasion, including any conviction related to financial crime or breach of statutory or regulatory requirements?
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(iii) Been a director or manager of an entity or business that was, during your period as a director or manager, convicted of an offence involving fraud, dishonesty, breach of trust, tax offences or of aiding and abetting tax evasion, including any conviction related to financial crime or breach of statutory or regulatory requirements?
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(iv) Been adjudicated bankrupt, or entered into any compromise with your creditors related to bankruptcy or insolvency or are you currently the subject of bankruptcy or insolvency related proceedings or measures or are you aware of any such proceedings or measures pending?
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(v) Failed to satisfy a judgment debt under a court order within one year of the making of the order?
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(vi) Been disqualified or restricted, by a court from acting as a director of a company or equivalent, or from acting in the management or conduct of the affairs or control of any company, partnership, or unincorporated association?
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(vii) Been refused entry to any profession or been dismissed or compelled to resign from any office or position of trust, whether or not remunerated?
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(viii) Been prohibited, suspended, refused or restricted in the right, to carry on any trade, business or profession for which a specific licence, registration or other authority is required?
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(ix) Been the director or equivalent of an entity, which has gone into liquidation, receivership or examinership or similar or analogous measures or steps in any other country and, in such circumstances, entered into any arrangements with its creditors which gave rise to a loss to the creditors either while you were a director or equivalent or within one year of your ceasing to be a director or equivalent?
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(x) Been associated, as a director, manager or shareholder, with any entity that has been compulsorily wound up or equivalent, either while you were associated with it or within one year after you ceased to be associated with it?
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(xi) Been concerned with the management, conduct of affairs or control of any entity that, by reason of any matters relating to a time when you were so concerned, has been censured, disciplined, restricted, sanctioned, fined, convicted or publicly criticised, by any enquiry, by any government, judicial or statutory authority, by any professional body?
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(xii) Been concerned with the management, conduct of affairs, or control of any entity which applied for regulatory approval in respect of any business and, by reason of any matter relating to a time when you were so concerned, was refused the application or had the approval subsequently withdrawn, suspended or restricted?
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Part C — Business Information
Since your authorisation to carry on practice as a personal insolvency practitioner, are you engaging or do you intend to engage in any other forms of business of which you have NOT previously advised the Insolvency Service of Ireland?
Yes No
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If the answer is YES, please provide details of the other business areas. To the extent that any such other business areas could give rise to a conflict of interest, be open to abuse or conflict with a personal insolvency practitioner’s confidentiality obligations and functions under the Personal Insolvency Acts 2012 to 2015, please provide details of how such business areas are appropriately segregated from your role as a personal insolvency practitioner.
Please confirm that your resources (including financial capacity), policies, procedures, systems and controls necessary to comply with your obligations under the Act and regulations made under the Act remain adequate and in place.
Confirmed □ Not Confirmed □
Part D — Professional Indemnity Requirements
Please note that it is a mandatory requirement, set out in section 171 of the Personal Insolvency Act 2012 , that all personal insolvency practitioners hold a policy of professional indemnity insurance (“PII”). Regulation 6 of the Personal Insolvency Act 2012 (Authorisation and Supervision of Personal Insolvency Practitioners) Regulations 2013 ( S.I. No. 209 of 2013 ) sets out the requirements prescribed by the Insolvency Service of Ireland in relation to PII.
Please also note that section 166(4)(c) of the Personal Insolvency Act 2012 requires the Insolvency Service of Ireland, subject to section 167 of that Act, to refuse to renew an authorisation to carry on practice as a personal insolvency practitioner if the applicant does not satisfy the Insolvency Service of Ireland that there is available to the applicant the required level of PII.
PII cover
Indicate what PII cover you maintain in respect of your authorisation to carry on practice as a personal insolvency practitioner.
Excess Amount
Per Claim Cover
Aggregate Cover
Effective date of PII cover:
Expiry date of PII cover:
Name of insurer:
Number of the policy that includes your PII cover:
You must provide written evidence (copy of policy or similar) from the relevant insurer that the PII covers your practice as a personal insolvency practitioner and meets the level of cover specified in Regulation 6 of the Personal Insolvency Act 2012 (Authorisation and Supervision of Personal Insolvency Practitioners) Regulations 2013.
Part E — Tax Clearance Requirements
Tax Clearance
For the purpose of the Insolvency Service of Ireland determining your application for renewal of authorisation, please provide your Tax Clearance Access Number and Tax Reference Number. These numbers will be used by the Insolvency Service of Ireland to verify your tax clearance.
Tax Clearance Access Number:______________
Tax Reference Number:______________
Part F– Personal Insolvency Practitioner Declaration
I, ______________, (insert your name) apply under section 166 of the Personal Insolvency Act 2012 for the renewal of my authorisation to carry on practice as a personal insolvency practitioner on the basis of information supplied on this form and any additional information supplied to the Insolvency Service of Ireland in connection with this application.
I acknowledge that the Insolvency Service of Ireland may process and disclose such information in the performance of its statutory functions or otherwise as may be required or permitted by law.
I warrant that I have truthfully and fully answered the relevant questions in this application and disclosed any other information which might reasonably be considered relevant for the purpose of this application.
I am aware that it may be grounds for refusal of my application or grounds for revocation of my authorisation to carry on practice as a personal insolvency practitioner to knowingly or recklessly:
a. provide false or misleading information or to make a false or misleading statement (which I acknowledge may include the withholding by me of relevant information) in this application for renewal or;
b. fail to inform or withhold from the Insolvency Service of Ireland details of any material change in circumstances or new information which is relevant or material to this application.
I undertake that I will promptly notify the Insolvency Service of Ireland of any changes in the information I have provided and supply any other relevant information, which may come to light in the period during which the application is being considered and, if this application is accepted, thereafter.
I confirm that I am not an undischarged bankrupt.
I confirm that I shall undertake continuing professional development which is relevant to my practice as a personal insolvency practitioner in such manner as may be specified by the Insolvency Service of Ireland from time to time.
I am aware of the provisions of the Personal Insolvency Acts 2012 to 2015 and reasonably believe that I can meet the requirements of those Acts and the Regulations made under them.
Signed: ______________
Print Name: ______________
Dated: ______________
Part G — Accountant’s Report to the Insolvency Service of Ireland: Renewal of Personal Insolvency Practitioner Authorisation
Pursuant to section 166(4)(b) of the Personal Insolvency Act 2012 , an application to renew authorisation to carry on practice as a personal insolvency practitioner must be accompanied by a report in the below prescribed form by a duly qualified accountant confirming that the appropriate financial systems and controls are still in place for the protection of moneys received from debtors.
Please note Section 2 of this report is to be completed by a qualified accountant who is a member of a recognised accountancy body within the meaning of the European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 ( S.I. No. 220 of 2010 ) and holds a valid practising certificate.
To: The Insolvency Service of Ireland
Accountant’s Report: Renewal of Personal Practitioner Insolvency Authorisation
PART G, SECTION I — Applicant’s Declaration
1. ______________ [Full name of the applicant]
2. ______________ [Applicant address]
3. ______________ [Applicant personal insolvency practitioner authorisation number]
I, ______________ [Applicant name], am aware that appropriate financial systems and controls are required to be in place for the protection of moneys received from debtors.
I acknowledge the requirement—
(a) that there is in place a written procedure that establishes clear accountability for the handling of funds, which ensures that receipt of funds from debtors is properly accounted for, are protected, and the funds are identifiable to specific debtors;
(b) that there is a written procedure to ensure that all cheques and other negotiable instruments are promptly endorsed and a follow-up system has been established to ensure that post-dated cheques are always deposited on the date of the cheque or within appropriate time frames;
(c) that appropriate experienced personnel are engaged to monitor, on a constant basis, funds received versus funds due and payments made and they have the ability to investigate and resolve any differences that arise;
(d) that the duties of collecting or receiving funds, maintaining documentation, making deposits or payments and reconciling records is distributed between two or more appropriate experienced individuals.
I hereby declare that appropriate financial systems and controls, as set out in matters (a) to (d) above, are in place for the protection of moneys received from debtors.
Signed:
Print Name:
Dated:
PART G, SECTION II — Accountant’s Declaration
This report is given for the purposes of section 166(4)(b) of the Personal Insolvency Act, 2012.
______________ [Name of accountant], a qualified accountant who is a member of a recognised accountancy body within the meaning of the European Communities (Statutory Audits) (Directive 2006/43/EC) Regulations 2010 ( S.I. No. 220 of 2010 ) and holds a valid practising certificate, has examined the above declaration and matters (a) to (d) above and supporting documentation in respect of matters (a) to (d).
The applicant is responsible for making an application for renewal of an authorisation to carry on practice as a personal insolvency practitioner that is correct in all material particulars.
The applicant is also responsible for operating effective and appropriate financial systems and controls for the protection of moneys received from debtors. An appropriate framework of financial systems and controls provides reasonable, but not absolute, assurance that the moneys received from debtors are protected.
My responsibility is to examine the declaration and the supporting evidence; and to express an opinion as to whether the applicant has in place appropriate financial systems and controls as set out in matters (a) to (d) in the above declaration.
In my opinion, based on my examination, the applicant has [on the basis of representations made to me by the applicant,]* in place appropriate financial systems and controls, as set out in (a) to (d) above for the protection of moneys received from debtors during the course of providing personal insolvency services under the Personal Insolvency Acts 2012 to 2015.
I have received all the explanations and information I require to form my opinion.
Signed: ______________ Date: ______________
Accountant
Particulars of accountant
Firm’s Name:
Firm’s Address:
Accountancy body of which a member:
Membership Number:
*Delete where inapplicable
Note for applicant:
Please note that the application will only be processed once this report is complete and received.
Part H — Application Process and Checklist
The completed application form and accompanying documents (set out in the checklist below) must be submitted to the Insolvency Service of Ireland in such manner as may be specified by the Insolvency Service of Ireland from time to time.
The application form must be accompanied by the prescribed fee. The fee is payable to the Insolvency Service of Ireland in such manner as may be specified by the Insolvency Service of Ireland from time to time.
In accordance with section 166(2)(b) of the Personal Insolvency Act 2012 , an application for renewal of an authorisation to carry on practice as a personal insolvency practitioner must be made at least 6 weeks before the expiration of the authorisation.
The Insolvency Service of Ireland will NOT commence the processing of any application for renewal of authorisation if it is not complete in all respects. Applications will be treated as incomplete unless all questions raised in the application form are fully answered and all applicable supporting documentation (as outlined in the checklist below) has been received by the Insolvency Service of Ireland. Incomplete applications may be returned to you as invalid. An application that has to be re-submitted will be treated as a new application.
Applicant
ISI USE ONLY
Completed Application Form (signed and all questions answered)
PII Cover (Part D)Written evidence of PII cover (copy of policy or similar)
Tax Clearance Requirements (Part E)Tax Clearance Access Number and Tax Reference Number
Signed Declaration (Part F)
Completed Accountant’s Report (Part G)
Prescribed Fee
The Minister for Justice and Equality consents to the making of the foregoing Regulations.
http://www.irishstatutebook.ie/images/ls
GIVEN under the Official Seal of the Minister for Justice andEquality,
5 May 2016.
FRANCES FITZGERALD,
Minister for Justice and Equality.
http://www.irishstatutebook.ie/images/ls
GIVEN under the seal of the Insolvency Service of Ireland,
5 May 2016.
LORCAN O’CONNOR,
Director of the Insolvency Service of Ireland.
EXPLANATORY NOTE
(This note is not part of the Instrument and does not purport to be a legal interpretation.)
These regulations set the renewal of authorisation requirements and regulatory standards which must be met for an individual to renew his or her authorisation by the Insolvency Service of Ireland to carry on the practice of a personal insolvency practitioner together with the prescribed application form to be completed by applicants, including the prescribed accountant’s report.
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Cases
In the Matter of the Personal Insolvency Acts, 2012-2015 and in the Matter of Maeve Griffin (a Debtor); and in the Matter of the Personal Insolvency Acts, 2012-2015 and in the
Matter of Timothy Gerard Griffin
(a Debtor)
[2018 No. 445 C.A.]
High Court
8 November 2019
unreported
[2019] IEHC 751
Mr. Justice Denis McDonald
November 08, 2019
JUDGMENT
Introduction
1. In each of the above cases, KBC Bank Ireland Plc (“ the bank ”) has appealed the decision of his Honour Judge Meghen in the Circuit Court made under s. 115A (9) of the Personal Insolvency Act, 2012 (“ the 2012 Act ”) (as amended by the Personal Insolvency (Amendment) Act, 2015), confirming the coming into effect of two interlocking personal insolvency arrangements proposed by Maurice Lenihan, personal insolvency practitioner (“ the practitioner ”) on behalf of the above named debtors Ms. Maeve Griffin and Mr. Timothy Gerard Griffin. In the very helpful written submissions delivered on behalf of the bank, the following grounds of objection have been canvassed:-
(a) That the proposed arrangements are not fair and equitable to the bank, as a class of creditor which has not approved them, contrary to s.115A (9) (e) of the 2012 Act;
(b) That the proposed arrangements are unfairly prejudicial to the bank, contrary to s. 115A (9) (f); and
(c) The arrangements do not enable the creditors of Mr. Griffin and Ms. Griffin to recover the debts due to them to the extent that their means reasonably permit, contrary to s. 115A (9) (b) (ii) of the 2012 Act.
2. In the course of the hearing which took place on 5th July, 2019, counsel for the bank indicated that the primary grounds of objection are those set out at para. 1 (a) and (b). Nonetheless, the ground set out at para. 1 (c) has not, in any sense, been abandoned. All three grounds were fully argued in the course of the hearing. As discussed further below, it seems to me that there is some overlap between these three grounds. I will, nevertheless, consider each ground separately.
3. For completeness, it should be noted that no issue arises in this case in relation to the availability of s. 115A. It was accepted, in the course of the hearing, that the family home of Mr. Griffin and Ms. Griffin in County Limerick is a “principal private residence ” within the meaning of s. 2 (1) of the 2012 Act. It is also accepted that the debt owed to the bank which is secured over the family home is a “ relevant debt ” within the meaning of s. 115A (18) – namely a debt secured over the principal private residence of Mr. Griffin and Ms. Griffin which was in arrears on 1st January, 2015.
4. It was also very helpfully acknowledged, in the course of the hearing, that, for the purposes of s. 115A (9) (g) of the 2012 Act, Charleville Credit Union (“the credit union”) (which, along with the Revenue Commissioners voted in favour of the proposed arrangement) constitutes a separate class of creditors to the bank notwithstanding that both the bank and the credit union are secured creditors of Mr. Griffin and Ms. Griffin. Counsel for the bank acknowledged that, having regard to the decision of Baker J. in Sabrina Douglas [2017] IEHC 785, the bank, as a secured creditor over the principal private residence of Mr. Griffin and Ms. Griffin was in a separate class to the credit union which holds no security over the residence in question.
Relevant facts
5. Before attempting to address the issues which fall to be considered, it is important that the relevant facts should first be identified. At the time the proposed arrangements in this case were first proposed in August 2017, Mr. Griffin was aged 50 years of age and Ms. Griffin was 49. They are married and have two children. At the time the arrangement was proposed, their daughter was nineteen years of age and their son was seventeen years of age. Mr. Griffin works as a probation officer with the Department of Justice where he has worked since 2014. Ms. Griffin is currently unemployed. According to the proposed arrangement in her case, Ms. Griffin was a care assistant. Previously both she and Mr. Griffin appear to have operated a nursing home business which ultimately failed in 2009. The credit union holds security over the former nursing home.
6. Mr. Griffin and Ms. Griffin have the following liabilities:-
(a) There is a total sum of €277,308 owed to the bank which is secured over the family home which has been valued at €140,000;
(b) There is a sum of €638,505 owed to the credit union which is secured over the former nursing home which has been valued at €80,000;
(c) Mr. Griffin owes €23,560 to Tipperary Credit Union. This is unsecured;
(d) Mr. Griffin has a credit card debt of €1,628 while Ms. Griffin has a credit card debt of €2,269;
(e) Ms. Griffin owes €19,522 on an unsecured basis to Allied Irish Banks Plc in respect of an overdraft;
(f) Ms. Griffin owes €28,693 to the Revenue Commissioners in respect of unpaid PAYE/PRSI. There is also a preferential debt owed by her to the Revenue Commissioners in respect of income tax in the sum of €2,100;
(g) Mr. Griffin also has a small debt owed to Cabot Financial in the sum of €3,598.
7. The monthly household income of Mr. Griffin and Ms. Griffin is not sufficient to discharge their monthly expenses. Mr. Griffin’s net monthly income is €3,410. Ms. Griffin receives unemployment benefit of €780 per month. This provides them with a total household income of €4,190 per month. Out of this sum, their set costs calculated in accordance with the guidelines issued by the Insolvency Service (“ISI”) are €1,901.53 (based on a two adult household with one motor vehicle). Their monthly obligations on foot of a mortgage to the bank are €1,839.07. In addition, they incur what are described as “ special circumstance costs” in the sum of €699 per month which are made up of €144 in respect of the cost of prescription medicine for their son who suffers from asthma together with €555 in respect of the cost of maintaining their daughter in third level education. That is marginally higher than the monthly figure of €549 which would be allowed by the Official Assignee in a bankruptcy.
The proposed arrangements
8. Under the proposed arrangements put forward by the practitioner, the indebtedness of Mr. Griffin and Ms. Griffin would be addressed over a six year (i.e. 72 month) term as follows:-
(a) Insofar as the debt of €277,308 to the bank is concerned, the secured debt would be written down to €140,000 (i.e. the agreed value of the family home) with the balance being addressed as an unsecured debt. For the 72 month duration of the arrangement, no element of principal would be repaid. Instead, interest at 4.25% would be paid of €495.83 per month. Following the completion of the arrangements, the interest rate would revert to the then standard variable rate applicable to mortgage loans of this kind. The term of the mortgage would be restructured to 240 months from the date the arrangements come into effect. After the arrangements come to an end, capital and interest monthly mortgage payments of €1,107.12 would be made for the 168 month period from the end of the proposed arrangements to the end of the restructured mortgage term. This is based on an assumed rate of 4.25% as at the end of the proposed arrangements. This, however, is obviously subject to the rate which is actually applicable at that time.
(b) Insofar as the credit union debt is concerned, Mr. Griffin and Ms. Griffin are to arrange for the sale of the former nursing home property. All costs associated with the sale of the property will be deducted from the proceeds of sale. In the event that the property is sold for less than €80,000 (which is the agreed valuation) the credit union will not be entitled to make any claim against Mr. Griffin or Ms. Griffin in respect of any shortfall. In the event that it is sold for more than €80,000, the credit union will be entitled to retain the proceeds for its own benefit. Mr. and Ms. Griffin agree to cooperate with the auctioneers during the sale process and will remove all personal effects from the property and assist the auctioneers. Any offers that are made will be subject to acceptance by the credit union. In the event that the credit union declines any offers over €60,000, the property will be voluntarily surrendered to the credit union. Similarly, if the property has not been sold within twelve months of the coming into effect of the proposed arrangements, the property will be voluntarily surrendered to the credit union.
(c) The preferential debt owed to the Revenue Commissioners by Ms. Griffin will be paid in full;
(d) The unsecured creditors will receive a dividend of 6.53% in the case of Ms. Griffin and 6.77% in the case of Mr. Griffin. In this context, it should be noted that, on p. 15 of the proposed arrangement in Ms. Griffin’s case, the rate of dividend is stated to be 7.09%. However, in the bankruptcy comparison, in her case, it is stated to be 6.53%. For the purposes of this judgment, I will proceed on the basis of the figure set out in the bankruptcy comparison.
Comparing the outcome under the proposed arrangements with the outcome in bankruptcy
9. The practitioner has prepared a comparison of the outcome under the proposed arrangements with the outcome in the event of a bankruptcy. On the basis of the figures provided by the practitioner, the return to the secured creditors (on a combined basis) under the proposed arrangements is 24 cent in the euro compared to 22 cent in the euro in a bankruptcy. Insofar as the unsecured creditors are concerned, they will, as noted in para. 8 (d) above, receive 6.53 cent in the euro in Ms. Griffin’s case and 6.7 cent in the euro in Mr. Griffin’s case. This compares to 0.22 cent in the euro in the event of Ms. Griffin’s bankruptcy and 0.50 cent in the euro in the event of Mr. Griffin’s bankruptcy.
10. In my view, it would have been helpful if the return to each of the secured creditors had been shown separately in the bankruptcy comparison. On the basis of my own calculations, the outcome for the bank under the proposed arrangements is significantly greater than 24 cent in the euro. By my calculations, it is 50.5 cent in the euro. In the event of a bankruptcy, the outcome is also better than 22 cent in the euro. By my calculations, the return for the bank in the event of bankruptcy is 45.40 cent in the euro. In contrast, the return for the credit union under the proposed arrangements (on the assumption that the nursing home sells for €80,000) will be of the order of 12.5 cent in the euro whereas, in a bankruptcy, the outcome would be 11.27 cent in the euro. In both cases, these rates of return exclude the dividend that will be paid as part of the distribution to the unsecured creditors. As outlined further below, a significant issue arises in this case in relation to the extent of the distribution to be made to the unsecured creditors.
The counter-proposal made by the bank
11. As discussed further below, a counter-proposal was made by the bank. That counterproposal must be seen in the context of the statutory scheme for the making of representations by creditors to a practitioner. Under s. 98 of the 2012 Act, the practitioner is required to give notice to creditors of his or her appointment and to invite the creditors to make submissions regarding the manner in which the debts of a debtor might be dealt with under a proposed arrangement. The practitioner is also under an obligation to consider any submissions made by creditors. Insofar as secured creditors are concerned, s. 102 (1) imposes a specific obligation on such creditors (following receipt of the notification under s. 98) to furnish to the practitioner an estimate of the market value of the security. In addition, s. 102 (1) enables the secured creditor to also indicate a preference as to how that creditor wishes to have the security and secured debt treated under the arrangement. This is, however, expressly made subject to s. 102 (3) and ss. 103 to 105 of the 2012 Act. In this context, it is important to bear in mind that under s. 104 (1) practitioners are required, in formulating proposals for personal insolvency arrangements, to do so in a manner which secures, insofar as reasonably practicable, the retention by a debtor of his or her principal private residence.
12. In this case, according to the evidence of the practitioner, the bank did not make any submission to him under either s. 98 or s. 102. The practitioner says that, in those circumstances, he had no alternative but to seek to formulate proposals in the absence of any submission from the bank. However, in para. 5 of his affidavit sworn in support of the bank’s notice of objection, Mr. Gately explained that, on 16th June, 2017, the bank submitted a request for further information which was never answered by the practitioner.
13. Subsequently, the bank, by email sent at 12.18 pm on 17th August, 2017 (which was one day immediately prior to the creditors’ meeting held on 18th August, 2017) submitted a counter-proposal. In that email, the bank complained that, in comparison to the credit union, it would fare significantly worse under the proposed arrangements. It said that, under the proposed arrangement, the credit union would be in a position to immediately recover the full value of its security over the nursing home and, over the course of the arrangement, would recover the same amount again through dividends over a six year period (€80,000). The email complained that: “on a very basic level, the Credit Union will recover double the value of its security over the next six years. Conversely KBCI … will be precluded from realising its security and will recover only €19,500 over the same period as a secured creditor. In reality the proposed large dividend is not being generated from the means of the debtor in a true sense, but from the draconian reduction of, and six year deferral of capital repayments to, the KBCI debt. The proposal fails to recognise the priority of the KBC debt and unfairly seeks to provide a disproportionate return to the Credit Union relative to its security” . Those concerns on the part of the bank were subsequently reiterated in para. 11 of the affidavit of Mr. Garret Gately.
14. In the email, the bank also complained that, on completion of the proposed arrangements, Mr. Griffin and Ms. Griffin would have a surplus monthly income of €1,596.26. The email made the point that even if 50% of that surplus was made available it would be sufficient to service payment of that part of the debt owed to the bank which it was proposed to write down (namely €138,000) over the remaining term of the mortgage.
15. The email concluded by making a counter-proposal as follows:-
(a) An extension of the mortgage term to 240 months;
(b) A 36 month personal insolvency arrangement (i.e. half the length of the proposed arrangements here);
(c) Interest only payments of €981 for the duration of the three year arrangement;
(d) A dividend pool of €24,500 from which the practitioner would receive a fee of €9,500 with the preferential debt due to the Revenue of €2,100 being repaid in full;
(e) The unsecured creditors would therefore receive a net dividend of €17,000 for distribution between them;
(f) The credit union (as the largest unsecured creditor) would receive €16,000. This is in addition to whatever it would recover through the realisation of the nursing home;
(g) Post the arrangement, Mr. Griffin and Ms. Griffin would commence full annuity repayments of €1,909 leaving them with a monthly surplus of €794 above the ISI guideline figure.
16. It should be noted that, under the terms of the arrangement proposed by the practitioner in each of these cases, it is acknowledged that the elder child of Mr. Griffin and Ms. Griffin (namely their daughter) would leave third level education in year 3 of the arrangement proposed by him. As I understand it, the monthly surplus of €794 suggested in the counter-proposal is based on this proposition.
17. In his replying affidavit, the practitioner deals with the counter-proposal at paras. 29-30 and paras. 42-43. In para. 29, he explained that, by reducing the term of the proposed arrangements to 36 months and increasing the monthly mortgage payment from €495.83 to €981, the counter-proposal would significantly reduce the monthly surplus that would otherwise be available to pay a dividend to the unsecured creditors. The proposal also envisaged a 50% reduction in his own fee but this is likely to be attributable, at least in part, to the fact that the duration of the arrangement proposed by the bank is 50% shorter than the 72 month arrangements proposed by the practitioner.
18. The practitioner says that the counter-proposal was considered and rejected by the debtors “ on the basis that it would not be supported by a majority of creditors and would not return them to solvency, particularly as it provided for the payment of the full mortgage loan and did not take account of the possibility of illness, marriage breakdown or other issues”. He also says that: “it was unrealistic to assume that unsecured creditors would support the KBC counter-proposal where it clearly demonstrated a significant reduction in the return to them when compared to the PIA proposal which was circulated in advance of the meeting of creditors and on which proxies (voting in favour) had already been received”.
19. In para. 43 of his affidavit, the practitioner expands on this and says:-
“43. I discussed the counter-proposal with the debtors at a meeting on 17th August called at very short notice to them. I expressed the view that the KBC counterproposal was self-serving and would not be acceptable to the other creditors on the basis that it provided a lower return than the existing PIA and denied those creditors scope to maximise their return over a 72 month term. I indicated to the debtors that the counter-proposal would not return them to solvency at the end of the PIA on the basis that the loan owed on their PDH will be almost twice the market value of the property. Accordingly, in the event of some unforeseen life event (illness, death, marriage breakdown, etc.) occurred (sic) which resulted in the sale of their home it was possible that they would be insolvent (again) and would be forced to consider bankruptcy in such circumstances. I also pointed out… that if the PIA was amended to reflect … the counter-proposal that it was highly likely that it would not be acceptable to their other creditors (who had already submitted proxies…) and that it was inevitably going to be rejected at the meeting … notwithstanding the support of the Objector. Accordingly, the debtors agreed to leave the proposal unchanged.
20. It should also be noted that, in para. 36 of his affidavit, the practitioner explained the reason why he had included a provision in the proposed arrangements that the bank would be paid interest only for the term of such arrangements. He said this was: “…for the benefit of all creditors, and in particular of creditors with debts that will be extinguished at the end of the PIA. I say for the most part, this arises in circumstances where the negative equity is to be extinguished and written off at the end of the PIA. I say and believe that in placing the mortgage loan on interest only I have increased the dividend to unsecured creditors, and ensured the best possible return in the circumstances”.
21. In the course of the hearing, counsel for the bank drew attention to what was said by the practitioner in these paragraphs and submitted that the explanations given by the practitioner strongly suggests that the practitioner favoured the credit union who, after payment of the proceeds of sale of the nursing home, is, by far, the largest unsecured creditor of Mr. Griffin and Ms. Griffin. As will appear in more detail below, the case made on behalf of the bank is that the credit union has been treated significantly more favourably than the bank.
22. Counsel for the practitioner submitted that the counter-proposal was made at the last minute. He also argued that the proposal would see payments being made to the bank at more than the rent for a comparable property in the locality in which Ms. Griffin and Mr. Griffin currently resides. Counsel drew attention to the information contained in the proposed arrangement which indicates that the market rent for an equivalent property in the locality would be €950 per month which is less than 50% of the monthly payment to be made under the counter-proposal namely €1,909. Counsel submitted that the bankruptcy would accordingly be a more favourable outcome for Ms. Griffin and Mr. Griffin than the regime envisaged in the bank’s counter-proposal.
23. Counsel for the practitioner also drew attention to the fact that, under the counterproposal, Ms. Griffin and Mr. Griffin would, for the three year duration of the arrangement proposed by the bank, have to live at a level beneath the reasonable living expenses set out in the ISI Guidelines. As set out on p. 40 of the proposed arrangement in Ms. Griffin’s case, a sum of €1,901.53 would be regarded as appropriate for a two adult household with a vehicle. In addition, for the first three years of the arrangement, there are special circumstance costs of €699 payable per month (to cover the cost of third level education for the daughter of Ms. Griffin and Mr. Griffin) and also to cover the costs of asthma medication for their son. The total monthly income of the household is €4,190. When one sets off the sums of €1,901.53 and €699 against the monthly income of €4,190.00, that would leave no more than €1,590.00 to meet the mortgage repayments of €1,909 per month under the counter-proposal. Counsel for the practitioner submitted that the only way, therefore, in which the monthly mortgage payment could be met was if the family lived below the reasonable living expenses set out in the ISI Guidelines.
24. Counsel for the practitioner also rejected the suggestion that there would be a monthly surplus of €794 after year 3 under the counter-proposal. As noted in para. 16 above, the case made by the bank is that there will be such a surplus from year 3 of the proposed arrangement when it is understood the daughter of Ms. Griffin and Mr. Griffin will leave third level education. Counsel for the practitioner suggested that it was reasonable to suppose that the son of Ms. Griffin and Mr. Griffin would go on to third level education (although counsel for the bank trenchantly submitted that this is nowhere mentioned in the proposed arrangement or in the evidence before the court). In fact, the practitioner, in para. 21 of his affidavit sworn on 19th June, 2018 does refer to the possibility (it is put no higher than that) that the son may go on to further education. The practitioner also says that the special circumstance costs in respect of the prescription medication in the amount of €144 should be extended beyond year 3. In my view, it is reasonable to take the cost of this prescription medication into account as an ongoing household expense. It is also understandable that the practitioner was not in a position to say that the son would definitely go on to third level education. For that reason, the continuing cost of third level education has not been factored into the calculation set out in the proposed arrangement. I am conscious that a very large number of students progress to third level education in Ireland. I therefore believe it is realistic to assume, for the purposes of this judgment, that it is reasonably likely that the son will progress to third level education. In those circumstances, I believe that it is appropriate to continue to take into account the special circumstance costs of €644 per month for a further three year period after the expiry of the three year arrangement proposed by the bank. For those years, the appropriate allowance to be made in respect of Ms. Griffin and Mr. Griffin (for a couple with no children) would be €1,509.59 (on the basis that they require a motor vehicle). If one adds €699 to that figure, that would mean that Mr. Griffin and Ms. Griffin would require €2,208.59 per month in order to meet reasonable living expenses and the special circumstance costs. If they were also to pay a further €1909 in respect of the mortgage repayment envisaged under the counter-proposal, they would have total monthly expenditure of €4,117.59. Assuming no substantial shocks, there would be a very marginal buffer available to them of €72.41 per month. However, this does not take account of the possibility that interest rates might rise. While we currently live in an era of low interest rates, there is no guarantee that this will still be the case in several years’ time.
25. Counsel for the practitioner also argued that the bank’s counter-proposal was made too late. It was not made until the eve of the creditor’s meeting. He argued that there had been a failure to comply with either s. 98 (1) or s. 102 (1) of the 2012 Act. In my view, the court must be cautious about any suggestion that a counter-proposal or submission should be wholly disregarded. The court has an obligation under s. 115A (10) (b)(i) to have regard to any submission made by a creditor under s. 98(1) or s. 102(1). Nonetheless, in this case, an issue arises as to whether the requirements of those subsections were actually observed by the bank. Section 98(1) does not expressly require that submissions should be made by a creditor within any specific time frame. However, it is clear from a consideration of s. 98(1) in the context of the 2012 Act as a whole, that it contemplates that the submissions will be made prior to the formulation of a proposed arrangement so that the practitioner will be in a position to have regard to them when he comes to formulate the proposal. The same considerations arise in relation to any indication of preference to be advanced by a secured creditor under s. 102(1). It is quite clear from s. 102(2) that the Act envisages that any indication of preference as to how the secured debt should be addressed, should be made prior to the formulation of the practitioner’s proposal. While s. 102 does not prescribe a statutory time period for taking this step, s. 102 (4) makes it clear that the secured creditor should act within whatever period of time may be specified by the practitioner. In the present case, the counter-proposal was not made until the day prior to the meeting of creditors at which the proposals were to be considered. Consistent with the email of 17th August, 2017 (quoted in para. 13 above) Mr. Gately explained in para. 5 of his affidavit that, within three days of receipt of the protective certificate, the bank had sought clarification on a number of points in order to enable the bank to submit a s. 98 or s. 102 response. Although the practitioner responded on the same day advising that he would arrange to get the additional information to the bank, the information was not provided. In these circumstances, it seems to me that, in fairness to the bank, I should treat the bank as having made a submission under s. 98 and s. 102 of the Act. However, as a consequence of the timing of the counter-proposal, the reality is that the practitioner had no sufficient opportunity to take the counter-proposal into account in formulating his proposals in circumstances where it was received at such a late stage in the process. It is important to bear in mind in this context that the court, under s. 115A (10) (b)(i), is required not only to have regard to the submission made by a creditor but also to the date on which such submission was made.
26. Having regard to the date of receipt of the counter-proposal, I do not believe that there is anything that the practitioner could reasonably have done in the circumstances. He had already formulated proposals. Those proposals had been circulated to all of the creditors. On the basis of those proposals, decisions had already been made by creditors as to whether to support or reject the proposed arrangement. While it was theoretically open to the practitioner to go back to the creditors with revised proposals, I can well understand why the practitioner, at that point, might have considered that it was not feasible to do so. I will examine in greater detail below the particular reasons given by the practitioner as to why he decided to proceed with the existing proposal. On the basis of the arguments put forward by counsel for the bank, those reasons are potentially material to the question as to whether the credit union was unduly favoured, under the proposals, at the expense of the bank. At this point, it is sufficient to record that, in my view, the timing of receipt of the counter-proposal was such as to make it reasonable for the practitioner to proceed with the creditors’ meeting on the following day on the basis of the existing proposals. I am, of course, conscious in this context of the observations of Baker J. in Paula Callaghan [2017] IEHC 332 at paras. 13-17 as to the obligation of a practitioner to consider submissions made by a creditor. However, those observations by Baker J. were made in the context of submissions made prior to the formulation of proposals. The present case is in a different category. Moreover, it is clear from para. 43 of the practitioner’s replying affidavit (quoted in para. 19 above) that the practitioner here did, in fact, consider the proposals. They were not ignored by him. He clearly took a considered decision to proceed with the creditors’ meeting and to reject the counter-proposal made by the bank.
27. In the same judgment, Baker J. suggested that a margin of appreciation will be afforded to a practitioner in formulating an arrangement and she indicated that the court should not interfere unduly with a proposal even if another and possibly equally reasonable proposal could be formulated. At para. 59 of her judgment in that case she said:-
“ Section 115A(9)(b) (ii) constrains a court by considerations of reasonableness, that there be a reasonable prospect that confirmation of a proposed PIA will enable the debtor to resolve his or her indebtedness, and enable the creditors to recover their debts to the extent that the means of the debtor ‘reasonably permit’. The inclusion of a requirement of reasonableness supports the argument that a margin of appreciation will be afforded to a PIP in formulating a PIA, that the court will not interfere unduly with a proposal even if another, and possibly equally, reasonable proposal could be formulated, and the objection of a creditor will not be upheld merely on account of the fact that it can offer an alternative proposal. Reasonableness is assessed in the context of the means of the debtor, the likely return to the creditor of a proposal, the likely return on bankruptcy as an alternative, and the reasonableness of the proposed scheme taken as a whole, and in the light of the objective of the legislation that a debtor be facilitated in a return to solvency.”
28. Nevertheless, as noted in para. 25 above, the position taken by the practitioner is not determinative. It is clear from s.115A (10) (b)(i) that there is an obligation on the court to independently consider and have regard to any counter-proposal that may have been made by a creditor. I therefore believe that I must consider whether the counter-proposal made by the bank is one that achieves a better and fairer result than the proposal put forward by the practitioner. I reiterate that, in considering this issue, I will postpone any consideration of the motivation underlying the practitioner’s proposals. That is an issue which I address separately in the context of the bank’s contention that the arrangement unduly favours the credit union at its expense.
29. I have come to the conclusion that the counter-proposal put forward by the bank lacks reality. In the first place, it does not take account of the current market value of the family home of Ms. Griffin and Mr. Griffin. While I must separately consider whether the practitioner was correct in writing the secured debt down to the value of the family home, it seems to me that, in cases of significant “ negative equity ”, the current market value of the family home is a relevant factor in any arrangement proposed under the 2012-2015 Acts. It seems to me to be clear from a consideration of the provisions of ss. 102-103 of the 2012 Act that the legislature envisaged that, in arrangements of this kind (where the home is in “ negative equity ”), it will often be appropriate that the value of secured debt should be written down to some extent albeit that, in accordance with s. 103(2), it cannot be reduced below the value of the underlying security. Of course, there are cases where a write-down might not be appropriate. For example, if the debtors were of reasonably substantial means and were in a position to sustain mortgage payments of sufficient size, a write-down might be entirely inappropriate. However, in my experience, such cases are rare. This is not such a case. The means of Mr. Griffin and Ms. Griffin are clearly not sufficient to sustain mortgage repayments on the scale suggested by the bank in its counter-proposal. As discussed in para. 24 above, if they were to pay €1,909 in respect of the mortgage repayment envisaged under the counter-proposal, they would have no more than €72.41 available to them on a monthly basis over and above their monthly expenditure. As noted in para. 24, that seems to me to be a very marginal buffer. While I acknowledge that the buffer is likely to increase over time (as the children of Mr. Griffin and Ms. Griffin complete full time education) the Griffin family would nonetheless have to live for a sustained period of time at or very near the upper limit of the reasonable living expenses measured by the ISI. While there are cases where there may be no alternative to an arrangement on such stringent terms, it seems to me that the proposal put forward by the bank would impose a burden on Mr. Griffin and Ms. Griffin which is disproportionate to their means. I also bear in mind that, under the counter-proposal, Ms. Griffin and Mr. Griffin would have to make payments to the bank significantly in excess of the market rent for an equivalent property in the locality. As counsel for the practitioner observed, this would make bankruptcy a more favourable outcome for Ms. Griffin and Mr. Griffin than the regime envisaged in the bank’s counter-proposal. In these circumstances, I have come to the conclusion that the practitioner was right to reject the counter-proposal. I am furthermore of the view that the counter-proposal is not relevant to the remaining issues which arise for consideration (and which are addressed below).
The issues raised by the bank
30. To the extent that it is necessary to do so, I now turn to consider each of the grounds of objection which were debated in the course of the hearing before me in July 2019.
The alleged inequality of treatment
31. Under s. 115A (9) (e), the court, on an application of this kind, must be satisfied that the proposed arrangement is: “fair and equitable in relation to each class of creditor that has not approved the proposal and whose interests or claims would be impaired by its coming into effect.” The debate between the parties in relation to this issue occupied most of the time at the hearing in July.
32. In his written submissions, counsel for the bank sought to illustrate that, under the proposed arrangements, the return to the credit union was significantly better relative to the return to the bank. He drew attention to the fact that, under the proposed arrangement, the bank would receive a dividend from Mr. Griffin of €9,294.99 and a dividend from Ms. Griffin of €8,690.93 during the currency of the arrangement. This is in addition to the value of the bank’s security of €140,000. Insofar as the credit union is concerned, it would receive the value of its security namely €80,000 together with a dividend from Mr. Griffin of €37,807.68 and a dividend from Ms. Griffin of €36,448.89. The total to be received by the bank (excluding interest payable over the term of the arrangement and subsequently over the term of the mortgage) would be €158,255.92. In the case of the credit union, the total to be received would be €154,256.57.
33. Counsel for the bank then looked at the projected return in a bankruptcy. In a bankruptcy, the bank would receive €126,000 in respect of the family home together with an approximate dividend of €707.50 from Mr. Griffin and €300 in respect of Ms. Griffin. This would be a total realisation of €127,007.50. The credit union would receive €72,000.00 in respect of its security, a dividend of €1,222.00 from Mr. Griffin and a dividend of €2,878.00 from Ms. Griffin. This would be a total realisation of €76,100.00.
34. Counsel argued that, when one took account of the difference between the proposed realisation under the proposed arrangement of €158,255.92 as compared with €127,007.50 in a bankruptcy, the bank would achieve a 24.6% better return under the proposed arrangement than in a bankruptcy. In contrast, when one takes the difference between €76,100 which the credit union would receive in a bankruptcy and €154,256.57 which the credit union will receive under the proposed arrangement, the return for the credit union under the proposed arrangement is 102% better than in a bankruptcy.
35. Counsel also submitted that, if one takes the total realisation for the bank, under the proposed arrangement, to be €158,255.92, the difference between that sum and €140,000 reflects a 13% return for the bank over the value of its security. In contrast, if one takes the sum of €154,256.57 which would be payable to the credit union under the proposed arrangements, the credit union will receive a return of 93% on top of the value of its security. Counsel submitted that the comparison of the combined returns illuminates the reasons why the bank says that the arrangements are not fair and equitable to it and why they unduly favour the credit union. Counsel also submitted that the counter-proposal had been put forward by the bank to “ rebalance the equities” and he said that this counter-proposal was still on offer from the bank.
36. Counsel for the bank argued that there was no justification for the approach taken by the practitioner here in “ favouring ” the credit union in the manner summarised above. As noted in para. 21 above, counsel argued that the explanation given by the practitioner (as quoted in paras. 18-20 above) demonstrates that the practitioner consciously favoured the credit union at the expense of the bank. Counsel sought to rely in this context on my decision in Noel Tinkler [2018] IEHC 682. In that case, very unusually, the proposed arrangement envisaged that the secured creditor over the principal private residence of the debtors would be paid in full notwithstanding that the value of the property was significantly less than the debt owed. The practitioner involved in that case had sworn an affidavit, in the course of the proceedings, in which he had acknowledged that the arrangement proposed by him had been formulated with a view to obtaining the support of the secured creditor concerned. An entirely different approach had been taken in the context of the objecting creditor (which held security over other property of the debtors). In para. 45 of my judgment in that case I said:-
“It is true that … a practitioner, when formulating proposals, must have in mind that any proposed PIA must have a reasonable prospect of appealing to creditors. It would be foolhardy for a practitioner to seek to formulate proposals which did not have any prospect of success. However, that does not, in my view, entitle a practitioner to single out one creditor or one class of creditors for particularly favourable treatment in order to secure the support of that creditor or class of creditors for a particular proposal. On the contrary, the obligation is always to formulate proposals which are fair and do not give rise to manifestly inequitable treatment as between different classes. The usual way in which to persuade creditors to vote in favour of proposals is to demonstrate that the proposals will achieve for the creditors a more favourable outcome than is likely to be achieved in a bankruptcy. If proposals are formulated with that object in mind, there is unlikely to be any basis on which a creditor can show that it has been unfairly treated or unfairly prejudiced by the proposals. On the other hand, if practitioners were to formulate proposals aimed at securing the support of particular creditors or particular classes of creditors, this is a recipe for unfairness and will inevitably give rise to objections which will add enormously to the length and expense of the process and put the confirmation of the proposals in jeopardy”.
37. Counsel for the bank argued that, on the basis of the calculations set out in paras. 32-35 above, the proposals here unduly favour the credit union. Counsel also argued that there has been no objective justification for that difference in treatment. He submitted that, as occurred in Tinkler, the practitioner has explicitly stated that he refused to put the counter-proposal to the credit union on the basis that it would not be accepted by it. Counsel referred in this context to the averments made by the practitioner (quoted in paras. 18-20 above).
38. In contrast to the position in Re. Antigen Holdings [2001] 4 IR 600, counsel submitted that there was no objective justification for the difference in treatment, as between the credit union and the bank. In the Antigen case, the court accepted that the trade creditors were entitled to some priority under the arrangement proposed by the examiner in that case in circumstances where, as McCracken J. observed, they were going to continue trading with the company. Counsel argued that, in contrast, no such justification existed in the present case. He drew attention in this context to the additional affidavit that had been served, with the leave of the court, in the course of the appeal, in which Mr. Gately had explained that the credit union was now in liquidation (although this had not been known at the time of the Circuit Court hearing). Counsel submitted that the “ preferential treatment ” given to the credit union, in those circumstances, cannot be justified. There is no question of any ongoing relationship between the credit union and Ms. Griffin and Mr. Griffin. The nursing home has ceased business.
39. In response, counsel for the practitioner argued that the credit union and the bank are dealt with in precisely the same way under the scheme. In both cases, the property secured in their favour is in negative equity and the secured debt is to be written down to the value of the secured property. In both cases, the balance of the indebtedness (after making due allowance for the value of the secured property) is treated as an unsecured debt. In both cases, the dividend payable to the bank and to the credit union is calculated in the same way. Counsel said that this was in compliance with s. 100 (3) of the 2012 Act which applies the pari passu principle. Section 100 (3) is in the following terms:-
“(3) Unless provision is otherwise made in the …, arrangement and subject to section 101, the arrangement shall provide for payments to creditors of the same class to be made on a pari passu basis, and where so otherwise provided the … Arrangement shall specify the reasons for such provision being made”.
40. The reference in s. 100 (3) to s. 101 is not relevant for present purposes. Section 101 deals with preferential debts. Counsel for the practitioner stressed that the pari passu principle also features in bankruptcy, examinerships and the winding up of companies. It has often been described as a fundamental principle in the context of insolvent estates (whether corporate or personal). That said, I believe that counsel for the practitioner is mistaken in suggesting that s. 100 (3) of the 2012 Act is immediately relevant. It will be seen from the terms of the subsection (quoted in para. 39 above) that the statute envisages that the pari passu principle will be applied as between creditors of the same class. It has been agreed in this case (and the parties were correct to do so) that, although both are secured creditors, the bank and the credit union are not in the same class of creditor for the purposes of the 2012-2015 Acts. In those circumstances, I do not believe that it is entirely correct to suggest that s. 100 (3) has application save to the extent that both the bank and the credit union are also unsecured creditors.
