Discharge
Cases
Grace v Ireland & Anor
[2007] IEHC 90 [2007] 2 ILRM 283
Judgment of Miss Justice Laffoy delivered on 7th March, 2007.
Claim
The primary relief claimed, and in the event the only relief pursued, by the plaintiff in these proceedings are declarations that “all or part” of s. 85 of the Bankruptcy Act, 1988 (the Act of 1988) is repugnant to the Constitution and/or incompatible with the European Convention on Human Rights (the Convention). In response to a notice for particulars from the defendants, the plaintiff particularised the nature of his claim as follows:
(a) the part of s. 85 which he alleges is repugnant to the Constitution and incompatible with the Convention is the requirement in sub-s. (4) that all expenses, fees and costs due and also all preferential claims existing must be paid in full as a prerequisite for availing of the twelve years exit from bankruptcy, regardless of the circumstances that gave rise to the bankruptcy, the amount of those sums and how they were incurred, and supervening events;
(b) that Article 40.3.1 and 2 are the constitutional provisions against which it is alleged that s. 85 is repugnant on the basis of the requirement implied in those Articles that legal proceedings be prosecuted and brought to conclusion in a reasonably expeditious manner, bankruptcy being no more than a convenient mode of collective debt recovery; and
(c) that articles 6.1 and 13 of the Convention are the provisions of the Convention against which it is alleged that s. 85 is incompatible, for the same reasons as are stated at (b).
The plaintiff also sought the release, discharge or other termination of his present status as a bankrupt. However, counsel for the plaintiff informed the court that he accepted that that relief could not be an “automatic outcome”. On that basis, my understanding is that that relief was not pursued. In fact, counsel for the plaintiff indicated that he accepted the position as pleaded in paragraph 11 of the defendant’s defence (that this Court does not have jurisdiction to order the release or discharge from, or the termination of the plaintiff’s status as a bankrupt other than in accordance with the appropriate procedure set out in the Act of 1988) is correct.
The foundation of the plaintiff’s claim, as set out in the written submission made on his behalf, is the assertion that s. 85 permits a state of affairs where certain bankrupts, including the plaintiff, can be kept in a state of permanent bankruptcy – those whose liabilities involve substantial preferential debts, being mainly tax liabilities. Such a state of affairs, it was asserted, contravenes the right to a reasonably speedy resolution of legal disputes, to private property, to engage in various political and economic activities and to equality under the Constitution and under the Convention. The plaintiff has not pleaded any infringement of any constitutional or Convention right other than the right to a reasonably speedy resolution of legal disputes.
In broad terms, the defendants defended the proceedings on the basis that the plaintiff has not established any locus standi to present the claim. In any event, s. 85 is neither repugnant to the Constitution nor incompatible with the Convention. Further, it was asserted that the court does not have jurisdiction under the European Convention on Human Rights Act, 2003 (the Act of 2003) to award a declaration of incompatibility on the ground that the alleged cause of action occurred on a date prior to the coming into force of that Act.
The impugned provision
Section 85 of the Act of 1988 deals with discharge from bankruptcy and annulment of adjudication. Sub-section (4) provides as follows:
“A bankrupt whose estate has, in the opinion of the court, been fully realised shall be entitled to a discharge from bankruptcy when provision has been made for payment of the expenses, fees and costs due in the bankruptcy, as well as the preferential payments, and –
(a) his creditors have received fifty pence or more in the pound, or
(b) he and his friends have paid to his creditors such additional sums as would together with the dividend paid make up fifty pence in the pound, or
(c) the bankruptcy has subsisted for twelve years:
provided that in any application under paragraph (c) the court shall be satisfied that all after acquired property has been disclosed and that it is reasonable and proper to grant the application.”
The plaintiff’s challenge to that provision is grounded on the circumstance provided for in paragraph (c), that the bankruptcy has subsisted for twelve years. In that circumstance, the bankrupt is entitled to a discharge where –
(i) the court is of opinion that the bankrupt’s estate has been fully realised, which is a pre-condition to an entitlement to discharge arising,
(ii) provision has been made for payment of the expenses, fees and costs due in the bankruptcy, as well as the preferential payments,
(iii) the court is satisfied that all after acquired property has been disclosed, and
(iv) it is reasonable and proper to do so.
In summary, the plaintiff’s case is that, as regards circumstance (c), the requirement at (ii) should not apply.
As regards bankruptcies where the order of adjudication was made after 1st January, 1960, the scheme of s. 85 is to give the bankrupt an entitlement to be discharged in the circumstances and subject to satisfaction of the conditions set out in sub-s. (3) and in sub-s. (4), which I have just quoted. Sub-section (3) outlines two situations in which a bankrupt is entitled to be discharged. The first is where provision has been made for the payment of the expenses, fees and costs due in the bankruptcy, as well as the preferential payments, and the bankrupt has either paid his creditors in full with such interest as the court may allow or has obtained the consent of all of his creditors. The second situation is where the court discharges the adjudication order under s. 41 so as to give effect to a composition with his creditors which has been approved under the provisions of ss. 38 to 41 inclusive. It is the bankrupt who must initiate and follow through on the composition procedure provided for. It is the bankrupt who must initiate the process to obtain a discharge where either sub-s. (3) or sub-s. (4) of s. 85 apply (sub-s. (7) of s. 85).
The facts
The plaintiff, who was apparently a sole trader, was adjudicated a bankrupt by order of this Court made on 11th March, 1991 on foot of a petition presented by Thomas F. Mulherin, Collector General, on 22nd November, 1990 in which it was asserted that the plaintiff was indebted in the sum of IR580,759.69 in respect of arrears of income tax (Pay As You Earn), pay-related social insurance contributions, Value Added Tax and interest thereon and also a High Court judgment dated 4th October, 1989 and interest thereon. These proceedings were initiated on 3rd December, 2004, more than twelve years after the date of adjudication.
The Official Assignee is not a party to these proceedings. The only evidence tendered to the court on behalf of the plaintiff was the evidence of his wife, Ann Grace. The only evidence tendered on behalf of the State was the evidence of Bill Holohan, solicitor, who had acted for the Official Assignee in the bankruptcy proceedings.
A feature of this case which is a cause for concern is that, with their replies to a notice for particulars dated 12th April, 2005, the plaintiff’s solicitors furnished to the Chief State Solicitor a medical certificate dated 30th March, 2005 issued by the plaintiff’s general practitioner, Dr. Brendan Thornton. In the certificate, Dr. Thornton gave the plaintiff’s date of birth as 20th January, 1933. He certified that the plaintiff was suffering “from a progressive dementia whose onset was several years ago”. He stated that the plaintiff was then currently on medication specifically for the management of dementia. He had had a significant level of deteriorating mental function dating back from the previous four or five years. He was then currently incapable of caring for himself and he was certainly not capable of earning an independent living. All activities of daily living required either help or supervision. He was then attending a Dementia Centre in Limerick City. In a further certificate put before the court, which was dated 13th November, 2006, Dr. Thornton certified that the plaintiff had severe dementia and was functionally dependent for all activities of daily living. He further certified that he was in no fit state to attend court or be a witness.
Mrs. Grace’s evidence was that the plaintiff was diagnosed with dementia in June, 2003. This was not disputed at the hearing. Mr. Holohan interviewed the plaintiff on behalf of the Official Assignee in June, 2003. The interview was not productive. A view was formed that an examination by the court would not elicit any further information. Mr. Holohan’s evidence was that the view at the time was that either the plaintiff was genuinely forgetful or had consigned the events to the past, but there was nothing to indicate mental deficiency.
The aspect of all of this which causes concern is that a question mark must hang over the competence of the plaintiff to give instructions for the prosecution of these proceedings, probably at the time they were initiated and certainly from March, 2005. Notwithstanding that, the claim was prosecuted in his name and defended. It would appear that the proceedings are not properly constituted having regard to Order 15 of the Rules of the Superior Courts, 1986.
I found Mrs. Grace to be an impressive, and despite the conflict of interest referred to below, a reliable witness. However, she had only second hand knowledge of some of the factual matters which arose and she had no knowledge at all of other factual matters. Apart from that, the evidence disclosed a fundamental conflict of interest between Mrs. Grace, on the one hand, and the plaintiff and the Official Assignee, on the other hand, and it is a conflict which would preclude Mrs. Grace from acting as the plaintiff’s next friend. While counsel for the plaintiff conceded at the hearing that the facts surrounding that conflict are irrelevant to the plaintiff’s case, in my view, it is not something the court can ignore against the background of the admitted evidence of the plaintiff’s medical condition. Prior to his bankruptcy, in 1988, the plaintiff had transferred his dwelling house and 80-acre farm to Mrs. Grace and his daughter. In 1992 the Official Assignee instituted proceedings against Mrs. Grace and the plaintiff’s daughter, as I understand it, to set aside that transfer. Those proceedings have not been prosecuted to completion. Counsel for the plaintiff made the concession that those facts were not relevant in the context of an objection on behalf of the defendants that the conduct of the Official Assignee was not in issue and had not been pleaded. Obviously, that being the position and the Official Assignee not being a party to these proceedings, it would be improper to draw any inference from those facts as to why the proceedings were not prosecuted to completion and none is drawn. However, the precondition to entitlement to a discharge under s. 85(4) that the estate of the bankrupt has been fully realised, allied to the absence of the Official Assignee from the proceedings and to the conflicted position of the only witness in support of the plaintiff’s case, raises the question whether there is any evidence on which the court can conclude that the precondition is complied with, the onus being on the plaintiff to adduce such evidence. I will return to this question when dealing with the issue of locus standi and mootness because I consider it to be relevant to those issues.
The evidence which was regarded as relevant was evidence in relation to four actions in this Court which the plaintiff had initiated before he was adjudicated a bankrupt. The actions in question and the evidence adduced in relation to them were as follows:
(1) Proceedings by the plaintiff against Independent Star Limited and Others (Record No. 1990 No. 3720 P), being proceedings for libel arising out of articles published in the Star newspaper about the plaintiff in 1988. It is common case that this cause of action did not vest in the Official Assignee and that the plaintiff was entitled to prosecute it outside the bankruptcy proceedings. Mrs. Grace’sevidence was that the case was settled in 1993 for IR£20,000, but that it was settled without the plaintiff’s permission, which had ramifications to which I will return later. The evidence of Mr. Holohan was that he was informed by the solicitors on record for the defendants, Dillon Eustace, Solicitors, that the matter had been settled in 1993 for IR£30,000 together with legal costs.
(2) Proceedings by the plaintiff against Radio Telefis Éireann (Record No. 1990 No. 467 P), being proceedings for libel arising out of the broadcast by the defendant of material in relation to a newspaper article which was the subject of the proceedings at (1). It is common case that these proceedings have not been prosecuted to completion. Mrs. Grace’s evidence was that a decision was made in December, 2004, I am not clear by whom, that there was no point in proceeding. Mr. Holohan’s evidence, as a result of a contact he had with the solicitor who acted for the plaintiff in the proceedings, was that they “withered on the vine”.
(3) Proceedings by the plaintiff against Comhlucht na hÉireann um Arachas Cpt (Record No. 1990 No. 5910 P). In these proceedings the plaintiff was claiming damages for breach of contract and negligence arising out of alleged mismanagement by the defendant of the Town Hall Shopping Centre in Rathmines where the plaintiff ran a restaurant business between 1978 to 1989. Prima facie this cause of action would have vested in the Official Assignee. There is no evidence of any formal arrangement between the Official Assignee and the plaintiff in relation to it. However, like the proceedings referred to at (2) above, Mr. Holohan’s understanding from the solicitor who acted for the plaintiff in the proceedings was that they “withered on the vine”. Mr. Holohan further testified that these proceedings were investigated and the conclusion was that they were not viable.
(4) Proceedings by the plaintiff against Michael Cronin, practising under the style of Cronin & Company, Accountants, (1990 No. 17385 P). In these proceedings the plaintiff claimed damages for breach of contract and negligence against the accountant who handled his revenue affairs in the years between 1986 and 1989 in which he alleged that his indebtedness to the Revenue Commissioners was due to mishandling of his tax affairs by the defendant. By an assignment dated 10th March, 1992 the Official Assignee assigned the right of action to the plaintiff on the conditions set out in the agreement. Mrs. Grace disavowed any knowledge of the conduct or outcome of these proceedings. However, the evidence of Mr. Holohan was that the proceedings were dismissed in late 2004 for want of prosecution. I understand from Mr. Holohan’s evidence that the viability of these proceedings was assessed and that, while the conclusion was that there was some substance in the action, it was dependent on the evidence of the plaintiff which would not be forthcoming because of his medical condition.
Mrs. Grace testified that, as a result of the settlement of the libel action against Independent Star Limited and Others referred to at (1) above, the plaintiff initiated proceedings against the solicitor who acted for him in those proceedings some time in 1994 or 1995. The proceedings were settled in June, 2000 for IR£100,000 and the plaintiff did not have to pay any costs out of the settlement. Mr. Holohan testified that the Official Assignee was unaware of these proceedings or their outcome until Mrs. Grace testified in court in these proceedings. Mrs. Grace gave evidence of the disbursement of the sum of IR£100,000 by her on the plaintiff’s instructions. Apart from paying for a medical procedure, a cataract operation, which the plaintiff underwent, all of the monies were distributed to family members, Mrs. Grace, a daughter and two sons, in varying amounts.
The only preferential claims of which the court has evidence are claims aggregating €75,632.51 in respect of PAYE/PRSI, VAT and income tax, as claimed in a letter of 2nd June, 2005 from the office of the Collector General to the Official Assignee. No evidence was adduced as to the expenses, fees and costs due in the bankruptcy.
There was correspondence between the plaintiff’s solicitors and the Official Assignee in 1998 which indicates that, in the context of the proceedings against Michael Cronin referred to at (4) above, the plaintiff was then contemplating a composition with his creditors and again in 2001 and 2002, but nothing came of the correspondence or the proposal which was in contemplation.
Mrs. Grace accepted that after his adjudication, the plaintiff did not seek gainful employment for his own personal reasons, rather than because of any legal constraint. She was unable to say whether after to 1998 he was seeking a discharge, as opposed to a composition, because the subject of his bankruptcy and his dealings with the Official Assignee was a very fraught one, which, she implied, she was not eager to confront. In response to a question put to her in cross-examination, Mrs. Grace stated that the reason the plaintiff did not go through with the composition which was mooted in 1998 was probably due to the state of his mind.
What emerges from the evidence is that, on the basis of the information furnished in the letter of 2nd June, 2005 from the Collector General to the Official Assignee, is that the plaintiff’s preferential revenue debts amount to €75,632.51, whereas his non-preferential debts in respect of PAYE/PRSI, VAT and income tax amount to €1,001,169.50. While no finding can be made as to his ability prior to the institution of these proceedings to pay the preferential debts and the expenses, fees and costs of the bankruptcy, the latter not having been quantified, the fact is that following his adjudication the plaintiff he received either IR£120,000 (€152,368.57) or IR£130,000 (€165,065.95) from the settlement of two legal actions which he prosecuted. I will consider the relevance of this evidence in the context of the defence of locus standi raised by the defendants.
Before doing so or considering the substantive issues, however, I propose considering the authorities relied on by counsel for the plaintiff. While that may seem like “putting the cart before the horse”, I believe it is an approach which gives a useful perspective on the gravamen of the plaintiff’s case.
The authorities
In the context of his invocation of article 6 of the Convention, counsel for the plaintiff referred to four authorities of the European Court of Human Rights (ECHR). Article 6.1 of the Convention, insofar as it is relevant for present purposes, provides:
“In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitle to a fair and public hearing within a reasonable time by an independent and partial tribunal established by law …”
The first of the authorities referred to by counsel for the plaintiff was Luordo v. Italy [2003] ECHR 372. Counsel stated that he was relying on this decision only for the purpose of illustrating that bankruptcy proceedings are civil proceedings for the purposes of the Convention. The basis on which article 6.1 was invoked in that case was that during the bankruptcy, which lasted for fourteen years and eight months, under the Italian Bankruptcy Code the bankrupt’s legal proceedings concerning disputes over property issues arising in respect of assets forming part of the bankrupt estate were to be taken or defended by the trustee in bankruptcy and the bankrupt was precluded from intervening in such proceedings save insofar as they concerned an allegation of criminal bankruptcy or if permitted by law. The ECHR held that there had been an infringement of Article 1 of Protocol No. 1, which secures the right to peaceful enjoyment of possessions (para. 71). In relation to the article 6.1 argument it found that the restrictions on the applicant’s ability to take legal proceedings concerned disputes or issues of a pecuniary nature, so that the civil limb of article 6 was applicable (para. 84). Having stated that the “right to a court” is not absolute, the ECHR stated as follows at paras. 86 and 87:
“86. The Court considers that the purpose of the restriction on the applicant’s capacity to take legal proceedings is to assign the role of representing the bankrupt in Court in respect of issues arising over the bankrupt’s pecuniary rights to the trustee in bankruptcy as, once the bankruptcy order has been lodged, he is responsible for the administration of the bankrupt’s assets. Indeed, it is self-evident in the Court’s view that disputes over such matters may have major repercussions on the assets and liabilities of the bankrupt estate. The Court consequently finds that the restriction is intended to protect the rights and interests of others, namely those of the bankrupt’s creditors. The court must go on to examine whether the consequences suffered by the applicant were proportionate to the legitimate aim pursued.
87. The restriction on the applicant’s right of access to a court is not in itself open to criticism. However, the risk with such a system is that it may unreasonably limit the right of access to a court, particularly if the proceedings are protracted as they were in the instant case in which they lasted fourteen years and eight months. In that connection, referring to its findings with respect to Article 1 of Protocol No. 1, the Court considers that, contrary to what the Government have affirmed, the delays in the proceedings were not attributable to the failure of the attempts to sell the applicant’s house at auction or to the applicant’s conduct.
Consequently, it finds that there was no justification for restricting the applicant’s right of access to a court for the full duration of the proceedings, since while in principle a restriction on the right to take legal proceedings is necessary to achieve the aim pursued, the necessity will diminish with the passage of time. In the court’s view, the length of the proceedings thus upset the balance that had to be struck between the general interest in securing the payment of the bankrupt’s creditors and the applicant’s personal interest in having access to a court. The interference with the applicant’s right was accordingly disproportionate to the aim pursued.”
Accordingly, the court held that there had been an infringement of the right of access to a court as guaranteed by article 6.1.
By contrast to the bankrupt in the Luordo case, after his adjudication the plaintiff was entitled to prosecute proceedings against Michael Cronin on foot of the assignment of the cause of action by the Official Assignee to him. He had the right under ss. 38 to 41 of the Act of 1988 to enter into a composition with his creditors and it is clear on the evidence that he contemplated that initiative, and he also had the right to invoke the discharge provisions contained in s. 85. Under the Act of 1988 he was the driver of all those initiatives, not the Official Assignee or any other organ or agent of the State.
The second authority relied on by counsel for the plaintiff was Tierce v. San Marino [2003] ECHR 304. The article 6.1 issue in that case was the applicant’s contention that the length of the proceedings seeking termination of her lease and an eviction order against her for non-payment of rent (from commencement in March, 1993 to the decision on her appeal in October, 2001) had infringed the reasonable time principle enshrined in article 6.1. The ECHR reiterated the jurisprudence on the reasonable time principle (at para. 30) as follows:
“The Court reiterates that the reasonableness of the length of proceedings must be assessed in the light of the circumstances of the case and having regard to the criteria laid down in its case law, in particular the complexity of the case, the conduct of the applicant and of the relevant authorities and what is at stake for the applicant in the litigation …”
The court concluded that the length of the proceedings, which lasted for approximately eight years and nine months, was mainly due to the complexity of San Marino litigation procedure. It found that there had been a violation of article 6.1.
The next decision relied on, Davies v. United Kingdom [2006] 2 B.C.L.C. 351, concerned disqualification proceedings brought by the Secretary of State for Trade and Industry against the director of a group of companies (the Blackspur Group), which had gone into liquidation owing an estimated £34 million. The proceedings were commenced in July, 1992 and terminated in January, 1998 on the basis of a settlement under which the applicant agreed to pay the Secretary of State’s costs. Having stated that the reasonableness of the length of proceedings is to be assessed in the light of the circumstances of the case, having regard in particular to its complexity and the conduct of the parties to the dispute and of the relevant authorities, the ECHR continued (at para. 26) as follows:
“In the present case the court must also bear in mind that, given that the applicant was a company director and that disqualification proceedings would have had considerable impact on his reputation and his ability to practise his profession, special diligence was called for in bringing the proceedings to an end expeditiously …”
On the facts, the court found that the United Kingdom was responsible for the greater part of the delay. It considered that the proceedings against the applicant were not pursued with the diligence required by article 6.1 and that there had been a violation of that provision, in that his civil rights and obligations were not determined within a reasonable time.
The fourth authority relied on by counsel for the plaintiff, Eastway v. United Kingdom [2006] 2 B.C.L.C. 361, concerned an application for disqualification of another director of the Blackspur Group. The ECHR applied its decision in the Davies case.
Counsel for the plaintiff did not cite any authority to support the plea that there has been an infringement of article 13 of the Convention, nor did he cite any authority in support of his contention that the section 85(4) is repugnant to the Constitution. However, the basis on which Article 40.3 was invoked was that it guarantees a right to a speedy trial in the same way as the Convention guarantees such right. In other words, the plaintiff did not develop that constitutional argument independently of the argument based on article 6.1 beyond the position taken in the reply to the notice for particular referred to earlier.
As the main focus of the plaintiff’s submissions was on the Convention and the jurisprudence of the ECHR, rather than on the Constitution, I propose considering the case made on incompatibility with the Convention first. There was no debate before the court as to whether it is appropriate for the court to consider Convention issues or constitutional issues first.
Non-retrospectivity of the Act of 2003
It was submitted on behalf of the defendants that the decision of the Supreme Court in Dublin Corporation v. Fennell [2005] 2 I.L.R.M. 288 makes it clear that the Act of 2003 is not retrospective and that no declaration of incompatibility may be granted in proceedings in respect of an act which took place prior to the coming into operation of that Act. The defendants’ contention that the court has been asked to apply the Act retrospectively is based on an analysis which points to the commencement of the bankruptcy process in 1990 and the plaintiff’s adjudication in 1991, from which the legal disabilities of which the plaintiff now complains flowed, as being the events by reference to which the court should assess whether the invocation by the plaintiff of the Act of 2003 has a retrospective or a prospective effect.
I have no doubt that, if the plaintiff in these proceedings was seeking to challenge the validity of his adjudication as a bankrupt in reliance on the provisions of the Convention and the Act of 2003, he would not be entitled to do so. That situation would be entirely analogous to the situation which arose in the Fennell case where, on an appeal to the Circuit Court against an order of the District Court granting Dublin City Council possession of premises on foot of a notice to quit served pursuant to s. 62 of the Housing Act, 1966, both the notice to quit and the order of the District Court having preceded the coming into operation of the Act of 2003, Mrs. Fennell sought to invoke the provisions of the Act of 2003 and, in particular, ss. 2 and 3 thereof. Kearns J., with whom the other judges of the Supreme Court agreed, having examined the texts and authorities on the issue of retrospectivity of statutes, concluded (at p. 318) that the Act of 2003 cannot be seen as having retrospective effect or as affecting past events. He also concluded that, although the appeal to the Circuit Court was prospective in the sense that it still had to be heard, the provisions of the Act of 2003 could not be invoked on the hearing of the appeal, stating as follows at p. 319:
“The parties’ legal rights and obligations were, in my view, fixed and determined once the wheel was set in motion by the service of a notice to quit, an act which triggered the provisions, requirements and consequences of s. 62 of the Housing Act, 1966. That is the moment when the invocation of legal rights determined the applicable law and the position of the parties. The requirement to protect the respective positions of the parties thereafter is all the greater in a situation where vested rights are involved and where changes proposed by the 2003 Act are agreed to be substantive rather than procedural.”
The position here, however, is that the plaintiff is not challenging his adjudication. What he is challenging is the requirement in s. 85(4) of the Act of 1988 that his discharge from bankruptcy is dependent on provision having been made for the payment of the expenses, fees and costs during the bankruptcy, as well as the preferential payments as it currently applies to him. It is in respect of that requirement, as it impacts on him at this point in time, that he seeks a declaration of incompatibility with the State’s obligations under the Convention pursuant to s. 5 of the Act of 2003.
Section 5 was not in issue in the Fennell case. In determining whether, if the plaintiff was entitled to a declaration of incompatibility, the declaration would have retroactive effect, it is necessary to consider the effect of such a declaration. Sub-section (2) of s. 5 provides that a declaration of incompatibility shall not affect the validity, continuing operation or enforcement of the relevant statutory provision, nor does it preclude the making of representations in proceedings before the ECHR. Sub-section (3) provides that the Taoiseach shall cause a copy of any order containing a declaration of incompatibility to be laid before each House of the Oireachtas within the time span stipulated. Sub-sections (4) and (5) provide for the payment of ex gratia compensation to a party to the proceedings in which the declaration is made in respect of injury or loss or damage suffered by him or her as a result of the incompatibility.
If the plaintiff could establish that the impugned requirement in s. 85(4) is incompatible with the State’s obligation under the Convention, the declaration would only operate prospectively to require the Taoiseach to comply with sub-s. (3) of s. 5 and to entitle the plaintiff to pursue a claim for an ex gratia payment of compensation under sub-ss. (4) and (5). The declaration would not affect any legal rights and obligations of the plaintiff or any other party. For instance, the declaration would not disentitle the Official Assignee to the payment of the expenses, fees and costs due in the bankruptcy, nor would it disentitle the Revenue Commissioners to the preferential payments due. Accordingly, in my view, the making of a declaration of incompatibility would not have a retroactive effect and the plaintiff is not barred from pursuing it.
The claim for a declaration of incompatibility
The plaintiff’s claim for a declaration of incompatibility in reliance on article 6.1 of the Convention is utterly misconceived.
The plaintiff’s case is not that his “right to a court”, in the sense in which that expression was used by the ECHR in the Luordo case, has been infringed. His case is that the continuance of the bankruptcy proceedings, and his status as a bankrupt, infringes the reasonable time principle enshrined in article 6.1, to use the terminology which the ECHR used in the Tierce case. The State’s obligation in relation to the reasonable time principle is to ensure that the civil process is brought to a conclusion by a judgment within a reasonable time. The State’s obligation is explained in the following passage from Jacobs and White on The European Convention on Human Rights (Oxford University Press), 4th Edition, commencing at p. 187:
“The object of the provision in article 6(1) is to protect the individual concerned from living too long under the stress of uncertainty and, more generally, to ensure that justice is administered without delays which might jeopardise its effectiveness and credibility.
In civil cases there is usually no problem in deciding when the period to be taken into consideration commenced: this is usually the date on which proceedings were initiated, for example by the issuing of a summons or writ. … The period to be taken into consideration lasts until the final determination of the case, and therefore includes appeal or cassation proceedings, proceedings to assess damages or sentence, and enforcement proceedings. The State can be held responsible only for delays which are attributable to it; if the parties to the litigation or the defendant in a criminal case have caused or contributed to the delay, those periods are not taken into account.
The reasonableness of the length of proceedings is assessed in the light of all the circumstances of the case, having regard in particular to the complexity of the issues before the national courts, the conduct of the parties to the dispute and of the relevant authorities, and what was at stake for the applicant.”
The plaintiff’s case is not that the bankruptcy process has been unduly protracted because of dilatoriness on the part of organs or agents of the State, for example, this Court, the Official Assignee, the Revenue Commissioners in proving their claim and so forth. The plaintiff’s case is that on the expiration of twelve years from adjudication a bankrupt should be discharged from bankruptcy without being required to pay the expenses, fees and costs of the bankruptcy and the preferential payments. Such a case, which involves substantial interference with the rights of third parties, is not a case which can be advanced on the basis of the reasonable time principle enshrined in article 6.1.
It may be that, because of the requirement to discharge expenses and preferential payments as a precondition to being discharged from bankruptcy, the plaintiff has no prospect of being discharged and will remain a bankrupt for the remainder of his life unless, as counsel for the plaintiff put it, he wins the lottery. However, that circumstance does not render the requirement contained in s. 85(4) incompatible with article 6.1 of the Convention.
Although the plaintiff invoked article 13 of the Convention, no case was advanced on the basis of article 13.
Locus Standi
The rule in relation to locus standi in challenging the constitutionality of a statutory provision was summarised by Henchy J. in his judgment in Cahill v. Sutton [1980] I.R. 269 (at p. 286) as follows:
“The primary rule as to standing in constitutional matters is that the person challenging the constitutionality of the statute, or some other person for whom he is deemed by the court to be entitled to speak, must be able to assert that, because of the alleged unconstitutionality, his or that other person’s interests have been adversely affected, or stand in real or imminent danger of being adversely affected, by the operation of the statute.”
Applying that test, the Supreme Court held that the plaintiff, Ms. Cahill, was disentitled to raise the allegation of unconstitutionality of s. 11(2)(b) of the Statute of Limitations, 1957, which provides that an action claiming damages for breach of contractual duty, in which the damages claimed consist of or include damages for personal injuries, shall not be brought after the expiration of three years from the date of accrual of the cause of the action. The breach of contract alleged by Ms. Cahill occurred in March, 1968. Her proceedings commenced on 11th April, 1972, outside the limitation period. The basis of her contention that s. 11(2)(b) was invalid having regard to the provisions of the Constitution was the absence of any saver to the time bar which would be applicable to a situation where the would-be plaintiff did not know, and could not possibly have known, of the accrual of the right of action within the permitted period (cf. judgment of O’Higgins C.J. at p. 276). However, the factual position was that Ms. Cahill became aware of the breach of contract in 1968. On the basis of those facts Henchy J. stated (at p. 286):
“Even if the Act of 1957 contained the saving clause whose absence is said to amount to an unconstitutionality, she would still be barred by the statute from suing. So the alleged unconstitutionality cannot affect her adversely, nor can it affect anybody whose alter ego or surrogate she could be said to be. As to such other persons, although the statute was passed in 1957, the plaintiff is unable to instance any person who has been precluded from suing for damages because of the absence from the statute of the saving clause for which she contends. Therefore, her case has the insubstantiality of a pure hypothesis. While it is true that she herself would benefit, in a tangential or oblique way, from a declaration of unconstitutionality, in that the consequential statutory vacuum would enable her to sue, that is an immaterial consideration in view of her failure to meet the threshold qualification of being in a position to argue, personally or vicariously, a live issue of prejudice in the sense indicated.”
In applying the primary rule as to locus standi, as enunciated by Henchy J. in Cahill v. Sutton, to this case the question which arises is whether the plaintiff can assert that his interest has been adversely affected by the requirement in s. 85(4) that provision be made for the expenses, fees and costs during the bankruptcy, as well as preferential payments, before his entitlement to a discharge arises on the basis that the bankruptcy has subsisted for twelve years. It seems to me that the answer to that question depends upon whether he has established that, if that requirement were excised, he would be entitled to a discharge. While the plaintiff’s bankruptcy has subsisted for in excess of twelve years, there are other conditions to be complied with before an entitlement to a discharge would arise. I have already adverted to the fact that one condition, the precondition that the plaintiff’s estate has been fully realised, is of relevance in the context of mootness. I consider that, irrespective of the views of the parties that the conduct of the Official Assignee in prosecuting the proceedings to set aside the transfer by the plaintiff of his house and farm to Mrs. Grace and his daughter is irrelevant, the pendency of those proceedings is of relevance to the issue of the plaintiff’s locus standi, because their mere existence, prima facie, excludes the conclusion that the plaintiff’s estate has been fully realised. The plaintiff, on whom the burden of showing that he has standing rests, has not discharged the onus of establishing that a precondition to his entitlement to a discharge has arisen. Therefore, to adopt the words of Henchy J. in Cahill v. Sutton, his case “has the insubstantiality of a pure hypothesis”.
As well as relying on the rule as to locus standi as enunciated in Cahill v. Sutton, the defendants also submitted that the plaintiff lacks standing to challenge the constitutionality of s. 85(4) because he has not pursued all avenues open to him to secure his discharge from bankruptcy, by analogy to the position adopted by O’Hanlon J. in E. v. E. [1982] I.L.R.M. 497 and the implicit acceptance of the principle of exhaustion of other remedies by Barrington J. in Brennan v. Attorney General [1983] I.L.R.M. 449. In my view, there is substance in that submission. The proceeds of the two actions which the plaintiff settled could have been utilised in an attempt to procure a composition with his creditors. The Official Assignee’s proceedings to set aside the transfer of the house and farm could have been pressed with a view to procuring a discharge under s. 85(4) and to this end he could have sought the assistance of the court pursuant to s. 61(7) of the Act of 1988. Against that background, the plaintiff’s constitutional challenge, viewed objectively, seems to be particularly unmeritorious. If this Court were to entertain the plaintiff’s challenge, thereby allowing the plaintiff to by-pass remedies available under the Act of 1988 to enable a bankrupt to procure his discharge, I have no doubt that, to adopt the words of O’Higgins C.J. in Cahill v. Sutton (at p. 277) “it would result in a jurisdiction which ought to be prized as the citizen’s shield and protection becoming debased and devalued”.
It was also submitted on behalf of the defendants that, insofar as the plaintiff seeks to rely on particular legal consequences flowing from bankruptcy, such as his inability to set up a building society or stand for election to the European Parliament, the plaintiff has not established any evidential basis that these restrictions have a detrimental impact on his personal situation. That is so, as far as it goes. However, it is peripheral to the core issue on standing, which is whether the requirement in s. 85(4) of payment of the expenses and preferential debts constitutes a live issue of prejudice to the plaintiff’s interest. As I have found, it does not because, absent such requirement, as things stand the plaintiff could not procure his discharge.
For the foregoing reasons, I have come to the conclusion that the plaintiff does not have locus standi to challenge the constitutionality of s. 85(4).
Even if he had locus standi, I consider that the plaintiff’s invocation of Article 40.3 and his contention that the impugned statutory provision is an infringement of an implied requirement that legal proceedings be prosecuted and brought to a conclusion in a reasonably expeditious manner is as misconceived as his case founded on article 6.1 of the Convention.
Inequality
As I understand it, the inequality contended for on behalf of the plaintiff was inequality between the position of an undischarged bankrupt, who may be consigned to a perpetual state of bankruptcy because of inability to pay a preferential claim of the Revenue Commissioners, and the position of the Revenue Commissioners the payment of whose preferential debt is necessary to procure a discharge from bankruptcy, which was characterised as exceptional discrimination in their favour. The comment made on behalf of the defendants on that argument was that it appears to involve no more than an assertion of disequilibrium as between the individual citizen and the revenue authorities, which is not in any way constructed into or related to any legal claim of infringement of the equality guarantee contained in the Constitution. In my view, that comment is justified. The plaintiff’s argument, which I must emphasise is wholly unconnected to the plaintiff’s case as pleaded, does not advance the plaintiff’s constitutional challenge or his assertion of incompatibility with the Convention.
In the circumstances it is neither necessary nor appropriate to express any view on the submission made on behalf of the defendants that the question whether a bankrupt who has failed to discharge certain debts and expenses should be released from the status of bankrupt after a particular period is a matter of policy for the Oireachtas and the policy should not be second-guessed by the courts.
Order
There will be an order dismissing the plaintiff’s claim.
Gill v. O’ Reilly and Co. Ltd. & Ors
[2003] IESC 202 (5 February 2003)
URL: http://www.bailii.org/ie/cases/IESC/2003/202.html JUDGMENT delivered on the 5th day of February, 2003, by FENNELLY J.
The appellant is a litigant in person. He was adjudicated a bankrupt in 1995. In 2001, he applied to the High Court to annul the order of 1995, which adjudicated him a bankrupt. McCracken J rejected his application. He has appealed to this Court.
The Bankruptcy Act, 1988 codified the law of bankruptcy in Ireland. Section 11 of that act lays down the procedure for adjudicating a person bankrupt. A creditor is entitled to present a petition to the High Court proving that a debt, in the form of a liquidated sum, of at least £1,500 is owing to him by a debtor domiciled in the State.
The appellant was adjudicated a bankrupt on 28th July 1995 on the Petition of Philip O’Reilly and Company Limited. (hereinafter called “the Petitioner”). Section 16 of the act allows a bankrupt, within three days (or such extended time as the Court allows) after service of the order of adjudication on him, to show cause to the Court against the validity of the adjudication.
The history of the matter, as set out in the judgment of McCracken J, is not in controversy and is as follows:
“Background to the Bankruptcy
The Bankrupt is a building contractor carrying on business at Newmarket-on-Fergus in County Clare and on 23rd July, 1993 the Petitioner obtained judgment against him in the Circuit Court in the sum £8,523.90 together with interest at Courts Act rates from 1st January, 1994 to 14th March, 1994 and costs, which total sum under the judgment amounted to £10, 935.86. The Bankrupt made two payments to the Petitioner subsequent to the judgment on 18th March, 1994 and 18th July, 1994 amounting in all to over £2, 000.
The Petitioner then issued a bankruptcy petition which is dated 26th July, 1994 but was not in fact filed until 21st October, 1994 and which was presented to the Court on 21st November, 1994. The petition claims that the Bankrupt committed an act of Bankruptcy in that.–
`The said John Gill has failed to pay to your Petitioner Philip O’Reilly and Company Limited the said sum of £8, 935.86 due as aforesaid and has failed to secure or compound for the same to the satisfaction of your Petitioner Philip O’Reilly and Company Limited following service upon the said John Gill on the 11th July, 1994 of a bankruptcy summons issued under seal of the High Court as your Petitioner has been informed and believes’
This petition was supported by an Affidavit of a Director of the Petitioner sworn on 12th August, 1994 which averred that the Bankrupt was and still is indebted to the Petitioner in the sum of £8, 935.86. This Affidavit is supported in the normal way by a schedule setting out the original sums due under the judgment and the payments made by the Bankrupt and further stating:
‘Neither your Petitioner, the said Philip O’Reilly and Company Limited nor any person or persons on its behalf hold or have ever held a bond, bill of exchange, promissory note or security for the debt referred to in the first schedule hereto. ‘
The matter was adjourned before the Bankruptcy Court on a number of occasions following the presentation of the petition on 21st November, 1994, and the Petitioner made eight further payments between that date and June 1995 amounting in all to £5, 000. The matter finally came before the Court on 28th July, 1995 when the Bankrupt was adjudicated. At that date there was a balance due to the Petitioner of £3,935.86
Following his adjudication, the Bankrupt filed a statement of affairs dated 31st October, 1995 in which oddly enough he did not list the Petitioner as a Creditor, but listed two unsecured Creditors namely, Clune Lynch Accountants at £2,400 and the Collector General at an estimated £8, 000. He also listed as a secured Creditor the Bank of Ireland for a sum just in excess of £100, 000 “.
Under section 44 of the act,
“subject to the provisions of this Act, all property belonging to [the bankrupt] shall on the date of the adjudication vest in the Official Assignee for the benefit of the creditors of the bankrupt. “
As provided by section 61 of the act,
“the functions of the Official Assignee are to get in and realise the property, to ascertain the debts and liabilities and to distribute the assets in accordance with the provisions of [the] act. “
By a Notice of Motion issued on 8th October 2001, the bankrupt applied to the High Court for:
“Liberty to enter the Defendant’s application against the decision to adjudicate the Defendant Bankrupt by the Adjudicator in the herein bankruptcy matter dated 28th July 1995, which the Petition was entered and duly lodged by the Petitioner on or about 14th of March 1994… “
McCracken J decided to treat this Notice of Motion as an application under section 85(5) of the Bankruptcy Act, 1988 for an order annulling his adjudication on the basis that he should never have been adjudicated a bankrupt. Section 85(5) provides as follows:
“(5) A person shall be entitled to an annulment of his adjudication –
(a) Where he has shown cause pursuant to Section 16, or
(b) In any other case where, the opinion of the Court, he ought not to have been Bankrupt”.
It will be noted that the appellant had never sought to show cause against his adjudication.
McCracken J also dealt with certain debts in the bankruptcy, but there has been no appeal against his order in respect of these matters.
It appears that the appellant argued in the High Court that the evidence presented to the Court on the date of his adjudication was incorrect, going so far, indeed, as to claim that the affidavit used was perjured. This contention was based on the failure to adjust for the payments which were made against the debt due to the Petitioner over the period from the original presentation of the Petition in March 1994 up to 28th July 1995. This was, of course, entirely misconceived and McCracken J correctly pointed out that the grounding affidavit was correct at the time when it was sworn. Furthermore, and more crucially, the Petitioner’s solicitors’ letter from their Town Agent of 17th July 1995 records that counsel informed the Court on that day that the amount then outstanding was £3,902.44. Although the Petitioner wished to proceed with the Petition, the judge allowed one further adjournment to 28th July 1995. All these adjournments were, of course, in ease of the appellant, to enable him to reduce the debt. For the purposes of the Petition, it was enough that he owed £1,500, a fact which the appellant does not contest.
The appellant went on to argue in the High Court that the Petitioners had security for the debt. McCracken J referred to some correspondence cited by the appellant in purported support of this argument. It is quite clear that, as McCracken J correctly held, there was no such security. At the most, the appellant was trying to buy time over a number of years and to persuade the Petitioners that the money due to them would be forthcoming. None of this, as McCracken J correctly held, had any impact upon the liability for the outstanding debt due on the date of adjudication.
McCracken J, having considered the merits of the application, held that he should not entertain it, in any event, because of the delay by the appellant of more than five years in bringing the application. He pointed out that:
“During that time the Bankrupt has been in communication with the Official Assignee’s office regularly both personally and through his solicitor and never raised the complaints which he now makes. When he was adjudicated he did not avail of the provisions of Section 16 of the Bankruptcy Act, 1988 which provides that the Bankrupt may within time show cause against adjudication and in effect he has consented to the Official Assignee taking possession of his assets. “
McCracken J cited the earlier decisions of the High Court: In the Matter of Sean Hussey (Hamilton P. Unreported 23rd September 1987); O’ Maoileoin v the Official Assignee (Laffoy J. Unreported 21 st December 1999). In the former case, Hamilton P (as he then was) held:
“I am satisfied the [the bankrupt] is estopped by raising this or any other point with regard to his original adjudication at this stage. The time for making objections as to the adjudication of Bankruptcy is on the motion to show cause and not at this stage of the proceedings. “
McCracken J concluded:
“I am quite satisfied that a delay of over five years in the present case was both inordinate and inexcusable, and 1 am further satisfied that the balance of justice is certainly against allowing this application, by reason of the advanced stage which has been reached in the Bankruptcy. “
In his notice of appeal from the judgment and order of McCracken J, the appellant puts forward grounds which may be summarised as follows:
1. The figures before the Court on 28th July 1995 were incorrect;
2. The appellant had, through his solicitors given the Petitioner “guarantees and undertakings, promissory notes and assets…. and a guarantee of a cash payment…. that the balance due and owing namely ;C3,904.86 would be available on 01” July 1995…; “
3. The appellant had got permission from the Official Assignee to negotiate settlements with his creditors;
4. That the Examiner/Adjudicator was negligent in adjudicating him bankrupt;
5. On the date of adjudication, the figure used was £8,935.76, which was incorrect;
6. there was not good reason to adjudicate him bankrupt because there were sufficient assets available to pay the debts;
7. A proper statement of affairs was not available on the day of adjudication.
Clearly, several of these grounds are irrelevant and unsustainable: it was the Court that adjudicated the appellant a bankrupt; no question of a statement of affairs arises on the day of adjudication. Section 19(c) of the Act requires the bankrupt to file a statement of affairs after adjudication. As McCracken J said in his judgment, the appellant filed a statement of affairs on 31 s` October 1995. Even granting the greatest possible latitude to the appellant, the only meaningful point that can be extracted from the grounds of appeal is the suggestion that assets were made available or could have been made available to satisfy the debt. The appellant has sought by a motion to introduce new evidence to expand on this argument. He has, in the meantime, dispensed with the services of his solicitors, who were not in Court for the hearing of the appeal. The burthen of the complaint is that the solicitors were negligent, or even in collusion with the Petitioner, and that the order adjudicating the appellant a Bankrupt should not have been made: there were sufficient assets to discharge the debt. Both the solicitors and the Petitioner were fully aware of this. The appellant has sworn in the affidavit used to admit allegedly “new vital and important evidence ” that he was “made BANKRUPT by the negligence and misconduct of my former legal advisers.. “
It is important not to forget the fact that the appellant seeks to rely, many years after his adjudication in bankruptcy, on material of which he necessarily must have been aware at the time. Hence, his motion should be defeated on the ground of delay and the allegedly new evidence was not new: he has been aware of it at all relevant times.
However, even assuming that the Court should give the appellant the benefit of considering the substance of his case, it is clear that it is entirely devoid of merit. The appellant fully and clearly accepted at the hearing of the appeal that, at the date of the adjudication, a sum of more than £3,000 remained unpaid to the Petitioners. The failure to pay this sum, on demand, amounted to an act of bankruptcy. Whether the appellant had other assets is irrelevant. If he had, it was up to him to use them to pay the debt. Nor does it avail him to blame his former solicitors. Any complaint of the bankrupt against his solicitors is a matter between him and them. This is not to imply that there is any merit in the allegations made, simply that it is irrelevant to the present case.
Finally, I would say that, even if there were merit in the appellant’s case, it would certainly be defeated on the ground of delay. In the case of Re Sean Hussey, mentioned above, it was established that there were several technical defects affecting the correctness and regularity of the original adjudication; in that case there was a delay of only two years, before the application for annulment. Hamilton P said:
“However, I am satisfied that it is not open to the Bankrupt to rely on this point at this stage to have the adjudication of a bankruptcy annulled.
He did not raise the point on the motion to show cause, allowed the bankruptcy to proceed, allowed the realisation of the assets to proceed, allowed the proof of debt sittings to proceed, allowed the interim dividend herein before referred to to be paid, negotiations with his creditors for the purpose of making an offer of composition after bankruptcy and generally the bankruptcy to proceed in the ordinary way, and allowed the Official Assignee to continue to fulfill his statutory functions in this regard from the date of adjudication.
1 am satisfied that he is thereby estopped from raising this or any other point with regard to his original adjudication of bankruptcy is on the motion to show cause and not at this stage of the proceedings. “
The machinery of bankruptcy commences with the adjudication and the automatic vesting of the bankrupt’s assets in the Official Assignee. Creditors are restrained from pursuing remedies for their debts other than through the bankruptcy. The appellant submitted his statement of affairs and took no step to show cause against the bankruptcy itself. Matters took their normal course. The realization of the estate of the bankrupt proceeded in the normal way. Assets were investigated and creditors proved their debts. The Official Assignee entered into a contract for the sale of part of the property of the bankrupt. This cannot be undone without extremely compelling reasons. None exist in this case.