41. Nonetheless, the pari passu principle has, for many years, been regarded as a hallmark of fairness insofar as distributions to creditors are concerned. Thus, although section 100 (3) may have no immediate application, the pari passu principle is relevant to the question of fairness and it is clear from the terms of the proposed arrangement that it is proposed by the practitioner that it should apply in this case. All of the unsecured creditors will be paid at the same rate. This includes the unsecured element of the debt due to the bank and the unsecured element of the debt due to the credit union. In principle, it is difficult to see how the application of the pari passu rule, of itself, could be said to give rise to unfairness. That does not, however, resolve the fairness issue. A separate question arises as to whether the arrangements here have been framed in a way that gives rise to unfairness as a consequence of the amount set aside for payment to the unsecured creditors (under which the bank argues that the credit union is to benefit at the bank’s expense).
42. Counsel for the practitioner acknowledged that the bank is treated differently to the credit union insofar as the property secured in favour of the latter is to be realised whereas the property secured in favour of the bank (namely the family home of Ms. Griffin and Mr. Griffin) will be retained. However, in common with the credit union, the bank would get the benefit of the market value of its security namely the family home. While the arrangements do not allow for the realisation of the family home in the way in which the property secured in favour of the credit union is to be realised, the bank would be compensated for this by the interest which would be paid between now and the completion of the term of the mortgage. He drew attention, in this context, to the policy of the 2012-2015 Acts to ensure that the family home should be retained. In this context, s. 99 (2) (h) of the 2012 Act expressly provides that an arrangement “ shall not require that the debtor dispose of his or her interest in the debtor’s principal private residence or cease to occupy such residence unless the provisions of section 104 (3) apply”. In turn, s. 104 (1) reinforces the level of protection given to the family home under the 2012 Act. That subsection is in the following terms:-
“(1) In formulating a proposal for a Personal Insolvency Arrangement a personal insolvency practitioner shall, insofar as reasonably practicable, and having regard to the matters referred to in subsection (2), formulate the proposal on terms that will not require the debtor to—
(a) dispose of an interest in, or
(b) cease to occupy ,
all or a part of his or her principal private residence and the personal insolvency practitioner shall consider any appropriate alternatives.”
43. Counsel for the practitioner contended that the only other difference envisaged by the proposed arrangements between the position of the bank, on the one hand, and the credit union, on the other, arises from the size of the respective debts. Given the sheer size of the unsecured debt owed to the credit union, it must, of necessity, receive a larger dividend than the bank. In this context, counsel submitted that the debt owed to the bank comprised no more than 18% of the unsecured indebtedness of Ms. Griffin and Mr. Griffin whereas the debt owed to the credit union comprised 77% of that indebtedness. Applying the pari passu approach (which he argued was the correct approach), it was inevitable that the return to the credit union would greatly exceed in absolute terms the return to the bank.
44. Counsel for the practitioner also argued that the bank’s interests were not harmed by the proposal under which it would be paid interest only for the duration of the proposed arrangements. He argued that such an arrangement is expressly envisaged by s. 102 (6) (b) of the 2012 Act. Section 102 addresses the position of secured creditors. Section 102 (6) sets out a number of approaches which can be taken in relation to secured debt. Under s. 102 (6) (a), provision can be made that the debtor should pay interest and only part of the capital amount of the secured debt for a specified period of time (not exceeding the duration of the arrangement).Section 102 (6) (b) permits an arrangement to provide that the debtor should make interest only payments on the secured debt for a specified period of time (which again must not exceed the duration of the proposed arrangement).Section 102 (6) (c) provides that the period over which the secured debt is to be paid may be extended by a specified period of time. Furthermore, under s. 102 (6) (d), a complete moratorium on payments could be imposed for the duration of a proposed arrangement. Obviously, the arrangement here does not go that far. Counsel for the practitioner suggested that no injury is done to the bank by taking the approach set out in s. 102 (6) (b). He suggested that, once the arrangement comes to an end, the capital sum owed to the bank will remain to be paid in full and, in addition, interest will apply at the appropriate variable rate which the bank is entitled to charge under the terms of the loan contract with Ms. Griffin and Mr. Griffin.
45. The issue which I must address is whether the proposed arrangement is fair and equitable in relation to the class of creditor comprising the bank on the one hand and the class of creditor comprising the credit union on the other. Section 115A (9) (e) makes it clear that, before the court can approve an arrangement of this kind, it must be satisfied that the arrangement is fair and equitable in relation to each class of creditors that has not approved the proposal (and whose interests or claims would be impaired by the arrangement coming into effect). It must, however, be acknowledged that a practitioner, formulating an arrangement of this type, will rarely be in a positon to achieve mathematical or perfect equality. Furthermore, if the arrangement is to work, it is usually essential that some provision should be made for unsecured creditors. Depending on the circumstances, this may have the result that the secured creditors’ interests will be impaired to some extent by the arrangements to be made for the benefit of the unsecured creditors. The very fact that s. 102 (6) of the 2012 Act envisages circumstances where, for the duration of an arrangement, there can be a moratorium on payments to a secured creditor (or the payment of interest only to a secured creditor) suggests that the legislature envisaged that modifications of that kind to mortgage obligations might be necessary in order to give a breathing space to debtors to address their obligations not only to their secured creditors but also to the remaining unsecured creditors.
46. As Baker J. observed in Paula Callaghan, at para. 59 of her judgment (quoted in para. 27 above), a margin of appreciation will be afforded to a practitioner in formulating a personal insolvency arrangement. In part, this is in recognition of the fact that, in any given case, a practitioner will be required to balance many different competing interests in formulating a proposal for an arrangement. The court must always be conscious of the practical difficulties which confront the practitioner in undertaking this hugely important task. The court must also keep in mind the very important statutory role given to the practitioner under the 2012-2015 Acts. The practitioner is entrusted with the task of formulating proposals which are sustainable and which provide a return for the creditors of the debtor which is commensurate with the means of the debtor. As a personal insolvency professional, the practitioner is equipped with the necessary experience and expertise to assess the means of the debtor, the extent of the indebtedness, and the feasibility of any proposed arrangement, while at the same time balancing the competing interests which arise.
47. The question which arises in the present case is whether, notwithstanding this margin of appreciation, the proposal here involves a sufficiently serious difference in treatment as between the bank, on the one hand, and the credit union, on the other, as to engage the provisions of s. 115A (9) (e). In this regard, there can be no doubt that, in the absence of objective justification, inequality of treatment is an aspect of unfairness. As Fennelly J. observed in the Supreme Court in Re. SIAC Construction Ltd [2014] IESC 25 (at para. 69):-
“Unfairness, … comprises two essential aspects, the general notion of injustice and the more specific one of unequal treatment.”
On the other hand, it is clear from the decision of McCracken J. in Re: Antigen Holdings Ltd [2001] 4 I.R. 600 at p. 603 that, depending on the circumstances, a difference in treatment between different classes of creditors may be permissible if it can be objectively justified.
48. In my view, the bank has raised a very serious issue in relation to inequality of treatment. As noted in paras. 32-35 above, counsel for the bank has drawn attention to what, on its face, is a significant disparity of treatment as between his client and the credit union. As further noted in para. 34 above, the bank would achieve a 24.6% better return under the proposed arrangement than in a bankruptcy. In contrast, the return for the credit union under the proposed arrangement is 102% better than in a bankruptcy. This disparity cannot be explained by the value of the respective security held by the bank, on the one hand, and the credit union, on the other. The value of the security held by the bank is higher than the value of the security held by the credit union. The value of the bank’s security (namely €140,000) equates to 50.5% of the total indebtedness of Ms. Griffin and Mr. Griffin to the bank (€277,308). In the case of the credit union, the value of the security held by it (€80,000) equates to only 12.5% of the amount owed by Mr. Griffin and Ms. Griffin (namely €638,505) to the credit union. It is therefore clear that the claimed disparity of treatment under the proposed arrangement arises as a consequence of the extent of the provision proposed for unsecured creditors. As noted above, it is entirely reasonable for a practitioner to formulate a proposed arrangement on the basis that appropriate provision should be made for unsecured creditors as well as secured creditors. However, the concern raised by the bank relates to the extent of the provision made for the unsecured creditors which has given rise to the disparity in the rate of return under the proposed arrangements relative to the return in a bankruptcy (as outlined above).
49. The total amount to be paid to the unsecured creditors, under the proposed arrangements, is the sum of €49,051.33 in the case of Ms. Griffin and the sum of €52,904.51 in the case of Mr. Griffin. This means that, between them, the proposed arrangements envisage that a sum of €101,955.84 will be paid to the unsecured creditors of both debtors. In contrast, according to the bankruptcy comparison set out in the proposed arrangements, the unsecured creditors, in the event of the bankruptcy of Mr. Griffin would receive €3,734 while, in the case of Ms. Griffin, they would receive €1,634. On a combined basis, the unsecured creditors would therefore receive €5,368 in a bankruptcy. By my very rough calculations, this is approximately 19 times less than they would receive under the proposed arrangements. In other words, they will be 19 times better off, under the proposed arrangements, than they would be in a bankruptcy. That seems to me to raise a significant issue as to the proportionality of the proposed arrangements. Is it right that the unsecured creditors should receive 19 times the return they would obtain in the event of bankruptcy while the bank (which holds security over property) would receive a 24.6% better return under the proposed arrangement than in a bankruptcy? In turn a similar question arises as to whether it is right that the credit union will receive a 102% better return under the proposed arrangements than it would receive in the event of a bankruptcy. On the other hand, it has to be borne in mind that, under the proposed arrangements, both the bank and the credit union would each participate in the distribution of the dividend to be paid to the unsecured creditors. They would therefore each get the benefit of the 19 fold return on that part of the debts due to them which exceeds the value of the underlying security.
50. I bear in mind that, in para. 33 of his affidavit filed in June 2018 in the course of the Circuit Court proceedings, the practitioner has made the case that the total return for the bank amounts to €226,318.70 when account is taken of the payment of interest which, over time, would amount to €68,062.78 (calculated at 4.25% per anum). If the total return for the bank is taken to be €226,318.70, this would represent a return of 81.67% of the total indebtedness of €277,308. This would represent a 78% better return than in a bankruptcy. This is much closer to the 102% figure achieved by the credit union than the 24.6% figure suggested by counsel for the bank (as recorded in para. 34 above). However, I do not believe that it is reasonable or appropriate to take the return to the bank to be €226,318.70. As the practitioner acknowledges in para. 33 of his affidavit, this return would only arise over the 72 month term of the arrangement and, thereafter, the 240 month term of the mortgage. In my view, the interest to be paid over the 240 month term of the mortgage is clearly compensation for the fact that, in contrast to the credit union, the bank will not be entitled to an immediate realisation of the security held by it over the family home and instead will have to wait until the mortgage term comes to an end. In this case, it is noteworthy that the bank was the original lender. The payment of interest was always, therefore, integral to the long term nature of the mortgage arrangement put in place.
51. I must also bear in mind that the practitioner was faced with the difficulty of formulating a proposed arrangement which required appropriate provision to be made for two secured creditors, one of which held security over the family home (i.e. the principal private residence of Ms. Griffin and Mr. Griffin within the meaning of the 2012 Act) and the other (namely the credit union) which held security over commercial property. In accordance with the provisions of s. 99 (2) (h) and s. 104 (1), he was required to formulate the proposed arrangement on the basis that there would be no disposal of the family home. In the case of the credit union, he was required under s. 103 (1) to include a term in the arrangement that gave the credit union not less than the value of the security held by it over the nursing home. In the case of the bank, he was required under s. 103 (3) to ensure that the principal sum due under the mortgage would not be reduced below the value of the family home (although he was not required to reduce it to that value). There is one common thread underlying these requirements. In both cases, the practitioner is not entitled to reduce the amount due to the secured creditor below the value of the underlying security. He has formulated his proposals on that basis. In both cases, the value of the secured debt has been written down to the market value of the underlying property. In both cases, he has also taken the same approach in relation to payment of the balance of the indebtedness over and above the value of that security. In both cases, he has treated the balance as being wholly unsecured with each party participating in the dividend to be paid to the unsecured creditors at the same rate in accordance with the pari passu principle. In that way, it could be suggested that he has treated both secured creditors on an equal footing. It can be argued that the proposed arrangements accordingly bear all the hallmarks of equal treatment. While the credit union will receive a higher payment than the bank, this is simply a reflection of the fact that the unsecured debt due to the credit union is significantly higher than the amount due to the bank.
52. Based on the return to the credit union of €154,256.57 (mentioned in para. 32 above) the credit union would recover 24% of the overall debt due to it. In other words, it would suffer a loss of 76% of the amount due. In contrast, having regard to the higher value of its security and the lower extent of the debt due to it, the bank, based on the return to it (excluding interest) of €158,255.92, would recover 57% of the debt of €277,308. In other words, it would suffer a loss of 43% of the overall debt owed to it. This rate of loss is significantly less than the rate of loss which would be sustained by the credit union. To that extent, it could be suggested that the bank fares better under the practitioner’s proposals than the credit union. By my calculations, the extent of the loss sustained by the credit union (at 76%) relative to the loss sustained by the bank (43%) has the consequence that the credit union is 77% (76.74% to be precise) worse off (in terms of its overall loss) than the bank. However, this is unsurprising given the extent of the “ negative equity” in the nursing home relative to the extent of the “negative equity” in the family home. In circumstances where the negative equity in respect of the nursing home is proportionately greater than the negative equity in respect of the family home, one would expect that the credit union would be (relatively) worse off than the bank in terms of the extent of the loss suffered by it. However, the calculations highlighted by counsel for the bank (as summarised in paras. 32 to 35 above) demonstrate that, under the proposed arrangements, the credit union would benefit to a disproportionate degree. Under those proposed arrangements, the outcome for the credit union is significantly better than the outcome for the bank and no sufficient justification has been established for this disparity in treatment. In particular, the sheer extent of the provision made for the unsecured creditors (which gives rise to the significantly better return for the credit union than the bank) has not been adequately explained or justified. I do not see anything in the papers before the court which sufficiently explains why such extensive provision was made for the unsecured creditors. In my view, the extent of the provision made for the unsecured creditors is disproportionate. It results in a rate of return which is out of kilter with the range of dividends which I have seen paid to unsecured creditors in comparable cases (i.e. in cases where, in the event of a bankruptcy of the debtor, the unsecured creditors would receive a dividend of the order of 0.22 – 0.50 cent in the euro). In the circumstances, I am compelled to come to the conclusion that the arrangements proposed by the practitioner here cannot be said to be fair and equitable to the class of creditors represented by the bank. In short, the disparity of treatment cannot be said to be equitable. As a consequence, I cannot be satisfied that the requirements of s. 115A (9) (e) have been satisfied in this case.
53. I believe that the analysis undertaken by counsel for the bank (as summarised in paras. 32-35 above) demonstrates that the effect of the arrangements proposed in these interlocking cases is that the credit union will fare significantly better than the bank. There is a clear disparity in the way in which they are each affected by the terms of the arrangement. While I fully accept that perfect equality can rarely be achieved as between creditors holding security over different assets, the sheer extent of the disparity here is such as to make it impossible to conclude that the bank has not been treated inequitably. It seems to me that the terms of the arrangements require recalibration so as to provide for a more equitable distribution as between the credit union and the bank.
54. In reaching this conclusion in relation to s. 115A (9) (e), I stress that I do not believe that there is any sufficient evidence to suggest that the practitioner, in these cases, has deliberately sought to inflate the extent of the dividend to be paid to the credit union. However, on my reading of the evidence, that is not what occurred. Unfortunately, the submission made by the bank in this case (which highlighted the claimed disparity of treatment) was not made until the day prior to the creditors’ meeting. At that point, the practitioner had already circulated all of the creditors with the proposed arrangements. Each of the creditors had already reached a decision as to how to vote on the arrangement. It was simply too late at that stage to take account of the submission made by the bank. In my view, it is perfectly understandable why the practitioner should have proceeded with the creditors meeting in those circumstances. In paras. 18-20 above, I have quoted the most relevant extracts from the affidavit of the practitioner dealing with the dilemma faced by him after receipt of the counter-proposal from the bank. He expressed himself in quite blunt terms about the value of the counter-proposal. For reasons which I have explained at an earlier point in this judgment, I believe that the practitioner was entitled to reject the counter-proposal. It is true that the practitioner also advised Ms. Griffin and Mr. Griffin that if the arrangements were to be amended to reflect the counter-proposal, it was highly likely that it would not be acceptable to their other creditors (who had already submitted proxies). This does not suggest to me that the practitioner had intentionally drafted his proposal with a view to preferring the other creditors. On the contrary, it seems to me to be no more than quite pragmatic advice that, if the arrangements were to be amended to reflect the less favourable terms proposed for creditors under the counter-proposal, there was a likelihood that the creditors (who had already been in receipt of the proposals circulated by the practitioner for an arrangement that was significantly less favourable to them) would reject them. As noted in para. 15 (e) above, the net dividend available to the unsecured creditors under the counter-proposal was €17,000. It is unsurprising that the practitioner thought that the creditors would not be prepared to support such an arrangement in circumstances where, under his proposals, the sum available for unsecured creditors was €101,955.84. If one excluded the unsecured dividend to be paid to the bank of €18,255.92, there would still be a significant fund of €83,699.92 available for distribution to the remaining unsecured creditors under the practitioner’s proposals. The advice given by the practitioner to the debtors must be seen against this backdrop.
Unfair prejudice to the bank
55. In light of my conclusion in relation to s. 115A (9)(e), it is, strictly speaking, unnecessary to consider the other issues debated at the hearing of the appeal. Nonetheless, for completeness, I will now address the issue of unfair prejudice within the meaning of s. 115A (9) (f) which has also been raised by the bank. As noted above, each of the unsecured creditors will participate on a pari passu basis in the distribution of the fund available under the practitioner’s proposals for the unsecured creditors. As further noted above, the pari passu basis of distribution is universally recognised as a fair and equitable means of distribution to creditors of an insolvent estate (whether personal or corporate). However, the issue here is not with the application of the pari passu principle but with the extent of the provision that has been made for the unsecured creditors. As a consequence of the extent of provision made, it is contended that the bank suffers an unfair prejudice. The bank’s complaint is that the generous dividend to the unsecured creditors in this case is, in fact, being funded by it. Were it not for the moratorium on repayments of capital under the proposed arrangements, it would not be possible to make such a generous payment to the unsecured creditors in these cases. While I stress that there is nothing, per se, objectionable in making provision for unsecured creditors, it is the extent of the provision which has been made in this case which gives rise to potential difficulty.
56. In the context of s. 115A (9) (f), I am required to consider whether the arrangements are not unfairly prejudicial to the interests of any interested party. The concept of unfair prejudice is not defined in the 2012 Act. Significant guidance was given as to its meaning (in an examinership context) by O’Donnell J. in the Supreme Court in McInerney Homes Ltd [2011] IESC 31 at paras. 29-30. In those paragraphs, O’Donnell J. highlighted that an arrangement of this kind is inherently prejudicial to creditors insofar as it requires them to accept a written down amount for their debt. Prejudice, of itself, is not sufficient to engage the provisions of s. 115A (9) (f). As a consequence, the question in any particular case is whether the prejudice suffered by an individual creditor can be said to be unfair. O’Donnell J. then continued as follows:-
“29. … The essential flexibility of the test appears deliberate. It is very unlikely that a comprehensive definition of the circumstances of when a proposal would be unfair could be attempted, or indeed would be wise. … The Act … appears to invite a court to exercise its general sense of whether, in the round, any particular proposal is unfair or unfairly prejudicial to any interested party, subject to the significant qualification that the test is posed in the negative: the Court cannot confirm the scheme unless it is satisfied the proposals are not unfairly prejudicial to any interested party.
30. In this case, the trial judge’s approach to the question was to view the scheme against the likely return to affected creditors under the likely alternative in the event that there was no examinership, and no successful scheme. I agree that that is a vital test. Furthermore, as the trial judge recognised, there may well be circumstances where a creditor may be required to accept less than would be obtained in such circumstances on liquidation or a receivership, but those circumstances would normally require weighty justification. …”.
57. Further guidance was given by Baker J. in Michael Ennis [2017] IEHC 120 where she said at para. 40:-
“I have considered the provisions of s. 115A in a number of judgments, most recently in Re JD … and it is clear that the court, in the exercise of the statutory power, must consider the fairness of the proposed PIA, and in that regard a comparison with bankruptcy is an essential element of the manner in which the court engages the question of fairness.”
In the interlocking cases before the court, the bank will fare better under the proposed arrangements than it would in a bankruptcy. To that extent, the proposed arrangements pass the “ vital test ” mentioned by O’Donnell J. in McInerney Homes. As noted in para. 10 above, by my calculations, the bank will secure a return of 50.5 cent in the euro under the proposed arrangements whereas, the outcome for the bank in the event of bankruptcy is 45.40 cent in the euro.
58. However, it is clear from the judgment of O’Donnell J. that, while a comparison with the outcome in a bankruptcy is an essential consideration in the context of unfair prejudice, it is not the only consideration. O’Donnell J. stressed the flexibility of the test. It is also clear that, in assessing whether any prejudice is unfair, the issue should be considered in the round. The bank contends that there is manifest unfairness to it here in the circumstances where the main source of funding for the generous dividend to the unsecured creditors is generated by the moratorium on the repayment of capital over the 72 month period of the proposed arrangements. During that period, the bank loan will be paid on an interest only basis. The bank also reiterates the points made by it in the context of s. 115A (9) (e) that, as a consequence of the way in which the proposed arrangements have been formulated, the return to the credit union is “ vastly superior ” to the return under a bankruptcy when compared with the relative return for the bank under the proposed arrangements, relative to the rate of return in a bankruptcy.
59. As noted in para. 44 above, counsel for the practitioner has argued that the proposed moratorium on the repayment of capital is expressly envisaged by s. 102 (6) (b) of the 2012 Act. He is obviously correct in making that submission. However, the extent of the provision made for unsecured creditors here is striking. In my experience, it is unusually generous. As noted in para. 9 above, the return for the unsecured creditors in a bankruptcy would be of the order of 0.22 cent in the euro in the event of Ms. Griffin’s bankruptcy and 0.50 cent in the euro in the event of Mr. Griffin’s bankruptcy. This compares with 6.53 cent in the euro and 6.7 cent in the euro respectively under the proposed arrangements.
60. As noted above, the practitioner, in formulating arrangements of this kind, is to be accorded an appropriate margin of appreciation. However, that is not to be confused with carte blanche. Any arrangements proposed by a practitioner will, in the event that s. 115A has to be invoked, be subject to the myriad of considerations which arise under that section including the requirements of s. 115A (9) (f). As a number of judgments of Baker J. highlight, the onus is on the practitioner to demonstrate that the requirements of s. 115A have been satisfied.
61. As noted in the context of s. 115A (9) (e), the proposed arrangements, on their face, might appear to treat both the bank and the credit union in the same way. Nonetheless, as the submissions of counsel for the bank have demonstrated (as set out in paras. 32-35 above) the credit union will fare better than the bank, on a relative basis, under these arrangements than in the event of a bankruptcy. In considering the matter in the round, I must also bear in mind that, in the case of the security held by the bank over the family home, s. 103 (2) of the 2012 Act applies. That subsection applies to cases where property secured in favour of a secured creditor is to be retained under an arrangement and, at the same time, the arrangement provides for a reduction of the principal sum due in respect of the secured debt. In such circumstances, s. 103 (2) provides, for the protection of the secured creditor, that the principal sum cannot be reduced to an amount less than the value of the security (as determined in accordance with s. 105). However, it is clear from the case law, that a write down of the principal sum to the market value of the secured property is not automatic. As Baker J. explained in Laura Sweeney [2018] IEHC 456 at para. 54 any write down of the principal sum under s. 103 (2) is to be assessed in the light of the repayment capacity of the debtor. At para. 56 of the same judgment Baker J. emphasised that a write-down to market value is not directed by the 2012-2015 Acts and she reiterated that the extent of any write-down is to be measured by reference to the affordability of payment.
62. Consistent with the approach taken by Baker J., I expressed a similar view subsequently in Lisa Parkin [2019] IEHC 56 where I said at para. 109:-
“I … agree with PTSB that there can be no question of any automatic write-down of a mortgage debt to the value of the underlying security. Section 102(2) makes clear that the value of the security is a ‘floor’ beneath which the proposals must not go. … That is an extremely important protection for secured creditors and is undoubtedly informed by respect for the property rights of such creditors.”
63. In order to consider the matter in the round, it seems to me that I must, therefore, consider whether the practitioner has justified the proposed write-down of the mortgage debt due to the bank to the market value of the family home. If that write-down can be justified, then the only issue that would arise under s. 115A (9) (f) is whether the generous provision made for unsecured creditors gives rise to unfair prejudice. If, on the other hand, it emerges that there is no sufficient justification put forward for the write-down in value, then it seems to me, considering the matter in the round, it would be very difficult to say that the bank has not been unfairly prejudiced by the “ double-whammy” of the imposition of a moratorium on repayments of capital and an unjustified write-down in market value. In those circumstances, I propose to move, at this point, to a consideration of the third of the issues raised by the bank.
The complaint made under s. 115A (9) (b) (ii) of the 2012 Act
64. It is a requirement of s. 115A (9) (b) (ii) of the 2012 Act that, before an arrangement can be approved, the court must be satisfied that there is a reasonable prospect that the arrangement will:
“enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit”.
65. In this case, the bank draws attention to the fact that, on the basis of the figures set out in the proposed arrangements and the written down value of the principal sum to €140,000, the debtors will have a monthly surplus, following completion of the arrangements of €1,596.26, after discharging their reasonable living expenses and the payments due on foot of the mortgage. This raises a question as to why it was necessary in those circumstances to reduce the principal sum due in respect of the mortgage over the family home to €140,000. Having regard to the principles outlined by Baker J. in Laura Sweeney, the existence of such a significant monthly surplus, after completion of the arrangements, suggests that Ms. Griffin and Mr. Griffin could afford to make repayments in respect of a higher principal sum.
66. The existence of this surplus was very specifically raised by the bank in the course of the Circuit Court proceedings. The response given by the practitioner in paras. 21 and 22 of his affidavit was in the following terms:-
“Paragraph 8 of the objecting creditor affidavit states that ‘…will have a surplus monthly income of €1,596.26’. This is entirely incorrect. Based on year 1 household income, year 7 RLE and year 7 mortgage repayment the debtors will have a ‘projected’ monthly surplus at the end of the PIA. There is no visibility or certainty to this figure. In my view it is merely a projected/theoretical amount based on ‘known knowns’ when the PIA is proposed to creditors in the first instance. It does not take account of the possible reduction or loss of illness benefit entitlements, the possibility of special circumstance costs for their son’s further education, any costs arising based on Maeve Griffin’s health situation or any other issues over the term of the PIA. Equally it does not take account of any potential salary increments that may accrue to Gerry Griffin over the period.
22. Based on the foregoing the income and RLEs have been maximised for the benefit of creditors for the maximum period of a PIA and a theoretical post PIA household monthly surplus cannot be taken as a firm/actual amount at this point in time as it may be influenced/impacted by other factors in the intervening period, and in any event, is not captured in the ‘means of the debtor’ as per the capital PIA.” (Emphasis in original).
67. In my view, these averments by the practitioner fall far short of providing any sufficient explanation as to why the practitioner reduced the principal debt due to the bank to the value of the family home particularly in circumstances where, on his own figures, there is likely to be a surplus of as much as €1,596.26 per month after the completion of the 72 month arrangements. I note, in this context, that in para. 22 of his affidavit (quoted above) the practitioner suggests that any surplus arising following completion of the proposed arrangements would not be “ captured ” by the “ means of the debtor ” as provided for in s. 115A (9) (b) (ii). As I understand the suggestion made by him, the practitioner seeks to rely on the language of the statutory provision in question which suggests that what the court is required to address is the extent to which the means of the debtor are brought to bear under the terms of the arrangements. If the court is confined to considering the terms of the arrangements, any surplus which arises post arrangement (so it might be argued) falls outside the ambit of the statutory provision. If that is what the practitioner is suggesting, it is, in my view, a mistaken understanding of the effect of the statutory provision and of the proposed arrangements which he has formulated. The fact is that it is a term of the proposed arrangements which he has formulated that the principal debt due to the bank will be written down to the value of the family home. That is an essential and integral part of the terms of the arrangements which he proposes. The write-down will endure not just for the duration of the arrangements but for the balance of the mortgage term. The question which arise here is whether that write-down has the effect that the means of Ms. Griffin and Mr. Griffin have been sufficiently brought to bear. On the face of the evidence before the court as to the surplus which will arise after the completion of the proposed arrangements, there was, in my view, a particularly heavy onus on the practitioner to justify and explain how he had come to the conclusion that it was appropriate to write-down the debt to market value. I can see nothing in the evidence which he has placed before the court in the course of the Circuit Court proceedings which justifies the extent of the write-down.
68. I fully accept that, following the successful completion of an arrangement, debtors should not, where possible, be confined to the reasonable living expenses recommended by the ISI. That is an issue which I addressed in my judgment in Lisa Parkin [2019] IEHC 56 and it is unnecessary to repeat that analysis here. However, it is difficult to see how Ms. Griffin and Mr. Griffin require a buffer of the order of €1,569.26 above the reasonable living expenses. While I appreciate that in the Lisa Parkin case, a reasonably generous buffer was accepted by the court, this was not intended to be a bench mark for what would be acceptable in all cases. In that case, I had a very significant concern that the issue in relation to the extent of the surplus had not been adequately flagged by the objecting creditor in the course of the Circuit Court hearing and therefore had not been addressed in any detail in either the affidavits filed by Ms. Parkin or by the practitioner in that case. In contrast, in the present case, the issue was raised very plainly by the bank in para. 8 of Mr. Gately’s affidavit filed in May 2018 and the point was specifically made by him that, even if 50% of that monthly surplus was made available, it would be sufficient to service payment of part of the amount which had been written down. The practitioner and Ms. Griffin and Mr. Griffin were each therefore on notice that this was an issue of concern to the bank and they failed to address it in any sufficient level of detail in response. In these circumstances, I have come to the conclusion that there is no sufficient evidence before the court which would allow the court to form the view that surplus income of the order of €1,596.26 per month is justified or reasonable. Similarly, there is no evidence to justify the extent of the write-down.
69. I appreciate that, in the course of the appeal, further evidence was delivered by Ms. Griffin and by the practitioner in response to the additional affidavit delivered by the bank with leave of the court. These affidavits go far beyond a response to the matters raised on behalf of the bank in its new affidavit. No leave was given for the delivery of such affidavits. Even if regard is given to these affidavits, they are at a level of generality which again falls far short of justifying the retention of the monthly surplus described above or the write-down of the principal sum due to the bank. While a large number of potential expenses in the future are listed in the affidavit (which may or may not arise), the explanation for the reduction in the principal sum is ultimately given in para. 32 of the practitioner’s affidavit in the following terms:-
“32. I say that an order to reach a sustainable and affordable payment, and to return the debtor to solvency, I had to reduce the debt, and the appropriate reduction was to €140,000. I say that this reduction was based on the age and means of the debtor and based on affordability. I say that fact the payment of interest only mortgage repayments over the 72 month term of the PIA would automatically result in a significant uplift in the monthly payments after the PIA for the remaining 168 month mortgage term. In this case the mortgage during the PIA amounted to €495.83 on an interest only basis increasing to €1,107.12 on a full capital and interest basis after the PIA”.
70. In my view this does not provide any rational or objectively justifiable basis for the reduction of the mortgage debt to €140,000. While the practitioner says that this is based on the age, means, and affordability of the debtors, he does not explain this in any way and, in particular, does not sufficiently explain why the debtors here need a buffer of €1,596.26 per month. On the face of it, that is a very generous buffer and requires a more detailed explanation. While reference is made to the potential for future medical expenses for Ms. Griffin, no attempt has been made to evaluate the likelihood that such expenses might arise in the future. In fact, no sufficient evidence has been given as to Ms. Griffin’s medical needs. In the circumstances, it seems to me that not only can I not be satisfied that the requirements of s. 115A (9) (b) (ii) have been satisfied but the same difficulty arises in relation to s. 115A (9) (f). In circumstances where the write-down of the mortgage debt has not been justified, it is impossible to conclude that a bank would not be unfairly prejudiced by the proposed arrangements.
Conclusion
71. In light of the considerations outlined above, I am unable to conclude that all of the requirements of s. 115A have been satisfied in this case. In those circumstances, it is not possible to make an order confirming that the proposed arrangements should come into effect. In reaching this conclusion, I am very conscious that I differ from the decision of the learned Circuit Court judge. However, I have had the benefit of more extensive submissions (both written and oral) than were made in the Circuit Court. I have also had more time to reflect on the arguments than was available to the learned Circuit Court judge.
72. At the same time, I am also conscious that more than a year has passed since the decision of the learned Circuit Court judge and that, in the meantime, the practitioner has taken steps to implement the arrangements which were the subject of the order made by the Circuit Court in July 2018. Regrettably, there is no facility available under the 2012-2015 Acts for the court to make adjustments to an arrangement that has already been voted on by creditors so as to correct or counter-balance any perceived unfairness. It is clear, on the basis of the evidence before the court, that it would be possible to formulate arrangements in both of these cases which would meet the requirements of s. 115A. The circumstances of persons such as Ms. Griffin and Mr. Griffin are precisely what the Oireachtas had in mind when enacting the 2012-2015 Acts. It should not be difficult to formulate proposals which would address the concerns outlined in this judgment while, at the same time providing a fair distribution to the other creditors of Ms. Griffin and Mr. Griffin. In this context, I do not know whether any steps might reasonably be taken which, with goodwill from all parties, might avoid the necessity to recommence the process. I believe it would be worthwhile adjourning the matter for a short period of time to see whether any such steps might be taken.
73. If it is not possible to avoid recommencing the process under the 2012-2015 Acts, it seems to me that there would be a good basis on which to apply to the Circuit Court for an order pursuant to s. 91 (3) of the 2012 Act to permit an application for a protective certificate to be made in advance of the twelve month period prescribed by s. 91 (1) (i). While it would obviously be a matter for the learned Circuit Court judge to form his or her own view on any such application, it seems to me that there are factors here outside the control of Ms. Griffin and Mr. Griffin which would make it just to permit them to make a new proposal for a personal insolvency arrangement. In this regard, I am struck by the fact that the counter-proposal from the bank was made at such a late stage that it was wholly impracticable for the practitioner to reformulate the proposals at that point. In light of the fact that proxies had already been received from creditors, it was entirely reasonable for the practitioner to take the step which he did. If the counter-proposal had been made in a more timely way, it would have highlighted the issue which became the focus of the hearing before me and would have allowed the practitioner to formulate proposals (in advance of circulation to creditors) which took account of the underlying complaint made by the bank in the email of August 2017. While the counter-proposal itself lacked reality, the complaint that the proposals then under consideration were unduly weighted in favour of the credit union was an issue that could have been taken on board and appropriate proposals prepared which provided for a fairer distribution as between the credit union on the one hand and the bank on the other.
74. In light of the considerations discussed in paras. 72 to 73 above, I propose, before making any order in this case, to adjourn the matter for a period of weeks to see whether any practical solution can be found which would avoid the re-commencement of the process. I will discuss with counsel what period of time should be allowed for that purpose. I should make clear that I am not confident that any such practical solution can be found but I believe it would be a pity not to allow an opportunity to the parties to explore whether a solution can be identified.