In my view, the learned High Court judge was correct to refuse the application. The application to admit new evidence in this Court is also without merit. The suggested evidence is not new and, further, is not such as would affect the outcome of the appeal. It is irrelevant. It cannot be admitted.
In my view the appeal should be dismissed.
Re Gorham.
[1924] 2 IR 46
Pim J.
K. B. Div. (I. F. S.)
An adjudication in bankruptcy changes the status of the person adjudicated, and rights and interests arise with which, except in a very special case, it would be dangerous and wrong to interfere. This present case is an example of the injury that might be done, for if the bankruptcy be now annulled, certain rights arising under a post-nuptial settlement will become effective, and the consequence will be that the creditors will get nothing. That, however, is not in itself a reason for refusing to annul the bankruptcy, but it is a reason why the Court should be slow to do what the bankrupt now asks.
Both Mr. Blood, on behalf of the bankrupt, and Mr. Price, on behalf of the assignee, have referred me to sect. 358 of the Irish Bankrupt and Insolvent Act, 1857 (20 & 21 Vict. c. 60), and to sect. 10 of the English Bankruptcy Act of 1869 (32 & 33 Vict. c. 71). The section of the Irish Act is as follows (I quote the relevant words only): “If the bankrupt shall not (if he were within the United Kingdom at the date of the adjudication) within one month after the advertisement of the bankruptcy in the ‘Dublin Gazette’ . . . have commenced a suit to dismiss the petition, or to dispute or annul the adjudication, and shall not have prosecuted the same with due diligence and with effect, the ‘Gazette’ containing such advertisement shall be conclusive evidence in all cases as against such bankrupt, and in all suits brought by the assignees for any debt or demand for which such bankrupt might have sustained any suit, that such person so adjudged bankrupt became a bankrupt before the date and filing of the petition for adjudication.”Sect. 10 of the English Act is as follows: “A copy of an order of the Court adjudging the debtor to be bankrupt shall be published in the ‘London Gazette,’ and shall be advertised locally in such manner (if any) as may be prescribed, and the date of such order shall be the date of the adjudication for the purposes of this Act, and the production of a copy of the ‘Gazette’ containing such order as aforesaid shall be conclusive evidence in all legal proceedings of the debtor having been duly adjudged a bankrupt, and the date of the adjudication.”
Mr. Blood, in comparing these two sections, contended that the words, “shall be conclusive evidence in all legal proceedings of the debtor having been duly adjudged a bankrupt,” made the”Gazette” also conclusive evidence that there had been a legal act of bankruptcy, on the ground that he could not be duly adjudged a bankrupt without such act of bankruptcy; and he further contended that, inasmuch as the Irish section did not contain the word “duly,” the Court was not bound to assume that a legal act of bankruptcy had been committed. I cannot agree with counsel’s contention. The words of the Irish Act are:”That such advertisement shall be conclusive evidence that such person so adjudged bankrupt became a bankrupt before the date and filing of the petition for adjudication.” To be a bankrupt before the filing of the petition necessarily involves an act of bankruptcy, which the Court must assume to have been proper as a ground for the adjudication. The section further enacts that all suits to annul an adjudication, if brought after the proper time, are to be null and void. The first contention of the bankrupt was that the Court had inherent jurisdiction to annul a bankruptcy, even though the time for appealing had elapsed. It could be argued from the words I have already quoted from sect. 358 of the Irish Act that the Legislature had destroyed this power in the Irish Courts in all cases; but I doubt if the section can be stretched so far. I am prepared to hold that in a proper case in Ireland, as in England, the Court has power, no matter what time may have elapsed, to annul a bankruptcy. The whole question is whether the case is a proper one. In Ex parte Geisel, In re Stanger (1), Lord Justice Cotton asked the question, “Does sect. 10 apply at all to an application to annul an adjudication?” but neither he nor any other of the learned Lords Justices who heard the case answered the question. I think, in England, at all events, the question is apt, and I wish it had been answered. In any event, whether the answer be in the affirmative or negative, the section cannot be neglected by the Court when the question whether the case is a proper one for amendment is before it. One case, and one case only, of the annulment of a bankruptcy after the time for appealing had gone by has been quoted to me; it is the case of Ex parte Geisel (1),to which I have already referred. In that case a bankruptcy petition had been presented on the ground that the bankrupt had absented himself from his dwelling-house with intent to defeat and delay his creditors. Some time after the adjudication an application was made to the Probate Division to grant probate of a will executed by the bankrupt, and the Division presumed him to have been dead on and since a date anterior to the bankruptcy petition. The Lords Justices annulled the bankruptcy on the ground that they were not satisfied that the bankrupt was alive at the date of the alleged act of bankruptcy. This seems to me to have been a proper case for the exercise of the inherent jurisdiction of the Court. A dead man cannot commit an act of bankruptcy; neither can he be adjudicated a bankrupt.
The only other cases that occur to me are those in which a bankruptcy had been obtained by fraud, or where the bankruptcy was an abuse of the process of the Court: see Ex parte Painter, In re Painter (2). But when the cases in which such applications have been refused are looked at, the matter becomes, to my mind, entirely free from doubt. In the case of In re West (3) the bankrupt was a minor, and at that time a minor could not be made a bankrupt unless he had fraudulently concealed or misstated his age. This the bankrupt had not done. The Court refused to annul the bankruptcy. In Ex parte French, Re Trim (1) the Court of Appeal held that the proved insufficiency of the petitioning creditor’s debt was not a reason for annulling a bankruptcy. And in In re Johnson, Ex parte Wigg (2)Sir James Bacon, it being alleged that the bankrupt was not a trader, and therefore could not be adjudicated, refused to consider the question of whether he was a trader or not, and declined to annul the adjudication after it had been advertised in the “Gazette” in the usual way and the time had elapsed.
In all these cases the complaint made was a matter of substance. In the case before me it is, at most, a matter of procedure. It seems to me to be much less strong than any of the three cases I have quoted. As a result I am satisfied that I should not annul the present bankruptcy. The application therefore fails, and must be dismissed with costs.
Secretary of State for Work & Pensions v Balding
[2007] EWCA Civ 1327 (13 December 2007)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2007/1327.html
Cite as: [2008] WLR 564, [2008] 3 All ER 217, [2007] EWCA Civ 1327, [2007] BPIR 1669, [2008] 1 WLR 564
LORD JUSTICE MUMMERY :
The issue on the appeal
This appeal is about the relationship between the provisions of the Insolvency Act 1986, as amended, (the 1986 Act) for the release of bankruptcy debts on the discharge of a bankrupt and the provisions of the Social Security Administration Act 1992 (the 1992 Act) empowering the Secretary of State for Work and Pensions to recover overpayment of social security benefits by deductions from prescribed benefits.
Mr John Balding, who brought these judicial review proceedings and is the respondent to this appeal, claimed and received income support over a number of years. Investigations revealed that he had failed to make disclosure of material facts about his residence at 32 Glencoe Avenue, Leicester and the mortgage interest payable in respect of it. He had been paid too much benefit. On 6 July 1994 an Adjudication Officer determined that the sum of £8680.45 was recoverable from him in respect of the period 19 March 1991 and 29 March 1993.
The calculation of the amount of the overpayment and obligation to pay it back was clearly explained to Mr Balding in the following letter from the Benefits Agency dated 17 October 1994:
“Income Support
We have paid you too much
Dear Mr Balding,
The Adjudication Officer has looked at your claim for Income Support. He has decided that we paid you £8680.45 too much income support from 19 March 1991 to 29 March 1993. This is because you failed to disclose that you were no longer liable to pay the mortgage on your former home. The Adjudication Officer has also decided that you have to pay this money back to us.
The table I have sent you with this letter shows you how the Adjudication Officer worked out this amount.
Adjudication Officers are people who decide whether the law says you are entitled to benefit or not. They also decide how much benefit the law says you are entitled to.
The Adjudication Officer’s decision is written on the sheets Adjudication Officer’s Decision in the words of the law.
If you think the decision is wrong.
You have the right to appeal. The sheet with the Adjudication Officer’s decision on it also tells you how to appeal.
If you do not want to appeal against this decision
Please pay back the £8680.45 as soon as you can.”
Rather than comply with the request to pay the money back Mr Balding appealed. His appeal was unsuccessful, save that in its decision of 8 December 1995 the Leicester Social Security Tribunal re-calculated the amount of the overpayment as £8335.35.
While the appeal was pending Mr Balding had presented his own bankruptcy petition on 15 June 1995. On the following day he was declared bankrupt by order of the Leicester County Court. Three years later, on 16 June 1998, Mr Balding was discharged from his bankruptcy. In the meantime the Secretary of State began recovery by way of deductions from prescribed benefits payable to Mr Balding. The deductions from prescribed benefits continued at the rate of about £7 per week after his discharge from bankruptcy, though this was not continuous because for some time he was not in receipt of prescribed benefits from which a deduction could be made. The bulk of the overpayment had still not been recovered by the Secretary of State when Mr Balding asserted that his liability to make repayment to the Secretary of State had been wiped out as a “bankruptcy debt” on his discharge from bankruptcy under the 1986 Act. The outstanding balance was over £7,500. Mr Balding was declared bankrupt for a second time on 7 August 2003, but his second bankruptcy has no bearing on the issue in this appeal.
The Secretary of State disputed Mr Balding’s claim that the right of recovery had ceased on his discharge from bankruptcy, contending that the determination of the Adjudication Officer under section 71(1) did not create a “bankruptcy debt.” There was a continuing right of recovery under section 71(8) of the 1992 Act by means of deductions from prescribed benefits. The Secretary of State argued that the effect of the authorised deductions was that he paid to Mr Balding his net entitlement to benefit under the statutory social security scheme.
On 12 September 2006 Mr Balding commenced his legal challenge by way of judicial review to the decision of the Secretary of State on this point. He succeeded in the Administrative Court, which quashed the Secretary of State’s decision in letters dated 14 June and 18 July 2006 that he had a right to continue to recover overpayment of income support by deductions from Mr Balding’s prescribed benefits. The court also made a mandatory order requiring the Secretary of State to pay to Mr Balding any sums that were withheld by way of purported recovery of the overpayment from 16 June 1998 onwards. It indicated that no interest was payable on such sums. The case is reported in [2007] 1 WLR 1805.
The Administrative Court granted permission to appeal, as the case raised an important question which the Court of Appeal should consider.
The Legislation
The relevant provisions of the 1986 Act and the 1992 Act are all fully cited by Davis J at paragraphs 13 to 23 of his judgment. Instead of unnecessary repetition, I shall summarise them, quoting the precise legislative language where relevant to the disputed questions of construction.
The judgment also contains a careful review of the authorities. They make it clear that the right of the Secretary of State to make deductions continues after the onset of bankruptcy but, as Davis J correctly observed in paragraph 40, they are not decisions on the effect of discharge from bankruptcy on the right to make deductions. The authorities do not answer, or help us to answer, that question.
In general, a “bankruptcy debt” is released when a bankrupt is discharged: section 281 of the 1986 Act. This does not apply if the debt was incurred in respect of any fraud or fraudulent breach of trust. No fraud was alleged against Mr Balding.
As a general rule and except in so far as the context otherwise requires, a “bankruptcy debt” means a liability to pay money, “including any liability under an enactment”: section 382(4) of the 1986 Act.
Under section 71 of the 1992 Act the Secretary of State is entitled to recover overpayments of income support benefits made as a result of misrepresentations or failure to disclose material facts. Recovery may be by deduction from prescribed benefits. This method of recovery is “without prejudice to any other method of recovery”: section 71(8). The determined overpayment is also recoverable by execution issued from the county court as if it were payable under an order of that court: section 71(9).
The judgment
For the reasons stated in his excellent judgment Davis J, with whom Laws LJ agreed, held that Mr Balding had been released from his liability to repay the overpayment. The Court quashed the decision of the Secretaryof State that he had a continuing right to recover overpayment of income support by means of deduction from prescribed benefits after the discharge of Mr Balding’s bankruptcy.
The court held as follows:
(1) As a result of the determination made by the Adjudication Officer under section 71(1) of the 1992 Act Mr Balding was under a liability to repay the overpayment of benefit. Davis J said “.the overpaid benefit was recoverable from Mr Balding just because, by reason of the determination, he was liable to repay the overpaid benefit” (paragraph 43).
(2) This was “a liability to pay money under an enactment” within section 382(4) of the 1986 Act and was therefore a bankruptcy debt. The fact that Mr Balding’s benefit entitlement was to the net amount after deduction did not displace the fact that there was a repayment liability under the 1992 Act (paragraph 44).
(3) The overpayment was recoverable by the Secretary of State from Mr Balding by two methods of recovery specified in section 71 “without prejudice to any other method of recovery.” Deduction from prescribed benefits was one of the methods of recovery specified in section 71(8). The other was by issue of execution from the county court: section 71(9). It was conceded that by the Secretary of State that, if he had sued Mr Balding for recovery of the overpayment as a debt, he could elect to prove for the debt as a creditor in the bankruptcy. Davis J commented that the liability to repay cannot be said not to be a “bankruptcy debt” if one form of recovery is adopted, but is a “bankruptcy debt” if another form of recovery is adopted (paragraph 46).
(4) The discharge from bankruptcy released Mr Balding from the liability under the 1992 Act for the overpayment of benefit. A bankrupt is released from all the bankruptcy debts on his discharge from bankruptcy: section 281 of the 1986 Act. The legislative policy is to wipe the slate clean and, broadly speaking, enable the bankrupt to make a fresh start (paragraph 48(i)). The case does not fall within any of the express exceptions to discharge, such as fraud. A liability to repay under section 71 is not listed in the exceptions to discharge in section 281.
(5) The Secretary of State had no entitlement to recover the overpayment by continuing to make deductions from the prescribed benefits payable to Mr Balding after his discharge from bankruptcy.
Submissions of the Secretary of State
In submitting that the decision under appeal was wrong Mr Kolinsky, who appears for the Secretary of State on the appeal (but did not appear below), contended that a determination under it was a public law decision or a decision “in a public law context.” This decision did not itself give rise to or create a liability to pay money under an enactment. There was therefore no bankruptcy debt capable of being released on the discharge of Mr Balding.
He argued that, on a careful analysis of section 71(1) of the 1992 Act, the determination of the amount of overpayment in fact declares that the overpaid benefit is recoverable for the purposes of the statutory recovery mechanisms in the remainder of the section. The determination is a pre-condition for taking action under the section to recover benefit. The two routes for recovery from the person who has been overpaid are distinct and have different legal consequences.
As for recovery through the county court under section 71(9), Mr Kolinsky accepted that, for these purposes, the amount sought to be recovered can be “equated to” a liability to repay the overpaid benefit and is tantamount to a debt which is capable of being proved in the claimant’s bankruptcy. He agreed that it followed that this debt would be released on Mr Balding’s discharge from bankruptcy. Mr Kolinsky then turned to the second route, which was followed by the Secretary of State in this case.
Mr Kolinsky submitted that, in the case of deductions from ongoing prescribed benefits payable to Mr Balding, a claimant in the position of Mr Balding is only entitled to receive the net amount of the benefit after the deduction is made. In such a case the determination does not create a liability to pay money under the 1992 Act. It is only a statutory pre-condition of the possibility of the Secretary of State taking action, if he is minded to do so, under the statutory scheme for making deductions.
Mr Kolinsky reminded the court that the Secretary of State has a discretion whether to enforce his entitlement to repayment: see B v. Secretary of State for Work and Pensions [2005] 1 WLR 3796 at paragraph 41. He is under no obligation to recover the amount of the overpayment once a determination has been made: R (Steele) v. Birmingham City Council [2006] 1 WLR 2380 at paragraph 17. He also has a discretion as to which method of recovery to adopt, county court enforcement or statutory deduction.
If, as happened here, the Secretary of State exercised his discretion to take the deduction route, which is tightly regulated by the Social Security (Payments on Account, Overpayments and Recovery) Regulations 1988, he is not enforcing a liability against the claimant to pay money under the 1992 Act. He is actually exercising his statutory power to pay the recipient no more than the correct amount of net benefit due to him under the applicable social security legislation. The Secretary of State is only legally obliged to pay the net amount of the benefit to the claimant. The Secretary of State’s exercise of the statutory power to make a net payment to Mr Balding is outside the regime and reach of the 1986 Act, as are the future prescribed benefits from which the deductions may be made.
When asked when and how Mr Balding became legally liable to repay the overpayment, if not under section 71(1), Mr Kolinsky submitted that there was no liability until there was a decision by the Secretary of State to recover the overpayment. Liability to pay then arose on the decision of the Secretary of State to recover it. Further, the decision of the Secretary of State to deduct a sum created a liability only for the amount of the deduction, not for the full amount of the overpayment. There was no liability to pay the whole amount of the overpayment.
In brief, the court below erred in treating the determination itself as creating a liability to pay money under an enactment in the same way as the right to sue for the recoverable overpayment as a debt in the county court. The more sensible and natural analysis of section 71(1) is that the determination is a pre-condition to making deductions. When deductions are made from future prescribed benefits under section 71(8) the Secretary of State is only obliged to pay the net amount of the benefit due to the claimant. This benefit falls outside the operation of the 1986 Act.
Discussion and conclusion
I have reached the same conclusion as Davis J for the reasons given in his comprehensive judgment. As Laws LJ recognised in his concise concurrence, there is not much left to discuss in another judgment. There is no point in appeal court judges saying things at length simply for the sake of saying something. What follows is a short statement of my reasons for rejecting Mr Kolinsky’s criticisms of the judgment under appeal.
It is common ground that section 71 of the 1992 Act provides the Secretary of State with two particular methods of recovering overpaid benefits. Both methods presuppose that the Secretary of State has a right to recover the amount determined under section 71(1). The same is true of other methods of recovery expressly preserved by section 71(8). It would be fatuous for Parliament to specify or preserve methods for recovering overpayments, unless the Secretary had a pre-existing right to recover the amount and the overpaid recipient was under a corresponding liability to repay the amount determined under section 71(1).
As for the method of recovery by registration of the overpayment as a debt recoverable in the county court, I think that Mr Kolinsky accepted that, if the Secretary of State pursued this route, there would be a bankruptcy debt which would be released on Mr Balding’s discharge from bankruptcy. Even if Mr Kolinsky did not accept it, it is plainly the correct position in law.
As for recovery by deduction from the prescribed benefits, this method also requires a prior determination of the amount of the overpayment which Mr Balding is liable to repay. If Mr Balding were under no liability to repay the amount in question, it would be futile to arm the Secretary of State with the means of recovery from him.
Further, there is no rhyme or reason in the proposition that, in the case of one method of recovery (the county court), there is a liability to pay money under an enactment, but in the case of the other method (deduction) there is no such liability. In both cases there is a liability to pay money under the 1992 Act. Neither the existence of the right to recover money nor the existence of a liability on the recipient to repay money is dependent on or determined by the available methods of recovery. The Benefits Agency’s letter quoted in paragraph 3 is consistent with this position, in demanding payment of the whole sum.
In my judgment, on the natural and ordinary meaning of section 71, a determination under subsection (1) creates a liability on the recipient to repay the amount overpaid, which is accurately described as a liability to pay money under an enactment (i.e. under the 1992 Act). Liability in this form did not arise under any contract or under any general legal liability to make restitution. This liability has arisen from the statutory determination. It is available as the basis of all methods of recovery. There are no grounds for holding that it is irrelevant for certain other purposes, such as those of the 1986 Act.
Finally, it does not follow from the fact that the Secretary of State has elected to recover the overpayment by the deduction method, rather than by any other method available to him, and to make a net payment of prescribed benefit to Mr Balding, that there was no liability under the 1992 Act on Mr Balding’s part to pay the amount stated in the determination.
Result
I would dismiss the appeal.
I add a statement of the obvious, which may not do any good, but will not do any harm. If, as may well be the case, Parliament thinks that the inability of the Secretary of State to recover overpayments by deduction from prescribed benefits after the discharge of a bankrupt claimant is unacceptable, it is within its power to remedy the legislative loophole. As it is plain under the current legislation that a liability under the 1992 Act to repay overpayments of income support is a “bankruptcy debt” within the 1986 Act, it is beyond the power of the courts to remedy the situation. It is not the role of the courts to perform the functions of Parliament.
Lord Justice Thomas:
I agree.
Lord Justice Lloyd:
I also agree.
Lehane -v- Farrell
[2016] IEHC 637
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF SECTION 85 OF THE BANKRUPTCY ACT, 1988 AS AMENDED
AND IN THE MATTER OF ANGELA FARRELL, A BANKRUPT
[Bankruptcy No. 2594]
BETWEEN
CHRISTOPHER D LEHANE (AS OFFICIAL ASSIGNEE IN BANKRUPT IN THE ESTATE OF ANGELA FARRELL, A BANKRUPT)
APPLICANT
AND
ANGELA FARRELL
RESPONDENT
JUDGMENT of Ms. Justice Costello delivered on the 14th day of November, 2016
1. By notice of motion in these proceedings issued on 1st July, 2016, the applicant, the Official Assignee, sought an order extending the bankrupt period of Ms. Angela Farrell, the respondent, by five years pursuant to s.85A(1) of the Bankruptcy Act, 1988 on the basis that the bankrupt had failed to co-operate with the Official Assignee in the realisation of the assets of the respondent or had hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the respondent. On 25th July, 2016, I made an interim order extending the bankruptcy of the respondent pending further order of the Court and determination of motion. This judgment relates to the hearing of the motion which took place on 10th October, 2016, and 1st November, 2016.
The Official Assignee’s case
2. The Official Assignee says that the respondent, Angela Farrell, was adjudicated a bankrupt by order of the High Court in Bankruptcy on 13th May, 2014. By virtue of the provisions of s. 85(1) of the Bankruptcy Act, 1988, as amended by s.10 of the Bankruptcy (Amendment) Act, 2015, she was due to be automatically discharged from bankruptcy on 28th July, 2016. He brought this motion in advance of her automatic discharge in order that her period of bankruptcy might be extended for a period pursuant to s.85A(1)(a) and (b). The subsection provides as follows:
“85A.—(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.”
3. The Official Assignee swore an affidavit on 30th June, 2016, setting out the details of the respondent’s failure to co-operate with the Official Assignee in the realisation of her assets and the fact that she had hidden from or failed to disclose to him income or assets which could have been realised for creditors of the respondent. In summary, he says that she did not disclose her address, or any address where she regularly could be contacted; she did not file a statement of affairs and she did not file a statement of personal information; she did not attend for interview with the Official Assignee; she was obliged to be summoned to court to be examined as to her assets pursuant to s.21 of the Act of 1988. While she furnished some information during the course of that examination, she subsequently refused to give the names and addresses of the alleged transferees of properties, the date of the alleged transfers, or any explanations for the transfer of assets previously owned by the respondent. As a result of information she provided to the Court, the Official Assignee was able to realise 2,558 shares held by the respondent in CRH plc. The proceeds of €68,592 have been paid into the bankrupt’s estate. He says that they would not have been identified and realised for the benefit of the estate creditors in the absence of the s.21 examination. He says he has no information as to her income or the source of her income which finances her living expenses and her legal expenses (incurred in various proceedings brought by the respondent) and therefore, he is unable to ascertain whether or not there is surplus income available for distribution to her creditors. He says that she refuses to acknowledge her adjudication as a bankrupt and refuses in any way to acknowledge his title to the assets in her estate or his right to information concerning her assets.
The respondent’s case
4. The respondent swore an affidavit on 30th September, 2016. It does not address any of the matters raised by the Official Assignee in his affidavit. At the hearing of the motion she did not contest any of these averments. Fundamentally her resistance to the application is based upon arguments that the order of adjudication of 13th May, 2014 is void and therefore, it is not binding upon her.
5. The respondent says that there are in fact no bankruptcy proceedings before the Court and in particular no proceedings bearing record number 2594. She says that the order of adjudication dated 13th May, 2014, in proceedings bearing record number 2594 are null and void and that as there are no bankruptcy proceedings in being, the notice of motion with which this judgment is concerned is not properly before the Court. The respondent submits that as the notice of motion is not properly before the Court, there are no proceedings before the Court and the Court did not have the power to make an interim order on 25th July, 2016. That being so, she says that even if there were bankruptcy proceedings in being, this application is now out of time as she was entitled to an automatic discharge from bankruptcy before this motion was heard and this judgment given. She also submits that the Court had no jurisdiction to make an interim order on the basis that the notice of motion did not seek any interim relief.
6. Most of the respondent’s submissions were directed towards the alleged nullity of the order of adjudication of 13th May, 2014. She argues that the petitioning creditor is not a creditor and that a fraud is being perpetrated. She argues that there have been multiple breaches or ignoring of the provisions of the Bankruptcy Act, 1988 prior to the order of adjudication of 13th May, 2014. In summary, she complains that there were numerous errors by the petitioner (who she says is not a creditor) and by the judge dealing with the bankruptcy list at the relevant time, the Central Office and various registrars in the period of 2013 to 27th May, 2014. As a result, she says she was never properly adjudicated a bankrupt; the order of 13th May, 2014, is a nullity; the Official Assignee has no title to any of her assets; she is not a bankrupt and therefore the provisions of the bankruptcy code do not apply to her; her assets were revested in her free from all claims by any creditors by order of the High Court of 17th February, 2014. The Court should not have any regard to the order of 13th May, 2014, which she says is void and a nullity and therefore these proceedings should be dismissed.
Discussion
7. The arguments relating to the validity (or invalidity) of the order of adjudication of 13th May, 2014, are all res judicata. The petitioning creditor obtained a judgment against the respondent on 21st September, 2010. The respondent sought to have this judgment set aside and on 14th November, 2013, Cooke J. refused to set aside the judgment. His order has never been appealed. Therefore the judgment stands. By virtue of the judgment the petitioning creditor must be recognised as a creditor of the respondent. Thus all of her arguments to the effect that the petitioner is not a creditor of the respondent are of no avail to her in this case.
8. Originally the respondent was adjudicated a bankrupt by order of the Court on 9th December, 2013. The respondent brought a motion to show cause seeking to annul the bankruptcy. However, the Court acknowledged that it had not considered the matters set out in s. 14(2) of the Bankruptcy Act, 1988 as amended by s. 147 of the Personal Insolvency Act, 2012 when it made the adjudication on 9th December, 2013. Therefore, on 17th February, 2014, the Court heard the notice to show cause and made the following order;
“The Court DOTH REFUSE to annul the Adjudication of Bankruptcy and DOTH DISMISS the said Application to show cause and in order to consider the matter set out in Section 14, Subsection (2) of the Bankruptcy Act, 1988 as amended by Section 147 of the Personal Insolvency Act, 2012
IT IS ORDERED that the said Order herein dated the 9th day of December, 2013 be set aside and that the hearing of the Petition of FCR Media Limited (formerly Truvo Ireland limited) bearing record number 833P for an order that Angela Farrell by adjudged Bankrupt in main proceedings in accordance with Article 3(1) of Council Regulation (EC) number 1346/2000 be adjourned unto the 24th day of March 2014
….And IT IS ORDERED that any and all the property of the said Angela Farrell which vested in the Official Assignee pursuant to the said Order of Adjudication be and the same is hereby revested in the said Angela Farrell.”
9. McGovern J., delivered a written judgment on 13th May, 2014, when he adjudicated the respondent a bankrupt. The judgment deals with the adjourned petition for bankruptcy brought by the petitioning creditor and notices of motion issued by the debtor, the respondent, seeking various reliefs in the bankruptcy proceedings. It is clear from his judgment that most, if not all of the matters complained of and the points raised by the respondent before me were in fact argued before McGovern J. and are dealt with in his judgment.
10. On 12th January, 2015, the respondent brought a notice of motion in bankruptcy proceedings Record Number 2594 seeking:
“1. An Order pursuant to Section 135 of the Bankruptcy Act, 1988 rescinding the order of Mr. Justice McGovern on the 13th and the 27th of May 2013 respectively.
2. A Declaration that s. 85(c)of the Personal Insolvency Regulations, 2012 makes an inseparable connection between the setting aside of the order of Bankruptcy on the 9th of December 2013 and its annulment
3. An Order of Annulment pursuant to Section 85C(1)(b) of the Bankruptcy Act, 1988 in respect of the order of bankruptcy dated 9th December, 2013.
4. An Order terminating Bankruptcy Proceedings.
5. An Order providing for interim damages.
6. An Order for damages to include general, exemplary and compensatory damages
7. Further and Other Relief as the Court deem meet.”
11. On 19th January, 2015, I made an order refusing the reliefs and dismissing the motion.
12. In the circumstances, the respondent has already raised or has had the opportunity to raise and have considered arguments which she says invalidates the entire bankruptcy procedure and the adjudication of bankruptcy of 13th May, 2014. These arguments have been heard, adjudicated upon and rejected by two judges of the High Court. Furthermore, there was an order of the High Court establishing the fact that the petitioning creditor was entitled to judgment against her and a judge of the High Court refused to set aside the judgment. Her remedy in respect of each of these orders of the High Court lay by way of an appeal. She is well aware of this fact and acknowledges the fact that she was informed on more than one occasion that if she was dissatisfied with an order of the High Court that her remedy lay in an appeal. She argues that as the orders according to her, are nullities, she is not obliged to appeal them and furthermore that no person may rely upon the orders, in particular the order of adjudication of 13th May, 2014. I reject this submission.
13. In addition, at the hearing of the application for an interim order on 25th July, 2016, I already ruled that the adjudication order of 13th May, 2014, was binding and valid.
14. As I have ruled that the order of adjudication of 13th May, 2014, in case number 2594 was valid and noting that the respondent never sought to appeal the order of adjudication, it must follow that the motion of the Official Assignee was properly brought in these proceedings pursuant to O.76, r.47 of the Rules of the Superior Courts. It follows from this conclusion that the court had power to make an interim order on 25th July, 2016. This order was made before the respondent was automatically discharged from bankruptcy. Consequently, the argument that the application is out of time must also be rejected.
Conclusion on the Issue of Extension of the Bankruptcy
15. In my judgment, there is considerable uncontroverted evidence which establishes that the respondent bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of her assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of her statutory obligations. There was a very limited degree of cooperation during the course of a s.21 examination but otherwise the attitude of the respondent could best be described as obstructive and uncooperative. Her refusal to acknowledge the validity of the bankruptcy and therefore her refusal in any way to cooperate with the bankruptcy process has continued to this day and, therefore, I will make an order pursuant to s.85A extending the period of bankruptcy in this case.
16. In the matter of Thomas McFeely, A Bankrupt [2016] IEHC 299, I considered the principles applicable in considering the duration of extension of bankruptcy. I applied the principles established by the decision of the Supreme Court in Killally (a bankrupt) v The Official Assignee [2014] IESC 76, where Mr Justice Clarke held that any extension of the bankruptcy period should be proportionate to the established wrongdoing. I held that graver breaches will attract a longer period of extension than lesser wrongs.
17. In my opinion, the wrongdoings of the respondent in this case established by the Official Assignee are grave. She has failed to cooperate in any meaningful way with the bankruptcy. She has placed obstacles in the path of the Official Assignee in contacting her. He has been obliged to serve her by way of substituted service on more than one occasion. He was obliged to summon her pursuant to s. 21 in order to obtain information from her. On the return date for the resumption of examination pursuant to s.21, she failed to attend. No explanation was forthcoming for her absence.
18. Ultimately, the Official Assignee decided that he would be in a position to make inquiries without further cooperation from the respondent and he withdrew the s.21 motion. As a result of limited cooperation by the bankrupt, certain assets were realised for the benefit of creditors of the estate. It would appear that the assets which were not disclosed by the respondent originally to the Official Assignee were charged in favour of secured creditors and, therefore, no benefit from these properties was ever going to accrue to the creditors of the respondent. While it is true that the Official Assignee has no insight whatsoever into the income of the respondent and, therefore, cannot say whether or not the respondent’s creditors have been prejudiced by her refusal to disclose her income, he did not lay great emphasis on this point.
19. The non-cooperation of the respondent was severe but the effect of the non-cooperation was not greatly to prejudice the realisation of her estate for the benefit of her creditors. In my opinion, this is a mitigating factor in her favour. When the Supreme Court says that the extension of the period of bankruptcy should be proportionate to the established wrongdoing, I take that to mean not merely the wrongful acts or omissions of the bankrupt but also the consequences to the creditors of the bankrupt. In this case, it has not been clearly established that the creditors have been gravely prejudiced by the admittedly egregious behaviour of the respondent.
20. I am also very mindful of the fact that the aim of the legislation is not only to deter the individual bankrupt from non-cooperation but also to deter others and to protect the public. As was acknowledged in the Killally case, an order may be made under s.85A which is solely penal in nature with a view to protecting the bankruptcy process in the jurisdiction.
21. In my judgment, there have been serious, multiple, continuous breaches and wrongdoings by the respondent during the course of her bankruptcy. It is important to maintain the integrity of the bankruptcy process and to encourage bankrupts to cooperate fully with the bankruptcy process. It has not been established that the acts or omissions of the respondent damaged her creditors, as opposed to the bankruptcy process. I am, therefore, of the opinion that while grave, this is not the most extreme case to come before the courts. I am empowered to extend the period of adjudication in this case for a period of up to five further years. In my opinion, the appropriate period of extension should be four years in the circumstances, and I, therefore, extend the duration of the bankruptcy of the respondent for a period of four years from the date when she would otherwise have been automatically discharged from bankruptcy by operation of law.
In the matter of John Gaynor (A bankrupt)
[2017] IEHC 27
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF SECTION 85 OF THE BANKRUPTCY ACT 1988 AS AMENDED
IN THE MATTER OF JOHN GAYNOR (A BANKRUPT – 3411)
JUDGMENT of Ms. Justice Costello delivered on the 23rd day of January, 2017
1. The Official Assignee in bankruptcy brought an application seeking an order extending the bankruptcy period of John Gaynor pursuant to s. 85A(1) of the Bankruptcy Act 1988 on the basis that the bankrupt had failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt or had hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt. If necessary he also sought an order pursuant to s. 85(3) of the Act that the bankruptcy period shall not stand discharged until the investigation and pending the making of a determination under the application.
2. The application was grounded upon the affidavit of Christopher Lehane, the Official Assignee, sworn on 24th November, 2016.
3. Mr. Gaynor (“the bankrupt”) was adjudicated a bankrupt on 7th December, 2015 by me on foot of a petition presented by his former solicitors Messrs. Noel Sheridan and Peter Quinn. The bankrupt brought an application to show cause against the adjudication. That application was dismissed by O’Connor J. on 20th April, 2016. The bankrupt argued that this order ought not to have been made on the basis that he was ill and O’Connor J. ought not to have proceeded with the application. I am unaware of the details of what occurred before O’Connor J. On the face of it, there is a valid order of the High Court which has not been set aside on appeal.
4. The bankrupt appealed the adjudication to the Court of Appeal. Apparently this was out of time. The Court of Appeal (Ryan P., Irvine and Fulham JJ.) dismissed the appeal on 10th October, 2016 on the basis that the appeal was bound to fail.
5. It follows that the order of adjudication stands as a valid order, though the bankrupt is apparently applying to the Supreme Court for leave to appeal.
6. In his affidavit of 24th November, 2016 the Official Assignee said that the bankrupt had completely failed to co-operate in the bankruptcy. His position is summarised by an e-mail of 1st February, 2016 where he stated “I reject the nonsense that I am a bankrupt”.
7. Initially he refused to co-operate with the bankruptcy inspector by giving him the necessary contact details. However, as the bankrupt wished to bring a show cause application, he arranged for the order of adjudication to be served upon him by consent on 1st February, 2016. That was the full extent of his co-operation in the bankruptcy.
8. On 10th December, 2015 the bankruptcy inspector sent the bankrupt a copy of a statement of affairs and a statement of personal information to be completed by him, as well as correspondence advising him of issues arising in his bankruptcy. As of the date of the hearing before me no statement of affairs had been filed and no personal information had been given to the Official Assignee.
9. The bankrupt did not attend for an interview in relation to his assets and he did not engage in any way with the process. On 17th October, 2016 the Official Assignee’s office wrote to the bankrupt stating as follows:—
“Failure to comply — reminder
I refer to your adjudication as a bankrupt on 7th December 2015 on foot of a petition brought by Noel Sheridan and Peter Quinn.
Our office has previously attempted to contact you in relation to fulfilling your statutory obligations as a bankrupt. An e-mail issued on 10th December 2015 informing you that you were adjudicated bankrupt and requesting that you submit to this office a statement of personal information and a statement of affairs. To date you have not returned these completed documents.
It is advised that your ongoing failure to co-operate with this office means that you are in breach of your duties pursuant to s. 19 of the Bankruptcy Act 1988 a copy of which I enclose for your reference.
Please complete the enclosed statement of affairs and statement of personal information and return to this office by Wednesday 26th October 2016.
Please be advised that if you fail to provide this information by Wednesday 26th October 2016, the Official Assignee will have no alternative but to consider taking legal action in this case (e.g. High Court application to extend your bankruptcy discharge period).
I trust that this will not be necessary but wish to remind you that it is the duty of the Official Assignee to ensure compliance with the legislation in the best interests of the creditors of your estate.”
10. The bankrupt did not reply to this letter and did not provide the information sought. On Thursday, 17th November, 2016 the bankruptcy inspector once again called to the bankrupt’s house in an effort to have him complete his statement of affairs and statement of personal information. The Official Assignee averred that the bankrupt refused to engage with the inspector.
11. In addition to his complete failure to co-operate with the bankruptcy process, the bankrupt failed to disclose any assets at all to the Official Assignee. The Official Assignee was advised by the petitioning creditors that the bankrupt has assets. The Official Assignee says that the bankrupt has land comprised in folios 5864, 2299, 2538, 11873F, 11874F, 10753 and 7609, all in the County of Westmeath. He further understands that the bankrupt has livestock, farm machinery and motor vehicles. He is unable to give any indication as to the value of these assets and whether or not they are encumbered. He states:—
“I do not have a proper picture of the assets of the bankrupt as he has not disclosed same in any way.”
12. At para. 10 of his affidavit he states:—
“I further say that my office understands that the bankrupt withdrew the sum of €46,567.41 from his bank account in the days immediately following his adjudication and those funds remain unaccounted for.”
13. Accordingly the Official Assignee sought the reliefs set out in his notice of motion on the basis of the non co-operation of the bankrupt and his non-disclosure of assets.
14. I am satisfied that the evidence adduced by the Official Assignee establishes a prima facie case of very grave non co-operation and a failure to disclose assets in this particular bankruptcy.
15. The first issue for the Court to consider therefore is whether the bankrupt has anything to say in relation to these matters. Far from seeking, albeit belatedly, to co-operate with his bankruptcy, the bankrupt persists in his obstruction and defiance of the process. The non co-operation continued in relation to service of proceedings. Niall Hayes, Bankruptcy Inspector, swore an affidavit of service of the papers on the bankrupt on 30th November, 2016. He stated as follows:—
“b. That I served a copy of the s. 85 motion papers by attempting to hand same to John Gaynor which he declined to accept. However I still managed to affect service by touching his shoulder and forearm with the s. 85A(1) motion papers at 1.40 pm on 29th November 2016 at Farthingstown, Rathconrath, Co. Westmeath, he having identified himself to me.
c. When the envelope containing the papers subsequently fell to the ground he took them up and threw them across the road, however I am fully satisfied that proper service was affected and John Gaynor was aware of what the papers were in the envelope. I was accompanied by a Garda from Ballynacargy Garda Station who witnessed this service.”
16. The bankrupt did not sweat an affidavit controverting any of the matters set out in the affidavit of the Official Assignee. He did not offer any explanation or excuse for his failure to complete a statement of affairs or a statement of personal information other than to insist that he was not properly adjudicated a bankrupt.
17. On the return day for the notice of motion, 5th December, 2016, the defendant produced an affidavit which he swore on that day and a document described as a notice of motion but which apparently had not been issued. He invited me to recuse myself from hearing any further matter relating to him. His grounds for the application were that I had a personal interest in the continuation of his bankruptcy and that he had not been afforded a proper or fair hearing when he was adjudicated a bankrupt on 7th December, 2015.
18. In relation to my alleged partiality, the bankrupt argued that the firm of solicitors in which my husband is a partner represented the Bank of New York Mellon “who owns much if not all of the equity of Teck Ireland Limited, a company granted a licence upon my lands without my knowledge.” The only information before the Court in relation to any creditor of the bankrupt was in respect of the petitioning creditors, his former solicitors, Messrs. Sheridan & Quinn. I had and have no knowledge of either the creditors of the bankrupt or the clients of my husband’s firm of solicitors. In those circumstances I ruled that this argument was not a proper basis upon which I should recuse myself from hearing the motion.
19. In relation to the allegation that he had not received a fair hearing when the petition for adjudication was heard on 7th December, 2015, the bankrupt had the opportunity to bring a motion to show cause and also appealed the order of adjudication to the Court of Appeal. If there had been merit in his second ground for asking me to recuse myself, he had the opportunity to raise the issue and have it considered by two different courts. His applications were rejected on both occasions. He may not relitigate the point now. As he himself said in his own affidavit, the Court of Appeal dismissed his appeal on the grounds that it was “bound to fail”. That conclusion necessarily implies that the hearing of the petition was not the unfair or biased hearing he has now alleged it to have been.
20. There is an obligation upon judges to recuse themselves in appropriate cases. This occurs as a matter of course relatively frequently. However there is also a duty on judges to hear cases that are assigned to them and not to accede to groundless applications to recuse themselves. Where an application is based upon alleged objective bias the test is whether a reasonable person with full knowledge of the facts would reasonably apprehend that the party seeking the recusal could not have a fair or unbiased hearing from that particular judge. Against this background I refused to recuse myself. On 5th December, 2016, due to the pressure of the work in the bankruptcy list, the motion could not be heard and I made an order directing that his bankruptcy should not be discharged until further order of the Court and adjourned the motion for hearing for one week. I did so in the knowledge that the list would be taken on that occasion by a different judge so he would have the opportunity to have the matter considered by a judge who had not previously dealt with his case notwithstanding the fact that I had refused his application to recuse myself.
21. In the event the bankrupt chose not to deal with the matter before my colleague who was taking the bankruptcy list on 12th December but instead moved an application for judicial review before Humphreys J. Humphreys J. refused that application. The motion listed in the bankruptcy list was adjourned to 16th January, 2017.
22. On 16th January, 2017 the matter again came before me in the bankruptcy list. On that occasion the bankrupt sought to subpoena the petitioning creditor and officials in the Central Office. I refused these subpoenas on the basis that they were directed towards challenging the validity of the adjudication and thus were not relevant to the matters before the Court.
23. In reply to the application of the Official Assignee the bankrupt sought to relitigate many of the points which had been dealt with at the hearing of the petition. He produced no evidence relevant to these points but he submitted:—
i. The application was improperly brought because the Official Assignee was not authorised to bring the application.
ii. The application was improperly brought because the Official Assignee had no authority to instruct counsel.
iii. The Court has engaged in a trespass and he referred to a hearing before Finlay Geoghegan J. This apparently referred to an order of possession made by Finlay Geoghegan J.
iv. The Court had breached the Bankruptcy Act in adjudicating him a bankrupt and had failed to have regard to his human rights.
v. The Court had formulated its own rules for bankruptcy.
vi. Other members of his family were involved.
vii. The Court had no jurisdiction to deal with a person who has no creditors. He had not been properly adjudicated a bankrupt.
viii. The motion to show cause had not been properly heard. Therefore he was still entitled to appeal his s. 16 application.
ix. He relied on the case of McGinn v. Beagan 2014 IEHC 344 and argued that the petition for his bankruptcy had been brought for an improper purpose.
x. He wished to complain about his former solicitor to the President of the High Court.
xi. The cause book in respect of which a judgment was obtained in 2003 (or as he said, had not been obtained) should be in court.
xii. He was in extremely bad health.
xiii. The Court had failed to comply with the provisions of s. 14(2) of the Bankruptcy Act, 1988, as amended, before he was adjudicated a bankrupt. He said the purpose of s. 14(2) was to give someone a chance to pay after the adjudication (emphasis added).
xiv. The order recording that I refused to recuse myself from hearing the application on 5th December, 2016 had not been perfected and therefore he had not been afforded an opportunity to appeal this decision. Accordingly the proceedings before me on 16th January, 2017 were flawed.
xv. He applied to adjourn the application to the President of the High Court.
24. These points are not relevant to the issues for decision on the Official Assignee’s motion. It is clear that the bankrupt is seeking to relitigate matters which either were dealt with before or were not originally argued by him or which, if valid, could have given rise to grounds for appealing the order of adjudication. I have ruled against some points (iii, ix, xi) and the Court of Appeal has taken the view that these and others are bound to fail (iv,v,vii,xiii). Some are unsustainable (i,ii,vi) or unsupported by any evidence (vi,xii). In any event I am bound by the fact that there exists a valid order of adjudication and I cannot go behind that order on the basis of the submissions of the bankrupt.
25. I do not believe that it is appropriate to adjourn the matter for hearing to the President of the High Court. The fact that the petitioning creditors in this case are solicitors is not sufficient reason to adjourn the matter to the President’s solicitors’ list.
The Law
26. Section 85A(1), (3) and (4) of the Bankruptcy Act 1988, as amended by the substitution of s. 157 of the Personal Solvency Act 2012, provides as follows:—
85A.- (1) The Official Assignee, the trustee in bankruptcy or a creditor or the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has-
i. failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
ii. hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(3) Where it appears to the Court that the making of an order pursuant subection (4) may be justified, the Court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the Court is satisfied that the bankrupt has-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
The Court may where it considers appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being no later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.
27. The order of adjudication in this case was 7th December, 2015. The bankrupt would have been discharged at midnight on 6th December, 2016, pursuant to the provisions of s. 85(1), the application of the Official Assignee was brought prior to that date and an order was made that the bankruptcy should not stand discharged by virtue of s. 85 until further order of the court on 5th December, 2016. Thus, I am satisfied that the application was brought prior to the automatic discharge of the bankruptcy in this case.
28. It is clear from the provisions of subs. (1) that the Official Assignee is authorised to bring the application. That being so, he is also authorised to instruct solicitor and counsel as he sees fit. I, therefore, reject any argument, to the effect, that he was not entitled to bring the application or to instruct counsel.
29. I am satisfied from the uncontroverted evidence of the Official Assignee in his affidavit of 24th November, 2016, that there has been a total failure of the bankrupt to cooperate with the Official Assignee in relation to the bankruptcy process. He has failed to comply with the duties of a bankrupt set out in s. 19(c) in relation to a statement of affairs. It is quite clear that he has failed to cooperate with the Official Assignee in the realisation of his assets and by definition has hidden from or failed to disclose to the Official Assignee any income or assets which could be realised for the benefit of the creditors of the bankrupt.
30. Of particular concern is the withdrawal of a significant sum of money from his bank account just days after his adjudication and the failure to account for any of the monies to the Official Assignee.
31. In all the circumstances, I am satisfied that it is appropriate to make an order that the bankruptcy shall not stand discharged by virtue of section 85.
32. The next matter for consideration is the duration of the extension of the bankruptcy period. In Killally (A Bankrupt) v. Official Assignee [2014] 4 I.R. 365, Clarke J. in the Supreme Court stated at para. 54:—
“…s. 85A of the Act of 1988 confers on the Official Assignee a jurisdiction to seek, and on the High Court a jurisdiction to impose, a postponement of the entitlement of a bankrupt to be discharged provided that the court is satisfied that a failure to cooperate or a hiding of or failure to disclose assets, in accordance with the terms of the section, has been established. That jurisdiction exists even though any wrongdoing thus established may be completed and, indeed, remedied.”
33. In McFeely (A Bankrupt) [2016] IEHC 299, I considered the decision in Killally (A Bankrupt) and noted that Clarke J. had emphasised that once a court is satisfied that there has been a failure to cooperate with the Official Assignee in relation to the bankruptcy or that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets that the extension of the bankruptcy period should be proportionate to the established wrongdoing. At para. 30 of my judgment, I stated:-
“The Oireachtas empowers the court to extend the period of bankruptcy up to the eighth year anniversary of the date of adjudication. The Oireachtas clearly contemplates a spectrum of such orders. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.”
34. In McFeely’s case, I took the view that the wrongdoings were at the very grave end of the spectrum. I did not extend the period for the full duration as I took account of the bankrupt’s age and I reduced the period by three months.
35. In Lehane v Farrell [2016] IEHC 637, I held that there had been serious multiple continuous breaches and wrongdoings by the respondent during the course of her bankruptcy. However, in view of the fact that it had not been established that the acts and omissions of the respondent damaged her creditors, as opposed to the bankruptcy process, I did not extend the period of bankruptcy for the full period open to the court. I extended the duration of the bankruptcy of the respondent for a period of four years from the date when she would otherwise have been automatically discharged from bankruptcy by operation of law.
36. In this case, there is limited evidence which establishes that the creditors have been prejudiced by the wrongdoings of the bankrupt, though the extent of that prejudice is not clear. In particular, the withdrawal of the sum of €46,567.41 from his bank account in the days immediately following his adjudication is a very grave matter. It would also appear that there are assets in the form of livestock, farm machinery and motor vehicles which could be realised for the benefit of his creditors. There are obviously folios of land in Co. Westmeath in which he is said to have an interest. Somewhat surprisingly, very limited information is before the court in relation to this. At the very least, it must remain a possibility that the failure to disclose these assets to the Official Assignee has resulted in further prejudice to the creditors of the bankrupt.
37. The conduct of the bankrupt in relation to his bankruptcy challenges the integrity of the bankruptcy process. It cannot be ignored by the court. The maintenance of the integrity of the bankruptcy process requires to be encouraged by the imposition of sanctions for breaches of the process, as was held by Clarke J. in Killally’s case following the decision in the High Court of McGovern J.
38. In this case the creditors of the bankrupt have suffered further losses over and above those they inevitably will suffer arising out of his bankruptcy by reason of his wrongdoings. He has not enabled any recovery to be made for the benefit of his creditors. He has deliberately hindered it by withdrawing €46,567 from his account. While this may not appear to be a very large sum in the context of the indebtedness of some estates-and possibly this estate also-the fact that the Official Assignee cannot identify any greater loss sustained cannot by itself be a ground to reduce the term of the possible period of postponement of the discharge from bankruptcy. That would be to permit the wrongdoer to benefit from his wrongdoing: concealing the existence and value of his assets. What is important from the perspective of the court is the degree of non co-operation and concealment of assets which has led to loss. The actual level of loss thereby caused to his creditors is a factor to be taken into account but it does not necessarily follow that a proved lesser loss to creditors will result in a shorter period of postponement of the discharge from bankruptcy, especially where the court knows that there is very little information available in relation to the assets of the bankrupt.
39. For these reasons I extend the duration of the bankruptcy of the bankrupt for a period of five years from the date when he would otherwise have been automatically discharged from bankruptcy by operation of law.
lRe: Webster ( A Bankrupt )
[2018] IEHC 41
THE HIGH COURT
BANKRUPTCY
[No. 3590]
IN THE MATTER OF SECTIONS 85 AND 85 (A) OF THE BANKRUPTCY ACT, 1988 (AS AMENDED)
BETWEEN
CHRISTOPHER D. LEHANE IN HIS CAPACITY AS THE OFFICIAL ASSIGNEE IN BANKRUPTCY
APPLICANT
AND
BREDA WEBSTER
RESPONDENT
JUDGMENT of Ms. Justice Costello delivered on 5th day of February 2018
Introduction
1. The applicant (the Official Assignee) has brought an application seeking to postpone the automatic discharge of the respondent (the Bankrupt) from bankruptcy pursuant to the provisions of s. 85A of the Bankruptcy Act, 1988, as amended, on the grounds that she has hidden from or failed to disclose to him assets which could be realised for the benefit of the creditors of the Bankrupt.
The facts
2. The Bankrupt petitioned for her own bankruptcy and she was adjudicated bankrupt on the 18th April, 2016. Her petition was accompanied by a statement of affairs sworn by the Bankrupt on the 30th March, 2016. There is a requirement in Part 1 of the statement of affairs to list the debts (if any) due to the debtor. This is marked not applicable in the statement of affairs. On the final page she states that her debts exceed her assets by the sum of €41,592.63. In fact, it was accepted that this was incorrect and the correct figure should have been €26,593.63.
3. Section 19 (d) of the Act of 1988 requires a bankrupt to “give every reasonable assistance to the Official Assignee in the administration of the estate”. It is standard practice for the Official Assignee to require all persons who are adjudicated bankrupt to complete a form described as a statement of personal information. This is not a statutory form but represents a reasonable manner in which the Official Assignee seeks to ensure the assistance of bankrupts in the administration of their estates. On p. 2 of the form it is stated that if the person requires any help to complete the form they should contact the bankruptcy division of the Insolvency Service of Ireland at the address, telephone number or email given on the form. It is accepted that the Bankrupt did not seek assistance in completing this form either from the Insolvency Service of Ireland or her solicitors. She therefore must accept the consequences of any errors she made in the information she furnished to the Official Assignee which might have been avoided had she sought guidance in completing the form.
4. The Bankrupt retired from her employment with the HSE in July 2015 upon reaching her 65th birthday. She was entitled to receive a lump sum payment. The sum of €72,460.34 was paid to her on the 1st September, 2015. By the time she presented her petition for bankruptcy and swore her statement of affairs these monies had been dissipated in the manner discussed below. It was not suggested that the sum should have been disclosed in the statement of affairs as it had been dissipated by the time of swearing that document. However, it was argued that failure to disclose this payment on p. 8 of the statement of personal information amounted to a wrongful omission on the part of the Bankrupt. Under the heading “Investments” each bankrupt is asked:
“Have you received any payment from an investment fund in the past five years?”
The answer given was No. It was not disputed by Mr. Lynch, solicitor, who appeared on behalf of the bankrupt, that she should have filled out this section by referring to the lump sum payment received on the 1st September, 2015. He accepted that a payment from an investment fund included a lump sum pension payment from her employer.
5. The statement of personal information also requested details of assets transferred within the last twelve months. The Bankrupt was requested to:
“Please detail all payments of money over €5,000, transfers of property to any creditor, or any charges created by you on property in favour of a creditor, in the twelve month period prior to your adjudication as a bankrupt.”
This part of the form was left blank by the Bankrupt and again it was accepted on her behalf that certain payments ought to have been disclosed in this section.
6. The bank statements of the Bankrupt disclosed four payments from her account which should have been disclosed in this section of the statement of personal information. These are:
(1) On the 10th September, 2016 she repayed a loan to AIB in the sum of €16,289.15.
(2) On the 16th September, 2015 she withdrew €5,400 which was used to repay a loan of €5,000 advanced to her by her brother on the 25th August, 2015 (the extra €400 was never explained).
(3) On the 17th September, 2015 she withdrew the sum of €12,500, which she used to purchase a new car. The car was included in her statement of affairs at an estimated value of €11,000.
(4) On the 18th December, 2015 she withdrew the sum of €12,703.50. This was used to pay the expenses she, her daughter and her grandson incurred attending the wedding of her son in New Zealand and other expenses, as explained below.
7. The Official Assignee became aware of the receipt of the pension lump sum and the payment of certain sums by the Bankrupt prior to the date of her adjudication from examination of her bank statements. On the 3rd August, 2016 a member of staff in the bankruptcy division of the Insolvency Service of Ireland wrote to the Bankrupt asking for an explanation of the four transactions identified above together with five other withdrawals; those being on the 10th September, 2015 in the sum of €4,000, on the 16th September, 2015 in the sum of €600, on the 25th September, 2015 in the sum of €3,000, on the 21st March, 2016 in the sum of €2,248.50 and on the 21st March, 2016 in the sum of €2,440.
8. The Bankrupt promptly replied to the letter and explained that the €600 withdrawn on the 16th September, 2015 was to pay for her car insurance and tax; the €3,000 withdrawn on the 25th September, 2015 was explained as “car bought for son plus insurance and tax as he is unemployed”; the €4,000 withdrawn on the 10th September, 2015 was to pay solicitor’s fees.
9. On the 24th March, 2017, Mr. Alex Mathews of the Insolvency Service of Ireland wrote to the Bankrupt raising further queries but these proceedings had issued before the Bankrupt had an opportunity to respond. The application herein was grounded upon an affidavit of the Official Assignee sworn on the 27th March, 2017.
10. On the 3rd April, 2017 I made an order pursuant to s. 85A (3) of the Act of 1988 that the matters complained of by the Official Assignee be further investigated and that the bankruptcy of the Bankrupt be extended pending the making of a determination on the motion. The matter was adjourned to the 8th November, 2017 to afford the Bankrupt an opportunity to reply to the affidavit of the Official Assignee.
11. She swore a replying affidavit on the 25th October, 2017. She confirmed that she repaid the loan to AIB in the sum of €16,289.15 on the 10th September, 2016 at a time prior to considering bankruptcy as a means of dealing with her debts. She corrected what she has stated in her letter to the Official Assignee regarding the payment of the 10th September, 2015 in the sum of €4,000. She stated that this was used to repay a Credit Union loan. She further explained that a payment of €2,000 made to Ms. Mairead O’Keeffe on the 16th October, 2015 was repayment of an advancement of monies provided by Ms. O’Keeffe to allow the Bankrupt to pay for urgent medical treatment which took place on the 24th August, 2014. It was not a loan for the repurchase of her motor vehicle, as had been suggested in correspondence from the Insolvency Service of Ireland.
12. In relation to the withdrawal of €12,703.50 made on the 18th December, 2015 she said this was used to pay for the flights to New Zealand so that she, her daughter and her grandson could attend her son’s wedding. It also covered the costs of accommodation , food, car hire and the extra fees required for an earlier flight to return to Ireland for health reasons.
13. She accepted that the sum included €5,000 to assist her son with the purchase of a house in New Zealand. She said at para.12 of her affidavit:
“I considered same to be a long-term loan or gift made for the purposes of assisting my son and facilitating his future needs. I say that I did not expect this loan to be repaid to me in the immediate future or at all and as such I did not include same on my statement of affairs. I say that this omission was a genuine error and was not made knowingly in an attempt to defraud my creditors or to avoid my obligations under the Bankruptcy acts.”
14. She further stated that part of the monies were used for renovations to the rented accommodation to which she moved following the surrender of her former family home. She said that the sum of €2,248.50 paid on the 21st March, 2016 was used to pay legal costs incurred in her application for bankruptcy.
Jurisdiction
15. The relevant provisions of s. 85A of the Bankruptcy Act, 1988, as amended, provide:
“(1) The Official Assignee … may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee …believes that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt…
(4) Where the court is satisfied that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date
(i) being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers just, or
(ii) being not later than the 15th anniversary of the date of the making of the adjudication order, which the Court considers just in view of the seriousness of the failure to co-operate referred to in paragraph (a) or the extent to which income or assets referred to in paragraph (b) where hidden or not disclosed, or both as the case may be.”
Application To The Facts In This Case:
16. The Official Assignee’s case is brought under s. 85A (4)(b). He alleges that the Bankrupt failed to disclose assets which could be realised for the benefit of her creditors. He raised queries in relation to sums totalling €59,181.15, which is a significant portion of the lump sum of €72,460.34. She repaid loans to AIB, her Credit Union, her brother and Ms. O’Keeffe in addition to the payment of legal fees. No real case was made that these were improper disbursements and represented assets which could be realised by way of recovery for the benefit of her creditors. The case made was that these payments ought to have been disclosed so that the Official Assignee could make his own assessment in relation to these matters.
17. The Bankrupt was criticised for failing to disclose the fact that in September 2015 she withdrew €12,500 in order to purchase a car for herself which she valued in her statement of affairs, seven months later, at €11,000. In other words, she purchased an asset for herself using the funds available to her rather than reducing her liabilities to other creditors. While there may be other issues arising from this conduct, I fail to see how this amounts to a failure on her part to disclose assets which could be realised for the benefit of her creditors. The car was disclosed. The fact that it had been bought in the relatively recent past, does not detract from the fact that monies had been expended and an asset acquired and the asset disclosed.
18. Two matters were not disclosed which should have been disclosed: the loan (or possibly gift) of €5,000 to her son in New Zealand to assist him in buying a house and the purchase of a car for €3,000 for another son, who is resident in Ireland. She was required to disclose this information to the Official Assignee upon which it would become a matter for him to assess whether or not these were assets which could be realised for the benefit of her creditors. Furthermore, the failure to disclose the loan of €5,000 to her son in New Zealand was a failure to properly complete the statement of affairs and therefore amounted to a breach of the statutory requirement of all bankrupts to complete a statement of affairs accurately within the time prescribed.
19. The statement of affairs was also incorrect insofar as the deficiency in the estate was recorded as €41,592.63 whereas it should in fact have read €26,593.63. This does not reflect a failure to disclose assets but rather a failure of mathematics in that the total value of her assets was incorrectly deducted from the total value of her liabilities.
20. Insofar as the bankrupt expended monies on herself or indeed her family in going to New Zealand or in removal expenses when moving from Donegal to County Tipperary, it is difficult to see how these could amount to assets which could be recovered or realised for the benefit of her creditors. Whether she ought to have expended such sums at a time when she was potentially insolvent is a different question.
Discussion:
21. In Killally (a bankrupt) v. the Official Assignee [2014] IESC 76, Clarke J. referred to a “significant failure” or “serious breach” of a bankrupt’s obligation to cooperate with the Official Assignee when considering the jurisdiction conferred on the court pursuant to s. 85A of the Act of 1988. In McFeely (a bankrupt) [2016] IEHC 299, I held at para.30:-
“The Oireachtas clearly contemplates a spectrum of such orders [extending the period of bankruptcy]. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.”
22. In Gaynor, a bankrupt [2017] IEHC 27 the bankrupt had concealed the existence and value of his assets from the Official Assignee and withdrawn the sum of €46,567 a few days after his adjudication. I regarded these as grave matters and extended the period of bankruptcy for a period of five years from the date when the Bankrupt would otherwise have been discharged automatically from bankruptcy in accordance with the law.
23. In this case it is important to distinguish between a failure to disclose assets and a failure to disclose payments. They are not necessarily the same thing. In this case the Official Assignee has established that there were two assets which were not disclosed to him by the Bankrupt: a loan of €5,000 to her son in New Zealand and a gift of a car purchased for €3,000 for her son in Ireland. The other payments which were not disclosed were not assets of the Bankrupt capable of being recovered for the benefit of her creditors. Thus, the established failure in this case is the failure to disclose a loan to one son in the sum €5,000 and the gift of a car purchased for €3,000 to another.
24. In determining an application brought pursuant to s. 85A it is appropriate to consider the conduct and attitude of the bankrupt and whether the established failure was wilful or deliberate. In McFeely I held, at para. 26:-
“In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs.”
25. In this case the bankrupt failed to disclose the two assets identified until they were raised by the Official Assignee in the initial correspondence of 3rd August, 2016. She replied within a fortnight and answered each of the queries raised by the Official Assignee. The Official Assignee was not satisfied with those replies but it was not until the 24th March, 2017 that he responded to her letter of August 2016. While I appreciate that his office required time to investigate her replies, the result was that she had no opportunity in which to respond further to that letter in view of the fact that the Official Assignee was obliged to bring this application, if it were to brought at all, prior to the date of her automatic discharge from bankruptcy which would have occurred on the 17th April, 2017. She cannot be criticised for not clarifying any questions that remained to be clarified prior to the bringing of the motion.
26. The Official Assignee was severely critical of her failure to disclose the receipt of the pension lump sum in her statement of personal information or the other matters I have identified. It is true that the obligation is on a bankrupt to disclose on a proactive basis the necessary information regarding his or her assets, liabilities and affairs and it is not sufficient simply to respond to queries from the Official Assignee. However, I do not regard the actions of the Bankrupt in this case to be either wilful or deliberate or to be designed to hide assets from the Official Assignee or to otherwise frustrate the realisation of assets for the benefit of her creditors. As I have said, only two assets with a maximum value of €8,000 which might have been realised for the benefit of her creditors were not disclosed. Her conduct was not persistent and ongoing, as occurred in McFeely. Unlike Farrell’s Case, she answered the Official Assignee’s questions promptly and, so far as has been established, truthfully. As I stated in Gaynor, at para.38:-
“What is important from the perspective of the court is the degree of non co-operation and concealment of assets which has led to loss.”
27. Taking all these factors into account, I do not regard the breaches of her obligations to fall on the grave end of the spectrum. Rather, I would place them at the lighter end.
28. In determining whether and, if so, for how long, the bankruptcy ought to be extended where there is an established breach of the obligations placed on a bankrupt the court is required to bear in mind the fact that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breaches, as was stated by Clarke J. in Killally.
29. Taking this into account, and having regard to the established non disclosure of assets and the conduct of the bankrupt responding to the queries raised by the Official Assignee, I believe that it is appropriate to extend the period of her bankruptcy, pursuant to the provisions of s. 85A (4) of the Act of 1988, for a period of nine months from the 17th April, 2017. In view of the fact that this period has been exceeded, the Bankrupt is entitled to an automatic discharge from her bankruptcy as of today’s date.
General discussion
30. My decision has been based upon the provisions of the Bankruptcy Act, in particular s. 85A, and the jurisprudence based upon that section. However, an analysis of this case does raise grounds for disquiet. The true deficit in the estate at the date of her petition was only €26,593.63. At the time the Bankrupt petitioned bankruptcy her only creditor was her mortgagee to whom she owed €149,682.63 in respect of a property she valued at €105,000.
31. The evidence established that in the seven months prior to the presentation of her petition she purchased two cars, one to replace her old car and one for her son, incurring an expenditure of €15,500 and she expended the sum of €12,703 paying for herself, her daughter and her grandson to attend the wedding of her son in New Zealand and advancing said son a loan of €5,000. The total of this discretionary expenditure came to €28,203. Had some or all of these monies not been expended in such a fashion then the Bankrupt would not have qualified to apply for bankruptcy. The final expenditure (the sum of €12,703) was incurred at or about the time that her personal insolvency practitioner, her solicitor Mr. Lynch, was to advise whether or not her debts could have been more appropriately dealt with by means of either a debt settlement arrangement or a personal insolvency arrangement. Prior to incurring this expenditure (or even a part of it) it might have been possible to reach an accommodation with her secured creditor and thereby avoid bankruptcy. It is a matter of concern that, whether innocently or otherwise, the Bankrupt in effect manufactured her own insolvency sufficient to meet the threshold for bankruptcy by entering into these relatively modest transactions.
32. While I have stated these reservations, it appears to me that they were not matters which could properly be taken into account in determining the application brought pursuant to s. 85A of the Act of 1988 and, therefore, I have not done so. It is the entitlement of debtors who are genuinely insolvent to seek a fresh start by means of petitioning for their own bankruptcy in appropriate circumstances. Nonetheless it is important that this is not abused or that debtors who do not in fact satisfy the statutory threshold do not petition for bankruptcy. In this regard the court must rely upon the diligence and vigilance of personal insolvency practitioners to ensure, as far as possible, that this does not occur when they are advising debtors in relation to their financial affairs.
Dunne, a Bankrupt, Re
[2017] IEHC 66
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF THE BANKRUPTCY ACT 1988 AS AMENDED
IN THE MATTER OF SEAN DUNNE (A BANKRUPT – 2478)
JUDGMENT of Ms. Justice Costello delivered on the 13th day of February 2017
The issue
1. This issue for decision is whether the bankrupt may cross examine the Official Assignee on affidavits he has sworn in an application brought by him pursuant to s. 85A of the Bankruptcy Act 1988.The Official assignee seeks an order pursuant to s. 85A(4) postponing the automatic discharge from bankruptcy of the bankrupt on the grounds that he has both failed to co-operate with the Official Assignee in the realisation of assets and has hidden from or failed to disclose to him income or assets which could be realised for the benefit of his creditors. He also seeks an order pursuant to s. 85A(3) directing further investigations into the matters complained of and that the bankruptcy period shall not stand discharged pending that investigation.
Order 76 rr73 and 76
2. The bankrupt argues that in fact he is entitled to serve a notice of cross examination upon the Official Assignee pursuant to O. 76, r. 73 of the Rules of the Superior Courts and that he does not require leave of the Court to serve such notice. This is disputed by the Official Assignee who argues that the matter falls to be decided under O. 76, r. 76 and that leave of the Court is required.
3. Order 76, rule 73 provides:—
“Wherever a witness has made an affidavit or deposition in support of any application or proceeding in the Court, any party to such application or proceeding may by notice require the attendance of such witness for cross-examination.”
4. On the other hand r. 76 provides:—
(1)“Any person wishing to require the attendance of the Official Assignee or any other officer serving in the office of the Official Assignee at any court or place to give evidence in their official capacity or to produce any records in their custody, shall first apply to the judge for liberty to do so…”
5. The bankrupt argues that the Official Assignee has brought the s. 85A proceedings himself and has sworn affidavits in support of his own application. He, the bankrupt, is not a person “wishing to require the attendance of the Official Assignee… to give evidence in their official capacity”. He therefore submits that the Official Assignee is (a) not a witness within the meaning of r. 73 and that (b) he is entitled to rely upon the provisions of r. 76. He says it follows that the bankrupt is entitled to rely upon the provisions of r. 73 and to serve a notice for cross examination on the Official Assignee without obtaining liberty so to do from the Court.
6. The issue has been considered in an earlier proceeding in this bankruptcy. In a judgment delivered on 6th March, 2014 in In the Matter of Sean Dunne (a bankrupt) [2014] IEHC 113 McGovern J. dealt with the bankrupt’s application to cross examine the Official Assignee in relation to affidavits he swore to ground his application for warrants of seizure pursuant to s. 28 of the Bankruptcy Act 1988. On that occasion the bankrupt argued that he was entitled to cross examine the Official Assignee pursuant to r. 73 and the Official Assignee argued that he was subject to the provisions of r. 76 and that he was not a “witness” within the meaning of r. 73.
7. McGovern J. accepted the submission of the Official Assignee and stated that the Official Assignee was not a witness within the meaning of O. 76, r. 73. He said “that is not to say that he is not, where appropriate, amenable to cross examination.”
8. The bankrupt sought to distinguish the situation between the current application and the one before McGovern J. in 2014 on the basis that this application related to an application under s. 85A to extend the period of bankruptcy whereas the previous case concerned an application for a warrant of seizure pursuant to s. 28 of the Act. He submitted that an application pursuant to s. 85A was of graver consequence and therefore could not be compared with an application pursuant to s. 28.
9. I can see no justification in the Rules of the Superior Courts for differentiating between the functions of the Official Assignee under different sections of the Bankruptcy Act and therefore of the application of different rules in the Rules of the Superior Courts to the Official Assignee. Rule. 76 is not qualified or ambiguous. The fact that it extends also to officials working in the Office of the Official Assignee indicates that the rule is concerned with the performance of the statutory obligations and functions conferred upon the Official Assignee. I can see no merit in an argument that there should be a distinction between the statutory powers or functions being exercised for the purpose of construing this rule. I accept the authority of McGovern J. In the Matter of Sean Dunne (a bankrupt) [2014] IEHC 113, and I therefore reject the submission of the bankrupt that he is entitled to serve a notice to cross examine the Official Assignee pursuant to O. 76, r. 73.
Liberty to cross examine the Official Assignee
10. Pursuant to r. 76, the Official Assignee may be cross examined with liberty of the Court. This was recognised by McGovern J. in the judgment referred to above. He considered the matter a month later in Re Sean Dunne (a bankrupt) [2014] IEHC 285 in a judgment he delivered on 10th April, 2014. At para. 11 he observed that anyone wishing to require the attendance in court of the Official Assignee or any other officer serving in the Office of the Official Assignee must apply to the Court for liberty to do so. He stated:—
“There are good public policy reasons for such a filtering process. It protects a court official from frivolous or vexatious applications which could have a significant impact on how he conducts the business of the court. The court should be sparing in the exercise of its discretion to order the attendance of the Official Assignee or one of his officers for cross-examination on affidavits sworn in bankruptcy proceedings.”
11. I had to consider whether to permit the cross examination of the Official Assignee under O. 40 r. 1 (not O. 76 r. 76) in proceedings against the bankrupt’s wife, in Lehane v. Dunne [2016] IEHC 96. Ms. Dunne brought a motion seeking to have the proceedings dismissed on the grounds of forum non conveniens. A number of affidavits were filed by Ms. Dunne and the Official Assignee and attorneys acting on her behalf and on behalf of the Trustee in Bankruptcy of the bankrupt in proceedings in the United States. Ms. Dunne brought an application for liberty to cross examine the Official Assignee and the Trustee’s counsel, Mr. Miltenberger. In Lehane v. Dunne [2016] IEHC 96 I noted that it was not necessary that the conflict on the affidavits be one of fact. At para. 15 I identified the task of the court in determining whether or not to permit cross examination of a deponent under O. 40, r. 1 of the Rules of the Superior Courts as follows:—
“[t]he Court must first identify the issues that fall to be determined on the Motion in respect of which the affidavits were filed. It is then necessary to consider any matters in the deponents’ affidavits which have been identified as giving rise to the need for cross-examination. These must then be assessed in light of the issues that must be determined on the Motion. If there is a conflict on the affidavits in relation to an issue that needs to be determined, can this issue be justly decided in the absence of cross-examination?”(Emphasis added)
12. In Dunne (a bankrupt) [2014] IEHC 113 McGovern J held that in order for the Court to decide whether or not to make an order that the Official Assignee be cross examined on his affidavits pursuant to O. 76, r. 76, it was necessary for the party seeking to cross examine the Official Assignee to set out on affidavit the matters on which he wished to cross examine the Official Assignee and why it was necessary for him to do so. In Irish Bank Resolution Corporation Limited v. Moran [2013] IEHC 295 Kelly J. ruled on an application to cross examine a deponent under O. 40, r. 1 stating at para 15:-
“It is incumbent upon an applicant for such an order to demonstrate (1) the probable presence of some conflict on the affidavits relevant to the issue to be determined and (2) that such issue cannot be justly decided in the absence of cross examination.”
13. As already stated, the application pending is for orders under s. 85A(3) and (4) of 1988 as amended. Section 85A(4) was amended by the Bankruptcy (Amendment) Act, 2015 but it is not applicable to the application before the Court. I therefore set out the section as inserted by s. 157 of the Personal Insolvency Act 2012:—
85A.—(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(2) An application under subsection (1) shall be made on notice to the bankrupt and where made by the trustee in bankruptcy or a creditor, notice shall also be given to the Official Assignee.
(3) Where it appears to the Court that the making of an order pursuant to subsection (4) may be justified, the Court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of
the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.
14. The Official Assignee is seeking an order pursuant to subs. (3) that the matters he complains of under subs. (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of s. 85.
The issue for determination on the motion
15. The issue that falls to be determined by the Court on the Official Assignee’s motion therefore is whether it appears to the Court that the making of an order pursuant to subs. (4) may be justified. A court may make an order pursuant to subs. (4) where the Court is satisfied that the bankrupt has (a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or (b) has hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of his creditors.
16. It is necessary then to consider the affidavit sworn in support of this motion to see what matters have been indentified as giving rise to the need for cross examination of the Official Assignee. The deponent must demonstrate the probable presence of some conflict on the affidavits relevant to the issue(s) to be determined.
The matters identified by the bankrupt upon which he seeks to cross examine the Official Assignee
17. The bankrupt swore an affidavit running to five and a half pages. At para. 5 he identifies that in the three affidavits sworn by the Official Assignee he makes a number of allegations against the bankrupt including noncooperation, failure to provide his address and the hiding of assets. He says, “In particular, the Official Assignee makes specific allegations in relation to the Lagoon Beach Hotel in South Africa, Walford, Shrewsbury Road, Ballsbridge, Dublin 4 and 19 Churchfields, Straffan, Co. Kildare.” He sets out averments in the affidavits of the Official Assignee and he recites how the Official Assignee has sought and obtained freezing orders against the Lagoon Beach Hotel in South Africa and has issued proceedings against his wife, Gayle Killilea Dunne and his son, John Dunne, amongst others “seeking to void bona fide transfers by me”. He says that as the proceedings have not been determined, the Official Assignee cannot in fact state that he has failed to disclose income or assets to the Official Assignee. He briefly outlines the Official Assignee’s complaint and his response in relation to Lagoon Beach Hotel, South Africa, Walford and 19 Churchfields, the K Club. He touches briefly on other matters in dispute relating to the US bankruptcy and he says that given the gravity of the application to extend his bankruptcy and the nature of the disputes between the parties it is equitable and just that the Official Assignee be made available for cross examination.
Decision
18. The bankrupt’s affidavit grounding the motion for liberty to cross examine the Official Assignee does not set out the matters on which he wishes to cross examine the Official Assignee or state why it is necessary for him to do so other than to say that it is equitable and just that the Official Assignee be made available for cross examination. He has not demonstrated the probable presence of some conflict on the affidavits relevant to the issue to be determined.
19. When the Court hears the s. 85A application it will not be determining issues as to the ownership of Lagoon Beach Hotel, Walford, or 19 Churchfields. It will not be determining the extent of the bankrupt’s co-operation with his trustee in bankruptcy in the United States. It will not be assessing the extent of the Official Assignee’s information in relation to the bankrupt’s estate acquired from sources other than the bankrupt. The Court is focused on the acts and, where relevant, the failures to act, of the bankrupt.
20. I have carefully read the affidavits of the Official Assignee sworn on 25th May, 2016, 15th November, 2016 and 25th January, 2017, and the two affidavits of the bankrupt sworn on 12th October, 2016 and 28th November, 2016 as well as the affidavits of Mr. James Birman, the bankrupt’s attorney in the United States and Mr. Timothy Miltenberger, the US Trustee in Bankruptcy’s attorney. The bankrupt in fact does not contest most of the facts in relation to his engagement with the Official Assignee set out in the affidavits of the Official Assignee. He relies to a large extent upon correspondence, transcripts and other documents to resist the Official Assignee’s application. I have not been able to identify conflicts on the affidavits relevant to the issues to be determined such that I could conclude that the issue cannot justly be decided in the absence of cross examination. The affidavit grounding this application does not assist in this regard.
21. I am not satisfied that there are disputes of fact which the Court will have to resolve when determining the application for orders under s. 85A(3) and/or (4). It will not be necessary for the Court to determine whether or not the Official Assignee was correct or indeed even reasonable in forming his belief as set out in his affidavits. The obligation is on the Official Assignee to bring an application before the Court grounded upon the facts which lead to his belief that the bankrupt in question has not co-operated with him or has hidden assets from him. The application is on notice to the bankrupt who is entitled to put before the Court such evidence as he or she sees fit. It is then for the Court to be satisfied on the totality of the evidence placed before it whether or not the bankrupt has co-operated with the Official Assignee or whether he or she has hidden assets from the Official Assignee as the case may be.
22. In submissions to the Court counsel for the bankrupt argued that cross examination was required as it would not be possible for the Court to decide the s. 85 application without deciding “where the truth lies”. He said the bankrupt requires to cross examine the Official Assignee in order to challenge the factual underpinning of his belief that the bankrupt has not co-operated with him or has hidden assets from him. It was submitted that the Court could not extend the period of bankruptcy without relying upon the opinion of the Official Assignee and that accordingly the bankrupt must be permitted to cross examine the Official Assignee to test the basis of that opinion.
23. He relied upon the decision of O’Donovan J. in Director of Corporate Enforcement v. Seymour [2006] IEHC 369. In that case an application was brought by the Director of Corporate Enforcement seeking the disqualification of the respondent as a director pursuant to s. 160(2) of the Companies Act 1990. The application was based upon a report of inspectors appointed under s. 8 of the Companies Act 1990 to investigate the affairs of National Irish Bank Limited and National Irish Bank Services Limited. The report was published by order of the High Court on 23rd July, 2004. In the report there were findings of improper conduct on the part of the two companies and findings as to the responsibilities of persons in the two companies for this conduct. The report was relied upon by the applicant in bringing the proceedings pursuant to s. 160. The respondent raised few if any material points of factual disagreement with the averments in the affidavits sworn on behalf of the Director but, he strenuously disputed all and any criticisms of his conduct in the report of the inspectors. The Director sought leave to cross examine the respondent on his affidavits. O’Donovan J. held:—
“The function of cross examination is to cast doubt upon the veracity, accuracy or reliability of evidence given by a witness. In this case, the issue to be determined by the court is… the commercial probity of the respondent’s conduct. In that regard, s. 22(b) of the Companies Act, 1990, provides that the report of an inspector appointed under s. 8 of the Act shall be evidence of the opinion of the inspector and, accordingly, it seems to me that, if that opinion is challenged, notwithstanding that the facts upon which the opinion is based are not disputed, the court is entitled to know the mindset of the challenger and, in my view, the only way that that can be ascertained is by confronting the challenger under cross examination.”(Emphasis added)
He concluded that in the absence of such a cross examination it would be difficult if not impossible for the trial judge to come to a reasoned conclusion with regard to the commercial probity of the respondent and accordingly the interests of justice required that such a cross examination be conducted. Counsel for the bankrupt urged that where there are disputes of fact on affidavit which the Court will have to resolve in order to reach its decision on the s. 85A application then these disputes can only be resolved by cross examination. For this reason he said it was necessary to cross examine the Official Assignee on his affidavits.
24. The decision of the Court does not involve any weighing of the belief of the Official Assignee expressed in his affidavits. As I have stated, it is for the court to be satisfied on the basis of all the evidence whether or not the Bankrupt has cooperated with the Official Assignee or as hidden assets or income from him. It follows that cross examination in relation to the conclusions of the Official Assignee or the inferences he draws from the facts he has put before the Court is not necessary for any issue which requires to be determined by the Court. Therefore the case of Director of Corporate Enforcement v. Seymour [2006] IEHC 369 does not assist the bankrupt in his argument. In fact it is authority for the proposition that the reliability and indeed reasonableness of the contrary views expressed by the bankrupt should be tested by cross examination but that does not arise in this application. In Seymour’s case, the person to be cross examined was the person whose conduct was to be assessed by the Court, in that case as to his commercial probity. In this application it is the bankrupt’s conduct which is under scrutiny not that of the Official Assignee, unless it can be said that the conduct of the Official Assignee provides an answer to the complaints made against the bankrupt.
Conclusion
25. The bankrupt has not demonstrated either the probable presence of some conflict on the affidavits relevant to the issues to be determined or that such issue cannot be justly decided in the absence of such cross examination. In view of the fact that the Court should be sparing in the exercise of its discretion to order the attendance of the Official Assignee or one of his officers for cross examination on affidavits sworn in the bankrupt proceedings, in the exercise of my discretion, I refuse the application to cross examine the Official Assignee on the affidavits sworn in support of the motion for relief under s. 85A.
McFeely, a Bankrupt
[2016] IEHC 299
JUDGMENT of Ms. Justice Costello delivered on 1st day of June, 2016
1. The bankrupt, Mr. Thomas McFeely, formerly of 2 Ailesbury Road, Ballsbridge, Dublin 4, is a well known former property developer in both Ireland and the United Kingdom. As with many property developers, he encountered severe financial difficulties and petitioned for his own bankruptcy in London and on 13th January, 2012, he was adjudicated a bankrupt in London. While a bankrupt he prepared a statement of affairs for his trustee in bankruptcy as he was required to do under the relevant insolvency legislation applicable in England and Wales. His bankruptcy in England was annulled on 15th June, 2012.
2. A creditor of Mr. McFeely petitioned for his bankruptcy within this jurisdiction. On 30th July, 2012, Dunne J. held that his centre of main interests was in Ireland and she adjudicated him a bankrupt in the state. At the date of his adjudication, his residence was 2 Ailesbury Road, Ballsbridge, Dublin 4, but the house was in the process of being repossessed and shortly thereafter NAMA took possession of the house.
3. Upon his adjudication as a bankrupt, all of his property and assets became vested in the Official Assignee. Mr. McFeely, as a bankrupt, became subject to various statutory obligations which are imposed upon all bankrupts pursuant to the Bankruptcy Act 1988, as amended. In particular, he became subject to the obligations set out in ss. 19 and 20 of the Act. The relevant sections provide as follows:-
“19.—The bankrupt shall—
(a) unless the Court otherwise directs, forthwith deliver up to the Official Assignee such books of account or other papers relating to his estate in his possession or control as the Official Assignee may from time to time request and disclose to him such of them as are in the possession or control of any other person;
(b) deliver up possession of any part of his property which is divisible among his creditors under this Act, and which is for the time being in his possession or control, to the Official Assignee or any person authorised by the Court or otherwise under the provisions of this Act to take possession of it;
(c) unless the Court otherwise directs, within the prescribed time file in the Central Office a statement of affairs in the prescribed form and deliver a copy thereof to the Official Assignee;
(d) give every reasonable assistance to the Official Assignee in the administration of the estate;
…
20.—(1) A bankrupt shall forthwith notify the Official Assignee in writing of any change in his name or address which occurs during his bankruptcy.”
4. It follows that the bankrupt was obliged to furnish the Official Assignee all of the documentation that he had in relation to his estate and insofar as there was documentation in the possession of third parties he was obliged to identify that documentation and the parties who had possession of the documentation to the Official Assignee. He was required to swear a statement of affairs which must disclose all of his assets. He was obliged to deliver up possession of all of his property to the Official Assignee. He was obliged to confirm his name and address. If during his bankruptcy he changes his address or leaves the jurisdiction, he is obliged to notify the Official Assignee.
5. The Act confers various powers upon the Official Assignee to enable him to carry out his functions and obligations under the Act. He is entitled to interview the bankrupt and persons who may have information relevant to the assets of the bankrupt and the realisation of those assets. If persons having relevant information do not assist the Official Assignee, he may bring an application for leave to have the individual examined by the court pursuant to s. 21 of the Act. Automatically upon adjudication a s. 27 warrant of seizure is granted to the Official Assignee which provides as follows:-
“27.—(1) The Court may by warrant direct the Bankruptcy Inspector or any of his assistants to seize any property of the bankrupt.
(2) An official acting under the warrant may seize any part of the bankrupt’s property in the possession or control of the bankrupt and, for the purpose of seizing any such property, may enter and if necessary break open any house, building, room or other place belonging to the bankrupt where any part of his property is believed to be.”
In addition, where there may be assets or records of the bankrupt on premises other than those of the bankrupt, it is open to the Official Assignee to apply for a warrant pursuant to s. 28 of the Act which provides as follows:-
“28.—Where it appears to the Court that there is reason to believe that any property of the bankrupt is concealed in any house, building, room or other place not belonging to the bankrupt, the Court may grant a search warrant to the Bankruptcy Inspector or any of his assistants, or other person appointed by the Court, who may execute the warrant according to the tenor thereof.”
6. Cooperation, first and foremost by the bankrupt, but by others also, with the Official Assignee is absolutely essential to the operation of the bankruptcy process. Quite simply, it cannot operate without the full cooperation of bankrupts. They have the information in relation to their estates and normally have possession of both the property and the relevant documentation or the relevant information and/or documentation is in the possession of their accountant, solicitor or other agents. It is essential to the integrity of the bankruptcy regime that the various obligations imposed by the Act on each bankrupt personally are observed and complied with fully and to the best of their respective abilities. There is no such thing as a minimum threshold of cooperation. It is for this reason that the Oireachtas has conferred a power upon the court to extend the period of bankruptcy and not to permit the automatic discharge from bankruptcy after the expiration of three (and now one) years from the date of adjudication where the court is satisfied that there has been either non-cooperation by the bankrupt with the Official Assignee in the conduct of the bankruptcy or there has been a failure to disclose assets or an attempt to hide assets from the Official Assignee. Section 85A(1) and (4) of the Act provides as follows:-
“(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt…
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.”
The application
7. This application was brought by the Official Assignee against the bankrupt pursuant to s. 85A of the Act. The initial grounding affidavit canvassed several instances of alleged non-cooperation on the part of the bankrupt but ultimately the application proceeded on the basis of three matters where the Official Assignee said that the bankrupt had not cooperated with him or had failed to disclose assets belonging to his estate or had sought to hide those assets. These are that:
(i) the bankrupt refused to furnish the Official Assignee with his actual address throughout the period of his bankruptcy;
(ii) the bankrupt failed to disclose his interest in seven apartments at a development referred to as Aras na Cluaine, he failed to hand over documents relating to those seven apartments and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.; and
(iii) the bankrupt failed to disclose his interest in units 12 – 16 Old Saw Mills Industrial Estate, Lower Ballymount Road, Dublin 12 , he failed to hand over documents relating to those five units and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.
The address of the bankrupt
8. At an interview with the Official Assignee shortly after his adjudication as a bankrupt in August, 2012 the bankrupt stated that his address was 258 Foreglen Road, Claudy, Co. Derry, Northern Ireland. It is common case and indeed was accepted by the bankrupt in his own affidavit that he did not reside at this address, it was his late parents’ home and it is currently owned by his brother. At the very most, he may have stayed there from time to time. It is not necessary to detail the many letters and e-mails that were opened to the Court showing that the Official Assignee was constantly seeking the bankrupt’s actual address. It is sufficient to note that the bankrupt can have been under no misapprehension that the Official Assignee required to know the address where he resided and not merely a postal address. One solicitor acting for the bankrupt stated that “[s]ince September 2009 [the Bankrupt] has spent his time living and working in London” and that the Derry address would suffice for correspondence. On one occasion it was referred to as his address for bankruptcy. In three affidavits sworn in response to this application he stated that he was from 258 Foreglen Road, Co. Derry, Northern Ireland, though each of the affidavits was sworn in London. In para. 42 of his affidavit sworn on 8th September, 2015, the bankrupt confirmed that for the entire duration of his bankruptcy he lived in London, apparently moving around and staying in different accommodation provided by benefactors whom he flatly refused to identify. All of this was either evidence directly from the bankrupt himself or evidence which was not controverted by the bankrupt.
9. The following conclusions emerge:
(a) The bankrupt gave an address to the Official Assignee as his address when in fact he never resided at that address. This did not comply with his statutory obligation.
(b) The bankrupt knew that the information he had given to the Official Assignee was false or at best misleading and at no stage sought to rectify this default and comply with his statutory obligation.
(c) The bankrupt was aware from numerous requests from the Official Assignee that he was constantly seeking his address and therefore was fully aware both of his statutory obligation to provide this information, and the fact that the Official Assignee continued to require the information. The bankrupt has refused on affidavit to state where he has resided in the past and where he currently resides.
This amounts to a knowing, deliberate breach of his statutory obligations. The breach has been continuous, deliberate and is ongoing.
10. In his defence, the bankrupt sought to blame the Official Assignee for the bankrupt’s failure to comply with the bankrupt’s statutory duties and obligations in this matter. He blamed the Official Assignee for not contacting him for more than a year after he had given him the address at Claudy, Co. Derry as his address, he blamed the Official Assignee for not seeking to visit him at the address in Derry (where he did not reside). Also he blamed the Official Assignee for not paying him to travel to Dublin to meet the Official Assignee as it would involve a trip to Ireland on the grounds of his lack of funds. All of these arguments are spurious and irrelevant. The bankrupt knew that he was not residing at that address in Derry and at all stages it was open to him to provide the correct address at which he was residing to the Official Assignee. Insofar as he is suggesting that he had no fixed abode for the three and a half years which elapsed since his date of adjudication to the date of the hearing of the motion, and therefore could not comply with the statutory obligation, I simply do not accept that this is credible in all the circumstances. The bankrupt gave evidence that he was working in London, completing a major building project and that he had the use of an apartment at the development. The bankrupt was the owner of many apartments and there is no reason to believe that he could not have resided in one of these. Far from being homeless, he was the owner of many residential properties and he has been careful not to state that he had nowhere to live.
11. In all the circumstances I am satisfied that there is very cogent evidence to the effect that the bankrupt has persistently refused to furnish the Official Assignee with his true residential address and continues to this day with his refusal.
Apartments at Aras na Cluaine
12. In November, 2012, the Official Assignee attended at the premises 1 Holles Street, Dublin 2. The freehold was owned by the bankrupt and a receiver had been appointed to the property. The premises had been leased for 25 years to Coalport Building Company Ltd., a company of which Mr. McFeely had been a director prior to his adjudication as a bankrupt in England. Coalport Building Company Ltd. acted as the agent of the bankrupt in relation to his property interests. The Official Assignee said that the receiver over the property invited him into the premises, though the leasehold interest of Coalport Building Company Ltd. was still subsisting. The Official Assignee and his assistants attended at the premises and removed documents from filing cabinets and two computers. The bankrupt objected strenuously to the admission of any of the material obtained as a result as evidence in these proceedings. I shall consider the question of the admissibility of the evidence below.