Forde (orse Egan) v Personal Insolvency Acts 2012-2015
[2020] IEHC 102 (02 March 2020)
JUDGMENT (ON COSTS) of Mr. Justice Denis McDonald delivered on 2 March, 20201. This judgment deals solely with the costs of this appeal. The appeal in question wasbrought by Bank of Ireland Mortgage Bank (“the bank”) in respect of an order made bythe Circuit Court on 20th December, 2018 under s. 115A (9) of the Personal InsolvencyAct, 2012 (“the 2012 Act”) by which the learned Circuit Court judge confirmed the cominginto effect of a personal insolvency arrangement proposed on behalf of the above-nameddebtor by Mr. Daragh Duffy, her personal insolvency practitioner (“the practitioner”). In ajudgment delivered by me on 20th December, 2019 I dismissed the appeal brought bythe bank and affirmed the order made by the learned Circuit Court judge.2. Subsequent to delivery of judgment by me, I heard argument on behalf of both the bankand the practitioner on 16th January, 2020 in relation to the costs of the appeal. On thatoccasion, counsel for the practitioner sought an order for costs against the bank on thebasis that the bank, in bringing this appeal, was “on the hazard in relation to costs”.Counsel drew my attention to s. 97 (4) of the 2012 Act which provides, in the specificcontext of the right of appeal in respect of a protective certificate, that the court is tohave regard to the objective “that all the parties to such an application should bear theirown costs unless to do so would cause a serious injustice to the parties to theapplication”. Counsel for the practitioner made the point that there was no similarprovision elsewhere in the Act in relation to applications under s. 115A or in relation toappeals from decisions of the Circuit Court under s. 115A.3. Instead, s. 115A (14) provides in simple and straightforward terms that:-“The court, in an application under this section, shall make such other order as itdeems appropriate, including an order as to the costs of the application.”That subsection, in contrast to s. 97 (4) clearly envisages that costs will be at thediscretion of the court. In Varvari (a debtor) [2020] IEHC 23, counsel for the partieswere agreed that s. 115A (14) can be seen as displacing, at least to some extent, whatcounsel for the objecting creditor in that case correctly described as the presumptive ruleunder O.99 r.1 that costs should “follow the event”.4. For completeness, it should be noted that the substantive hearing of the s. 115Aapplication in Varvari took place prior to 7th October, 2019 when Part 10 of the LegalServices Regulation Act, 2015 (“the 2015 Act”) came into operation pursuant to the LegalServices Regulation Act, 2015 (Commencement of Certain Provisions) No. 2 Order 2019(S.I. No. 502 of 2019). In contrast, the substantive hearing of the present appeal tookplace on 18th October, 2019 after the 2015 Act came into force. In these circumstances,Page 2 ⇓it would appear to me that s. 169 of the 2015 Act would now be the operative provisionwhich replaces O.99 r.1 and gives effect, by way of primary legislation, to the principlethat costs should ordinarily follow the event. No submissions were made to me at thehearing on 16th January, 2020 as to the possible application of s. 169 of the 2015 Act. Itmay well be important, in a future case, to determine whether s. 169 can be said to haveany application to the specific statutory jurisdiction of the court under s. 115A (14) of the2012 Act in relation to costs. In circumstances where I have not heard any argument onthe issue, it would be inappropriate for me to attempt to express any definite view inrelation to the potential interaction between s. 115A (14) of the 2012 Act, on the onehand, and s. 169 of the 2015 Act, on the other. I merely observe that, given the wideterms of s. 115A (14) in the specific context of applications under s. 115A, it would seemto me to be unlikely that s. 169 could be said to override the exercise of the court’sjurisdiction under s. 115A (14). That said, courts dealing with costs issues under s. 115A(14) may well be influenced by the approach taken in s. 169 and in particular may think itappropriate to take into account, in any individual case, some or all of the factors in thenon-exhaustive list of factors enumerated in s. 169 (1). In this context, it seems to methat the factors identified in s. 169 (1) are matters which a court would be fully entitled totake into account, in a costs application, even in the absence of any statutory provision.As the decision of the Supreme Court in Dunne v. Minister for the Environment [2008] 2I.R. 775 demonstrates, the court is always entitled, even in cases where the “costs followthe event” principle applies, to depart from that principle, if in the special circumstancesof an individual case, the interests of justice require that it should do so.The submissions on behalf of the practitioner5. Counsel for the practitioner submitted that, in the particular circumstances of this case, itwould be appropriate to apply the “costs follow the event” principle. Counsel for thepractitioner drew attention to the fact that, in the Circuit Court, the learned judge madeno order as to costs. In the case of first instance proceedings, counsel submitted that theapproach taken by the learned Circuit Court judge was correct and in accordance with thepractice which has developed subsequent to the judgment of Baker J. in Re. Meeley (adebtor) [2019] 1 I.R. 235. Counsel acknowledged that, subsequent to the decision inMeeley, a practice had developed to the effect that, in respect of a first instance hearing,the courts generally make no order as to costs on a s. 115A application irrespective of theoutcome of that application. However, he submitted that the position must be differentwhere an objecting creditor appeals that decision to a higher court. He argued that,having had the benefit of no costs penalty at the first instance hearing, it would not beappropriate to take the same approach on appeal where the court confirms the decisionmade at first instance. Counsel also sought to rely on a letter sent by the solicitors forthe practitioner to the bank on 17th October, 2019 in which an offer was made that, if thebank agreed not to pursue the appeal, the practitioner would not seek his costs of theappeal. Counsel for the practitioner argued that the failure of the bank to take up thisoffer added force to his application for the costs of the appeal.6. Counsel for the practitioner also drew attention to the decision of Simons J. in Tanager v.Ryan [2019] IEHC 694 in which Simons J. held that the unsuccessful respondent, TanagerPage 3 ⇓DAC (“Tanager”) should be made liable for the costs of an appeal taken by a debtoragainst an order of the Circuit Court giving leave to Tanager to execute an order forpossession in respect of the debtor’s family home notwithstanding the existence of aprotective certificate issued under the 2012 Act. Simons J. held that there were nospecial circumstances which would justify a departure from the ordinary approach takenunder O.99 r.1 (which has now been replaced by s. 169 of the 2015 Act). At para. 41 ofhis judgment in that case, Simons J. held that the respondent to that appeal should beentitled to his costs on the basis that, having lost the appeal on its merits, Tanager shouldbe made liable for the costs of the appeal.7. Finally, counsel for the practitioner also relied on my judgment in Re. Finnegan (a debtor)(No.2) [2019] IEHC 137 in which I rejected an argument made by the unsuccessfulapplicant in that case that there was no basis, on public interest grounds, to depart fromthe usual principle that costs should follow the event. I deal further, below, with thejudgment in Finnegan.The submissions on behalf of the bank8. In response, counsel for the bank made a number of submissions. He began by makingclear that he fully accepted that, in regular inter partes litigation, the normal rule is thatcosts will follow the event. With regard to the decisions of Simons J. in Tanager v. Ryanand my own decision in Finnegan (a debtor), counsel for the bank submitted that bothcosts judgments were focused on the question of whether it could be said that theunderlying substantive judgments in both cases revolved around issues of general publicinterest. Counsel submitted that it was easy to see why arguments to that effect wererejected in each case.9. Counsel for the bank drew attention to the approach taken by Baker J. in Meeley (adebtor) where she concluded that, save in exceptional circumstances, a practitionershould not be made liable for costs of an unsuccessful application under s. 115A. At para.112 of her judgment in that case, Baker J. suggested that the same principle mightpotentially: -“inform the approach to an application by a PIP for an order for the costs of asuccessful review against a creditor.”However, Baker J. did not make any definitive ruling to that effect in her judgment.Counsel for the bank very properly said that he was not advancing a “sauce for thegoose” argument based on this observation by Baker J. in para. 112 of her judgment inMeeley. He accepted that, having regard to the nature and scheme of the 2012 Act, apractitioner is generally insulated from any liability for costs of bona fide proceedingsunder the Act. Counsel accepted that objecting creditors are not quite in the sameposition as a practitioner insofar as costs are concerned.10. While not suggesting that the same approach must be taken in respect of creditors,counsel for the bank nonetheless argued that the principles which emerge from thedecision of Baker J. in Meeley should inform the approach of the court to the presentPage 4 ⇓application and he suggested that the court should look at the conduct of the creditor inthe context of the appeal. In making that submission, counsel for the bank drewattention to a number of observations I made in my judgment in Finnegan at paras. 12-13 where I said:-“12. The standard approach or default position is that costs follow the event. Thewinner, ordinarily, is entitled to costs. I fully acknowledge the general applicabilityof that principle but I believe it must be approached with some caution in thecontext of proceedings under the 2012-2015 Acts. As the decision in … Meeleyillustrates, the standard approach does not always apply in connection withpersonal insolvency proceedings.13. Equally, it seems to me that it is not always appropriate to apply the standardapproach in cases where issues arise on the evidence presented by a practitionerand the court derives assistance from the submissions of an objector in resolvingthose issues. In such cases, it may be appropriate, depending on the individualcircumstances, to make no order as to costs even where the practitioner is,ultimately, successful in the application.”11. In contrast to the position in Finnegan, counsel argued that the approach taken by thebank in this case was not designed to “deal a knockout blow” to the application under s.115A. On the contrary, the bank had presented a very focused appeal. Counsel acceptedthat, in paras. 34-57 of my substantive judgment delivered on 20th December, 2019, Ihad been critical of some aspects of the case made by the bank. But counsel argued thatthese were not the subject of any oral argument or submission in the course of thehearing in October, 2019. This was not a situation, counsel argued, where the bank, forthe purposes of the appeal, had run every possible argument. The bank’s oralsubmissions were centred on the principal issue identified in para 18 of my judgment inrelation to the effect of s. 116 of the 2012 Act. Counsel submitted that this was animportant issue which required to be resolved and which was ultimately “teased out”between the bank and the court. Counsel argued that, as the length of the substantivejudgment demonstrates, the issue in relation to s. 116 was a “point of substance”.12. In considering the issue of costs, counsel for the bank argued that the court should askitself the following questions: Was the issue one that required resolution? Did the bankput up helpful arguments? Did the court derive assistance from the arguments made bythe bank? Did the bank act in a focused way or did the bank seek to raise all possiblearguments? If the court answers those questions in favour of the bank, counselsuggested that, having regard to the observations made by Baker J. in para. 112 of herjudgment in Meeley, the court should treat the bank (as an unsuccessful creditor) in thesame way as the court would treat an unsuccessful practitioner. Counsel submitted that,accordingly, no order for costs should be made against the bank.13. With regard to the letter of 17th October, 2019, counsel for the bank highlighted that theletter was sent only the day before the hearing in October 2019. At that point, all of thecosts of the appeal had already been incurred. Counsel suggested that the reliancePage 5 ⇓placed by the practitioner on the letter was entirely inconsistent with the observations ofBaker J. in Michael Hickey (a debtor) [2018] IEHC 313 where she said at para. 67-69:-“67. This matter was listed for hearing of the preliminary objection by the ObjectingCreditor on 30 April 2018. In their letter of 27 April 2018, Messrs. Holohan LawSolicitors described the position adopted by the Objecting Creditor as ‘unstateable,incorrect in law’ and said that it was clear that the law was in their favour, andcalled upon KBC to withdraw the application and to pay measured costs in respectof the application.68. This is precisely the form of letter intended to have a chilling effect to which I drewattention in my judgment in In Re Meeley …, where the concern I expressed wasthat correspondence from creditors which threatened an application for costsagainst a PIP in a ‘routine or ordinary case which is lost’ was not a practice which Iconsidered could be condoned by a court.69. I make a similar comment with regard to the overly enthusiastic letter fromMessrs. Holohan Law. The approach adopted is not one consistent with the schemeof the legislation, which envisages a rational approach to the question ofinsolvency, and which in itself seems to me imports an obligation to adopt arational approach on both the creditor and debtor in regard to any matter beforethe court.”14. In conclusion, counsel for the bank summarised his submission by saying that, while hedid not contend that the position of a creditor in relation to the costs of an appeal isprecisely the same as the well-established position in respect of practitioners, it maynonetheless be appropriate in a suitable case (and he suggested that the present one fellwithin this category) to take an analogous approach. In particular, he suggested that thisis the approach that should be taken in an appeal that raises a new issue and where thecreditor runs the appeal on what he described as a constructive basis. In such cases, hesubmitted that it was appropriate that the creditor should be placed in a somewhatequivalent position to a practitioner. In making that submission, he also very properlyrecognised that, in contrast to the practitioner, the creditor in pursuing an appeal is notengaged in any statutory function. He also recognised that, in the case of a creditor,there were, in contrast to the position of a practitioner, commercial interests at stake.The practitioner’s response15. In response, counsel for the practitioner submitted that the bank had not confined itself,in the pursuit of its appeal, to the legal issue in relation to the effect of s. 116. Hehighlighted that the written legal submissions delivered on behalf of the bank raisedsignificantly more issues than had been the subject of oral argument at the hearing inOctober 2019. Counsel noted that, at the hearing in October, 2019, the arguments madein the written submissions had not been withdrawn and that, accordingly, it had beennecessary for the court to address them in the judgment of December 2019. Counsel forthe practitioner also submitted that the costs regime as applied in practice by the courtsproceeds on the understanding that, in the case of a first instance hearing, the court willPage 6 ⇓not generally make an order for costs against an objecting creditor. However, if theobjecting creditor fails to succeed in its objection at first instance, it cannot be the case(so counsel argued) that the creditor should be in a position to run the case all over againon appeal with an effective immunity in respect of costs. He also submitted that the clearintention of the bank’s appeal was not to clarify the law for the future but to deliver aknockout blow to the arrangement proposed by the practitioner in this case. The appealwas to further the bank’s commercial interests and counsel submitted that it would beentirely inappropriate in such a case that a creditor should be insulated from the costsconsequences of pursuing such an appeal.16. Counsel for the practitioner also suggested that the s. 116 issue was not a new issue andthat it had, in substance, been addressed by Baker J. in J. D. [2017] IEHC 119 and by mein my judgment in Ahmed Ali [2019] IEHC 138.17. Finally, counsel for the practitioner sought to draw a contrast between the present appealand cases where the appellant creditor pursues an appeal in circumstances where alegitimate issue arises in relation to the quality of the evidence before the Circuit Court orwhere the evidence relevant to the grant of relief under s. 115A is relatively finelybalanced. Counsel accepted that, in practice, the court, in such cases, does not ordinarilymake an award of costs against an objecting creditor, even on appeal.Discussion18. As noted by me in para. 12 of my judgment in Finnegan (a debtor) I believe the standardposition under O.99 r.1 (now found in s. 169 of the 2015 Act) that costs follow the eventmust be approached with some caution in the context of proceedings under the 2012 Act.As the decision of Baker J. in Meeley (a debtor) illustrates, the standard “costs follow theevent” approach will not be taken as against a practitioner save in exceptionalcircumstances of the kind discussed in that judgment or in the circumstances describedby me in my judgment in Varvari (a debtor) [2020] IEHC 23. Baker J. explained therationale for this approach, at para. 151 of her judgment in Meeley in the followingterms:-“151. Having regard to the particular and express public interest that is performed by aPIP in the insolvency process, and the fact that the PIP has no economic or personalinterest in the outcome of an application, save for any fees which might come toaccrue under a PIA which might come into effect following a making of an order ofcourt, I consider that a costs order would not be made, unless it can be shown thata PIP acted without bona fides or dishonestly, or ‘acted with any impropriety’, …”.Baker J. came to the conclusion that, accordingly, a costs order would not be madeagainst a practitioner save in exceptional circumstances. As noted above, counsel for thebank accepts that an objecting creditor will not be in quite the same position as apractitioner in light of the fact that the objecting creditor will have a commercial interestin pursuing an objection. However, counsel for the bank nonetheless submitted that, inthe particular circumstances of this appeal, the bank should be treated in a somewhatanalogous position.Page 7 ⇓The costs of proceedings at first instance19. I agree that, in many cases, it may be inappropriate to take the conventional “costs followthe event” approach against an unsuccessful objecting creditor in proceedings at firstinstance. As outlined by me in para. 13 of my judgment in Finnegan, this is especially soin cases where issues arise on the evidence presented by a practitioner and the courtderives assistance from the submission of an objector in resolving those issues. Thesubmissions made by an objector will also often be of considerable assistance to the courtin determining whether the conditions for the grant of relief under s. 115A have beensatisfied in any individual case. In carrying out its task under s. 115A, it can be ofconsiderable help to the court to hear argument from two sides. Where an objectingcreditor attends the hearing of the application and makes constructive arguments(particularly in relation to the adequacy of the evidence before the court) the court canproceed, with a greater level of assurance, to reach a sound determination as to whetherthe conditions for relief have or have not been satisfied in any individual case.20. However, in my judgment in Finnegan, I also suggested that a different approach maywell be appropriate where an objecting creditor has mounted a vigorously pursued butunsuccessful argument on the law which was designed not to clarify a point of genuineuncertainty but instead to deal a knockout blow to an application under s. 115A. Iaddressed this issue in para. 14 of my judgment in Finnegan where I said:-“14. Here, Mars has mounted a vigorously pursued argument on the law which wasdesigned to deal a knockout blow to the application under s. 115A. Prima facie, it isdifficult to distinguish the approach taken by Mars in this case from normal interpartes litigation where the standard approach discussed above is almost invariablytaken. ….”On the other hand, there may well be cases where a legal issue of substance is raised byan objecting creditor which requires to be resolved in the interests of legal certainty and Iwould not wish to suggest that an objecting creditor should always be penalised justbecause it loses a legal argument which it has raised. I appreciate that it may be difficultto draw a bright line between those cases where an objector should be made subject toan order for costs (on the basis of an unsuccessful challenge on a legal issue) and thosewhere it should not. However, in any individual case, the court will be in a position toform a view as to whether the legal issue raised by the objector was one of genuinesubstance that required to be resolved in the interests of legal certainty. If the issue canbe characterised in that way, the court may well form the view that it would not beappropriate to make an order for costs against the objecting creditor. On the other hand,if the issue is one which was, in substance, previously resolved by an earlier decision orwhere the point raised lacks any real substance, the court may well be justified in makingan order for costs against the unsuccessful objector.21. In cases where the objecting creditor raises issues in relation to the quality of theevidence placed before the court by the practitioner, I believe that the court, dealing withapplications under s. 115A at first instance, should be slow to impose a liability in costson the unsuccessful objector unless the court is satisfied that there was no merit at all toPage 8 ⇓the position taken by that creditor. In my view, it is necessary to bear in mind that, asnoted further below (in the context of costs of appeals to the High Court) thatproceedings under s. 115A are not adversarial in any traditional sense. The court isconducting a process of enquiry as to whether the relevant conditions for relief under s.115A have or have not been satisfied. In those circumstances, it is of assistance to thecourt, in evaluating the evidence before it, to hear submissions from a party other thanthe practitioner. The participation of an objecting creditor in the hearing often assists theprocess of evaluation of the evidence by the court.The costs of an appeal to the High Court22. The position in relation to the costs of an unsuccessful objector on appeal potentiallygives rise to different issues. It seems to me that a distinction may need to be drawnbetween appeals where the principal argument raised by the objecting creditor is basedon a legal point and cases where the objecting creditor makes submissions which areconfined to addressing genuine concerns in relation to the quality of the evidenceavailable such that issues can be said to arise as to whether the relevant conditions forthe grant of relief under s. 115A have been satisfied in any individual case.23. In cases where the appeal revolves around a legal point raised by the objecting creditor,there is significant substance to the argument made on behalf of the practitioner in thiscase that, having had the benefit of no order as to costs in the Circuit Court, a similarimmunity in respect of a liability for costs should not necessarily be available on appeal.There may, of course, be cases where the legal point in issue is one which has arisen in alarge number of cases at first instance and where it is important, in order to clarify thelaw, that it should be resolved on appeal. It may well be appropriate in such cases toapply the same or analogous principles to those discussed in the judgment of Clarke J.(as he then was) in Cork County Council v. Shackleton [2011] 1 IR 443 albeit that thereis no party to proceedings under the 2012 Act who could be said to be a “publicauthority”. In cases where a doubt has arisen as to the correct legal position, the greatergood in resolving that issue on appeal may well outweigh and displace any suggestionthat costs should follow the event.24. On the other hand, in cases where the objecting creditor confines its submissions onappeal to issues relating to the quality of the evidence available in order to satisfy theconditions for relief, there is also much to be said for the submission made by counsel forthe bank that, in cases under the 2012-2015 Acts, the court should be slow to impose anorder for costs against an unsuccessful objecting creditor (even on appeal) where thecreditor has acted constructively in its engagement with the court. This is particularlyrelevant in the context of appeals from the Circuit Court to the High Court which are byway of a full rehearing. The High Court, on appeal, has to engage afresh with each of theconditions for the grant of relief under s. 115A and it can be of enormous assistance tothe court, in its deliberations as to whether these conditions have been satisfied in anyindividual case, to hear submissions from the objecting creditor. Obviously, in all thesecases, the objecting creditor will be acting in its own commercial interests. However,while the objecting creditor acts in that way, it also acts as a legitimus contradictor. AsPage 9 ⇓noted above in the context of first instance hearings, in considering the issues which ariseunder s. 115A, it is of considerable assistance to the court to have arguments made onboth sides. If an objecting creditor acts constructively and confines its objections andsubmissions to points that clearly require debate, it would be inappropriate, in my view,to penalise the objecting creditor in costs even where it is unsuccessful on appeal. Whilethe objecting creditor cannot be said to be in the same position as a practitioner (whocarries out a very important statutory function) in relation to its potential liability forcosts, the observations made by Baker J. in Meeley with regard to the positon of apractitioner are also of some relevance to the position of an objecting creditor who actsconstructively. As Baker J. observed in para. 150 of her judgment, an application unders. 115A “could not properly be regarded as inter partes litigation in the true sense”. Inthe same paragraph, she reiterated the observations made by O’Donnell J. in theSupreme Court with regard to the role of an examiner under the Companies Act where hesaid, in McInerney Homes Ltd [2011] IESC 31 at para. 32:-“The issue is not only an adversarial one: the Court is conducting a process in thepublic interest and will, for example, have regard to the interests of parties such asemployees who may not be represented before it. …”.25. Having regard to the nature of the proceedings before the court (which are similar tothose which arise, in a corporate setting, in the context of examinerships), it seems to methat it must be open to the court in any individual case (whether at first instance orappeal) to decide not to penalise an unsuccessful objecting creditor in costs where thecourt has obtained significant assistance from the position taken by that creditor. This ismore likely to be so in the context of unsuccessful submissions on the evidence ratherthan on the law but I would not wish to suggest that unsuccessful arguments on the lawshould always result in costs consequences. As noted above, there may be cases where agenuine doubt exists as to the law which might, in an individual case, justify the court inmaking no order as to costs.26. I should equally make clear that there may well be circumstances where it is appropriatefor the High Court, on appeal, to make an adverse costs order against an objectingcreditor who has confined itself to addressing evidential issues. In my view, the courtshould generally be less receptive to the position adopted by an objecting creditor wherethe evidence adduced on behalf of the practitioner and the debtor in the Circuit Court hasbeen comprehensive and complete and the Circuit Court has, on that basis, expresseditself to be satisfied that the conditions for the grant of relief under s. 115A have beensatisfied. There is some merit in the submission made on behalf of the practitioner in thiscase that, at least in such cases, it would not be appropriate to allow an objecting creditorto pursue the same unsuccessful arguments in the High Court, on appeal, which it hadlost in the Circuit Court without any risk as to costs. That would encourage unmeritoriousappeals. It would be impossible, of course, to lay down any hard and fast rule in thisregard. Every case must depend on its own individual facts. Section 115A (14)specifically declares that the court is free to make any order as to costs as it thinksappropriate.Page 10 ⇓27. Nonetheless, it seems to me to be entirely appropriate for a court to take the approachoutlined in para. 25 above where the court is satisfied that the unsuccessful objector hasbeen of assistance to the court in the way in which it has approached the matter either atfirst instance or on appeal.The approach to be taken in this case28. The question which now arises is whether it is appropriate in the specific context of thisappeal to make no order as to costs as against the bank. Notwithstanding the very ableand ingenious submissions made by counsel on behalf of the bank, I have come to theconclusion that it would not be appropriate, in the particular circumstances of this case, totake that course. I have reached that view in circumstances where, to my mind, the legalissue raised by the bank was inconsistent with the pre-existing case law of the court inparticular the seminal decision of Baker J. in J.D. and, to a lesser extent, my owndecision in Ahmed Ali.29. As noted in para. 7 of my December 2019 judgment, the principal argument made onbehalf of the bank in its oral submissions in the course of the appeal was that, if the courtwere to approve the arrangement by granting the order sought by the practitioner unders. 115A (9), this would, in effect, deprive the bank of its rights under s. 116 (6) toenforce its rights against Mr. Egan (the husband of Ms. Forde Egan) who is a formerbankrupt. It was argued that such an outcome was self-evidently unfair and prejudicial tothe rights and interests of the bank such that the court would be precluded by s. 115A (9)(e) and (f) from approving the arrangement. It was also argued that the right of thebank to pursue Mr. Egan under s. 116 (6) meant that the requirements of s. 115A (9) (b)(iii) could not be satisfied in this case. Insofar as relevant, s. 115A (9) (b) (iii) providesthat the court cannot make an order confirming the coming into effect of a proposedarrangement unless it is satisfied that there is a reasonable prospect that thearrangement will “enable the debtor…not to dispose of an interest in … or … not to ceaseto occupy … his or her principal private residence.”30. Although the bank argued that the issue raised by it in relation to the effect of s. 116 (6)was novel, I do not believe that this is, in fact, correct. Section 116 (6) was expresslyaddressed in both J. D. and in Ahmed Ali. While the argument made by EBS (the relevantobjecting creditor) in J.D. was simply that s. 116 (6) was insufficiently broad to protect itsposition, Baker J. analysed the subsection and came to the conclusion that the subsectionoperated to permit EBS to proceed against the spouse of the debtor in that casenotwithstanding confirmation of the arrangement involving the debtor alone. As noted byme in para. 14 of my December 2019 judgment in this case, Baker J., in the course of herjudgment in J.D., drew attention to the standard terms of the arrangement proposed inthat case which expressly provided that any person who borrowed money as a jointborrower with a debtor would continue to be liable to the relevant creditornotwithstanding confirmation of the arrangement. In my December 2019 judgment Iessentially followed and applied the decision in J.D. It is true that the bank, in thepresent case, specifically submitted that the court could not approve the arrangementhaving regard to the provisions of s. 115A (9) (b) (iii) of the 2012 Act. As noted in para.Page 11 ⇓25 above, under that provision, the court may not make an order confirming the cominginto effect of a proposed arrangement unless it is satisfied that there is a reasonableprospect that confirmation of the arrangement will secure the continued occupation by thedebtor of his or her principal private residence. The bank submitted in the present casethat this condition could not be satisfied in circumstances where, under s. 116 (6), it mustbe entitled to pursue a remedy against Mr. Egan under s. 31 (2) (a) of the Land andConveyancing Law Reform Act, 2009 (“the 2009 Act”). In my view, that argument wasaddressed, in substance, in the judgment of Baker J. in J.D.31. I do not know whether a specific argument was made by EBS to that effect in J. D.However, s. 115A (9) (b) (iii) is one of the conditions which the court must consider whenconfronted with an application under s. 115A. It is clear from s. 115A (9) that each of theconditions set out in that subsection (including the condition described at para. (b) (iii))must be satisfied before the court can make an order confirming the coming into effect ofa proposed arrangement. It is therefore inconceivable that the provisions of s. 115A (9)(b) (iii) were not considered by Baker J. Moreover, it is clear from her judgment that,although she did not specifically identify the subsection by name, Baker J. addressed theissue in substance. This is clear from the terms of para. 57, 58 and 89 (c) of herjudgment. In para. 57 she explains why, notwithstanding that the objecting creditor,EBS, was entitled to proceed against the debtor’s spouse, any such action was likely, inpractical terms, to achieve nothing (in circumstances where, as in the present case, thevalue of the debt due to the objecting creditor exceeded the value of the family home).In paras. 57-58, Baker J. said:-“57. on the figures currently available, the principal private residence of the debtor hasa value well below the amount owed on the mortgage, and insofar as EBS mightseek to recover possession against Mr. R it will undoubtedly be met by an argumentthat an order for possession has no practical import as Ms. D and her children willcontinue to reside in the house and may, as a matter of law, continue to do soprovided the terms of the restructured mortgage are met.58. Therefore, it seems to me that the argument of EBS that it is unfairly prejudicedwith regard to the enforcement of its security interest in the premises insofar as Mr.R is concerned is not borne out by the law or the facts. The prejudice to EBS will becaused, not by the fact that Mr. R has not been brought into the restructuredarrangement, but by the extent of the negative equity …”32. It will be seen that, in these paras., Baker J. held (as I did in the present case) that it waslikely that the action which the objecting creditor proposed to take against the non-participating spouse would not be successful in circumstances where the value of the debtexceeded the value of the home. For that reason, the right of EBS in that case to pursuethe debtor’s spouse under s. 116 (6) did not trigger the application of s. 115A (9) (b) (iii).It is therefore unsurprising that, in para. 89 (c) of her judgment, Baker J. was able toconclude that the proposed arrangement: “preserves the entitlement of the debtor toPage 12 ⇓continue to reside with her young children in her principal private residence and does notdeprive the secured creditor of any claims against a co-debtor or co-mortgagor.”33. In these circumstances, notwithstanding the considerable skill shown by counsel for thebank in their submissions both oral and written, I do not believe that the question whichwas raised in this case could be said to be in any way novel or one that required to beresolved. Notwithstanding the length of my December 2019 judgment, the issue seemsto me to have been settled by the decision of Baker J. in J.D.34. Similarly, although I did not address the issue in the context of s. 115A (9) (b) (iii) inAhmed Ali, I nonetheless reached a similar conclusion to that of Baker J. in J.D. (albeit inthe context of the case made by the bank in that case that it was unfairly prejudiced bythe proposed arrangement). In para. 50 of my judgment, I expressed the view that,although the bank would be free to take action against the wife of the debtor in that case,it was difficult to see that the bank would be in a position to pursue partition proceedings.In those circumstances, it was clear that confirmation of the proposals would secure thecontinued occupation of the principal private residence by the debtor. In this context, it isimportant to bear in mind that, although I did not specifically refer to s. 115A (9) (b) (iii)in that section of my judgment, I made clear in para. 56 that I was nonetheless satisfiedthat all of the requirements of the section had been satisfied in that case and that it wasappropriate, in all of the circumstances, to confirm the coming into effect of the proposalsfor an arrangement.35. Having regard to the pre-existing case law, I do not believe that the bank could be said tohave pursued a novel point in these proceedings. While I fully appreciate that, in the oralsubmissions made to the court, the bank’s counsel made detailed and well-structuredsubmissions in support of the bank’s case, the submissions were not addressed, in truth,to any new point of interpretation of the 2012 Act which required to be determined by thecourt in the interests of legal certainty.36. I appreciate that, in the written legal submissions delivered on behalf of the bank,observations were made in relation to the quality of the evidence before the court. Asnoted above, the High Court, on a full rehearing on appeal from the Circuit Court, maywell benefit from such submissions to the same extent as the Circuit Court, at firstinstance, did. As noted above, where the court derives assistance from such submissions,there may well be a basis for the court to make no order as to costs even where theobjecting creditor fails to persuade the court that the evidence is insufficient to warrantthe grant of an order under s. 115A. However, I do not believe that this could be said tobe such a case. In contrast to many of the cases which come before the court, theevidence adduced on behalf of the debtor and the practitioner in this case was of a verydetailed and comprehensive kind. In this context, it is noteworthy that, in makingarguments on behalf of the bank in relation to the costs of the appeal, counsel for thebank accepted that the court had, in the December 2019 judgment, criticised theapproach taken by the bank in relation to a range of issues which arose in the course ofthe evidence and the written submissions delivered on behalf of the bank.Page 13 ⇓Decision37. In the circumstances, I am satisfied that this is not a case in which it would beappropriate to make no order as to costs. On the contrary, this seems to me to be anappropriate case which, in the exercise of the discretion of the court, it would beappropriate to make an order for costs against the bank in relation to the appeal, suchorder to include the costs of the written submissions, the hearing which took place inOctober 2019, and the further hearing which took place in relation to costs in January2020. I will therefore make an order to that effect, such costs to be sent for adjudicationbefore the legal costs adjudicator in the event that the parties are unable to agree thecosts.38. I am conscious that, in awarding costs against the bank in relation to the appeal, I amtaking a different approach to that adopted by the learned Circuit Court judge in thecourse of the proceedings before her. I should make clear that I fully agree with theapproach taken by the learned Circuit Court judge in making no order as to the costs ofthe Circuit Court proceedings. Had I been in her position, I would have taken the sameapproach. While I have ultimately not been persuaded that the bank has raised a point ofsubstance in relation to the law or in relation to the quality of the evidence adduced bythe practitioner, I would have been very slow to impose an order for costs against thebank, had this matter been before me at first instance. It seems to me that the roleplayed by the bank at first instance was still a very useful role as legitimus contradictor. Itis also the case that the detailed evidence of Ms Forde Egan ultimately placed before theCircuit Court by the practitioner was largely in response to issues which the bank hadearlier raised on affidavit. It would have been surprising in those circumstances if theCircuit Court had made an adverse costs order. However, the position on appeal is quitedifferent. At the time the appeal was lodged, there was comprehensive evidence availableto strongly support the grant of relief under s. 115A. Having regard to the extent of thatevidence, I am of the view that the bank cannot plausibly contend that it should beimmune from costs in respect of the appeal.
Result: Costs were awarded against the objecting creditor bank.
Re: Enright (a debtor)
[2018] IEHC 314 (31 May 2018)
Judgment by:
Baker J.
Status:
Approved
[2018] IEHC 314
JUDGMENT of Ms. Justice Baker delivered on the 31st day of May, 2018
1. This judgment is directed to the difference between an “amended” proposal for the purposes of s. 111A(3) of the Personal Insolvency Act 2012 to 2015 (“the Act”) and a “modification” for the purposes of s. 111A(5). The distinction is of some consequence, as where a proposed Personal Insolvency Arrangement (“PIA”) has been amended, the time limit for the service by a creditor of an objection to the proposed PIA is enlarged.
2. Section 111A of the Act, as inserted by s. 15 of the Personal Insolvency (Amendment) Act 2015, commenced by SI 414 of 2015, governs engagement by a PIP where a debtor has only one relevant creditor entitled to vote on a proposed PIA. This amending section replaces the procedures set out in ss. 106, and 108 to 111 of the Act of 2012 by obviating the need, in those circumstances, for the holding of a formal meeting of creditors.
3. The general procedure provided by s. 111A(2)(a) requires the PIP to:
“give written notice to the creditor that the proposal for a Personal Insolvency Arrangement has been prepared and that the creditor may, within [14 days of the giving to him or her of such notice], notify the personal insolvency practitioner in writing of his or her approval or otherwise of that proposal”.
4. The PIP, in addition to giving notice of the proposal for a PIA, must furnish the creditor with the documents identified in s. 107 of the Act, including a statement of the debtor’s financial affairs in the form of a prescribed financial statement (“PFS”), the terms of the proposal for a PIA, together with a report of the PIP describing the outcome for creditors and expressing a view that the proposal PIA represents “a fair outcome for the creditors” and how that outcome differs from the likely outcome in bankruptcy, and indicating that he or she considers that the debtor is reasonably likely to comply with the terms of the proposed PIA.
5. These documents must be served also on the Insolvency Service of Ireland (“ISI”).
6. Section 111A(6) makes provision for the response by a single creditor by which it indicates “approval or otherwise” of a proposed PIA within the time limits therein provided:
“A creditor to whom this section applies shall notify the personal insolvency practitioner in writing of his or her approval or otherwise of a proposal for a Personal Insolvency Arrangement within —
(a) 14 days of the giving to him or her of the notice under subsection (2), or
(b) if later, 7 days of the date on which a notice under subsection (4)(a) is first given to him or her.”
7. Section 111A(7)(b) of the Act makes provision for a stark result so that, if a single creditor fails to notify an objection within the statutory time limit, the proposed PIA is deemed to have been approved by the creditor concerned.
The present appeal
8. This is an appeal from an order of Judge Lambe made on 24 May 2017, by which she determined that certain alterations made to the proposed PIA of the debtor were amendments to which the provisions of s. 111A(3) applied, and that the extended time period provided by s. 111A(6)(b) applied to the proposal.
9. Whether this conclusion was correct depends on the correctness of her finding that a second document sent by the PIP was, in truth, an amended PIA. If the second proposed PIA was an amended PIA, the proposed PIA fails, subject only to a possible application by the debtor under s. 115A(9) of the Act. If the second proposed PIA was a modification, the proposed PIA is deemed to have been approved by the single creditor.
10. The judgment also deals with the appeal of an identical order of the Circuit Court judge in respect of the wife of the debtor, Patricia Enright, an interlocking debtor (Record No. 2017 160 CA).
Material dates
11. On 13 October 2016 a Protective Certificate issued to the debtor in accordance with s. 95(2)(a) of the Act. On 4 November 2016, proof of debt was served by Capita Asset Services (Ireland) Limited (“Capita”), the duly authorised loan management agent on behalf of ACC Loan Management DAC (“ACC”).
12. The PIP, Mr. Colm Arthur, made a proposal for a PIA (“the first proposed PIA”) in respect of Mr. and Mrs. Enright and on 7 December 2016, in performance of his obligations under s. 111A(2), the PIP sent the proposal to ACC.
13. The first proposed PIA contained a number of inconsistencies which were clarified in a telephone communication on 14 December 2016, between the PIP and Ms. Jackie Sheridan of the Debt Solutions Department of Capita. In particular, the creditor had sought confirmation as to whether the proposed term of the PIA was 24 or 72 months, as both terms had been included in the proposal. The creditor also clarified the extent of its security interests and that ACC already held a second charge or an extension of an existing charge over the principal private residence of the debtors. No discussion was had between the PIP and the agent of the creditor with regard to the treatment of a small plot of land which is central to this judgment. For ease, I will refer to this land as “the small plot”.
14. On 16 December 2016, following the telephone conversation, a second proposed PIA (“the second proposed PIA”) was prepared and served on Capita.
15. No response for the purposes of s. 111A(6)(a) was served within the 14 day time limit provided therein, and the PIP therefore treated the proposed PIA as having been approved on 21 December 2016 by virtue of s. 111A(7)(b), and thereafter issued a “Notice of Outcome” to the creditor in accordance with the statutory procedures.
The basis of objection
16. The creditor brought an application pursuant to s. 112(3) of the Act, objecting to the coming into force of the second proposed PIA on the grounds that time had not run against it for the purposes of the Act, as an amended proposal had been served within the meaning of s. 111A(3) and the time for delivery of the vote of the creditor had been extended for a period of seven days in accordance with s. 111A(6)(b).
The facts on which the creditor bases its objection
17. Three factual changes were identified by the creditor in the Circuit Court. The first concerned the term of the proposed PIA as in different parts of the statutory form “24 months” and “72 months” were mentioned. The second related to the nature of the security. These first two ambiguities were clarified and the proposal amended. The Circuit Court rejected the argument of the creditor that the second proposed PIA was, on account of the correction of these errors, to be considered to be an amendment. That ground of objection is no longer maintained.
18. The ground on which the creditor argues that the second proposed PIA was an amended PIA governed by s. 111A(3) concerns the details of the small plot, an asset comprising 0.1322 hectare of land, circa 0.33 acres, in the joint names of the debtors and held free from encumbrances, and in respect of which the creditor argued, and the Circuit Court accepted, the second proposed PIA provided for a different treatment amounting to an amendment.
19. The ownership of the small plot was disclosed by each of the debtors in their respective PFS, in the case of Mr. Enright, on p. 6 of his PFS, and in the case of Mrs. Enright, on p. 8 of hers.
20. In an email of 25 November 2016, and before the first proposed PIA was prepared, ACC had indicated its intention to rely on its security over two named folios: the principal private residence of the debtors (folio WH20718F) and lands at a different address (folio WH12726) with a value of €30,000. The small plot was not mentioned in this email as it was not held by ACC as security and the purpose of the letter was to identify the intentions of ACC regarding its security.
21. On 6 December 2016, following the creditor’s request under s. 105(3) of the Act which allows the PIP, the debtor, or the relevant secured creditor, to “appoint an appropriate independent expert to determine the market value for the security”, DNG Duncan was appointed to value the secured assets, and their report valued the small plot at €6,000. In her affidavit, Ms. Sheridan avers that it was only on 6 December 2016, when she received the valuation from DNG Duncan, that she became aware of the plot of land in question, what she describes as “a further asset”.
22. The PIP then prepared the first proposed PIA, and the small plot was described in the schedule of assets, at p. 36 thereof, by reference to its value of €6,000, but not designated otherwise with an address or folio number, but as “0” (or perhaps the capital letter “O”). As the land was not held as security, it did not thereafter appear in the proposal, as the statutory form does not provide for further reference to unsecured assets unless it is intended to treat them for the purpose of the PIA.
23. In the second proposed PIA, a narrative was added specifically referable to the small plot. This text reads as follows:
“The debtor and his wife own 0.1322 Hectares of land, less than 1/3 of an acre which is unencumbered. This piece of land is landlocked with no road entrance and is therefore unsaleable. This piece of land is to be retained as part of the debtor’s horse enterprise.”
It is that addition in the second proposed PIA which ACC seeks to characterise as an “alteration” within the meaning of s. 111A(3).
Arguments of counsel
24. The debtor argues that the second proposed PIA was not an amended proposal but that the alterations were modifications rectifying an error or addressing an ambiguity in the first proposal. That proposition is accepted with regard to the discrepancy found regarding the length of the proposed PIA and the nature of the security, and counsel argues that a similar treatment ought to be afforded to the addition of the narrative regarding the proposed retention of the small plot, and that no amendment was made within the meaning of s. 111A(3).
25. Counsel for the creditor argues, on the other hand, that the second proposed PIA did contain an alteration within the meaning of s. 111A(3) in that it made for the first time a proposal as to the treatment of the debtor’s ownership in the unencumbered plot, i.e. that it be retained as part of the debtor’s horse enterprise. It is argued that in the first proposed PIA no treatment whatsoever was proposed, and that no error was corrected. It is further argued that no ambiguity had been identified either by the creditor or the PIP which needed to be clarified, and that accordingly, the second proposed PIA was a new or amended proposal in respect of which the creditor had a further seven days in which to respond.
26. It is also argued by the creditor that to be a rectification or a modification, the error or ambiguity must be “minor”, not in the sense that the difference must be small with regard to the value of an asset, but “minor” in the sense that it is not material.
The correction of errors and the clarification of ambiguities
27. A proposed PIA may contain errors or ambiguities or require for one reason or another to be rectified. The need to amend or rectify can arise in the normal course because an error which is no more than a typographical or calculation error might have been discerned, or because an element of the proposed PIA lacks clarity. In that case, the PIP has power from s. 111A(5) to modify a proposed PIA “where the modification addresses an ambiguity or rectifies an error”. The circumstances in which this can occur are set out in s. 111A(5) as follows:
“A proposal for a Personal Insolvency Arrangement may, before the creditor has notified the personal insolvency practitioner of his or her approval or otherwise of the proposal, be subject to a proposal for a modification where the modification addresses an ambiguity or rectifies an error in the proposed Personal Insolvency Arrangement and where —
(a) the modification has been proposed by the creditor or the personal insolvency practitioner, and
(b) the debtor gives his or her written consent to the modification.”
Amendments to a proposed PIA
28. However, a perceived need to change a proposal may arise following further consideration by the PIP of an intended proposal where, for example, after consultation with one or more creditors, the PIP forms a view that an alternative proposal is more likely to be acceptable, or where a third party has come forward and offers to make available a lump sum to assist in the resolution of the insolvent debtor’s financial affairs. The PIP may then need to alter a proposed PIA, for which provision is made in s. 111A(3):
“A personal insolvency practitioner who has complied with subsection (2) may, where he or she believes it is in the interests of obtaining approval of a proposed Personal Insolvency Arrangement by the creditor and with the consent in writing of the debtor, prepare an amended proposal for a Personal Insolvency Arrangement.”
29. The preparation of an amended proposal occurs only when the PIP believes that an amendment is likely to result in approval by the single creditor of the proposal, or might alleviate or fully deal with concerns expressed by the single creditor, or even arising by implication from observations or informally made objections.
30. Thus, an amendment of a proposal for a PIA is envisaged by the Act as arising following a discourse or further consideration by the PIP of the proposals, perhaps in the light of new information obtained from the debtor, or information gleaned by the PIP from other sources, including perhaps decided cases, or other applications in which the PIP has been involved or in which a particular observation or objection has been rejected or upheld. The amendment must be made in the light of a belief by the PIP that that amendment is likely to make the proposed PIA more attractive to a creditor.
31. The amendment of a proposal is not permitted merely on account of a desire on the part of the debtor to amend the proposed PIA, and the PIP must exercise his or her own personal and reasoned judgment in coming to a belief that the amendment is likely to be positively received before the PIP may avail of the provisions of s.111A(3).
32. Two statutory provisions exist by which a creditor may make formal submissions regarding the treatment of its debt, or give an indication as to its preference as to how it wishes to have a security and secured debt treated before the PIA is formulated. Section 98 is to be triggered, and permits the general body of creditors to make submissions. Section 102 envisages that a secured creditor would indicate a preference as to its preferred outcome. In either case, the PIP is obliged by statute to have regard to these formal submissions or indications of preference. It is essential, therefore, that the PIP have the capability to make alterations or clarify ambiguous or incorrect entries in the proposal before it is submitted to a vote or for consideration by a single creditor.
33. Section 111A(3) was inserted by the Oireachtas to deal with the circumstance where a PIA is prepared without any prior indication of preferred treatment of a creditor, and enables the PIP to formulate an amended proposal after discussions have led him or her to a view that an amended proposal was likely to be accepted.
34. This restriction on the ability of a PIP to reformulate a proposal is consistent with the purpose of the Act that resolution of indebtedness be done in an “orderly” manner (see recital to the Act of 2012 and In Re Nugent [2016] IEHC 127) and also, is necessary in the light of the strict and short time limits within which the process is intended to be completed. A long and fluctuating process could not be readily justified in the light of the statutory protection from action by creditors during the period of protection, and a debtor may not unduly prolong the considerable benefit that such protection affords by unnecessarily seeking to alter the proposals, as the making of an alteration is the decision of the PIP on a reasoned expectation of obtaining approval from creditors.
35. Simple clarification or rectification of an error of a PIA does not require that the PIP have formulated a view that the modification or rectification of an error is likely to lead to acceptance by a creditor, and the mere modification of a PIA for the purposes of clarification or rectification requires a much less onerous procedure.
Consideration of the statutory meaning
36. An alteration or modification of a proposed PIA must fall to be characterised either as an amendment for the purposes of s. 111A(3) or a modification for the purposes of section 111A(5). The making of provision for the correction of clerical errors or addressing an ambiguity is logical and practical and can benefit of both parties.
37. It seems to me that the Oireachtas did not intend that the provisions of s. 115A(3) or (5) were to be distinguished on account of the monetary value of an asset. Rather, it seems that the Oireachtas intended a rectification or modification to be permissible to correct something obviously incorrect or unclear, and that the change would not be material.
38. If the correction of an error results in, for example, a material change in the income or liabilities of a debtor, the change could be sufficiently material to amount to an amendment. If the correction is merely made to correct an ambiguity in the document itself, the alteration does not change the proposal but, rather, is a modification made so that the proposed PIA is clearer.
The principles of statutory interpretation
39. Counsel for the creditor relies on the rule of statutory interpretation expressio unius est exclusio alterius and the interpretation of that maxim by Laffoy J. in O’Connell v. An t’árd Chláraitheoir [1997] 1 IR 377:
“In my view, the grammatical or linguistic meaning of the definition of ‘occupier’ in s. 38 is quite clear and unambiguous and the words ‘or his agent’ do not relate back to the first limb and the first limb stands on its own. Secondly, in my view, the ejusdem generis principle has no application in the construction of the first limb: the first limb does not postulate a narrow genus followed by wider words. In my view, the canon of construction which comes into play in construing the first limb is the maxim expressio unius est exclusio alterius (to express one thing is to exclude another). It is obvious that the draftsman doubted that the word ‘occupier’ in its ordinary meaning would include the various officials of public institutions mentioned in s. 38 and he expressly included them in the definition. The draftsman having expressly included the named officials, it must be implied that other officials and employees of such public institutions are excluded.”
40. It is argued that, as s. 111A(5) identifies two limited circumstances, namely the clarification of an ambiguity or the rectification of an error, all other alterations must be amendments within the meaning of section 111A(3).
41. I agree, and I consider that the Oireachtas intended the use of the less onerous s. 111A(5) procedure only when an alteration is a clarification of something that is not clear or the correction of an error, where the error is likely to confuse or make it difficult to reconcile one part of the proposal with another, or to elucidate and avoid confusion.
42. An error for the purposes of s. 111A(5) is to be treated as equivalent to an amendment where, for example, the value of an asset or the amount of income or liabilities are altered. The change must alter the proposal in some material way, by alerting the description or value of the assets or liabilities, the proposed treatment of the asset, or other solution to the insolvency.
43. In the light of these considerations I turn now to analyse the two versions of the PIA and whether the addition of the narrative concerning the small plot means that there was alteration in the second proposed PIA within the meaning of section 111A(3).
The standard terms of a PIA: discussion
44. Clause 6 of the second proposed PIA deals with the “Arrangement Assets” and is the focus of the argument made by the objecting creditor. The standard PIA requires at clause 6.1 the identification of any assets proposed to be sold by the debtor, and this subject line was marked “N/A” not applicable. Clause 6.1.2, under the heading “Assets other than secured arrangement assets”, and at 6.2, under the heading “transfer of assets to creditors” were also marked “N/A”.
45. Clause 6.3, under the heading “other treatment”, was blank in the first proposed PIA, and there was no entry regarding the small plot. The second proposed PIA contained the narrative that explained that the debtor and his wife intended to retain the small plot of land as part of the debtor’s horse enterprise.
46. In order to characterise that correction, it is necessary to note the definition of “Arrangement Assets” in the standard form PIA, where such assets are defined as meaning “the assets of the Debtor specified in clause 6 of part IV which are to be made available to Creditors in accordance with part IV for the purposes of the arrangement”. The entries in clause 6, therefore, are intended to identify “arrangement assets”, whether they be secured or unsecured assets, and the means by which they are to be made available to creditors, whether by sale, the provision of new or additional security, or the alteration of such security. It is not intended that clause 6 would contain details of assets not intended to be made available to creditors for the purposes of the arrangement, as such assets are not “arrangement assets”.
47. In that regard, it is also of note that “Creditors” is defined in the interpretation section of the statutory form (clause 1(e) as meaning “unsecured creditors who, upon the Arrangement coming in to effect are […] party and subject to the Arrangement in accordance with section 116(2)”.
48. “Secured Arrangement Asset” is defined in clause 1(ee) of the statutory as an “Arrangement asset which is a Secured Asset”, and therefore, an asset which is not secured, and in the case of Mr. and Mrs. Enright, the small plot, is not a secured arrangement asset.
49. No treatment for the purpose of the PIA was intended, as it was not intended that the small plot was to be treated as an arrangement asset, i.e. it was not to be made available to creditors.
Analysis: was there an alteration of the proposed treatment?
50. I accept that the terms of the statutory form may, because of its format, create some ambiguity, and the PIP is not to be faulted for inserting in the second proposed PIA the narrative regarding the proposed retention of the small plot, but it seems to me, on a reading on the interpretation section, that as an arrangement asset is an asset intended to be made available to creditors, there was no requirement for the inclusion of any reference to the small plot in clause 6.
51. In the second proposed PIA, the small plot was included in clause 6, more by way of a negative assertion than a positive statement of an intention regarding its treatment, as it was an asset intended to be excluded from the arrangement assets, and intended to be treated as not available for creditors.
52. For that reason, I reject the argument by the creditor that the alterations to the second proposed PIA went further than the mere correction of an error or the clarification of an ambiguity and that the second proposed PIA proposed a new or amended different treatment with regard to the treatment of the small plot. No treatment was proposed in either draft.
53. The small plot is identified in both versions of the PIA by reference to its value of €6,000. The creditor reviewing the PIA for the purpose of coming to a determination whether to oppose or support it, could not but have been aware of the total value of the assets of the debtors and that what was purposed to be included as arrangement assets were the principal private residence and the plot over which security existed. What was proposed was the restructure of the mortgage on the principal private residence and the writing off of a portion of the secured balance at the successful completion of the proposed PIA. A reading of the first proposed PIA would have left no ambiguity regarding the treatment of the small plot of land but the PIP, in the second proposed PIA, spelt out that it was not intended to dispose of or offer this plot as security, i.e. that that plot of land was not to be offered as an arrangement asset.
54. I reject the argument of the creditor that the altered clause 6 in the second proposed PIA introduced an unencumbered asset which had not been previously referred to and made a proposal for the treatment of that asset for the first time. It is the case that no reference was made to the small plot in clause 6 of the first proposed PIA, but that is because it was not proposed to treat the small plot as an arrangement asset. The treatment that the small plot was to be retained was clear from a reading of the first proposed PIA. It was not therefore necessary, or possibly even appropriate, that there should have been any reference to the small plot in clause 6 which is specifically referable to arrangement assets, whether they be secured or not secured. The PIP saw fit to add a narrative but did not change the proposal or propose for the first time for the retention of this asset.
55. Accordingly, I consider that the inclusion of a narrative relating to the small plot in clause 6.3 of the second proposed PIA did not amount to an alteration within the meaning of section 111A(3). There was in fact no new proposal for the treatment of this asset and no material change in the value of the assets proposed to be retained or kept outside the arrangement.
Conclusion
56. I consider that the alteration was not one regarding the substance or meaning of the proposal, but was a clarification, and possibly one that was not essential, as the intention to retain the small plot was apparent from the first proposal, and that the second proposed PIA contained corrections or clarifications within the meaning of s. 111A(5).
57. I therefore consider that the Circuit Judge was in error and that the appeal is to be allowed in this matter and that of the interlocking debtor.
Re: McDonnell, a debtor
[2017] IEHC 437 (03 July 2017)
JUDGMENT of Ms. Justice Baker delivered on the 3rd day of July, 2017.
1. This judgment concerns the interpretation of s. 105 of the Personal Insolvency Acts 2012 – 2015 (“the Act”), the provisions relating to the means by which secured property is to be valued for the purposes of the Act.
2. This is an appeal from an order of Judge Lambe made on 20th April, 2017, by which she dismissed the application of the debtor made pursuant to s. 115A of the Act, having upheld the objection of Start Mortgages DAC (“Start”) that the Personal Insolvency Practitioner (“PIP”) had not followed the statutory procedural requirements in obtaining the valuation. This judgment is given also in the appeal of an identical order made in the interlocking application of James McDonnell, Record No. 2017 116 CA.
Material facts
3. The PIP made a proposal for a Personal Insolvency Arrangement (“PIA”) under the Act pursuant to his statutory function. Start voted against the proposed PIA, and the debtor appealed the rejection of the PIA pursuant to s. 115A of the Act. The Circuit Court dealt with the preliminary issue regarding the valuation presented by the PIP for the purposes of the PIA.
4. The Start valuation figure was €230,000 and the figure presented to the meeting of creditors was €180,000, a material and significant difference in the light of the overall debt figures.
The requirement for a valuation
5. For the purposes of the formulation of a PIA the value of a security must be ascertained as the relevant statutory provisions show:
“102.— (1) Where a secured creditor has been notified by the personal insolvency practitioner that a protective certificate has been issued in respect of the debtor the secured creditor concerned shall furnish to the personal insolvency practitioner an estimate, made in good faith, of the market value of the security and the creditor concerned may also indicate, a preference as to how, having regard to subsection (3) and sections 103 to 105 , that creditor wishes to have the security and secured debt treated under the Personal Insolvency Arrangement
(3) Subject to sections 103 to 105, the terms of a Personal Insolvency Arrangement may provide for the manner in which the security for a secured debt is to be treated which may include:
(a) the sale or any other disposition of the property or asset the subject of the security;
(b) the surrender of the security to the debtor; or
(c) the retention by the secured creditor of the security.
(4) Failure by the secured creditor to furnish valuation and the indication of preference relating to the security under subsection (1) within the period specified by the personal insolvency practitioner or such further period as may be offered by him or her shall not prevent the personal insolvency practitioner from formulating a proposal for a Personal Insolvency Arrangement.
(5) Where a Personal Insolvency Arrangement provides for the sale or other disposal of the property which is the subject of the security for a secured debt, and the realised value of that property is less than the amount due in respect of the secured debt, the balance due to the secured creditor shall abate in equal proportion to the unsecured debts covered by the Personal Insolvency Arrangement and shall be discharged with them on completion of the obligations specified in the Personal Insolvency Arrangement.
(6) Without prejudice to the generality of section 100 or subsections (1) to (3) and subject to sections 103 to 105, a Personal Insolvency Arrangement may include one or more of the following terms in relation to the secured debt:
(a) that the debtor pay interest and only part of the capital amount of the secured debt to the secured creditor for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
(b) that the debtor make interest-only payments on the secured debt for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
(c) that the period over which the secured debt was to be paid or the time or times at which the secured debt was to be repaid be extended by a specified period of time;
(d) that the secured debt payments due to be made by the debtor be deferred for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
(e) that the basis on which the interest rate relating to the secured debt be changed to one that is fixed, variable or at a margin above or below a reference rate;
(f) that the principal sum due on the secured debt be reduced provided that the secured creditor be granted a share in the debtor’s equity in the property the subject of the security;
(g) that the principal sum due on the secured debt be reduced but subject to a condition that where the property the subject of the security is subsequently sold for an amount greater than the value attributed to that property for the purposes of the Personal Insolvency Arrangement, the secured creditor’s security will continue to cover such part of the difference between the attributed value and the amount for which the property is sold as is specified in the terms of the Personal Insolvency Arrangement;
(h) that arrears of payments existing at the inception of the Personal Insolvency Arrangement and payments falling due during a specified period thereafter be added to the principal amount due in respect of the secured debt; and
(i) that the principal sum due in respect of the secured debt be reduced to a specified amount.