13. Amongst the papers seized were documents showing that the bankrupt was the owner of seven apartments which had not been disclosed by the bankrupt to the Official Assignee. There were leases signed by the bankrupt in respect of Apartments 93B, 184C and 185C dated respectively 13th December, 2011, and 1st April, 2012 (this latter being during the period when the bankrupt was bankrupt in England and Wales). There was a statement of account from Aras na Cluaine Management Company which referred to the bankrupt’s ownership of 21 apartments between 2006 and 2010. This listed 15 apartments which were notified to the Official Assignee but did not list the further seven apartments and a commercial/office unit at the front of the complex which had no number which had not been disclosed to the Official Assignee. The Official Assignee received an Aras na Cluaine Management Company management fee bill dated 1st April, 2012, and a statement of account in respect of the bankrupt’s 22 apartments and the outstanding management fees in respect of these apartments. He has paid these outstanding fees. The Official Assignee confirmed on affidavit that a receiver was appointed in 2014 by IBRC over the interest of the bankrupt in the 22 apartments and the commercial unit and that he provided all details in relation to the rent and tenants of the 22 apartments to the receiver. The bankrupt did not contest the authenticity of his signatures or deny the fact that he was the landlord of these properties. He said that third parties were beneficially entitled to the premises and, therefore, he was not under an obligation to disclose the interest he had in these premises to the Official Assignee.
14. Whether or not third parties were entitled to claim the whole or part of the beneficial interest in these premises, in no way alters the fundamental statutory obligation of the bankrupt to disclose to the Official Assignee the existence of his interest in these premises and to assist the Official Assignee in taking possession and control of the premises. The interest of the bankrupt in these premises had vested in the Official Assignee upon his adjudication. It is not for the bankrupt, in effect, to determine the validity of the third party claims which is the effect of his non-disclosure of his interest in the premises to the Official Assignee. That is a matter for the Official Assignee and ultimately, if necessary, the court. The Official Assignee was called upon to pay the management fees in respect of those apartments by the management company and he has discharged this debt. He has also worked with the Receiver appointed by IBRC over these apartments. It is thus clear that he has ample evidence of the bankrupt’s ownership of these assets obtained completely independently from the visit to 1 Holles Street, Dublin 2 and which the bankrupt never disclosed to him. Whether or not the evidence obtained by the Official Assignee at 1 Holles Street, Dublin 2 is admissible, which I shall consider below, I am satisfied that the Official Assignee has adduced evidence of the bankrupt’s interest in these properties which was not obtained as a result of his attendance at the premises of Coalport Building Company Ltd. and that the failure of the bankrupt to disclose his ownership of these seven apartments amounted to a very significant failure of cooperation with the Official Assignee in the administration of his bankruptcy and amounted to a failure to disclose his assets and an attempt to hide the assets from the Official Assignee.
Units 12 – 16, Old Sawmills Industrial Estate
15. The Official Assignee adduced evidence recovered from the premises, 1 Holles Street, as described above, which established that the bankrupt was the owner of Units 12 – 16 of the Old Sawmills site. The combined value of the units was estimated as between €750,000 to €1,000,000. There was a letter of loan offer from Bank of Scotland (Ireland) Ltd. to the bankrupt and Mr. Larry O’Mahony dated 20th September, 2004, which was to part-finance the acquisition of Units 12 – 16, Old Sawmills Industrial Estate, Lower Ballymount Road, Dublin 12. The offer was accepted by Mr. O’Mahony and the bankrupt. There was a memo on Coalport Building Company Ltd. headed notepaper recording that the bankrupt and Mr. O’Mahony were the owners of these units and that they intended to retain the property as an asset. There was a letter signed by Mrs. Mary McFeely for and on behalf of the bankrupt on his personal headed notepaper dated 26th June, 2006, stating that the units were owned by the bankrupt and Mr. O’Mahony. There was a lease for 10 years from 1st June, 2006, of Units 12 and 13 executed by the bankrupt and Mr. O’Mahony as landlord to Ms. Pauline Gibson. There was a lease by the bankrupt in his sole name of Unit 15 dated 1st September, 2009, for a period of 4 years, 9 months to Mr. Martin Laird of Autoview Cars Ltd. and there was a lease of Unit 16 dated 1st April, 2006, by the bankrupt and Mr. Laurence O’Mahony as landlord to Apex Tool and Plant Hire as tenant executed by the bankrupt.
16. In response to this claim, the bankrupt asserted that his brother was beneficially entitled to the properties and he asserted that he was entitled to only a 20% interest in the properties. It is, thus, clear from his own admission that he had an interest in these properties and this interest had vested in the Official Assignee regardless of the issue of the admissibility of the documents obtain from 1 Holles Street, Dublin 2. He was obliged to disclose the existence of this interest and it was a matter for the Official Assignee thereafter to realise the interest as he saw fit. It was not for the bankrupt to determine that the interest, in fact, was of no value. For the reasons I have set out in relation to the apartments at Aras na Cluaine, I do not accept that this amounts to an excuse I can accept for the breach of his statutory obligations to deliver up his property including documentation, to disclose information regarding his assets and to cooperate with the Official Assignee.
Failure to swear and file a statement of affairs
17. The Official Assignee also advanced his application to court based upon the bankrupt’s failure to swear and file a statement of affairs but he placed less emphasis upon this failure than those discussed already. Nonetheless, he drew that failure to the attention of the court. In response, the bankrupt stated that he had furnished the Official Assignee with a copy of the statement of affairs which he had prepared for his English bankruptcy and which he had furnished to his trustee in bankruptcy in England. As a matter of principle, this does not and cannot amount to compliance with the statutory obligation under the regime in this jurisdiction. That obligation extends to disclosing all the property of a bankrupt of which the bankrupt is aware. Mr. McFeely was aware of his interest in the properties at issue in these proceedings in Aras na Cluaine and the Old Sawmills. None of these properties are disclosed in the statement of affairs prepared for the English bankruptcy. Other than to say that, in effect, he had done enough by forwarding a copy of his English statement of affairs, Mr. McFeely has made no attempt to explain or excuse his failure for three and a half years to comply with this statutory obligation. This is in circumstances where he knew that the English statement of affairs did not disclose all his assets. It is a breach which stands proud of the three other complaints and applies whether or not the evidence obtained by the Official Assignee from the premises of Coalport Building Company Ltd. is admissible or not and applies whether or not the bankrupt has properly notified the Official Assignee of his address.
Section 85A application
18. The bankrupt asserted that the bringing of this application by the Official Assignee amounted to a decision and that the decision was flawed for a number of reasons. He said that the Official Assignee offended the rule nemo judex in sua causa. It is said that the conduct of the Official Assignee entitled the bankrupt to a dismissal of the application on the basis of objective bias and it was said that the conduct of the Official Assignee had “contaminated” the application. Each of these submissions, even if factually correct, which I am very far from accepting, was predicated upon a fallacy. The Official Assignee is not the decision-maker and therefore the legal principals relied upon have no application to his actions in this case. The Official Assignee has brought an application to court in order that the court may make a decision. The structure of the Act requires that the Official Assignee assesses whether or not there may be a case to answer by a bankrupt under s. 85A of the Act. The Official Assignee has no power to make the impugned decision. It is a matter for the court. The fact that he has made a recommendation to the court as part of the application does not alter the fact that it is solely a matter for the court. This was made clear by the Supreme Court in Killally (a bankrupt) v. The Official Assignee [2014] IESC 76 which is discussed more fully below.
19. Insofar as it is argued that the decision to bring the application before the court attracts these administrative and procedural protections, this argument is without merit or authority. The whole purpose of requiring the Official Assignee to bring the application before the court is in order that a judge who has not been a party to the administration of the bankruptcy may independently consider and assess the evidence adduced on both sides in relation to the issue raised. I dismiss any of the arguments advanced on behalf of the bankrupt to the effect that the application should be dismissed in limine on the grounds that the Official Assignee was somehow prevented or prohibited from bringing the application before the court.
Admissibility of evidence obtained at 1 Holles Street, Dublin 2
20. The Official Assignee removed from the premises, 1 Holles Street, Dublin 2, documents belonging to the bankrupt and pertaining to assets belonging to the bankrupt. He had a right to those documents by virtue of the vesting of all of the estate of the bankrupt in him upon the date of adjudication. Furthermore, the bankrupt had an obligation pursuant to s. 19 to deliver up possession of those documents to the Official Assignee and to notify him of the fact that they were in the possession of Coalport Building Company Ltd., the bankrupt’s agent.
21. The bankrupt objected that the warrant of seizure issued pursuant to s. 27 did not extend to the premises leased by the bankrupt to Coalport Building Company Ltd. The Official Assignee argued that as the bankrupt was the lessor and the receiver appointed over the bankrupt’s interests had invited him into possession and the premises were vacant, that he was entitled to enter the premises.
22. I do not accept that the s. 27 warrant authorised the Official Assignee to enter premises which were the subject of a 25 year lease to a third party (Coalport Building Company Ltd.) and which lease had not been determined. The fact that the bankrupt was the owner of the lessor’s interest did not give him an entitlement to possession. Likewise, the receiver did not have the right to possession of the premises during the currency of the lease and therefore had no right to invite or permit the Official Assignee to enter the premises. It was open to the Official Assignee to obtain the consent of the party entitled to possession, the lessee, to enter the premises and take possession of the documents of the bankrupt or, in the alternative, to obtain a s. 28 warrant. The fact that the premises were vacant does not alter the limits of the Official Assignee’s authority under the s. 27 warrant.
23. The bankrupt sought to exclude from evidence the documents obtained from the premises of Coalport Building Company Ltd. on the basis of the decisions in The People (Attorney General) v. O’Brien [1965] I.R. 142, The People (Director of Public Prosecutions) v. Kenny [1990] 2 I.R. 110 and DPP v. J.C. [2015] IESC 31. These cases all concerned the inadmissibility of evidence obtained in breach of the constitutional rights of an accused person. Each of those cases concerned the inviolability of the dwelling. They can have no application to this case. The bankrupt’s dwelling was not searched. The premises which were entered were those of a limited liability company. The premises was a business premises, it was not a residence. No constitutional right of the bankrupt was in any way breached. The party entitled to make complaint of the Official Assignee was the company. It is noteworthy that the company complained that the Official Assignee had removed documents belonging to the company. It made no complaint concerning the removal of documents belonging to the bankrupt as of course the Official Assignee was entitled to those documents as of right. The Official Assignee did not purport to rely upon any of the company’s documents in this application. He relied upon documents belonging to the bankrupt which were present on the premises of the company but were not company documents
24. It is not open to the bankrupt to object to the Official Assignee taking possession of the bankrupt’s documentation. It is not open to the bankrupt to object on behalf of Coalport Building Company Ltd. to the entry by the Official Assignee of the leased premises. Any wrong that may have occurred (and I am far from holding that there was such a wrong) is a matter as between Coalport Building Company Ltd. and the Official Assignee. It does not afford a basis for the bankrupt to object to the introduction of the documentation in evidence in these proceedings.
25. The bankrupt sought to invoke a constitutional right to fair procedures as the basis for excluding these documents. He argued that because the Official Assignee had possession of the documents and he did not that he was prejudiced in responding to this application. He also stated that he could not obtain copy bank statements which would assist in demonstrating the source of funds for the purchase of the apartments and units and which would therefore assist in demonstrating that the bankrupt’s brother was beneficially entitled to 80% of the ownership of the units at Old Sawmills and that third parties were entitled to some or all of the apartments at Aras na Cluaine. It was not explained why copies of the bank statements could not be obtained by the bankrupt. More fundamentally, it appeared that in the five months between the bringing of the application and the hearing, no attempt had been made by the bankrupt to obtain copies of the documents. He did not ask the Official Assignee for copies of the documents which he said were in the possession of the Official Assignee and which would assist him in dealing with the application. Apparently he did not ask the relevant bank for copies either. In those circumstances, the objection that he was not afforded fair procedures cannot be sustained on a factual basis. It is therefore, not necessary to consider the legal arguments predicated upon the alleged fact of denial of fair procedures as the bankrupt’s case on this ground must fail.
Conclusion on the issue of extension of the bankruptcy
26. In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs. I will therefore make an order pursuant to s.85A extending the period of the bankruptcy in this case. The issue remaining to be determined is the duration of the extension.
Duration of extension of bankruptcy
27. Section 85A was inserted by s. 157 of the Personal Insolvency Act 2012. The Personal Insolvency Act 2012 reduced the period of bankruptcy from 12 years to three. As part of the rebalancing of the bankruptcy code effected by the Act of 2012, the Oireachtas conferred upon the court a power to make an order where it considered it appropriate so to do to extend the period of bankruptcy for a maximum period of a further five years. The section has to be understood in that context.
28. The section was considered by the Supreme Court in Killally (a bankrupt) v. The Official Assignee. The bankrupt in that case had been convicted in the Circuit Criminal Court of theft involving goods which formed part of his estate. Having pleaded guilty at his arraignment, prior to his sentencing hearing, he paid into the Bankruptcy Office the full value of the goods. Thus the creditors of the estate were not at any loss. He was sentenced to three years imprisonment with the full term suspended and directed to serve 240 hours of community service. An application to extend the period of his bankruptcy was brought and the bankrupt argued that he had already been punished in the criminal proceedings and therefore should not be subject to a further punishment by way of the extension of his period of bankruptcy. The High Court (McGovern J.) ultimately added a 12 month period out of a maximum possible extension of 36 months (due to the length of time the bankruptcy had already been in existence). The bankrupt appealed to the Supreme Court.
29. Clarke J. gave the judgment of the Supreme Court. First, he held that the court can simply extend the period of bankruptcy as a sanction to reflect the established failure to cooperate, hiding or failure to disclose relevant assets. It is not necessary that it be for the purpose of conducting further investigations. He acknowledged that a suspension of discharge from bankruptcy of that nature is necessarily penal in character and he stated that it followed that any wrongdoing would require to be clearly established before the jurisdiction is invoked. He also said that the extent of any extension of the period of bankruptcy ordered by the court should be proportionate to the established wrongdoing. At para. 3.20 of his judgment he stated:-
“[o]n behalf of the Official Assignee, on the other hand, it was contended that the personal bankruptcy regime relies to a significant extent on individual bankrupts to cooperate fully with the Official Assignee and the process. In those circumstances it is said that it is entirely appropriate for the Oireachtas to consider, for the purposes of discouraging non-compliance, that the Court should be empowered, in an appropriate case, to extend the period of bankruptcy in cases of significant failure of compliance. In my view that argument is well-founded.”
He referred to “the need to impose a significant discouragement to prevent bankrupts from failing to comply with their clear obligation to cooperate.” Clarke J. emphasised that once a court is satisfied that there has been a failure to cooperate with the Official Assignee in relation to the bankruptcy or that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets that the extension of the bankruptcy period should be proportionate to the established wrongdoing. At para. 5.6 of the judgment, Clarke J. stated:-
“[t]he trial judge was entitled to take the view, as he clearly did, that this was a serious breach of the obligation placed on Mr. Killally to cooperate with the Official Assignee and not to seek to gain personal advantage by the sale of equipment which should have formed part of his estate for bankruptcy purposes. The seriousness of that breach needs to be measured in the light of the correct view taken by the trial judge that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breach. In the light of those considerations, and notwithstanding the fact that Mr. Killally had already been sentenced by the criminal courts, I am of the view that it was within the range of sanctions open to the trial judge in all the circumstances of this case to impose, by way of additional civil sanction, an extension of one year on Mr. Killally’s bankruptcy.” [Emphasis added]
30. The Oireachtas empowers the court to extend the period of bankruptcy up to the eighth year anniversary of the date of adjudication. The Oireachtas clearly contemplates a spectrum of such orders. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.
31. In my opinion the breaches by the bankrupt in this case which have been established to my satisfaction are at the very grave end of the spectrum. In reality the bankrupt has refused to cooperate in any meaningful way with his bankruptcy. His initial interview in August, 2012 with the Official Assignee was, to his knowledge, misleading. He gave as his address the house in Claudy, Co. Derry when he knew that he never resided at that address and did not intend to reside there. He failed to disclose his interest in 12 properties. He presented the statement of affairs which he had prepared for his English trustee in bankruptcy to the Official Assignee as disclosing his assets when he knew that it was incomplete. He continued thereafter to fail to cooperate with his bankruptcy. He sought to dictate where he would be interviewed by the Official Assignee (by insisting that the Official Assignee should travel to Derry to interview him) and he required to be paid to travel to Dublin if he was to be interviewed by the Official Assignee. Unilaterally he decided that equitable claims by third parties were valid and that therefore his estate had no claim to certain properties. He decided his 20% interest in certain properties (and quite possibly 100% interest) was of nil commercial value, though there was no charge on the properties, without informing the Official Assignee of his interest and his decision. Unlike Mr. Killally, his creditors are, or would be, but for the investigations of the Official Assignee, at a loss as a result of his persistent breach of his statutory obligations. In these proceedings, on affidavit, he has flatly refused to furnish the address or addresses where he has resided and where he now resides. He has failed to furnish a sworn statement of affairs and has furnished in purported compliance with the statutory obligation a statement of affairs prepared in his English bankruptcy which he knows to be false. He has greatly hindered the Official Assignee in the administration of his estate.
32. The effect of his non-cooperation has been severely to prejudice the realisation of his estate for the benefit of his creditors. The non-cooperation and the failure to disclose assets has been on the extreme end of the spectrum and it follows in my opinion that the extension period should reflect this fact.
33. The bankrupt argues that two factors should reduce any period of extension which the court may consider imposing. Firstly, it is said that he is aged 67 and an extension of the bankruptcy period into his seventies would be unjust. Secondly, it is said that the court should take into account the period of five months during which he was bankrupt in England and look at the totality of his period in bankruptcy.
34. In relation to the latter point, in my judgment this is impermissible in principle. Section 85A is concerned with whether or not the bankrupt has complied with his duties under Bankruptcy Act 1988, as amended, in this jurisdiction and whether or not he has cooperated with the Official Assignee. An order may be made under s. 85A which is solely penal in nature with a view to protecting the bankruptcy process in this jurisdiction. In my opinion this is fundamentally different from the situation that occurred in the Killally case. In that case the Supreme Court held that in assessing the proportionality of the period of extension it was appropriate to have regard to the sanction imposed by the criminal courts for the same acts which grounded the application for the extension of the period of Mr. Killally’s bankruptcy. That is by no means the same as taking account simpliciter of the period of bankruptcy in another jurisdiction where the bankruptcy was annulled. In any event, the bankrupt has chosen not to explain to the court the basis for the annulment of his bankruptcy in England and therefore I am not in any position to reach any conclusions in relation to the English bankruptcy other than the fact that it commenced in January, 2012 and was annulled in June, 2012. As there could be any number of reasons why this occurred I cannot assess the implications, if any, for the decision I must make in the absence of evidence. I have not taken the period of the English bankruptcy into account in assessing the appropriate period of extension in this case.
35. The bankrupt could point to no authority where age was a factor which should reduce the duration of an extension of bankruptcy. On the other hand the Official Assignee referred to the English case of The Official Receiver v. Tilbrook [2008] EWHC 2732 (Ch). The Deputy District Judge extended the period of Mr. Tilbrook’s bankruptcy for two years. In so doing, he considered the age of the bankrupt as being a matter which merited a reduction of the period for the extension of the bankruptcy. The High Court on appeal concluded that age and the fact that Mr. Tilbrook was then 60 did not count for very much by way of mitigation having regard to the aim of the legislation not just to deter the individual bankrupt but also to deter others and to protect the public. It thus seems that little, if any, weight ought to be attached to the age of the bankrupt in considering whether or not to extend the period of bankruptcy and for how long.
Conclusion
36. The bankrupt was adjudicated bankrupt in this jurisdiction on 30th July, 2012. Therefore the maximum period which his bankruptcy may be extended pursuant to s. 85A is to 30th July, 2020. For the reasons set out above, I am of the view that the discharge should be delayed for the maximum period permissible with a slight reduction due to the age of the bankrupt. I therefore extend the duration of the bankruptcy of Mr. McFeely to 30th May, 2020.
In the Matter of the Bankruptcy Act and
In the Matter of John Hoey
(A Bankrupt); Christopher D Lehane (As Official Assignee in Bankrupcy in the Estate of John Hoey, A Bankrupt) v John Hoey
[2020 No. 178]
Court of Appeal [Unpproved]
26 May 2021
unreported
[2021] IECA 158
Birmingham P.
May 26, 2021
JUDGMENT
1. This is an appeal against a judgment of the High Court (Pilkington J.) of 8th April 2020 postponing the discharge of the appellant from bankruptcy.
2. The background to this application was that the appellant was adjudicated bankrupt on 29th February 2016. In the ordinary way, there would have been an expectation that he would have been discharged from bankruptcy on 28th February 2017. However, the respondent brought a motion before the High Court, dated 13th February 2017, seeking to extend the bankruptcy period by ten years pursuant to s. 85A(1) of the Bankruptcy Act 1988 (as amended), or such other period as the Court regarded as appropriate, on the basis that the bankrupt has:
(a) failed to cooperate with the Official Assignee in the realisation of the assets of the Bankrupt; or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the Bankrupt.
3. Of note is that prior to the hearing of the motion, the solicitors for the Official Assignee wrote to the solicitors for the Bankrupt on 27th February 2020. The pertinent portion of that letter, as quoted by the trial judge, was as follows:
“… the primary remaining issue to be dealt with in our client’s administration of this estate is the sale of Anna Croft. This application to extend Mr. Hoey’s bankruptcy proceeds in part because of his conduct to date but also in part because the estate remains to be concluded and regulated.
If your client confirms that he will cooperate in the sale of Anna Croft and its surrounding lands and will so undertake to the court on Tuesday [when the matter was listed for hearing], then our client is prepared to seek no further extension of his bankruptcy.”
It appears there was no response to that letter.
4. The significance of this is that the High Court judge concluded her reserved judgment by saying that whilst, in her view:
“…there are grounds under both criteria set out within s. 85A(1) (a) and (b) of the Bankruptcy Act, 1988 for extending the period of Mr. Hoey’s bankruptcy, I would be happy to consider, having heard the parties, whether this matter should be adjourned for a short period of time to see if any further cooperation might arise, in which case this could well determine the extent of any bankruptcy extension concerning Mr. Hoey.”
This is particularly in light of the contents of the Official Assignee’s solicitor’s letter of 27th February 2020 referred to above.
5. The grace period was not availed of, and instead, the trial judge extended the period of bankruptcy, directing that the bankruptcy would stand discharged on 28th February 2024.
6. That date has been referred to in the course of the proceedings as being an 8-year extension. In fact, while 28th February 2024 will be the 8th anniversary of the bankruptcy adjudication, the extended period is actually seven years.
7. In the written submissions at paragraph 6, which appears at page 48 of the Core Book, it is stated:
“The [a]ppellant accepts the trial judge in her reserved judgment in April 2020 was entitled to make the findings of fact which she did. In that sense, apart from developments in May 2020, which touch upon the last 4th ground (no SOA “…suggests little short of obstinacy’), this appeal, by light analogy with the criminal jurisdiction or procedure is not against conviction; – but against severity only.”
8. In light of that acknowledgement, it is unnecessary to rehearse the factual background to this matter in any great detail. Suffice to say that the application generated what might be described as a volley of affidavits; a grounding affidavit, and later, a supplemental affidavit from the Official Assignee and three affidavits from the appellant. Those affidavits have been described, without exaggeration, as “replete with conflicts”. In those circumstances, the trial judge proceeded on the basis that she could not resolve the issues of conflict, and to the extent that there was conflict, she took the view more favourable to the Bankrupt but should base her decision on matters that were not in controversy. The approach taken by the trial judge was consistent with what emerges as the correct approach from cases such as Thomas McFeely, A Bankrupt[2016] IEHC 299, and the Supreme Court decision in Killally v. The Official Assignee[2014] IESC 76.
9. At paragraph 15 of the judgment, the trial judge records that counsel for the Official Assignee was explicit in identifying four specific grounds (and only four) upon which the application for the extension of time of the bankruptcy was sought, the four specific grounds being:
“(a) That a substantial amount of our machinery [farm machinery and vehicles] was moved from the family farm into storage (hidden) within the grounds of a local hotel.
(b) The discovery of €12,000 in cash on the debtor’s premises.
(c) The hiding of Kepak money.
(d) The failure by Mr. Hoey throughout the entirety of the bankruptcy process to furnish a proper statement of affairs, to meet the OA’s [Official Assignee] requirement and those of s.19 of the 1988 Act.”
The judge commented that the first three grounds were advanced pursuant to the criteria within s. 85A(1)(a) with the fourth ground being pursuant to s. 85A(1)(b).
10. The trial judge then considered each of the issues that had been raised in turn. So far as the machinery issue is concerned, she felt that it was noteworthy and not disavowed that the items were procured subsequent to a search warrant, were moved to the property of a third party, and she felt that subsequent averments of Mr. Hoey did not provide any evidence to the Court that they were not properly estate assets that should have properly been vested in the Official Assignee from the outset.
11. In relation to the €12,000, the judge explained how the sum in question came to be located in the course of a search under warrant – it was located behind a radiator following the intervention of a sniffer dog.
12. In relation to the Kepak money issue, the judge refers to the matter that Kepak confirmed in correspondence that a number of cheques were paid over from the period of 16th February 2016 to 8th March 2016, with the cheque on 16th February 2016 in the sum of €57,539.85 (bankruptcy date being 29th February 2016). She refers to the fact that also exhibited were five subsequent cheques by Kepak to Mr. Hoey, all marked “A/C Payee Only”, all of which were then endorsed to different third party organisations resulting in applications for Mareva injunctions to prevent the relevant banks disposing of the amounts held in the account of those third party entities.
13. In dealing with the absence of a statement of affairs, the judge refers to the contention by Mr. Hoey that he furnished documentation to the Examiner’s Office on 2nd November 2015, and that he had also made full disclosure of his assets in the context of family law proceedings. Elsewhere, the judge referred to the ongoing difficulty that the Official Assignee had in relation to the bankruptcy by reason of the absence of the filing of a proper statement of affairs.
14. At paragraphs 61 and 62 of her judgment, the judge summarised her view of the facts in the following terms:
“61. In my view, I am satisfied, on the balance of probabilities, that Mr. Hoey had significant cash assets hidden on his property which were not disclosed to the OA, and in respect of which he failed to furnish any credible or proper explanation, other than it was needed for living expenses. It is not the amount of the cash but its non-disclosure that is the issue. I have also had regard to his conduct with regard to the Kepak monies, the distribution of some of the proceeds by cheques made out in favour of various third parties, in turn necessitating applications for Mareva injunctions. I also note the moving of certain assets formerly on the Anna Croft property. In my view, considering all of the affidavits, the evidence arising from the cross examination of the OA and the legal submissions advanced, these matters constitute a sufficient basis for the finding of a failure by Mr. Hoey to cooperate with the Official Assignee in the realisation of his assets as required by s.85A (1)(a) of the 1988 Act.
62. In my view, the most troublesome feature of this case remains the failure of Mr. Hoey to cooperate with the OA in the filing of a statement of affairs. The requirement to file a statement of affairs is well known. The OA gave evidence that its absence constitutes an ongoing difficulty within this bankruptcy. There was never any suggestion or offer by Mr. Hoey that this defect would now be rectified. His position is that the information gleaned by the OA should be sufficient in all the circumstances. I do not understand the reluctance to co-operate with the OA in this regard, but the view of Mr. Hoey that he has submitted the information regarding his estate and that is an end of the matter and should be sufficient, suggests little short of obstinacy. The requirement of s.19 of the 1988 Act is clear and applies to all without exception. His blatant failure to fully disclose to the OA his income and/or assets, which of course are to be realised for the benefit of creditors, remains unexplained.”
15. In the course of the hearing in the High Court, counsel for the Official Assignee suggested that the extension should be within the range of six to ten years, being not at the most egregious end of the scale, but sufficiently serious to warrant a significant extension of the bankruptcy. Counsel on behalf of the Bankrupt, on the other hand, pointed out that by the time of the hearing in the High Court, the bankruptcy had, in practice, already been significantly extended beyond the one year envisaged, and that no further extension beyond that was required.
16. It appears the identification of a range of six to ten years was influenced by a decision of Kelly J. in the case of The Director of Corporate Enforcement v. D’Arcy[2005] IEHC 333, dealing with what was suggested as the analogous situation of the appropriate period of a director’s disqualification. There, Kelly J. derived assistance from the decision of the English Court of Appeal in the case of In Re Seven Oaks Stationers (Retail) Ltd[1991] Ch. 164, which envisaged dividing a potential 15-year disqualification into three periods as follows:
“(i) The top bracket of disqualification for periods over 10 years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.
(ii) The minimum bracket of two to five years” disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.
(iii) The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket.”
17. This approach of considering offending conduct in three bands – upper, middle and least serious – is one that is very familiar to those called on to familiarise themselves with the jurisprudence of the criminal division of this Court.
18. It seems to me that in considering what was an appropriate period, the trial judge was required to have regard to the desirability of deterring misconduct and so maintaining the integrity of the bankruptcy system. In Killaly, Clarke CJ. had commented:
“The seriousness of that breach needs to be measured in the light of the correct view taken by the trial judge that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breach. In the light of those considerations, and notwithstanding the fact that Mr. Killally had already been sentenced by the criminal courts, I am of the view that it was within the range of sanctions open to the trial judge in all the circumstances of this case to impose, by way of additional civil sanction, an extension of one year on Mr. Killally’s bankruptcy.”
19. The reference to “a range of sanctions” also echoes the language of sentence appeals on the criminal side. There, we have often made the point that, generally speaking, it is not a question of one correct sentence, but rather considering whether a particular sentence falls within an available range. Again, we have often made the point that merely because one member of the Court, or even all the members of the Court, might have been disposed to impose a different sentence than the one actually imposed, that does not provide a basis for intervention. Intervention should result only from a conclusion that the sentence imposed fell outside the available range.
20. In the course of the appeal hearing, in exchanges between members of the Court and counsel on both sides, it was made clear to the Court that if, even at that stage, full cooperation, as in providing a complete and accurate statement of affairs, was forthcoming, that would, however belated, be very welcome from the perspective of the Official Assignee. Having canvassed the option with counsel, the Court decided to put the matter back to provide yet a further opportunity for that to occur. In doing so, the members of the Court were at pains to point out that the appellant could not expect to have the slate wiped clean by cooperating at that point, but, nonetheless, if full cooperation was forthcoming, it was a matter to which the Court would have regard and which would, therefore, to some extent advantage the appellant.
21. In the aftermath of the initial appeal hearing, the appellant did prepare some additional documentation which appears, on its face, to be a contemporaneous account of the current liabilities and assets of the appellant rather than a record of his liabilities and assets as at the date of his adjudication. By letter dated 20th April 2021, the solicitors for the Official Assignee drew attention to that. Moreover, the letter highlighted what its author saw as further deficiencies as follows:
“1. The Statement of Affairs omits any reference to the monies hidden on your client’s [the appellant] property or to the Kepak monies[,] both of which your client accepted had been hidden from the Official Assignee as at the date of his adjudication.
2. The Statement of Affairs omits any reference to the sum of €45,539.85 which remains missing from the Kepak monies since the date of his adjudication.
3. The Statement of Affairs omits any reference to the real property – Annacroft – which your client asserts was placed in trust on an as yet unspecified date. The omission of Annacroft from the Statement of Affairs cannot be explained by a bald assertion that the property does not belong to your client, since your client has now sworn that his cattle – which he similarly swore had been placed in the self-same trust – represent losses to his estate.
4. While not properly a matter for the Statement of Affairs – being something which arises post adjudication and ought to have been included in the Affidavit accompanying the Statement of Affairs – it is not acceptable for your client to decline to identify the sums received from ‘friends and family’ which he now swears been his only source of income (apart from donations from the St. Vincent de Paul Society) since 29 February, 2016 nor to identify the persons who provided these sums.”
22. In my view, despite the Court of Appeal affording the appellant a still further opportunity to cooperate, and so to improve his position, matters have not really moved on since the judgment of the High Court was delivered. The question that arises then is whether the order made by the High Court judge was one that was open to her, or whether it was an impermissible order as falling outside the available range. I accept that the extension ordered was a significant one and represented a severe sanction. However, in my view, a significant extension was called for in the circumstances of the case. In my view, the order made by the High Court was an appropriate one and certainly could not be said to fall outside the available range.
23. In the circumstances, I would dismiss the appeal.
24. As this judgment is being delivered electronically, it is the practice to offer a provisional view on the costs of the appeal, subject to any application on costs which may be brought. My provisional view is the costs of the appeal should be paid by the unsuccessful appellant. If either party wishes to contend otherwise, short written submissions should be forwarded to the Office of the Court of Appeal within 10 days. Alternatively, the party should contact the Office of the Court of Appeal to request a short oral hearing on the costs issue, though any party who requests such a hearing which results in an order in line with that indicated provisionally, may incur the further costs of such a hearing.
Edwards J
I have had the opportunity to read the judgment delivered by the President and I agree with the conclusions reached therein.
Kennedy J
I have also read the judgment of the President and I agree with the decision.
In the Matter of Section 85A of the Bankruptcy Act 1988 and
In the Matter of Godfrey Lalor
(A Bankrupt) (No. 2)
3714
High Court [Approved]
26 November 2021
unreported
[2021] IEHC 725
Humphreys J.
November 26, 2021
JUDGMENT
1. In In Re Lalor (No. 1)[2019] IEHC 599, [2019] 7 JIC 3108 (Unreported, High Court, 31st July, 2019), Pilkington J. decided in principle to extend the term of the bankruptcy in this case under s. 85A of the Bankruptcy Act 1988. The issue now is, for how long?
Procedural history
2. The debtor was adjudicated a bankrupt on 27th June, 2016.
3. On 9th June, 2017, the Official Assignee filed a motion seeking an extension of the bankruptcy on grounds of non-cooperation and failure to disclose assets and also seeking an interim extension under s. 85A(3) of the 1988 Act.
4. There have been 33 adjournments of this motion to date, which by any standard is a generous period for the bankrupt to address the matter and rectify any concerns. A full history of the motion would make the judgment excessively long, but I can mention some of the highlights.
5. On 19th June, 2017, Costello J. ordered an interim extension of the bankruptcy.
6. On 12th March, 2018, the same judge made the relatively unusual order that, pursuant to s. 21 of the 1988 Act, a summons would issue requiring the bankrupt to appear before the court, to be examined on oath and to produce documentation.
7. That hearing took place before O’Connor J. on 23rd April, 2018. At its conclusion, the court made orders for the collection by the Official Assignee of documentation held by the bankrupt at a property, Rosedale House, and that two firms of solicitors furnish documentation in respect of title to another property, Monte Rosa, Sorrento Road, Dalkey, Co. Dublin.
8. On 25th January, 2019, the s. 85A motion was heard in full by Pilkington J. and judgment was reserved.
9. That judgment was delivered on 31st July, 2019 and included a finding adverse to the bankrupt under s. 85A, but left over the question of the length of the extension pending an adjournment which would permit the possibility of further co-operation.
10. The matter seems to have been last mentioned to Pilkington J. on 7th December, 2020 at which point it was indicated by the learned judge that the Official Assignee should liaise with the Examiner’s Office with a view to having a remote hearing of the matter.
11. In October 2021, in circumstances where Pilkington J. had unfortunately become indisposed, it was proposed that I should complete the matter by finalising the question of the length of the extension.
12. On 11th October, 2021, the matter was listed, and while there was no appearance by the bankrupt, the Official Assignee indicated that both parties were agreeable to the matter now being finalised by me. I should add that in circumstances such as arose here, consent of the parties isn’t in fact necessary, but it is nonetheless welcome.
13. The motion was listed for hearing on 8th November, 2021, but the bankrupt did not appear on that occasion when the matter was called (he later explained that he had mistimed his remote connection), so I adjourned it peremptorily to the following day. The matter was then heard in full on 9th November, 2021 and judgment reserved.
Section 85A
14. The normal term of bankruptcy is for one year, but can be extended in cases of non-cooperation or non-disclosure of assets. Subsection (1) allows an application to extend the bankruptcy, and the jurisdiction of the court is set out in sub-s. (4) as follows:
“(4) Where the Court is satisfied that the bankrupt has —
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date—
(i) being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers just, or
(ii) being not later than the 15th anniversary of the date of the making of the adjudication order, which the Court considers just in view of the seriousness of the failure to co-operate referred to in paragraph (a) or the extent to which income or assets referred to in paragraph (b) were hidden or not disclosed, or both, as the case may be.”
15. The fact that the maximum extension is now fifteen years means that previous caselaw has to be read in the light of that increase, and, in particular, references to periods of extension in caselaw before the amendment have to be qualified by bearing in mind the lower maximum applicable at that time. The increase indicates a view by the legislature that a firmer approach can now be taken by the court in cases of non-cooperation.
Appropriate procedure to be adopted
16. Noting the judgment of Clarke J. in Killaly (A Bankrupt) v. The Official Assignee[2014] IESC 76, [2014] 4 I.R. 365, it seems to me there are essentially three questions that arise in this kind of situation:
(i). whether there has been non-cooperation or failure to disclose assets;
(ii). if so, whether the matter should be adjourned to allow further cooperation or disclosure to take place; and
(iii). what extension of bankruptcy is appropriate within the maximum of fifteen years.
Whether there was non-cooperation
17. The plaintiff’s non-cooperation or non-disclosure has already been determined in the No. 1 judgment as of 31st July, 2021. It is clear on the evidence that there was further non-cooperation following the judgment, especially given that the tenor of the bankrupt’s responses was not accepting of the findings of the court. In particular, the bankrupt by email of 26th August, 2019 failed to respond to the Official Assignee’s inquiries and directed him to third parties.
Whether the matter should be adjourned for further possible cooperation
18. Pilkington J. has afforded time for further cooperation already even though she was not obliged to do so. As matters turned out, the bankrupt has had two years and four months since then to fully co-operate, but has not done so. Where such an opportunity has already been afforded, I don’t see much basis for any further adjournment.
The appropriate length of an extension
19. The question of the length of an extension was recently considered by Birmingham P. (Edwards and Kennedy JJ. concurring), in In Re Hoey[2021] IECA 158, [2021] 5 JIC 2605 (Unreported, Court of Appeal, 26th May, 2021), noting the approach to disqualification of directors as set out in In Re Sevenoaks Stationers (Retail) Ltd.[1991] Ch. 164, [1990] 3 WLR 1165, as applied by Kelly J. in Director of Corporate Enforcement v. D’Arcy[2005] IEHC 333, [2006] 2 I.R. 163.
20. That approach suggested dividing a potential fifteen-year directorship disqualification period into three segments as follows:
(i). the lower bracket of 2 to 5 years’ disqualification should apply where, though disqualification is mandatory the case is, relatively, not very serious;
(ii). the middle bracket of 6 to 10 years should apply for serious cases which do not merit the top bracket; and
(iii). the top bracket of disqualification of over 10 years should be reserved for particularly serious cases, for example where a director who has been previously disqualified falls to be disqualified again: see para. 16 to 18 of the judgment of Birmingham P.
21. In In Re Daly (A Bankrupt)[2018] IEHC 579, [2018] 10 JIC 1506 (Unreported, High Court, 15th October, 2018), Costello J. emphasised (at para. 21) that a bankrupt has a duty to be proactive: “[The Bankrupt’s] duty in this regard is not confined to answering questions put to him by the Official Assignee. He must proactively disclose relevant information to the Official Assignee … The Official Assignee is entitled to his assistance and entitled to investigate whether these three assets could be recovered for the benefit of the bankruptcy estate.” Following the bankrupt’s appeal in that case relating to the period of disqualification (In Re Daly (A Bankrupt)[2019] IECA 491[2019] 12 JIC 1810 (Unreported, Court of Appeal, 18th December, 2019)), Birmingham P. (McCarthy and Kennedy JJ. concurring) said (at para. 23): “In my view, the trial judge was correct to conclude that the non-cooperation was at the serious end of the spectrum. A very significant extension was, in the circumstances, inevitable. It is the case that the extension is penal in character, but the converse of that is that someone who emerges from bankruptcy obtains a considerable benefit and that benefit has to be earned by full and unqualified cooperation. In my view, the period of extension ordered is obviously a very significant one, and beyond question, represents a severe sanction. Undoubtedly, the judge might have decided on a somewhat shorter period, but I cannot conclude that the period decided upon fell outside the available range.”
22. The Official Assignee in the present case submits as follows: “[i]t is essential for the integrity of the bankruptcy process that a bankrupt’s obligation to co-operate fully and disclose everything in relation to assets is strictly enforced. If that does not occur, the system is simply unworkable. It is in that context that the period should be assessed.” I would endorse that as a correct statement of the approach
23. A number of factors are worth mentioning:
(i). the bankrupt sought to conceal his interest in Monte Rosa and therefore to prevent it being realised;
(ii). the fact that assets were realised ultimately does not assist him because that was not as a result of his cooperation;
(iii). the very fact that s. 21 of the Act had to be triggered does not assist his position;
(iv). some of the evidence given by him under cross-examination was misleading;
(v). the bankrupt’s attitude after the No. 1 judgment was one of not accepting the court’s conclusions, and involved continued failure to co-operate;
(vi). his assertions as to his lack of control over relevant corporate assets and accounts are lacking in credibility in all of the circumstances; and
(vii). it is an exacerbating factor that an opportunity to provide full disclosure has not been fully taken up – a point made by Costello J. in In Re Daly at para. 55.
24. In the circumstances here, I think that the Official Assignee’s characterisation in submissions of the bankrupt here as adopting a “catch me if you can” approach is justified. The presumptive situation must be that near total non-cooperation warrants a near maximum period. The circumstances here come into the top bracket and possibly would have warranted the full period of fifteen years, but being as indulgent as possible by having regard to any limited elements of information that could arguably be said to have been supplied by the bankrupt, and to his circumstances insofar as they can arguably be said to be relevant, I would extend the bankruptcy to its thirteenth anniversary.
Order
25. Accordingly, the order will be one under s. 85A(4) of the 1988 Act extending the bankruptcy until the thirteenth anniversary of the adjudication, namely until midnight on 26th June, 2029.
In the Matter of Secton 85A of the Bankruptcy Act 1988 as Amended and
In the Matter of Harold Moore, a Bankrupt
High Court [Approved]
30 September 2021
unreported
[2021] IEHC 592
Humphreys J.
September 30, 2021
JUDGMENT
1. The debtor was adjudicated bankrupt on 17th February, 2020.
2. On 27th January, 2021, the Official Assignee filed a motion seeking relief under s. 85A(3) of the Bankruptcy Act 1988 which allows for extension of the term of bankruptcy due to non-co-operation or non-disclosure. The core reliefs were at para. 2 of the motion for an interim extension of the bankruptcy, and at para. 3 for an extension under s. 85A(4) for such period as the court might determine. I granted the interim extension on 8th February, 2021 in accordance with para. 2 of the motion. What is outstanding now is para. 3, the final extension.
Facts
3. The bankrupt says that on 9th February, 2012, the Revenue issued a notice of assessment for VAT for periods between 1st March, 2011 to 31st August, 2011. He said that his accountant failed to deal with this by way of appeal, despite instructions.
4. A late appeal application was refused by Revenue on 6th September, 2012. That was appealed to the Appeal Commissioners, but was refused on 16th July, 2013.
5. On 26th July, 2013, he sought a case stated, but that does not seem to have resolved the matter.
6. Also in 2013, assessments were issued for capital gains tax and income tax, but were not appealed.
7. In 2014, Revenue proceedings were instituted: Gladney v. Moore[2014 No. 240 R]. On 26th July, 2016 summary judgment was given in favour of Revenue. The debtor then sued his accountants: Moore v. Carr[2016 No. 7825 P].
8. As noted above the debtor was adjudicated bankrupt on 17th February, 2020 but failed to deliver a statement of personal information, a statement of affairs or an income assessment form despite six requests between 21st February, 2020 and 11th November, 2020.
9. In August 2020, the bankrupt suffered a heart attack and was admitted to hospital.
10. The grounding affidavit for the application to extend the duration of bankruptcy was sworn on 26th January, 2021.
11. There were five attempts at personal service between 29th to 30th January, 2021 but the summons server was refused access by a person in the bankrupt’s dwelling.
12. I heard the motion on 19th April, 2021 but gave the bankrupt a further opportunity to put in information. That was not promptly taken up. I was told that the bankrupt had a car accident and was hospitalised in April 2021. But it took until May, 2021 to deliver a statement of affairs and an income assessment form, and until July, 2021 to deliver a statement of personal information.
13. Of notable importance is that none of this information was delivered during the normal one-year period of the bankruptcy. That fact is not scrubbed from legal relevance by the bankrupt coming up with information only after the motion to extend the term of the bankruptcy.
Whether the bankruptcy should be extended
14. Under s. 85A(4) the court can postpone the discharge of a bankrupt from bankruptcy if the bankrupt has failed to cooperate regarding the realisation of assets or hidden or failed to disclose income or assets which could be realised. It seems to me that there must be a presumption in favour of an extension if non-cooperation or non-disclosure has been established, and that is amply justified here. It is particularly significant that there was complete non-disclosure during the normal one-year period of the bankruptcy. That is not rendered legally irrelevant by late efforts at compliance.
15. Reliance was placed by the bankrupt on the European Convention on Human Rights and in particular the decision in Grande Stevens v. Italy Application Nos. 18640/10, 18647/10, 18663/10 and 18698/10 (European Court of Human Rights, 4th March, 2014). It was suggested that the current motion amounts to double jeopardy. However, Grande Stevens is about the imposition of an administrative penalty for an offence in addition to the bringing of criminal proceedings. Such a procedure can indeed create double jeopardy, but that doesn’t apply here because the extension of bankruptcy is neither an administrative penalty nor criminal in nature. It is a civil consequence of the bankrupt’s indebtedness and failure to co-operate. It was also suggested in submissions that s. 85A(4) may be unconstitutional, but I cannot address that in the absence of notice to the Attorney General under O. 60 RSC.
16. Strong arguments were also advanced that the adjudication, and indeed the whole series of problems that have been visited upon the bankrupt, are to be laid at the feet of his former accountant. Unfortunately, that is going back to an earlier stage of the process in a way that is not permissible under this procedure. Any complaints against the accountant can be litigated in the civil proceedings for damages and might possibly have been a basis to dispute the adjudication originally, but such problems do not remove the need for co-operation once the bankrupt has been adjudicated as such.
17. Reliance was also placed on the bankrupt’s health, but the non-cooperation well precedes any health issues; and even the issues that he does have are not such as to preclude much greater and much earlier cooperation overall than he has supplied.
The appropriate term of an extension
18. The Official Assignee submitted that this was at the serious end of the spectrum and suggested an extension of eight years. In In Re Killally[2014] IESC 76, [2014] 4 I.R. 365, Clarke J. emphasised that the integrity of the process requires total co-operation. The maintenance of that integrity requires to be encouraged by the imposition of sanctions for breach. Costello J. in In Re Gaynor[2017] IEHC 27, [2017] 1 JIC 2303 (Unreported, High Court, 23rd January, 2017), said that the fact that prejudice cannot be proved or may be limited does not preclude the imposition of a lengthy term of an extension if there is the possibility of undisclosed assets. The law is clear that the bankrupt must “proactively disclose relevant information to the Official Assignee” (In Re Daly[2018] IEHC 579, [2018] 10 JIC 1506 (Unreported, High Court, Costello J., 15th October, 2018)). In that case, total and deliberate non-cooperation justified a period of ten years. That was upheld by the Court of Appeal in In Re Daly[2019] IECA 491, [2019] 12 JIC 1810 (Unreported, Court of Appeal, Birmingham P. (McCarthy and Kennedy JJ. concurring), 18th December, 2019), that court holding that the benefit of discharge “has to be earned by full and unqualified cooperation.”
19. Admittedly, the legislation is somewhat unsatisfactory in that it only allows a one-off extension and does not provide for the term to be further extended depending on the ongoing state of cooperation or otherwise. Thus, the court has to make a one-off assessment. That seems far too inflexible and possibly warrants review and examination by the Department of Justice. As the law is currently constituted, a non-co-operating bankrupt can simply sit out the purdah of the one-off extension and be then discharged even if she never co-operates. It’s hard to see how that strikes the right balance, especially bearing in mind the rights of creditors. The obvious solution (to me, but maybe I’m missing something) is to allow the court to further extend or amend the period on the making of an appropriate application. However pending consideration of any such amendment, the legislation is what it is, and I am required to make a one-off assessment based on what I have now.
20. But for the belated cooperation, I would have agreed with the Official Assignee on an eight-year extension. Allowing credit for that belated cooperation, I will extend the bankruptcy for seven years from the date of adjudication, which, for what it’s worth, is less than five and a half years from now.
Order
21. For those reasons the order will be an order under s. 85A(4) of the Bankruptcy Act 1988 postponing the date of discharge of the bankrupt to the seventh anniversary of the date of making of the adjudication order, or in other words midnight on 16th February, 2027.
McCarthy -v- Sheerin & anor
[2018] IEHC 179 (19 February 2018)
URL: http://www.bailii.org/ie/cases/IEHC/2018/H179.html
High Court
Judgment by:
Costello J.
Status:
Approved
[2018] IEHC 179
JUDGMENT of Ms. Justice Costello delivered on the 19th day of February 2018
1. Mr. Sheerin (the bankrupt) was adjudicated bankrupt, on foot of his own petition by order of the High Court dated 13th June, 2016. Absent an order made pursuant to s. 85A he would have been automatically discharged from his bankruptcy on the 12th June, 2017. By notice of motion dated 24th May, 2017 Ms. McCarthy (the applicant) sought an order pursuant to s.85A(3) of the Bankruptcy Act, 1988 as amended directing that the affairs of the bankrupt be further investigated by the Official Assignee, and that the bankrupt shall not stand discharged pending such investigation; or, in the alternative, an order pursuant to s.85A(4) that the bankrupt shall not stand discharged from his bankruptcy until a date no later than the eighth anniversary of his bankruptcy or such other time as the court shall deem appropriate. Pending the determination of the motion an order was made pursuant to s.85A(3) postponing the discharge from bankruptcy of the bankrupt on 29th May 2017.
Section 85A of the Bankruptcy Act, 1988
2. Section 85A provides as follows:
“(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has —
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(2) An application under subsection (1) shall be made on notice to the bankrupt and where made by the trustee in bankruptcy or a creditor, notice shall also be given to the Official Assignee.
(3) Where it appears to the court that the making of an order pursuant to subsection (4) may be justified, the court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the Court is satisfied that the bankrupt has —
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets this could be realised for the benefit of the creditors of the bankrupt,
the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85 , the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.”
Does the applicant have locus standi to bring the application?
3. Section 85A (1) permits an application to be brought by the Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt. The applicant brings the application on the basis that she is a creditor of the bankrupt. This is denied by the bankrupt. She advanced four basis for contending that she is a creditor of the bankrupt. Firstly, in family law proceedings instituted between the applicant and the bankrupt, he is the subject of an interim order directing the payment to her of €300 per week in maintenance. This means that the bankrupt is under a recurring obligation to the applicant to pay a sum of money. Secondly, she says that she loaned the bankrupt the sum of €18,000 on the 24th January, 2012 and the sum has not been repaid. The bankrupt accepts that the money was received by him from the relevant account but denies that it was a loan. He says that in effect the account operated as a joint account. The applicant argues if the court accepts his evidence for the purposes of the application, nonetheless she is a creditor in respect of at least half of the sum paid to the bankrupt and therefore she is a creditor in the amount of €9,000. Thirdly, she referred to the sale of a property held in their joint names in Romania and she claimed that she had yet to be repaid the full proceeds from the sale. The bankrupt denied this and said that she had been paid in full her moiety of the net proceeds of sale. She did not maintain her argument that she was a creditor on the basis of the proceeds of the sale of the property in Romania as she accepted that the court could not resolve the dispute in relation to this matter where the evidence before the court was on affidavit and there was no cross examination of the deponents.
4. Ultimately the principal ground upon which she contended that she was a creditor derived from the family law proceedings. She instituted proceedings against the bankrupt prior to his adjudication on the 25th September, 2015. She claimed an order directing the bankrupt to pay a lump sum payment for her support and for that of her dependant children and she sought an order for costs. She referred to the decision of the Supreme Court of England and Wales In Re Nortel GmbH [2014] AC 209. At para. 89 Lord Neuberger held:
“In my view, by becoming a party to legal proceedings in this jurisdiction, a person is brought within a system governed by rules of court, which carry with them the potential for being rendered legally liable for costs, subject of course to the discretion of the court. An order for costs made against a company in liquidation, made in proceedings begun before it went into liquidation, is therefore provable as a contingent liability under r. 13.12(1)(b), as the liability for those costs will have arisen by reason of the obligation which the company incurred when it became party to the proceedings.”
5. Lord Sumption stated at para. 136:
“….those who engage in litigation whether as claimant or defendant, submit themselves to a statutory scheme which gives rise to a relationship between them governed by rules of court. They are liable under those rules to be made to pay costs contingently on the outcome and on the exercise of the court’s discretion. An order for costs made in proceedings which were begun before the judgment debtor went into liquidation is in my view provable as a contingent liability, as indeed it has been held to be in the case of arbitration proceedings: In re Smith, Ex p Edwards (1886) 3 Morr 179. In both cases, the order for costs is made against someone who is subject to a scheme of rules under which that is a contingent outcome. The fact that in one case the submission is contractual while in the other it is not, cannot make any difference under the modern scheme of insolvency law under which all liabilities arising from the state of affairs which obtains at the time when the company went into liquidation are in principle provable. Of course, an order for costs like many other contingencies to which a debt or liability may arise, depends on the exercise of a discretion and may never be made. But that does not make it special. It is not a condition of the right to prove for a debt or liability which is contingent at the date when the company went into liquidation that the contingency should be bound to occur or that its occurrence should be determined by absolute rather than discretionary factors”
6. Counsel for the applicant argued that precisely the same principles applied where the insolvent debtor was a bankrupt rather than a company in liquidation and that this represented the law in this jurisdiction also. I agree with these submissions and I accept the statements of the law of Lord Neuberger and Lord Sumption.
7. The applicant instituted the family law proceedings on the 28th September, 2015. The bankrupt was adjudicated a bankrupt on the 13th June, 2016. At the date of his adjudication he was subject to a scheme of rules whereby he could, at the discretion of the court, be subject to an order for costs in favour of the applicant. That as a matter of law makes her a creditor of his estate. That is sufficient to establish her locus standi to bring this application pursuant to s. 85A(1).
8. As I have reached my decision that she has standing to bring the proceedings on this ground, I propose to leave to another day the question whether an applicant in receipt of an interim maintenance order or a party to a joint bank account are creditors of the bankrupt and thus have standing on that basis to bring an application pursuant to s. 85A(1).
Section 85A (3) of the Bankruptcy Act, 1988
9. In order to bring an application pursuant to s. 85A the applicant must believe that the bankrupt has either failed to cooperate with the Official Assignee in the realisation of the assets of the bankrupt or that the bankrupt has hidden from or failed to disclose to the Official Assignee either income or assets which could be realised for the benefit of the creditors of the bankrupt.
10. An applicant seeking relief under s. 85A is not required to establish that there has been either a failure to cooperate with the Official Assignee or a hiding of or failure to disclose income or assets to the Official Assignee within the meaning of subs. (1). The applicant merely must have a belief to that effect, but the belief must be reasonable and it must be established on an objective basis. It is sufficient to bring an application pursuant to s. 85A (1) if the applicant establishes a reasonable belief either that there has been a failure to cooperate with the Official Assignee in the realisation of the assets of the bankrupt or a hiding or failure to disclose income or assets to the Official Assignee which could be realised for the benefit of the creditors of the bankrupt. Then the court must, in its discretion, assess whether the matters complained of in the application warrant further enquiry and whether an order pursuant to s.85A(3) is appropriate.
11. Subsection (3) allows the court, if it is satisfied that an order under subs. (4) may be justified, to order a further investigation in relation to the matters complained of. In those circumstances the court may make an order that the matters complained of be further investigated and that the bankruptcy shall not stand discharged pending the making of a determination of the application for an order pursuant to subs. (4). So, in order for a court to be satisfied that it should make an order under s. 85 (3) it must only be satisfied that the making of an order pursuant to subs. (4) may – not that it must – be justified at the end of the investigation into the matters complained of. The threshold for a court considering an order pursuant to s. 85 A (3) is thus less onerous, than for an order pursuant to s.85A(4). Nonetheless, in each case the order is penal in nature, as was recognised in Killaly a bankrupt [2014] 4 I.R. 365, and it is not an order that should be made lightly. As I state in Michael Daly, a bankrupt, ( unreported, High Court, Costello J, ex t. 31st January, 2017), the default position is that a bankrupt is entitled to an automatic discharge from bankruptcy one year after the date of adjudication.
The applicant’s case for an order pursuant to s.85A(3)
12. Eight substantial affidavits were filed in respect of the motion and the materials before the court ran to more than one thousand pages. The applicant raised a considerable number of issues regarding the bankrupt’s former business as a building contractor. She said there were “wholesale non-disclosures” by the bankrupt in his statement of affairs. She referred to the failure to attribute any value to work in progress when he ceased trade as a builder, she raised issues regarding the transfer of work in progress to a limited liability company with which she said the bankrupt was connected. She said there was an understatement with regard to retention debts recorded in his statement of affairs, she disputed the value attributed in the statement of affairs to various assets and, through her forensic accountant, she was severely critical of the records maintained in respect of the business.
13. In three replying affidavits, the bankrupt rejected her allegations that he had hidden assets from or failed to disclose assets to the Official Assignee. He insisted that his statement of affairs was accurate and he provided answers to the queries raised by the applicant and the applicant’s forensic accountant.
14. Counsel on behalf of the applicant accepted that in an application heard upon affidavit in respect of which there was no cross examination, the court could not resolve conflicts of fact. Therefore, while the applicant did not accept many of the answers or explanations given by the bankrupt on affidavit, she accepted that she could not rely upon matters which he had explained on affidavit in support of her application for an order pursuant to s.85A(3). This quite proper concession considerably narrowed the basis of her application.
15. In the event, the applicant advanced her case pursuant to s. 85A (1) (b) on two grounds.
(1) The bankrupt filed amended tax returns for the years 2012, 2013 and 2014 in April, 2016, one week before he swore the statement of affairs used to support his petition for his own bankruptcy. The amendments were necessary because the bankrupt had under declared cash receipts and cash payments made during those years. The amendments were as follows:
Original Return
2012 Amended Return
2012 Increase
Turn Over 2,878,586 2,918,586 40,000
Purchases 1,537,817 1,574,817 37,000
Original Return
2013 Amended Return
2013 Increase
Turn Over 3,355,685 3,583,185 227,500
Purchases 1,592,089 1,801,589 209,500
Original Return
2014 Amended Return
2014 Increase
Turn Over 4,251,976 4,533,976 282,000
Purchases 1,452,073 1,711,073 259,000
Thus the total additional cash receipts returned came to €549,500. The bankrupt confirmed that all cash payments on projects between the years 2012 and 2015 were accounted for and disclosed to the Revenue and that the true cash payments for works carried out amounted to €645,500. The amended tax returns disclosed additional cash payments in the amount of €505,500 for the years 2012, 2013 and 2014.
(2) In his statement of affairs the bankrupt listed two loans about which the applicant raised concerns. The first was a loan to the bankrupt’s parents and their crèche business in the amount of €230,000. The second was a loan to Loyalty Vision Ltd in the sum of €290,000. The loan did not appear to be recorded in the company accounts of Loyalty Vision Ltd filed with the CRO and the applicant said that there were discrepancies between the amount set out in the statement of the affairs as due to the company and those appearing in cash flow statements she obtained from a drop box maintained by the bankrupt. Loyalty Vision Ltd is a company owned and controlled by relatives of the bankrupt.
16. The applicant’s case in relation to the bankrupt’s amended tax returns was straightforward. It was clear that the bankrupt had operated his business as a building contractor on the basis that he was paid a certain amount in cash and that he in turn paid subcontractors and builders’ suppliers in cash. However there were no records whatsoever to support either the cash receipts or the cash payments. She asked how could he prepare amended tax returns in April 2016 in respect of the years 2012, 2013 and 2014 without a single contemporaneous document supporting these new figures? She emphasised that the evidence disclosed that he had been dishonest in relation to his tax affairs both when he filed the original returns and when he was the subject of a tax audit in respect of his affairs up to the end of 2013. She pointed to the fact that no accounts as such had been furnished and said it was clearly necessary to investigate the issue further in order to ascertain whether there was undisclosed cash held by the bankrupt. She emphasised the fact that the bankrupt’s explanations in his affidavits sworn in response to this motion contrast with his nil tax return for 2015. She also observed that the increase in purchases should have required the filing of amended VAT returns and that it would appear that no such VAT returns were filed.
17. In relation to the second ground advanced by the applicant, she said she has concerns about the legitimacy of family loans allegedly owed to the bankrupt’s parents. She is also concerned as to the legitimacy of the loan allegedly due to Loyalty Vision Ltd. She points to the fact that there was no documentation to support these loans which is particular curious in view of the fact that the loan to Loyalty Vision Ltd is described as a secured loan. She says that these matters require further investigation by the Official Assignee.
The position of the Official Assignee
18. All of the assets of the bankrupt vest in Official Assignee upon adjudication of the bankrupt. He is the person charged with investigating the affairs of the bankrupt and gathering in the assets for the general body of creditors.
19. Most important from the perspective of an application brought pursuant to s. 85A(3) by a party other than the Official Assignee is the fact that the Official Assignee investigated the affairs of the bankrupt in the normal way following receipt of the bankrupt’s statement of affairs and statement of personal information. The bankrupt answered any questions put to him by the Official Assignee. The applicant furnished the Official Assignee with the documents which grounded her concerns that the bankrupt was hiding assets from or failing to disclose assets to the Official Assignee. He reviewed the material. Despite this information, the Official Assignee chose not to bring a s. 85A application to the court.
20. The Official Assignee was served with the material available to the applicant which induced her to bring the application in the first place. He was also served with the affidavits of the applicant sworn on the 23rd May, 2017 and the 21st July, 2017 which each exhibited reports from the applicant’s forensic accountant, Ms. Kingston of Browne Murphy and Hughes. He received the replying affidavits of the bankrupt sworn on the 3rd July and 5th October, 2017. He considered all of the information provided and on the 2nd November, 2017 his representatives had a meeting with the bankrupt to address queries arising from their investigations to date and to address some of the issues raised by the applicant. The evidence established that the Official Assignee had considered all of the material and had compiled a list of questions and queries to be answered by the bankrupt and that the bankrupt answered every query put to him by officials from the Official Assignee’s office.
21. The day after that meeting the Official Assignee swore an affidavit in these proceedings. His evidence to the court was that he did not bring an application to extend the bankruptcy of the bankrupt in circumstances where there was no demonstrable non cooperation by the bankrupt. He confirmed that all the normal steps in the bankruptcy process took place and that a statement of affairs was filed and a statement of personal information was furnished. Correspondence and queries were responded to and the bankrupt gave no cause for complaint as regards non cooperation with the process. He confirmed that his office carried out the usual investigations and had not identified any property or assets that were undisclosed or identified any assets that appeared likely to be recoverable for the benefit of the bankruptcy estate prior to the bankrupt’s automatic date of discharge. For that reason he did not bring an application to extend the bankruptcy at that time.
22. At para. 7 of his affidavit he averred:
“Having reviewed the affidavits exchanged to date between the applicant and [the bankrupt], and my office having continued its investigations in light of same, I have yet to identify any undisclosed assets which would be recoverable for the benefit of the Creditors of the Bankruptcy Estate. Nor, to date, has my office, on the facts available to it, been in a position to determine whether any asset in the Bankrupt’s possession as at the date of his adjudication was not disclosed.”
23. He confirmed that his office was continuing to investigate issues raised and in submissions to the court it was clarified that this related to the two loans of the bankrupt highlighted by the applicant. He was investigating the loans to ascertain whether there had been preferential treatment of these creditors and whether any sums repaid by the bankrupt should be recovered for the benefit of the bankruptcy estate. He confirmed that he could continue his investigation and pursue assets regardless of whether the bankrupt remained in bankruptcy, and, that if he uncovers an identifiable asset that could be recovered for the benefit of the bankruptcy estate, his office will take such steps as are necessary, including the commencement of legal proceedings, to recover it for the benefit of the creditors of the bankruptcy estate.
24. At the hearing, counsel for the Official Assignee confirmed that the Official Assignee was not seeking an order postponing the automatic discharge from bankruptcy of the bankrupt and that he was adopting a neutral stance in relation to the application. He does not require an order pursuant to s.85A(3) in order to continue to investigate the estate of the bankrupt and that he is continuing to investigate the estate. He remains in a position to pursue any assets of the bankrupt which may be uncovered. He confirmed that he had satisfied himself in relation to cash receipts of the bankrupt and he has not identified undisclosed cash assets of the bankrupt as a result.
Discussion
25. All of the applicant’s submissions regarding the bankrupt’s amended tax returns are valid. Despite extensive explanations, the bankrupt cannot support the revised figures regarding his cash receipts and his cash payments as reflected in the amended tax returns. They represent very considerable figures and they were detailed in some cases four years after the relevant receipt or payment. It is clear that the bankrupt conducted his business in a manner which was not tax compliant at the time. This is a matter which no court can condone. But it does not necessarily follow that an order pursuant to s.85A(3) is required to investigate the affairs of the bankrupt further.
26. The pre-adjudication under declaration of tax is primarily a matter for the Revenue Commissioners. The Revenue Commissioners have the tools available to investigate the tax affairs of the bankrupt further if they believe this is required. It is also worth emphasising that the Revenue Commissioners are creditors of the bankrupt and are in a position to assist the Official Assignee if so required. They have an obvious interest in ensuring that any undisclosed cash held by the bankrupt is realised for the creditors of the bankrupt..
27. It appears to me that in effect the applicant has already achieved the investigation of the affairs of the bankrupt she sought pursuant to s.85A(3). All of the evidence confirms that the Official Assignee has thoroughly investigated his affairs and the issue she raised in relation to the quality of the information furnished by the bankrupt. He has said that he is continuing his investigation and he does not require the imposition of an order pursuant to s.85A(3) to do so in the future. It has to be borne in mind that the focus of the court in considering whether to make an order pursuant to s.85A(3) in respect of an allegation that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt is whether such income or assets exists or is likely to exist and thus whether a further investigation of the affairs of the bankrupt on foot of a s.85A(3) order is warranted.
28. The jurisdiction of the court to make an order pursuant to subs. (3) is the possibility that the court may subsequently be justified in making an order pursuant to subs. (4). For a court to make an order pursuant to subs. (4) the court must be satisfied that the bankrupt has, on the established facts, hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt. Absent such a likely outcome to an investigation, it is unlikely that a court may be justified in making an order pursuant to subs. (4). If a court may not be justified in making an order pursuant to s.85A(4), there can be no reason for the court to make an order pursuant to subs. (3). It is always to be borne in mind that any order postponing the disclosure from bankruptcy is penal in nature and requires to be justified.
29. In this case the alleged possible basis for making an order under s.85A(4) is the hiding of cash from the Official Assignee. The Official Assignee says he has investigated the bankrupt’s disposal of cash receipts. He is satisfied that no further investigation into the cash is required. He has accepted the answers and explanations of the bankrupt. In those circumstances, where there is no new evidence or train of investigation to be pursued which has not already been investigated by the Official Assignee, it is difficult to see what the purpose of an order under s. 85A(3) would serve, other than to further penalise the bankrupt. It must be borne in mind that if the cash receipts of the bankrupt have been spent – as he says and the Official Assignee in effect accepts – then they cannot constitute assets which could be realised for the benefit of the creditors of the bankrupt. The underlying basis for making orders under either s.85A(3) or (4) derives from a failure of the bankrupt to comply with his obligations under the Act. If there is no such failure, or no such failure is apparent following investigation by the Official Assignee, then no such order is justified.
30. The second remaining ground advanced for making an order pursuant to s. 85A(3) relates to loans advanced by the bankrupt to his parents and their crèche business and to Loyalty Vision Ltd. In each case these loans were clearly set out in his statement of affairs. They were disclosed to the Official Assignee. The Official Assignee has made no complaint regarding the information provided by the bankrupt to him in relation to these loans. He has investigated them. His investigation is continuing with a view to ascertaining whether any repayments by the bankrupt prior to the date of his adjudication could be recovered for the benefit of the bankruptcy estate. That is an entirely separate matter from the bankrupt’s obligation to cooperate with the Official Assignee and to refrain from hiding or failing to disclose assets to the Official Assignee. Where the liability has been disclosed, the Official Assignee has investigated it, the bankrupt has cooperated with the Official Assignee in that investigation, it seems to me that an order pursuant to s. 85A(3) or (4) cannot be justified.
31. It is also worth recording that the bankrupt offered to meet Ms Kingston with a view to explaining his accounts and answering the issues she had raised on behalf of the applicant but his offer was declined. It is unfortunate that this meeting did not occur as it is possible that much of the applicant’s suspicion and scepticism, which was the characteristic of her submissions to the court, might otherwise have been assuaged or eased and the expense associated with this application avoided or reduced.
Conclusion
32. Since the bringing of her application, considerable material has been brought to the attention of the Official Assignee (and the court). He has had the opportunity to investigate the affairs of the bankrupt in still greater detail. He makes no complaint regarding the cooperation of the bankrupt in that investigation. He himself is satisfied that no further investigation into the vast majority of the matters raised in her application is required. His investigations into two discrete matters which were set out in the statement of affairs are continuing. In effect, due to the exchange of affidavits and the time taken to list the application for hearing, the further investigation sought by the applicant when she initiated the application has taken place. No further investigation under a s. 85A(3) order is required. The Official Assignee has clearly indicated that he is in a position to continue his investigations without the order remaining in place. The existence of the order is preventing the automatic discharge from bankruptcy to which the bankrupt, in ordinary course is entitled pursuant to the provisions of s.85. The postponement of his discharge from bankruptcy is penal in effect. It is not required either to assist in the administration of his individual bankruptcy or in order to maintain the integrity of the bankruptcy process as a whole. Accordingly I refuse the reliefs sought and vacate the interim order granted pursuant to s.85A(3) on the 29th May, 2017.
Perrin ( a discharged bankrupt )
[2019] IEHC 600 (17 July 2019)
URL: http://www.bailii.org/ie/cases/IEHC/2019/H600.html
Cite as: [2019] IEHC 600
Judgment by:
Pilkington J.
Status:
Approved
[2019] IEHC 600
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF SECTION 61(6) OF THE BANKRUPTCY ACT, 1988 (AS AMENDED)
AND
IN THE MATTER OF MARY ANN L.H. PERRIN (A DISCHARGED BANKRUPT)
AND BY ORDER
GARETH GILROY, FREDERIC OZANAM TRUST (INCORPORATED), NOEL O’HANRAHAN AND GERRARD O’CALLAGHAN
JUDGMENT of Ms. Justice Pilkington delivered on the 17th day of July, 2019
1. A motion for directions was brought within the bankruptcy list in respect of Ms. Perrin a discharged bankrupt. Within that motion, by order of Costello J. dated 12 February, 2018, the court set out two issues for adjudication. They are as follows:-
“1. Does the settlement agreement entered into between Albert Perrin and the O’Hanrahan Quaney clients on the 31st October, 2017 act to bar, or prohibit the bringing of proceedings entitled Christopher Lehane v. Albert Perrin, Record No. 2017/132 P by the Official Assignee, or otherwise provide a full defence to the said proceedings?
In the event that question 1 is answered in the negative, does the settlement agreement entered into between Albert Perrin and the O’Hanrahan Quaney clients on the 31st October, 2017 act to provide Albert Perrin with a partial defence in the proceedings entitled Christopher Lehane v. Albert Perrin, Record No. 2017/132 P whether by way of a credit in the sum of €172,500.00 (or some other sum)?”
It appears that the record number is in fact 2018/132 P as appears from the plenary summons within the papers but nothing turns on this.
2. The order of Costello J. recites and enumerates the significant number of affidavits and documentation filed in advance of the motion for directions, together with various suggested draft issue papers of the parties. Thereafter, following her order in February 2018, the following documentation was filed:-
(a) Affidavit of Mark Thornburgh, sworn on the 9th day of March, 2018.
(b) Affidavit of Albert Perrin, sworn on the 13th day of March, 2018.
(c) Affidavit of John O’Callaghan, sworn on the 13th day of March, 2018.
(d) Affidavit of Joanne Cooney, sworn on the 5th day of April, 2018.
(e) Affidavit of Roisin Gallogly, sworn on the 9th day of April, 2018.
(f) Affidavit of Mark Thornburgh (in reply to the affidavit of Joanne Cooney), sworn on the 18th day of April, 2018.
(g) Affidavit of Mark Thornburgh (in reply to the affidavit of Roisin Gallogly), sworn on the 18th day of April, 2018.
(h) Affidavit of Albert Perrin, sworn on the 19th day of April, 2018.
(i) Affidavit of Roisin Gallogly, sworn on the 20th day of April, 2018.
3. Whilst a huge volume of documentation has been filed in this matter, the two discrete issues requiring this court’s adjudication in my view serves to significantly narrow the relevant issues within this documentation.
4. Ms. Heather Perrin was adjudicated bankrupt on the 21st day of November, 2016 and was discharged as a bankrupt twelve months later. This application essentially concerns the implications of the settlement of various proceedings on the 31st day of October, 2017.
5. These circuit court proceedings, issued in 2013-2014 essentially sought reliefs arising from alleged acts of negligence by Ms. Perrin in or about her conduct within her former solicitors practice and sought damages and other consequential orders and reliefs. Various proceedings were issued and within the order of Costello J. the plaintiffs are collectively referred to as the O’Hanrahan Quaney clients as they were represented by that firm.
6. Of more significance in so far as the present issues are concerned, as well as the above matters there were also separate pleadings issued by each of the O’Hanrahan Quaney clients (specifically 2013/10116, 2014/1600 and 2013/4996 respectively) which sought orders and reliefs pursuant to section 74 of the Land and Conveyancing Law Reform Act 2009 (‘the 2009 Act’). They did so in respect of a transfer registered in the PRA on 20 December 2012 whereby in a transaction between Heather Perrin and her spouse Albert Perrin as joint owners of the property, Ms. Perrin transferred all of her interest, for the consideration of natural love and affection, in that property at 6 Lambay Court, Coast Road, Malahide, Co Dublin (DN9981F) to Albert Perrin. Accordingly, the O’Hanrahan Quaney clients, in utilising s. 74 of the 2009 Act, effectively sought to reverse that transaction in order that the interest of Ms. Perrin would be reflected upon the register and might thereafter be available to her creditors.
7. A settlement was reached between the O’Hanrahan Quaney clients and Mr. Perrin in respect of all of these proceedings on 31 October 2017 (‘the October 2017 settlement’) Before dealing with the matters arising from this October 2017 settlement its terms are as follows:-
Settlement Terms
Between Gareth Gilroy, Fredric Ozanam Trust (Incorporated), Noel O’Hanrahan, Gerrard O’Callaghan (hereinafter “the Plaintiffs”) and Albert Perrin
Whereas, the plaintiffs have issued the following proceedings:-
Gareth Gilroy v. Heather Perrin and Albert Perrin: Record No. 4996/2013
Gareth Gilroy v. Heather Perrin: Record No. 04603/2012
Fredric Ozanam Trust (Incorporated) v. Heather Perrin: High Court Record No. 2012/12876P
Fredric Ozanam Trust (Incorporated) v. Heather Perrin and Albert Perrin: High Court Record No. 2014/001600P
Noel O’Hanrahan v. Heather Perrin and Dermot J. Keogh: High Court Record No. 2013/13680P
Noel O’Hanrahan v. Heather Perrin and Albert Perrin: Circuit Court Record No. 2013/010116
And whereas, there is an outstanding debt owed by Heather Perrin in respect of the taxed costs of Gerrard O’Callaghan,
The parties have agreed as follows:-
(1) Albert Perrin will pay the sum of €172,500.00 in settlement of the claims listed above, the said sum broken down as follows:-
(1) The sum of €48,000.00 to the Fredric Ozanam Trust (Incorporated);
(2) The sum of €30,000.00 in compromise in his claim for damages;
(3) The sum of €50,000.00 to Noel O’Hanrahan in compromise of his claim for damages;
(4) The sum of €22,000.00 in discharge of the tax costs of Gerrard O’Callaghan;
(5) And the sum of €22,500.00 as a contribution to the legal fees of each of the plaintiffs.
(2) The parties will bear their own costs, save for the figures at (1)(4) and (1)(5) above.
(3) The plaintiffs will not take any step in the proceedings above listed in which Albert Perrin is a defendant.
(4) The plaintiffs will not take any step in the proceedings above listed in which Albert Perrin is not a defendant, and, subject to receipt of consent from Heather Perrin or the Official Assignee as appropriate, will discontinue the proceedings.
(5) The sum mentioned at (1) above to be paid to O’Hanrahan Quaney Solicitors by bank draft to be delivered by close of business on the 21st day of November, 2017.
(6) O’Hanrahan Quaney Solicitors undertake to hold the sum mentioned at (1) above in escrow until the 12th of December to allow the Official Assignee in bankruptcy to conduct such investigations as they see fit in respect of the source of the said sum and to make such application as they deem appropriate, and further undertakes to abide by any court order directing them to continue to hold the sum in escrow for such further period as the court might direct.
(7) In the event that the sum mentioned at (1) above is found to form part of the estate of Heather Perrin, this agreement will be held to have failed, and the plaintiffs will have liberty to progress the proceedings mentioned at (3) and (4) above.
(8) Upon any dispersement by O’Hanrahan Quaney Solicitors of the sum mentioned at (1) above, the plaintiffs will strike out the proceedings at (3) and will take no further step in the proceedings at (4) above, and will discharge the various lis pendents ( sic ) in respect of the property at 6 Lambay Court, Malahide, County Dublin.
(9) In the event the sum mentioned at (1) above is not paid within the time limit set out at para. (5) above, Albert Perrin hereby consents to a judgment in the amount of the said sum.
8. The terms of the October 2017 settlement are signed and witnessed both on behalf of the respective plaintiffs and the defendant Albert Perrin. As I understand it the matters were due for hearing on that day and Mr. Perrin attended as did his brother in law (and Ms. Perrin’s brother) Mark Thornburgh (who was not legally represented). A solicitor from the firm representing the Official Assignee was also present.
9. In essence the monies paid in respect to the October 2017 settlement (€172,500.00) were discharged by Mr. Perrin from monies provided to him by Mr. Thornburgh. Certainly, a fair reading of the affidavits filed on behalf of Albert Perrin and Mark Thornburgh confirm that their apprehension of the potential outcome of the s. 74 proceedings was very much to the forefront of their considerations. Upon execution of the October 2017 settlement and the subsequent payment of the monies they thought all matters relating to s. 74 of the 2009 Act (‘the s. 74 proceedings’) were at an end.
10. However in proceedings bearing record no. 2018/132 P (issued on 9 January 2018) the Official Assignee then instituted proceedings seeking declaratory and other reliefs that it (as the Official Assignee in the bankruptcy of Ms. Perrin) is the legal and beneficial owner of one half share of the property within Folio 9981F, invoking s. 74 of the 2009 Act and s. 59 of the Bankruptcy Act 1988
11. With regard to the s. 74 proceedings, the affidavits filed on behalf of the Official Assignee make it clear that it is the intention (only a plenary summons has issued to date awaiting the outcome of this matter) to seek the transfer of the 50% interest formerly vested in Ms. Perrin in the family home. The effect of such a transfer would of course be that the 50% interest would vest in the estate of Heather Perrin for the ultimate realisation and distribution amongst her creditors.
12. The proceedings by the Official Assignee self-evidently issued after the October 2017 settlement.
13. Put simply the difficulty or potential difficulty is as follows; both Mr. Thornburgh and Mr. Perrin are adamant that the monies provided in respect of the October 2017 settlement were in full and final settlement of the proceedings set out above but in addition that this settlement binds the Official Assignee to the effect that it was agreed that no steps could be taken by the Official Assignee pursuant to s. 74 (then or at any time in the future) in respect of the family home at Lambay Court within folio DN9981F. Alternatively, that the Official Assignee by the terms of settlement and representations made on that day, is estopped from issuing any proceeding pursuant to s. 74 of the 2009 Act in respect of the family home presently registered in the sole name of Mr. Perrin.
14. The Official Assignee does not accept that any compromise represented by the October 2017 settlement is in any way binding upon him or that he is estopped from issuing the proceedings which he did in 2018, with regard to the 2012 transfer concerning folio DN9981F.
15. With regard to the October 2017 settlement, I understand on the basis of the affidavits filed that Her Honour, Judge Linnane was informed, given the involvement of the Official Assignee (in respect of Ms. Perrin who was named as a defendant to a number of the proceedings) that there may be an issue with regard to the settlement and in such circumstances it might be necessary to apply to the bankruptcy court in relation to it. That position was accepted by the learned Judge. Accordingly, thereafter, certain directions of the bankruptcy court have been sought with regard to the payment of the settlement sum and the persons entitled to it. That has resulted in the two issues requiring adjudication as set out by Costello J.
16. As set out above, the application before me seeks the answer to the two discrete issues as set out within the order of Costello J. of 12 February, 2018. With regard to those issues, the record number is recited as 2017/132 P. The plenary summons itself discloses it as record no. 2018/132 P and I have construed it accordingly.
17. The Official Assignee as set out above does not believe that it is in any way bound by its terms. Initially much of initial discussion pursuant to the October 2017 settlement surrounded the provenance of the funds being provided by Mr. Thornburgh. The Official Assignee is now satisfied that the funds provided for the discharge of the settlement sum by Mark Thornburgh are from his own resources. That has now been resolved but Mr. Perrin and Mr. Thornburgh assert that it was the only issue raised by the representative of the Official Assignee when the matter was mentioned to the court following the October 2017 settlement or at all. That is denied.
18. However, Mr. Thornburgh (and Albert Perrin) have asserted in strong terms that the October 2017 settlement agreement reached between the parties was intended to settle all s. 74 proceedings against either or both of Albert Perrin and Heather Perrin “both now and in the future” to the effect that “all such actions and proceedings, therefore, would be withdrawn and would not be pursued either now or in the future by any party”. The reference to “any party” is largely referable to the Official Assignee – Mr. Thornburgh contends that the compromised proceedings or rather the settlement of the compromised proceedings involved the Official Assignee as a notice party and that the terms of any such settlement were clear. Mr. Thornburgh has represented himself throughout this matter and Mr. Perrin had legal representation before this court and in respect of the October 2017 settlement.
19. Mr. Albert Perrin in his affidavit has stated clearly that:-
“The settlement money was given by him (a reference to Mr. Thornburgh) and accepted by me with the intention of protecting the family home from any s. 74 proceedings to set aside the transfer of the family home to me, this deponent and further to address any proceedings that may be brought under s. 59 of the Bankruptcy Act, 1988 by the Official Assignee in the estate of Heather Perrin (former bankrupt). To that end, it was my understanding that the settlement agreement was intended to conclude all s. 74 proceedings both now and in the future.”
20. As set out above the deed of transfer is dated the 17th day of October, 2012 where, in respect of natural love and affection, Albert Perrin and Heather Perrin, the registered owners of the said property, transferred all of the property within folio 9981F to Albert Perrin. In circumstances where the consideration is natural love and affection, a declaration of solvency is required and this has been sworn by Heather Perrin (the date is unclear) but it appears to be 14 October, 2012.
21. Whilst I appreciate that Mr. Thornburgh provided the funds, nevertheless he was not a party to the settlement or to any of the matters that arise. I also appreciate that he acted on his own behalf throughout, however the majority of the averments within his affidavits relate to issues with regard to the position of Albert Perrin, the 2017 October settlement, and the present and former legal position of his sister, Heather Perrin. Mr. Thornburgh advanced the monies to Mr. Albert Perrin and if there is a difficulty thereafter, then I am afraid that Mr. Thornburgh’s recourse in that regard is clear. He was not a party to the settlement agreement (which was executed by Albert Perrin) nor to any matters regarding his sister or indeed his sister’s interaction with the Official Assignee.
22. The terms of October 2017 settlement are extensive, reduced to writing and executed by the parties. Accordingly, in my view it would require cogent evidence to suggest that they either require to be varied pursuant to their terms or that there was some other agreement or assurances, not reflected within the written document, which is nonetheless binding upon the Official Assignee.
23. The concern of Mr. Perrin and Mr. Thornburgh is in respect of the Perrins’ family home and the entitlement of the Official Assignee to proceed pursuant to s. 74 of the 2009 Act.
24. Section 74 of the 2009 Act states:-
“(1) Subject to subsection (2), any voluntary disposition of land made with the intention of defrauding a subsequent purchaser of the land is voidable by that purchaser.
(2) For the purposes of subsection (1), a voluntary disposition is not to be read as intended to defraud merely because a subsequent disposition of the same land was made for valuable consideration.
(3) Subject to subsection (4), any conveyance of property made with the intention of defrauding a creditor or other person is voidable by any person thereby prejudiced.
(4) Subsection (3) does not—
(a) apply to any estate or interest in property conveyed for valuable consideration to any person in good faith not having, at the time of the conveyance, notice of the fraudulent intention, or
(b) affect any other law relating to bankruptcy of an individual or corporate insolvency.”
25. Section 59 of the Bankruptcy Act 1988 Act (‘the 1988 Act’) states in part as follows:-
“(1) Any settlement of property… or made in favour of a purchaser or incumbrancer in good faith and for valuable consideration, shall—
(a) if the settlor is adjudicated bankrupt within three years after the date of the settlement, be void as against the Official Assignee, and
(b) if the settlor is adjudicated bankrupt at any subsequent time within five years after the date of the settlement, be void as against the Official Assignee unless the parties claiming under the settlement prove that the settlor was, at the time of making the settlement, able to pay all his debt without the aid of the property comprised in the settlement and that the interest of the settlor in such property passed to the trustee of such settlement on the execution thereof.”
26. Turning to the first issue I am required to adjudicate as to whether the settlement agreement bars or prohibits the bringing of proceedings 2018/132 P by the Official Assignee, or otherwise provide a full defence to the said proceedings?
27. The October 2017 settlement is binding upon the parties who executed it. It was not executed by the Official Assignee. Those written terms do not specifically mention s. 74 of the 2009 Act at all but do assert that, subject to certain matters, the O’Hanrahan Quaney plaintiffs ‘will not take any step in proceedings’ where Albert Perrin is a defendant and separately is not a defendant. It is also expressed to be in settlement of all proceedings listed. In so far as these terms can be construed as a ‘full and final settlement’ agreement by the O’Hanrahan Quaney clients, they now simply seek the discharge of the settlement monies. In the affidavits filed on their behalf they are adamant that they never represented, suggested, intimated, implied or asserted to either Mr. Perrin or Mr. Thornburgh that any compromise of the proceedings extended to the Official Assignee. Within the issues raised by Costello J. they seek the answer ‘No’ to both.
28. Within the affidavits and submissions filed on behalf of Mr. Perrin, much is made of the fact that Ms. Perrin did not believe that proceedings would be taken in respect of her family home and certainly not post her adjudication as a bankrupt. That is a matter for Ms. Perrin who is not a party to the matters upon which I am required to adjudicate. No such assurance was ever furnished to Mr. Perrin on any documentation furnished to me and in any event is a matter for him to deal with within the 2018/132 P proceedings.
29. On the face of the October 2017 settlement, on no reasonable interpretation of this agreement can it be construed that any of its terms act to preclude the Official Assignee from issuing s. 74 proceedings.
30. If Mr. Perrin contends he paid the monies under a mistake of fact then I do not see how this can be visited upon the Official Assignee. He was not a party to the October 2017 settlement.
31. The next issue is whether there is any other agreement or estoppel which binds the Official Assignee on the facts of this rather unusual matter. Did the Official Assignee induce Mr. Perrin to enter into this settlement by giving him explicit assurances if he paid monies to settle the matter?
32. The issue or argument of estoppel was advanced on behalf of Mr. Perrin. The parties to the settlement agreement were obviously the O’Hanrahan Quaney clients and Mr. Perrin. The estoppel would therefore not only bind the parties to the settlement but also a non-party the Official Assignee.
33. The definition of Griffin J. in Doran v. Thompson Ltd . [1978] IR 223 has often been quoted with approval. The court stated;
“…where one party has, by his words or conduct, made to the other a clear and unambiguous promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then once the other party has acted on it, altering his position to his detriment, the one who gave the promise or assurance cannot afterwards be allowed to revert to their previous legal relations as if no such promise or assurance had been made by him, and may be restrained in equity from acting inconsistently with such promise or assurance.”
34. At its most basic the doctrine of estoppel requires some form of clear promise or assurance from the Official Assignee from which it would be inequitable to now permit the him to resile. Invocation of the doctrine of estoppel requires that the promise or assurance be clearly distinguished. Mr. Perrin argues that the Official Assignee was essentially a party to the settlement agreement and sought the insertion of certain matters into its terms.
35. However having considered the affidavits and submissions carefully I cannot discern any representations or assurances given by the Official Assignee which would now operate as binding upon him (at law or equity) or was intended to affect legal relations regarding the Official Assignee’s entitlement to institute s. 74 proceedings.
36. It must also be noted that the Official Assignee must at all times have regard to the totality of creditors consequent upon the bankruptcy of Ms. Perrin. How in such circumstances the Official Assignee could bind himself from instituting any future proceedings pursuant to s. 74 in respect of the family home at Lambay Court is difficult to understand.
37. Part of the issue I am asked to decide is as to whether the settlement agreement would in some sense provide a “full defence” to Mr. Perrin in any s. 74 proceedings. In essence, within proceedings 2018/132 P the Official Assignee (acting as the estate of Ms. Perrin) is seeking to “unravel” the 2012 transfer. Mr. Albert Perrin is the defendant in those proceedings because he is the person to whom Ms. Perrin’s interest in the property was transferred and now vests.
38. I do not see as a matter of law how any agreement by Mr. Perrin to discharge monies against specific named plaintiffs (none of whom was the Official Assignee) can in any sense provide him with a defence, by which I understand to mean an argument open to him that his discharge of the monies (via his brother in law) was only furnished on the basis of a binding agreement that no s. 74 proceedings could ever be instituted against him by the Official Assignee. The Official Assignee was not a party to the settlement and having carefully considered all of the affidavits filed in these proceedings, I can see no other binding agreement between the Official Assignee and Mr. Perrin which would preclude s. 74 proceedings being instituted.
39. There is a difference between any understanding held by Mr. Perrin or Mr. Thornburgh and that understanding being binding upon the Official Assignee. Mr. Perrin signed the agreement; he has made no averment that he did not understand its terms. The fact that the Official Assignee had legal representation (Ms. Perrin was still a bankrupt at the time) and queried certain matters on behalf of the Official Assignee cannot thereafter be taken to be consent of the agreement contended for by Mr. Perrin.
40. Mr. Perrin complains that, at the settlement meeting in October 2017, there was no indication whatever that the transfer of his family home would any sense be impugned by the Official Assignee. I appreciate his averment that had his understanding been to the contrary he would never have accepted the monies from his brother-in-law and would never have entered into the settlement terms as they now appear.
41. Mr. Perrin details matters between the Official Assignee and Ms. Perrin to indicate that at no point was the transfer of the family home impugned within the bankruptcy of his spouse. It may well be that there is a full answer to proceedings 2018/132 P but that is a matter for Mr. Perrin to deal with within those proceedings.
42. There is nothing in the settlement agreement and I can find no other documentation that constitutes a variation of the settlement agreement by the parties to that agreement. Both Mr. Perrin and Mr. Thornburgh take issue with what they clearly believe to be the underhand manner in which the Official Assignee post the settlement talks shortly thereafter issues proceedings 2018/132 P. However, nothing as a matter of law precludes the Official Assignee from doing so and they must take their course in the normal way.
43. Mr. Perrin is bound by his execution of the settlement agreement. He is clear in his understanding as to why he entered into it, to preserve and protect the family home and more particularly to ‘close off’ the possibility of the Official Assignee issuing s. 74 proceedings. However, most unfortunately for himself and Mr. Thornburgh, their understanding is mistaken in that the Official Assignee is not bound in the manner they contend. Mr. Thornburgh was very clear that under no circumstances would he have paid this or any money to Mr. Perrin to settle an action in respect of plaintiffs he did not know in respect of proceedings to which he was not a party if he did not consider that he was assisting his sister and brother in law against any possible challenge to their family home. That is regrettable.
44. In my view, Mr. Perrin is afforded no partial or other defence in the proceedings pursuant to his argument that the resolution of proceedings by settlement agreement dated 31 October, 2017 in the sum of €172,500.00 precludes or in some form must be utilised as a set-off in respect of such proceedings. If the terms “full defence” is intended to mean that his, Mr. Perrin’s (and Mr. Thornburgh) clear understanding of the implications of the settlement agreement; that it precluded any person thereafter for any reason (including the Official Assignee) from instituting any proceedings pursuant to s. 74 of the 2009 Act in respect of the family home now owned since 2012 by Mr. Perrin absolutely, then in my view there is no legal basis for that contention.