6. Section 105 provides the statutory mechanism for arriving at a valuation and sets out the stages to be engaged by the parties. The valuation is binding for all purposes connected with the process of the resolution of debt. Because the Act envisages the forgiveness or scheduling of secured debt the valuation of secured assets is a central factual element in the process.
7. I quote the section in full:
“105.— (1) Subject to the provisions of this section the value of security in respect of secured debt for the purposes of this Chapter shall be the market value of the security determined by agreement between the personal insolvency practitioner, the debtor and the relevant secured creditor.
(2) Where the personal insolvency practitioner does not accept a secured creditor’s estimate of the value, if any, of the security furnished by the secured creditor under section 102, the debtor, the personal insolvency practitioner and the secured creditor shall in good faith endeavour to agree the market value for the security having regard to any matter relevant to the valuation of security, including the matters specified in subsection (5).
(3) In the absence of agreement as to the value of the security, the personal insolvency practitioner, the debtor and the relevant secured creditor shall appoint an appropriate independent expert to determine the market value for the security having regard to any matter relevant to the valuation of security, including the matters specified in subsection (5).
(4) Where the personal insolvency practitioner, the debtor and the secured creditor are unable to agree as to the independent expert to be appointed under subsection (3) the issue may be referred by any of them to the Insolvency Service which shall appoint such independent expert as it considers appropriate to determine the market value of the security concerned having regard to any matter relevant to the valuation of security, including the matters specified in subsection (5), and the valuation carried out by such expert shall be binding on the personal insolvency practitioner, the debtor and the secured creditor concerned.
(5) The matters referred to in subsections (2) to (4) as the matters specified in subsection (5) are:
(a) the type of property the subject of the security;
(b) the priority of the security;
(c) the costs of disposing of the property the subject of the security;
(d) the price at which similar property to that which is the subject of the security has been sold within the 12 months prior to the issue of the protective certificate;
(e) the date of the most recent valuation or transaction with respect to the property the subject of the security and the value attributed to the property in respect of that valuation or transaction;
(f) the value attributed to the property the subject of the security in the debtor’s accounting records (if any);
(g) the value attributed to the security in the secured creditor’s accounting records (if any);
(h) whether the market for the type of property the subject of the security is or has been subject to significant changes in conditions;
(i) data made available to the public by the Property Services Regulatory Authority pursuant to Part 12 of the Property Services (Regulation) Act 2011 and which relate to property similar to the property the subject of the security; and
(j) any relevant statistical index relating to the valuation of the same or similar types of property as the property the subject of the security.
(6) In this section “market value”—
(a) as respects property the subject of security for a secured debt, means the price which that property might reasonably be expected to fetch on a sale in the open market;
(b) as respects security for a secured debt, means the amount that might reasonably be expected to be available to discharge that secured debt, in whole or in part, following realisation of the security by the secured creditor concerned and, where permitted by the terms of the security or otherwise, after deducting all relevant costs and expenses in connection with the realisation of the security.
(7) The creditor concerned and the personal insolvency practitioner shall each pay 50 per cent of the costs of carrying out the valuation by the independent expert pursuant to subsection (3) or (4).
(8) The amount paid by the personal insolvency practitioner pursuant to subsection (7) shall be treated as an outlay for the purposes of the Personal Insolvency Arrangement.
(9) For the purposes of this section, the personal insolvency practitioner, the debtor, the secured creditor concerned and any independent expert shall be entitled to assume, in the absence of any clear evidence to the contrary, that the market value of the security which is a first charge is the lesser of—
(a) an amount equal to the market value of the property the subject of the security, or
(b) unless the nature of the security and the property concerned would make it unreasonable to do so, an amount equal to the market value of the property the subject of the security less an adjustment to that value as respects the costs and expenses which would normally be necessarily incurred by a secured creditor in the realisation of a security of a similar kind to that of the security concerned, provided that the adjustment is no greater than 10 per cent of the market value of the property the subject of the security.”
8. The Act envisages four possible stages in arriving at a valuation:
9. The “market value” is to be determined by agreement between the PIP, the debtor and the relevant secured creditor.
10. When agreement cannot be reached s. 105(2) requires the relevant parties to “in good faith endeavour to agree the market value”, and certain matters are specified in s. 105(5) to guide that exercise.
11. If agreement cannot be reached following the endeavour to do so, s. 105(3) requires the relevant parties to attempt to agree an appropriate “independent expert” to determine the market value, also in accordance with section 105(5).
12. The final stage of the process is engaged if the parties fail to agree on who is to act as independent expert, and s. 105(4) provides for reference to the Insolvency Service of Ireland (“ISI”) to appoint an independent expert.
13. The valuation before the meeting of creditors in the present case was determined by an independent expert appointed by the ISI, but Start argues that circumstances giving rise to the power to appoint the expert had not arisen.
The parties disagree as to the stage of the process that had been reached, and the debtor argues that the ISI was properly vested with the power to appoint an independent expert in the circumstances of the case.
14. Chronology
15. On 10th June, 2016, Start provided the PIP with its proof of debt and indicated that a valuation would subsequently be provided. This was done on 12th July, 2016, when a valuation figure of €230,000 was proposed. A formal valuation report was not provided, although it was clear that Start did have a written valuation.
16. In correspondence between 13th July, 2016, and 15th July, 2016, the PIP sought a copy of the written valuation report, and argues that in declining to furnish this Start was not engaging with the process in good faith as is required by the Act. In emails of 15th July, 2016, at 8.54 and at 17:15 Start said “under no circumstances will the valuation be provided”.
17. Start then proposed that the parties would seek to agree the appointment of an independent expert under s. 105(3), and offered to furnish a list of its preferred experts, or “panel”. The PIP rejected the tender of the panel list and without further reference to Start sought the appointment of an independent expert by the ISI on 18th July, 2016. The ISI appointed an expert on 20th July, 2016. A valuation report was received on 25th July, 2016, which gave a value of €180,000. That valuation was furnished to Start on 25th July, 2016, and after that, on 27th July, 2016, Start shared a copy of its written valuation.
18. The debtor argues that because it was clear to the PIP that the relevant parties were unable to agree a valuation, it was necessary and appropriate in accordance with statutory scheme for the PIP to apply to the ISI to appoint an independent expert. It is also argued that Start failed to act in good faith in refusing to share its written valuation report, and proposing that an agreed expert be appointed from its list of preferred auctioneers and estate agents.
19. The objecting creditor argues that it did fully engage with the letter and spirit of s. 105, and that circumstances have not arisen in which the power vested in the ISI to appoint an independent expert had been triggered.
Are the provisions of s. 105 mandatory or directory?
20. The first question to be determined is whether the statutory provisions are mandatory or directory.
21. The legislation is framed in language which suggests that it is mandatory for the parties to engage each step, and that ISI assistance be sought only if the prior engagement had failed to achieve either an agreed valuation or an agreed independent expert to provide such valuation.
22. On a literal reading of subsections 105(3) and (4), there being no ambiguity or lack of clarity, and giving the words their ordinary and natural meaning, the parties must engage in the four stages in seeking to come to a valuation. The section clearly envisages and requires a level of engagement between the parties at each of those stages.
23. It is not always the case that the word “shall” in a statutory provision denotes a mandatory obligation. Monaghan UDC v. Alf-a-Bet Promotions [1980] I.L.R.M 64 and State (Elm Developments Ltd) v. An Bord Pleanála [1981] I.L.R.M 108 dealt authoritatively with the question.
24. In Monaghan UDC v. Alf-a-Bet Promotions Ltd, the Supreme Court considered that words importing a necessary requirement were in general to be treated as mandatory, Griffin J at p. 73 explained :
“It is a well established rule of construction that the ordinary sense of words used in a statute or in regulations made thereunder is primarily to be adhered to; that requirements in public statutes which are for the public benefit are to be taken to be mandatory or imperative; and that provisions which on the face of them appear to be mandatory or imperative cannot without strong reason be held to be directory. In its ordinary sense shall is to be considered as mandatory or imperative.”
25. The mandatory nature of a requirement may be relaxed as Henchy J. stated at p. 69:
“In other words, what the legislature has prescribed, or allowed to be prescribed, in such circumstances as necessary should be treated by the courts as nothing short of necessary, and any deviation from the requirements must, before it can be overlooked, be shown, by the person seeking to have it excused, to be so trivial, or so technical or so peripheral, or otherwise so insubstantial that, on the principle that it is the spirit rather than the letter of the law that matters, the prescribed obligation has been substantially, and therefore adequately, complied with.”
26. This was further clarified in State (Elm Developments Ltd) v. An Bord Pleanála, where Henchy J. stated that the statutory context was essential to the correct interpretative approach, and whether the provision was a substantive element of a statutory scheme:
“Whether a provision in a statute or a statutory instrument, which on the face of it is obligatory (for example, by the use of the word ‘shall’), should be treated by the courts as truly mandatory or merely directory depends on the statutory scheme as a whole and the part played in that scheme by the provision in question. If the requirement which has not been observed may fairly be said to be an integral and indispensable part of the statutory intendment, the courts will hold it to be truly mandatory, and will not excuse a departure from it. But if, on the other hand, what is apparently a requirement is in essence merely a direction which is not of the substance of the aim and scheme of the statute, non-compliance may be excused.” (at p. 110)
Discussion
27. A number of factors suggest that s. 105 is mandatory in nature. First, the purpose of the section is to finalise a valuation which will be binding as part of a PIA. Hence, the section plays a substantive role in the aim and scheme of the legislation. Second, it is clear the legislature did not intend the ISI to micro-manage the process of valuation. It can be assumed that, as a State body, the ISI has limited resources, and its function was intended to be administrative. Third, the statutory scheme requires engagement by all relevant the parties to initiate the valuation process, and it must have been intended that they should at least attempt to find a resolution either by agreeing on a valuation or by agreeing on an independent expert before engaging the ISI. The ISI should be engaged only if all other options included in s. 105 have been exhausted.
28. Further, the preamble to the Act identifies the general purpose of the Act to achieve the rational and orderly resolution of debt by agreement. In that context an agreed valuation or one prepared by an agreed expert is a desirable element of the consensual and orderly approach on which the Act is predicated.
29. Because the scheme of the legislation envisages a consensual resolution of burdensome debt which has resulted in the insolvency of a debtor, it is understandable that while the legislation provides a means to resolve a dispute regarding the identity of an independent expert, it saw the role of the ISI as being one which was to be engaged only as a last resort if all other attempts to achieve consensus failed. The legislature intended to involve the ISI only when the parties themselves could not reach a consensus.
30. I consider for these reasons that the provisions of s. 105 are mandatory.
Excuse of non-compliance
31. I am not satisfied that I may excuse non-compliance with the mandatory requirements of the Act as the objecting creditor will suffer prejudice should I do so. The debtor relies on the judgment of Hogan J. in Re Belohn Ltd [2013] IEHC 157, in which a breach of the mandatory requirement in the Act that an examiner should consent in writing to accept an appointment was excused as it was “at most a technical” breach of a mandatory requirement, and he was prepared to excuse it as he was satisfied no prejudice was suffered.
32. There is in my view an obvious prejudice to the objecting creditor were a court to accept a valuation which is far less than the one it proposes. The valuation achieved as a result of the processes is binding on all parties.
33. The valuation ultimately achieved may or may not be correct, but the failure to observe the mandatory requirements of the valuation section has the effect that there was no truly binding valuation on which the Circuit Court could engage its jurisdiction under s. 115A in the circumstances.
Was the secured creditor obliged to furnish its written valuation report?
34. The debtor argues that the failure of the objecting creditor to furnish a written valuation is a reflection of the extent to which it failed to engage with the process of attempting to agree a valuation in good faith. She also argues that the objecting creditor acted unreasonably in failing to fully engage the process of agreeing an independent expert, and that its correspondence showed that it was prepared to agree a valuer only from its own list or panel of preferred valuers. The debtor argues in those circumstances that it was apparent to the PIP that the objecting creditor was not engaging and would not engage in good faith and that the only solution to the impasse was to seek the assistance of the ISI.
35. The Act requires the parties to endeavour to achieve an agreement regarding a valuation bona fide, that is openly, in good faith, and by using their best endeavours. The express requirement of “good faith” in s. 105(2) suggests that parties should conduct themselves in a manner which aims to achieve resolution. That language is also found in s. 102
36. This means in my view that a proffered valuation figure should be sustainable, supported by credible evidence and not a hypothetical figure proposed for negotiation purposes, or a starting point. The secured creditor should value its security in this open manner. The Act is predicated on agreement on the value of securities, and the scheme provides for a protective certificate to be in force for 70 days, as follows:
“95. (5) Subject to subsections (6) and (7) and section 113(2), a protective certificate shall be in force for a period of 70 days from the date of its issue.”
37. Because of this requirement, a secured creditor ought not to unreasonably propose a figure unless it is one that is real and capable of being accepted by all relevant parties so as to enable the process to conclude without the need to seek a court extension of the period of protection.
38. The ISI Stakeholder eBrief of May, 2017 “strongly encourages all parties involved to engage meaningfully and as quickly as possible in the valuation process in order to avoid situations in which, through failure to reach agreement, Protective Certificates have to be extended”. The eBrief has no legal force but is informative and explains the preferred approach of the ISI.
39. It is not necessary that a proposed valuation be supported by a written valuation report. If one is prepared and is requested by the other party there may be an element of lack of good faith in a continued refusal to furnish the written report when the written report will contain a description of the property, the comparators and other elements material to the valuation that could inform the approach of the other party, and may lead to a resolution of a disagreement or facilitate agreement. A reluctance to show a written report is at best unhelpful and unlikely to instil confidence in a proffered figure. A seriously made request for a valuation report should in general therefore not be refused without cause.
40. I agree therefore with the statement in the ISI eBrief May, 2017 that good practice under s. 105 requires “the sharing of available valuations already obtained by the parties”.
41. Start’s refusal to furnish the valuation documentation was in my view indicative of a lack of good faith or of a meaningful engagement in the process of agreeing the market value. I do not go so far as was urged by the debtor as to say that Start was “trying to hide their valuation” as the correspondence between the parties was open and frank, it was not overly formalistic, but its approach was not the open one required by the Act.
Agreed independent expert
42. However, the matter does not rest there.
43. Start did seek to engage the process provided at the third stage and the PIP in my view wrongly ignored its overture. The PIP failed to explain in correspondence why or even that he objected to the use of a panel valuer, and made an assumption, wrongly in my view, that Start would not move from its proposal that a valuer be appointed from its panel. Further, I do not consider that Start insisted on the use of a panel valuer, and that circumstances have not arisen which justified the engagement of the ISI under section 105(4).
44. By an email of 15th July, 2016, at 8.54, Start confirmed agreement “for an independent valuation to be carried out”, said it had a list of approved agents and offered to supply the names and contact details of agents on that list. An email sent at 11.27 by Mitchell O’Brien, the PIP, engaged primarily with the question of the refusal of Start to provide a written valuation.
45. Later that afternoon, at 17.15, Start replied saying it was agreeable to an additional valuation being provided on the basis, as identified in the Act, that the cost be shared equally.
46. Having read the correspondence, I consider that the PIP was mistaken in his characterisation. I do not consider that Start had, by its emails of 15th July, indicated it was prepared to agree an independent valuer only if he or she was from its approved panel or list of valuers. I consider that the PIP misconstrued the correspondence and that he was mandated by statute to engage with the proposal by Start that attempts be made to reach consensus on an agreed expert. I consider that the PIP moved too quickly to engage the services of the ISI, and that he ought to have counter proposed by identifying an independent expert or experts, and awaited a response before moving to the next stage.
47. I consider that it is not within the competence of the parties to ignore the statutory process of achieving a valuation, and that the stage envisaged at s. 105(3) must be engaged before the ISI is requested to appoint an expert. The PIP failed to address that third stage of the process.
The role of the ISI: scrutiny?
48. I reject the suggestion that the ISI has an obligation to satisfy itself that the parties have failed to either agree a valuation or an expert to provide such valuation, The statutory role envisaged is one akin to that often contained in an arbitration agreement where the power to nominate an expert is conferred on the president of the Law Society of Ireland, the chair of the Bar Council or other professional body. The ISI has no obligation to ask for evidence on which it should be satisfied that it statutory role has been properly engaged. It is, it seems to me, entitled to assume that a request is properly made.
49. Therefore, I reject the arguments that because the ISI nominated an independent expert in performance of its statutory role, the process is to be deemed to have arrived at a stage where the statutory power had become exercisable.
Conclusion
50. I am not satisfied that there was sufficient engagement by the PIP with the third stage and am satisfied that he moved with undue haste to the fourth stage. In those circumstances, therefore, I consider that the Circuit Court was correct in the approach taken to the valuation. The valuation was not binding on the parties and not a relevant one for the purposes of the process as it had not been achieved in accordance with the requirements of section 105.
51. I dismiss the appeal.
Finnegan (a debtor)
, Re [2019] IEHC 66 (11 February 2019)
JUDGMENT of Mr. Justice Denis McDonald delivered on 11th February, 2019
The Issue before the Court
1. The issue before the court relates to the interpretation of s. 115A(2) of the Personal Insolvency Act 2012 (” the 2012 Act” ) as inserted by s. 21 of the Personal Insolvency (Amendment) Act 2015 (” the 2015 Act “). The issue relates to the meaning of the words:-
” An application under this section shall be made not later than fourteen days after the creditors’ meeting…” (Emphasis added)
2. Essentially, the question which requires to be addressed relates to the steps that have to be taken before it can be concluded that an application under s. 115A has been ” made ” within the prescribed fourteen day period. Is it sufficient, for this purpose, to simply file the application in the relevant court office? Alternatively, is it necessary that the application should both be filed and served on the mandatory notice parties within the prescribed fourteen day period?
Background
3. In 2016, Thomas Finnegan (” the debtor “) initiated proceedings in the Circuit Court under the 2012-2015 Acts with a view to putting in place a Personal Insolvency Arrangement (” PIA “) with his creditors. Proposals for a PIA were prepared by Cormac Mohan, the Personal Insolvency Practitioner (” the practitioner “) retained for this purpose. Those proposals were considered at a meeting of creditors which was held on 6th December, 2016. The total amount of debt owed to creditors present and voting at that meeting amounted to €754,789.96. On an overall basis, creditors holding 60.7% of that debt voted in favour of the proposal while a single creditor, Mars Capital Ireland No. 2 DAC (” Mars “) holding 39.3% of the debt voted against the proposal. When broken down as between secured debt and unsecured debt, there was a majority of secured creditors who voted in favour of the proposal. However, when it came to the unsecured creditors, the total amount of debt held by those in favour of the proposals amounted to 49.9% of the unsecured debt owed by the debtor while a single creditor (Mars) voted against the proposal, holding 50.1%. The result of the vote of the unsecured creditors meant that the requirements of s. 110(1)(c) of the 2012 Act could not be satisfied. In those circumstances, the only route by which the debtor could seek to proceed with the proposals was through the mechanism of an application by his practitioner under section 115A(9). Under s. 115A, the court is given power to approve the coming into effect of proposals for a PIA notwithstanding that the requirements of s. 110 have not been satisfied. The power of the court is carefully circumscribed by the detailed provisions of section 115A. However, the only requirement of s. 115A which is relevant for present purposes is the requirement that the application should be ” made ” not later than fourteen days after the creditors’ meeting.
4. In the present case, the s. 115A application was issued in the Circuit Court Office in Trim Co. Meath on 19th December, 2016. It was, therefore, issued within the prescribed fourteen day period after the creditors’ meeting. Section 115A(2) requires that the application should be on notice to the Insolvency Service of Ireland (” ISI “), each creditor concerned and the debtor. Service on the creditors was effected by posting the notice of motion on 21st December, 2016. In the course of the Circuit Court hearing, it was agreed by the parties that such service fell outside the fourteen day period prescribed by section 115A(2).
5. Following service of the notice of motion seeking relief under s. 115A, a detailed notice of objection was filed on behalf of Mars. At that point Mars was aware of the date of service of the notice upon it. It did not specifically contend, in its notice of objection, that the application was thereby out of time. Instead, in para. 1 of that notice, Mars required proof that the application had been served on all of the parties who were required to be served under the Act. Paragraph 2 was then in the following terms:-
“Subject to the foregoing, the Objector reserves the right to object on the basis that the within application has not been brought and/or has not been properly brought within the time permitted by s. 115A(2) of the Personal Insolvency Act 2012, as amended.”
6. When paras. 1 and 2 of the notice of objection are read together, one might think that the focus of these grounds of objection was centred on requiring proof that the s. 115A application had been served on all relevant parties as required by section 115A(2). However, the ground of objection that was ultimately argued in the Circuit Court on behalf of Mars was that the application was out of time because it had not been made within the fourteen day period prescribed by section 115A(2). That is also the argument that was made in this Court at the hearing on 21 January, 2019. No objection was taken by the practitioner that this was outside the scope of the notice of objection.
7. The s. 115A application was duly listed for hearing before Her Honour Judge O’Malley Costello in the Circuit Court on 25th October, 2018. Having considered the papers, the learned Circuit Court Judge came to the conclusion that the application had not been made within the fourteen day period prescribed by section 115A(2). She came to that conclusion on the basis that the application could not be said to be “made” unless and until all of the parties had been served. In circumstances where service on the creditors here had not taken place within the fourteen day period, the learned Circuit Court Judge held that the requirements of s. 115A(2) had not been satisfied and she, therefore, dismissed the application.
8. The practitioner, acting on behalf of the debtor has appealed the decision of the Circuit Court and it has been agreed by the practitioner and Mars that this Court should, in first instance, consider the issue which arises in relation to the interpretation of section 115A(2). This issue is one which has arisen in a substantial number of cases in the Circuit Court and accordingly the decision in this appeal has implications for a large number of other appeals which are currently awaiting hearing.
Relevant Provisions of Section 115A
9. Section 115A(1) provides that where a proposal for a PIA has not been approved, a practitioner may apply for an order under s. 115A(9) where (a) the practitioner considers that there are reasonable grounds for the making of such an application; (b) the debtor so instructs the practitioner in writing; and (c) the debts of the debtor include a ” relevant debt ” (which in broad terms means a debt which was in arrears on 1st January, 2015, or in respect of which the debtor had, before that date, entered into an alternative repayment arrangement with the secured creditor concerned). Where these requirements are met, s. 115A(1) provides that the practitioner ” may… make an application on behalf of the debtor to the appropriate court for an order under subs. (9)” (emphasis added).
10. In turn, s.115A(2) provides as follows:-
“An application under this section shall be made not later than 14 days after the creditors’ meeting …, shall be on notice to the Insolvency Service, each creditor concerned and the debtor, and shall be accompanied by —
(a) a statement of the grounds of the application….
(b) a copy of the proposal for a Personal Insolvency Arrangement,
(c) a copy of the report of the … practitioner referred to in section 107(1)(d),
(d) a certificate—
(i) with the result of the vote taken at the creditors’ meeting…;
and
(e) a statement by the … practitioner to the effect that he or she is of the opinion that—
…[certain requirements of the Act have been satisfied]…” (Emphasis added)
11. It is not necessary to consider the entire of section 115A. However, there are a number of other provisions within s. 115A which are of some relevance when considering 115A(2) in context. Thus, for example, s. 115A(3) provides that the notice to a creditor under s. 115A(2) must be accompanied by a notice indicating that the creditor may: ” within 14 days of the date of the sending of the notice, lodge a notice with the appropriate court, setting out whether or not the creditor objects to the application and the…reasons for this”.
12. It will be seen that, in contradistinction to the use of the word ” made ” in s. 115A(2), s. 115A(3) speaks of the lodging of a notice by a creditor who wishes to object to the application. This difference in language is discussed further below.
13. Section 115A(4) requires a creditor who lodges a notice under s. 115A(3) to send a copy to the ISI, the practitioner and the other creditors of the debtor.
14. Section 115A(5) provides that where an application is ” made under this section before the expiry of the period of the protective certificate, such…certificate shall continue in force…” . The continuation of the certificate has significant implications for creditors. As explained in more detail below, for so long as a certificate remains in force, creditors are prevented from taking a whole range of actions against the debtor.
15. Section 115A(6) and (7) are also of potential relevance. Section 115A(6) provides that the court:-
“For the purpose of an application under this section, shall hold a hearing, which hearing shall be on notice to the Insolvency Service, … practitioner and each creditor concerned.”
16. Section 115(7) provides that the hearing ” shall be held with all due expedition” . At this point, it may be helpful to observe that s. 115A clearly makes a distinction between the making of an application and the hearing of an application. There is accordingly no scope to suggest that an application cannot be said to be ” made ” unless the application has been heard by the court. When one considers the provisions of s. 115A(1)-(7) in turn, they appear to envisage three stages, namely (a) the making of an application; (b) the lodging of an objection by a creditor; and (c) the holding of a hearing. Thus, in order for an application to be made, it appears to be clear that this does not require that the matter should actually come before the court within the fourteen day period prescribed by s. 115A(2).
The Arguments of the Parties
17. Very helpful written and oral submissions were made by counsel on behalf of the practitioner and by counsel on behalf of Mars. It is unnecessary to record here every argument that was made. I set out below a short summary of the arguments.
18. In the course of the hearing of this issue on 21st January, 2019, counsel for Mars drew attention to a line of authority (discussed in more detail below) in which the courts, in a number of different statutory contexts, have concluded that an application cannot be said to be ” made ” unless and until it has been served on the relevant respondent. Counsel for Mars also submitted that the 2012-2015 Acts significantly curtail the contractual rights of creditors without their consent and that, in those circumstances, the Acts must be construed in a manner that affords due protection to creditors.
19. Counsel for Mars argued that it was particularly important, in the context of s. 115A, that service should be effected on creditors within the relevant fourteen day period. For as long as the period of protection remains in place, creditors are prevented from taking any of the actions against a debtor they would normally be fully entitled to take. This is the effect of s. 96 of the 2012 Act under which, during the protection period, a creditor is prevented from taking a wide range of steps against a debtor including the initiation of legal proceedings, the taking of any step in pre-existing legal proceedings, the taking of any step to secure or recover payment or the taking of any steps to enforce a judgment or order of the court or Tribunal against the debtor. During this period creditors are also prevented from even making contact with the debtor regarding payment of the debt. It was submitted that this provided an important statutory context which must be borne in mind when considering the meaning of the word ” made ” in section 115A(2).
20. It was also argued that certainty was of critical importance to creditors. Accordingly, it was submitted that, unless there is a requirement to effect service on creditors within the prescribed fourteen day period, creditors, in the aftermath of the meeting, would be left in a considerable state of uncertainty as to whether they could enforce their rights against the debtor.
21. Counsel for Mars also drew attention to the distinction that arises between the use of the word ” made ” in subsections (1) and (2) and the use of the word ” lodge ” in subsections (3) and (4) and he suggested that this was a deliberate choice on the part of the Oireachtas which he contended added force to the submission that, for an application to be made within the meaning of s. 115A(2), it was not enough to simply file or lodge the application in the relevant court office.
22. Counsel for Mars also argued that, in circumstances where s. 115A constituted an interference with the rights of creditors, it should be interpreted in a manner that interferes with those rights to the least possible extent.
23. Counsel for the practitioner, on the other hand, emphasised that each statutory provision dealing with the making of an application to a court must be construed in its own statutory context. Counsel argued that it would not be appropriate to transplant the views of a court (expressed in a different statutory context) to the 2012-2015 Acts. Counsel placed significant emphasis upon the long title to the 2012 Act which expressly records the goals of the Act including the objective to ameliorate the difficulties experienced by debtors, the need to enable insolvent debtors to resolve their indebtedness in an orderly and rational manner without recourse to bankruptcy and, thereby, to facilitate the active participation of such persons in economic activity in the State. Counsel also drew attention to the way in which the Oireachtas had expressly invoked the interests of the common good in enacting the 2012 Act. While, the 2015 Act does not contain a similar long title, the Oireachtas, in enacting the 2015 Act (which introduced s. 115A), was simply amending the 2012 Act and, therefore, the objectives (set out in the long title of the 2012 Act) continue to apply in relation to the amendments made by the 2015 Act.
24. Counsel for the practitioner also focused on a number of decisions of Baker J. in which she had explained the underlying purpose of section 115A. In particular, in J.D . [2017] IEHC 119, at para. 32, Baker J. explained the purpose of s. 115A:-
“…the amending legislation by which was added s. 115A, affords the far-reaching power of the court to approve a PIA notwithstanding its rejection by creditors. The public interest is in the maintenance of a debtor’s occupation and ownership of a principal private residence. That social and common good is concretely referable to the continued occupation by a debtor of a principal private residence, and the power contained in the section is limited by the fact that only those persons who had a relevant debt secured over his or her principal private residence which was in arrears … on 1st January, 2015 could avail of this exceptional remedy. The statutory provision then must be seen as a limited protection of persons whose mortgage payments on their principal private residence fell into arrears at the height of the financial crash. Absent a ‘relevant debt’, a debtor may not seek to engage the jurisdiction of the court to overrule the result of a creditors’ meeting…”
25. Counsel for the practitioner also referred to the judgment of the Court of Appeal in Michael Hickey [2018] IECA 397 where Peart J., on a number of occasions in his judgment, referred to the lodging of an application under section 115A(2). Counsel accepted that the Court of Appeal in that case was not addressing the issue which arises here but he nonetheless suggested that it was of some assistance that Peart J., in that case, had paraphrased the effect of s. 115A(2) in that way.
26. Counsel for the practitioner also referred to the provisions of the relevant Circuit Court Rules and to the provisions of s. 140 of the 2012 Act and suggested that these provided additional support for the submission as to how s. 115A(2) should be interpreted. Counsel also argued that, contrary to the submission made on behalf of Mars, certainty would be enhanced by an interpretation which regarded the filing of an application as sufficient for the purposes of section 115A(2). It was submitted that it would be much easier for a creditor to establish that the relevant fourteen day period had or had not been met if all the creditor had to do was to make contact with the relevant court office to inquire whether any application had been filed within that period. Counsel contrasted that with the position where service was required to be made on the ISI, each individual creditor, and the debtor within the relevant fourteen day period. Any individual creditor would not know whether that requirement had been satisfied without checking with each individual notice party and, very possibly, having to wait until the matter is listed before the court when the relevant affidavit of service would become available. Counsel thus submitted that the proposition advanced by Mars would increase uncertainty for creditors rather than promote certainty.
Relevant Principles of Interpretation
27. As the decision in Howard v Commissioners of Public Works [1994] 1 IR 101 shows, it is well settled that, when construing the provisions of a statute, the language of the statute is, in the absence of indicia to the contrary, to be given its natural and ordinary meaning. In addition, as McGuinness J observed in D.B. v Minister for Health [2003] 3 IR 12 at p.21, it is often necessary, when construing an individual provision, to consider that provision in the context of the Act as a whole. The relevant principle was described by Walsh J. in East Donegal Co-Operative v. Attorney General [1970] I.R. 317 at p. 341, as follows:-
“The long title and the general scope of the Act of 1967 constitute the background of the context in which it must be examined. The whole or any part of the Act may be referred to and relied upon in seeking to construe any particular part of it, and the construction of any particular phrase requires that it is to be viewed in connection with the whole Act and not that it should be viewed detached from it. The words of the Act, and in particular the general words, cannot be read in isolation and their content is to be derived from their context. Therefore, words or phrases which at first sight might appear to be wide and general may be cut down in their construction when examined against the objects of the Act which are to be derived from a study of the Act as a whole including the long title. Until each part of the Act is examined in relation to the whole it would not be possible to say that any particular part of the Act was either clear or unambiguous.”
28. The requirement that the language or any provision must be read in context is important in two respects. In the first place, it is clearly important that this principle should be borne in mind when looking at the language of section 115A(2) itself. It would be wrong to consider the words of that subsection in isolation. The words of s. 115A(2) should, in accordance with the principle outlined by Walsh J. in East Donegal , be read in light of the provisions of the 2012-2015 Acts as a whole.
29. Secondly, the principle that the language of a statutory provision should be read in context, is equally important when considering the case law to which the court has been referred. While the approach taken to date in the case law is obviously of considerable assistance, it is essential to bear in mind that, as Baker J. observed in Ronan Meeley [2018] IEHC 38 at para. 76, such judgments must be considered in their own particular statutory context. It would not be appropriate in one statutory setting to blindly apply the approach taken under a different statutory regime.
Relevant case law
30. Subject always to the caveat identified in para. 29 above, it is nonetheless helpful to commence a consideration of this issue by examining the way in which the courts, in other statutory settings, have addressed what is involved in making an application to the court.
31. In the course of the hearing on 21st January, 2019, both sides referred to the decision of the Supreme Court in KSK Enterprises Ltd v. An Bord Pleanála [1994] 2 I.R. 129. That case concerned what was then a new provision of the Local Government (Planning and Development) Act 1963 (” the 1963 Act “), introduced by s. 19(3) of the Local Government (Planning and Development) Act 1992 (” the 1992 Act “). The new provision required that applications to challenge decisions of An Bord Pleanála in relation to planning matters were now required to be taken by means of an application for judicial review under O. 84 within a period of two months commencing on the date on which the decision of An Bord Pleanála was given. The new provision also made clear that any determination of the High Court in such proceedings would be final with no appeal to the Supreme Court save where the High Court certified that its decision involved a point of law of exceptional public importance and that it was desirable in the public interest that an appeal should be taken to the Supreme Court. These provisions were very clearly introduced to restrict the circumstances in which a planning decision could be challenged and also to minimise the delay to the planning process that could ensue as a consequence of any judicial review challenge.
32. The particular provision that was considered by the Supreme Court in that case was s. 82(3) B of the 1963 Act (as inserted by s. 19(3) of the 1992 Act). Insofar as relevant, subs. 3B was in the following terms:
“An application for leave to apply for judicial review … shall:
(i) be made within the period of two months, commencing on the date on which the decision is made and
(ii) be made by motion on notice to … the Board and each party … to the appeal”.
33. In the High Court, Flood J. came to the conclusion that, for an application to be ” made ” within the meaning of s 82(3B), it had to appear in the court list within the two-month period prescribed by the subsection. His decision was appealed to the Supreme Court. In the course of the Supreme Court hearing, four alternative possible interpretations were contended for (two put forward by the applicant and two by the respondents):
(a) The applicant submitted that, once a notice of motion was filed in the central office, this should be sufficient to treat the application as having been made;
(b) Secondly, it was contended by the applicant, in the alternative, that the application was ” made ” once it had been filed and served on at least of the one of the respondents;
(c) The respondents argued that the trial judge was correct and that an application for leave to apply for judicial review could not be regarded as having been made within the meaning of the subsection until such time as it was moved in court even if this was only for the purpose of asking that it be heard on a subsequent day;
(d) The respondent also submitted, in the alternative, that an application for leave to apply for judicial review could not be interpreted as having been made until two things had occurred, namely the filing of the notice of motion and its service on each of the respondents.
34. In considering these rival contentions, Finlay C.J. at p. 135 drew attention to the general scheme of the new provisions. He said:
“the general scheme of the sub-section now inserted by the act of 1992 is very firmly and strictly to confine the possibility of judicial review in challenging or impugning a planning decision either by a planning authority or by An Bord Pleanála. The time limit which has already been mentioned is indicated as being a very short time limit and it is an absolute prohibition against proceeding outside it with no discretion vested in the court to extend the time. Secondly, there is a provision contained in the sub-section as inserted that leave shall not be granted unless the High Court is satisfied that there are substantial grounds for contending that the decision is invalid or ought to be quashed. Thirdly, in relation to all matters other than constitutional challenge to a statute, the determination of the High Court is stated to be final … except in the case … where a High Court judge certifies that there is a point of law of exceptional public importance … .”
35. Having adverted to these striking features of the new provisions, Finlay C.J. continued (also at p. 135):
“From these provisions, it is clear that the intention of the legislature was greatly to confine the opportunity of persons to impugn by way of judicial review decisions made by the planning authorities and in particular one must assume that it was intended that a person who has obtained a planning permission should, at a very short interval after the date of such decision, in the absence of a judicial review, be entirely legally protected against subsequent challenge to the decision that was made and therefore presumably left in a position to act with safety upon the basis of that decision”.
36. It might be suggested that somewhat analogous considerations apply in the context of s. 115A which would explain why the Oireachtas would prescribe such a tight timeframe requiring that the application should be made within fourteen days. As counsel for Mars submitted at the hearing, s. 115A has the potential to adversely affect creditors’ rights in a significant way insofar as it permits the court (subject to being satisfied that each of the requirements of the section for the grant of relief have been met) to effectively overturn the decision made at the creditors meeting and instead to impose on the creditors an arrangement which interferes with their contractual rights. Furthermore, counsel for Mars emphasised that it was of crucial importance to bear in mind that the making of an application within the time limits laid down by s. 115A(2) has the effect of continuing the protection period for an indefinite period pending the determination of the application by the court and possibly pending the determination of an appeal . The continuation of that period deprives creditors, pending the resolution of the s. 115A application, of all of the rights which they would ordinarily have which are, for the duration of the protection period, stayed as a consequence of the operation of section 96.
37. I agree that the imposition of a fourteen-day period for the making of an application under s. 115A is indicative of a concern on the part of the Oireachtas to ensure that any application should be made within a very tight timeframe so as to minimise the extent to which creditors rights will continue to be curtailed in the aftermath of a creditors’ meeting. That said, it seems to me that counsel for the practitioner was correct insofar as he suggested that certainty for creditors would equally be achieved by requiring that the relevant notice be filed within the relevant fourteen-day period. As counsel for the practitioner highlighted, if service of the notice of motion is also required to be effected within that period, a creditor on whom the relevant papers were served would be left in a state of some uncertainty as to whether the provisions of the Act had been complied with at least until that creditor had checked with all other mandatory notice parties or had attended court on the return date of the application to ascertain (from the relevant affidavit of service, whether all other notice parties had been served within the fourteen day period). Indeed, this is illustrated by the terms of paras. 1-2 of the notice of objection here from which it appears that Mars was unsure whether all necessary notice parties had been served and was therefore putting the practitioner on proof of service on all parties.
38. It is clear from the judgment of Finlay C.J. that the considerations outlined by him at p. 135 of his judgment (quoted in para. 34 above) significantly influenced the ultimate decision arrived at in that case that both filing and service must be effected within the relevant two-month period prescribed by s. 82(3B) of the 1963 Act (as inserted by the 1992 Act). It is also clear from p. 136 of the report in KSK that a second significant factor in the ultimate decision of the court was that the statute required that the application would be ” made by motion on notice “. The language used in that phrase is important. It creates a direct link between the word ” made ” and the requirement of a ” motion on notice “. It suggests that, for an application to be ” made “, a notice must be given by means of a motion on notice. In other words, the Act spells out how one goes about making the statutory application – one does so by motion on notice . At p. 136 Finlay C.J. drew attention to the statutory requirement that the application be made in that way, saying:
“in the case of a motion on notice which is what is provided for in this sub-section, I am quite satisfied that it could not be said to have been made under any circumstances until notice of it had been given to the parties concerned. Such a construction of the phrase ‘application made by motion on notice’ seems to me entirely consistent with the plain objects of this sub-section and with its other provisions.. The vital and important thing is that within the very sharply limited time scale the parties concerned – and it would seem to me very particularly the person who had received the decision permitting him to develop – must be made aware of the challenge which it is sought to bring by way of judicial review to the validity of that decision.” (emphasis added).
39. In those circumstances, Finlay C.J. rejected the suggestion that the filing of a notice of motion would be sufficient of itself to come within the provisions of the subsection. Instead, he held that it was necessary that the relevant motion should be both filed and served on all of the mandatory respondents. The court, however, disagreed with the approach which had been taken by Flood J. in the High Court. At p. 136 Finlay C.J. said:
“It seems to me that to conclude that an application could only be made for leave to apply for judicial review under this subsection where an actual application of some description was made in court or where it could be established that an application would have been made in court if the court had been able to reach it in a list on the day concerned is to create too imprecise a cut-off point in time for the making of an important application.”
40. That observation has some resonance in the context of a submission made by counsel for the practitioner in this case discussed in para. 37 above. As noted above, counsel for the practitioner submitted that, if service was a necessary element of the making of an application within the meaning of s. 115A(2), this would create significant uncertainty particularly in cases where (as often happens in the case of an insolvent debtor) there is a large number of creditors. For the reasons outlined in para. 37 above, any individual creditor served with the papers within the relevant fourteen-day period could well have great difficulty in ascertaining whether each one of the other creditors had been served within the same period. In the present case, there was a total of seven creditors but, in my experience, it is not uncommon for a debtor to have significantly more than seven creditors.
41. I was also referred to the decision of the Supreme Court in Director of Public Prosecutions v. England [2011] IESC 16. That case was concerned with the proper interpretation of s. 39(1) of the Criminal Justice Act, 1994 (“the 1994 Act”) which allows, in certain circumstances, the forfeiture of property seized by members of an Garda Siochana or officers of Customs & Excise. It is important to keep in mind that, in essence, the provisions in issue in that case permit the confiscation of property by the State and it is understandable that the provisions should be narrowly construed. Under s. 38(1) a member of An Garda Síochána or an officer of Customs and Excise may seize and detain cash which is being imported into or exported from the State if the garda or the officer concerned has reasonable grounds for suspecting that the cash directly or indirectly represents the proceeds of drug trafficking or is intended for use in such trafficking. Section 38(2) requires that the detention of the cash cannot continue for more than 48 hours unless its detention beyond that period is authorised by an order made by a judge of the District Court. Under s. 38(3) an order of the District Court cannot be in place for a period longer than three months. More than one such order can be made in succession (as each relevant three month period comes to an end) subject to an overall limitation of two years on the period of detention.
42. The particular provision considered by the Supreme Court in that case related to the ability of the Circuit Court to order the forfeiture of any cash seized under section 38. Under s. 39(1) a judge of the Circuit Court may order the forfeiture if satisfied of certain matters ” on an application made while the cash is detained under that section “.
43. The relevant facts are not set out in detail in the judgment of the Supreme Court. Nonetheless, it is clear that, in that case, the last order of the District Court under s. 38 authorising the detention of the cash in issue expired on 5th May, 1999. On 23rd April, 1999, the DPP filed a notice of motion in the Circuit Court Office seeking relief under section 39. The relevant notice specifically stated that counsel for the DPP ” will apply to this Honourable Court on 29th June, 1999″ for the relevant relief. The question which, therefore, fell for consideration by the court was whether it could be said that the application had been made on 23rd April, when the notice of motion was filed in the Circuit Court Office. It is clear from pp. 14-16 of the judgment of Hardiman J. that, in the course of the hearing before the Supreme Court, the decision in KSK was the subject of debate. In particular, it is clear from p. 16 of the judgment that, in the course of argument before the court, counsel for the DPP expressly conceded that, save in cases where it might be impossible to identify or serve a necessary respondent, service of the relevant motion was required in order to comply with the requirements of section 39. Hardiman J. concluded that, in the circumstances, the application was not made while the money to which it related was detained under section 38. It is, however, important to note that, notwithstanding his reference to the decision of the Supreme Court in KSK , Hardiman J. was careful to observe at p. 13 that there was no authority immediately or directly relevant to the question of construction raised. This seems to me to be an acknowledgment by Hardiman J., consistent with the subsequent observation made by Baker J. in Meeley , that each statutory provision must be read by reference to its own terms and in its own context.
44. A somewhat similar issue subsequent arose in Reilly v. DPP [2016] 3 I.R. 229 which also dealt with s. 39(1) of the 1994 Act. In that case, Dunne J. (giving the judgment of the Supreme Court) referred to the decisions in both KSK and DPP v. England . At p 243, Dunne J., having considered the observations of Finlay C.J. at p. 163 of his judgment in KSK (as to the distinction between a motion made ex parte and a motion on notice), continued as follows:-
“As Finlay C.J. pointed out in the passage … in the case of a motion on notice it could not be said to have been made until notice of it had been given to the parties concerned. In this case there is no doubt but that the notice, having issued within the two-year time period, was also served within the two-year time period. In those circumstances I am satisfied that the application is made pursuant to s. 39(1) once the motion has been issued and served on the parties requiring to be notified within the relevant time period. I do not accept the contention that in order for the application to be made it is necessary that an application be made in open court as suggested. As the trial judge succinctly stated at p. 14:-
‘ … Such an assessment of a time limit would be imprecise and subject to the vicissitudes and vagaries of court calendars and workloads and cannot have been intended by s. 39(1).'”
45. The decisions in DPP v. England and Reilly v. DPP were therefore both concerned with the same statutory provision, namely s. 39 of the 1994 Act. At the hearing before me, I was also referred to the decision of O’Malley J. in DPP v. Humphreys [2014] IEHC 539 which was again concerned with s. 39 of the 1994 Act. In her judgment, in that case, O’Malley J. reviewed the relevant case law including KSK Enterprises and DPP v. England . At para. 67 of her judgment, she said:-
“…I am conscious of the fact that this is a case in which, well before the expiry of the relevant District Court order, the Director had sought unsuccessfully to serve certain parties with notice of the intended forfeiture application and had made application to the Circuit Court for directions as to service…. The process of the court was thereby invoked with the specific purpose of ensuring proper service… However, it seems to me that the statements of principle by the Supreme Court in KSK Enterprises and DPP v England are broad enough to bind this court to find that, where a statutory time limit requires that an application be brought by way of motion on notice, the notice must be served on all necessary parties within that time limit…” (emphasis added).
46. The decision in Humphreys (and in particular the passage highlighted above) was relied upon by counsel for Mars in this case. However, in my view, this observation by O’Malley J. should be seen in context. The issue before her related to s. 39 of the 1994 Act. The Supreme Court had already ruled on the interpretation of s. 39 in DPP v. England . Of course, the High Court was bound by that decision in the context of s. 39 of the 1994 Act. I fully appreciate that the language used by O’Malley J. in the passage highlighted above might suggest that the same principles should apply to any statutory provision which requires that an application be brought by way of motion on notice. However, I strongly doubt that O’Malley J. intended to go that far. Her words must be seen in the context of the specific statutory regime under consideration in that case. Moreover, O’Malley J, in the passage in question, specifically confines her remarks to statutory provisions which require an application to be made by motion on notice.
47. As noted above, it is important to consider each statutory provision in context. This was emphasised by Finnegan J. (as he then was) in McK v. H . (Unreported, High Court, 12th April, 2002) which concerned the interpretation of s. 2(5) of the Proceeds of Crime Act 1996 (” the 1996 Act “). Under s. 2(5) of the 1996 Act, an interim order restraining the disposal of property by a respondent in proceedings under the 1996 Act, will continue in force for 21 days from the date of the order ” and shall then lapse unless an application for the making of an interlocutory order in respect of any of the property concerned is brought during that period”. This case, therefore, related to the meaning of the word ” brought ” in the context of the 1996 Act. In his judgment, Finnegan J. referred to the Supreme Court decision in KSK and, at p. 5, he said:-
“There is a significant difference between [section 82(3) of the 1963 Act] where the word used is ‘made’ and [section 2(5) of the 1996 Act] where the word used is ‘brought’. There are three possible meanings to be attributed to ‘brought’ –
(i) that the motion be issued,
(ii) that the motion be issued and served,
(iii) that the motion be issued and served and moved in court.
In deciding that …section 82 required service the Supreme Court had regard to the importance of notification to the recipient of a planning permission and the planning authorities a consideration which does not apply in relation [1996 Act]. The word ‘brought’ is used throughout the Statute of Limitations 1957. It is well settled that the Statute of Limitations applies not just to proceedings commenced by summons but equally to proceedings commenced by motion, … or petition …. In every case once the initiating process is issued time ceases to run and it is never necessary that service be effected within the limitation period. … I am satisfied accordingly that a motion pursuant to … the 1996 Act is brought when the same is filed in the Central Office pursuant to the Rules of the Superior Courts ….”
48. The decision of Finnegan J. in that case was subsequently appealed to the Supreme Court where Geoghegan J, giving the judgment of the court, upheld the High Court decision. The judgment of Geoghegan J, nonetheless, differed in one significant respect from the reasoning of Finnegan J in the High Court in that Geoghegan J did not consider that there was any relevant distinction between the word ” made ” and the word ” brought “. The judgment of the Supreme Court is reported as F. McK v. A.F . [2005] 2 IR 163. At p. 172 of the report, Geoghegan J. said:-
“I am quite satisfied that the application for the making of the … order was ‘brought’ during the statutory 21 day period. I do not think that there is any significant difference between this case and K.S.K. Enterprises Ltd. v. An Bord Pleanála …. Counsel for the defendant tries to make a relevant distinction between the word ‘made’ and the word ‘brought’, but I believe that no such distinction can be made. Given the uncertainties of the availability of courts and judges at any given time and the systems of listing, a statute which creates a time limit for the bringing or making of an application or uses any such cognate words should be interpreted as meaning the date of issuing if the proceedings require a summons or filing or possibly in some cases filing and serving if what is involved is a motion, but unless there are express words in the statute that require it, it should not be interpreted as meaning the actual moving of the application in open court…”
49. It should be noted that, in that case, the motion had been both issued and served within the statutory time limit. This is clear from p 6 of the judgment of Finnegan J. The argument made by the defendant was that the application could not be said to be ” brought ” until the application was moved in court. In those circumstances, the observations by both Finnegan J and Geoghegan J – that the issue of a motion may be sufficient in itself – should be regarded as obiter dicta . Nevertheless, the observations are helpful in illustrating that the Supreme Court did not regard the decision in KSK as requiring, in all cases, that service be effected on the relevant notice parties before an application could properly be regarded as having been ” made “.
50. In the course of the hearing on 21st January, 2019, counsel for the practitioner emphasised the way in which Geoghegan J, in the passage just quoted, envisaged that filing was sufficient in itself for an application to be ” made “, save ” possibly in some cases filing and serving what is involved is a motion…”. Counsel submitted that one must look at the relevant statute to see which of these alternatives is appropriate in light of the particular language and context of the statute namely whether the issue of the motion is sufficient or whether the statute requires both issue and service. Counsel also emphasised that, in KSK , s. 82(3B) of the 1963 Act (as amended) expressly required that the application ” be made by motion on notice” (emphasis added). Thus, the subsection expressly required that for the application to be made, notice had to be given. It will be recalled in this context that Finlay C.J. noted, p. 136 of the report, that the subsection specifically provided that the application be made by motion on notice.
51. In the course of the submissions, I was also referred to the decision of Humphreys J. in McCreesh v. An Bord Pleanála [2016] 1 I.R. 535. In my view, that decision is of limited relevance since it was dealing with the separate question as to when an ex parte application could be said to be made. In that case, the relevant application for leave to apply for judicial review was filed in the Central Office but was not moved within the relevant statutory time periods. Humphreys J. came to the conclusion that this was sufficient. In reaching that conclusion, he drew attention at p. 537 to the fact that the Central Office of the High Court is ” an arm or instrument of the High Court and not some sort of entirely separate or independent agency “. In my view, counsel for Mars was correct in characterising the ratio of this decision as being limited to ex parte applications. As will be seen from the provisions of s. 115A(2), an application for relief under s. 115A is not intended to be pursued on an ex parte basis. There is a statutory obligation to give notice to all of the creditors, the debtor and the ISI. Importantly, however, s. 115A(2) does not refer to a ” motion on notice “. Instead, as an analysis of the language and structure of the subsection suggests, the obligation to give notice is one of three individual components of the requirements set out in section 115A(2).
Analysis of the Relevant Statutory Provisions
52. Before addressing the language of s. 115A(2) in detail, it is important to bear in mind that, if an application is to be made under s. 115A(9), a number of very important steps have to be taken in advance. Section 115A is not a straightforward provision. There is a myriad of considerations that have to be taken into account before any decision could be made as to whether it is appropriate to make an application to the court under S.115A.
53. In the first place, the practitioner will have to consider whether there are good grounds for making the application. There is no question of the practitioner issuing the application mechanically and without thought or careful consideration. One of the statutory requirements in s. 115A(2)(a) is that the practitioner should state the grounds of the application. That requires the practitioner to exercise his or her knowledge and expertise and, most especially, an independent judgment. This was emphasised by Baker J in a number of judgments. For example, in John Foye [2018] IEHC 38 at para. 43, Baker J explained the role of the practitioner in the following terms:
“The role of the PIP in the making of an application under s. 115A is one of ‘substance and responsibility’ … and not merely procedural or administrative in nature. The reason for this was explained in Re Darren Reilly and … in Re Nugent, that the Oireachtas intended to put an independent person with financial knowledge and expertise at the centre of the process….”
54. The practitioner will also have to consider whether there exists a separate class of creditor which voted in favour of the proposals. This involves a consideration of the test in Sovereign Life Assurance v. Dodd [1892] 2 Q.B. 573, as applied in Ireland by Laffoy J. in Re Millstream Recycling [2010] 4 IR 253, and by Baker J. in Sabrina Douglas [2017] IEHC 785. Unless such a class can be identified (which involves showing that the Sovereign Life test has been satisfied in respect of that class), the application, in a multi-creditor case such as this) cannot be got off the ground. Section 115A(9)(g) makes that clear.
55. In addition, the practitioner will have to consider whether there is a good basis to satisfy the court as to each of the requirements set out in section 115A(8) and (9). The practitioner will, therefore, have to be in a position to justify, for example, that the proposed arrangement is fair and equitable in relation to each class of creditor that has not approved the proposals and that the arrangement is not unfairly prejudicial to the interests of any individual creditor. While these are issues that one assumes the practitioner will have considered when formulating the proposed PIA, a practitioner will nonetheless need to satisfy his or her mind, in advance of mounting any s. 115A application, that there is sufficient material available to justify the practitioner’s views to the court.
56. If an application is to be mounted, the practitioner will also have to be satisfied that he or she will be able to demonstrate to the court that the proposals enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit.
57. It will also be necessary for the practitioner to discuss with the debtor whether it is appropriate to make an application under section 115A. In this context, an application under s. 115A cannot be brought by the practitioner unless and until the debtor instructs the practitioner to proceed.
58. Furthermore, the practitioner will have to prepare a certificate (which is a relatively detailed document) setting out the result of the vote taken at the creditors’ meeting and identifying the proportions of the respective categories of votes cast by the creditors voting at that meeting and identifying those creditors who voted in favour of and against the proposal and the nature and value of the debts owed to each such creditors. This is a requirement of s. 115A(2)(d). The practitioner will also have to provide the statement required under s. 115A(2)(e) in relation to the requirements of sections 91 and 99(2). And, of course, the application under s. 115A(9) will also have to be drafted incorporating all of the material enumerated in paras. (a) to (e) of s.115A(2).
59. The practitioner will also need to ensure that there is evidence available to prove that a ” relevant debt ” exists within the meaning of s.115A(18) i.e. that, as of 1 January, 2015, the loan account secured on the debtor’s principal private residence was in arrears or that, at some time prior to that date, the debtor had been in arrears but had entered into an alternative repayment arrangement with the secured creditor concerned. While that may seem like a requirement which can be readily satisfied by reference to the state of the debtor’s account with the relevant secured creditor, it may not always be that simple in practice to get the relevant documentary proof in place particularly where the affairs of the debtor are chaotic.
60. It is unlikely that the steps described above could be taken without some input and advice from a legal advisor. While a practitioner will have considerable professional expertise and will have to exercise an independent judgment, legal advice is likely to be necessary given that any application under s. 115A necessarily involves court proceedings which, in many cases, will be opposed by one or more of the creditors who voted against the proposal.
61. Against the background described above, I believe it is fair to say that the fourteen day period prescribed by s.115A(2) is a remarkably short period. I appreciate that a similar period is prescribed, for example, under the Illegal Immigrants (Trafficking) Act 2000 in respect of challenges to immigration and asylum decisions, but that period is capable of being extended by the court. I also appreciate that an even shorter period exists under the Irish Takeover Panel Act 1997, but again, that is capable of being extended by the court (subject to certain conditions). In the present case, it is agreed by both parties, that the fourteen day period described by s.115A(2) is not capable of extension. This follows from a decision of Baker J. in Michael Hickey [2017] IEHC 20.
The language used in the relevant provisions
62. Turning to the relevant statutory provisions, it is useful, in the first instance, to consider the provisions of section 115A(1). It provides ( inter alia ) that an application can be brought where the practitioner ” considers that there are reasonable grounds for the making of such an application”. In the course of the hearing before me, counsel for the practitioner suggested that it cannot have been the intention of the Oireachtas that the words” making of such an application ” are intended to cover both the issue of notice of motion and service of the notice of motion. Counsel suggested that the Oireachtas could hardly have intended that the practitioner had to direct his or her mind to whether there were reasonable grounds for taking both of those steps. It was submitted that what the Oireachtas had in mind was that the practitioner should give consideration to whether there are reasonable grounds for invoking the jurisdiction of the court which would be done by the issue of the notice of motion. It seems to me that there is some substance to this submission although, of itself, it would not be determinative.
63. In so far as the provisions of s.115A(2) are concerned, counsel for the practitioner submitted that, in contradistinction to s. 82(3)(b) of the 1963 Act considered by the Supreme Court in KSK , s. 115A(2) does not provide that the application should be made by motion on notice. Instead, it sets out three separate (albeit interlinked) requirements, namely:-
(a) that the application should be made not later than fourteen days after the meeting;
(b) that notice should be given to the Insolvency Service, each creditor concerned and the debtor; and
(c) that the notice must be accompanied by each of the materials set out in paras. (a) to (e) of the subsection.
64. In my view, this submission by counsel for the practitioner has considerable force. It is borne out by a consideration of the punctuation within section 115A(2). In this context, notwithstanding the approach which has traditionally been taken in England & Wales, the Irish Courts have regard to punctuation as an aid to statutory interpretation. This is clear, for example, from the judgment of Hardiman J. in Minister for Justice v. Bailey [2012] 4 IR 1 at page 72. It is also apparent from the judgment of Fennelly J. in Twil Ltd v. Kearney [2001] 4 IR 476 at page 492.
65. The punctuation within s. 115A(2) breaks up the subsection into three parts. The first part is concerned with the making of the application within fourteen days, the second part deals with the requirement to give notice to the Insolvency Service, each creditor concerned and the debtor, and the third part relates to the materials that are required to accompany the application. Each of these parts of the subsection are separated by a comma. Ignoring the reference to s.111A (which is not relevant for present purposes) those three parts are:-
(a) the first part comprises the words ” An application under this section shall be made not later than 14 days after the creditors’ meeting…,”;
(b) the second part comprises the words ” shall be on notice to the Insolvency Service, each creditor concerned and the debtor,…”; and
(c) the third part comprises the words ” and shall be accompanied by…a statement of the grounds of the application…”.
66. Each one of these three components of s. 115A(2) relates to ” an application under this section “. Thus, the first part requires that the application under the section must be made not later than fourteen days after the creditors’ meeting. The second part requires that notice of the application must be given to the Insolvency Service, the creditors and the debtor. The third part requires that the application must be accompanied by each of the documents set out at paragraphs (a) to (e). When one analyses the language of s. 115A(2) in this way, it suggests that there are, in fact, three requirements within the subsection.
67. There is, accordingly, a notable difference between the language and structure of s. 115A(2) on the one hand and the language and structure of s. 82(3B) of the 1963 Act considered by the Supreme Court in KSK . As noted above, the language of s. 82(3B) expressly required that the application be made by motion on notice. The requirement of notice was an inherent and express element of the making of the application. In his judgment (at p. 136 of the report), Finlay C.J. drew attention to the phrase ” application made by motion on notice ” which is what is provided for in s. 82(3B). That is not the way in which the opening words of s.115A(2) have been drafted. The language of s.115A(2) simply requires that the application shall be made not later than fourteen days after the creditor meeting. There is no equivalent to the phrase ” An application for leave to apply for judicial review…shall … be made by motion on notice” (emphasis added) which appeared in s. 82(3B) of the 1963 Act (as amended) or similar words. There, the requirement of notice was an integral element of what was involved in making the relevant application. In contrast, in s. 115A(2), the word ” notice ” is not linked in the same way with the word ” made ” as it is in s.82(3B). The giving of notice is not expressed to be an inherent or integral element of the making of the application. Instead, the language and structure of the subsection suggests that it is an additional requirement to the obligation to make the application within fourteen days.
68. In addition, the fourteen day requirement is specifically referable to the words ” an application under this section shall be made”. Section 115A(2) does not specifically require the notice to be given within the same period.
69. In my view, an analysis of s.115A(2) taken on its own, supports the case made by the practitioner. However, it would be unsafe to consider s.115A in isolation. For all of the reasons discussed above, it is necessary to consider s. 115A(2) in context. Counsel for Mars submitted that when one looks at the language of s. 115A(3) it is clear that the Oireachtas was not equating the lodging of an application in the relevant court office with the making of an application to the court. It should be recalled at this point that s. 115A(3) envisages that a creditor who wishes to object to the application under s. 115A must “lodge a notice with the appropriate court “.
70. It was submitted that the Oireachtas very deliberately used the word ” lodge ” in s. 115A(3) in contradistinction to the use of the word “made” in s. 115A(2) . Counsel submitted that this shows, very clearly, that the Oireachtas must have intended, when using the word ” made ” in s. 115A(2) to have meant something different to the physical act of merely lodging the notice of motion in the relevant court office.
71. At first sight, there is significant force in the argument made by counsel for Mars. However, on further analysis, there is a logical reason why the Oireachtas would use the word ” lodge ” in the context of sections 115A(3) and (4). There is a very real difference between the nature of the step taken by a creditor in lodging a notice of objection and the nature of the step taken by a practitioner on behalf of a debtor in issuing a s.115A application. In the case of the notice of objection, it merely has to be filed in the relevant court office in connection with the pre-existing application brought by the practitioner under section 115A. There is no further engagement required of the party lodging that notice other than placing it on the pre-existing court file. In contrast, a party required to make an application to the court (which is what the practitioner on behalf of the debtor must do under section 115A) has significantly more engagement with the court office. It is not simply a question of filing or lodging the relevant application and putting it on the court file. Instead, when the application is brought to the court office, it must, in the first instance, be given a date on which the matter will first appear before the court; the office must not only assign a return date to the application but must enter the application in the relevant court list for that day. The provisions of s 115A(6) are of some relevance here. Under s.115A(6), the Oireachtas was careful to ensure that there would be a hearing of any s.115A application which has been made. Section 115A(6) expressly imposes an obligation on the court to hold a hearing. Therefore, when the application has been received by the office, a chain of events is set in motion which will inevitably require that the application appear in the court list.
72. The lodging of the notice of objection does not require the same level of engagement. All that is done, is that the notice is filed. The act of filing a document of that kind is quite mechanical in nature.
73. This distinction between the mere filing of a document, on the one hand, and the steps that require to be taken when a s.115A application is brought into the court office, on the other, is also important in the context of s. 140 of the Act. Section 140 of the Act empowers rules of court to be made dealing with the procedural steps that are required to be taken in the context of court proceedings under the Acts. Section 140 was relied upon by both sides in support of their interpretation of the language used in section 115A. Thus, for example, counsel for the practitioner argued that the language of s. 140(1)(a) (considered in more detail below) supported the contention that the making of an application was complete when the application was brought to the court office. Counsel for Mars argued that s. 140(5) supported the interpretation advocated by Mars since it appears to make a distinction between the lodgement or filing of a document on one hand and the making of an application on the other.
74. On my analysis of s. 140, it appears to me to add weight to the case made on behalf of the practitioner here. In the first place, I draw attention to the language used in s. 140(1)(a) which, insofar as relevant provides as follows:-
“(1) Notwithstanding any other provision of this Act, or any other enactment or rule of law, rules of court may, in relation to any proceedings under this Act before an appropriate court, make provision for—
(a) the lodgement or filing of a document with, and making of an application to, the court by transmitting the document or application by electronic means to the court office”
75. In my view, this language strongly supports the view that the Oireachtas did not intend that the making of an application would, of itself, extend to the service of the application on any relevant notice party. The language used in s. 140(1)(a) clearly supports the proposition that the Oireachtas regarded the making of an application as complete once the application is with the relevant court office. This follows from the fact that s. 140(1)(a) clearly regards it as appropriate for a court rules committee to make a rule that the making of an application to the court can be effected by transmitting the application by electronic means to the court office.
76. By the express terms of s. 140(1)(a), the Oireachtas has empowered rules to be made that make provision for the ” making of an application to … the court by transmitting the … application by electronic means to the court office”. Those words plainly contemplate that the making of the application will be complete when the relevant application is transmitted by electronic means to the court office.
77. I do not believe there is anything in s. 140(5) which undermines this view. That subsection provides as follows:-
“(5) References in this Act to the—
(a) furnishing of a document to,
(b) lodgement or filing of a document with,
(c) making of an application to,
(d) transmission of a document to or by, or
(e) issue of a document by,
the appropriate court shall be construed as including a reference to the performance of such action by electronic means, where this is provided for in rules of court referred to in subsection (1).”
78. It was submitted on behalf of Mars that this provision showed that the lodgement or filing of a document was regarded by the Oireachtas as something different to the making of an application. He drew attention to the way in which they are separately enumerated at paras. (b) and (c) respectively of s. 140(5). It was suggested, in those circumstances, that one could not regard the filing of the application in the Circuit Court office as the making of an application under section 115A. I do not accept this submission. For the reasons outlined above, it seems to me that there is a significant difference between the issuing of a motion by a court office and the lodgement or filing of a document with a court office. In my view, the issuing of a s. 115A application cannot be characterised merely as filing or lodging. As explained above, the motion is not simply placed on the court file. It is given a date by the court office and entered in the list of motions to be listed before the court on that day. There is, therefore, a rational explanation for the distinction made by the Oireachtas between the lodgement or filing of a document, on the one hand, and the making of an application, on the other.
79. Thus, when s. 115A(2) is read in conjunction with s. 140, I believe there are strong grounds for concluding that the Oireachtas did not intend that a s. 115A application would require to be served on the relevant notice parties before it could be considered to have been ” made “. It must follow that there are equally strong grounds to conclude that, once the s. 115A application has been issued in the relevant court office within a period of fourteen days after the creditors’ meeting, the application has been duly made.
80. However, before reaching any final conclusion on this issue, I must bear in mind the argument that was made by counsel for Mars that s. 115A represents a significant encroachment on the rights of creditors – particularly insofar as it extends the period of protection. As a consequence of the extension of the period of protection, creditors are unable to take any form of action against the debtor. As noted above, s. 96 of the 2012 Act very seriously curtails the exercise of rights by creditors against the debtor during the protection period. Counsel also drew attention to the way in which an arrangement approved under s.115A can seriously affect creditors’ rights.
81. I fully accept that, mindful of the impact on creditors, the Oireachtas intended to create a tight timeframe for the bringing of an application under section 115A. This is very clear from the way in which the Oireachtas prescribed a very short period of fourteen days. It is also underlined by the fact that the Oireachtas has not given any power to the court to extend that time period. The impact on creditors is a significant consideration that must be borne in mind in seeking to understand the intention of the Oireachtas in framing s.115A(2) in the way that it has. On the other hand, it is noteworthy that the Oireachtas chose not to use the ” motion on notice ” language previously used in the 1992 Act (which inserted s 82(3B) into the 1963 Act).
82. Moreover, when s 115A(2) and s 140 are considered together it appears to be clear that in the 2012-2015 Acts, the Oireachtas specifically had in mind that the making of an application could be achieved by bringing it to the court office. A consideration of those provisions strongly suggests that the Oireachtas did not contemplate that the application would also have to be served on the notice parties before it could be considered to have been ” made “. Given the significant steps that have to be taken by a practitioner before mounting a s. 115A application the Oireachtas may have considered that it would be imposing an unachievable burden on a practitioner if service also had to be completed within the very tight fourteen day period prescribed. In this context, it was suggested by counsel for Mars that service of the application should not be a burden for practitioners since it could be undertaken by electronic means. To my mind, that argument fails to recognise that, while the Oireachtas has empowered the court rules committees to make rules allowing for electronic service, the Oireachtas stopped short of requiring that such rules should be made. Therefore, s 115A has to be capable of being operated even without the benefit of electronic service. In the absence of electronic means to serve the application, a requirement to serve what could be a large number of notice parties within the same fourteen day period as is available for the taking of the steps described in paras. 52-60 above could give rise to significant difficulty in some cases. It is therefore understandable that the Oireachtas would not require that service be effected within the fourteen day period.
83. It seems to me that the way in which the Oireachtas chose to address the policy consideration identified by Mars was in the requirement set out in s. 115A(7) under which the court and the parties are placed under a statutory obligation to ensure that a hearing under s. 115A is held ” with all due expedition “. That means that practitioners would not be entitled to delay service of the notice required under section 115A(2). Indeed, I note that when the Circuit Court Rules Committee came to enact rules for the purposes of s. 115A, the committee was obviously mindful of the obligation contained in section 115A(7). Order 73, rule 29A(3) requires that on receipt of a notice of motion under s. 115A and the appended documents (e) the documents required under s. 115A(2)(a) to (e), the office is required to list the matter for initial consideration by the court “on the earliest practicable date which is not less than 21 days after the date of issue of the notice of motion “. Furthermore, r. 29A(4) imposes an obligation on the practitioner to send a copy of the application to the ISI, the debtor and each creditor concerned “not later than 4 days after the notice of motion … has issued “.
84. The Superior Court Rules contain very similar provisions in Order 76A, rule 21A. Under r. 21A(3) the office is required to list the notice of motion for initial consideration on the earliest practicable date not less than 21 days after the date of issue. Under r. 21A(4), the practitioner is required to serve the notice of motion within four days from the date of issue. Under r. 21A(5), the court is required (if it does not hear and determine any objections on that date) to make directions and make orders for the determination of any objections.
85. In my view, the provisions of the Circuit Court Rules and Superior Court Rules, therefore, give effect to the obligation imposed on the court (and on the parties) by s. 115A(7) to hear any application under s. 115A with ” due expedition “.
86. The rules are also interesting in that the Rules Committee in each case, appears to have taken a similar interpretation of s. 115A(2) as that taken by the practitioner in this case. In the case of both sets of rules, there is a specific obligation imposed on the practitioner to serve the notice of motion on the ISI, the debtor and the creditor within four days after the date of its issue. There would be no need to address the question of service of the notice of motion if, under the Act, the service of the motion was already an inherent part of the making of the application. Thus, the approach taken in the Rules suggests an understanding on the part of the respective Rules Committees that the making of the application was confined to the issue of the notice of motion.
87. Of course, the provisions of the rules cannot be used as an aid to the interpretation of the Act. Nonetheless, the fact that the Rules Committees (comprised of members with very significant experience and expertise) have taken this interpretation of the Act is striking.
88. In the course of the hearing, counsel for Mars submitted that it would be surprising if it had been the intention of the Oireachtas that an application under s. 115A could be regarded as having been ” made ” merely by issuing the relevant notice of motion in the court office. In making this submission, counsel drew attention to the provisions of s. 96(1) of the 2012 Act which prevents the creditor from taking steps against the debtor while a protective certificate remains in force. He highlighted that the prohibition on the taking of such steps only applies to a creditor ” to whom notice of the issue of a protective certificate has been given”. Counsel submitted that the scheme of the Act envisaged that creditors would not be adversely affected without notice first being given to them. However, there are provisions of the Act which make clear that orders can be made which have the effect of extending the protection period without any requirement that any advance notice be given to a creditor. For example, under ss. 95(6) and (7), an application can be made by a practitioner to extend the period of the protective certificate by an additional period not exceeding 40 days (subject to satisfaction of certain conditions). The Act does not require that such applications should be made on notice to creditors notwithstanding that it could be possible in the particular case to extend the protection period by a period of 80 days (where successive applications are made under s. 95(6) and subsequently under section 95(7)). There is a requirement under s. 95(12) that the practitioner should notify the creditors of any decision to extend the period of a protective certificate. However, that is notification after the event. In the meantime, the protective period has been extended without notice to the creditor. Once the protective certificate has been extended, it remains in force and the creditors are restrained by virtue of s. 96(1) from taking any of the actions against the debtor specified in that subsection.
Conclusion
89. For the reasons outlined in paras. 81-83 above, I believe that the Oireachtas, in enacting s. 115A, carefully put in place a regime that ensured that the rights of creditors would be appropriately protected by placing an express obligation on the courts to deal with applications with due expedition. This ensures that delays to creditors resulting from such applications will be no longer than are necessary. This is reinforced by the provisions of s 115A(6) which obliges the court to hold a hearing of any s.115A application. The application cannot be allowed to sit on a court file.
90. When s. 115A(2) is read in context, I am of the view, for all of the reasons previously explained, that the interpretation advocated by the practitioner is correct. I reject the suggestion that this creates uncertainty for creditors. On the contrary, as explained in paras. 37 and 40 above, it seems to me that this interpretation promotes certainty.
91. Accordingly, I have come to the conclusion that an application under s 115A(9) is made once the application has been lodged in the relevant court office. In my view, s. 115A(2) does not require that service be effected on the statutory notice parties within the fourteen day period prescribed.
Re: Leonard O’Hara (a debtor): Re: Noeleen O’Hara (a debtor) [2019] IEHC 96 (25 February 2019)
URL: http://www.bailii.org/ie/cases/IEHC/2019/H96.html
Cite as: [2019] IEHC 96
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Judgment
Title:
Re: Leonard O’Hara (a debtor): Re: Noeleen O’Hara (a debtor)
Neutral Citation:
[2019] IEHC 96
High Court Record Number :
2018 411 CA: 2018 412 CA
Date of Delivery:
25/02/2019
Court:
High Court
Judgment by:
McDonald J.
Status:
Approved
[2019] IEHC 96
THE HIGH COURT
CIRCUIT APPEAL
[2018 No. 411CA & 412 CA]
IN THE MATTER OF PART 3 CHAPTER 4 OF THE PERSONAL INSOLVENCY ACTS 2012-2015
AND IN THE MATTER OF LEONARD O’HARA (A DEBTOR)
AND IN THE MATTER OF NOELEEN O’HARA (A DEBTOR)
AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 115A(9) OF THE PERSONAL INSOLVENCY ACT 2012
JUDGMENT delivered by Mr. Justice Denis McDonald on 25th February, 2019
1. This judgment deals with a preliminary issue which has arisen in the context of two appeals from the Circuit Court. In both of the above cases, an application was made to the Circuit Court under s.115A(9) of the Personal Insolvency Act 2012 (” the 2012 Act “) (as amended) seeking an order confirming the coming into effect of proposals for a Personal Insolvency Arrangement (“PIA”) . The applications (which are interlocking) are made by a husband and wife in respect of their debts and they came on for hearing in the Circuit Court on 25th October, 2012 before Her Honour Judge Mary Enright sitting at Tullamore Circuit Court. In both cases, the learned Circuit Court judge refused the application and upheld the objection of the objecting creditor, Pepper Finance Corporation (Ireland) DAC (” Pepper” ).
2. The preliminary issue which arises (and which was the basis for the decision of the learned Circuit Court judge) relates to whether the personal insolvency practitioner in this case, Mr. Niall Moran, (” the practitioner “) was entitled to rely on the provisions of s. 111A of the 2012 Act for the purposes of the application under section 115A. In this context, it should be noted that s.115A permits the court to confirm the coming into effect of a proposed PIA notwithstanding that the proposal has been rejected by a majority of the creditors of a debtor. There are a number of conditions that must be satisfied for this purpose. Among the conditions which must be satisfied is the requirement laid down in s. 115A(9)(g) that the proposal has been accepted by at least one class of creditors. There is an exception to this requirement where the proposal is one to which s. 111A applies. As the opening words of s. 111A(1) make clear, s. 111A applies where there is only one creditor entitled to vote at a creditors’ meeting.
3. In the present case, on the evidence before the Circuit Court, it is clear that there were at least two creditors who were entitled to vote at the meetings of creditors. However, one of them did not return a proxy form to the practitioner and therefore did not exercise a vote at the meetings. The issue which now arises (and which was debated before me at a hearing on 10th December, 2018) is whether the 2012 Act can be interpreted as permitting s. 111A to be invoked in the circumstances which I have just described.
4. In the course of the hearing before me, counsel for both parties were agreed that, on a literal construction of the 2012 Act, the practitioner would not be entitled to rely on s.111A. However, counsel for the practitioner has sought to make the case that a literal interpretation of the relevant provisions of the 2012 Act leads to an absurdity such that the court is entitled to apply the approach authorised by s. 5 of the Interpretation Act 2005 in accordance with the test set out by Clarke J. (as he then was) in Irish Life and Permanent Plc v. Dunne [2016] 1 IR 92.
The relevant provisions of the 2012 Act (as amended)
5. Before turning to the facts of this case, it may be helpful, in the first instance, to identify and examine the relevant provisions of the 2012 Act (as amended).
6. The first provision which is relevant is section 98(2). It provides that a practitioner may request a creditor to file a proof of debt (in which case the proof of debt provisions of the Bankruptcy Act 1988 apply.)
7. Section 98(2)(b) sets out the consequences for a creditor who does not comply with a request by a practitioner to prove the relevant debt. Section 98(2)(b) provides as follows:
“Subject to paragraph (c), a creditor who does not comply with a request under paragraph (a) is not entitled to—
(i) vote at a creditors’ meeting, or
(ii) share in any distribution that may be made under the Personal Insolvency Arrangement concerned.”
8. It will therefore be seen that, where a practitioner has required creditors to prove debts, the only creditors who will be entitled to vote at a meeting of creditors are those who have in fact proved their debts. In the present case, the practitioner required creditors to submit proof of debt.
9. Sections 106 to 108 of the 2012 Act deal with the calling of creditors’ meetings by a practitioner. Section 106(1) requires the practitioner to notify the creditors of the holding of a meeting to consider the proposals for a PIA. Section 106(2) requires the practitioner to give fourteen days written notice of the meeting.
10. Sections 108 to 111 deal with the holding of the meeting. Section 108(8) (as inserted by s. 15(b) of the 2015 Act) provides that, where no creditor votes at a creditors’ meeting, the proposed PIA is deemed to have been approved.
11. Section 110(1) deals with the outcome of the vote at a meeting of creditors. It provides that a proposed PIA will be considered to have been approved at a creditors’ meeting where:-
“(a) creditors representing not less than 65 per cent of the total amount of the debts due to the creditors participating in the meeting and voting have voted in favour of the proposal,
(b) creditors representing more than 50 per cent of the value of the secured debts who are-
(i) entitled to vote, and
(ii) have voted,
as secured creditors have voted in favour of the proposal, and
(c) creditors representing more than 50 per cent of the amount of the unsecured debts who—
(i) are entitled to vote, and
(ii) have voted,
at the meeting as unsecured creditors have voted in favour of the proposal.”
12. Section 111 provides that the Minister may make regulations relating to the holding of creditors’ meetings including regulations in relation to the appointment of proxies. On 30th August, 2013, the Minister made the necessary regulations namely the Personal Insolvency Act, 2012 (Procedures for the Conduct of Creditors’ Meetings) Regulations 2013 (S.I. No. 335 of 2013) (” the 2013 Regulations “). Regulation 7(1) of the 2013 Regulations provides that votes at a meeting of creditors may be given either personally or by proxy. Regulation 7(2) provides that every notice summoning a meeting of creditors must be accompanied by a form of proxy which is to be completed in writing by the creditor.
13. Regulation 7(4) provides that each proxy is to be delivered to the office of the practitioner no later than 4 pm on the last working day before the day scheduled for the holding of the meeting.
14. Regulation 8 provides that, where a creditor abstains from voting at a creditors’ meeting, this is not to be counted as a vote by such creditor.
15. Prior to the enactment of s.17 of the 2015 Act (which inserted s. 111A) there was no provision in the 2012 Act which dealt with a situation where there was only one creditor who was entitled to vote at a creditors’ meeting. However, s. 111A has now been inserted into the 2012 Act. As noted above, under s. 111A(1)(b) where only one creditor is entitled to vote at a creditors’ meeting, then s. 111A will apply. It is important to have regard to the relevant language of s. 111A(1) which is in the following terms:-
“(1) Where —
…
(b) only one creditor would be entitled to vote at a creditors’ meeting held under this Chapter …,
the procedures specified in this section, and not those specified in sections 106 and 108 to 111, shall apply in relation to the approval by that creditor of the proposal for a Personal Insolvency Arrangement.”
16. In cases to which s. 111A applies, s. 111A(2) sets out that the practitioner is to give written notice to the creditor (i.e. the only creditor entitled to vote) that the proposal for a PIA has been prepared and the creditor then has (in accordance with s.111A(6)(a) of the 2012 Act) a period of fourteen days in which to notify the practitioner in writing of his or her approval or otherwise of the proposal.
17. Under s. 111A(7) a proposal for a PIA (to which s. 111A applies) will be considered to have been approved by the creditor where the creditor notifies the practitioner of the approval. In cases where the creditor fails to notify the practitioner in writing of his or her approval or otherwise of the proposal, s.111A(7)(b) provides that the proposal will be deemed to have been approved by the creditor concerned.
18. I observe that the entire structure of s. 111A is predicated on the existence of only one creditor with an entitlement to vote at a creditors’ meeting. In such cases, the practitioner does not proceed to call a meeting of creditors under s. 106. Instead, s. 111 directs the practitioner to give notice of the proposal for the PIA to the sole creditor and that creditor then has a period of 14 days to decide whether or not to approve the proposal.
19. As noted above, a different regime exists where there is more than one creditor with an entitlement to vote – namely the regime described in paras. 9-11 above. In such cases, the practitioner (once the debtor has consented) is required by s. 106(1) to convene a meeting of creditors. There is no statutory provision which allows the practitioner to dispense with the holding of such a meeting if only one of the creditors, so entitled, decides to exercise its entitlement to vote. Nor is there any provision to enable the practitioner to deem that the s 111A regime should apply in such cases.
20. Section 111A must also be read in conjunction with s. 115A (which was inserted into the 2012 Act by s. 21 of the 2015 Act). Under s. 115A(2), an application under s.115A cannot be made later than fourteen days after the creditors’ meeting or (in cases to which s.111A applies) within fourteen days from the receipt by the practitioner of the notice of the creditor concerned. As noted above, under s. 115A(9)(g), it is necessary that at least one class of creditors has approved the proposed PIA by a majority of over 50% of the value of the debts owed to that class ” other than where the proposal is one to which s.111A applies”.
21. There are a number of other references within s.115A to s.111A. These include:
(a) subs. (2)(a)(ii) which sets out a requirement as to what should be included in the certificate to be furnished by the practitioner under subs. (2)(d). This is stated to apply in cases ” other than where the proposed Personal Insolvency Arrangement is one to which s.111A applies”;
(b) subs. (2)(d) also deals with the contents of the certificate to be given by the practitioner. It is expressly stated in subs. (2)(d)(ii) that:
“where applicable, stating that s.111A applies to the proposal and that the creditor concerned has notified the …practitioner under s.111A(6) that the creditor does not approve of the proposal…”;
(c) subs. (15)(b) provides that the court may accept the certificate of the practitioner under subs. (2)(d): ” as evidence that the proposed Arrangement has not been approved in accordance with s.111A …”;
(d) subs. (16) sets out what is meant by a proposal for a PIA that has not been approved in accordance with Chapter 4. Subsection (16)(b) provides in particular:
“In the case of a proposal for a Personal Insolvency Arrangement to which s.111A applies, the creditor concerned has notified the Personal Insolvency Practitioner in accordance with s.111A(6) that the creditor does not approve of the proposal….”.
22. It will thus be seen that the Oireachtas, in enacting the 2015 Act, inserted elaborate provisions into the 2012 Act dealing with circumstances where only one creditor was entitled to vote at a meeting of creditors. The insertion of s. 111A into the 2012 Act required a significant number of consequential provisions to cross-refer to the new regime brought about by s. 111A in order to address those cases where there is only one creditor with an entitlement to vote.
23. In the course of the hearing before me, counsel for Pepper submitted that the effect of the statutory provisions discussed above was clear. In short, where a practitioner requires creditors to prove their debts, s. 98(2)(b) has the effect that any creditor who fails to submit a proof of debt will have no entitlement to vote at a meeting of creditors. However, where more than one creditor submits a valid proof of debt, the relevant provisions which are engaged are ss. 106-111. In such cases, the practitioner will be obliged to call a meeting of creditors under s. 106 and there is no scope to apply the provisions of s 111A even where, of those entitled to vote, only one creditor submits a form of proxy for the purposes of that meeting.
24. Counsel for Pepper submitted that it is clear from the language of s. 111A that it will only apply where the practitioner has prepared a proposal for a PIA and only one creditor would be entitled to vote at a creditors’ meeting. He drew attention to the way in which the notice to be sent to the creditor in that case is different to the notice to be sent under section 106. Under s. 111A(2)(a), the practitioner is required to give written notice to the creditor that the proposal for a PIA has been prepared and that the creditor may within the period specified in s. 111A(6) (namely the period of fourteen days from the date of the notice) notify the practitioner in writing of his or her approval or otherwise of the proposal.
25. In the case of a notification under s. 106, the notice to be given is fourteen days written notice of the meeting and the date on which, and time, and place at which, the meeting will be held.
26. Counsel for Pepper submitted that, in circumstances where (as discussed in more detail below) there were two creditors who proved their debts under s. 98, the only notice that could lawfully be given by the practitioner under the 2012 Act was notice of the holding of a creditors’ meeting. There was no scope under the Act for the practitioner to trigger the s. 111A procedure in such cases.
27. Furthermore, counsel drew attention to what actually happened in this case. A notice was, in fact, sent by the practitioner convening a meeting of creditors under section 106. It was only subsequently (i.e. after only one creditor voted) that the practitioner sought to re-characterise the process as having taken place under section 111A. Counsel for Pepper submitted that this was plainly not in accordance with the Act. He suggested that, under the Act, there was an entirely binary process – either one could invoke the s. 106 procedure (where more than one creditor was entitled to vote at the meeting) or one could invoke s. 111A (which only applies where there is a single creditor entitled to vote on a proposal for a PIA).
28. In order to properly understand the submission which is made by counsel for Pepper, it is necessary to consider the underlying facts.
The Relevant Facts
29. For this purpose, I now describe the facts which arise in the case of Mr. Leonard O’Hara. Since these are interlocking applications, it is sufficient to consider his case alone. In his case, the proposed PIA would suggest that Mr. O’Hara has four creditors. The PIA has been prepared on the basis that each of Pepper, Avantcard, Finance Ireland Asset Management (“FIAM”) and A. Browne Limited are creditors of Mr. O’Hara with an entitlement to share in the distribution to be made under the proposed PIA. However, neither Avantcard nor FIAM proved their respective debts pursuant to s. 98 of the 2012 Act. As a consequence, they were clearly not entitled to vote at any creditors’ meeting and, absent an order extending the time for them to prove their debts, they will not be entitled to participate in any distribution, in the event that the PIA comes into effect. No such application for an extension was ever made by either of them.
30. The only creditors who, in fact, submitted appropriate proofs of debt were Pepper and A. Browne Limited. They were, accordingly, the only creditors entitled to vote. Because there were two such creditors, the practitioner could not avail of s. 111A but was required to convene a meeting of creditors under s. 106.
31. Following receipt of the proof of debt, the practitioner sent a notice to both Pepper and A. Browne Limited of a creditors’ meeting to take place at 10:45am on 11th December, 2017, at 1 Garden Vale, Ballymahon Road, Athlone, Co. Westmeath. The notice expressly invoked section 106(1). Insofar as relevant, the notice was in the following terms:-
“I hereby confirm for the purposes of Section 106(1) of the Personal Insolvency Act 2012…, it is proposed to hold a meeting of the creditors of Leonard O’Hara…for the purpose of considering the proposal for a [PIA], on 11th Dec 17at 10:45hrs…in 1 Garden Vale, Ballymahon Rd, Athlone…”
32. The notice was issued on 27th November, 2017. In the emails circulating the notice, the practitioner indicated that all proxies should be returned to him by 4pm on Friday, 8th December, 2017.
33. Pepper duly completed a proxy form and this was submitted to the practitioner by email on 8th December, 2017. On the same day, the practitioner acknowledged receipt of the proxy. Pepper indicated in the proxy that it was voting against the proposed PIA. Of the overall indebtedness of Mr. O’Hara, Pepper is by far the largest creditor. Of the total debt owed by him of €245,385, Pepper is owed €184,313 in respect of account number M20012762 and €28,328 in respect of account number M20024132. Although neither Avantcard nor FIAM submitted proofs of debt, the PIA records that the amount owed to Avantcard on foot of a credit card account is €15,000, and the amount owed to FIAM in respect of car finance is the sum of €11,994. The amount owed to A. Browne Limited is €5,751.
34. As noted above, A. Browne Limited did not submit a form of proxy and, therefore, did not vote. The effect of the proxy delivered on behalf of Pepper meant that the PIA was not approved. Even if A. Browne Limited had delivered a form of proxy and voted in favour of the proposal, this would not have made any difference in terms of the outcome of the vote. Indeed, even if Avantcard and FIAM had submitted proofs of debt and voted in favour of the proposals, the outcome would have been the same. However, if the practitioner was in a position to persuade the court that either A. Browne Limited or some combination of A. Browne Limited or one or more of the other creditors (had they submitted a proof of debt) represented a different class of creditors to Pepper, it would have been open to the practitioner to contend that the requirements of s. 115A(9)(g) had been complied with. As noted above, it is a condition of the grant of relief under s. 115A(9) that, at least one class of creditors has accepted the proposed arrangement by a majority of over 50% of the value of the debts owed to that class.
35. In circumstances where the only creditor to prove its debt and exercise its voting entitlement was Pepper, the inevitable result was that the proposed PIA was rejected. Section 108(8)(b) set out the consequence that follows from a rejection of a proposed PIA. It provides as follows:-
“Where at the taking of a vote at a creditors’ meeting in accordance with subsection (1) the proposal is not approved…or deemed…to have been approved, subject to s. 115A, the Personal Insolvency Arrangement Procedure shall terminate and the protective certificate issued under section 95 shall cease to have effect.”
36. Having regard to the fact that a meeting of creditors was convened under s. 106 (as the notice convened the meeting made very clear), Pepper confidently expected that, as a consequence of s. 108(8)(b), the protective certificate would cease to have effect. This was for the reason that Pepper foresaw no potential for the application of s. 115A in circumstances where it was the only creditor to vote and where s. 111A had not been invoked by the practitioner (for the very simple reason that there was more than one creditor entitled to vote). Pepper believed that s. 111A could not apply. Pepper was reinforced in this view by the simple fact that the notice had expressly been served for the purpose of convening a meeting under section 106. The notice had not sought to comply in any way with the provisions of s. 111A which, as noted above, requires the practitioner to give written notice to the creditor requiring the creditor to respond within fourteen days from the date of that notice signifying whether or not the creditor approves or rejects the proposals.
37. Thereafter, Pepper was taken by surprise when, on 21st December, 2017, a notice of motion was filed by the practitioner in the Circuit Court office in Tullamore seeking an order pursuant to section 115A(9). In the affidavit subsequently sworn on 22nd December, 2017, in support of the motion, the practitioner made the case that he had complied with the fourteen day time limit prescribed by s. 115A(2) in that his application had been made within the 14 day period after the date of receipt of ” the notice of the creditor concerned under section 111A(6)…”. It should be noted, at this point, that no notice had ever been given by Pepper under s. 111A(6). As described above, Pepper had simply submitted a proxy form to vote at the meeting of creditors convened under s. 106. It did not therefore purport to submit any notice under s. 111A(6).
38. In para. 10 of the notice of motion, the practitioner purported to certify that s. 111A applies to the proposal. When Pepper challenged this position in its notice of objection and in the affidavit of Grainne Naughton sworn on 16th May, 2018, the practitioner responded in paras. 12-14 of his affidavit sworn on 16th July, 2018 as follows:-
“12. I say…Avantgarde (sic) were not entitled to vote due to no receipt of a proof of debt. I say and believe that Finance Ireland Asset Management were not entitled to vote in circumstances where they failed to provide a proof of debt.
13. I say that A. Browne Limited was not entitled to vote in circumstances where they provided no proxy so therefore no vote could be registered.
14. I say in particular…that, therefore, it was correct and appropriate to use Section 111A for the purposes of the within application.”
39. The problem with that averment is that s. 111A had never been invoked by the practitioner at the relevant time. The practitioner never purported to serve a notice under s 111A(2) and Pepper had never given any notice under s 111A(6). Furthermore, contrary to the suggestion made in para. 13 of his affidavit, A. Browne Limited was, in fact, entitled to vote, having submitted a proof of debt.
The case made on behalf of the practitioner
40. At the hearing on 10th December, 2018, counsel for the practitioner acknowledged that, on a literal construction of the 2012 Act, the position taken by Pepper is correct. However, counsel argued that this would lead to an absurdity which cannot have been intended by the Oireachtas. Counsel argued, in particular, that the 2015 Act, which introduced both s. 111A and s. 115A, was enacted to enable an independent review to be undertaken of proposals for a PIA in circumstances where either a sole creditor or a majority creditor vetoes the PIA proposals. It was submitted that, in the present case, there was a single creditor rejection of the proposal and that it would be absurd in those circumstances if the debtor and the practitioner were not entitled to rely upon s. 111A which, counsel argued, was clearly designed to ensure that there could not be a veto of a proposal for a PIA by a single creditor.