45. Neither can I see how any legal circumstances would arise whereby he would be entitled to some form of credit or set-off of the sum of €172,500.00. Put simply, the settlement agreement does not bind the Official Assignee. Its terms are clear and must be carefully and properly construed. No other document, side agreement or other contractually binding document has been presented to me which precludes the Official Assignee from proceeding pursuant to s. 74 of the 2009 Act.
46. I do not see any basis for an estoppel acting against the Official Assignee in their institution of proceedings 2018/132 P.
47. I appreciate that within this case potentially complex issues arise as to the entitlement or role of creditor to seek to invoke s. 74 proceedings in the manner contended for by the plaintiffs within the subject proceedings. The Official Assignee, as I understand his position, does not seek to argue with that contention within the very unique and difficult facts of this case. One can only have considerable sympathy with the O’Hanrahan Quaney clients who were obliged to issue proceedings and thereafter await for the discharge of their settlement monies.
48. In circumstances where the Official Assignee does not seek to impugn the entitlement of the O’Hanrahan Quaney creditors to invoke s. 74 proceedings but primarily focuses upon his entitlement to pursue proceedings on behalf of creditors, then in my view he is entitled to do so pursuant to s. 59 of the 1988 Act.
49. As set out above the settlement agreement does not prevent the bringing of proceedings 2018/132 P – Mr. Perrin is of course free to advance any defence of which he may be advised (subject to the adjudication in respect of the issues raised within this application). However in my view the contention that the Official Assignee is bound by the settlement agreement to the effect that no proceedings can be instituted by the Official Assignee pursuant to s. 74 of the 2009 Act is rejected.
50. In my view it therefore follows that the payment made by Mr. Perrin in discharge of the proceedings resulting in the settlement agreement (€172,500.00) do not relate to the proceedings now being advanced within proceedings 2018/132 P. They cannot in my view be reflected as a credit in the amount paid or any other sum as they were paid pursuant to the terms of the settlement agreement and for no other purpose.
In dealing with the two issues raised by Costello J. in her order of 12 February 2018;
Issue No 1;
1. Does the settlement agreement entered into between Albert Perrin and the O’Hanrahan Quaney clients on the 31st October, 2017 act to bar, or prohibit the bringing of proceedings entitled Christopher Lehane v. Albert Perrin, Record No. 2017/132 P by the Official Assignee, or otherwise provide a full defence to the said proceedings?”
Answer to Issue No 1;
No. The settlement agreement entered into between Albert Perrin and the O’Hanrahan Quaney clients on the 31st October, 2017 does not act to bar, or prohibit the bringing of proceedings entitled Christopher Lehane v. Albert Perrin, Record No. 2018/132 P by the Official Assignee, or otherwise provide a full defence to the said proceedings.
Issue No 2;
In the event that question 1 is answered in the negative, does the settlement agreement entered into between Albert Perrin and the O’Hanrahan Quaney clients on the 31st October, 2017 act to provide Albert Perrin with a partial defence in the proceedings entitled Christopher Lehane v. Albert Perrin, Record No. 2017/132 P whether by way of a credit in the sum of €172,500.00 (or some other sum)?”
Answer to Issue No 2;
No. The settlement agreement entered into between Albert Perrin and the O’Hanrahan Quaney clients on the 31st October, 2017 does not act to provide Albert Perrin with a partial defence in the proceedings entitled Christopher Lehane v. Albert Perrin, Record No. 2018/132 P whether by way of a credit in the sum of €172,500.00 (or some other sum).
In the matter of Patrick J. Daly, a Bankrupt
[2019] IECA 345 (18 December 2019)
JUDGMENT of the President delivered on the 18th day of December 20191. This is an appeal from a decision of the High Court (Costello J) of 18th October 2018. Onthat occasion, the High Court ordered that the bankruptcy of Patrick J Daly should bedischarged on 23rd November 2025, that being ten years from the date of the making ofthe adjudication order on 23rd November 2015.2. The matter came before the High Court on foot of an application brought by the OfficialAssignee, Mr. Christopher D. Lehane, for an order pursuant to s. 85A(1) and (4) of theBankruptcy Act 1988, as amended, to postpone the automatic discharge from bankruptcyof the bankrupt. The reasons relied upon in support of the application were that Mr. Dalyhad purportedly failed to cooperate with the Official Assignee in the realisation of theassets of his estate or had hidden from or failed to disclose to the Official Assigneeincome or assets which could be realised for the benefit of the creditors.3. It was the case on behalf of the Official Assignee that the bankrupt, Mr. Daly, had madeno effort whatsoever to comply with his obligation under the 1988 Act until his risk of notbeing discharged from bankruptcy began to crystallise. In particular, it is pointed out thatthe appellant did not file a Statement of Affairs, nor did he initially file a Statement ofPersonal Information. The High Court considered that such cooperation as wasforthcoming was limited in nature, aimed solely at achieving his discharge frombankruptcy. While Mr. Daly did participate in an interview with the Official Assignee, itwas apparent that he was not forthcoming during that process, particularly with respectto the involvement of a Ms. Devon Anne McNeill, otherwise “Devon Anne Ralls”, in aPanamanian investment consortium.4. It will be necessary to say a little more about the background facts shortly, but beforethat it is worth considering the history and nature of the proceedings to date. The matterPage 2 ⇓came before the High Court by way of a Notice of Motion dated 25th October 2016. Itsought a number of reliefs including:(i) An order extending the bankruptcy period of Mr. Patrick J Daly by five yearspursuant to s. 85A(1) and (4) of the 1988 Act;(ii) an order pursuant to s. 85(3) of the 1988 Act that the bankruptcy period should notstand discharged until after investigation and pending the making of a finaldetermination under the application; and(iii) for such relief as the Court deemed appropriate.The matter was initially returnable for 7th November 2016, and on that occasion, anorder in terms of the alternative relief sought at (ii) i.e. an order pursuant to s. 85(3) ofthe 1988 Act that the bankruptcy period should not stand discharged until afterinvestigation and pending the making of a final determination under the application wasmade.5. While a number of issues are raised in the course of this appeal, the core contention isthat as the originating Notice of Motion had sought an extension of five years, and thatsaid Notice of Motion was never amended, that the Court lacked jurisdiction to extend thedisqualification by a ten-year period, and in purporting to do so, acted in excess of andwithout jurisdiction.History of the Bankruptcy6. Mr. Daly was adjudicated bankrupt on 23rd November 2015 on foot of a petitionpresented by the Bank of Ireland. It appears that prior to that, in May 2015, Mr. PatrickDaly left Ballinagore House, his former residence, a large family home in Westmeath. It issuggested that from there he went to live in Kent with his son. However, he did notprovide the Official Assignee with an address or a telephone number. Further, he did notrespond to emails sent to what had been his personal email address.7. The Official Assignee obtained an email address for the bankrupt from the petitioner. Hisoffice emailed Mr. Daly on 1st December 2015, and furnished him with an informationleaflet, a draft Statement of Personal Information, and a draft Statement of Affairs to becompeted and returned to the Official Assignee. Mr. Daly was reminded in relation to hisfailure to comply with his statutory obligations by email of 8th January 2016. He wasinformed that if he did not provide the information sought within two weeks, that theOfficial Assignee would have to consider bringing an application to extend the period ofhis bankruptcy. A further and final letter of reminder was issued on 23rd February 2016which read as follows:“[o]ur office has attempted to contact you in relation to fulfilling your statutoryobligations as a bankrupt on numerous occasions since December 2015, by post,email and phone, with no response. It is advised that your ongoing failure tocooperate with this office means that you are in breach of your duties pursuant tos. 19 of the Bankruptcy Act 1988, a copy of which I enclose for your reference.”Page 3 ⇓Mr. Daly was informed that a failure to disclose the assets set out in the aforementionedStatement of Affairs would result in an application by the Official Assignee for anextension of his discharge date. The Official Assignee brought a motion seeking to extendthe bankruptcy. This motion was advertised in February 2017 in the ‘Irish Independent’and ‘Westmeath Examiner’ newspapers, an order providing for service in this mannerhaving been obtained. Up to this point, Mr. Daly had effectively ignored his bankruptcy.8. On 24th March 2017, Mr. Daly swore a Statement of Affairs, and on 6th April 2017,delivered a Statement of Personal Information. He swore his first replying affidavit inresponse to the motion on 28th April 2017, and attended for interview with the OfficialAssignee on 25th May 2017.Factual Background9. Mr. Patrick Daly and his wife, Ann Daly, were engaged in construction and propertydevelopment over a number of years, operating through a number of companies andpartnerships. They owned a substantial dwelling in Westmeath known as BallinagoreHouse, Ballinagore, County Westmeath. They were also the sole shareholders anddirectors of two companies, Star Alliance Ltd. and Jalpa Properties Ltd. Star Allianceowned property adjoining Ballinagore House which comprised an Equestrian Centre setupon approximately fifty acres. Mr. and Mrs. Daly also owned a holiday apartment whichthey held through a Spanish company.10. Mr. and Mrs. Daly were in considerable difficulties. They were seriously insolvent andBank of Ireland had instituted one set of proceedings and was threatening to commence asecond set of proceedings. In May 2012, Mr. and Mrs. Daly took legal and financial advicein relation to their affairs. They then proceeded to enter into a number of transactions inrelation to the assets referred to and those were as follows:.The first transaction concerned Mr. and Mrs. Daly entering into a contract for thesale of Ballinagore House on 1st July 2012 which had been valued by SherryFitzgerald on 3rd July 2012 at €550,000. There were a number of unusual aspectsto the sale. It involved reserving exclusive rights of residence in favour of Mr. andMrs. Daly and their daughter, Laura. This had the effect of reducing the value of thehouse from €550,000 to €100,000. The house was sold to a friend and sometimebusiness associate of Mr. Daly who resided in America, Ms. Devon Anne McNeill.Another unusual aspect of the sale was that the purchase price was to be paid byway of an initial payment of €5,000 and then subsequent annual instalments of€5,937.50 per year over a period of 16 years..A second transaction involved the issuing of shares in Star Alliance Ltd. to JalpaProperties Ltd. for the sum of €23,000. This had the effect of reducing what up tothen had been Mr. and Mrs. Daly’s 100% ownership of Star Alliance Ltd. to lessthan 10% at a time when it was the owner of the Equestrian Centre and the otherlands and buildings adjoining Ballinagore House. At the same time, substantialnumbers of shares in Jalpa Properties Ltd. were issued to Mr. Brendan Daly, brotherof Mr. Patrick Daly, in exchange for investment by him in Jalpa Properties Ltd, soPage 4 ⇓that Mr. Brendan Daly became the person with by far the most substantial interestin the assets held by Star Alliance Ltd. which was previously owned solely by Mr.and Mrs. Daly, jointly..The third transaction in 2012 saw Mr. and Mrs. Daly transfer their shares in theSpanish company, which owned the apartment in Spain, to Mr. Brendan Daly,apparently in payment of unspecified debts due to him. Originally, Mr. and Mrs.Daly reserved right to stay in the apartment for a period of two weeks each year,though subsequently, they surrendered that right in 2014..Alongside this, on 12th June 2012, Bank of Ireland commenced proceedings againstMr. and Mrs. Daly, claiming a sum in excess of €4.4m..On 30th July 2012, Mr. and Mrs. Daly consented to judgment in favour of the bankin the amount of €4,435,278.61, together with the costs of the proceedings.11. While the question of whether a court has the jurisdiction to make, of its own motion, anorder going beyond the terms of the Notice of Motion is at the heart of the appeal, theappellant has other criticisms to make. It is said that no order can be made on themotion, whether it to be facilitate investigations or to extend the bankruptcy simpliciterunless the statutory requirements are fully met and the evidence deployed in aid ofmeeting the test provided for by statute is admissible according to the rules of evidenceand the rules of fair procedure governing the process. The appellant says that this has notoccurred and that the Official Assignee has failed to establish a case. Moreover, it is saidthat the extension of bankruptcy is penal in nature, and insofar as the Court is about thebusiness of imposing a sanction, that any sanction imposed must be proportionate to thewrongdoing involved. It must also be proportionate with regard to the personalcircumstances of the bankrupt and such factors as may be present in the bankrupt’sfavour. Two specific reasons are given in this regard. First, it is said that the OfficialAssignee’s case contains a great amount of hearsay evidence. Second, it is suggestedthat significant conflicts of fact emerge and that these were conflicts which no Court couldresolve without cross-examination. This was not a case where disputed conflicts of factcould be resolved on affidavit.12. Having read the various affidavits and considered how the history of the bankruptcy wasdealt with by the High Court judge in her judgment, I am not of the view that there wasany real point substance in the submissions made in respect of cross-examination orhearsay evidence. Both sides accept that the bankrupt has a statutory duty to cooperatewith the Official Assignee. What he did and did not do in the context of that duty isbeyond question.13. In McFeely v. The Official Assignee in Bankruptcy [2017] IECA 21, the Court of Appealstated as follows:“55. At para. 26, of her judgment, the trial judge as follows:Page 5 ⇓’26. In my judgment, there is ample, cogent evidence which establishes clearlythat the bankrupt has failed to cooperate with the Official Assignee in relationto the realisation of his assets and has hidden assets from or failed todisclose assets to the Official Assignee in breach of his statutory obligations.This has been deliberate and has persisted, despite the attempts by theOfficial Assignee to secure his cooperation. It is continuing to this day in thecase of his address and his failure to file a Statement of Affairs. I will,therefore, make an order pursuant to s. 85A extending the period ofbankruptcy in this case. The issue remaining to be determined is the durationof the extension’.56. I have no hesitation in saying that this was a conclusion that she was entitled toreach on the evidence adduced, and I reject the submissions made to thecontrary.”14. In my view, in this case, as in McFeely, there was ample cogent evidence whichestablished clearly a failure on the part of the bankrupt to cooperate, despite attempts togive the appearance of cooperation. There remains for consideration the question ofwhether it was open to the High Court to extend the bankruptcy beyond the periodspecified in the Notice of Motion, and if that is decided in the affirmative, a furtherquestion arises of whether the sanction imposed was proportionate.15. Turning to deal first with the Notice of Motion point. It will be recalled that the Notice ofMotion had sought:(i) An order extending the bankruptcy period of Mr. Patrick J Daly by five yearspursuant to s. 85A(1) and (4) of the Bankruptcy Act 1988 on the basis that thebankrupt has(a) Failed to cooperate with the Official Assignee in the realisation of the assets of thebankrupt or(b) Hidden from or failed to disclose to the Official Assignee income or assets whichcould be realised for the benefit of the credit of the bankrupt.(ii) In the alternative, an order pursuant to s. 85(3) that the bankruptcy period shallnot stand discharged until after investigation and pending the making of a finaldetermination under the application and(iii) Such other relief as this Court deems appropriate.16. I have to confess that my first reaction on seeing the Notice of Motion was one of surpriseat the reference to “extending the bankruptcy period by five years”. As I explained duringthe course of the hearing of the appeal, I would have expected that the order soughtwould be extending the period “for such period as the Court deems proper” or for suchperiod, not exceeding the statutory maximum period provided for, as the Court deemsproper. In fact, it seems the formula deployed in the motion of 28th October 2016 wasPage 6 ⇓very much a standard one. Crucially, however, it has to be seen in the context of thestatutory regime then applicable.17. It appears that the standard form motion, which is what I understand it to be, wasinfluenced by the statutory architecture that was then in place. It will be recalled that s.157 of the Personal Insolvency Act 2012 had substituted a new section for the former s.85 of the Bankruptcy Act 1988. The new section provided that every bankruptcy should,subject to certain exceptions, be discharged on the third anniversary of the date of themaking of the adjudication order. Section 85A(4) made provision for a situation wherethere was a failure to cooperate or disclose assets to the Official Assignee. In thatsituation, the duration of the bankruptcy could be extended for up to eight years from thedate of the adjudication order i.e. extended by five further years. However, those sectionswere amended by sections 10 and 11 of the Bankruptcy (Amendment) Act 2015. Section10 substituted for s. 85 (as amended by s. 157 of the Act of 2012), the Act of 1988, byproviding a new subsection which made provision for the discharge, subject to certainexceptions, of every bankruptcy on the first anniversary of the date of the making of theadjudication order.18. Because of its significance to the present appeal, it is convenient to set out s. 11 in full:“11. Section 85A (inserted by s. 157 of the Act of 2012) of the Act of 1988 is amendedby the substitution of the following subsection for subsection (4):(4) Where the Court is satisfied that the bankrupt has –(a) failed to cooperate with the Official Assignee in the realisation of theassets of the bankrupt, or(b) hidden from or failed to disclose to the Official Assignee income orassets which could be realised for the benefit of the creditors of thebankrupt,and the Court may, where it considers just to do so, order that, in place ofthe discharge provided for in s. 85, the bankruptcy shall stand discharged onsuch later date –(i) Being not later than the 8th anniversary of the date of the making ofthe adjudication order, as the Court considers just or(ii) Being not later than the 15th anniversary of the date of the making ofthe adjudication order, which the Court considers just in view of theseriousness of the failure to cooperate referred to in para. (a) or theextent to which income or assets referred to in para. (b) were hiddenor not disclosed, or both, as the case may be.”These sections were commenced on 29th January 2016.19. Notwithstanding the change in the statutory architecture that came about on 29thJanuary 2016, the affidavit sworn by the Official Assignee grounding the Notice of Motiondated 25th October 2016, concluded with a prayer for relief in the following terms:Page 7 ⇓“28. I therefore pray this honourable Court for an order pursuant to s. 85A(1) of theBankruptcy Act 1988 for a five-year extension of the Bankruptcy term on the basisthat the Bankrupt has failed to cooperate with me in the realisation of the assetsand hidden from or failed to disclose to me as Official Assignee income and/orassets which could be realised for the benefit of the Creditors of the Bankrupt.”This approach was maintained in a further affidavit sworn by the Official Assignee on 19thJune 2017. There, the concluding affidavit stated:“33. I therefore pray this honourable Court for an order extending the Bankruptcy for aperiod of eight years from the date of adjudication being 23rd November 2015 to22nd November 2023.”The question of the duration of the extension was addressed by Mr. Lehane in the courseof an affidavit sworn by him on 31st August 2017. At para. 31 of that affidavit, he refersto the fact that the originating Notice of Motion does seek an order seeking to extend thedeponent’s bankruptcy by five years from the date thereof. It goes on to say that he wasat all times seeking the maximum period of extension for the bankruptcy due to theconduct of the bankrupt. In accordance with s. 85A (as it was at the date of hisadjudication), that maximum period of extension was one of five years which if successwould result in a bankruptcy period of eight years from the date of adjudication, takinginto account the initial three year bankruptcy period which would have already elapsed.Due to the change in the law, the bankrupt’s initial adjudication period was shortened, butit had always been his intention to seek the maximum period of extension. At para.32, hecomments that the ongoing conduct of the bankrupt in the face of the application has notin any way convinced him that he should alter the recommendation which he gave to theCourt to anything less than the maximum period. He says that the extension should beuntil 22nd November 2023, but that it was entirely a matter for the Court as to what thelength of the extension period would be and that he fully acknowledges that. An affidavitsworn on 6th February 2017 in relation to an application for an order providing forsubstituted service also made reference to the fact that the order was sought in relationto an application to extend Mr. Daly’s bankruptcy by five years from the date ofadjudication.20. The High Court judge began her consideration of the duration of the extension byreferring to s.85A of the Bankruptcy Amendment Act 2015, which came into effect on29th January 2016, commenting that for reasons explained in the decision of SeanDunne, A Bankrupt [2018] IEHC 813, that section applied to the application. Sheobserved that the making of an order pursuant to s. 85A(4) is made, inter alia, to protectthe integrity of the bankruptcy process and acts as a sanction against the individualbankrupt. She referred to the fact that as she had said in McFeely, the Oireachtascontemplated a spectrum of orders reflecting a variety of more or less egregiousbehaviour by bankrupts. She said that in Mr. Daly’s case, the non-cooperation of thebankrupt was initially total and deliberate and a matter of choice. His continued non-cooperation, she said, was likewise deliberate and a matter of choice. His refusal toPage 8 ⇓explain or to provide proper information regarding the three transactions addressed in thejudgment was ongoing. He insisted, and continues to insist, that each of the transactionswas bona fide. In relation to the purported sale of Ballanagore House, his actionspotentially cost his creditors €250,000 or more. Not only that but his approach to thebankruptcy was obstructive. He failed to furnish a contact address and he did notacknowledge emails which he clearly received. This required the Official Assignee to makeextensive enquiries of local Gardaí, and ultimately, to obtain an order for substitutedservice by way of advertisements in newspapers.21. The judge went on to refer to the fact that the bankrupt, in his first affidavit, had soughtto refer to information that was available to the Official Assignee from third parties, or torely upon disclosure made by the bankrupt to other parties in other proceedings. This,she observed, was not sufficient compliance with his statutory obligations. The bankruptwas afforded an opportunity to rectify the situation and to cooperate with the OfficialAssignee, but he did not really avail of this opportunity, and to a significant extent, hiscooperation was still wanting. While his solicitor’s file in relation to the Ballinagore Housesale was handed over, he refused at interview to give any explanation for the threetransactions at issue. He has withheld meaningful, substantive cooperation with theOfficial Assignee in the administration of his estate and has failed, by and large, toproduce the necessary supporting documents which he is required by law to produce. Thejudge then offered, by way of example, of how the bankrupt had sought to make lifedifficult for the Official Assignee by referring to the situation of Ms. Devon Anne McNeill.The bankrupt had not clarified that she was the same person as Devon Anne Ralls whowas involved in a consortium that included the bankrupt and which had invested inPanama. The Official Assignee wished to ascertain whether any monies, in fact, had beenrecovered from the failed Panamanian investment and to explore whether moniesfurnished by Ms. McNeill/Ms. Ralls to the solicitor of Mr. Daly were in respect of thePanamanian investment rather than in respect of Ballinagore House. The High Court judgeconcluded her consideration of the issue by saying that she regarded Mr. Daly’s failure tocooperate as being on the very serious end of the spectrum. He made belated, qualifiedefforts to cooperate, but meaningful, substantive cooperation had still been withheld. Sheregarded this failure to take the opportunity to comply with his statutory obligations as anexacerbating factor and therefore ordered that the bankruptcy should stand discharged onthe 10th anniversary of the date of the making of the adjudication order on 23rdNovember 2015.22. In considering whether the order made in the High Court was an appropriate one, it isnecessary to remind oneself that the power to extend the period of bankruptcy is penal incharacter (see remarks to that effect in Killaly (a Bankrupt) v. The Official Assignee[2014] 4 IR 365 and in Sean Dunne, A Bankrupt [2017] IECA 304). It is not in doubt thatbecause of the serious consequences of an extension of bankruptcy any order soproviding must be proportionate to the wrongdoing on which it is based. For my part, Iwould have no doubt that proportionality extends to a consideration of the personalcircumstances of the bankrupt. An extension period which, in other circumstances, couldnot be regarded as disproportionate, might be so regarded if the bankrupt wasPage 9 ⇓particularly old or particularly frail. I am also conscious that it is clear from thejurisprudence that an appellate court should only interfere with the assessment of a trialjudge as to the appropriate sanction to impose, if either there has some significant errorof principle in the way in which the judge approached the question in the first place, orwhere the sanction is, in this Court’s view, outside the range of sanctions which the trialjudge should properly regard as appropriate.23. In my view, the trial judge was correct to conclude that the non-cooperation was at theserious end of the spectrum. A very significant extension was, in the circumstances,inevitable. It is the case that the extension is penal in character, but the converse of thatis that someone who emerges from bankruptcy obtains a considerable benefit and thatbenefit has to be earned by full and unqualified cooperation. In my view, the period ofextension ordered is obviously a very significant one, and beyond question, represents asevere sanction. Undoubtedly, the judge might have decided on a somewhat shorterperiod, but I cannot conclude that the period decided upon fell outside the availablerange. It falls well short of the midpoint of the eight to fifteen-year period for seriouscases provided for in subsection (4)(ii). I have considered whether, in a situation wherethe Official Assignee had on a number of occasions, referred to an eight-year period, thatchoosing a figure beyond that could be seen as oppressive or disproportionate. However,in this case, the High Court judge was clear in her view that this was a serious case. Thejudge then, in effect, proceeded to impose a sanction at Point 2 of a seven-point scale,ten when the maximum available was fifteen. While undoubtedly a significant sanction, Ihave not been persuaded that it was so severe as to be disproportionate and not suchthat it should be set aside or varied by this Court.24. Accordingly, I would dismiss the appeal.
Result: Dismiss appeal
Cases Extension
McFeely HC
, a Bankrupt
[2016] IEHC 299 (01 June 2016)
JUDGMENT of Ms. Justice Costello delivered on 1st day of June, 2016
1. The bankrupt, Mr. Thomas McFeely, formerly of 2 Ailesbury Road, Ballsbridge, Dublin 4, is a well known former property developer in both Ireland and the United Kingdom. As with many property developers, he encountered severe financial difficulties and petitioned for his own bankruptcy in London and on 13th January, 2012, he was adjudicated a bankrupt in London. While a bankrupt he prepared a statement of affairs for his trustee in bankruptcy as he was required to do under the relevant insolvency legislation applicable in England and Wales. His bankruptcy in England was annulled on 15th June, 2012.
2. A creditor of Mr. McFeely petitioned for his bankruptcy within this jurisdiction. On 30th July, 2012, Dunne J. held that his centre of main interests was in Ireland and she adjudicated him a bankrupt in the state. At the date of his adjudication, his residence was 2 Ailesbury Road, Ballsbridge, Dublin 4, but the house was in the process of being repossessed and shortly thereafter NAMA took possession of the house.
3. Upon his adjudication as a bankrupt, all of his property and assets became vested in the Official Assignee. Mr. McFeely, as a bankrupt, became subject to various statutory obligations which are imposed upon all bankrupts pursuant to the Bankruptcy Act 1988, as amended. In particular, he became subject to the obligations set out in ss. 19 and 20 of the Act. The relevant sections provide as follows:-
“19.—The bankrupt shall—
(a) unless the Court otherwise directs, forthwith deliver up to the Official Assignee such books of account or other papers relating to his estate in his possession or control as the Official Assignee may from time to time request and disclose to him such of them as are in the possession or control of any other person;
(b) deliver up possession of any part of his property which is divisible among his creditors under this Act, and which is for the time being in his possession or control, to the Official Assignee or any person authorised by the Court or otherwise under the provisions of this Act to take possession of it;
(c) unless the Court otherwise directs, within the prescribed time file in the Central Office a statement of affairs in the prescribed form and deliver a copy thereof to the Official Assignee;
(d) give every reasonable assistance to the Official Assignee in the administration of the estate;
…
20.—(1) A bankrupt shall forthwith notify the Official Assignee in writing of any change in his name or address which occurs during his bankruptcy.”
4. It follows that the bankrupt was obliged to furnish the Official Assignee all of the documentation that he had in relation to his estate and insofar as there was documentation in the possession of third parties he was obliged to identify that documentation and the parties who had possession of the documentation to the Official Assignee. He was required to swear a statement of affairs which must disclose all of his assets. He was obliged to deliver up possession of all of his property to the Official Assignee. He was obliged to confirm his name and address. If during his bankruptcy he changes his address or leaves the jurisdiction, he is obliged to notify the Official Assignee.
5. The Act confers various powers upon the Official Assignee to enable him to carry out his functions and obligations under the Act. He is entitled to interview the bankrupt and persons who may have information relevant to the assets of the bankrupt and the realisation of those assets. If persons having relevant information do not assist the Official Assignee, he may bring an application for leave to have the individual examined by the court pursuant to s. 21 of the Act. Automatically upon adjudication a s. 27 warrant of seizure is granted to the Official Assignee which provides as follows:-
“27.—(1) The Court may by warrant direct the Bankruptcy Inspector or any of his assistants to seize any property of the bankrupt.
(2) An official acting under the warrant may seize any part of the bankrupt’s property in the possession or control of the bankrupt and, for the purpose of seizing any such property, may enter and if necessary break open any house, building, room or other place belonging to the bankrupt where any part of his property is believed to be.”
In addition, where there may be assets or records of the bankrupt on premises other than those of the bankrupt, it is open to the Official Assignee to apply for a warrant pursuant to s. 28 of the Act which provides as follows:-
“28.—Where it appears to the Court that there is reason to believe that any property of the bankrupt is concealed in any house, building, room or other place not belonging to the bankrupt, the Court may grant a search warrant to the Bankruptcy Inspector or any of his assistants, or other person appointed by the Court, who may execute the warrant according to the tenor thereof.”
6. Cooperation, first and foremost by the bankrupt, but by others also, with the Official Assignee is absolutely essential to the operation of the bankruptcy process. Quite simply, it cannot operate without the full cooperation of bankrupts. They have the information in relation to their estates and normally have possession of both the property and the relevant documentation or the relevant information and/or documentation is in the possession of their accountant, solicitor or other agents. It is essential to the integrity of the bankruptcy regime that the various obligations imposed by the Act on each bankrupt personally are observed and complied with fully and to the best of their respective abilities. There is no such thing as a minimum threshold of cooperation. It is for this reason that the Oireachtas has conferred a power upon the court to extend the period of bankruptcy and not to permit the automatic discharge from bankruptcy after the expiration of three (and now one) years from the date of adjudication where the court is satisfied that there has been either non-cooperation by the bankrupt with the Official Assignee in the conduct of the bankruptcy or there has been a failure to disclose assets or an attempt to hide assets from the Official Assignee. Section 85A(1) and (4) of the Act provides as follows:-
“(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt…
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.”
The application
7. This application was brought by the Official Assignee against the bankrupt pursuant to s. 85A of the Act. The initial grounding affidavit canvassed several instances of alleged non-cooperation on the part of the bankrupt but ultimately the application proceeded on the basis of three matters where the Official Assignee said that the bankrupt had not cooperated with him or had failed to disclose assets belonging to his estate or had sought to hide those assets. These are that:
(i) the bankrupt refused to furnish the Official Assignee with his actual address throughout the period of his bankruptcy;
(ii) the bankrupt failed to disclose his interest in seven apartments at a development referred to as Aras na Cluaine, he failed to hand over documents relating to those seven apartments and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.; and
(iii) the bankrupt failed to disclose his interest in units 12 – 16 Old Saw Mills Industrial Estate, Lower Ballymount Road, Dublin 12 , he failed to hand over documents relating to those five units and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.
The address of the bankrupt
8. At an interview with the Official Assignee shortly after his adjudication as a bankrupt in August, 2012 the bankrupt stated that his address was 258 Foreglen Road, Claudy, Co. Derry, Northern Ireland. It is common case and indeed was accepted by the bankrupt in his own affidavit that he did not reside at this address, it was his late parents’ home and it is currently owned by his brother. At the very most, he may have stayed there from time to time. It is not necessary to detail the many letters and e-mails that were opened to the Court showing that the Official Assignee was constantly seeking the bankrupt’s actual address. It is sufficient to note that the bankrupt can have been under no misapprehension that the Official Assignee required to know the address where he resided and not merely a postal address. One solicitor acting for the bankrupt stated that “[s]ince September 2009 [the Bankrupt] has spent his time living and working in London” and that the Derry address would suffice for correspondence. On one occasion it was referred to as his address for bankruptcy. In three affidavits sworn in response to this application he stated that he was from 258 Foreglen Road, Co. Derry, Northern Ireland, though each of the affidavits was sworn in London. In para. 42 of his affidavit sworn on 8th September, 2015, the bankrupt confirmed that for the entire duration of his bankruptcy he lived in London, apparently moving around and staying in different accommodation provided by benefactors whom he flatly refused to identify. All of this was either evidence directly from the bankrupt himself or evidence which was not controverted by the bankrupt.
9. The following conclusions emerge:
(a) The bankrupt gave an address to the Official Assignee as his address when in fact he never resided at that address. This did not comply with his statutory obligation.
(b) The bankrupt knew that the information he had given to the Official Assignee was false or at best misleading and at no stage sought to rectify this default and comply with his statutory obligation.
(c) The bankrupt was aware from numerous requests from the Official Assignee that he was constantly seeking his address and therefore was fully aware both of his statutory obligation to provide this information, and the fact that the Official Assignee continued to require the information. The bankrupt has refused on affidavit to state where he has resided in the past and where he currently resides.
This amounts to a knowing, deliberate breach of his statutory obligations. The breach has been continuous, deliberate and is ongoing.
10. In his defence, the bankrupt sought to blame the Official Assignee for the bankrupt’s failure to comply with the bankrupt’s statutory duties and obligations in this matter. He blamed the Official Assignee for not contacting him for more than a year after he had given him the address at Claudy, Co. Derry as his address, he blamed the Official Assignee for not seeking to visit him at the address in Derry (where he did not reside). Also he blamed the Official Assignee for not paying him to travel to Dublin to meet the Official Assignee as it would involve a trip to Ireland on the grounds of his lack of funds. All of these arguments are spurious and irrelevant. The bankrupt knew that he was not residing at that address in Derry and at all stages it was open to him to provide the correct address at which he was residing to the Official Assignee. Insofar as he is suggesting that he had no fixed abode for the three and a half years which elapsed since his date of adjudication to the date of the hearing of the motion, and therefore could not comply with the statutory obligation, I simply do not accept that this is credible in all the circumstances. The bankrupt gave evidence that he was working in London, completing a major building project and that he had the use of an apartment at the development. The bankrupt was the owner of many apartments and there is no reason to believe that he could not have resided in one of these. Far from being homeless, he was the owner of many residential properties and he has been careful not to state that he had nowhere to live.
11. In all the circumstances I am satisfied that there is very cogent evidence to the effect that the bankrupt has persistently refused to furnish the Official Assignee with his true residential address and continues to this day with his refusal.
Apartments at Aras na Cluaine
12. In November, 2012, the Official Assignee attended at the premises 1 Holles Street, Dublin 2. The freehold was owned by the bankrupt and a receiver had been appointed to the property. The premises had been leased for 25 years to Coalport Building Company Ltd., a company of which Mr. McFeely had been a director prior to his adjudication as a bankrupt in England. Coalport Building Company Ltd. acted as the agent of the bankrupt in relation to his property interests. The Official Assignee said that the receiver over the property invited him into the premises, though the leasehold interest of Coalport Building Company Ltd. was still subsisting. The Official Assignee and his assistants attended at the premises and removed documents from filing cabinets and two computers. The bankrupt objected strenuously to the admission of any of the material obtained as a result as evidence in these proceedings. I shall consider the question of the admissibility of the evidence below.
13. Amongst the papers seized were documents showing that the bankrupt was the owner of seven apartments which had not been disclosed by the bankrupt to the Official Assignee. There were leases signed by the bankrupt in respect of Apartments 93B, 184C and 185C dated respectively 13th December, 2011, and 1st April, 2012 (this latter being during the period when the bankrupt was bankrupt in England and Wales). There was a statement of account from Aras na Cluaine Management Company which referred to the bankrupt’s ownership of 21 apartments between 2006 and 2010. This listed 15 apartments which were notified to the Official Assignee but did not list the further seven apartments and a commercial/office unit at the front of the complex which had no number which had not been disclosed to the Official Assignee. The Official Assignee received an Aras na Cluaine Management Company management fee bill dated 1st April, 2012, and a statement of account in respect of the bankrupt’s 22 apartments and the outstanding management fees in respect of these apartments. He has paid these outstanding fees. The Official Assignee confirmed on affidavit that a receiver was appointed in 2014 by IBRC over the interest of the bankrupt in the 22 apartments and the commercial unit and that he provided all details in relation to the rent and tenants of the 22 apartments to the receiver. The bankrupt did not contest the authenticity of his signatures or deny the fact that he was the landlord of these properties. He said that third parties were beneficially entitled to the premises and, therefore, he was not under an obligation to disclose the interest he had in these premises to the Official Assignee.
14. Whether or not third parties were entitled to claim the whole or part of the beneficial interest in these premises, in no way alters the fundamental statutory obligation of the bankrupt to disclose to the Official Assignee the existence of his interest in these premises and to assist the Official Assignee in taking possession and control of the premises. The interest of the bankrupt in these premises had vested in the Official Assignee upon his adjudication. It is not for the bankrupt, in effect, to determine the validity of the third party claims which is the effect of his non-disclosure of his interest in the premises to the Official Assignee. That is a matter for the Official Assignee and ultimately, if necessary, the court. The Official Assignee was called upon to pay the management fees in respect of those apartments by the management company and he has discharged this debt. He has also worked with the Receiver appointed by IBRC over these apartments. It is thus clear that he has ample evidence of the bankrupt’s ownership of these assets obtained completely independently from the visit to 1 Holles Street, Dublin 2 and which the bankrupt never disclosed to him. Whether or not the evidence obtained by the Official Assignee at 1 Holles Street, Dublin 2 is admissible, which I shall consider below, I am satisfied that the Official Assignee has adduced evidence of the bankrupt’s interest in these properties which was not obtained as a result of his attendance at the premises of Coalport Building Company Ltd. and that the failure of the bankrupt to disclose his ownership of these seven apartments amounted to a very significant failure of cooperation with the Official Assignee in the administration of his bankruptcy and amounted to a failure to disclose his assets and an attempt to hide the assets from the Official Assignee.
Units 12 – 16, Old Sawmills Industrial Estate
15. The Official Assignee adduced evidence recovered from the premises, 1 Holles Street, as described above, which established that the bankrupt was the owner of Units 12 – 16 of the Old Sawmills site. The combined value of the units was estimated as between €750,000 to €1,000,000. There was a letter of loan offer from Bank of Scotland (Ireland) Ltd. to the bankrupt and Mr. Larry O’Mahony dated 20th September, 2004, which was to part-finance the acquisition of Units 12 – 16, Old Sawmills Industrial Estate, Lower Ballymount Road, Dublin 12. The offer was accepted by Mr. O’Mahony and the bankrupt. There was a memo on Coalport Building Company Ltd. headed notepaper recording that the bankrupt and Mr. O’Mahony were the owners of these units and that they intended to retain the property as an asset. There was a letter signed by Mrs. Mary McFeely for and on behalf of the bankrupt on his personal headed notepaper dated 26th June, 2006, stating that the units were owned by the bankrupt and Mr. O’Mahony. There was a lease for 10 years from 1st June, 2006, of Units 12 and 13 executed by the bankrupt and Mr. O’Mahony as landlord to Ms. Pauline Gibson. There was a lease by the bankrupt in his sole name of Unit 15 dated 1st September, 2009, for a period of 4 years, 9 months to Mr. Martin Laird of Autoview Cars Ltd. and there was a lease of Unit 16 dated 1st April, 2006, by the bankrupt and Mr. Laurence O’Mahony as landlord to Apex Tool and Plant Hire as tenant executed by the bankrupt.
16. In response to this claim, the bankrupt asserted that his brother was beneficially entitled to the properties and he asserted that he was entitled to only a 20% interest in the properties. It is, thus, clear from his own admission that he had an interest in these properties and this interest had vested in the Official Assignee regardless of the issue of the admissibility of the documents obtain from 1 Holles Street, Dublin 2. He was obliged to disclose the existence of this interest and it was a matter for the Official Assignee thereafter to realise the interest as he saw fit. It was not for the bankrupt to determine that the interest, in fact, was of no value. For the reasons I have set out in relation to the apartments at Aras na Cluaine, I do not accept that this amounts to an excuse I can accept for the breach of his statutory obligations to deliver up his property including documentation, to disclose information regarding his assets and to cooperate with the Official Assignee.
Failure to swear and file a statement of affairs
17. The Official Assignee also advanced his application to court based upon the bankrupt’s failure to swear and file a statement of affairs but he placed less emphasis upon this failure than those discussed already. Nonetheless, he drew that failure to the attention of the court. In response, the bankrupt stated that he had furnished the Official Assignee with a copy of the statement of affairs which he had prepared for his English bankruptcy and which he had furnished to his trustee in bankruptcy in England. As a matter of principle, this does not and cannot amount to compliance with the statutory obligation under the regime in this jurisdiction. That obligation extends to disclosing all the property of a bankrupt of which the bankrupt is aware. Mr. McFeely was aware of his interest in the properties at issue in these proceedings in Aras na Cluaine and the Old Sawmills. None of these properties are disclosed in the statement of affairs prepared for the English bankruptcy. Other than to say that, in effect, he had done enough by forwarding a copy of his English statement of affairs, Mr. McFeely has made no attempt to explain or excuse his failure for three and a half years to comply with this statutory obligation. This is in circumstances where he knew that the English statement of affairs did not disclose all his assets. It is a breach which stands proud of the three other complaints and applies whether or not the evidence obtained by the Official Assignee from the premises of Coalport Building Company Ltd. is admissible or not and applies whether or not the bankrupt has properly notified the Official Assignee of his address.
Section 85A application
18. The bankrupt asserted that the bringing of this application by the Official Assignee amounted to a decision and that the decision was flawed for a number of reasons. He said that the Official Assignee offended the rule nemo judex in sua causa. It is said that the conduct of the Official Assignee entitled the bankrupt to a dismissal of the application on the basis of objective bias and it was said that the conduct of the Official Assignee had “contaminated” the application. Each of these submissions, even if factually correct, which I am very far from accepting, was predicated upon a fallacy. The Official Assignee is not the decision-maker and therefore the legal principals relied upon have no application to his actions in this case. The Official Assignee has brought an application to court in order that the court may make a decision. The structure of the Act requires that the Official Assignee assesses whether or not there may be a case to answer by a bankrupt under s. 85A of the Act. The Official Assignee has no power to make the impugned decision. It is a matter for the court. The fact that he has made a recommendation to the court as part of the application does not alter the fact that it is solely a matter for the court. This was made clear by the Supreme Court in Killally (a bankrupt) v. The Official Assignee [2014] IESC 76 which is discussed more fully below.
19. Insofar as it is argued that the decision to bring the application before the court attracts these administrative and procedural protections, this argument is without merit or authority. The whole purpose of requiring the Official Assignee to bring the application before the court is in order that a judge who has not been a party to the administration of the bankruptcy may independently consider and assess the evidence adduced on both sides in relation to the issue raised. I dismiss any of the arguments advanced on behalf of the bankrupt to the effect that the application should be dismissed in limine on the grounds that the Official Assignee was somehow prevented or prohibited from bringing the application before the court.
Admissibility of evidence obtained at 1 Holles Street, Dublin 2
20. The Official Assignee removed from the premises, 1 Holles Street, Dublin 2, documents belonging to the bankrupt and pertaining to assets belonging to the bankrupt. He had a right to those documents by virtue of the vesting of all of the estate of the bankrupt in him upon the date of adjudication. Furthermore, the bankrupt had an obligation pursuant to s. 19 to deliver up possession of those documents to the Official Assignee and to notify him of the fact that they were in the possession of Coalport Building Company Ltd., the bankrupt’s agent.
21. The bankrupt objected that the warrant of seizure issued pursuant to s. 27 did not extend to the premises leased by the bankrupt to Coalport Building Company Ltd. The Official Assignee argued that as the bankrupt was the lessor and the receiver appointed over the bankrupt’s interests had invited him into possession and the premises were vacant, that he was entitled to enter the premises.
22. I do not accept that the s. 27 warrant authorised the Official Assignee to enter premises which were the subject of a 25 year lease to a third party (Coalport Building Company Ltd.) and which lease had not been determined. The fact that the bankrupt was the owner of the lessor’s interest did not give him an entitlement to possession. Likewise, the receiver did not have the right to possession of the premises during the currency of the lease and therefore had no right to invite or permit the Official Assignee to enter the premises. It was open to the Official Assignee to obtain the consent of the party entitled to possession, the lessee, to enter the premises and take possession of the documents of the bankrupt or, in the alternative, to obtain a s. 28 warrant. The fact that the premises were vacant does not alter the limits of the Official Assignee’s authority under the s. 27 warrant.
23. The bankrupt sought to exclude from evidence the documents obtained from the premises of Coalport Building Company Ltd. on the basis of the decisions in The People (Attorney General) v. O’Brien [1965] I.R. 142, The People (Director of Public Prosecutions) v. Kenny [1990] 2 I.R. 110 and DPP v. J.C. [2015] IESC 31. These cases all concerned the inadmissibility of evidence obtained in breach of the constitutional rights of an accused person. Each of those cases concerned the inviolability of the dwelling. They can have no application to this case. The bankrupt’s dwelling was not searched. The premises which were entered were those of a limited liability company. The premises was a business premises, it was not a residence. No constitutional right of the bankrupt was in any way breached. The party entitled to make complaint of the Official Assignee was the company. It is noteworthy that the company complained that the Official Assignee had removed documents belonging to the company. It made no complaint concerning the removal of documents belonging to the bankrupt as of course the Official Assignee was entitled to those documents as of right. The Official Assignee did not purport to rely upon any of the company’s documents in this application. He relied upon documents belonging to the bankrupt which were present on the premises of the company but were not company documents
24. It is not open to the bankrupt to object to the Official Assignee taking possession of the bankrupt’s documentation. It is not open to the bankrupt to object on behalf of Coalport Building Company Ltd. to the entry by the Official Assignee of the leased premises. Any wrong that may have occurred (and I am far from holding that there was such a wrong) is a matter as between Coalport Building Company Ltd. and the Official Assignee. It does not afford a basis for the bankrupt to object to the introduction of the documentation in evidence in these proceedings.
25. The bankrupt sought to invoke a constitutional right to fair procedures as the basis for excluding these documents. He argued that because the Official Assignee had possession of the documents and he did not that he was prejudiced in responding to this application. He also stated that he could not obtain copy bank statements which would assist in demonstrating the source of funds for the purchase of the apartments and units and which would therefore assist in demonstrating that the bankrupt’s brother was beneficially entitled to 80% of the ownership of the units at Old Sawmills and that third parties were entitled to some or all of the apartments at Aras na Cluaine. It was not explained why copies of the bank statements could not be obtained by the bankrupt. More fundamentally, it appeared that in the five months between the bringing of the application and the hearing, no attempt had been made by the bankrupt to obtain copies of the documents. He did not ask the Official Assignee for copies of the documents which he said were in the possession of the Official Assignee and which would assist him in dealing with the application. Apparently he did not ask the relevant bank for copies either. In those circumstances, the objection that he was not afforded fair procedures cannot be sustained on a factual basis. It is therefore, not necessary to consider the legal arguments predicated upon the alleged fact of denial of fair procedures as the bankrupt’s case on this ground must fail.
Conclusion on the issue of extension of the bankruptcy
26. In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs. I will therefore make an order pursuant to s.85A extending the period of the bankruptcy in this case. The issue remaining to be determined is the duration of the extension.