41. Counsel for the practitioner relied on s. 5(1) of the Interpretation Act 2005 which provides as follows:-
“(1) In construing a provision of any Act (other than a provision that relates to the imposition of a penal or other sanction)—
(a) that is obscure or ambiguous, or
(b) that on a literal interpretation would be absurd or would fail to reflect the plain intention of—
(i) in the case of an Act to which paragraph (a) of the definition of ‘Act’ in section 2(1) relates, the Oireachtas, or
(ii) in the case of an Act to which paragraph (b) of that definition relates, the parliament concerned,
the provision shall be given a construction that reflects the plain intention of the Oireachtas or parliament concerned, as the case may be, where that intention can be ascertained from the Act as a whole.”
42. The provisions of s. 5 of the 2005 Act were considered by the Supreme Court in Irish Life and Permanent plc v. Dunne [2016] 1 IR 92. In that case, Hogan J. had stated a case for the opinion of the Supreme Court in relation to a question of law that arose in the course of the hearing of a Circuit Court appeal which was heard entirely on affidavit. In doing so, Hogan J. was conscious of the provisions of s. 38(3) of the Courts of Justice Act 1936 (” the 1936 Act “) which, on their face, permit a case to be stated by the High Court (when hearing a Circuit appeal) only in cases where oral evidence had been given. There was no equivalent provision permitting a case to be stated in respect of appeals from decisions of the Circuit Court where no oral evidence was given. There are two separate provisions within the 1936 Act dealing with appeals from the Circuit Court to the High Court. Section 37 deals with an appeal where no oral evidence is given. It says nothing about the power of the High Court to state a case for the determination of the Supreme Court. In contrast, s. 38(1) deals with appeals from the Circuit Court to the High Court in cases where oral evidence was given. In s. 38(3), there is express provision that:-
“The judge hearing an appeal under this section may , if he so thinks proper on the application of any party to such appeal, refer any question of law arising in such appeal to the Supreme Court by way of case stated…” (Emphasis added)
43. Thus, the ability to state a case under s. 38(3) was limited to appeals ” under this section” . The difficulty in that case was that all of the evidence had been given on affidavit and, therefore, an issue arose as to whether it could be said that the High Court had any jurisdiction to state a case to the Supreme Court.
44. In his judgment in the Supreme Court in Irish Life and Permanent v. Dunne , Clarke J. (as he then was) drew attention to the provisions of s. 5(1) of the 2005 Act. He also cited what he had previously said in Kadri v. Governor of Wheatfield Prison [2012] 2 ILRM 392 at p. 402 – 403:-
“…It is important to note that the construction which [s. 5(1) of the 2005 Act]… requires is one that ‘reflects the plain intention of (the legislature) where that intention can be ascertained from the Act as a whole’. It is clear, therefore, that it not only is necessary that it be obvious that there was a mistake in the sense that a literal reading of the legislation would give rise to an absurdity or would be contrary to the obvious intention of the legislation in question, but also that the true legislative intention can be ascertained. There may well be cases where it may be obvious enough that the legislature has made a mistake but it may not be at all so easy to ascertain what the legislature might have done in the event that the mistake had not occurred.”
45. In the Irish Life case, Clarke J. noted that, in Kadri, he had expressed the view that a literal construction of the provision under consideration there was not absurd and furthermore, he had come to the view that the potential problem with the relevant legislation in that case was that the Oireachtas (had it applied its mind to the question), might have considered including some additional provisions in the legislation concerned. However, Clarke J. concluded that there was a range of potential provisions which could have been included by the Oireachtas in the legislation in question. In contrast, in the Irish Life case itself, Clarke J. was able to come to the conclusion that there was no conceivable basis on which the Oireachtas might have chosen to allow for a case stated in one type of Circuit appeal but not in another. He, therefore, concluded that a literal interpretation of the 1936 Act would lead to an absurdity. However, he pointed out that this was not sufficient for the purposes of section 5. At p. 108, he added:-
“As pointed out in Kadri, it must also be possible to tell, from the Act as a whole, what the true legislative intention actually is. In my view, such is possible in this case. The 1936 Act was designed to make a change from the previously existing position which allowed for a form of appeal to this Court under s.61 of the 1924 Act in circumstances where either, in accordance with the legislation in place at the time, the two judges of the High Court hearing the appeal from the Circuit Court disagreed or where, even though they agreed, they were satisfied that the case involved a question of such importance as to be fit to be the subject of an appeal to this Court. That regime clearly contemplated that there would be cases where it would be appropriate that final clarification be obtained on important questions from this Court. There is nothing in the 1936 Act which suggests that there was a radical change in policy. Rather, there was a change in the location of the hearing of certain types of appeals … due to a mistake in drafting, led, on a literal construction, to an exclusion, for no good reason, of the right to have important issues finally clarified by this Court, but only in cases where no oral evidence was heard in the Circuit Court. In my view, the intention of the Oireachtas is clear. It was that a High Court judge hearing a circuit appeal should have the entitlement, if satisfied that it was an appropriate case in which to exercise the power, to state a case to this Court. The statute was not intended to exclude, for no obvious or conceivable reason, the case stated procedure from being available in respect of cases originally heard in the Circuit Court without oral evidence.”
46. In the course of his judgment, Clarke J. sounded a note of warning that the courts cannot too readily conclude that a literal construction leads to absurdity. He stressed that the question must be asked in each case as to whether there is a possible basis on which the Oireachtas might have chosen to legislate in the manner which a literal construction of the relevant statutory provision would suggest. At p. 108, he said:-
” As pointed out in Kadri, it is not for this Court to assess the policy behind any legislation. Where there are possible reasons for adopting a particular measure, even if there might be grounds for believing that the legislation may be ill-suited to achieving its ends, the courts are given no mandate by s.5 of the 2005 Act to intervene. The question which must be asked is as to whether there could be any possible or conceivable basis on which the Oireachtas might have chosen to legislate in the manner which a literal construction of the relevant provisions would require.”
47. Section 5 of the 2005 Act has been applied in relation to a different aspect of section 115A of the 2012 Act. In Michael Hickey [2018] IEHC 313, Baker J. had to consider the provisions of section 115A(5). Under that provision, where an application is made for an order under s. 115A before the expiry of the period of the protective certificate, the certificate will continue in force until either the PIA comes into effect or the application is refused and any appeal has either been withdrawn or determined. There is no express provision in the 2012 Act (as amended) dealing with circumstances where an application is made under s. 115A within fourteen days after the date of a meeting of creditors and where, in the meantime, the protection period has expired. In this context, it should be noted that under s. 115A(2) there is a period of fourteen days after the date of the meeting of creditors in which to make an application for an order under section 115A(9). However, in some cases, it may not have been possible for the application to have been made within the period of the protective certificate.
48. In such cases, an issue arose as to whether the debtor would continue to have protection under the 2012 Act where the relevant practitioner acting on behalf of the debtor had brought an application under s. 115A within the applicable fourteen day period prescribed by section 115A(2). There was no express provision in the 2012 Act which conferred any such protection on the debtor. In her judgment, Baker J. referred to the twofold test applied by the Supreme Court in the Irish Life case, namely:-
“(a) Whether an interpretation in accordance with the literal or plain meaning of the words did lead to a conclusion that there was no ‘possible or conceivable basis on which the Oireachtas might have chosen to legislate in the manner which a literal construction of the relevant provisions was required’;
(b) If such an absurd result flows from a literal interpretation, the court may engage the approach envisaged by s. 5(1)(b) only if it is possible to tell from the Act as a whole ‘what the true legislative intention actually is’.”
49. Baker J. concluded that a plain reading of s. 115A(5) led to an absurd result in circumstances where there was no possible or rational basis for the distinction between one cohort of applicants under s. 115A who, because of the timing of the meetings of creditors, were in a position to lodge an application under s. 115A within the original protection period of 70 days or (if applicable) an extended period of 110 days, and the other cohort who ” for reasons which might arise because of the complexity of the case, or indeed, the approach that the creditor or creditors might have taken in the earlier stages of the process, would find that it was not possible for the application to be made within the currency of the protective certificate”.
50. Baker J. then had to consider whether the second limb of the Irish Life test had been met – i.e. whether the legislative intention could be discerned from the Act as a whole. In considering this issue, Baker J. addressed the purpose of the Act. Baker J. reiterated what she had previously said in Re Nugent [2016] IEHC 127 at para. 59 where she described the purpose as follows:-
“The purpose…is to avoid a debtor being made bankrupt… [T]he personal insolvency regime offers a more benevolent means by which he or she can deal with indebtedness. This is envisaged by the Oireachtas as being in the common good.”
51. Baker J. also reiterated what she said in JD [2017] IEHC 119 at para. 72:-
“The purpose of the … legislation is to enable the resolution of personal debt, and the common good sought to be achieved in s. 115A is the protection of the right to continue to enjoy residence in a person’s home.”
52. At para. 61 of her judgment in Michael Hickey , Baker J. indicated that the intention of the Oireachtas was that the benefit of statutory protection from creditors should continue to apply pending the determination of an application under section 115A. In reaching that view, she had regard to the long title to the Act and its recitals.
53. The approach taken by Baker J. in relation to the application of s. 5 of the 2005 Act, was subsequently upheld by the Court of Appeal in Re Michael Hickey [2018] IECA 397 (albeit that the Court took a different view as to the result)..
54. In his judgment in the Court of Appeal, Peart J. said at para. 40:-
“In circumstances where it is not expressly provided in the Act that a debtor who lodges a s. 115A application outside the 70 day life of the protective certificate, yet within 14 days of the creditors’ meeting, continues to enjoy the protection of the protection certificate, the trial judge was correct to avail of s. 5 of the Interpretation Act, 2005 in order to give a construction which, having regard to the Act as a whole, gives effect to the clear intention of the Oireachtas. In my view, she was entitled to conclude that the intention of the Oireachtas was that all debtors who lodged a s.115A application within 14 days of the creditors’ meeting would continue to be protected between the expiry of the 70 day life of the certificate and the lodging of that s. 115A application provided same was lodged within the 14 days period provided for in s. 115A(2) of the Act. The section must be so construed if it is not to give rise to a consequence that could never have been intended by the Oireachtas. To construe the section thus is not to indulge in an impermissible exercise of re-writing the provision, but is rather to construe it in a way that is consistent with the legislative purpose of the Act when it is read as a whole. I would uphold the conclusions of the trial judge at para. 62, where she stated:
‘62. I consider that the Oireachtas did intend the benefit of a statutory protection from creditors to enure to the benefit of a debtor pending the determination of an application under s. 115A. Further, the time limit for the lodging of such application (being 14 days from the creditors’ meeting) does not leave the continued protection at large, but in my view , and provided an application is lodged within the statutory 14 days period , the Oireachtas did intend, in the light of its intention in the Act stated in broad and positive terms in the recitals and preamble, that a debtor would continue to have the benefit of a protective certificate until the conclusion of the s. 115A process.'”
55. Counsel for the practitioner argued that the same approach should be taken here. He argued that a literal interpretation gives rise to absurdity or involves a failure to reflect the intention of the Oireachtas gleaned from a consideration of the Act as a whole. In making that argument, counsel drew attention to the following features of the Act which, he suggested, indicate a clear intention on the part of the Oireachtas to ensure that, in cases where a proposed PIA is shot down by a single creditor, there should be an ability to apply to the court under s 115A:
(a) In the first place, when, in 2015, the Oireachtas came to enact what is now s 115A of the 2012 Act (and to make it a condition of relief under that section that at least one class of creditor should have accepted the proposed PIA) the Oireachtas was careful to dis-apply that condition in a case to which s. 111A applies – i.e. where the proposed PIA has been rejected by the only creditor entitled to vote. It was submitted that this showed a clear legislative intention to ensure that the ability to apply to the court under s 115A should not be defeated where there is only one creditor with an entitlement to vote and that creditor refuses to approve the proposal;
(b) Secondly, it was submitted that it made no sense that a debtor with a single creditor entitled to vote should have the ability to avail of s. 115A while a debtor in the position of Mr or Mrs O’Hara should not have that ability. It was argued that no logical distinction can be made between rejection by a single creditor entitled to vote (where there is the ability to avail of s. 115A) and rejection by a single voting creditor (where, on a literal interpretation of the Act, there is no ability to avail of s. 115A).
(c) It was also contended that s. 111A itself also showed a clear legislative intention to ensure that the system set up by the 2012 Act would continue to be capable of functioning even in cases where there is only one creditor who participates in the process. The argument was that the failure to legislate for a similar outcome in a case such as the present one is an obvious lacuna in the 2012 Act as amended in 2015. It was suggested that the legislature could never have intended that such a lacuna should occur;
(d) Counsel also drew attention to the provisions of s. 108(8) which was inserted in the 2012 Act at the same time as s. 111A and s 115A. Under s. 108(8)(a), where no creditor votes at a creditors’ meeting, the proposed PIA will be deemed to have been approved. Counsel submitted that this again illustrated a concern on the part of the Oireachtas that the process established under the 2012 Act should not be defeated by the failure of creditors to vote. In the context of a single creditor entitled to vote, s. 111A(7)(b) was to similar effect. It was submitted that, similarly, the Oireachtas could not have intended that a s. 115A application here should be defeated as a consequence of the failure of A. Browne Limited to vote. It was argued that the amendments made in 2015, introducing s. 111A and s. 108(8), were informed by experience in the intervening years since the enactment of the 2012 Act, that dividends to unsecured creditors were often so small that it was not worthwhile for smaller creditors to submit proofs of debt. These amendments made in 2015 were therefore clearly designed to overcome this problem. The case made was that the Oireachtas could not have intended that the failure of A. Browne Limited to vote would put s 115A beyond the reach of Mr and Mrs O’Hara.
The response of Pepper to the s. 5 argument
56. In his response, counsel for Pepper drew attention to the opening words of s. 111A(1) where, he suggested, the Oireachtas, very clearly, drew a line between the circumstances where ss. 106-111 will apply and the quite separate situation in which s. 111A will apply. In particular, he drew attention to the following language in s. 111A(1):-
“(1) Where-
(a) a…. practitioner has prepared a proposal for a [PIA]…
(b) only one creditor would be entitled to vote at a creditors’ meeting…
the procedures specified in this section, and not those specified in sections 106 and 108 to 111, shall apply …” (emphasis added)
57. Counsel submitted that this language demonstrates that the Oireachtas, quite deliberately, provided for a binary regime, with one set of statutory provisions governing those situations where there is more than one creditor entitled to vote and an entirely separate provision dealing with cases where there is only one such creditor. Counsel submitted that the practitioner was, in substance, asking the court to re-write the 2012-2015 Acts which he said was impermissible.
58. Counsel also stressed that, in requiring that at least one class of creditor should vote in favour of a proposal for a PIA, the Oireachtas clearly intended to put a checking mechanism in place, so that the court, when dealing with an application under s. 115A, would have the assurance that there was at least one cohort of creditors who regarded the proposals as commercially acceptable. This is a well tried mechanism which is used, for example, in the legislation governing examinerships originally introduced under the Companies (Amendment) Act 1990 (” the 1990 Act “).
59. I agree that such a requirement, in a multi-creditor case, is an important checking mechanism. As counsel for Pepper suggested, this is reflected in the approach taken in the context of examinerships (which have an obvious parallel with proceedings under the 2012-2015 Acts). If the proposed arrangement has been approved by at least one class of creditor, it provides a measure of re-assurance to the court that the proposals make business sense and are capable of being considered to be reasonable in all the circumstances.
60. Counsel for Pepper also submitted that the practitioner was proceeding on the basis that, in some way, a debtor has a right to pursue a PIA. Counsel suggested that this was fundamentally misconceived. He argued that the ability to pursue a PIA is a statutory privilege and a debtor must therefore meet the strict statutory conditions for the exercise of that privilege. It was also argued that it was wrong to suggest (as the practitioner did) that the operation of s. 111A, in accordance with its terms, leads to any unfairness. Section 111A is simply an aspect of the statutory scheme prescribed by the Oireachtas, another feature of which is the requirement under s. 115A(18) that the relevant mortgage loan be in arrears as of 1 January, 2015 (or to have been in arrears before that date and to have been the subject of an alternative repayment arrangement). Counsel cited, in this context, the unfortunate position of the debtor in Sarah Hill [2017] IEHC 18 who, because she had managed to keep up payments on a mortgage loan as of January 2015, was unable to avail of s. 115A (a result which Baker J characterised as harsh).
61. Counsel for Pepper also distinguished the present case from Michael Hickey on the basis that, in the latter, there was an obvious mistake and, furthermore, it was possible to discern the true intention of the Oireachtas. In such circumstances, both limbs of the s. 5 test were readily satisfied.
Discussion
62. I have considered the submissions made on both sides. I can understand the desire of the practitioner to treat the matter as falling within s. 111A. It is regrettable that A. Browne Limited, having gone to the trouble of submitting a proof of debt, did not, thereafter, exercise its entitlement to vote. I can see that there is an argument to make that a lacuna exists in the Act in so far as the Act does not deal with circumstances where there is more than one creditor entitled to vote but where only one creditor exercises that entitlement. However, the existence of a perceived lacuna does not necessarily give rise to an absurdity or to the conclusion that the Oireachtas cannot have intended that such a purported lacuna should exist.
63. Under the 2012-2015 Acts, the Oireachtas has put in place a detailed statutory scheme to enable debtors, subject to fulfilling a significant number of conditions, to resolve their indebtedness and be restored to some semblance of normality so that they can, again, play an active role in the economic activity of the State. In putting that scheme in place, the Oireachtas has attempted to balance the interests of the common good in resolving such indebtedness against the rights of creditors. The Acts restrict the rights of creditors in quite far-reaching ways. It is unsurprising, therefore, that the Oireachtas would strictly delimit the ambit of the scheme which has been put in place. The Oireachtas has chosen to do so in a number of ways. The provisions of s.115A are a paradigm example of this. Section 115A contains a myriad of conditions which must be satisfied before the court can sanction a proposed arrangement.
64. Thus, for example, s.115A(18) requires that there must be a debt secured on the debtor’s principal residence that was in arrears as of 1 January, 2015 (or in arrears before that date and subject to an alternative payment arrangement). As Baker J observed, that requirement had quite a harsh impact on the debtor in Sarah Hill . The result of the application of s115A(18) in that case was that a debtor (who had made valiant efforts to keep up to date with mortgage payments in late 2014) was treated less favourably than a debtor who had failed to make any payment at all during the same period. This was as a consequence of the choice made by the Oireachtas in the way it constructed the statutory scheme under the 2012-2015 Acts. From the perspective of Ms Hill, it must have appeared very unfair – even cruel – that the scheme is designed in this way but the fact is that this is an inherent part of the scheme which the Oireachtas has put in place. In terms of fairness, it is difficult to see how any distinction can be made between s.115A(18) on the one hand and the equally clearly drafted provisions of s.111A(1) on the other. They are both inherent features of the statutory scheme dealing with insolvent debtors. Depending on the circumstances, they both have the capacity to give rise to unwelcome and, sometimes, very unfortunate consequences for debtors. In particular, they may operate to exclude a debtor from the benefits available under statutory scheme created by the 2012-2015 Acts.
65. It is also crucially important to bear in mind that, as noted above, the Acts represent an attempt by the Oireachtas to balance the common good in promoting the resolution of debt on the one hand against the property rights of creditors on the other. Save where a mistake or absurdity is manifest (such as that identified in Michael Hickey ), the court should proceed with caution. Any attempt by the court to identify gaps in the legislative regime and to repair such perceived gaps carries a very real risk that the court will interfere with the balance struck by the Oireachtas between the interests of the common good and the rights of creditors. In addition, it carries the risk that a court will trespass on the legislative function of the Oireachtas more generally.
66. Section 5 of the 2005 Act is not intended to give the courts an unfettered power to supplement the provisions of legislation. As Clarke J observed in Kadri , at p 4, the mandate given to the courts by s. 5 is to engage in interpretation not rewriting. In Kadri , Clarke J suggested that the approach to be taken under s. 5 is broadly similar to that taken in the context of contract law known as the ” correction of mistakes by construction “. In such cases, the court will intervene only where (a) there is a clear mistake and (b) it is clear what the correction ought to be. That is a useful shorthand for the approach which the court should take under s. 5 as explained by the Supreme Court both in Kadri and in Irish Life .
67. As explained by the Supreme Court in Irish Life , the test to be applied under s. 5 involves two stages:
(a) in the first place, in addressing the question whether there is an obvious mistake or absurdity, the court must consider whether there is any possible reason why the legislature may have decided to adopt the relevant statutory provision in the terms in question. If there is, that is the end of the court’s enquiry. The court should only move to the second stage where no possible reason can be identified; and
(b) In those cases where it is not possible to identify any possible reason for the course taken by the Oireachtas in the literal language of the provision, the court may only intervene where it is clear from a consideration of the Act as a whole, what the true legislative intention is. In cases where there is more than one way of addressing the mistake or absurdity in issue, the court has no mandate to interfere.
68. Kadri is a very good illustration of the limits of the court’s power under s. 5. In that case, the Supreme Court was clearly troubled that there was a lacuna in the Illegal Immigrants Act 1999. The court was troubled by the fact that the Act made no provision to extend the maximum 8 week period of detention of an illegal immigrant facing deportation where the immigrant in question effectively frustrated the ability of the authorities to deport him within that period by strenuously resisting all attempts to place him on a flight or other means of transport. While Clarke J suggested that it may well have been likely that the Oireachtas might have wished to make some provision for that situation, the Supreme Court was not satisfied that s. 5 could successfully be invoked to fill the perceived gap in the legislation. The court was not persuaded that there was an obvious mistake and, even if there were a mistake, it was not possible to say what the legislature might have done in the event that it had been alive to the purported mistake. As para. 3.9 of the judgment of Clarke J illustrates, there was more than one way in which the problem might have been addressed if the Oireachtas had turned its mind to it.
69. In the present case, I do not believe that the case made by the practitioner passes the first stage of the twofold s. 5 test. I am far from convinced that there is an obvious error on the part of the Oireachtas in enacting what is now s. 111A of the 2012 Act. It seems to me that it is possible to identify a plausible reason why the Oireachtas enacted s. 111A in the way that it has. In this context, there is a logical distinction to be made between single creditor cases and cases where there is more than one creditor entitled to vote but where only one creditor ultimately decides to vote. It is clear from s. 111A that the Oireachtas did not wish to deny debtors the protection of s. 115A in single creditor cases. In such cases, there will be no meeting of creditors and, therefore, the checking mechanism that such a meeting provides will be absent. The Oireachtas clearly did not wish to see the operation of the Act effectively vetoed by a single creditor in such circumstances.
70. That is quite different to the multi creditor case where only one creditor turns up at the meeting (either in person or by proxy) to vote. In such cases, the Oireachtas may well have had in mind that the meeting still provides a useful checking mechanism in that the failure of the remaining creditor or creditors to vote demonstrates that the terms of the proposed PIA were so unattractive that they could not command the support of any of the creditors entitled to vote.
71. The practitioner seeks to answer that contention by suggesting that other provisions of the Acts indicate that the Oireachtas did not have in mind that non-attendance by a creditor at a meeting should be equated with rejection of the proposals for a PIA. In particular, counsel for the practitioner pointed to the provisions of s. 108(8) of the 2012 Act (as inserted by s. 15(b) of the 2015 Act) under which proposals for a PIA in a multi-creditor case will be deemed to be approved where no creditor votes at the meeting. It was submitted that this showed that the Oireachtas did not intend that a non-voting creditor should be taken to be an objecting creditor.
72. I accept that such an explanation is open on the basis of this provision. However, I do not believe that this is the only possible explanation which is open. As noted in paras. 69-70 above, there seems to me to be a logical basis for the Oireachtas to distinguish between cases where no creditor votes at a meeting and cases where not all creditors refrain from voting. In cases where no creditor votes on proposals, the Oireachtas may simply have been concerned to ensure that the Acts could continue to operate notwithstanding creditor apathy. In such cases, it was therefore necessary to put in place a provision such as s. 108(8).
73. The difficulty is that it is by no means certain that the Oireachtas must have intended that the same approach should be taken in cases where not all creditors refrain from voting. This is readily apparent when one considers those cases where more than one creditor votes. If, in such cases, the non-voting creditor was to be treated as voting in favour of the proposals, this could have the effect of seriously skewing the outcome of the vote and devaluing the votes of those creditors who had taken the trouble to cast a vote. It would reward apathy and undermine the incentive to creditors to cast their vote. It would also undermine the value of the checking mechanism which the holding of a meeting provides.
74. It might be suggested that this consideration has less weight in cases, such as the present, where only one creditor has chosen to exercise its entitlement to vote. However, I do not believe that one could safely conclude that the consideration carries no weight at all. Even in such cases, weight might be attached to the fact that the creditor in question has taken the trouble to turn up at the meeting (either in person or by proxy) and exercised its entitlement to vote. In that way, the holding of the meeting has still served some purpose as a checking mechanism. In my view, it is simply unsafe to rule this out as a basis for the manner in which the Oireachtas chose to proceed in enacting the relevant provisions of the 2012 Act (as amended).
75. In these circumstances, I have come to the conclusion that the first part of the s. 5 test has not been surmounted by the practitioner in this case. I do not believe that it can be safely said that the Oireachtas has made a mistake in not making express provision to deal with circumstances where it transpires that, at a meeting convened under s. 106, only one creditor exercises its entitlement to vote.
76. Furthermore, even if it could be said that there is an obvious mistake on the part of the Oireachtas, I cannot see any basis on which it could be said that the second limb of the s. 5 test has been satisfied. I do not believe that it is, at all, clear that the Oireachtas would have made provision that a practitioner would be entitled to retrospectively invoke s.111A where it transpires that he has previously convened a meeting under s. 106 and where only one creditor exercises its entitlement to vote. That is essentially what the practitioner contends here.
77. There is more than one way that the Oireachtas could have addressed the purported mistake. The approach advocated by the practitioner is, certainly, one avenue that might have been adopted (by means of appropriate additional provisions in s.111A). But the Oireachtas could also have decided, for example, to expressly provide that the non-voting creditors should, consistent with s. 108(8), be counted as voting in favour of the proposed PIA. The Oireachtas might further have provided, in such cases, that, where the deemed votes in favour are outvoted by voting creditors holding debts of a greater amount, the practitioner would have to establish that the non-voting creditors constitute a separate class within the meaning of s. 115A(17). There would, obviously, be valid policy reasons why the Oireachtas might decide that the practitioner should have to show that the non-voting creditors constitute a separate class within the meaning of s. 115A(17). As discussed above, the requirement in s. 115A(9)(g), that there should be at least one class of creditors voting in favour of the proposals, provides an important checking mechanism.
78. The suggestion made in para. 77 above is no more than an indication of a possible approach that might conceivably be taken. There are other approaches that would also be open. Crucially, one could not rule out that the Oireachtas might not wish to legislate for some additional requirement or safeguard in cases where, as here, there is a creditor entitled to vote who does not exercise that entitlement. It is not a given that the Oireachtas would proceed in the manner suggested by the practitioner.
79. It follows, in my view, that the second stage of the s. 5 test cannot be satisfied in this case.
Conclusion
80. In the circumstances, I have come to the conclusion that there is no scope for the application of s. 5 of the 2005 Act. I must accordingly decide this case by reference to the literal meaning of the provisions of the 2012-2015 Acts. In light of the provisions of s. 111A(1) of the 2012 Act (as amended) there is no basis on which the practitioner can rely on s. 111A in this case. It follows that there is no basis on which the provisions of s. 115A can be invoked.
81. I must therefore dismiss the appeal and affirm the order of the Circuit Court dismissing the application made by the practitioner under s. 115A.
In the matter of Michael Hickey
[2017] IEHC 20 (18 January 2017)
JUDGMENT of Ms. Justice Baker delivered on the 18th day of January, 2017.
1. One matter falls for determination in this judgment, the question of the time limit for the bringing of an application pursuant to s. 115A(9) of the Personal Insolvency Acts 2012 – 2015 (“the Acts”).
2. Section 115A, inserted by the amending legislation of 2015, provides for a court review and approval of the coming into effect of a proposed Personal Insolvency Arrangement (“PIA”) rejected by creditors in certain circumstances, with a view to enabling the debtor not to dispose of an interest in, or cease to occupy, all or part of his or her principal private residence.
3. Michael Hickey (“the debtor”) made a proposal for a PIA under the Acts and a meeting of creditors was held in accordance with the provisions of the Act on 9th September, 2016. He did not obtain the requisite support for the approval of the PIA, albeit Permanent TSB, the mortgagee which held security over his principal private residence, voted for the arrangement. The debtor then sought to invoke the provisions of s. 115A(9) and the sole question for determination in this case is whether the debtor was in time in lodging the application. An objection by KBC was lodged in respect of the application pursuant to s. 115A (3) of the Act on 5th October, 2016 and the question of time was raised as a procedural objection.
4. Certain other matters were raised by way of objection, but it has been agreed that I would determine the procedural objection by way of a preliminary issue.
5. Section 115A(2) of the Act makes provision for the time limit for the bringing of an application to the Court under s. 115A(9):
“(2) An application under this section shall be made not later than 14 days after the creditors’ meeting referred to in subsection (16) (a) or, as the case may be, receipt by the personal insolvency practitioner of the notice of the creditor concerned under section 111A (6) (inserted by section 17 of the Personal Insolvency (Amendment) Act 2015), shall be on notice to the Insolvency Service, each creditor concerned and the debtor. …”
Section 111A does not apply as that section relates only to the approval of a proposed PIA when there is only one creditor.
6. Order 76(A) of the Rules of the Superior Courts provides that an application under s. 115A (9) shall be brought by notice of motion. The motion dated 1st September, 2016 was lodged by e-mail on Friday, 23rd September, 2016, and stamped and lodged in the Central Office of the High Court on 28th September, 2016. For the purposes of the issue to be determined in this application no argument is made that the lodging of the notice of motion by e-mail is sufficient lodgement by “electronic means” in accordance with O. 76(a), r. 4, and it is accepted that neither the personal insolvency practitioner (“PIP”) or the solicitor instructed to act in the prosecution of the application is an authorised “electronic user” within the meaning of r. 4(1) of that Order. I do not therefore intend addressing that issue further.
7. The meeting of creditors was held on 9th September, 2016 and if that day is to be included in the 14 day period prescribed by s. 115A(2) the time limit expired on 22nd September, 2016, a Thursday. If the day of the creditors’ meeting is not to be reckoned time expired on 23rd September, 2016, a Friday.
Section 18(h) of the Interpretation Act 2005 (“The Act of 2005”)
8. Section 18(h) of the Act of 2005 provides as follows:—
“(h) Periods of time. Where a period of time is expressed to begin on or be reckoned from a particular day, that day shall be deemed to be included in the period and, where a period of time is expressed to end on or be reckoned to a particular day, that day shall be deemed to be included in the period;”
9. That section is not materially different from s. 11 of the Interpretation Act, 1937, and the statutory provisions have been considered in a number of cases to which I now turn.
10. In McGuinness v. Armstrong Patents Limited [1980] I.R. 289 McMahon J. was considering the meaning of the provisions of s. 11(2)(b) of the Statute of Limitations 1957 which provided the then relevant period for the bringing of an proceedings for damages for personal injuries. The statutory provision was expressed in the negative and provided that an action shall:—
“…not be brought after the expiration of three years from the date on which the cause of action accrued.”
11. The plenary summons would have been issued within time if the day on which the cause of action accrued was excluded from the computation of the three year period, but McMahon J. held that the date of accrual did come to be included within the statutory time limit in the light of the Act of 1937.
12. That judgment is not dispositive of the question before me as the word “after” appeared in the Statute of Limitations Act and is not a word used in s. 11(2) (b) of the Act of 1957 as indicating or defining a time period which rather is to be seen as identified by the word “from”.
13. The next case in sequence is the judgment of Ellis J. in The State (Hamad) v. North Eastern Health Board [1982] 1 JIC 2001 which called for the interpretation of a provision of the Health (Removal of Officers and Servants) Regulations, 1971 by which was provided for the consideration by the Chief Executive of representations made “before the expiration of seven days after the giving of such notice”.
14. Ellis J. distinguished the judgement of McMahon J. in McGuinness v. Armstrong Patents, and said that the period of time specified in the Interpretation Act is distinguishable in a statute where
“… the period of time is expressed to begin or be reckoned from particular day but is a period of time expressed to begin on or be reckoned from the happening of an event.”
15. Ellis J. considered that the provisions of s. 11(h) of the Act of 1937 offered no assistance to construe or reckon a period of time required to be reckoned from the happening of an event, and that the departure from the language of the Interpretation Act, 1937 was such “as to indicate an intention by the Legislature that the day in which the notice or proposal of intention to remove the Prosecutor was given or served was not deemed to be included in the 7 day period as expressed and defined” in the relevant section of the statutory regime with which he was dealing.
16. Counsel for the debtor relies on the distinction drawn by Ellis J. between the reckoning of time “from a particular day” or “from the happening of an event”.
17. Counsel for the objecting creditor argues that the distinction between “day” and “event” made by Ellis J. has not found support in later authorities, and that insofar as it might lead to a conclusion which differs from these later authorities it is not to be followed.
18. I turn now to consider those later authorities but note by way of a preliminary observation that the judgment of Ellis J. was not referred to in any of those later cases. Two judgments of Hedigan J. are of note. In the first of these, Golden v. Kerry Co. Co. [2011] IEHC 324 Hedigan J. was considering the provisions of s. 17(1) of the Planning and Development Regulations 2001, as amended, which provide for the publication and direction of notices “within the period of 2 weeks before the making of a planning application”. Hedigan J. was asked to consider whether the period of two weeks did include the date the notice was published and the date the application for planning permission was made and held that the date of the planning application was to be included in the calculation of the two week period, and came to that conclusion based on s. 18(h) of the Act of 2005. The statutory provision construed by Hedigan J. did not make any reference to “the date of the making of the application”, and contained the more general phrase “before the making of the application”, which would suggest that he did not consider that the event, the making of the application, could be seen as different from the date of that event.
19. Hedigan J. also gave judgment in Brown v. Kerry Co. Co. [209] IEHC 552, [2011] 3 IR 514. That case concerned the time limit provided by s. 261(a) of the Planning and Development Act 2000 by which a planning authority could impose conditions on the operation of quarry “not later than 2 years from the registration of a quarry” under the statutory scheme created by that Act.
20. Hedigan J. considered that the 2 year time limit prescribed by s. 261(6)(a) did include the date of the registration of the quarry and again drew from s. 18(h) of the Act of 2005 as an interpretative aid. Again no distinction was drawn between the registration of a quarry (an event) and the date of the registration of the quarry (a day or date).
21. That the interpretation of a time limit as mandated by s.18 (h) is in accordance with the plain use of language is evident from the decision of the Supreme Court in Sulaimon v. Minister for Justice Equality & Law Reform [2012] IESC 63. There the Supreme Court considered what it means to “reckon” a period of time from a particular day. In making the reckoning Hardiman J. calculated time by including in his calculation the date of birth of the infant who had sought an order that he was entitled to a certificate of Irish nationality. At p. 16 of the judgment Hardiman J. expressed the view that the statutory provisions coincide with the “ordinary method of reckoning periods of time to and from a particular date, or a date which is ascertainable”. Hardiman J. made no reference to the judgment of Ellis J. in The State (Hamad) v. North Eastern Health Board, but the judgment of the Supreme Court does not adopt an analysis which recognises a distinction between a date and an event, the premise on which the judgment of Ellis J. was grounded.
22. Hogan J. in Re Belohm & Anor. & the Companies (Amendment) Act 1990 [2013] IEHC 157 at para. 43 interpreted the provisions of s. 3(6) of the Act of 1990 by reference to the interpretative tool of s. 18(h) and held that time ran from the day a receiver was appointed to the company, and that that particular day was “included in the computation of the three day period” within which an application to appoint an examiner was to be made.
23. A recent consideration of the question of time is contained in the judgment of Keane J. in McMahon v. Larkin & Anor. [2016] IEHC 483 who held that the 12 month period prescribed under s.149 of the Companies Act, 1990 was to be reckoned to include the day on which the company was wound up.
24. Herbert J. in Boyle v. Higgins [2013] IEHC 31 where he was considering the time limits under s. 150 of the Companies Act, 1990 which provided the time limit for the bringing of an application for a restriction under that Act not earlier than 3 months nor later than 5 months “after the date” on which a report to the ODCE had been delivered. He regarded the word “after” as different from the words denoting time in s. 18(h) of the Act of 2005, and held that when time was to run “after a particular date” no statutory interpretative tool was to be found in that subsection which provided such only when time was to be reckoned “from” a particular date. Herbert J. considered that the relevant rule was found at common law and he was therefore persuaded that the specified day was excluded from the reckoning of time.
25. Herbert J. relied on a judgment of the Court of Appeal for England and Wales in Zoan v. Rouamba 1 W.L.R. 1509 where the Court was dealing with an approach identified as long in existence in the common law, that while legislative provisions dealt with periods of time “beginning with” or “from” a specified day, that day was to be included, the common law held that where an act is to be done days months or years “from or after a specified date” that the period commenced on the day after such specified day. Chadwicke L.J. relied on the judgment of Lord Goddard in Stewart v. Chapman [1951] 2 K.B. 792 that “whatever the expression used” the date from which the period of time was to be reckoned was to be excluded and the criminal statute which required the service of a summons “within 14 days of the commission of the offence”.
26. The Court of Appeal for England and Wales considered that there was “a real difference between a direction that a period of time is to begin with a specified date and a direction that a period is to be reckoned from that date”.
27. The opposite proposition must be the case in Irish law as s. 18(h) is clear that a reckoning either beginning with or reckoned from a particular date was to include that day. The judgment of the court in Zoan v. Rouamba is not an authority by which I am persuaded. Accordingly, the judgment of Herbert J. does not offer any interpretative assistance in the present case, and I express no further view on it. However it is to be noted that Herbert J. did not base his reasoning on any distinction between an event and a date as was found to be relevant by Ellis J. in The State (Hamad) v. North Eastern Health Board.
Discussion
28. The purpose of the interpretative tool contained in s. 18 of the Interpretation Act, 2005 is to create uniformity and clarity in the interpretation of statutes. The long title suggests that its purpose was to guide in the “interpretation and application” of legislation and statutory instruments. Section 13 requires that the Act be “judicially noticed”. I consider that the Oireachtas intended that the interpretative tools relating to the construction of periods of time were intended to govern the interpretation of any and all statutory expressions that related to or provided for the calculation of time. It is not therefore the case that in order for s. 18(h) to govern the interpretation of a time phrase in an Act that the expression “begin on”, “be reckoned from” or “to end on”, “be reckoned to” be the only time clauses governed by the legislation. It would be unsatisfactory if a materially different consequence arose from the use of phrases other than those expressly identified in s. 18(h), and the Act would have failed to perform its objective of providing a sufficient degree of certainty and clarity in the interpretation of statutory provisions. It is of course central to the operation of a statutory time limit that the calculation of that time limit is clear and certain and I do not consider that the Oireachtas intended to limit the scope of time related prepositions to those expressly identified in s. 18(h). This means that prepositions such as “from”, “since”, “beginning on”, “before” etc. would all be read in a manner consistent with the interpretation created by the Act.
29. Fennelly J. recognised the importance of consistency in the interpretation of different time phrases within a particular statute in Walsh v. An Garda Síochána Complaints Board [2010] 1 I.R. 514 where at para. 16 he said “it makes no sense to interpret the two provisions so as to contradict each other.” He made this observation in the context of the question before him whether the Oireachtas intended to produce a different result in regard to two different time limits. Fennelly J. also describes s. 18(h) as a “considered legislative choice”, and also noted the approach in common parlance to the question of time limits and gave the example of an anniversary date as being one which is commonly considered to happen within the year or relevant time frame.
30. The debtor argues that the personal insolvency legislation identifies 17 different time limits in various subsections and that the only subsections that use the word “after” are s. 119A and 115A, all of the other time limits using an expression which counsel says is more readily consistent with the language of s. 18(h), the word “within”.
31. It is argued in those circumstances that this different use within the same statute was intentional and rational primarily because in practice a meeting of creditors will often be lengthy and finish well outside normal business hours. I do not consider that this approach is consisted with the decision of Fennelly J. in Walsh v. An Garda Síochána Complaints Board, which is authoritative on the matter.
32. It is argued also that to reckon the day of the meeting of creditors within the time limit in the Act would fail to recognise the practical factual context in which a meeting of creditors is conducted. I consider that this argument fails to have regard to the requirement of legal certainty in statutory time limits, the precise mischief which was intended to be dealt with by the Interpretation Act, 2005, and earlier enactments. It could not be said that the reckoning of a time period would depend on the time of day when an event happened or concluded.
Conclusion
33. I conclude that the debtor was out of time for the lodging of an application by way of appeal under s. 115A (9) of the Act of 2012. There was no argument advanced that I have a power to enlarge the time for the making of appeal and counsel for the debtor accepts that the law has been authoritatively decided by the Court of Appeal in Law Society of Ireland v. Tobin & Anor. [2016] IECA 26 and that as Finlay Geoghegan J. said giving the judgment of the Court in reference to statutory time limits:—
“Such statutory provisions are true limitation sections in that they expressly or clearly and unambiguously preclude the bringing of an action after the specified period.”
34. The statutory time limit is strict. I consider therefore that the application must fail.
Re: Callaghan, a debtor [2017] IEHC 332 (22 May 2017)
URL: http://www.bailii.org/ie/cases/IEHC/2017/H332.html
Cite as: [2017] IEHC 332
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Judgment
Title:
Re: Callaghan, a debtor
Neutral Citation:
[2017] IEHC 332
High Court Record Number:
2016 282 CA
Date of Delivery:
22/05/2017
Court:
High Court
Judgment by:
Baker J.
Status:
Approved
[2017] IEHC 332
THE HIGH COURT ON CIRCUIT
[2016 No. 282 CA]
[C:IS:ESLH:2016:000463]
EASTERN CIRCUIT COUNTY OF LOUTH
IN THE MATTER OF PART 3, CHAPTER 4 OF THE PERSONAL INSOLVENCY ACTS 2012-2015
AND IN THE MATTER OF PAULA CALLAGHAN OF 246 RATHMULLEN PARK, DROGHEDA, CO. LOUTH (“THE DEBTOR”)
AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 115A(9) OF THE PERSONAL INSOLVENCY ACTS 2012 – 2015
JUDGMENT of Ms. Justice Baker delivered on the 22nd day of May, 2017.
1. This judgment is given in the appeal of KBC Bank Ireland plc (“KBC”), the objecting creditor, from an order of the specialist judge of the Circuit Court, Judge Mary O’Malley Costello, by which she confirmed the Personal Insolvency Arrangement (“PIA”) of the debtor under s. 115A(9) of the Personal Insolvency Acts 2012 – 2015 (“the Act”) and dismissed the objection of the objecting creditor. This judgment is also given in the appeal of an identical order made by the specialist judge in the interlocking application of Colm Callaghan, Record No. 2016 283 CA.
2. The primary ground of appeal is that the specialist judge of the Circuit Court erred in law and in fact in finding that the proposed PIA was not unfairly prejudicial to the interests of the objecting creditor, and that she erroneously came to the view that the proposed PIA enabled the creditor to recover the debts due to it to the extent that the means of the debtors reasonably permitted.
3. The appeal arises from a submission made by the objecting creditor under s. 98(1) and s. 102(1) of the Act by which the objecting creditor made an alternative proposal to deal with the mortgage debt on the principal private residence of the couple. Other less central grounds of appeal will appear in the course of this judgment.
4. One matter for determination is whether the Act permits the coming into force of a PIA which would involve deferring or “warehousing” the repayment of a portion of secured debt beyond the specified term of the Arrangement.
Relevant facts
5. The debtors are a married couple who reside with their three young children in a three bedroom semi-detached property in Drogheda held by them subject to a mortgage in favour of KBC, the term remaining whereof is 273 months. The secured amount was €285,647 at the date of the issue of the protective certificate on 20th April, 2016. The principal private residence of the couple has a value in accordance with s. 105 of the Act of €105,000.
6. The mortgage debt fell into arrears arising from the fact that both husband and wife were out of work. Mrs. Callaghan was unable to work due to ill health and only in recent months began to receive a weekly invalidity pension. Mr. Callaghan was out of work for approximately sixteen months, but has now obtained employment. In the period when both husband and wife were not working, the mortgage fell into significant arrears and the liabilities of the couple now far exceed their joint monthly incomes.
7. Interlocking PIAs were proposed by the Personal Insolvency Practitioner (“PIP”), Daragh Duffy, the material elements of which I now set out.
Proposed PIA
8. A six-year PIA is proposed. The estimated joint monthly income of the couple for the period of the PIA is €3,025, which after taking into account reasonable living expenses and other costs, leaves available during the currency of the PIA the sum of €474 per month to service mortgage repayments. The amount available will increase at the end of the PIA to €582 for the remainder of the mortgage term. It is proposed that for the period of the PIA the interest rate on the mortgage would be reduced to 2.5% and thereafter would revert to 4.5% for the balance of the term. The short term reduction in the interest rate is proposed in order to provide finance to deal with the unsecured liabilities and pay the fees of the PIP. The mortgage term is to be extended by six years until Mr. Callaghan is aged 70, to January, 2045. There was proposed a debt write-off, called a “negative equity write-off”, of €165,647 leaving a live mortgage balance of €120,000. The amount written down will rank as unsecured and will receive a dividend within the Arrangement. The provision to deal with unsecured creditors is not the focus of this appeal.
9. The statutory meeting of creditors was held on 17th June, 2016, and the PIA was rejected by the majority of creditors present. The secured creditor voted against the proposal.
The section 115A application
10. Following the result of the meeting of creditors, the debtors brought an application pursuant to s. 115A(9) of the Act in the Circuit Court for an order confirming the coming into operation of the PIA notwithstanding that it had been rejected at the meeting of creditors. The statement of grounds in statutory form prepared for the purposes of the s. 115A(9) application stated that the PIA provided a better return for creditors than in bankruptcy and had the consequence that the debtors retained ownership of their principal private residence with a sustainable mortgage.
11. KBC lodged a notice of objection in which it pleaded, in reliance on the statutory provisions, that the proposed PIA would not “enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit” (s. 115A(9)(b)(ii)), that the proposed arrangement was “not fair and equitable in relation to the interests of each class of creditors that has not approved the proposal and whose interests or claims would be impaired” (s. 115A(9)(e)), and was unfairly prejudicial to its interests (s. 115A(9)(f)).
12. A number of affidavits have been filed in the application. The grounding affidavit on behalf of KBC by Garret Gately was sworn on 19th August, 2016. The replying affidavits of each of the debtors were sworn on 20th October, 2016. A supplemental affidavit of Garret Gately was sworn on 7th November, 2016, and the affidavit of Daragh Duffy was sworn on 19th October, 2016. All of this evidence was before the Circuit Court.
A counterproposal or submission by a secured creditor
13. KBC argues that it made a submission for an alternative approach to the secured debt which would have enabled the debtors to continue to reside in their principal private residence, and would have resulted in a better return for KBC in the long term. That proposal was made pursuant to the statutory power contained in s. 98 of the Act by which a PIP is obliged to invite such submissions regarding the debts concerned and the manner in which the debts might be dealt with as part of a PIA. A PIP is obliged under s. 98(1)(b) to consider any submissions made by creditors.
14. Section 98 of the Act permits a secured creditor to make a proposal or a counterproposal for the treatment of its debt. No equivalent provision is found with regard to unsecured liabilities. A PIP is required to have regard to such preferences in formulating a proposal for a PIA. The requirement is not that the PIP should incorporate such express proposals, but s.102(2)(b) mandates that a PIIP have regard to such preferences to the extent that it is reasonable to so do:
(2) In formulating the proposal for a Personal Insolvency Arrangement the personal insolvency practitioner shall—
(a) have regard to subsection (3) and sections 103 to 105, and
(b) to the extent that he or she considers it reasonable to do so, have regard to the preference of the secured creditor furnished under subsection (1) as to the treatment of the security and the secured debt.
15. A PIP therefore may not without some reason ignore such proposals entirely.
16. A submission may form the basis of an assertion by a secured creditor that the proposal in a PIA amounts to an unfair prejudice, and s. 115A(10)(b)(i) requires the court to consider any submission made by a creditor under s. 98(1) or “any alternative option available to the creditor for the recovery of the debt concerned” (s.115A(10)(b)(ii)). Fairness to creditors therefore can be linked to the reasonableness of rejecting some or all of any counterproposals or submissions.
17. A PIP is required under s.102(2) to have regard to the preferred approach of a secured creditor, and s. 102(1) provides that a secured creditor who has been notified by a PIP of the issue of a protective certificate may “indicate a preference as to how, having regard to subsection (3) and subsections 103 to 105, that creditor wishes to have the security and secured debt treated under the Personal Insolvency Arrangement”.
18. The combined effect of the statutory provisions is that a secured creditor has a right to make submissions and the PIP is mandated to consider any such submissions in formulating a PIA. That this is so arises from the nature of the secured debt as a contractual right which is afforded special protection in the legislation by reason of the existence of security. The legislation envisages different treatment for secured and unsecured debts, an approach also found in the bankruptcy legislation and in corporate insolvency.
19. The affidavit of Garret Gately says that he first made a proposal for the alternative treatment of the mortgage debt in a phone call with the PIP on 13th June, 2016, which was rejected in an email later that day. Some dispute exists between the parties as to whether KBC had made its counterproposal on time, but this did not become an issue at the hearing. For the present, I will focus on the terms of the counterproposal and the specific objection by the PIP to the means by which part of the debt was proposed to be warehoused.
The proposal to warehouse
20. The alternative proposal made by KBC to deal with the secured debt was to write off part of the mortgage debt such that it was reduced to €270,000 (a write-down of approximately €15,000) and thereafter for the split of the secured debt into two moieties of €135,000 each. It was proposed that the term of the PIA would be twelve months and that during that twelve month period the active part of the mortgage would be paid at €350 per month, and thereafter for the balance of the existing term at standard variable interest rates. It was the proposal to deal with the inactive part that was rejected by the PIP and has been the focus of the hearing before me.
21. KBC proposed that the amount of €135,000 would be treated as inactive and would be placed in a “warehouse” account carrying 0% interest. The debtors would be given “lifetime tenure” in their principal private residence and the security would not be enforceable until after the survivor of them died. It was accepted in the course of the hearing before me that the KBC proposal would permit the debtors, if their means allowed, to repay some or all of the warehoused amount during their lives, whether during the period of the active mortgage, or thereafter. The particular advantage of the counterproposal identified by KBC was that the debtors would be permitted to occupy their principal private residence for their respective lives, that the mortgage payments in the meantime would be sustainable and affordable by them, but that KBC would still, in time, recover the balance of the loan amount.
22. The specialist judge of the Circuit Court rejected the objection of the secured creditor in an ex tempore judgment, and the only note I have of her reasoning is that she considered that the proposal of KBC was “kicking the can down the road”. It is not clear whether she regarded the proposal as impermissible or that she took the view that the PIA sufficiently dealt with the statutory provisions and did not require reformulation in the light of the contract proposal. I make no criticism of her for this, and the argument engaged in the appeal was longer and the debtors and KBC were each represented by senior and junior counsel.
Warehousing within the statutory scheme
23. The first question for determination is whether the legislation permits of the long term “warehousing” of part of a mortgage debt, or whether the legislative scheme envisages that any amount not immediately repayable would have to be either addressed or reintroduced before the end of an arrangement.
24. The term “warehouse” does not appear in the legislation, but is one familiar to insolvency practitioners, in debt settlement arrangements and in modern banking generally. Warehousing provides for the separation of some or all of a debt in an inactive account for an identified period or until the happening of a specific event. It involves an alteration of agreed contractual repayment terms and the deferral of a portion of a debt to be dealt with later, either on terms to be agreed at the expiry of the inactive term or at the time the deferral itself is agreed.
25. The debtors argue that the counterproposal of KBC involves a type of warehousing not contemplated or permissible in the statutory scheme, and contend that a proposal to warehouse a debt must bring the warehoused or inactive element into account in the currency of a PIA, and that the deferral proposed in the present case is impermissible as going far outside the six-year proposed term of the PIA. The creditor argues that the legislative provisions permit the deferral of a portion of a mortgage debt, as in the present case, until the expiration of the existing agreed mortgage term.
26. My first consideration therefore will be to examine the statutory provisions for the treatment of secured debt and to assess the argument of the debtor that only limited warehousing of secured debt is permissible. Before I deal with the statutory scheme I will briefly note the treatment of warehousing in guidelines issued to lenders by the Central Bank of Ireland on which the debtors place emphasis.
Warehousing generally
27. The debtors point to a number of observations made in the Central Bank Internal Guidelines on sustainable mortgage arrears of 24th September, 2013 and updated on 13th June, 2014 in support of an argument that the personal insolvency legislation does not permit of a deferral or warehousing of part of a mortgage debt outside the term of a PIA. The Central Bank has expressed concern that any splitting of a mortgage debt by which part of the debt is warehoused must not have the effect that a temporary arrangement will leave a mortgage debtor with an unsustainable mortgage once the original contractual repayments are resumed at the conclusion of a period of forbearance. The Central Bank envisages a sustainable split mortgage solution when there is a reasonable prospect of a borrower’s circumstances improving over a longer term. The preferred approach is to prevent short-term warehousing of a loan which might lead to circumstances that when the original contractual repayments are resumed, the mortgage once again becomes unsustainable.
28. Counsel points to a concern expressed in the Central Bank document that:
“Sustainability of a split mortgage will be assessed by the Central Bank, inter alia, with regard to the affordability of the unwarehoused debt payment schedule and to the treatment of the warehoused loan maturity.” (Central Bank Guidelines, p. 9)
29. The Bank has also required lenders:
“Lenders, therefore, need to be able to satisfy themselves – and demonstrate to the Central Bank – that any temporary term arrangement is part of the solution because the borrower would have a sufficiently improved capacity to service the debt at the end of the temporary arrangement.” (Central Bank Guidelines, p. 4)
30. A number of observations are to be made with regard to the Central Bank guidelines. It is obvious that the guidelines are to lenders not borrowers. The Central Bank’s approach requires lenders to engage with the borrowers to such an extent that the individual debt problem of the borrower is dealt with in a sustainable way, and regarded warehousing as a solution when there is a reasonable prospect that a debtor’s circumstances will improve. Sustainability in the medium and identifiable term was regarded by the Central Bank as desirable.
31. Further, the interplay between the Central Bank guidelines to lenders, or indeed the broad approach of the Central Bank or of government to the debt crisis and the specific and real problems caused by mortgage arrears, while it undoubtedly was one of the factors that led to the introduction of the Personal Insolvency Act in 2012, and the amendment by the insertion of s. 115A by the Act of 2015, is not one that may guide my reading of the Act. The starting point for the interpretation of legislation must be the words of the legislation or the purpose of a statute. I turn now to examine the statutory scheme for the making of a PIA.
Making proposal for a Personal Insolvency Arrangement
32. Section 99 of the Act sets out a list of mandatory requirements with regard to matters that must be dealt with in a PIA, and provisions which prohibit certain types of proposals. The maximum duration of a PIA is 72 months, with a provision for an extension of no more than 12 months in certain circumstances. Section 99(2)(e) requires that a PIA should contain proposals that are sustainable and capable of being met by a debtor:
“A Personal Insolvency Arrangement shall not contain any terms which would require the debtor to make payments of such an amount that the debtor would not have sufficient income to maintain a reasonable standard of living for the debtor and his or her dependants;”
33. Section 99(2)(h) provides part of a suite of measures designed to protect the continued ownership or occupation by the debtor of his or her principal private residence:
“A Personal Insolvency Arrangement shall not require that the debtor dispose of his or her interest in the debtor’s principal private residence or to cease to occupy such residence unless the provisions of section 104(3) apply.”
34. Section 115A(9) of the Act was inserted by the Personal Insolvency (Amendment) Act 2015 and created the power in the relevant court to confirm the coming into effect of a PIA notwithstanding that it had been rejected by the creditors at a creditors’ meeting at which a vote was taken on the arrangement.
35. The proposal by KBC that the debtors would have the right to continue to occupy their principal private residence for the respective lives of each of them does protect their continued occupation of the premises, and also indeed their continued ownership, albeit their ownership is proposed to be encumbered with a mortgage that is capable of surviving against their respective estates.
36. In Re J.D. (A Debtor) [2017] IEHC 119, I considered that the provisions of s. 99 did not of themselves envisage that a PIA was required to ensure the continued ownership of a principal private residence, and that the court was entitled to have regard to whether an arrangement could secure the continued occupancy by the debtor of such premises:
“Thus the court will engage its jurisdiction to enable a person to continue to occupy or not dispose of an interest in his or her family home, provided the costs of continued occupation are not excessive or disproportionate. I consider it relevant too, that s. 115A does not have as its focus the continued ownership by a debtor of his or her family home, but rather the continued occupation of that premises, and the section is concerned with enabling a debtor not to dispose of an interest in a property, rather than positively stated as enabling the debtor to continue to own the property. Thus, the perceived public interest in the continued occupation of a premises is not a focus on the acquisition of a capital asset, but rather the preservation of a right to live in a premises” (para. 34)
The statutory treatment of debt
37. Section 100 of the Act contains a list of possible types of provisions that may be incorporated into a proposal for a PIA to deal with payment to creditors, whether secured or unsecured. It is clear from the language of the section that the broad and general examples given in s. 100(2) are not exhaustive and must be treated as permissive:
“The terms of a proposal for a Personal Insolvency Arrangement may include any one or more of the following:
(a) a lump sum payment to creditors, whether provided from the debtor’s own resources or from the resources of other persons;
(b) a payment arrangement with creditors;
(c) an agreement by the debtor to transfer some or all of the debtor’s property to a person (who may be the personal insolvency practitioner) to hold the property in trust for the benefit of the creditors;
(d) a transfer of specified assets of the debtor to creditors generally or to a specified creditor;
(e) a sale of specified assets of the debtor by or under the supervision of the personal insolvency practitioner and the payment of the proceeds of such sale to creditors; or
(f) in respect of secured debts, subject to sections 102 to 105, an arrangement for the treatment of the security and the satisfaction or restructuring of the secured debt.”
38. A PIA, therefore, may include proposals for a “payment arrangement” for the treatment of security and the satisfaction or restructuring of secured debt.
39. There are no limitations in the statutory provisions as to the conditions that may be included in a restructure of a secured debt, and what is envisaged is any agreed alteration to the repayment terms, including, it seems to me, an arrangement by which the term of the mortgage may be extended for many years, including to a time after the death of the debtor. There is in my view nothing in ss. 99 or 100 of the Act which precludes the splitting of the mortgage debt and the warehousing of part of the debt.
Provisions specific to treatment of secured debt
40. Secured debts must be expressly dealt with under a proposed PIA and cannot be dealt with as part of the debts in general. Secured debt is given special statutory protection in a number of respects. Section 102 is of particular relevance and s. 102(6) makes provision for the type of terms which may be included in a PIA to deal with secured debts. It is convenient to set out the entire subsection:
“Without prejudice to the generality of section 100 or subsections (1) to (3) and subject to sections 103 to 105 , a Personal Insolvency Arrangement may include one or more of the following terms in relation to the secured debt:
( a) that the debtor pay interest and only part of the capital amount of the secured debt to the secured creditor for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
( b) that the debtor make interest-only payments on the secured debt for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
( c) that the period over which the secured debt was to be paid or the time or times at which the secured debt was to be repaid be extended by a specified period of time;
(d) that the secured debt payments due to be made by the debtor be deferred for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
( e) that the basis on which the interest rate relating to the secured debt be changed to one that is fixed, variable or at a margin above or below a reference rate;
(f) that the principal sum due on the secured debt be reduced provided that the secured creditor be granted a share in the debtor’s equity in the property the subject of the security;
( g) that the principal sum due on the secured debt be reduced but subject to a condition that where the property the subject of the security is subsequently sold for an amount greater than the value attributed to that property for the purposes of the Personal Insolvency Arrangement, the secured creditor’s security will continue to cover such part of the difference between the attributed value and the amount for which the property is sold as is specified in the terms of the Personal Insolvency Arrangement;
( h) that arrears of payments existing at the inception of the Personal Insolvency Arrangement and payments falling due during a specified period thereafter be added to the principal amount due in respect of the secured debt; and
( i) that the principal sum due in respect of the secured debt be reduced to a specified amount.” (Emphasis added)
41. The list of nine options is expressly made without prejudice to the generality of s. 100 or ss. 102(1) to (3) and subject to ss. 103 to 105.
42. The debtors argue that as a result of s. 102(6)(d) repayment of a secured debt may not be deferred outside the period of the PIA, or as was put by the PIP in his email in response to the KBC proposal, “the proposed warehoused amount would have to be addressed within the arrangement”, or that forbearance of payment of interest and part only of the capital may not outlive the terms of the PIA.
43. The Act permits a broad number of solutions to the treatment of secured debt. If the principal sum due on the secured debt is to be reduced by a proposed PIA, s. 102(6)(g) provides for a claw back if the property is subsequently sold for an amount greater than the value attributed to it in the course of the process.
44. Section 102(11)(a) provides, without prejudice to s. 103, that where a proposed PIA includes terms providing for the reduction of a secured debt, the amount of the reduction is to be treated as an unsecured debt and is to rank equally and in place in equal proportion to other unsecured debt. This particular treatment of the proposed amount to be written off of €166,000 is expressly dealt with in the proposed PIA in the present case.
45. I agree with the argument of KBC that the list contained in s.102(6) is not intended to be exhaustive. The section is permissive and does not mandate the means by which a secured debt may be restructured, and neither s.100 nor s.102(6)(d) preclude a proposal by which a warehoused amount becomes payable after the expiration of the term of a PIA.
46. Further, the provisions of s. 100, especially ss. 100(2)(b) and s. 100(2)(f) permit in general an arrangement for the restructuring of debt, and s. 102(6) is expressly made without prejudice to the generality of that provision. Therefore, the fact that warehousing of the type and for the time proposed is not found in the list of options outlined in s. 102(6)(d) does not mean that the proposal is not permitted by statute.
47. A number of the provisions regarding the treatment of secured debt fortify me in this conclusion, as I outline.
48. Section 102(3) expressly permits the retention by the secured creditor of the security, or that the security be surrendered, and the means by which this may be achieved are not constrained by any statutory provision. Section 99(2)(c) provides that secured debt stands discharged only to the extent provided therein.
49. There is an express requirement in s. 103(2) that a reduction of a secured debt shall not be to an amount less than the value of the property in respect of the security is held.
50. A more concrete protection is afforded by s.103(3) by which the secured creditor is entitled to a claw back on a sale within 20 years, or at the end of the mortgage terms, whichever first occurs, should a sale or disposal achieve a higher figure than that in an agreed s.105 valuation:
“A Personal Insolvency Arangement which includes terms involving —
(a) retention by a secured creditor of the security held by that secured creditor, and
(b) a reduction of the principal sum due in respect of the secured debt due to that secured creditor to a specified amount,
shall, unless the relevant secured creditor agrees otherwise, also include terms providing that any such reduction of the principal sum is subject to the condition that, subject to subsections (4) to (13), where the property the subject of the security is sold or otherwise disposed of for an amount or at a value greater than the value attributed to the security in accordance with section 105, the debtor shall pay to the secured creditor an amount additional to the reduced principal sum calculated in accordance with subsection (4) or such greater amount as is provided for under the terms of the Personal Insolvency Arrangement.”
51. Section 103(11) stipulates the temporal limit to the claw back:
“The obligation to pay an additional amount arising by virtue of this section shall cease—
(a) on the expiry of the period of 20 years commencing on the date on which the Personal Insolvency Arrangement comes into effect, or
(b) on the day on which the debtor is scheduled or permitted to fully discharge the amount secured by the security (or such later date as may be specified for so doing in the Personal Insolvency Arrangement) and does so discharge his or her indebtedness,
whichever first occurs.
52. Protection of this nature over a long period affords a considerable degree of comfort to a secured creditor following the write down of its debt.
Conclusion on warehousing generally
53. I consider that the scheme of the personal insolvency legislation affords a very broad discretion in a PIP to formulate a proposal for a PIA as the financial circumstances of each debtor will be different, and the proposal for a PIA must respect and make provision for such difference and do so in the light of the express objective in the Act that insofar as this can be achieved in a manner that is not unfairly prejudicial to an impaired creditor, a debtor should continue to own or occupy his or her principal private residence.
54. Because of s. 115A, a PIA must deal with any debts secured on the principal private residence of a debtor, and such is required also by virtue of ss. 104 and 99(2)(h) of the Act. A proposal for the restructuring of a debt secured on a principal private residence may be made provided the security over that property is dealt with in such a way that ownership or occupation are protected insofar as this may fairly and reasonably be achieved. The counterproposal made by KBC may not be one that many lenders would be prepared to offer, as the prospect for the recovery of the warehoused amount is pushed far into the future, and the prospect of taking action on the security to a future unknown time, and reasonable banking practices or corporate requirements may not find such proposal attractive. It is not however in itself impermissible.
55. For these reasons I reject the argument of the debtors that the statutory scheme precludes a PIA that makes provision for warehousing part of a debt to be treated outside the period of the PIA. In an individual case, whether a proposal by a creditor for long-term warehousing is one that may reasonably be rejected without risk of being characterised as unfairly prejudicial will depend on all of the circumstances, including whether the proposal provides a better return for creditors than the proposed PIA, or on bankruptcy, and makes provision for the repayment of debt in the light of the means of a debtor.
56. I turn now to consider the circumstances of the present case and the counterproposals of KBC in the light of the statutory tests.
The statutory test:115A(9)
57. Section 115A(9) provides that a court may make an order confirming the coming into effect of a PIA notwithstanding that it had been rejected at a meeting of creditors, but only when it is satisfied that the criteria set out in the section have been met. Section 115A(9)(b) contains an imperative that the means of a debtor be fully brought to bear in a proposed PIA and the court is to be satisfied that:
“The court, following a hearing under this section, may make an order confirming the coming into effect of the proposed Personal Insolvency Arrangement only where it is satisfied that —
…
(b) having regard to all relevant matters, including the terms on which the proposed Arrangement is formulated, there is a reasonable prospect that confirmation of the proposed Arrangement will —
(i) enable the debtor to resolve his or her indebtedness without recourse to bankruptcy,
(ii) enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit, and
(iii) enable the debtor —
(I) not to dispose of an interest in, or
(II) not to cease to occupy,
all or a part of his or her principal private residence.” (Emphasis added)
58. Section 115A(9) is mandatory and the court may make an order only where it is satisfied that the criteria are met. No provision exists, such as is found in the examinership jurisdiction, by which the court may modify a PIA on an application before it, whether under s. 115A or otherwise.
59. Section 115A(9)(b)(ii) constrains a court by considerations of reasonableness, that there be a reasonable prospect that confirmation of a proposed PIA will enable the debtor to resolve his or her indebtedness, and enable the creditors to recover their debts to the extent that the means of the debtor “reasonably permit”. The inclusion of a requirement of reasonableness supports the argument that a margin of appreciation will be afforded to a PIP in formulating a PIA, that the court will not interfere unduly with a proposal even if another and possibly equally reasonable proposal could be formulated, and the objection of a creditor will not be upheld merely on account of the fact that it can offer an alternative proposal. Reasonableness is assessed in the context of the means of the debtor, the likely return to the creditor of a proposal, the likely return on bankruptcy as an alternative, and the reasonableness of the proposed scheme taken as a whole, and in the light of the objective of the legislation that a debtor be facilitated in a return to solvency.
A matter of proportionality
60. A creditor who makes an alternative proposal does not thereby displace a proposal made by a PIP. A creditor may not defeat an application by merely on account of an argument that a better outcome can be achieved by another means.
61. The requirement that the court approach the question by reference to principles of proportionality was identified by me in my judgment in Re Hill and Personal Insolvency Acts [2017] IEHC 18 at para. 37:
“The statutory factors relate to the proportionality of the arrangement, the likely differences between the PIA and an arrangement on bankruptcy, and whether the PIA is fair to all classes of creditors. While the intention of the Oireachtas was to offer a unique and special protection to the principal private residence, that protection did not enable the court to override the vote of a creditor holding security over such property merely on account of the fact that the property was a principal private residence, and other factors resonant of an attempt to achieve a degree of balance of each of them is found in the legislation.”
62. The provisions of s. 115A give the court a broad discretion to offer to a debtor a means by which he or she may continue to own or occupy his or her principal private residence. However, as I said in Re Hill and Personal Insolvency Acts, the mere fact that a property is a principal private residence of a debtor does not enable the court to approve a proposed PIA against the objections of a creditor holding security over that premises, and the court must engage all of the statutory factors which taken together must be seen as indices of how a court is to proportionately balance the respective rights of the parties.
63. Therefore it is not merely on account of the fact that an alternative arrangement is possible that a court will reject an application under s. 115A, or indeed that a court would refuse to approve a proposed PIA following a vote at a meeting of creditors. In balancing the respective rights of the parties, a court must look at any proposed PIA in the context of s. 115A, having regard not just to whether the statutory criteria are met regarding the protection of occupancy or ownership of the principal private residence, but also having regard to a reasonable, coherent and complete argument proposed by an objecting creditor which will achieve a result sufficiently protective of the interests of the debtor.
64. I also note that s. 115A(9)(b)(ii) does not require the court to weight the substance of a counterproposal made by an objecting creditor and the court may engage the exercise envisaged by the Act even in the absence of a counterproposal.
Unfair prejudice
65. An order may not be made if it results in unfair prejudice to a creditor, and while the legislation does not expressly stipulate that the terms of a PIA be fair to a debtor, the provisions of s. 115A by importing a test of reasonableness does require the court to look to questions of fairness or proportionality to all concerned parties. Further, because of s.102(2)(b), a PIP is required to have regard to a stated preference for the treatment of debt only to the extent that the PIP considers “reasonable”. Reasonableness and fairness are broadly equivalent for this purpose.
66. Of particular note in the present case is not merely that the split inactive element of the mortgage is to be warehoused interest-free for 23 years, but that the proposal by KBC is coupled with an offer that the couple may continue to occupy the premises for the balance of their respective lives. The expression used is that the debtors would be given “lifetime tenure” in the house. Because the proposal was never explored, it is not clear if what is intended is a right of residence, or some form of joint life estate. Whatever legal effects are to be contained in the proposal, the protection of the right to reside and occupy the house is sufficiently clear to deal to an extent with the imperative contained in section 115A. But this of itself does not deal fully with the circumstances of the debtors or fairness to the creditors as is required under the Act.
67. I examine now the elements of the proposed PIA which the creditor says are unfairly prejudicial.
The means of a debtor are not brought to account
68. A court must be satisfied taking all matters into account that the proposed PIA enables the creditors to recover the debts due to them to the extent of the means of the debtor. The “means” engaged are present income and capital assets and not the projected means at a time so far into the future that the test is based on hypotheses or conjecture. There may on the other hand be circumstances where future certain or ascertainable means are to be brought into account.
69. KBC argues that the PIA does not enable it to recover its debt to the extent that the means of the debtors reasonably permit. It is argued that a greater return will be achieved in a number of respects under its counterproposal by the long term bringing into account of the capital value of the residence: the write-down would be €15,000, far less that €166,000 proposed in the PIA, and KBC will continue to have the benefit of the warehoused debt, albeit its power to enforce that debt will be constrained by the right of occupancy.
70. The difference in the amount proposed to be written down between the counterproposal of KBC, which involves a write-down of €15,000 only, and that in the proposed PIA of €166,000 or thereabout, is argued to offer a much better return to that creditor, albeit the recovery of half of the debt is stayed without interest for a period of 23 years, and security stayed for the lifetime of the debtor. I am not satisfied that the objecting creditor has shown by evidence that the proposal offers it a better return, albeit superficially the counterproposal provides a greater monetary return than the immediate write-down of more than half of the secured debt. The inactive account that does not bear interest for 23 years, may produce a result, if there is significant inflation in some or all of the period, that the warehoused amount has no real value when payment fall due. I do not consider that a superficial comparison of the financial elements of the proposal is a correct approach, and I have no evidence that supports the argument beyond a mere arithmetic calculation.
71. The principal private residence of the debtor and his wife has on any reckoning a low value and the house is the smallest unit suitable for the reasonable needs of a family. Section 104(2)(d) is relevant, and the premises could not be described as disproportionately costly or unsuitable.
72. The Act requires a proposal to bring to reasonable account the means of a debtor. The proposal to warehouse an amount that at current figures is more than 125% of the value of the dwelling is not proportionate to, or reasonably derived from, that current income and capital assets, or any future ascertainable means. I am not satisfied that the PIA is unfairly prejudicial on account of failing to fully bring into account hypothetical or future means, for which there exists no present expectation.
73. At current valuation, the value of the property is less than the amount proposed to be warehoused, but it is impossible at this juncture to know whether the property would increase in value or whether the debtors, on the death of the survivor of them, would have other assets which could meet any shortfall on the debt, should one exist.
74. Further, I do not consider it is appropriate to consider the question raised in the present case on the basis that the estate of the last surviving debtor is likely to be insolvent of the date of the death of the last surviving debtor, particularly having regard to the fact that the debtors of both are in their early forties, and because it is impossible at this juncture to predict how property prices will evolve in their respective lifetimes.
75. In these circumstances I consider that the PIP did not unreasonably fail to adopt the counterproposal, and in my view the means of the debtors have been reasonably and adequately brought to bear on the proposed PIA.
Provision for future solvency
76. KBC relies on my judgment in Re Dunne (A Debtor) [2017] IEHC 59, in which I held that the court was not concerned with the question of whether a PIA would guarantee the solvency of a debtor after the term of an arrangement came to an end. At para. 46, I said the following:
“The mortgage on the principal private residence of the debtor and the interlocking debtor will by agreement with PTSB outlive the PIA by more than 20 years, but that does not in my view mean that the court must be vigilant to ensure that the debtor is reasonably likely to be able to meet the obligations under the mortgage for the balance of the mortgage term. While the court is obliged to enquire as to whether it is reasonably likely that a debtor will meet the terms of the PIA, the court is not required to engage the broader question as to whether the debtor is reasonably likely to be able to perform the obligations as reformulated in the PIA with regard to the repayment of a secured debt over the length of the repayment term.”
77. The PIA in Re Dunne (A Debtor) included a provision for the splitting of a mortgage loan into active and warehoused elements, the warehoused account to be inactive until the expiration of the mortgage term and in regard to which the term of the PIA provided that “options would be explored regarding the payment of the warehoused amount, whether by way of refinancing, making a lump sum payment or sale”. (para. 13)
78. The PIA in that case did involve the splitting of the mortgage into active and inactive elements but both parties accepted that the proposed warehousing outside the term of the PIA was a permissible approach to the secured debt. However, the broad principle enunciated in that case, that the court is not obliged to look to the unknown future and whether a debtor is reasonably likely to be able to perform the obligations as reformulated in a PIA with regard to the payment of the secured debt over a long mortgage term, are relevant. The purpose of the legislation was to afford a breathing space in which a debtor may achieve a return to solvency, not to ensure that such solvency was guaranteed over the entire term of a mortgage, even if the length of that term was identifiable and agreed between borrower and lender.
79. However, the fact that a court will not require that a PIA would guarantee solvency into the future has the corollary that a court will equally not make assumptions regarding the likely financial or other circumstances of a debtor far into the future. In the present case whilst the counterproposal does make provision for the continued occupancy by the debtors of their principal private residence for their respective lives, it is predicated on assumptions and conjecture regarding the living arrangements of the debtors far into the unknown future to a time at the expiration of the mortgage term, when Mr. Callaghan will be 62 years of age and his wife close to that age.
80. In addition I am not satisfied that the reasonableness of the counterproposal is to be tested in the light of an assumption that the couple will wish to remain living in their present home for the rest of their lives, or even for the rest of their working lives. Many life events could mean that they will wish or need to live elsewhere.
81. It is crucial in this context that s. 90 precludes a debtor entering into more than one personal insolvency arrangement in his or her lifetime. This means that the legislation envisages an arrangement which will deal with all present insolvency of the debtors or at least the achieving of solvency within five years. While the counterproposal made by KBC may seem attractive and to some extent benevolent, it is capable of creating circumstances amounting to insolvency at the end of the mortgage term in approximately 23 years’ time. Because a PIA is a once in a lifetime solution it would be wrong to test the reasonableness of a proposal in the light of a preferred solution or counterproposal that could on its terms result in insolvency at a future date. The discussion above with regard to speculative proposals is also relevant in regard to this proposition. A warehousing solution should on present or known figures offer a solution to indebtedness that is likely to be achieved. Neither of the debtors has the benefit of a pension which might provide a lump sum on retirement to deal with the warehoused amount. The repayment of the inactive account therefore is not predicated on any anticipated ability to pay in the future, and is entirely on the hazard. This results in unfairness at a level which I consider material.
Conclusion
82. For all of these reasons, I do not consider that the proposed PIA unfairly prejudices the objecting creditor. The PIP correctly took the view that the counterproposal was not reasonable or fair to the debtors.
83. In those circumstances, I propose affirming the order of the Circuit Court under s.115A of the Act.
Tanager Dac v Ryan
[2019] IEHC 659 (07 October 2019)
JUDGMENT of Mr Justice Garrett Simons delivered on 7 October 2019.PLAINTIFFDEFENDANTNOTICE PARTYSUMMARY1. The underlying dispute between the parties to this appeal centres on the entitlement, ifany, of the Defendant to avail of a protective certificate under the Personal Insolvency Act2012 (as amended) (“the Personal Insolvency Act”). As explained presently, this disputehas given rise to two separate appeals to the High Court from orders of the Circuit Court.The first of these appeals came on for hearing before me on 16 September 2019. Thesecond appeal is listed, for mention only, in the High Court Personal Insolvency Listbefore McDonald J. on 14 October 2019.2. Notwithstanding this complex procedural history, the compass of the dispute between theparties is actually very narrow. The Plaintiff, Tanager DAC (“Tanager”), is a securedcreditor of the Defendant, Mr Ronan Ryan (“the Debtor”). Tanager holds a charge overthe Debtor’s interest in a dwelling house in Clontarf, Dublin. The Debtor had consented inMarch 2019 to the making of an order for possession in respect of the dwelling house,subject to a four month stay on execution. The Debtor, and his spouse, were to havedelivered up possession of the dwelling house on 9 July 2019. In the event, the Debtorinstead instituted proceedings under the Personal Insolvency Act and obtained aprotective certificate from the Circuit Court on 25 June 2019. This certificate preventsTanager from executing the order for possession pending the determination of anapplication for approval of a personal insolvency arrangement.3. Tanager submits that it would be “fundamentally unfair” if the existence of the protectivecertificate were permitted to “derail and undermine” the efficacy of the order forpossession. The Debtor should not be permitted to “go behind” the consent which hegave to the making of the order for possession in March 2019. It is further submittedthat—as a consequence of the making of the order for possession—the Debtor no longerholds an interest in the dwelling house amenable to protection under the PersonalInsolvency Act.4. Tanager also maintains that the Debtor’s conduct in making an application for a protectivecertificate represented an abuse of process. In particular, it is said that the failure on thepart of the Debtor to disclose the existence of the order for possession breached the dutyof candour which an applicant owes to a court when making an ex parte application.Page 2 ⇓5. In response, it is submitted on behalf of the Debtor that there has been no material non-disclosure, and that notwithstanding the existence of the order for possession, the Debtormet the eligibility criteria for a protective certificate.6. The principal relief sought in the appeal the subject of this judgment is to allow Tanagerto enforce the order for possession and to exercise its power of sale over the dwellinghouse, notwithstanding the issuance of the protective certificate. This application hasbeen made pursuant to Section 96(3) of the Personal Insolvency Act.7. For the reasons set out herein, I have concluded that this is not an appropriate case togrant such relief. Whereas it is unsatisfactory that the information provided at the time ofthe application for the protective certificate did not disclose the existence of the order forpossession, the omission does not constitute a material non-disclosure. Even if theexistence of the order for possession had been disclosed—as it should have been—thiswould not have affected the outcome of the application for a protective certificate. TheDebtor met the eligibility criteria under section 91 of the Personal Insolvency Act in anyevent.8. The existence of an order for possession—whether obtained by consent or following anadjudication by the court—is not a bar to the restructuring of the secured debt by way ofa personal insolvency arrangement. The Personal Insolvency Act envisages that theprincipal sum of a secured debt may be reduced to an amount not less than the marketvalue of the security as part of a personal insolvency arrangement. The balance will thenrank as an unsecured debt. The possibility of such debt reduction persists for so long asthe secured debt remains undischarged and the asset upon which the debt is securedremains in the ownership of the debtor. Thus, the mere fact that Tanager has the benefitof an (unexecuted) order for possession does not preclude the possibility of debtrestructuring.9. It would be disproportionate to the gravity of the non-disclosure to sanction the Debtor byallowing Tanager to enforce its security pending the determination of the application for apersonal insolvency arrangement. It would also be inconsistent with one of theunderlying objectives of the amended legislation. The Personal Insolvency Act, as a resultof amendments introduced under the Personal Insolvency (Amendment) Act 2015, nowmakes special provision for a debtor’s principal private residence, and, in particular,allows for the possibility of court approval of measures which enable a debtor (i) not todispose of an interest in, or (ii) not to cease to occupy, all or a part of his or her principalprivate residence. The dwelling house in Clontarf represents the Debtor’s principal privateresidence, and is occupied by the Debtor, his spouse and four minor children. Anapplication pursuant to Section 115A is pending before the Circuit Court. It would beinconsistent with the legislative regime to seek to sanction the Debtor for his omission bydenying him an opportunity to have his application for court approval of a personalinsolvency arrangement heard and determined on its merits.10. There will, of course, be cases where the setting aside of a protective certificate will bejustified because of a material non-disclosure. It would undermine the objective ofPage 3 ⇓expedition which underlies the legislation, however, if creditors were, as a matter ofroutine, to make applications to set aside orders based on inaccuracies or omissionswhich are immaterial. A proliferation of such applications would take up scarce court timeunnecessarily, and ultimately delay the final determination of the insolvency process. ThePersonal Insolvency Act provides ample safeguards for creditors at the stage of anapplication to confirm or approve a personal insolvency arrangement. The existence ofthese protections will, in most cases, make a separate application to set aside aprotective certificate unnecessary.THE LEXICON OF PERSONAL INSOLVENCY11. It may assist readers who are not familiar with the personal insolvency legislation topause at this point, and to provide a very brief outline of some of the key conceptsrelevant to the dispute between the parties. This outline should, hopefully, allow for abetter understanding of the legal issues addressed in the balance of this judgment.12. The concept of most immediate relevance is that of a “protective certificate”. The grantof a protective certificate represents the first formal involvement of a court in anapplication for a personal insolvency arrangement. The grant of a protective certificate,in simple terms, affords a debtor a breathing space in which he or she can formulate aproposal for a personal insolvency arrangement. The legal effect of the grant of theprotective certificate is that creditors are precluded from enforcing their debt for an(initial) period of seventy days.13. A debtor is not normally required to put his or her creditors on notice of the making of anapplication for a protective certificate. To this extent, the application can becharacterised as an ex parte application. This is so notwithstanding that the application ismade with the involvement of a third party, namely the Insolvency Service.14. The Personal Insolvency Act provides two procedures by which a creditor may seek tomitigate—to use a neutral term—the effect of the grant of the protective certificate, asfollows.15. Section 96(3) allows a creditor to apply to court for leave inter alia to execute against thedebtor or his or her property notwithstanding the existence of a protective certificate.There are no express statutory criteria prescribed by reference to which such anapplication is to be determined.16. Section 97 allows an aggrieved creditor to apply for an order directing that the protectivecertificate shall not apply to that creditor. The criteria by which such an application is tobe determined are set out as follows at sub-section 97(3).“(3) In determining an application under this section the court shall not make an orderdirecting that the protective certificate shall not apply to that creditor unless it issatisfied that—(a) not making such an order would cause irreparable loss to the creditor whichwould not otherwise occur, andPage 4 ⇓(b) no other creditor to whom notice of the protective certificate has been givenwould be unfairly prejudiced.”17. As explained under the next heading below, Tanager has sought to invoke both Section96 and Section 97. This judgment is, however, confined to an appeal in respect of theapplication under Section 96.18. During the seventy-day period of a protective certificate, a debtor with the assistance ofhis or her personal insolvency practitioner may put a proposed personal insolvencyarrangement to a creditors’ meeting. If, as occurred on the facts of the present case, aproposed arrangement is rejected at a creditors’ meeting, then the debtor may, in certaincircumstances, make an application to the court for the approval of a personal insolvencyarrangement which involves his or her principal private residence. The effect of makingsuch an application, if made within time, is that the period of protection is extendedbeyond the original seventy days.19. It may be helpful to say something more about such applications for court approval. As aresult of amendments introduced under the Personal Insolvency (Amendment) Act 2015,a debtor who has failed to have a personal insolvency arrangement approved by acreditors’ meeting can make an application to the court for approval under a new section,Section 115A. This is contingent on the debts that would be covered by the proposedarrangement including a debt secured on the debtor’s principal private residence.20. For present purposes, it is to be noted that one of the grounds upon which a creditor canobject to court approval is that a “material inaccuracy or omission” exists in the debtor’sstatement of affairs. This would appear to allow a creditor to raise, in the context of anapplication for approval under Section 115A, any alleged inaccuracies or omissions in thestatement of affairs or prescribed financial statement grounding the ex parte applicationfor a protective certificate.21. Finally, the insolvency legislation also introduced the concept of “specialist judges” of theCircuit Court. The role and status of a specialist judge has been described as follows bythe High Court (Baker J.) in Re Nugent (A Debtor) [2016] IEHC 127, [21].“[…] The specialist judges exercising their statutory function under the [PersonalInsolvency Act 2012] are constrained by the powers and functions conferred by theAct of 2012, and do not exercise the full powers of a Circuit Court judge under theCourts Acts or under the Constitution. The specialist judges for example do notseem to have any power to engage principles of equity, or common law provisionsoutside those powers expressly conferred. The specialist judge, while the role isnot merely an administrative one, does not act with full judicial powers.”22. As discussed under the next heading below, the specialist judge who issued the protectivecertificate in the present case has since taken the view that her jurisdiction to set asidethat certificate is confined to that provided for under Section 97.PROCEDURAL HISTORYPage 5 ⇓23. This matter has come before the High Court by way of an appeal against an order madeby the Circuit Court (Judge Linnane) in the context of the within possession proceedings.As explained presently, there is a second appeal pending before the High Court (McDonaldJ.) in the context of separate insolvency proceedings (High Court 2019 No. 355 CA).24. The possession proceedings had been instituted before the Circuit Court by way of a CivilBill for Possession issued on 25 February 2016. The principal relief sought in thoseproceedings was an order for possession of a dwelling house in Clontarf, Dublin. Thisrelief was sought pursuant to Order 5B of the Rules of the Circuit Court. The applicationhad been predicated upon a deed of mortgage and charge dated 5 February 2007 (“theMortgage”). The Mortgage had been entered into between the Debtor and Bank ofScotland (Ireland) Ltd. The affidavit grounding the application for an order for possessionexplains that Tanager has since succeeded to the mortgagee’s interest under theMortgage. More specifically, it is explained that Tanager acquired the Mortgage in April2014 as part of a larger transaction involving the transfer of numerous securities to it.There is no dispute between the parties as to the validity of this transfer.25. An agreement was ultimately reached between the parties whereby the possessionproceedings were to be settled on terms. The terms of settlement were executed by theparties and the Circuit Court made an order on consent that the settlement be receivedand made a rule of court. The settlement was filed with, and deemed to be part of, theorder.26. The Circuit Court order is dated 8 March 2019. The terms of the consent order read asfollows. (The references to “the Defendant” are to Mr Ronan Ryan, who is described forthe purposes of this judgment as “the Debtor”).“1. An Order for Possession of the property the subject of these proceedings andknown as ALL THAT AND THOSE the dwellinghouse and premises known as [Detailsredacted] (the ‘Property’) and more particularly described in the Schedule to theCivil Bill for Possession herein;2. A stay on the execution of the Order for Possession for a period of four months;3. An Order directing the Defendant, the Notice Party and any other person inpossession of the Property to deliver up vacant possession of the Property to thePlaintiff’s nominated agent on or before 9 July 2019 together with all keys, fobs,other electronic access devices, access codes and alarm codes in their possession,power and/or procurement of the Property;4. An Order restraining the Defendant, the Notice Party and any other person onnotice of this Order from damaging the Property and/or removing any fixtures andfittings from the Property pending the delivery up of vacant possession to thePlaintiff or its nominated agent on or before 9 July 2019;Page 6 ⇓5. An Order directing the Defendant and the Notice Party to facilitate the Plaintiff’snominated auctioneer to carry out an inspection of the Property at a time to beagreed within a period of two weeks from the date hereof;6. Subject to the Defendant’s and Notice Party’s compliance with the terms above, anOrder that the Defendant’s indebtedness to the Plaintiff the subject matter of theseproceedings be limited to the sum recovered by the Plaintiff from the sale of theProperty;7. No Order as to the Costs of these Proceedings.”27. The possession proceedings were then adjourned and listed for mention before the CircuitCourt on 12 July 2019. This date fell a number of days after the date by which theDebtor was to have delivered up vacant possession of the dwelling house (9 July 2019).28. It seems that very shortly after his having agreed to the terms of settlement and consentorder, the Debtor began to take steps in preparation for the making of an application for apersonal insolvency arrangement. (See affidavit of Eugene Carley Solicitor dated 25 July2019 filed herein on behalf of the Debtor).29. This volte face occurred without the giving of any express notice to Tanager. This was sonotwithstanding that the Debtor had been in contact with Tanager’s servicing agentduring this period. As explained in the affidavit of 23 July 2019 sworn by Mr GeoffreyRooney, Solicitor, on behalf of Tanager, the Debtor had telephoned Tanager’s servicingagent, Pepper Finance Corporation (Ireland) DAC in March 2019, and had requesteddetails of the bank account into which he could make payments to the credit of themortgage account. This action on the part of the Debtor appears to have been intendedto address one of the issues relevant to an application for approval of a personalinsolvency arrangement under Section 115A, namely, the payment history of a debtorwithin the two years prior to the issue of a protective certificate.30. Certainly, the resumption of mortgage repayments in March 2019—after a period of non-payment of almost nine years—made no sense if viewed solely through the lens of theterms of settlement and consent order wherein, as noted above, the balance of the debtover and above the proceeds of a sale of the dwelling house was, in effect, to be writtenoff.31. At all events, an application for a protective certificate was made to a specialist judge ofthe Circuit Court (Judge Lambe) on behalf of the Debtor, and a protective certificateissued on 25 June 2019. There is no requirement under the Rules of the Circuit Court toput creditors on notice of the making of such an application. Tanager was subsequentlyinformed of the making of the order by letter received on 1 July 2019.32. There is no reference to the existence of the order for possession in the paperworkaccompanying the application for the protective certificate. In particular, it is not includedas a “comment” on the prescribed financial statement. It should be noted that anPage 7 ⇓amended prescribed financial statement was filed on 27 August 2019 . I will return todiscuss the precise mechanics of the making of an application for a protective certificatein detail at paragraph 100 below.33. Tanager sought to set aside the protective certificate. The first attempt to do so took theform of an application in the context of the insolvency proceedings. More specifically,Tanager issued a notice of motion on 8 July 2019 seeking to have the protectivecertificate set aside. This application was put forward on a number of different bases asfollows: Tanager expressly invoked (i) Section 97(1) of the Personal Insolvency Act; (ii)Order 73, rule 27(1) of the Rules of the Circuit Court; and (iii) the inherent jurisdiction ofthe Circuit Court. In the alternative, an order was sought pursuant to Section 96(3) ofthe Personal Insolvency Act granting Tanager liberty to take steps to secure physicalpossession of the dwelling house on foot of the consent order for possession dated 8March 2019.34. This (omnibus) application came on for hearing before a specialist judge of the CircuitCourt (Judge Lambe). Judge Lambe delivered an ex tempore ruling on 22 July 2019. Anagreed counsel’s note of this judgment has been exhibited as part of the applicationbefore me. It appears therefrom that Judge Lambe made three principal findings asfollows. First, the failure to disclose the existence of the order for possession as part ofthe application for the protective certificate represented a breach of the requirements ofSection 118 of the Personal Insolvency Act. This section, in brief, requires a debtor tomake full disclosure of all circumstances that are reasonably likely to have a bearing onthe ability of the debtor to make payments to his or her creditors.35. Secondly, the jurisdiction of a specialist (insolvency) judge to set aside a protectivecertificate is confined to the statutory jurisdiction under Section 97 of the PersonalInsolvency Act. A specialist judge does not have an inherent jurisdiction to sanction abreach of Section 118.36. Thirdly, the criteria for setting aside a protective certificate under Section 97(3), asinterpreted by the Court of Appeal in Re McManus (A Debtor) [2016] IECA 248, were notmet on the facts of the case.37. Judge Lambe next confirmed that any application for an order pursuant to Section 96should be made in the context of the possession proceedings.38. Having failed in its application before Judge Lambe, Tanager then moved with expeditionto make an application in the context of the possession proceedings. An ex parteapplication for short service of notice of motion was made on 23 July 2019, and themotion was made returnable for 25 July 2019. The principal relief sought in the notice ofmotion was an order, pursuant to the inherent jurisdiction of the Circuit Court, settingaside the protective certificate. In the alternative, an order was sought pursuant toSection 96(3) of the Personal Insolvency Act granting Tanager leave to enforce andexecute the order for possession.Page 8 ⇓39. The application was heard before Judge Linnane on 25 July 2019, and the learned trialjudge delivered a reserved judgment on 15 August 2019. Judge Linnane made an orderpursuant to Section 96(3) of the Personal Insolvency Act giving leave to Tanager toexecute the order for possession.40. The ratio of the judgment is set out as follows.