Duration of extension of bankruptcy
27. Section 85A was inserted by s. 157 of the Personal Insolvency Act 2012. The Personal Insolvency Act 2012 reduced the period of bankruptcy from 12 years to three. As part of the rebalancing of the bankruptcy code effected by the Act of 2012, the Oireachtas conferred upon the court a power to make an order where it considered it appropriate so to do to extend the period of bankruptcy for a maximum period of a further five years. The section has to be understood in that context.
28. The section was considered by the Supreme Court in Killally (a bankrupt) v. The Official Assignee. The bankrupt in that case had been convicted in the Circuit Criminal Court of theft involving goods which formed part of his estate. Having pleaded guilty at his arraignment, prior to his sentencing hearing, he paid into the Bankruptcy Office the full value of the goods. Thus the creditors of the estate were not at any loss. He was sentenced to three years imprisonment with the full term suspended and directed to serve 240 hours of community service. An application to extend the period of his bankruptcy was brought and the bankrupt argued that he had already been punished in the criminal proceedings and therefore should not be subject to a further punishment by way of the extension of his period of bankruptcy. The High Court (McGovern J.) ultimately added a 12 month period out of a maximum possible extension of 36 months (due to the length of time the bankruptcy had already been in existence). The bankrupt appealed to the Supreme Court.
29. Clarke J. gave the judgment of the Supreme Court. First, he held that the court can simply extend the period of bankruptcy as a sanction to reflect the established failure to cooperate, hiding or failure to disclose relevant assets. It is not necessary that it be for the purpose of conducting further investigations. He acknowledged that a suspension of discharge from bankruptcy of that nature is necessarily penal in character and he stated that it followed that any wrongdoing would require to be clearly established before the jurisdiction is invoked. He also said that the extent of any extension of the period of bankruptcy ordered by the court should be proportionate to the established wrongdoing. At para. 3.20 of his judgment he stated:-
“[o]n behalf of the Official Assignee, on the other hand, it was contended that the personal bankruptcy regime relies to a significant extent on individual bankrupts to cooperate fully with the Official Assignee and the process. In those circumstances it is said that it is entirely appropriate for the Oireachtas to consider, for the purposes of discouraging non-compliance, that the Court should be empowered, in an appropriate case, to extend the period of bankruptcy in cases of significant failure of compliance. In my view that argument is well-founded.”
He referred to “the need to impose a significant discouragement to prevent bankrupts from failing to comply with their clear obligation to cooperate.” Clarke J. emphasised that once a court is satisfied that there has been a failure to cooperate with the Official Assignee in relation to the bankruptcy or that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets that the extension of the bankruptcy period should be proportionate to the established wrongdoing. At para. 5.6 of the judgment, Clarke J. stated:-
“[t]he trial judge was entitled to take the view, as he clearly did, that this was a serious breach of the obligation placed on Mr. Killally to cooperate with the Official Assignee and not to seek to gain personal advantage by the sale of equipment which should have formed part of his estate for bankruptcy purposes. The seriousness of that breach needs to be measured in the light of the correct view taken by the trial judge that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breach. In the light of those considerations, and notwithstanding the fact that Mr. Killally had already been sentenced by the criminal courts, I am of the view that it was within the range of sanctions open to the trial judge in all the circumstances of this case to impose, by way of additional civil sanction, an extension of one year on Mr. Killally’s bankruptcy.” [Emphasis added]
30. The Oireachtas empowers the court to extend the period of bankruptcy up to the eighth year anniversary of the date of adjudication. The Oireachtas clearly contemplates a spectrum of such orders. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.
31. In my opinion the breaches by the bankrupt in this case which have been established to my satisfaction are at the very grave end of the spectrum. In reality the bankrupt has refused to cooperate in any meaningful way with his bankruptcy. His initial interview in August, 2012 with the Official Assignee was, to his knowledge, misleading. He gave as his address the house in Claudy, Co. Derry when he knew that he never resided at that address and did not intend to reside there. He failed to disclose his interest in 12 properties. He presented the statement of affairs which he had prepared for his English trustee in bankruptcy to the Official Assignee as disclosing his assets when he knew that it was incomplete. He continued thereafter to fail to cooperate with his bankruptcy. He sought to dictate where he would be interviewed by the Official Assignee (by insisting that the Official Assignee should travel to Derry to interview him) and he required to be paid to travel to Dublin if he was to be interviewed by the Official Assignee. Unilaterally he decided that equitable claims by third parties were valid and that therefore his estate had no claim to certain properties. He decided his 20% interest in certain properties (and quite possibly 100% interest) was of nil commercial value, though there was no charge on the properties, without informing the Official Assignee of his interest and his decision. Unlike Mr. Killally, his creditors are, or would be, but for the investigations of the Official Assignee, at a loss as a result of his persistent breach of his statutory obligations. In these proceedings, on affidavit, he has flatly refused to furnish the address or addresses where he has resided and where he now resides. He has failed to furnish a sworn statement of affairs and has furnished in purported compliance with the statutory obligation a statement of affairs prepared in his English bankruptcy which he knows to be false. He has greatly hindered the Official Assignee in the administration of his estate.
32. The effect of his non-cooperation has been severely to prejudice the realisation of his estate for the benefit of his creditors. The non-cooperation and the failure to disclose assets has been on the extreme end of the spectrum and it follows in my opinion that the extension period should reflect this fact.
33. The bankrupt argues that two factors should reduce any period of extension which the court may consider imposing. Firstly, it is said that he is aged 67 and an extension of the bankruptcy period into his seventies would be unjust. Secondly, it is said that the court should take into account the period of five months during which he was bankrupt in England and look at the totality of his period in bankruptcy.
34. In relation to the latter point, in my judgment this is impermissible in principle. Section 85A is concerned with whether or not the bankrupt has complied with his duties under Bankruptcy Act 1988, as amended, in this jurisdiction and whether or not he has cooperated with the Official Assignee. An order may be made under s. 85A which is solely penal in nature with a view to protecting the bankruptcy process in this jurisdiction. In my opinion this is fundamentally different from the situation that occurred in the Killally case. In that case the Supreme Court held that in assessing the proportionality of the period of extension it was appropriate to have regard to the sanction imposed by the criminal courts for the same acts which grounded the application for the extension of the period of Mr. Killally’s bankruptcy. That is by no means the same as taking account simpliciter of the period of bankruptcy in another jurisdiction where the bankruptcy was annulled. In any event, the bankrupt has chosen not to explain to the court the basis for the annulment of his bankruptcy in England and therefore I am not in any position to reach any conclusions in relation to the English bankruptcy other than the fact that it commenced in January, 2012 and was annulled in June, 2012. As there could be any number of reasons why this occurred I cannot assess the implications, if any, for the decision I must make in the absence of evidence. I have not taken the period of the English bankruptcy into account in assessing the appropriate period of extension in this case.
35. The bankrupt could point to no authority where age was a factor which should reduce the duration of an extension of bankruptcy. On the other hand the Official Assignee referred to the English case of The Official Receiver v. Tilbrook [2008] EWHC 2732 (Ch). The Deputy District Judge extended the period of Mr. Tilbrook’s bankruptcy for two years. In so doing, he considered the age of the bankrupt as being a matter which merited a reduction of the period for the extension of the bankruptcy. The High Court on appeal concluded that age and the fact that Mr. Tilbrook was then 60 did not count for very much by way of mitigation having regard to the aim of the legislation not just to deter the individual bankrupt but also to deter others and to protect the public. It thus seems that little, if any, weight ought to be attached to the age of the bankrupt in considering whether or not to extend the period of bankruptcy and for how long.
Conclusion
36. The bankrupt was adjudicated bankrupt in this jurisdiction on 30th July, 2012. Therefore the maximum period which his bankruptcy may be extended pursuant to s. 85A is to 30th July, 2020. For the reasons set out above, I am of the view that the discharge should be delayed for the maximum period permissible with a slight reduction due to the age of the bankrupt. I therefore extend the duration of the bankruptcy of Mr. McFeely to 30th May, 2020.
McFeely -v- Official Assignee in Bankruptcy CA
[2017] IECA 21 (02 February 2017)
Court of Appeal
Composition of Court:
Peart J., Hogan J., Hedigan J.
Judgment by:
Peart J.
Status:
Approved
Result:
Dismiss
THE COURT OF APPEAL
Neutral Citation Number: [2017] IECA 21
Record Number: 2016/327
Peart J.
Hogan J.
Hedigan J.
JUDGMENT OF MR. JUSTICE MICHAEL PEART DELIVERED ON THE 2ND DAY OF FEBRUARY 2017
1. To be declared bankrupt is one of the more unfortunate things that can happen over the course of a lifetime. Not only is it perceived to be a blot on one’s escutcheon, but it has also certain practical implications. For example, the bankrupt cannot access credit, and neither may he be a director of a limited liability company. On the other hand, bankruptcy can provide an opportunity to begin again, in the sense that the debts owed to existing creditors disappear, after the Official Assignee, in whom the bankrupt’s estate will have vested, has realised the assets of the estate, and used the proceeds to settle the debts owing to creditors on a pro rata basis, and usually for much less than full value.
2. This process necessarily takes time. The length of time will depend on the extent to which the bankrupt does or does not cooperate with the Official Assignee in the disclosure of his assets, including the provision of a complete and accurate statement of affairs, and comply generally with the obligations imposed by the statutory scheme upon the bankrupt.
3. Section 85 of the Bankruptcy Act, 1988 as amended (“the 1988 Act”), provides that a bankruptcy will be automatically discharged after a period of three years from the date on which the bankrupt is declared bankrupt. Once discharged he may once again try to access credit, become a director of a limited liability company, and generally speaking attempt to get going again in business, or otherwise earn a living, should he so wish, freed from the burden of the debts which had earlier overcome him.
4. However, circumstances may evolve during the currency of the bankruptcy which justify that three year period of bankruptcy being extended by up to a further five years under the provisions of s. 85A of the 1988 Act, the relevant provisions of which provide:
“(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt …
(4) Where the Court is satisfied that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.”
5. If the maximum extension of 5 years is applied, it follows that the entire period of the bankruptcy will have been 8 years in total from the date of adjudication. Given that the appellant was adjudicated bankrupt by order of Dunne J. on the 30th July 2012, his bankruptcy could not be extended beyond 30th July 2020 under these provisions.
6. The present appeal is against an order made by Costello J. on the 1st June 2016 in which she extended the period of bankruptcy until 30th May 2020. In a reserved judgment delivered on that date stated that she was reducing the maximum period permissible under the section very slightly on account of the age of the appellant, who was aged 67 at that time: see Re McFeely, a bankrupt [2016] IEHC 299. That order was made on foot of an application by the Official Assignee under s. 85(1) of the Act of 1988. In his affidavit grounding the application the Official Assignee stated that the appellant had failed to co-operate with him, or had failed to disclose assets belonging to his estate, or had sought to hide those assets.
7. More specifically, the grounds relied upon by the Official Assignee in this regard are set forth in the judgment of Costello J. as follows:
(1) The appellant refused to furnish the Official Assignee with his actual address throughout the period of his bankruptcy;
(2) the appellant failed to disclose his interest in seven apartments as a development referred to as Aras na Cluaine, he failed to hand over documents relating to the seven apartments, and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.; and
(3) the appellant failed to disclose his interest in units 12-16, Old Saw Mills Industrial Estate, Lower Ballymount Road, Dublin 12, he failed to hand over documents relating to those five units, and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.
8. Having considered the affidavit evidence adduced by both the Official Assignee and the appellant, and having considered the legal submissions made by each party, the trial judge reached the following overall conclusion:
“26. In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to co-operate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his co-operation. It is continuing to this day in the case of his address and his failure to file a statement of affairs. I will therefore make an order pursuant to s. 85A extending the period of the bankruptcy in this case. The issue remaining to be determined is the duration of the extension.”
9. The trial judge then considered the provisions of s. 85A of the 1988 Act, noting that the Personal Insolvency Act 2012 had reduced the period of bankruptcy from 12 years to 3 years, and stated in that regard that:-
“as part of the rebalancing of the bankruptcy code affected by the Act of 2012, the Oireachtas conferred upon the court a power to make an order where it considered it appropriate so to do to extend the period of bankruptcy for a maximum period of a further five years. The section has to be understood in that context.”
10. Having so stated, the trial judge then considered the judgment of Clarke J. in the Supreme Court in Killally (a bankrupt) v. The Official Assignee [2014] 4 I.R. 365 to which she had been referred, and stated as follows:
“29. Clarke J. gave the judgment of the Supreme Court. First, he held that the court can simply extend the period of bankruptcy as a sanction to reflect the established failure to cooperate, hiding or failure to disclose relevant assets. It is not necessary that it be for the purpose of conducting further investigations. He acknowledged that a suspension of discharge from bankruptcy of that nature is necessarily penal in character and he stated that it followed that any wrongdoing would require to be clearly established before the jurisdiction is invoked. He also said that the extent of any extension of the period of bankruptcy order by the court should be proportionate to the established wrongdoing. At para. 3.20 of his judgment he stated:-
“[o]n behalf of the Official Assignee, on the other hand, it was contended that the personal bankruptcy regime relies to a significant extent on individual bankrupts to co-operate fully with the Official Assignee and the process. In those circumstances it is said that it is entirely appropriate for the Oireachtas to consider, for the purposes of discouraging non-compliance, that the Court should be empowered, in an appropriate case, to extend the period of bankruptcy in cases of significant failure of compliance. In my view that argument is well-founded.”
He referred to “the need to impose a significant discouragement to prevent bankrupts from failing to comply with the clear obligation to cooperate”. Clarke J. emphasised that once the court is satisfied that there has been a failure to cooperate with the Official Assignee in relation to the bankruptcy or that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets that the extension of the bankruptcy period should be proportionate to the established wrongdoing. At para. 5.6 of the judgment, Clarke J. stated:-
“[t]he trial judge was entitled to take the view, as he clearly did, that this was a serious breach of the obligation placed on Mr Killally to cooperate with the Official Assignee and not to seek to gain personal advantage by the sale of equipment which should have formed part of his estate for bankruptcy purposes. The seriousness of that breach needs to be measured in the light of the correct view taken by the trial judge that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breach. In the light of those considerations, and notwithstanding the fact that Mr Killally had already been sentenced by the criminal courts, I am of the view that it was within the range of sanctions open to the trial judge in all the circumstances of this case to impose, by way of additional civil sanction, an extension of one year on Mr Killally’s bankruptcy”.
30. The Oireachtas empowers the court to extend the period of bankruptcy up to the eighth year anniversary of the date of adjudication. The Oireachtas clearly contemplates a spectrum of such orders. It is clear that grave breaches of the statutory obligations by bankrupts will attach the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the courts to consider is where such along that spectrum do the particular established acts of each individual bankrupt fall.
31. In my opinion the breaches by the bankrupt in this case which have been established to my satisfaction are at the very grave end of the spectrum. In reality the bankrupt has refused to cooperate in any meaningful way with his bankruptcy. His initial interview in August, 2012 with the Official Assignee was, to his knowledge, misleading. He gave as his address the house in Claudy, Co. Derry when he knew that he never resided at that address and did not intend to reside there. He failed to disclose his interest in 12 properties. He presented the statement of affairs which he had prepared for his English trustee in bankruptcy to the Official Assignee as disclosing his assets when he knew that it was incomplete. He continued thereafter to fail to cooperate with his bankruptcy. He sought to dictate where he would be interviewed by the Official Assignee (by insisting that the Official Assignee should travel to Derry to interview him) and he required to be paid to travel to Dublin if he was to be interviewed by the Official Assignee. Unilaterally he decided that equitable claims by third parties were valid and that therefore his estate had no claim to certain properties. He decided his 20% interest in certain properties (and quite possibly 100% interest) was of nil commercial value, though there was no charge on the properties, without informing the Official Assignee of his interest and his decision. Unlike Mr Killally, his creditors are, or would be, but for the investigations of the Official Assignee, at a loss as a result of his persistent breach of his statutory obligations. In these proceedings, on affidavit, he has flatly refused to furnish the address or addresses where he has resided and where he now resides. He has failed to furnish a sworn statement of affairs and has furnished in purported compliance with the statutory obligation a statement of affairs prepared in his English bankruptcy which he knows to be false. He has greatly hindered the Official Assignee in the administration of his estate.
32. The effect of his non-co-operation has been severely to prejudice the realisation of his estate for the benefit of his creditors. The non-co-operation and the failure to disclose assets has been on the extreme end of the spectrum and it follows in my opinion that the extension period should reflect this fact.”
11. Clearly the trial judge did not accept the appellant’s denials in his affidavits of the allegations laid against him by the Official Assignee, and was completely satisfied on the evidence adduced that the appellant had failed to cooperate as required, had not disclosed all of his assets, and had indeed hidden assets – all in contravention of his statutory obligations under the Act of 1988. She stated that these actions and inactions by him were considered to be “at the very grave end of the spectrum”, and that she would therefore extend the period of the bankruptcy to just short of the maximum permitted under the section, allowing a deduction of just two months on account of the appellant’s age.
12. The appellant has argued on this appeal that the trial judge erred in a number of respects.
13. Firstly, it is submitted that she wrongly admitted into evidence certain documents which he states were illegally obtained and removed from the premises of Coalport Building Company Limited (‘Coalport’) at 1, Holles Street, Dublin 2. It appears that the appellant was the freehold owner of these premises, and that Coalport occupied same on foot of a 25 year lease. The appellant had been a director of this company, and managed his business affairs from the premises. The Official Assignee attended at these premises and removed certain documents from filing cabinets, as well as two computers. The appellant submits that this was an unlawful entry as no warrant had been obtained pursuant to the provisions of s. 28 of the Act of 1988, and therefore, by virtue of the exclusionary rules of evidence as set forth in cases such as DPP v. JC [2015] IESC 31, the evidential fruits of this unlawful entry and search should not have been admitted into evidence and then relied upon for the conclusions reached. It is submitted that this unlawful entry and search by the Official Assignee constituted a “knowing, reckless or grossly negligent breach of constitutional rights”.
14. Secondly, it is submitted that by admitting the said materials into evidence unlawfully obtained the trial judge failed to give appropriate and balanced consideration to the need to uphold the integrity of the bankruptcy regime.
15. Thirdly, it is submitted that by admitting such materials into evidence the trial judge failed to consider the appellant’s personal and property rights derived both from the Constitution and the European Convention on Human Rights, and failed to uphold and vindicate those rights.
16. Fourthly, it is submitted that the trial judge applied a disproportionate sanction by failing to properly consider the judgment of Clarke J. in Killally (a bankrupt) in which a 12 month extension of bankruptcy was ordered, and failed to take account of the fact that for most of the first 12 months following the date of his adjudication, and in breach of a legitimate expectation in this regard the Official Assignee made no contact with the appellant.
17. Fifthly, it is submitted that the trial judge failed to consider certain mitigating features such as the alleged misconduct of the Official Assignee (by entering the premises without first obtaining a warrant entitling him to do so), and the age of the appellant.
18. Sixthly, it is submitted that the trial judge erred in failing to consider or appreciate that while the wording of s. 85A of the 1988 Act gives a power to the Official Assignee to make an application for an extension of the bankruptcy, it does not mandate that he does so – in other words that he has a choice to make. It is submitted that his decision in this case to bring the application and seek the maximum extension of the bankruptcy was therefore a reviewable decision, and that the trial judge erred in determining that the Official Assignee’s decision in that regard was immune from challenge “under legal principles of natural justice, constitutional justice and the principle of objective bias”.
19. Lastly, it is submitted that the trial judge erred by considering that part of the failure to co-operate with the Official Assignee was by not providing his home address. The address which he gave was 258, Foreglen Road, Claudy, Co. Derry. The appellant does not live there permanently, but, according to his affidavits, he gave that address as being one which was reliable as a postal address so that the Official Assignee could communicate with him by addressing correspondence to him at that address. It is submitted that the trial judge failed to appreciate the reality of this situation, and wrongly relied upon this issue as evidence of his non co-operation with the Official Assignee.
Issue 1 – unlawful entry and seizure of documents and computers
20. In his affidavit to ground the application for an extension of bankruptcy, the Official Assignee, having set forth a number of examples of lack of co-operation on the part of the appellant including his failure to disclose assets and file a proper statement of affairs, stated that in the absence of full disclosure of all information and documents in relation to the bankrupt’s estate he had to conduct a time-consuming investigation to discover the extent of his assets and liabilities, and that in that regard he “attended at his business premises at 1 Holles Street, Dublin 2 which was vacant to obtain information prior to the appointed Receiver taking possession of it”. The appellant has sought to doubt the veracity of that particular statement by reference to what was stated by the Official Assignee in his third affidavit in answer to the appellant’s objection to the use of material obtained from the Holles Street premises on the basis that it was unlawfully obtained, and where at para. 3 thereof he stated:-
“3. In fact I was invited into the premises by Grant Thornton on their appointment as Receiver thereof. The Lessor was Mr McFeely and his interest and his commercial records were vested in me and the Receivers as Lessees invited me in.”
21. The issue raised by the appellant is his contention that given the power that he has under s. 28 of the 1988 Act to apply for a warrant to enter and search a premises, the failure to apply a warrant in respect of the Holles Street premises results in an unlawful entry and search, rendering inadmissible as evidence any documents or other materials obtained during the course of the search which followed what is said to be the unlawful entry, as would be the case in a criminal trial, subject, of course, to the modification of the exclusionary rule contained in the majority decisions of the Supreme Court in JC v. Director of Public Prosecutions [2015] IESC 31.
22. It is worth mentioning at this point that the Official Assignee had obtained a warrant from the Court pursuant to s. 27 of the 1988 Act, but not one under s. 28. Those provisions provides as follows:
“27(1) The Court may by warrant direct the Bankruptcy inspector or any of his assistants to seize any property of the bankrupt.
(2) An official acting under the warrant may seize any part of the bankrupt’s property in the possession or control of the bankrupt and, for the purpose of seizing such property, may enter and if necessary break open any house, building, room or other place belonging to the bankrupt where any part of his property is believed to be.
28. Where it appears to the Court that there is reason to believe that any property of the bankrupt is concealed in any house, building, room or other place not belonging to the bankrupt, the Court may grant a search warrant to the Bankruptcy inspector or any of his assistants, or any other person appointed by the Court, who may execute the warrant according to the tenor thereof.”
23. The appellant relies on the fact that Coalport was the lessee and occupier of the premises under a 25 year lease which still existed, and that Coalport must be considered to be a separate legal entity. He says that while he had been a director of that company, he resigned as a director upon his adjudication as a bankrupt. It is submitted that absent a warrant being obtained under s. 28 the entry upon the premises of Coalport by the Official Assignee was unlawful.
24. The Official Assignee submitted, firstly, that he did not require a warrant to enter those premises since the bankrupt’s interest as Lessor of the premises had vested in him, thereby entitling him to enter the premises, but that in any event, on the facts as sworn to, he was invited into the premises by the Receiver appointed over the premises to enable him to take possession of any of the bankrupt’s property found there. He submitted also that even if complaint can be made about this entry onto the premises without a warrant, it is a complaint that could be made only by Coalport itself and not by the bankrupt on its behalf.
25. The trial judge considered the submissions made in this regard. Having first stated that the Official Assignee was entitled to the documents themselves which he seized during the search since all the bankrupt’s property had vested in him, and having also referred to the fact that the bankrupt was in any event obliged under s. 19 of the 1988 Act to deliver up possession of these documents to the Official Assignee, as well as to notify him that they were in the possession of Coalport, being the bankrupt’s agent, she stated:
“21. The bankrupt objected that the warrant of seizure issued pursuant to s. 27 did not extend to the premises leased by the bankrupt to Coalport Building Company Ltd. The Official Assignee argued that as the bankrupt was the lessor or and the receiver appointed over the bankrupt’s interests had invited him into possession and the premises were vacant, that he was entitled to enter the premises.
22. I do not accept that the s. 27 warrant authorised the Official Assignee to enter premises which were the subject of a 25 year lease to a third party (Coalport building Company Ltd) and which lease had not been determined. The fact that the bankrupt was the owner of the lessor’s interest did not give him an entitlement to possession. Likewise, the receiver did not have the right to possession of the premises during the currency of the lease and therefore had no right to invite or permit the Official Assignee to enter the premises. It was open to the Official Assignee to obtain the consent of the party entitled to possession, the lessee, to enter the premises and take possession of the premises of the bankrupt or, in the alternative, to obtain a s. 28 warrant. The fact that the premises were vacant does not alter the limits of the Official Assignee’s authority under the s. 27 warrant.”
26. There is no cross-appeal against those conclusions, and it is unnecessary, therefore, to express any view on this point. In the absence of any cross-appeal, however, this Court is nonetheless obliged to proceed on the basis that the search was unlawful.
27. As to the arguments made by the appellant that the fruits of the unlawful entry without the necessary warrant should not have been admitted into evidence by virtue of the exclusionary rule the trial judge stated the following at paras. 23 and 24 of her judgment:
“23. The bankrupt sought to exclude from evidence the documents obtained from the premises of Coalport Building Company Ltd on the Basis of the Decisions in The People (Attorney General) v. O’Brien [1965] I.R.142, The People (Director of Public Prosecutions) v. Kenny [1990] 2 I.R.110 and DPP v. J.C. [2015] IESC 31. These cases all concerned the inadmissibility of evidence obtained in breach of the constitutional rights of an accused person. Each of those cases concerned the inviolability of the dwelling. They can have no application to this case. The bankrupt’s dwelling was not searched. The premises which were entered were those of a limited liability company. The premises was a business premises, it was not residence. No constitutional right of the bankrupt was in anyway breached. The party entitled to make complaint of the Official Assignee was the company. It is noteworthy that the company complained that the Official Assignee had removed documents belonging to the company. It made no complaint concerning the removal of documents belonging to the bankrupt as of course the Official Assignee was entitled to those documents as of right. The Official Assignee did not purport to rely upon any of the company’s documents in this application. He relied upon documents belonging to the bankrupt which were present on the premises of the company but were not company documents.
24. It is not open to the bankrupt to object to the Official Assignee taking possession of the bankrupt’s documentation. It is not open to the bankrupt to object on behalf of Coalport Building Company Ltd to the entry by the Official Assignee of the leased premises. Any wrong that may have occurred (and I am far from holding that there was such a wrong) is a matter as between Coalport Building Company Ltd and the Official Assignee. It does not afford a basis for the bankrupt to object to the introduction of the documentation in evidence in these proceedings.” [my emphasis]
28. The appellant’s first complaint under this ground of appeal is that the trial judge erred when she concluded that no constitutional right of his had been breached when this unlawful entry occurred. He submits that the constitutional protection provided by the requirement that a search warrant be obtained is not confined to the dwelling, but rather, as stated by Keane J. (as he then was) in Simple Imports Ltd v. Revenue Commissioners [2000] 2 I.R. 243 at p. 250 “it extends to every person’s private property”.
29. However, the point in the present case is that the Holles Street premises was leased to Coalport, and therefore did not comprise “property” of the appellant, as that phrase must be understood in the present proceedings. He was the freehold owner of the premises, but the rights invaded, if that be so, were the rights of the lessee company, as pointed out by the trial judge. Any rights that were inherent in the materials, documents and property of the appellant that were found on the premises had by this time already vested in the Official Assignee as being part of the bankrupt’s estate, as also identified by the trial judge. The Official Assignee was, therefore, entitled to have them. Coalport had no entitlement to them that was superior to that of the Official Assignee.
30. I would stress, however, that – as illustrated by cases such as Simple Imports and Competition Authority v. Irish Dental Association [2005] IEHC 383, [2006] 1 ILRM 383 – the unlawful entry by agents of the State on to business premises is always a very serious matter and nothing in this judgment should be understood as diluting this basic principle, itself a cornerstone of personal freedom and the rule of law. An unlawful entry onto such premises by an agent of the judicial branch of government such as the Official Assignee is, furthermore, a particularly serious matter, given that all judges have made a solemn declaration pursuant to Article 34.6.1 of the Constitution to uphold the Constitution and the law. If, therefore, the Official Assignee had unlawfully entered the business premises occupied by the bankrupt – as distinct from the premises of which he was simply the reversionary lessor – then rather different considerations would have come into play. That, however, is not the position here, for all the reasons I have just mentioned.
31. Given the provisions of s. 28 of the 1988 Act it seems clear that the Official Assignee would have been able to make out a case for the issue of a warrant under that section to enable him to take possession of the bankrupt’s property which was believed to be present on the premises leased to Coalport. However, I am satisfied that the trial judge was correct in concluding that the failure to do so, and to gain entry in the manner he did for the purpose of this search and seizure, did not infringe any constitutional right of the appellant. In relation to whether there was any breach of the rights of Coalport the trial judge stated specifically that she was far from holding that there was any such breach, but in any event even if there was, it was a matter for Coalport to pursue with the Official Assignee, and not the appellant. On the facts as disclosed, it appears that while Coalport raised an issue with the Official Assignee about the removal of some of its documents, it did not complain about the removal of documents belonging to the appellant. For the same reasons it cannot be said by the appellant that any right of his under Article 8 of the European Convention on Human Rights was engaged on these facts, much less infringed.
32. In my view, the trial judge was correct in her conclusions on this issue. In circumstances where a correct conclusion has been reached that no constitutional rights of the appellant himself were breached, and therefore that any documents and materials obtained during the search of the premises were not obtained in breach of any of his constitutional rights, the appellant has no basis upon which to urge the Court that the fruits of that search were admissible as evidence against him under the exclusionary rules of evidence.
33. Nevertheless, the appellant has urged that the very fact of the entry being an unlawful one is sufficient to engage the exclusionary rule, even if no constitutional right of the appellant was breached. The appellant submits that in circumstances where the entry into these premises has been found to be an unlawful entry since no warrant had been obtained under s. 28 of the 1988 Act, it constituted a “knowing, reckless or grossly negligent” breach of constitutional rights (if not of the appellant, then of Coalport), such that the behaviour comes within the newly formulated exclusionary rule of evidence as stated by Clarke J. (and with which the majority agreed)in the Supreme Court in DPP v. JC [2015] IESC 31. As stated by Clarke J. the newly formulated rule contains a number of elements; but that to which the appellant relies is that which states:
“Where evidence is taken in deliberate and conscious violation of constitutional rights then the evidence should be excluded save in those exceptional circumstances considered in the existing jurisprudence. In this context, deliberate and conscious refers to knowledge of the unconstitutionality of the taking of the relevant evidence rather than applying to the acts concerned. The assessment as to whether evidence was taken in deliberate and conscious violation of constitutional rights requires an analysis of the conduct and state of mind not only of the individual who actually gathered the evidence concerned but also of any other senior official or officials within the investigating or enforcement authority concerned who are involved either in that decision or in decisions of that type generally or in putting in place policies concerning evidence gathering of the type concerned.”
34. The appellant lays emphasis on the words “deliberate and conscious violation of constitutional rights”, and seeks to characterise the actions of the Official Assignee in gaining entry to these premises in the manner shown as being to that extremity, thereby meriting exclusion. That characterisation is urged upon this Court on the basis that the actions of the Official Assignee should not be considered to have been accidental or inadvertent, since, firstly, he knew that the bankrupt was no longer a director of Coalport, nor could he be given his adjudication as a bankrupt; and secondly on the basis that in many other cases the Official Assignee has obtained a warrant under s. 28 to gain entry to premises in circumstances such as these, and must therefore be taken to be aware of the necessity to do so in the present case, but deliberately chose not to.
35. Firstly I would note again that no finding of fact was made by the trial judge in relation to whether or not any rights of Coalport were breached. She specifically stated that she was “far from so finding”. I read that as a reservation of that issue, and not a finding that no right was breached. However, it is unnecessary in my view to dwell upon that factual question because whether or not there has been a breach of Coalport’s rights, and whether or not the entry upon the Holles Street premises was unlawful because no warrant had authorised the Official Assignee to enter the premises, the exclusionary rule as formulated in JC and which is relied upon by the appellant cannot avail him. No right of the appellant was breached.
36. The trial judge stated that the cases relied upon by the appellant had no relevance because each of them dealt with the inviolability of the dwelling. That is correct. She also stated that no constitutional right of the appellant had been breached. That is also correct. In such circumstances the exclusionary rule which requires that evidence obtained in breach of constitutional rights may not be deployed in evidence (subject, of course, to the exceptions identified by the Supreme Court majority in JC) simply does not avail the appellant. In so far as the entry was unlawful, though falling short of being in breach of the appellant’s constitutional rights, there is clearly a discretion whether or not to admit the evidence obtained. In that regard I would refer to the judgment of Laffoy J. in Universal City Studios Inc. v. Mulligan (No.2) [1999] 3 IR 392. That was a civil action where the plaintiff sought injunctive relief and alleged that the defendant had made and sold pirated video tapes over which the plaintiff had copyright. Certain tapes had been seized from a vehicle, but the warrant authorising the search of the vehicle in question could not be produced at the hearing. The question then arose as to whether the fruits of the search were admissible in evidence. At p. 404 of her judgment she concluded as follows:
“Although this is a civil action, I am satisfied that as a matter of principle the exclusionary rule laid down by the Supreme Court in The People (Director of Public Prosecutions) v. Kenny [1990] 2 I.R. 110 in relation to the admissibility in criminal trials of evidence obtained by invasion of the constitutional personal rights of the citizen is applicable. In that case, delivering the majority judgement, Finlay C.J. said (at p.134):
‘I am satisfied that the correct principle is that evidence obtained by invasion of the constitutional personal rights of the citizen must be excluded unless the court is satisfied that either the act constituting the breach of constitutional rights was committed unintentionally or accidentally, or is satisfied that there are extraordinary excusing circumstances which justify the admission of the evidence in its (the court’s) discretion’.
On the evidence, I am satisfied that the seizure of the video cassettes from the defendant at Ashbourne did not involve an “invasion of the constitutional personal rights” of the defendant. On the assumption that the evidence was nonetheless obtained by illegal methods, albeit methods which did not amount to an invasion of the defendant’s constitutional personal rights, I consider that the rule applicable to the admissibility of such evidence in criminal trials applies, namely, that the court has a discretion to admit it. On the evidence, I am satisfied that Garda Tarrant acted bona fide in the discharge of his duties on the occasion in question and I rule that the evidence is admissible.”
37. In the present case, in answer to the appellant’s submission that the Official Assignee ought not to be permitted to rely upon any documents or materials gained as a result of this unlawful entry upon the Holles Street premises, I would similarly conclude, given the unlawful nature of the entry, that nevertheless the Court has a discretion whether or not to admit the fruits of the search into evidence, and therefore whether or not to permit the Official Assignee to rely upon what he obtained for the purpose of supporting his application for an extension of the bankruptcy, and that in exercise of that discretion the Court would be justified in permitting the evidence obtained to be relied upon.
38. I leave aside for the moment the Official Assignee’s contention that even without placing reliance upon the fruits of this entry and search of the Holles Street premises there is more than enough evidence in his affidavits to justify the granting of the extension of the bankruptcy as sought.
39. A number of matters are relevant to my conclusion that the Court would have been justified in allowing reliance to be placed on the evidence obtained from the unlawful entry of the premises. Firstly, the evidence of the Official Assignee is that he was invited into the premises by the receiver. While I agree with the trial judge’s conclusion that this did not render lawful the entry into the premises, it nevertheless goes to the bona fides of the Official Assignee in relation to the exercise of his statutory functions. Secondly, the documents and material found and seized by the Official Assignee were, in any event, materials that the Official Assignee the ownership of which had already vested in him by virtue of the adjudication of bankruptcy and of which he was therefore entitled to possession of. Thirdly, what was seized were documents and materials which in any event the appellant was obliged to furnish to the Official Assignee pursuant to s. 19 of the Act of 1988 and had failed to do so. Finally, the most critical consideration of all is that the unlawful search was not made of premises then occupied by the bankrupt for business or other purposes. As I have already indicated, if these had been the facts, then regard would have to have been had to entirely different considerations regarding the admission of any evidence, not least those mentioned by McKechnie J. in Irish Dental Association.
40. The appellant also made the case that he was prejudiced by the unlawful actions of the Official Assignee in removing documents from the premises. He refers to that prejudice at para. 7 of his affidavit sworn on the 4th December 2015. Firstly, he considers that he has been deprived of an opportunity of trying to contact tenants, both past and present in order to better verify the rental accounts furnished to the Official Assignee. Secondly, he averred that because the company’s bank accounts were seized he cannot further verify the lodgment of a sum of €0.5 million which he has referred to earlier in that affidavit as having been lodged with the company by Eamon Gargan in 2005 to replace what he describes as “a large sum of money to replace money that Larry O’Mahony” took out of the company (Coalport …)”. It is unnecessary to describe the stated facts said to underlie that alleged lodgment.
41. The point being made is simply that he is unable to verify what he says about it because he has been deprived of access to the company’s accounts. However, in my view, it is clear also that he has made no efforts to obtain the information upon which he wishes to try and rely. Indeed, if he had engaged appropriately with the Official Assignee (which he did not) he could I am sure readily have been provided with access to the materials in question if they would be of benefit to the case he wished to make. I would have thought that the obvious way in which to pursue those inquiries was with the Official Assignee. He did not do so. He cannot rely on any prejudice as alleged in these circumstances.
42. I therefore consider for all the reasons which I have stated, that the trial judge was correct in concluding that the Official Assignee was entitled to rely, in so far as he did, on the information gained from documents and material seized when he gained entry, albeit unlawfully, to the Holles Street premises.
43. By way of completeness I should add that a ground of appeal urged by the appellant is that by overlooking the unlawful nature of the entry and search, and by placing reliance upon documents and information gained from that unlawful entry, the trial judge failed “to give any appropriate, balanced consideration and/or any consideration at all to the integrity of the bankruptcy regime/system and the upholding of same”. For the same reasons that I concluded that it was appropriate that any discretion to admit the materials into evidence even though gained on foot of an unlawful entry be exercised in favour of admission, I am satisfied that there was no failure on the facts of this case to uphold the integrity of the bankruptcy code.
Issue 2 – Non-Co-operation by the bankrupt
44. I have already set forth the trial judge’s conclusions contained at paras. 31 and 32 of her judgment in relation to the failure by the bankrupt to comply with his statutory obligation to cooperate with the Official Assignee in relation to the furnishing of details of his assets, the filing of a proper statement of affairs, and in relation to providing details of where he resides. There is no need to do so again. In view of the conclusions which I have reached on the admissibility of the evidence gained as a result of the search of the Coalport offices it is clear that the trial judge was entitled to take into consideration all of the evidence adduced on affidavit by the Official Assignee, as well of course of what was stated in response in affidavits sworn by the appellant.
45. The appellant has submitted that in accordance with what was stated by Clarke J. in Killally (a bankrupt) v. The Official Assignee [supra] any allegations of wrongdoing or non-co-operation must be clearly established before the Court exercises its jurisdiction to extend the period of bankruptcy. He submits that this has not been established in the present case to that standard, and refers also to the penal nature of the jurisdiction again emphasising the need for clearly established facts.
46. In my view there is ample evidence adduced by the Official Assignee which, even when read in conjunction with what is stated in response in the appellant’s replying affidavits, and giving the appellant the benefit of any doubt, justifies the conclusion for the purposes of the s. 85A application that the appellant failed to comply with his statutory obligations of co-operation under s. 19 of the Act of 1988.
47. It has been averred that at the second interview that was conducted with the appellant on 7th August 2012 the appellant informed the Official Assignee that he would be going to live at his parents’ house in Claudy, County Derry. There is no dispute that this is not an address at which he ever resided for present purposes. It is a property owned by his parents. He states that he provided it as an address for correspondence to be received from the Official Assignee. Nevertheless, all of his affidavits commence by stating “I, Thomas McFeely of 258 Foreglen Road, Derry, Northern Ireland BT47 4EE make oath and say as follows ….”, yet they are sworn before solicitors at addresses in London. At para. 40 of his affidavit sworn on the 8th September 2015 he states:
“As I have explained I am a British citizen. I hold a British passport. I was born in Northern Ireland and my principal place of residence is 258 Forglen Road, Derry, Northern Ireland BT47 4EE. I gave this information to Mr Lehane at the outset. He has never visited the property. He has persisted in refusing to accept it is my address and on each occasion he has requested me to provide an address. I have reminded him that this is my correct address ………”.
48. At para. 41 of the same affidavit he states, inter alia, that he has no permanent place of abode, that he relies for accommodation on friends in the United Kingdom and never stays for “longer than a few days or weeks at a time”. He goes on to state that while the Official Assignee has insisted that he provide details of the people who provide this support, he is not prepared to do so “because I do not want to expose these friends to the same media harassment that myself and my family have had to endure”.
49. The Official Assignee has stated that he was aware that the appellant’s family home on Ailesbury Road, Dublin 4 at the date of his bankruptcy had later been repossessed by the National Asset Management Agency, but was unaware of where the appellant then resided thereafter. He stated in his affidavit sworn on the 17th July 2015 that the appellant does not reside at the Claudy address provided. He went on at para. 17 to state:
“… It is important that I am able to assess whether a bankrupt is living in a substantial residence, whether owned by him directly or indirectly or rented at an excessive cost. I have no means whatsoever to check on his activities, wealth or lifestyle. I have made repeated requests for his address by letters/emails all of which have been refused …”.
50. It is relevant to note the provisions of s. 20 (1) of the Act of 1988 which provides:
“20.(1) A bankrupt shall forthwith notify the Official Assignee in writing of any change in his name or address which occurs during his bankruptcy” [my emphasis]
51. In my view there was ample evidence adduced, which the trial judge was entitled to accept, that the appellant had failed to cooperate by reference to the refusal to provide an address or indeed addresses at which he actually resides or resided from time to time. His statutory obligations under the 1988 Act includes an obligation to inform the Official Assignee where he resides, not simply so that correspondence may be sent to him, but so that the Official Assignee can perform his own statutory functions for example by investigating the bankrupt’s lifestyle as deposed to by him as I have set forth. In this case the appellant has decided what he will and will not choose to disclose as far as his living arrangements are concerned. He is not entitled to do that. His failure in this regard, despite the reason that he has given, is a matter which, with others, the trial judge was entitled to take account of when deciding whether the extent of his non co-operation overall merited an extension of his bankruptcy and the length of any such extension for the purposes of s. 85A of the 1988 Act.
52. The trial judge concluded also that the appellant had failed to disclose all of his assets. The Official Assignee had stated on affidavit that the documents obtained following the search of the Holles Street premises which the appellant was obliged to furnish to him under s. 19 of the 1988 Act showed clearly that what had been disclosed to him by the appellant up to that point was incomplete. The trial judge sets out these failures in detail. It suffices for me to draw attention to the fact that the documents and records recovered from the search of the premises at Holles Street showed that in addition to certain apartments referred to as Aras na Cluaine which the appellant had provided details of at interview, he was the owner of six further apartments at that address which he had failed to disclose. This information was available from leases, memos and management company records recovered at the premises. The trial judge was entitled to reject the explanations offered on affidavit in relation to these assets.
53. In addition details of other undisclosed assets were recovered from documents seized in respect of properties at Old Sawmills Industrial Estate, Dublin 12. Again, the appellant attempted to distance himself from ownership by reference to some unsubstantiated arrangement he had with his brother who, he says, put up 80% of the purchase money and that he himself was to have a 20% share of the ownership, but that “due to the economic collapse the value of the units plunged below the amount owed to my brother rendering any proposed share worthless and/or of no financial relevance”. Again, this statement evinces a certain ‘a la carte’ attitude on the part of the appellant to his statutory obligations of disclose his assets following his adjudication as a bankrupt. The trial judge was entitled to conclude as she did in relation to this matter, and the other matters which the Official Assignee relied upon for his application for an extension.
54. It is noteworthy that the appellant has never filed a proper statement of affairs. The attempts made by the Official Assignee in correspondence with the appellant and solicitors who acted for him at times, but to no satisfactory avail. The appellant averred in his first affidavit that he provided the Official Assignee with “all the paperwork in relation to my assets and liabilities in the English bankruptcy investigation”, and that he had collected all the documents that he had provided to his English bankruptcy trustee, and further that “these documents gave full and detailed information in relation to my assets and liabilities”. This statement could not have been correct on any view of the evidence. In my view the failure to have provided a proper and complete statement of affairs is another aspect of non co-operation which the trial judge was entitled to rely upon for her overall conclusion that the extent of the non co-operation was such that an extension of bankruptcy was warranted in this case.
55. At para. 26 of her judgment the trial judge stated as follows:
“26. In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to co-operate with the Official Assignee in relation to the realisation of his assets and has hidden assets from failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his co-operation. It is continuing to this day in the case of his address and his failure to file a statement of affairs. I will therefore make an order pursuant to s. 85A extending the period of bankruptcy in this case. The issue remaining to be determined is the duration of the extension.”
56. I have no hesitation in stating that this was a conclusion that she was entitled to reach on the evidence adduced, and I reject the submissions made to the contrary.
Issue 3 – Reviewability of Official Assignee’s decision to bring an application under s. 85A for an extension of bankruptcy
57. Essentially the appellant’s point here is that given the fact that s. 85A of the 1988 Act permits rather than mandates the Official Assignee to bring an application under the section for an extension of the bankruptcy, his decision to do so in this case involves a decision to do so, and that this decision, being an administrative one, is subject to review in the normal way under “the legal principles of natural justice, constitutional justice, and the principle of objective bias”. The trial judge rejected this argument in short order stating that it was without merit or authority. I express my complete agreement with that conclusion. There is no doubt that the section provides that the Official Assignee may bring an application to object to the discharge of the bankruptcy under s. 85 (i.e. after 3 years) in certain circumstances, namely where “he “believes” that the bankrupt has failed to co-operate or has hidden assets…” etc. Presumably an Official Assignee acting reasonably would not form such a belief without some evidential basis to support it. However, if he did launch an application with clearly no grounds for same, it will be quickly refused. But I can see no basis for considering that when a notice of motion is served on the bankrupt seeking an extension of his bankruptcy on the grounds permitted in s. 85A, the bankrupt could immediately launch proceedings by way of judicial review in order to have a question determined ahead of any decision on the motion itself whether or not the Official Assignee was acting unreasonably, with bias, or that the bringing of the motion was irrational. Might such an applicant then seek an order of prohibition seeking to restrain the bringing of an application under s. 85A. It is frankly a ludicrous contention in my view.
58. As for any argument as to unreasonableness and / or irrationality in the decision to bring an application, clearly the same issues would arise as on the motion itself. As to objective bias on the part of the Official Assignee, any such complaint must be unstateable given the statutory basis for his existence. If he is objectively biased in one case by virtue of his position, he must be objectively biased in all cases. That makes no sense at all. Actual bias could be another matter altogether, but that is not what has been pleaded in this case. It is an allegation of objective bias arising in particular from the fact that the Official Assignee recommends an extension of the bankruptcy to the Court.