“An alternative view of course is that the legislation was not enacted to affordprotection to a debtor who (i) makes no mortgage payment for almost nine years,(ii) agrees with the benefit of legal advice and after three years of legal proceedingsto an order for possession being made and to vacate the property, (iii) then does acomplete turn around and applies for a Protective Certificate without disclosing thematerial fact that a consent order for possession had been made either to theInsolvency Judge or to his PIP [Personal Insolvency Practitioner] in breach of theclear obligation imposed by s. 118 of the Act. The granting of the ProtectiveCertificate resulted in the implementation of the consent order made by the courtbeing frustrated and undermined.Taking everything into account, in my view there was a deliberate move by Mr.Ryan to frustrate and obstruct the implementation of the consent order made on8th March 2019 . There was also a conscious decision made by him not to disclosethe existence of the consent order in his PFS [Prescribed Financial Statement], tohis PIP, and to Judge Lambe. The purpose of the Insolvency legislation was not toassist persons behaving in this manner, that would not be in the public interest.Judges depend on a daily basis, particularly when an application is made on an ex-parte basis, on full disclosure being made to them. The courts often set asideorders made on an ex-parte basis if it later transpires that there was non-disclosureof any material information. I do not accept Mr. Ryan’s excuse that he did notconsider material the existence of the consent order. In any event it was not up tohim to decide or be the judge of what was material or not. As Mr Neuman onbehalf of Tanager has pointed out the consent order is still in full force and bindingon Miss Flood and this application has no bearing on her obligation to comply withthat order.Accordingly I am granting the application and making an order pursuant to s. 96(3)of the 2012 Act giving leave to Tanager to execute the order for possession madeon 8th March 2019 against Mr. Ryan.”41. The position at that stage, therefore, was that Tanager had been refused an orderpursuant to Section 97 by Judge Lambe, but had been granted an order pursuant toSection 96(3) by Judge Linnane.42. Each of the parties then brought an appeal against the order in respect of which they hadbeen unsuccessful. Tanager brought an appeal against the refusal of an order pursuantto Section 97. That appeal has been made returnable to the High Court PersonalInsolvency List, and is listed, for mention only, before McDonald J. on 14 October 2019.Page 9 ⇓43. The progress of the Debtor’s appeal against the grant of an order pursuant to Section96(3) has been more convoluted. The Circuit Court had refused to grant a stay on itsorder, and the Debtor then applied to the High Court for a stay during the vacationsittings. The application for a stay was listed before me when I was sitting as the DutyJudge on 10 September 2019. In circumstances where it was apparent that the hearingof the application for a stay would take almost as long as the hearing of the substantiveappeal, I listed the full appeal for hearing before me on 16 September 2019.44. The solicitors acting on behalf of Tanager, AMOSS Solicitors, very helpfully arranged tofile a book of pleadings in advance of the hearing date, and counsel for both sidesprepared excellent written legal submissions. The hearing of the appeal duly took placeon 16 September 2019, and judgment was reserved until today’s date.45. Finally, for the sake of completeness, it should be noted that the position in respect of thesubstantive application for a personal insolvency arrangement is as follows. The statutorycreditors’ meeting has taken place and the proposal for a personal insolvencyarrangement has been rejected. The Debtor has since made an application for approvalof an arrangement to the Circuit Court pursuant to Section 115A. The effect of thisapplication is that the period of the protective certificate continues beyond the originalseventy-day period. (See Re Hickey (A Debtor) [2018] IECA 397. The Court of Appealconfirmed that the intention of the Oireachtas was that all debtors who lodged a Section115A application within 14 days of the creditors’ meeting would continue to be protectedbetween the expiry of the seventy-day life of the certificate and the lodging of thatSection 115A application).SUBMISSIONS OF THE PARTIES(i). Tanager’s submissions46. Counsel of behalf of Tanager, Mr Rudi Neuman, BL, submits that Section 96(3) of thePersonal Insolvency Act confers a “broad” discretion on the court. The general wording ofthe section is contrasted with that of Section 97(3) which prescribes specific and limitedcriteria against which a decision as to whether to disapply a protective certificate in thecase of a particular creditor is to be made.47. Counsel then identifies the basis upon which it is said that this court should grant leavepursuant to Section 96(3) to execute the order for possession. (See paragraph 13 of thewritten legal submissions). There are two intertwined strands to this submission. First, itis submitted that it is “just and appropriate” to permit execution of the order forpossession. It would be “fundamentally unfair” if the existence of the protectivecertificate were permitted to “derail and undermine” the efficacy of the order forpossession. Emphasis is placed upon the fact that the order was made on consent, andupon what counsel characterises as the “sanctity of consent orders”. The judgment of theCourt of Appeal of England and Wales in Brennan v. Bolt Burdon (A firm) [2004] EWCA Civ 1017, [11] to [13] is cited in this regard.48. It is submitted that the making of the application for a protective certificate is akin to anappeal by the Debtor against the consent order. The Debtor is said to be seeking to “goPage 10 ⇓behind” his consent. A compromise had been reached between the parties in March2019, whereby Tanager had agreed to confine its claim to the proceeds of sale and to“write down” the balance of the mortgage debt, and the Debtor had agreed to deliver upvacant possession on 9 July 2019. The Debtor cannot now change his mind about thecompromise (which had been agreed to with the benefit of legal advice), and underminehis obligations under the consent order. If consent orders are not going to be enforced bythe courts, then parties will be reluctant to settle claims. This would not be in the publicinterest.49. Secondly, it is submitted that the making of the application for a protective certificateamounted to an abuse of process. In particular, it is alleged that the application was solacking in candour and accuracy as to warrant an order under Section 96(3). There must,it is said, be a consequence or sanction for an “offending party” who fails to make fulldisclosure as required under Section 118 of the Personal Insolvency Act.50. Mr Neuman, BL, placed particular emphasis on the following finding of Judge Lambe (asrecorded in the agreed note of her ex tempore judgment).“Given the binding nature of the March Order, that Ronan Ryan is insolvent in thatthere was nothing left for other creditors out of his assets, the non-disclosure of theMarch Order in the PFS [Prescribed Financial Statement], which is sworn bystatutory declaration, to not disclose the Order being the most significant andproximate event to his Application for a Protective Certificate is extraordinary.”51. Reliance was placed, by analogy, on case law which emphasised the duty of disclosure inex parte applications under the Companies Acts. Extracts from the judgments in ReBookfinders Ltd. [2015] IEHC 769 and in O’Flynn v. Carbon Finance Ltd. [2014] IEHC 458were opened to the court.52. Counsel disputes the characterisation of the non-disclosure as a simple omission to fill ina “comment box” or “field” in the prescribed financial statement. Counsel draws attentionto the fact that when it came to providing details of the Debtor’s separate debt to theGovernor and Company of the Bank of Ireland, the Debtor had included a note in the“comment box” indicating that a judgment mortgage had been “placed” on 16 April 2018.53. Counsel did not dispute that the Debtor had met the eligibility criteria for a protectivecertificate as prescribed under Section 91. It is submitted that non-disclosure maynevertheless represent material non-disclosure notwithstanding that the outcome of theex parte application for a protective certificate would inevitably have been the same evenhad the existence of the order for possession been disclosed. This court should not, onthis submission, be concerned with what potential effect proper disclosure would have hadon the application. Rather, there has to be a consequence or sanction for the “offendingparty” for his breach of Section 118 of the Personal Insolvency Act.54. Finally, counsel submits that there is no inconsistency in an aggrieved creditor pursuingboth an application under Section 96 and Section 97. Nor does the making of the initialPage 11 ⇓application under Section 97 to a specialist judge give rise to an estoppel preventing thecreditor pursuing a subsequent application to another judge of the Circuit Court.(ii). The Debtor’s submissions55. In response, Mr Keith Farry, BL, counsel for the Debtor commenced his submission bysuggesting that the principal purpose of Section 96(3) was to allow for the possibility ofan agreed sale of property prior to the completion of the insolvency process. This mightarise, for example, where the creditor and debtor agreed to the sale of a property otherthan the principal private residence, e.g. the sale of an investment or “buy to let”property. An order under Section 96(3) might also be appropriate where property washeld by a debtor jointly with a third party, and that third party was not subject to anapplication for a personal insolvency arrangement.56. Counsel next drew attention to the provisions of Section 49 of the Personal Insolvency Actwhich identifies the information which a debtor is required to disclose to a PersonalInsolvency Practitioner (“PIP”) as follows.“49.— (1) A debtor to whom section 48 applies shall submit to a personal insolvencypractitioner a written statement disclosing all of the debtor’s financial affairs, whichstatement shall include—(a) such information as may be prescribed in relation to—(i) his or her creditors,(ii) his or her debts and other liabilities,(iii) his or her assets, and(iv) guarantees (if any) given by the debtor in respect of a debt of anotherperson,and(b) such other financial information as may be prescribed.”57. Counsel submits that the Debtor complied with these requirements. The Debtor is said tohave completed a prescribed financial statement in accordance with Section 49 and therelevant regulations. The Debtor is said to have provided a complete and accuratestatement of his assets, liabilities, income and expenditure. Counsel also emphasises thatthe Debtor meets all of the eligibility criteria prescribed under Section 91.58. Turning to the affidavit evidence, counsel relies on an affidavit filed by the Debtor (MrRonan Ryan) in the insolvency proceedings dated 17 July 2019 which set out Mr Ryan’sdealings in the period 2009/2010 with the company servicing Bank of Scotland’s loans inIreland, Certus. (This affidavit has been exhibited by Tanager as part of the possessionproceedings). Mr Ryan avers that he was told that if he (Mr Ryan) signed an “assistedsale order” then he could cease payments on the principal private residence loan andhave the balance written off. Counsel submits that this demonstrates that the Debtor isnot a “strategic defaulter”.Page 12 ⇓59. (It should be noted that counsel for Tanager, in his subsequent reply, drew attention tothe fact that the existence of this alleged agreement had not been referred to by theDebtor in the affidavits filed in the possession proceedings prior to the order of 8 March2019. Prior to that date, the Debtor had indicated an intention to fully defend theproceedings).60. Reliance is also placed on other paragraphs of the affidavit (in particular, paragraphs 25and 26) where Mr Ryan states that his failure to disclose the full extent of the order forpossession was not done out of any deceit or unwillingness to disclose but rather becausehe did not know it was material.“25. I say that I didn’t disclose to my PIP the full extent of the order as exhibited at‘KS4’. I did not do this out of any deceit or unwillingness to disclose but rather Idid not know it was material to eligibility or the process. I say that I came to a PIPwith a view to resolving my debt and keeping my home which was the opposite ofthe repossession process so I simply believed that it was obvious and did not needfurther detail. I apologise for this issue and any lack of disclosure. I say, and as isknown to many, the very fact of the Order and the exact terms were publicknowledge and published extensively in the media. I simply did not know that thiswas of material relevance.26. In order to remedy this, I have completed a new Prescribed Financial Statementincluding a comment outlining same in the comment section of the PFS regardingmy Principal Private Residence. I beg to refer to a copy of same when produced.”61. Counsel suggests that Tanager itself may be culpable of a lack of candour in that themonthly payments initially demanded by Tanager were overstated by a sum of almostone thousand euro. Counsel opened the relevant correspondence from March 2018.62. It was submitted that Tanager’s reliance on case law in respect of the winding up ofcompanies and the examinership process under the Companies Acts is misplaced. ThePersonal Insolvency Act was said to represent a complete and new code. Mr Farry citedthe judgment of the High Court (Baker J.) in Re O’Connors (A debtor) [2015] IEHC 320;[2015] 3 I.R. 434.“[51] There is nothing in the legislation that links any of its provisions to the CompaniesActs, although there are a number of express references in the body of thelegislation to the Bankruptcy Act 1988. I consider that the legislation provides acomplete and new code by which an insolvent debtor may make bindingarrangements with his or her creditors, and the Circuit Court, and in limitedcircumstances the High Court, has a jurisdiction to give directions with regard tocertain matters, to issue a protective certificate, and ultimately to approve thecoming into effect of a PIA following the approval of a proposal for such anarrangement by a creditors’ meeting.Page 13 ⇓[52] The legislation fully regulates the procedures at a creditors’ meeting. It would befair to say that the Act of 2012 and the structures that it creates are, in relativeterms, less complex and burdensome than those found in either the old, and tosome extent the current, bankruptcy regime or those regulating corporateinsolvency. In its form the legislation is intended to be a self-contained and newinsolvency regime, and it is expressly sought that the regime be rational andorderly. While there is nothing in the legislation that expressly mandates that theprocedure be either cost effective or speedy, the Regulations made under the Act of2012 prescribe the fees of the PIP, the form of prescribed financial statements, thepower of the Insolvency Service of Ireland to fix levels of reasonable expenditureetc., and taken together they establish a regime the clear purpose of which is tofacilitate insolvent personal debtors whose means are clearly limited. In thatregard I am fortified by s. 147 of the Act of 2012 by which the court has adiscretion to defer a bankruptcy petition, presumably with the aim of engaging theless burdensome procedures established by the Act of 2012.”63. Counsel placed emphasis on the judgments of the High Court and the Court of Appeal inRe McManus (A Debtor) [2016] IEHC 279; [2016] IECA 248. The matter had come beforethe High Court (Baker J.) by way of an application pursuant to Section 97 of the PersonalInsolvency Act. The aggrieved creditor had alleged that the debtor in that case had beenguilty of material non-disclosure in his application for a protective certificate. It wasalleged that the debtor had entered into a family loan arrangement and had registeredcharges against the principal private residence immediately after the aggrieved creditorhad obtained judgment against the debtor.64. The High Court had found that the failure to disclose the existence of the charges and thefamily loan agreement to the court on an application for the protective certificaterepresented a material non-disclosure. The prescribed financial statement gave a “whollywrong impression” that there was a degree of valuable equity in the principal privateresidence. The High Court further held that the aggrieved creditor had suffered an“irreparable loss” within the meaning of Section 97(3), over and above the ordinarystatutory consequence of the issue of the protective certificate. The aggrieved creditorhad suffered a particular prejudice, not by reason of the date of the issue of theprotective certificate in itself, but because of the device that the debtor used to createtwo legal charges on his principal private residence in the period leading up to theapplication for protection.65. The Court of Appeal approached the case on a narrower basis. It appears from theapproved note of the ex tempore judgments delivered on 22 June 2016 that the appealwas determined on the basis that the application had been made to the High Courtpursuant to Section 97 alone and not pursuant to the High Court’s inherent jurisdiction.See paragraphs [7] and [13] of the judgments of Ryan P. and Finlay Geoghegan J.,respectively. Applying the criteria under Section 97(3), the Court of Appeal found thatthe aggrieved creditor had not suffered any “irreparable loss” over and above theinevitable consequences which flow from the issuing of a protective certificate.Page 14 ⇓66. Counsel submits that notwithstanding the outcome of the appeal to the Court of Appeal,the approach adopted by the High Court (Baker J.) to material non-disclosure remainsvalid. Counsel cites the following passages from the High Court judgment.“36. The jurisprudence of the High Court and Supreme Court would suggest that thecourt may exercise its jurisdiction arising from a material non-disclosure merely onaccount of a desire to express displeasure or to effectively punish the person guiltyof non-disclosure. However, the exercise by the court of its jurisdiction to orderthat a protective certificate not impact on a named creditor ought to be exercisedcautiously having regard to the long title in the Act which characterised thelegislation as one seen to be in the common good, as it could be said that the courtought to be positively disposed towards the granting of a protective certificate ifsuch will permit the continued engagement of a debtor in the economic life of theState. Further, the provisions of s. 97 are expressed in the negative and thereforethe onus is on the creditor to establish the non-disclosure.37. I consider in those circumstances that the court would be unlikely, save inexceptional circumstances, to make an order under s.97 merely on account of itsdesire to express its displeasure, and that the court in exercising its jurisdictionmust weigh the various factors, and must also take the interests of all parties intoaccount. This is the essence of the discretionary power of a court, namely that thecourt will not exercise its discretion on rigid grounds but will do so in the context ofall of the factors which it considers to be relevant.”67. Attention is drawn to the fact that the grounds upon which a personal insolvencyarrangement may be challenged include the following at Section 120 (c).“(c) a material inaccuracy or omission exists in the debtor’s statement of affairs (basedon the Prescribed Financial Statement) which causes a material detriment to thecreditor”.68. It is submitted that this supports the argument that there must be material non-disclosure before a protective certificate could be set aside.69. It is suggested that, at its height, Tanager’s complaint is that the “comment box” in theprescribed financial statement did not include a comment or a note in relation to the orderfor possession. This did not amount to material non-disclosure.70. Without prejudice to his primary submission that there was no material non-disclosure,counsel submits—in the alternative—that even if there had been material non-disclosure,then it would not be appropriate to “sanction” the Debtor by allowing the order forpossession to be executed pending the determination of the application for a personalinsolvency arrangement.DETAILED DISCUSSION71. Tanager’s application for leave to execute the order for possession—notwithstanding theexistence of the protective certificate—is predicated upon two intertwined arguments asPage 15 ⇓follows. The first argument is that the “sanctity” of a consent order must be respected.The Debtor should not be permitted to undermine the order for possession by applying toenter into a personal insolvency arrangement, and thereby availing of the benefit of aprotective certificate pending the determination of that application. The second argumentis that the Debtor’s failure to disclose the existence of the order for possession at the timeof the ex parte application for a protective certificate represents a material non-disclosure. It is said that the appropriate sanction for this non-disclosure would be todeny the Debtor the benefit of the protective certificate as against Tanager.72. I propose to address each of these two arguments under separate headings below.(1). ORDER FOR POSSESSION MUST BE RESPECTED73. The first argument can be disposed of shortly. This is because it is premised on anapparent unwillingness on the part of Tanager to face up to the reality of the amendedinsolvency legislation. The Oireachtas has chosen to put in place a detailed legislativeregime for “orderly and rational” debt resolution. One of the objectives of this regime, asreflected in the Long Title to the Personal Insolvency Act, is to allow insolvent debtors toresolve their indebtedness and thereby facilitate “the active participation of such personsin economic activity in the State”. The regime expressly envisages that “secured debts”,such as a mortgage on a family home, may be reduced to an amount not exceeding themarket value of the security. Put colloquially, the Personal Insolvency Act allows for thepossibility of “writing down” mortgage debt, and of a debtor remaining in their familyhome on the basis of a reduced principal sum. The balance will rank for a dividend, ifany, as an unsecured debt.74. One of the key features of the legislative regime is the creation of a “breathing space”whereby a period of time is afforded to a debtor and his or her personal insolvencypractitioner to formulate a proposal for a personal insolvency arrangement. Thisbreathing space is achieved by the grant of a protective certificate under Section 95 ofthe Personal Insolvency Act.75. The legal consequences of the issuance of a protective certificate are set out as follows atSection 96(1).“96.—(1) Subject to subsections (3), (4) and (5), a creditor to whom notice of the issueof a protective certificate has been given shall not, whilst the protective certificateremains in force, in relation to a specified debt:(a) initiate any legal proceedings;(b) take any step to prosecute legal proceedings already initiated;(c) take any step to secure or recover payment;(d) execute or enforce a judgment or order of a court or tribunal against thedebtor;(e) take any step to enforce security held by the creditor in connection with thespecified debt;Page 16 ⇓(f) take any step to recover goods in the possession or custody of the debtor,whether or not title to the goods is vested in the creditor;(g) contact the debtor regarding payment of the specified debt, otherwise than atthe request of the debtor;(h) in relation to an agreement with the debtor, including a security agreement,by reason only that the debtor is insolvent or that the protective certificatehas been issued—(i) terminate or amend that agreement, or(ii) claim an accelerated payment under that agreement.76. The purpose and effect of a protective certificate has been described as follows by theHigh Court (Baker J.) in Re Nugent (A Debtor) [2016] IEHC 127.“5. Section 95 of the Act of 2012 makes provision for the grant of a protectivecertificate to a debtor who establishes the statutory proofs. The effect of the grantof a certificate is that during its currency the debtor is protected from any action orenforcement proceedings by his creditors, and by virtue of s. 96 of the Act acreditor to whom notice of the issue of a protective certificate has been given shallnot initiate or continue legal proceedings, nor take any steps to secure or recoverpayments or judgment, or on foot of any security. Whilst a protective certificateremains in force a bankruptcy petition may not be presented, or, in a case where apetition for bankruptcy has already been presented, may not be processed. Theissuing of a protective certificate is a matter of considerable benefit to a debtor inthat it gives breathing space in which to seek to come to an arrangement withcreditors, and avoid the less benevolent consequences of bankruptcy.”77. Crucially, the protection against creditors afforded by a protective certificate extends evento judgments or orders of a court. This is provided for under Section 96(1)(h): a creditorshall not execute or enforce a judgment or order of a court against the debtor whilst theprotective certificate remains in force.78. If an application for a personal insolvency arrangement is ultimately successful, the finalarrangement may include provision inter alia for a debtor to retain their principal privateresidence and for a reduction in the principal sum. A practical example of this is providedby the very recent judgment of the High Court (McDonald J.) in Re McNamara (A Debtor)[2019] IEHC 622. On the facts of that case, a secured creditor (as it happens, Tanager)had obtained an order for possession against the debtors in respect of their principalprivate residence in April 2014. Notwithstanding this, the debtor subsequently made asuccessful application for a personal insolvency arrangement. The arrangement wasultimately approved by the High Court in August 2019 pursuant to Section 115A. As partof the arrangement, a sum of excess of €1,700,000 was to be written off the mortgagedebt and would rank instead for a dividend as an unsecured debt.79. Having regard to this legislative regime, the complaint made by Tanager in the presentproceedings, i.e. that it would be “fundamentally unfair” were the protective certificatepermitted to “derail and undermine the efficacy” of the order for possession, ratherPage 17 ⇓misses the point. The precise purpose of the insolvency legislation is to provide for debtresolution in the interests of the common good. In some instances, this purpose will haveprecedence over other aspects of the common good such as the public interest inensuring the finality of litigation and the enforceability of court judgments and orders.Section 96(1) (cited at paragraph 74 above) is comprehensive in its terms, and ensuresthat a protective certificate is sweeping in its effect. Relevantly, it precludes a creditorwho has the benefit of a judgment or order from executing or enforcing that judgment ororder during the period of protection.80. The fact that the order for possession had been made with the consent of the parties inMarch 2019 does not alter the legal analysis. First, Section 96 makes no distinctionbetween judgments and orders arising following an adjudication on the merits by a court,and those arising as a result of the consent of the parties. The section refers tojudgments and orders simpliciter. Its provisions thus apply to both types.81. Nor can such a distinction be “read into” the section. It is clear from the structure andlanguage of Section 96 that it is intended to be comprehensive in its terms and capturesevery conceivable step which a creditor might take to enforce a debt.82. Secondly, there is no rational justification for distinguishing between (i) orders madefollowing adjudication, and (ii) orders made on consent. The public interest in ensuringthe finality of litigation and the enforceability of judgments applies with equal force toboth. In each instance, the Oireachtas has ordained that the finality of court orders mustyield in certain circumstances to the common good in ensuring orderly and rational debtresolution.83. In summary, Tanager cannot rely on the existence of the order for possession per se as aground for avoiding the protective certificate, or more generally, to defeat the applicationpursuant to Section 115A which is currently pending before the Circuit Court. (Theseparate complaint that the omission of reference to the order for possession in the exparte application for a protective certificate represented material non-disclosure isaddressed under the next heading below).84. Tanager has also sought to rely on what it alleges is the poor payment history of theDebtor. This allegation that the Debtor had not made payments pursuant to themortgage for a period of almost nine years certainly seems to have struck a chord withthe Circuit Court judge (as reflected in the passages from her judgment cited atparagraph 40 above).85. Any characterisation of the Debtor as a “strategic defaulter” is challenged by his counsel.As summarised at paragraphs 58 to 60 above, counsel drew particular attention to theexplanation offered on affidavit for this period of non-payment.86. It is unnecessary for the purposes of this appeal to make any determination on this issue.This is because the conduct of a debtor in making or failing to make payments falls to bedetermined at a later stage of the insolvency process. More specifically, the issue arisesPage 18 ⇓for consideration in the context of the application for approval pursuant to Section 115A.Sub-section 115A(10)(a) provides as follows.“(10) In considering whether to make an order under subsection (9) , the court shallhave regard to:(a) the conduct, within the 2 years prior to the issue of the protective certificateunder section 95, of —(i) the debtor in seeking to pay the debts concerned, and(ii) a creditor in seeking to recover the debts due to the creditor;”87. The nature of the consideration required under this sub-section has been discussed indetail in the judgment of the High Court (McDonald J.) in Re Featherson (A Debtor)[2018] IEHC 683.“25. The underlying purpose of the Act must also be borne in mind. As the long title tothe 2012 Act makes clear, the Act was enacted in the interests of the common goodwith the objective ( inter alia) to ameliorate the difficulties experienced by debtorsand to enable insolvent debtors to resolve their indebtedness in an orderly andrational manner without recourse to bankruptcy. While there are obvious limits tothe extent to which this underlying purpose can be taken into account, there maywell be circumstances where a debtor has a poor payment record during therelevant two year period but who, on the evidence before the court, hasdemonstrated a genuine intention to deal with his or her debts under a PIA whichappropriately addresses the payment of the debtor’s liabilities, having regard to hisor her means, and which has a real prospect of securing a better outcome for thedebtor’s creditors than the likely outcome on a bankruptcy of the debtor. It wouldbe wrong, in my view, for a court to take an unduly ‘ box-ticking’ approach and todismiss every application under s. 115A where the debtor has a poor paymentrecord during the relevant two year period. In my view, that is not what s.115A(10) has in mind.26. That is not to say that there is not an obligation on the debtor to explain a poorpayment record. As I have sought to emphasise above, there can be no doubt thatthere is such an obligation on the debtor. I do not intend to dilute the significanceof that obligation in any way. The practitioner/debtor bears the onus of proof inapplications under s. 115A. It is therefore essential that a poor payment recordshould be appropriately explained on affidavit by the debtor. Nonetheless, even incases where the explanation may seem unsatisfactory or incomplete, the courtretains a discretion if there are countervailing considerations that apply such as topersuade a court that, in all of the circumstances of the case, the s. 115A reliefshould nevertheless be granted.”88. These are all issues which can only properly be addressed in the context of an applicationunder Section 115A. They do not arise in the context of an initial application for aprotective certificate nor in an application for leave to execute pursuant to Section 96(3).Page 19 ⇓The complaints made by Tanager in this regard are thus premature, and must awaitconsideration at the proper time in the context of the pending Section 115A application.89. Finally, there is no merit in the separate argument that the Debtor, as a consequence ofthe order for possession, no longer holds an interest in the dwelling house amenable toprotection under the Personal Insolvency Act. The existence of an unexecuted order forpossession does not have the legal effect of divesting the Debtor of his interest in thedwelling house. Tanager had not entered into possession prior to the grant of theprotective certificate, still less had it purported to exercise its power of sale. There is noevidence before the court that Tanager has complied with Section 100 of the Land andConveyancing Law Reform Act 2009. In all the circumstances, the ownership of thedwelling house remains with the Debtor.(2). MATERIAL NON-DISCLOSURE90. Tanager’s complaint that the Debtor was culpable of material non-disclosure gives rise totwo potential issues as follows. The first issue is whether or not there has been materialnon-disclosure. In the event that this first issue is resolved in favour of Tanager, thenthis presents a second issue, namely, what is the appropriate remedy for the materialnon-disclosure. This requires consideration both of the procedural route by which thecomplaint should be brought before the court—for example, whether by way of anapplication pursuant to Section 96, Section 97 or the courts inherent jurisdiction—and thenature of the substantive remedy to be provided—for example, should the protectivecertificate be set aside for all purposes or only insofar as it affects the aggrieved creditor.91. This second issue, obviously, only arises for consideration if the first issue is resolved infavour of Tanager, and, for this reason, it is proposed to address the issues in strictsequence.(i). Has there been material non-disclosure?Materiality92. Before turning to a consideration of the nature of the non-disclosure alleged to haveoccurred in the present case, it may be useful to say something about the concept of“material” non-disclosure. The leading case on non-disclosure in the context of thePersonal Insolvency Act is that of the High Court (Baker J.) in Re Nugent (A Debtor)[2016] IEHC 127. The judgment reviews the relevant authorities—including, in particular,Bambrick v. Cobley [2005] IEHC 43; [2006] 1 I.L.R.M. 81 and Re Belohn Ltd,[2013] IEHC 157; [2013] 2 I.L.R.M. 407—with enviable clarity. Baker J. then adopted a testwhich emphasises the materiality of the non-disclosure, i.e. in the sense of its objectivepotential to have influenced the court’s determination of the relevant ex parte application.“51. It is not necessary for the purposes of this application that I should take a view asto whether the PIP, or the debtor, deliberately sought to present the matter to mein a way that points to a lack of bona fides. As a matter of law the test before meis whether there was a significant and material failure to disclose matters whichshould have been disclosed and the test is an objective one as to what could havePage 20 ⇓influenced me in the exercise of my jurisdiction in making the order ex parte. I amsatisfied that the test is met.”93. A similar approach has been adopted by McDonald J. in Re Halpin (A Debtor) [2019] IEHC 87wherein the court held that the omission to exhibit certain correspondence was not“material” in that it did not have the potential to have affected the outcome of the exparte application for an extension of the duration of the period of the protectivecertificate.94. (For the sake of completeness, it should be noted that the range of relevantconsiderations governing an application for a first or second extension of the period ofprotection are broader than those governing the initial application for a protectivecertificate. More specifically, on an application for an extension the court must considermatters such as whether the debtor and the personal insolvency practitioner have actedin “good faith and with reasonable expedition”, and whether the proposed arrangement islikely to be accepted by the creditors. It follows as a consequence of the court’s enlargeddiscretion on an application for an extension that the range of information which will be“material” will be greater than in the case of the initial decision to issue a protectivecertificate).95. That non-disclosure must be material before it could provide a basis for setting aside thegrant of a protective certificate is confirmed by a consideration of the role of the court inconfirming or approving a personal insolvency arrangement. In contrast to its limited roleon an application to issue a protective certificate, the court has a significant role to play incircumstances where either (i) a minority creditor is objecting to an arrangementapproved by a qualified majority at a creditors’ meeting, or (ii) a debtor is applying tohave an arrangement involving his or her principal private residence approved by thecourt. Relevantly, in each instance one of the grounds of objection which may be reliedupon by a creditor is that there is a “material” inaccuracy or omission in the debtor’sstatement of affairs. This is provided for under Section 120(c) as follows.“120. The grounds on which a Personal Insolvency Arrangement may be challenged by acreditor under section 114 are, without prejudice to section 122, limited to thefollowing matters:[…](c) a material inaccuracy or omission exists in the debtor’s statement of affairs(based on the Prescribed Financial Statement) which causes a materialdetriment to the creditor;”96. (Section 120 is applied to an application under Section 115A by sub-section 115A(8)(b)).97. These provisions confirm that not every inaccuracy or omission in a debtor’s statement ofaffairs or prescribed financial statement is to have the consequence of disentitling adebtor from obtaining a personal insolvency arrangement. Rather, an inaccuracy orPage 21 ⇓omission must be “material” and cause a “material detriment” to a creditor before samewill redound against the debtor.98. These provisions also indicate that the appropriate time at which to raise an objectionthat there has been a material inaccuracy or omission is at this stage when anarrangement comes before the court for confirmation or approval. It can be inferred fromthis that such matters should not normally be raised by way of an application to set asidea protective certificate. This is because the nature of the consideration which the courtgives to the matter, and the actual consequences for a creditor, are less than thosearising at the final stages of the insolvency process.99. The statutory position might be summarised as follows. The legislation envisages courtinvolvement both at the commencement of an application for a personal insolvencyarrangement, i.e. at the time of the application for a protective certificate, and at theconclusion of the process, i.e. at the time of the hearing of objections to, or an applicationfor the approval of, an arrangement. The procedure governing each type of application,i.e. ex parte or inter partes, and the range of matters to be considered by the court,reflect the gravity of the respective decision which the court is making. The legalconsequences of a decision to grant a protective certificate on a temporary basis are lesssevere than those of a decision to approve an arrangement which might, as in theexample of Re McNamara (A Debtor) [2019] IEHC 622 referred to earlier, involve thereduction of a secured debt in excess of one million euro. It is unsurprising, therefore,that a decision of the latter type should be heard inter partes and require consideration ofa wide range of factors.100. The point of highlighting this—perhaps obvious—distinction is not to suggest that theissue of a protective certificate does not impinge on the contractual and property rights ofcreditors (especially secured creditors). It plainly does. Rather, the point is to explainwhy it is that the hurdle to be met by a debtor in securing a protective certificate is lessthan the hurdle at the final stages of the insolvency process. There will, of course, becases where the setting aside of a protective certificate will be justified because of amaterial non-disclosure. It would undermine the objective of expedition which underliesthe legislation, however, if creditors were, as a matter of routine, to make applications toset aside orders based on inaccuracies or omissions which are immaterial. A proliferationof such applications would take up scarce court time unnecessarily, and ultimately delaythe final determination of the insolvency process. The Personal Insolvency Act providesample safeguards for creditors at the stage of an application to confirm or approve apersonal insolvency arrangement. These protections will, in most cases, make a separateapplication to set aside a protective certificate unnecessary.Assessment of materiality101. An assessment of whether or not there has been material non-disclosure in the context ofany particular type of ex parte application necessitates identifying the criteria whichgovern the determination of that ex parte application. On the facts of the present case, itis necessary to rehearse the mechanics of an application for a protective certificate inorder to identify the relevant considerations governing the determination of thePage 22 ⇓application. This exercise will, in turn, illuminate the nature of a debtor’s duty ofdisclosure.102. The starting point for this analysis is Section 49. This section regulates the initialinteraction between a debtor and a (prospective) personal insolvency practitioner (“PIP”).The debtor is required to submit a written statement disclosing all of their (i.e., thedebtor’s) financial affairs. This written statement then provides the basis for an initialmeeting between the PIP and the debtor. The form of written statement is prescribedunder the Personal Insolvency Act 2012 (Written Statement Disclosing All of the Debtor’sFinancial Affairs) Regulations 2015. There is no express requirement under the 2015Regulations to disclose the existence of court proceedings, orders or judgments.103. Once the PIP has been appointed under Section 49(3), the debtor is required underSection 50 to provide information that fully discloses his or her financial affairs. The PIPcan then assist the debtor in completing a prescribed financial statement (“PFS”).104. The form of a PFS is prescribed under the Personal Insolvency Act 2012 (PrescribedFinancial Statement) Regulations 2014. Again, there is no express requirement todisclose the existence of court proceedings, orders or judgments.105. These various provisions should be read in conjunction with Section 118 which sets outthe general duties and obligations of a debtor arising under Chapter 4 of the PersonalInsolvency Act. Relevantly, sub-section 118(1) provides as follows.“118 (1) A debtor who participates in any process under this Chapter is under anobligation to act in good faith, and in his or her dealings with the personalinsolvency practitioner concerned to make full disclosure to that practitioner of allof his or her assets, income and liabilities and of all other circumstances that arereasonably likely to have a bearing on the ability of the debtor to make paymentsto his or her creditors.”106. The procedure for making the application for a protective certificate is prescribed underSection 93. One of the unusual features is that the application is made via the InsolvencyService. The application is submitted by the PIP to the Insolvency Service. TheInsolvency Service examines the application, and, if satisfied that the eligibility criteriahave been met, the Insolvency Service will then refer the application to court for the issueof a protective certificate.107. The court—in this case, a specialist judge of the Circuit Court—is required to considerwhether the requirements of Section 91 have been met. These include, in particular,consideration of the domicile or ordinary residence of the debtor; and confirmation of theexistence of a “secured creditor”; and confirmation that the debtor is insolvent and thatthe debtor has completed a prescribed financial statement and has made a statutorydeclaration confirming that the statement is a complete and accurate statement of thedebtor’s assets, liabilities, income and expenditure.Page 23 ⇓108. In practice, the application is normally determined on the basis of the papers as filed, i.e.there is no oral hearing. The court does, however, have discretion to hold a hearingwhere it requires further information or evidence for the purpose of its arriving at itsdecision. Any such hearing is on notice to the Insolvency Service and the personalinsolvency practitioner concerned.109. There is no requirement to put creditors on notice in advance of the application for aprotective certificate. To this extent, the application can be characterised as an ex parteapplication notwithstanding that it involves a third party, i.e. the Insolvency Service. Seethe judgment of the High Court (Baker J.) in Re Nugent (A Debtor) [2016] IEHC 127,[29].“29. The PIP argues that the application before me for the extension of the period of theprotective certificate was not truly an application ex parte as it was made on noticeto the Insolvency Service of Ireland. The fact that the application was not on noticeto the creditors does not, it is argued, make it an ex parte application. I do notconsider this submission to be well founded, as the application for the extensionmay properly be described as ex parte in that the persons affected or likely to beaffected thereby were not on notice. An ex parte application is not merely one towhich no person or body is on notice, but one of which the person whose interestsare impacted is not on notice. I accept that the legislation and the Rules providingfor the making of an application were formulated in a way that permitted, orperhaps even required, the application to be made ex parte to the court, but thejurisprudence which I have referred to leads me to the inevitable conclusion thatany person whose interests are affected by the order may have a right to seek toset aside such an order, even if that person might not be required by the statute orthe rules to be on notice. This result flows from the approach identified by Hogan J.in Re Belohn Limited and Merrow Limited, where he held that the making of anorder ex parte without the availability of a remedy to set aside could not beconstitutionally sanctioned.”110. See to similar effect the judgment of the High Court (McDonald J.) in Re Halpin (ADebtor) [2019] IEHC 87, [79].111. The allegation of material non-disclosure in the present case centres largely on themanner in which the section of the prescribed financial statement headed “Liabilities –Detail” had been completed on behalf of the Debtor. The form is prescribed under the2014 Regulations.112. Relevantly, there are a series of “fields” to be completed in respect of the “PrincipalPrivate Residence Lender” as follows.1. 1 Account number1. 2 Account name1. 3 Contact details (note 2)1. 4 Current monthly payment toPage 24 ⇓1. 5 Monthly repayments – actual1. 6 Remaining term (months)1. 7 Balance outstanding1. 8 Is the liability joint and several?1. 9 If no, state % liability1. 10 Amount of debtor’s liability (derived field)1. 11 Restructured? If yes, please provide details1. 12 Current interest rate1. 13 Comment113. The prescribed financial statement filed in advance of the June 2019 application for aprotective certificate identifies an outstanding balance on the Mortgage of €1,250,457,and a current market value of the dwelling house of €800,000. It also recites monthlyrepayments of €3,777.114. The complaint made by Tanager is that there is no reference at all to the fact thatproceedings had issued and an order for possession had been granted on consent by theCircuit Court in March 2019. (As it happens, the non-disclosure extended to a factorwhich might be thought to be in favour of the Debtor, i.e. the agreement on the part ofTanager to “write down” the balance over and above the proceeds of any sale).115. As appears from the earlier summary of the content of a prescribed financial statement asper the 2014 Regulations, there is no express requirement upon a debtor to provideinformation in respect of the existence of legal proceedings, judgments or orders relatingto his or her indebtedness. It is submitted on behalf of Tanager, however, that thisinformation should have been included as part of the “comment” field. Attention is drawnto the fact that, within the same prescribed financial statement, the Debtor disclosed theexistence of a judgment mortgage in favour of Bank of Ireland. The court is invited todraw the inference from this that the Debtor understood that the existence of court ordersand judgments should be disclosed.Findings of the court on alleged material non-disclosure116. For non-disclosure to be material, it must be capable of influencing the determination ofthe ex parte application. The principal matter to be considered by the specialist judge ofthe Circuit Court in determining the application in this case was whether the eligibilitycriteria under Section 91 had been met. It is accepted by Tanager that these criteriawere met. In particular, it is accepted that the Debtor is “insolvent” and that there is a“secured debt” (as defined).117. Had the existence of the order for possession been disclosed, therefore, this could nothave affected the outcome of the application for the protective certificate. As explained indetail at page 22 et seq. above, a personal insolvency arrangement can prevail overexisting judgments and orders. The existence of the order for possession per se is not,therefore, fatal to the Debtor’s application for a protective certificate, nor, ultimately, tohis application for the approval of a personal insolvency arrangement pursuant to Section115A. Strictly speaking, the existence or otherwise of a judgment or order is not aPage 25 ⇓relevant consideration for the purposes of an application for a protective certificate. Inthe circumstances, it cannot be said that there had been material non-disclosure.118. It would be disproportionate in the absence of material non-disclosure to accede toTanager’s application for leave to execute the order for possession. The omission todisclose the existence of the order for possession did not result in the Debtor obtaining abenefit, namely the protective certificate, to which he was not otherwise properly entitled.It is common case that the Debtor does, in fact, meet all of the eligibility criteria underSection 91. The only purpose which granting leave to execute would fulfil would be tosanction or punish the Debtor for his omission.119. For reasons similar to those identified by the High Court (Baker J.) in Re McManus (ADebtor) [2016] IEHC 279 (cited at paragraph 66 above), a court should be slow to punisha debtor in this way. This reflects the public interest, as identified by the Oireachtasunder the personal insolvency legislation, in providing for “rational and orderly” debtresolution, and the retention where reasonably practicable of the family home. It alsoreflects the impact on innocent third parties, including, in this case, the Debtor’s fourminor children, and other creditors who might fare better in a personal insolvencyarrangement than in bankruptcy.120. To grant leave to execute would result in a potential windfall to Tanager which is notjustified by the conduct of the Debtor. It is obvious from the approach adopted byTanager to these proceedings that it has a preference to realise its investment by way ofan immediate sale of the mortgaged property rather than to recoup its investment overtime by way of the receipt of monthly repayments in accordance with an approvedpersonal insolvency arrangement. There may well be good commercial reasons whichwould justify such an approach. However, it is not necessarily the result envisaged by theinsolvency legislation. The Personal Insolvency Act, as amended in 2015, put in place alegislative regime which allows for the possibility of a debtor seeking court approval of apersonal insolvency arrangement which would facilitate the retention of his or herprincipal private residence. It is not a matter for this court to determine in the context ofthe appeal under Section 96(3) whether, in the particular circumstances of this case, suchan arrangement is justified. The function of this court, in hearing this appeal, is confinedto the narrow question of determining whether the Debtor is entitled to the benefit of theprotective certificate pending the determination of the insolvency proceedings.121. For the reasons outlined, I am satisfied that the omission of any reference to the order forpossession does not disentitle the Debtor to the interim protection provided by theprotective certificate. Nor does it disentitle him to the opportunity to have adetermination on the merits of his application under Section 115A, which application iscurrently pending before the Circuit Court. Tanager will have an opportunity, if it sowishes, to object to the proposed personal insolvency arrangement. Its grounds ofobjection can, in principle, include complaint as to the manner in which the Debtor dealtwith his obligations in accordance with Section 115A(10).(ii). Jurisdictional issuesPage 26 ⇓122. Given my finding that the Debtor was not culpable of material non-disclosure, it is not,strictly speaking, necessary for the purposes of this judgment to address the jurisdictionalissues which arise. For the sake of completeness, however, I should record myagreement with the approach adopted by the High Court in Re Nugent (A Debtor)[2016] IEHC 127, [22]. More specifically, I agree that the High Court would have an inherentjurisdiction to set aside a protective certificate which had been granted on the basis ofmaterial non-disclosure. Alternatively, the court could exercise its statutory jurisdictionunder Section 96(3) to allow a particular creditor to enforce its security notwithstandingthe existence of the protective certificate. I reiterate that the non-disclosure complainedof on the facts of the present case comes nowhere close to justifying such a course ofaction.BREACH OF SECTION 118123. Notwithstanding my finding that there has been no material non-disclosure, it isnevertheless a cause of concern that the Debtor did not disclose the existence of theCircuit Court proceedings and the order for possession to his personal insolvencypractitioner prior to the making of the application for the protective certificate. Thesematters should have been brought to the express attention of the practitioner. The failureto do so represents a breach of the Debtor’s obligations under Section 118. This section,it will be recalled, imposes an obligation to disclose to a PIP “all other circumstances thatare reasonably likely to have a bearing on the ability of the debtor to make payments tohis or her creditors”. Had the Debtor disclosed this information to the PIP, then it seemsalmost inevitable that the PIP would have ensured that reference to same was included aspart of the prescribed financial statement submitted in support of the application for theprotective certificate.124. The appeal before me is confined to the question of whether the protective certificateshould, in effect, be set at naught by granting Tanager leave to execute the order forpossession. The observation below is therefore strictly by way of obiter dicta.125. It would be unsatisfactory if there were to be no adverse consequences for a breach ofSection 118. Yet an order setting aside a protective certificate would be disproportionatein the case of a non-disclosure which is not material. Perhaps a breach might beaddressed by way of an appropriate costs order. It might also be something which thecourt might consider in the exercise of its discretion under Section 115A.PROCEDURAL COMPLEXITY126. Finally, I wish to say something as to the procedures adopted by the parties in thepresent case. As appears from the procedural history set out at the beginning of thisjudgment, Tanager’s complaint as to the manner in which the application for a protectivecertificate was made has spawned a series of applications and appeals. The upshot of thisis that the complaint will, ultimately, have been considered by two judges at the CircuitCourt level and two judges at the High Court level.127. Matters were further complicated by the refusal of the Circuit Court (Judge Linnane) togrant a stay on her order of August 2019, and the subsequent refusal of Tanager toPage 27 ⇓consent to a stay before the High Court. This resulted in the necessity of an applicationto the High Court for a stay during the August vacation sittings. This could have beenavoided had Tanager taken a more reasonable approach to the application for a stay. Itis difficult to understand how there could have been any valid objection to a stay incircumstances where (i) there were self-evidently good grounds of appeal; (ii) the Debtorcontinued to make monthly repayments pursuant to the Mortgage; and (iii) the relatedappeal had an early listing (14 October 2019), and the present appeal could have beenadjourned to that date to be case managed in the High Court Personal Insolvency List.128. It is inconsistent with the objectives of the insolvency legislation that what was, in truth,a net point of law, should give rise to such procedural complexity. As explained by theHigh Court (Baker J.) in Re O’Connors (A Debtor) [2015] IEHC 320; [2015] 3 I.R. 434, itis implicit in the legislative scheme that it be cost effective and expeditious. Whatoccurred in this case is the antithesis of that.CONCLUSION AND PROPOSED ORDER129. The appeal against the judgment and order of the Circuit Court of 15 August 2019 isallowed in full. The order granting leave to execute the order for possession of 8 March2019 will be set aside. The protective certificate continues in force.130. I will hear counsel as to the appropriate costs order to be made.