59. As for the argument that the decision to issue a motion to seek an order under s. 85A is reviewable on the basis of fair procedures or constitutional justice, it cannot be seriously contended, for example, that before bringing a motion for an order under s. 85A the bankrupt must be given an opportunity to put forward reasons why such a motion should not be brought. The decision to bring the motion does not impinge on any right of the bankrupt. It is the determination of the motion that may or may not affect the bankrupt, depending on the outcome.
60. The trial judge was correct to conclude that these arguments were unstateable and without authority to support them.
Issue 4 – Proportionality of the extension order granted
61. Under s. 85A of the Act of 1988 the maximum period of extension of a bankruptcy that may be ordered is an additional 5 years. In this case the trial judge considered that the degree of non co-operation found to exist on the part of the appellant merited an extension just two months short of that maximum period. She allowed a deduction of 2 months from the maximum available by virtue of the appellant’s then age of 67 years.
62. The appellant submits that the trial judge fell into error in the application of this near maximum extension of the bankruptcy, and that it is disproportionate. He seeks support from the fact that in the Killally case to which I have referred in another context an extension of just one additional year was ordered, and submits that the trial judge failed to have proper regard to that decision. He also submits that the trial judge failed to take into account the fact that for the first twelve months of his bankruptcy the Official Assignee failed to make contact with him, despite stating that he would do so, and further that she failed to have regard to what are described as “mitigating factors” such as the conduct of the Official Assignee regarding the unlawful entry, and the age of the appellant.
63. In my view the appellant has no basis for submitting that the trial judge failed to have proper regard to the Killally case. In fact paragraphs 28 and 29 covering more than two full pages are devoted to a consideration of that case both in relation to the first instance judgment of McGovern J. in the High Court and that of Clarke J. in the Supreme Court. She refers to it again in paragraph 31 and in paragraph 34, on each occasion referring to the very different underlying facts which distinguish it from the present case. Having considered the Killally decision comprehensively, she reached her conclusion that the degree of non cooperation was markedly more serious and “at the grave end of the spectrum”. I have already set out passages from her judgment, namely paras. 26, 29-32 where her conclusions are set forth in a fully reasoned manner.
64. I find no error of fact or law in those conclusions. Despite the appellant’s protestations by way of attempting to refute the Official Assignee’s allegations of non co-operation, I am completely satisfied that it was open on the evidence for the trial judge to conclude that the level of non co-operation is established to the upper end of the spectrum of gravity, and that it was deliberate and ongoing. In my view, the trial judge was justified in ordering the extension of 4 years and 10 months, allowing a small deduction of two years on account of the appellant’s age, though she considered also that little if any weight ought to be attached to the age of the bankrupt having regard to the aim of the section, namely “not just to deter the individual bankrupt but also to deter others and to protect the public”.
65. For all these reasons I would dismiss this appeal.
Re: Webster
( A Bankrupt ) [2018] IEHC 41 (05 February 2018)
JUDGMENT of Ms. Justice Costello delivered on 5th day of February 2018
Introduction
1. The applicant (the Official Assignee) has brought an application seeking to postpone the automatic discharge of the respondent (the Bankrupt) from bankruptcy pursuant to the provisions of s. 85A of the Bankruptcy Act, 1988, as amended, on the grounds that she has hidden from or failed to disclose to him assets which could be realised for the benefit of the creditors of the Bankrupt.
The facts
2. The Bankrupt petitioned for her own bankruptcy and she was adjudicated bankrupt on the 18th April, 2016. Her petition was accompanied by a statement of affairs sworn by the Bankrupt on the 30th March, 2016. There is a requirement in Part 1 of the statement of affairs to list the debts (if any) due to the debtor. This is marked not applicable in the statement of affairs. On the final page she states that her debts exceed her assets by the sum of €41,592.63. In fact, it was accepted that this was incorrect and the correct figure should have been €26,593.63.
3. Section 19 (d) of the Act of 1988 requires a bankrupt to “give every reasonable assistance to the Official Assignee in the administration of the estate”. It is standard practice for the Official Assignee to require all persons who are adjudicated bankrupt to complete a form described as a statement of personal information. This is not a statutory form but represents a reasonable manner in which the Official Assignee seeks to ensure the assistance of bankrupts in the administration of their estates. On p. 2 of the form it is stated that if the person requires any help to complete the form they should contact the bankruptcy division of the Insolvency Service of Ireland at the address, telephone number or email given on the form. It is accepted that the Bankrupt did not seek assistance in completing this form either from the Insolvency Service of Ireland or her solicitors. She therefore must accept the consequences of any errors she made in the information she furnished to the Official Assignee which might have been avoided had she sought guidance in completing the form.
4. The Bankrupt retired from her employment with the HSE in July 2015 upon reaching her 65th birthday. She was entitled to receive a lump sum payment. The sum of €72,460.34 was paid to her on the 1st September, 2015. By the time she presented her petition for bankruptcy and swore her statement of affairs these monies had been dissipated in the manner discussed below. It was not suggested that the sum should have been disclosed in the statement of affairs as it had been dissipated by the time of swearing that document. However, it was argued that failure to disclose this payment on p. 8 of the statement of personal information amounted to a wrongful omission on the part of the Bankrupt. Under the heading “Investments” each bankrupt is asked:
“Have you received any payment from an investment fund in the past five years?”
The answer given was No. It was not disputed by Mr. Lynch, solicitor, who appeared on behalf of the bankrupt, that she should have filled out this section by referring to the lump sum payment received on the 1st September, 2015. He accepted that a payment from an investment fund included a lump sum pension payment from her employer.
5. The statement of personal information also requested details of assets transferred within the last twelve months. The Bankrupt was requested to:
“Please detail all payments of money over €5,000, transfers of property to any creditor, or any charges created by you on property in favour of a creditor, in the twelve month period prior to your adjudication as a bankrupt.”
This part of the form was left blank by the Bankrupt and again it was accepted on her behalf that certain payments ought to have been disclosed in this section.
6. The bank statements of the Bankrupt disclosed four payments from her account which should have been disclosed in this section of the statement of personal information. These are:
(1) On the 10th September, 2016 she repayed a loan to AIB in the sum of €16,289.15.
(2) On the 16th September, 2015 she withdrew €5,400 which was used to repay a loan of €5,000 advanced to her by her brother on the 25th August, 2015 (the extra €400 was never explained).
(3) On the 17th September, 2015 she withdrew the sum of €12,500, which she used to purchase a new car. The car was included in her statement of affairs at an estimated value of €11,000.
(4) On the 18th December, 2015 she withdrew the sum of €12,703.50. This was used to pay the expenses she, her daughter and her grandson incurred attending the wedding of her son in New Zealand and other expenses, as explained below.
7. The Official Assignee became aware of the receipt of the pension lump sum and the payment of certain sums by the Bankrupt prior to the date of her adjudication from examination of her bank statements. On the 3rd August, 2016 a member of staff in the bankruptcy division of the Insolvency Service of Ireland wrote to the Bankrupt asking for an explanation of the four transactions identified above together with five other withdrawals; those being on the 10th September, 2015 in the sum of €4,000, on the 16th September, 2015 in the sum of €600, on the 25th September, 2015 in the sum of €3,000, on the 21st March, 2016 in the sum of €2,248.50 and on the 21st March, 2016 in the sum of €2,440.
8. The Bankrupt promptly replied to the letter and explained that the €600 withdrawn on the 16th September, 2015 was to pay for her car insurance and tax; the €3,000 withdrawn on the 25th September, 2015 was explained as “car bought for son plus insurance and tax as he is unemployed”; the €4,000 withdrawn on the 10th September, 2015 was to pay solicitor’s fees.
9. On the 24th March, 2017, Mr. Alex Mathews of the Insolvency Service of Ireland wrote to the Bankrupt raising further queries but these proceedings had issued before the Bankrupt had an opportunity to respond. The application herein was grounded upon an affidavit of the Official Assignee sworn on the 27th March, 2017.
10. On the 3rd April, 2017 I made an order pursuant to s. 85A (3) of the Act of 1988 that the matters complained of by the Official Assignee be further investigated and that the bankruptcy of the Bankrupt be extended pending the making of a determination on the motion. The matter was adjourned to the 8th November, 2017 to afford the Bankrupt an opportunity to reply to the affidavit of the Official Assignee.
11. She swore a replying affidavit on the 25th October, 2017. She confirmed that she repaid the loan to AIB in the sum of €16,289.15 on the 10th September, 2016 at a time prior to considering bankruptcy as a means of dealing with her debts. She corrected what she has stated in her letter to the Official Assignee regarding the payment of the 10th September, 2015 in the sum of €4,000. She stated that this was used to repay a Credit Union loan. She further explained that a payment of €2,000 made to Ms. Mairead O’Keeffe on the 16th October, 2015 was repayment of an advancement of monies provided by Ms. O’Keeffe to allow the Bankrupt to pay for urgent medical treatment which took place on the 24th August, 2014. It was not a loan for the repurchase of her motor vehicle, as had been suggested in correspondence from the Insolvency Service of Ireland.
12. In relation to the withdrawal of €12,703.50 made on the 18th December, 2015 she said this was used to pay for the flights to New Zealand so that she, her daughter and her grandson could attend her son’s wedding. It also covered the costs of accommodation , food, car hire and the extra fees required for an earlier flight to return to Ireland for health reasons.
13. She accepted that the sum included €5,000 to assist her son with the purchase of a house in New Zealand. She said at para.12 of her affidavit:
“I considered same to be a long-term loan or gift made for the purposes of assisting my son and facilitating his future needs. I say that I did not expect this loan to be repaid to me in the immediate future or at all and as such I did not include same on my statement of affairs. I say that this omission was a genuine error and was not made knowingly in an attempt to defraud my creditors or to avoid my obligations under the Bankruptcy acts.”
14. She further stated that part of the monies were used for renovations to the rented accommodation to which she moved following the surrender of her former family home. She said that the sum of €2,248.50 paid on the 21st March, 2016 was used to pay legal costs incurred in her application for bankruptcy.
Jurisdiction
15. The relevant provisions of s. 85A of the Bankruptcy Act, 1988, as amended, provide:
“(1) The Official Assignee … may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee …believes that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt…
(4) Where the court is satisfied that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date
(i) being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers just, or
(ii) being not later than the 15th anniversary of the date of the making of the adjudication order, which the Court considers just in view of the seriousness of the failure to co-operate referred to in paragraph (a) or the extent to which income or assets referred to in paragraph (b) where hidden or not disclosed, or both as the case may be.”
Application To The Facts In This Case:
16. The Official Assignee’s case is brought under s. 85A (4)(b). He alleges that the Bankrupt failed to disclose assets which could be realised for the benefit of her creditors. He raised queries in relation to sums totalling €59,181.15, which is a significant portion of the lump sum of €72,460.34. She repaid loans to AIB, her Credit Union, her brother and Ms. O’Keeffe in addition to the payment of legal fees. No real case was made that these were improper disbursements and represented assets which could be realised by way of recovery for the benefit of her creditors. The case made was that these payments ought to have been disclosed so that the Official Assignee could make his own assessment in relation to these matters.
17. The Bankrupt was criticised for failing to disclose the fact that in September 2015 she withdrew €12,500 in order to purchase a car for herself which she valued in her statement of affairs, seven months later, at €11,000. In other words, she purchased an asset for herself using the funds available to her rather than reducing her liabilities to other creditors. While there may be other issues arising from this conduct, I fail to see how this amounts to a failure on her part to disclose assets which could be realised for the benefit of her creditors. The car was disclosed. The fact that it had been bought in the relatively recent past, does not detract from the fact that monies had been expended and an asset acquired and the asset disclosed.
18. Two matters were not disclosed which should have been disclosed: the loan (or possibly gift) of €5,000 to her son in New Zealand to assist him in buying a house and the purchase of a car for €3,000 for another son, who is resident in Ireland. She was required to disclose this information to the Official Assignee upon which it would become a matter for him to assess whether or not these were assets which could be realised for the benefit of her creditors. Furthermore, the failure to disclose the loan of €5,000 to her son in New Zealand was a failure to properly complete the statement of affairs and therefore amounted to a breach of the statutory requirement of all bankrupts to complete a statement of affairs accurately within the time prescribed.
19. The statement of affairs was also incorrect insofar as the deficiency in the estate was recorded as €41,592.63 whereas it should in fact have read €26,593.63. This does not reflect a failure to disclose assets but rather a failure of mathematics in that the total value of her assets was incorrectly deducted from the total value of her liabilities.
20. Insofar as the bankrupt expended monies on herself or indeed her family in going to New Zealand or in removal expenses when moving from Donegal to County Tipperary, it is difficult to see how these could amount to assets which could be recovered or realised for the benefit of her creditors. Whether she ought to have expended such sums at a time when she was potentially insolvent is a different question.
Discussion:
21. In Killally (a bankrupt) v. the Official Assignee [2014] IESC 76, Clarke J. referred to a “significant failure” or “serious breach” of a bankrupt’s obligation to cooperate with the Official Assignee when considering the jurisdiction conferred on the court pursuant to s. 85A of the Act of 1988. In McFeely (a bankrupt) [2016] IEHC 299, I held at para.30:-
“The Oireachtas clearly contemplates a spectrum of such orders [extending the period of bankruptcy]. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.”
22. In Gaynor, a bankrupt [2017] IEHC 27 the bankrupt had concealed the existence and value of his assets from the Official Assignee and withdrawn the sum of €46,567 a few days after his adjudication. I regarded these as grave matters and extended the period of bankruptcy for a period of five years from the date when the Bankrupt would otherwise have been discharged automatically from bankruptcy in accordance with the law.
23. In this case it is important to distinguish between a failure to disclose assets and a failure to disclose payments. They are not necessarily the same thing. In this case the Official Assignee has established that there were two assets which were not disclosed to him by the Bankrupt: a loan of €5,000 to her son in New Zealand and a gift of a car purchased for €3,000 for her son in Ireland. The other payments which were not disclosed were not assets of the Bankrupt capable of being recovered for the benefit of her creditors. Thus, the established failure in this case is the failure to disclose a loan to one son in the sum €5,000 and the gift of a car purchased for €3,000 to another.
24. In determining an application brought pursuant to s. 85A it is appropriate to consider the conduct and attitude of the bankrupt and whether the established failure was wilful or deliberate. In McFeely I held, at para. 26:-
“In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs.”
25. In this case the bankrupt failed to disclose the two assets identified until they were raised by the Official Assignee in the initial correspondence of 3rd August, 2016. She replied within a fortnight and answered each of the queries raised by the Official Assignee. The Official Assignee was not satisfied with those replies but it was not until the 24th March, 2017 that he responded to her letter of August 2016. While I appreciate that his office required time to investigate her replies, the result was that she had no opportunity in which to respond further to that letter in view of the fact that the Official Assignee was obliged to bring this application, if it were to brought at all, prior to the date of her automatic discharge from bankruptcy which would have occurred on the 17th April, 2017. She cannot be criticised for not clarifying any questions that remained to be clarified prior to the bringing of the motion.
26. The Official Assignee was severely critical of her failure to disclose the receipt of the pension lump sum in her statement of personal information or the other matters I have identified. It is true that the obligation is on a bankrupt to disclose on a proactive basis the necessary information regarding his or her assets, liabilities and affairs and it is not sufficient simply to respond to queries from the Official Assignee. However, I do not regard the actions of the Bankrupt in this case to be either wilful or deliberate or to be designed to hide assets from the Official Assignee or to otherwise frustrate the realisation of assets for the benefit of her creditors. As I have said, only two assets with a maximum value of €8,000 which might have been realised for the benefit of her creditors were not disclosed. Her conduct was not persistent and ongoing, as occurred in McFeely. Unlike Farrell’s Case, she answered the Official Assignee’s questions promptly and, so far as has been established, truthfully. As I stated in Gaynor, at para.38:-
“What is important from the perspective of the court is the degree of non co-operation and concealment of assets which has led to loss.”
27. Taking all these factors into account, I do not regard the breaches of her obligations to fall on the grave end of the spectrum. Rather, I would place them at the lighter end.
28. In determining whether and, if so, for how long, the bankruptcy ought to be extended where there is an established breach of the obligations placed on a bankrupt the court is required to bear in mind the fact that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breaches, as was stated by Clarke J. in Killally.
29. Taking this into account, and having regard to the established non disclosure of assets and the conduct of the bankrupt responding to the queries raised by the Official Assignee, I believe that it is appropriate to extend the period of her bankruptcy, pursuant to the provisions of s. 85A (4) of the Act of 1988, for a period of nine months from the 17th April, 2017. In view of the fact that this period has been exceeded, the Bankrupt is entitled to an automatic discharge from her bankruptcy as of today’s date.
General discussion
30. My decision has been based upon the provisions of the Bankruptcy Act, in particular s. 85A, and the jurisprudence based upon that section. However, an analysis of this case does raise grounds for disquiet. The true deficit in the estate at the date of her petition was only €26,593.63. At the time the Bankrupt petitioned bankruptcy her only creditor was her mortgagee to whom she owed €149,682.63 in respect of a property she valued at €105,000.
31. The evidence established that in the seven months prior to the presentation of her petition she purchased two cars, one to replace her old car and one for her son, incurring an expenditure of €15,500 and she expended the sum of €12,703 paying for herself, her daughter and her grandson to attend the wedding of her son in New Zealand and advancing said son a loan of €5,000. The total of this discretionary expenditure came to €28,203. Had some or all of these monies not been expended in such a fashion then the Bankrupt would not have qualified to apply for bankruptcy. The final expenditure (the sum of €12,703) was incurred at or about the time that her personal insolvency practitioner, her solicitor Mr. Lynch, was to advise whether or not her debts could have been more appropriately dealt with by means of either a debt settlement arrangement or a personal insolvency arrangement. Prior to incurring this expenditure (or even a part of it) it might have been possible to reach an accommodation with her secured creditor and thereby avoid bankruptcy. It is a matter of concern that, whether innocently or otherwise, the Bankrupt in effect manufactured her own insolvency sufficient to meet the threshold for bankruptcy by entering into these relatively modest transactions.
32. While I have stated these reservations, it appears to me that they were not matters which could properly be taken into account in determining the application brought pursuant to s. 85A of the Act of 1988 and, therefore, I have not done so. It is the entitlement of debtors who are genuinely insolvent to seek a fresh start by means of petitioning for their own bankruptcy in appropriate circumstances. Nonetheless it is important that this is not abused or that debtors who do not in fact satisfy the statutory threshold do not petition for bankruptcy. In this regard the court must rely upon the diligence and vigilance of personal insolvency practitioners to ensure, as far as possible, that this does not occur when they are advising debtors in relation to their financial affairs.
Re: Patrick J. Daly
(a bankrupt) [2018] IEHC 579 (15 October 2018)
JUDGMENT of Ms. Justice Costello delivered on the 15th day of October, 2018
1. This is an application brought by the Official Assignee for an order pursuant to s. 85A(1) and (4) of the Bankruptcy Act, 1988 as amended to postpone the automatic discharge from bankruptcy of the bankrupt on the basis that he has (a) failed to cooperate with the Official Assignee in the realisation of the assets of his estate or (b) has hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of his creditors. In the alternative an order pursuant to s. 85A(3) was also sought and an order pursuant to 85A(3) was made on the return date of the notice of motion, the 7th November, 2016.
Factual background
2. Mr. Patrick Daly and his wife, Mrs. Anne Daly engaged in building and property development over a number of years through a number of companies and partnerships. They jointly owned a large family home in Westmeath known as Ballinagore House, Ballinagore, Co. Westmeath comprised in Folio 21625F WH, County Westmeath. They were also the sole shareholders and directors in two companies, Star Alliance Limited and Jalpa Properties Limited. Star Alliance owned property adjacent to Ballinagore House which was comprised of an equestrian centre set upon approximately 50 acres of land. Mr. and Mrs. Daly also owned a holiday apartment in Spain, 11 La Pinta, Aloha Golf, Nueva Andalucia, Marbella, Spain which they held through a Spanish company.
3. In 2012 they were seriously insolvent and Bank of Ireland had instituted one set of proceedings and was threatening to commence a second set of proceedings. In May, 2012 Mr. and Mrs. Daly took legal and financial advice in relation to their affairs and they entered into three transactions in relation to these assets.
4. Ballinagore House was valued by Sherry Fitzgerald on 3rd July, 2012 at €550,000. On 1st July, 2012 Mr. and Mrs. Daly entered into a contract for the sale of the house. It was a most unusual sale. It involved reserving exclusive rights of residence in favour of Mr. and Mrs. Daly and their daughter Laura Daly. This reduced the value of the house from €550,000 to €100,000. The house was sold to a friend and business associate of Mr. Daly who resided in America, Ms. Devon Anne McNeil. The second unusual aspect of the sale was the purchase price was by way of a payment of €5,000 and subsequent annual instalments of €5,937.50 each over a period of sixteen years.
5. The second transaction involved the issuing of shares in Star Alliance Limited to Jalpa Properties Limited for a sum of €23,000. This had the effect of reducing Mr. and Mrs. Daly’s 100% ownership of Star Alliance Ltd to less than 10% at a time when it was the owner of the Equestrian Centre and other lands and buildings adjacent to Ballinagore House. At the same time substantial shares in Jalpa Properties Ltd were issued to Mr. Brendan Daly, brother of Mr. Daly, in exchange for investment by him in Jalpa Properties Ltd, so that Mr. Brendan Daly became the person indirectly with by far the most substantial interest in the assets held by Star Alliance Ltd which was previously owned solely by Mr. and Mrs. Daly jointly.
6. By the third transaction in 2012 Mr. and Mrs. Daly transferred their shares in the Spanish company which owned the apartment in Spain to Mr. Brendan Daly apparently in payment of unspecified debts due to Mr. Daly. Originally Mr. and Mrs. Daly reserved a right to stay in the apartment for a period of two weeks each year though subsequently they surrendered this right also in 2014.
7. On 12th June, 2012 Bank of Ireland sued Mr. and Mrs. Daly for a sum in excess of €4.4 million. On 30th July, 2012 Mr. and Mrs. Daly consented to judgment in favour of the bank in the amount of €4,435,278.61 together with the costs of the proceedings.
8. Ultimately the bank petitioned for the bankruptcy of both Mr. and Mrs. Daly. Mr. Daly was adjudicated bankrupt on 23rd November, 2015 and he was informed of this fact by Mrs. Daly the next day.
9. In May, 2015 the bankrupt left Ballinagore House and went to live in Kent with his son. He did not provide the Official Assignee with his address or a telephone number and he did not respond to emails sent to his personal email address.
10. The Official Assignee obtained a personal email address for the bankrupt from the petitioner. His office emailed the bankrupt on the 1st December, 2015 and furnished him with an information leaflet, a draft statement of personal information and a draft statement of affairs to be completed and returned to the Official Assignee. He was reminded of his failure to comply with his statutory obligations by email on the 8th January, 2016. He was informed that if he did not provide the information sought within two weeks that the Official Assignee would have to consider bringing an application to extend the period of his bankruptcy. He was sent a final reminder on the 23rd February, 2016. The letter stated:
“Our office has attempted to contact you in relation to fulfilling your statutory obligations as a bankrupt on numerous occasions since December 2015 by post, email and phone with no response.
It is advised that your ongoing failure to cooperate with this office means that you are in breach of your duties pursuant to s. 19 of the Bankruptcy Act, 1988, a copy of which I enclose for your reference.”
He was informed that a failure to disclose assets on the statement of affairs will result in an application by the Official Assignee for an extension of his discharge date.
11. The bankrupt effectively ignored his bankruptcy until after the motion seeking to extend his bankruptcy have been brought by the Official Assignee and advertised in February, 2017 in the Irish Independent and Westmeath Examiner newspapers. On 24th March, 2017 he swore a statement of affairs and on 6th April, 2017 he delivered a statement of personal information. He swore his first replying affidavit on 28th April, 2017. He attended for interview with the Official Assignee on 25th May, 2017.
12. Throughout he maintained that he had since March, 2017 cooperated with the Official Assignee and complied with his statutory obligations.
Grounds for the application.
(1) The bankrupt’s address
13. The bankrupt was adjudicated a bankrupt on the 23rd November, 2015. He was required to notify the Official Assignee of his address or of any change of address. Prior to his adjudication, he had resided in the family home, Ballinagore House, Ballinagore, County Westmeath. In his fourth affidavit sworn on the 25th October, 2017 the bankrupt averred that he had not resided at Ballinagore House since 2012. However, in each of the four affidavits sworn in relation to this motion he gave Ballinagore House as his address. The Official Assignee was unable to serve the bankrupt at Ballinagore House. He was obliged to make enquiries with the gardaí at the Kilbeggan garda station and the Mullingar garda station as to the current address of the bankrupt but without success. It was necessary to make an order on the 6th February, 2017 that advertisement of the proceedings in the Irish Independent and the Westmeath Examiner would be good and sufficient service of the notice of motion on the bankrupt. The bankrupt indicated in his first affidavit sworn on the 28th April, 2017 that “in circa May 2015 he moved to Kent to assist his son in renovating a public house”. He said he did not return to Ireland until late 2016 but acknowledge that he travelled to Ireland for family visits during the period. He was aware of the existence of the petition as he had been in court on the first return date. He was informed of his adjudication the day after by his estranged wife, Mrs. Anne Daly.
14. He gave no explanation why he did not comply with his statutory obligation to furnish the Official Assignee with his address and to notify him of any change of address. It would appear that he still may not have complied with his statutory obligation. In both the statement of affairs and statement of personal information which were filed on the 24th March, 2017 and 6th April, 2017 respectively, he gave Ballinagore House as his address. At interview with the Official Assignee on the 27th May, 2017 he said that he lived between an apartment at Ballinagore House and Ballinagore House. In the circumstances, it is not clear to me that he has complied with this statutory obligation.
(2) Ignoring his bankruptcy
15. For sixteen months the bankrupt completely ignored the fact that he had been adjudicated a bankrupt and failed to comply with any of his statutory duties and obligations. In his affidavit of 28th April, 2017 his only explanation was that he “simply did not care” , though as he accepts himself, he was aware of the fact of his adjudication from the day after the order was pronounced.
16. I am satisfied, notwithstanding his bald assertions to the contrary, that he received the emails sent to him by staff at the office of the Official Assignee at his personal email address.
17. The bankrupt did not reply to any of these emails. However, on the 10th March, 2016 Mr. Hayes of the Insolvency Service of Ireland wrote to the bankrupt at the same email address and instructed him to cease contacting tenants of the Ballinagore Equestrian Centre and apartment and demanding payment of rents from the tenants. The letter and email were addressed to the bankrupt personally. The following day Mr. Eamonn Saoire, of Jalpa Properties Ltd emailed Mr. Hayes in response to the email of the 10th March, 2016 referring to the correspondence addressed to the bankrupt. Jalpa Properties Ltd is a company which was previously owned and controlled by the bankrupt and Mrs. Daly and is now controlled by his brother, Mr. Brendan Daly. The email of the 10th March, 2016 was not addressed to Jalpa Properties Ltd. I am satisfied that Jalpa Properties Ltd could only have received a copy of the correspondence from the bankrupt himself. While the bankrupt’s affidavits are replete with protests in relation to a number of matters, he never said that the email address was not his or that he no longer had access to it. In the circumstances, I reject his assertions that he did not receive the prior communications addressed to him by email. It follows that his failure to cooperate with the Official Assignee at all during the year of his bankruptcy was entirely wilful and deliberate.
(3) Failure to swear a statement of affairs or file a statement of personal information.
18. For sixteen months the bankrupt failed to swear a statement of affairs and comply with his statutory obligation in this regard. He did so finally on the 24th March, 2017 some four months after he ought to have been automatically discharged from bankruptcy. He did not file a statement of personal information until even later, the 6th April, 2017 thus for the entire projected period of his bankruptcy the Official Assignee could not ascertain where he lived or contact him and had no information from the bankrupt about his estate.
(4) Failure to furnish all books and records.
19. Bankrupts have a duty to hand over all documents, books and records in their power or procurement promptly to the Official Assignee to enable the Official Assignee properly to investigate and administer their estates. The information available to the Official Assignee was provided solely by the Petitioner as the bankrupt did not furnish any books or records himself to the Official Assignee. The Official Assignee was not aware until April 2017 of the fact that his solicitor, Mr. Tom Casey, had a file in relation to the sale by the bankrupt and Mrs. Daly of the family home to Ms. Devon Anne McNeil. The file was only furnished to the Official Assignee in July 2017. The file revealed very pertinent and highly relevant information about the sale of Ballinagore House, a significant asset of the bankrupt’s estate. The Official Assignee instituted recovery proceedings against Ms. McNeil and the American company to whom she sold her interest in Ballinagore House in 2017, Irish Ventures Corp. in proceedings entitled “2017 No. 6590 P Lehane v. McNeil v. Irish Ventures Corp “. On 9th March, 2018 the High Court declared that the Official Assignee is the legal and beneficial owner of Ballinagore House comprised in Folio 21625F register of freeholders, Co. Westmeath and that the transfer of 22nd May, 2017 is void insofar as it purports to transfer the folio from the first named defendant to the second named defendant. On 23rd March, 2018 the High Court declared that the agreement or transfer dated 1st July, 2012 recorded on the folio is void insofar as it purported to transfer the interests of Mr. and Mrs. Daly to the first named defendant. Thus Ballinagore House has been recovered by the Official Assignee for the estates of the bankrupt and Mrs. Daly.
20. The bankrupt still has not provided all documents relating to his affairs and assets to the Official Assignee, particularly in relation to the transfer of his shares in the company which holds the property in Spain for the bankrupt and Mrs. Daly to the bankrupt’s brother, Mr. Brendan Daly. This continued delay in furnishing necessary documents to the Official Assignee is continuing to frustrate the proper investigation and administration of his estate. He likewise has not provided all the documentation relating to the issuing of shares in Star Alliance Ltd and Jalpa Properties Ltd in 2012.
(5) Failure to cooperate at interview
21. The bankrupt is obliged to attend for interview with the Official Assignee if required and to cooperate with inquiries made by the Official Assignee into assets which either are or may be brought into his bankruptcy estate. His duty in this regard is not confined to answering questions put to him by the Official Assignee. He must proactively disclose relevant information to the Official Assignee. At the interview conducted on the 25th May, 2017 the bankrupt failed to inform the Official Assignee of the reasons for the three transactions which were under investigation and which, on their face, required commercial justification: the sale of Ballinagore House to Devon Anne McNeil, the issuing of shares in Star Alliance Ltd and Jalpa Properties Ltd to Mr. Brendan Daly and the transfer of the bankrupt’s interest in the shares in the Spanish company holding the apartment in Spain to Mr. Brendan Daly. When asked about this, he flatly refused to provide any explanation. The Official Assignee is entitled to his assistance and entitled to investigate whether these three assets could be recovered for the benefit of the bankruptcy estate.
22. The only information volunteered by the bankrupt is at para. 11 of his first affidavit:
“We took legal and financial advice as regards our circumstances. With the benefit of this advice, we entered into a contract on 1 July, 2012 with regard to Ballinagore House pursuant to which the Property was purchased by a Ms. Devon Anne McNeil for a sum of €100,000, a figure which at that point represented the property’s market value and the fact that the purchaser, Ms. McNeil, agreed to your Deponent, Mrs. Daly and our daughter Laura (for as long as she is in fulltime education) residing in the property. This sale price was supported by a professional valuation obtained whereby we sold the property to a Devon Anne McNeil for the then property’s market value”.
23. At the interview of the 25th May, 2017 the following exchange occurred:
“So you, post [May 2012], you entered into a number of transactions. You entered into transaction number one with Devon Anne McNeil. You entered into a transaction number two in relation to the Spanish property. You entered into a transaction through your directorship and shareholding of Jalpa and Star Alliance. Would you like to explain your thinking as to the reasons you entered into those transactions?
Answer: No.”
He clearly was uncooperative at interview and failed to provide information in relation to his assets and estate in a proactive fashion.
(6) Concealing his continued interest in assets
24. The contract for the sale of Ballinagore House was dated the 1st July, 2012 for the purchase price of €100,000. The sale was subject to an exclusive right of residence in favour of the bankrupt and Mrs. Daly and Laura Daly. The purchaser, Devon Anne McNeil, is an old friend and business associate of the bankrupt and his brother who lives in America. Ballinagore House was valued by Messrs. Sherry Fitzgerald, Davitt and Davitt on the 3rd July, 2012 at €550,000. The purchase price was reduced to €100,000 because the property was to be sold subject to the exclusive rights of residence in favour of the bankrupt and Mrs. Daly. Furthermore, the purchase price was payable by instalments over a period of sixteen years: a sum of €5,000 to be paid on or before completion and the sum of €5,937.50 per anum on the 1st day of August of each subsequent year.
25. On the 3rd December, 2012 a payment from the Tullamore Credit Union to Tom Casey solicitors’ office, solicitor for the bankrupt and Mrs. Daly, apparently reflects the first payment due. Tom Casey solicitor wrote two office cheques in favour of the bankrupt and Mrs. Daly dated 19th December, 2012 totalling €5,000. The bankrupt says that these sums represent part payment by Devon Anne McNeil of purchase price due in respect of Ballinagore House.
26. At its height, the evidence establishes that Devon Anne McNeil paid €35,000 out of the total of €100,000 due under the contract. In 2017 Devon Anne McNeil sold her interest in Ballinagore House to Irish Ventures Corporation for the sum of €120,000. This was a company incorporated in America in October, 2016. The evidence is that Devon Anne McNeil has not discharged the balance of the purchase price due to the bankrupt and Mrs. Daly in respect of the sale of 2012. In evidence, the bankrupt stated that he had no interest in this sale and had made no inquiries in relation to the payment of the outstanding purchase monies.
27. In his first affidavit the bankrupt insisted that the transaction is and was a genuine purchase and he maintained this position throughout the hearing. He also maintained that he had cooperated fully with the Official Assignee in relation to this matter. He denied that it was a stratagem to allow the property to be held by a third party and/or if necessary for it to be transferred to his children so as to prevent creditors having recourse to it.
28. However, Mr. Casey’s file furnished to the Official Assignee in July, 2017 is inconsistent with the statements and explanations, such as they are, of the bankrupt.
29. On 12th July, 2012 Mr. Casey emailed Ms. McNeil as follows:
“subject: sale of Ballinagore House
Devon,
Further to my earlier email, as part of a transaction I understand you are giving an Option to [the bankrupt] and Anne’s children to repurchase the property from you.
A form of Option agreement in this regard is attached.”
30. On the 17th July, 2012, before the sale closed, Ms. McNeil wrote to Mr. Casey stating:
“At any point during the term of this contract should I develop tax problems here in the US, that property could become fair game for the IRS here … I am happy to do what is needed but at some point maybe another mortgage could be filed against the title to protect against such a problem”.
31. Mr. Casey replied on the 18th July, 2012:
“Re the IRS if anything prejudicial was to occur [the bankrupt’s] and Anne’s children would need to exercise their option to purchase the property from you.”
32. On 15th May, 2013 Messrs O’Sullivan O’Dowd, Mrs. Anne Daly’s solicitors, wrote to Mr. Tom Casey, solicitor for the bankrupt. In the fourth paragraph they stated as follows:
“our concern at this stage however, is that our client has made us aware of a purported conveyance of the family home whereby without the benefit of separate legal advice she appears to have been party to a sale of the premises to one Devon Anne McNeil of New York. That sale of the property is in respect of a purchase price of €100,000. It appears to us that the sale may well have been at an undervalue and given that no independent legal advice was afforded to her we have serious concerns about any completion that there might be of that transaction.”
33. Mr. Casey replied by letter dated 16th May, 2013 as follows:
“In relation to the content of the fourth paragraph of your letter, as to a purported conveyance of the family home, as your client is aware she and Mr. Daly executed a contract in relation to a sale of the property to Devon Anne McNeil, whom Ms. Daly advised was a long standing friend of both she and her husband . No consideration passed from Ms. McNeil in connection with the sale and Ms. McNeil holds the property on trust for Mr. and Mrs. Daly (in addition the parties executed an option agreement which provided for your client’s children to call upon Ms. McNeil to reconvey the property to them or at their direction) . … In the event that your client is serious in relation to her now purporting to adopt a position that she and her husband effected a sale of the family home to Ms. McNeil at an undervalue and as a result she now wishes to withdraw her instruction to complete Ms. McNeil’s registration as owner of the Property, please revert to confirm that this is her position”. (emphasis added).
34. This correspondence is inconsistent with the position maintained by the bankrupt. Further, the High Court has set aside the purported sale of Ballinagore House to Ms. McNeil and declared the purported transfer to be void yet, the bankrupt did not co-operate with the Official Assignee in the recovery of this valuable asset, as was his statutory duty. On the contrary, in these proceedings he insisted on affidavit that it was a bona fide genuine sale while refusing to give any explanation for what was clearly a sham transaction entered into with a view to defeating creditors.
35. The bankrupt failed to provide the detailed information required in relation to the issuing of shares in Star Alliance Limited and Jalpa Properties Ltd. In 2010 the company accounts for Star Alliance Limited showed tangible assets of €846,000. In 2011, these were reduced to €819,000. Subsequently accounts were filed showing the company had tangible fixed assets of €795,525. The assets included the lands comprised in Folio WH15306 which is the lands upon which the Ballinagore Equestrian Centre are situate. On 12th September, 2012 Sherry Fitzgerald, Davitt and Davitt valued the equestrian centre situate on approximately 1.8 acres and comprising a selection of stables, indoor sand arena and a light industrial unit in the sum of €120,000. The bankrupt says that in addition Star Alliance Limited owned a two bedroomed apartment and office unit situate at Ballinagore. Thus, while the full picture has yet to emerge, it is clear that Star Alliance Limited owned considerable assets in 2012 worth at a minimum €120,000.
36. On 26th July, 2012 Star Alliance entered into a share subscription agreement with Jalpa Properties Limited. Immediately before completion the bankrupt and Mrs. Anne Daly each owned 56,000 ordinary shares in the company. After the agreement Jalpa Properties Limited owned 2.37 million ordinary shares of one cent each while Mrs. Daly retained 56,000 shares of €1.27 each. Furthermore, on 13th July, 2012 Mr. and Mrs. Daly and Mr. Bernard Daly and Jalpa Properties Limited entered into a share subscription agreement which resulted in the shareholding in Jalpa Properties Limited changing from one share each held by Mr. and Mrs. Daly to Mr. and Mrs. Daly each holding 944 shares and Mr. Bernard Daly holding 18,114 shares. Mr. Bernard Daly paid the sum of €23,000 for the shares in Jalpa Properties Limited. The net effect of these transactions is that for the sum of €23,000 Jalpa Properties Limited acquired assets considerably more valuable and Mr. Bernard Daly became by far the largest shareholder in Jalpa Properties Limited.
37. The bankrupt has not assisted the Official Assignee in relation to his investigations into the effective sale of assets worth considerably more than €100,000 for €23,000.
38. The bankrupt relies upon an affidavit he swore in proceedings brought by Bank of Ireland in 2012 in which he explains the commercial basis of these transactions. The explanation was to a third party, not the Official Assignee and does not satisfy his personal obligations as a bankrupt to disclose and explain transactions and to provide all relevant documentation pertaining to the transactions legitimately the subject of investigation by the Official Assignee.
39. The Official Assignee has instituted proceedings in relation to these transactions and the question of the validity of the transactions is not one which can or should be resolved in these proceedings. However, it is clear that the bankrupt is under a duty to cooperate fully with the Official Assignee in his enquires into these transactions and he is obliged to provide all supporting and vouching documentation in his power or procurement relevant to the transactions. As of the date of the hearing of the motion he had failed to do so.
40. Likewise, the Official Assignee has asked the bankrupt to explain the transfer of the shares in the company which holds the Spanish apartment to his brother, Mr. Brendan Daly and to provide confirmation of the valuation of the property at the date of the transfer. The bankrupt says he transferred the shares to Brendan Daly in satisfaction of a debt. Neither the bankrupt nor Mr. Brendan Daly have provided any further details of the debt or any supporting documentation to show that the value of the apartment was approximately equal to the debt due to Mr. Brendan Daly.
Conclusion on the application
41. It is clear that the bankrupt was totally non-cooperative for fifteen months after the date of his adjudication. He failed to comply with the expressed statutory duties to furnish his address and to file a statement of affairs. He gave the Official Assignee no information whatsoever about his estate. The actions of the bankrupt were deliberate and he offers no excuse for his failure other than “I didn’t care” .
42. He tries to make the case that he became cooperative in March, 2017 and that his discharge from bankruptcy should not be further postponed in view of his cooperation. He provided limited cooperation to the Official Assignee. He provided a statement of affairs and a statement of personal information and his solicitor, Mr. Casey, furnished his file in relation to the Ballinagore House transaction. He attended for interview with the Official Assignee in May, 2017. This was all with a view to obtaining his discharge from bankruptcy.
43. However, he is by no means a fully cooperative bankrupt even at the end of the hearing of this motion. As I have stated above, the issue of his address still remains unclear. He persisted in refusing to assist the Official Assignee in his enquiries into the sale of Ballinagore House. He refused to furnish any explanation for the three transactions with which the Official Assignee was particularly concerned. While the Official Assignee has in fact recovered Ballinagore House for the benefit of the bankruptcy estate and that of Mrs. Anne Daly, this was entirely without any assistance from the bankrupt. On the contrary, the bankrupt insisted on maintaining that it was an arm’s length genuine transaction.
44. Whether or not the share subscription agreements in relation to the shares in Star Alliance Limited and Jalpa Properties Limited will be the set aside is not a matter which can be resolved in these proceedings. They clearly reflect transactions which the Official Assignee is entitled and indeed required to examine in the administration of the bankrupt’s estate. The duty of the bankrupt is to cooperate fully with the Official Assignee in this regard on a proactive basis. To date he has failed so to do in that he has failed to furnish the Official Assignee with relevant documentation supporting the transactions or explanations which could help to establish the commercial validity or otherwise of the transactions. Such explanation for the transactions as he relies on, he gave to a third party.
45. The same criticisms apply in relation to the transfer of the shares in the Spanish company holding the Spanish apartment to Mr. Brendan Daly.
46. I am satisfied therefore that the Official Assignee has shown that the bankrupt has failed to cooperate with him in the realisation of the assets and has hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of his creditors within the meaning of s. 85A(1). That being so, I am satisfied that it is appropriate to make an order postponing the automatic discharge of the bankrupt from bankruptcy pursuant to s. 84A(4) of the Act of 1988 as amended.
Duration
47. Section 85A was amended by the Bankruptcy Amendment Act, 2015. The amendment came into effect on the 29th January, 2016. The notice of motion before the court issued on the 25th October, 2016. For the reasons explained in the decision of Sean Dunne, a bankrupt, 2nd October, 2018, s. 85A(4) as amended by the 2015 Act applies to this application. The subsection now provides:
“(4) Where the Court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date—
(i) being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers just,
or
(ii) being not later than the 15th anniversary of the date of the making of the adjudication order, which the Court considers just in view of the seriousness of the failure to co-operate referred to in paragraph (a) or the extent to which income or assets referred to in paragraph (b) were hidden or not disclosed, or both, as the case may be.”.
48. It is thus open to the court to order that the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order (23rd November, 2015), as the court considers just or not later than the 15th anniversary of the date of the making of the adjudication order. The latter, longer period applies where the court is of the opinion that the failures are sufficiently serious to warrant such further extension of the period of bankruptcy.
49. It is clear that the making of an order pursuant to s. 85A(4) is made inter alia to protect the integrity of the bankruptcy process and it acts as a sanction against the individual bankrupt. As I said in McFeely , the Oireachtas contemplated a spectrum of orders reflecting a spectrum of more or less egregious behaviour by bankrupts which would justify the making of orders pursuant to s. 85A(4). In this case the non-cooperation of the bankrupt was initially total and deliberate and a matter of choice. His continued non-cooperation was likewise deliberate and a matter of choice. His refusal to explain or to provide proper information regarding the three transactions addressed in this judgment is ongoing. He insists that each of these transactions were bona fide. In relation to the purported sale of Ballinagore House, his actions potentially cost his creditors €250,000 or more. His approach to the bankruptcy was obstructive. He failed to furnish an address and he did not acknowledge emails which he clearly received. This required the Official Assignee to make extensive enquiries of local gardaí and ultimately to obtain an order for substituted service by way of advertisement in local newspapers.
50. In his first affidavit he sought to refer to information available to the Official Assignee from third parties or to rely upon disclosure made by the bankrupt to other parties in other proceedings. This is not sufficient compliance with his statutory obligations.
51. He was afforded the opportunity to rectify the situation and to cooperate with the Official Assignee. In effect he did not really avail of this opportunity and to a significant extent his cooperation is still significantly wanting. While his solicitors’ file in relation to the Ballinagore House sale was handed over, he refused at interview to give any explanation in relation to the three transactions at issue. He has withheld meaningful substantive cooperation with the Official Assignee in the administration of his estate and he has failed by and large to produce the necessary supporting documents which he is required by law to produce.
52. An illustration of the way in which he has made life difficult for the Official Assignee and not assisted him in his investigations is to be found in relation to Ms. Devon Anne McNeil. He did not clarify that she was the same person as Devon Anne Ralls who was involved in a consortium that included the bankrupt and which invested in Panama. Ms. Devon Anne Ralls was trying to recover money for the benefit of the members of the consortium including the bankrupt. The Official Assignee wished to ascertain whether any moneys in fact had been recovered from this failed investment and to explore whether moneys furnished by Ms. McNeil/Ralls to Mr. Casey were in respect of the Panamanian investment rather than in respect of Ballinagore House. The bankrupt’s explanation for failing to say that she was involved in the Panamanian investment was because he was not specifically asked this question by the Official Assignee. As was clearly set out in McFeely’s case and Dunne’s case, this does not amount to cooperation on the part of a bankrupt. It reflects the inadequate nature of his purported cooperation with the Official Assignee.
53. Similarly, he had no intention of making any enquiries in relation to the company which purported to purchase Ballinagore House from Ms. McNeil at a time when Ms. McNeil had yet to pay the full purchase price due pursuant to the contract of the 1st July, 2012.
54. He took until his fourth affidavit to explain that the reference made by Mrs. Anne Daly to an interest in an apartment in Kilbeggan, County Westmeath was mistaken because, while he had investment properties in Kilbeggan, he never had any apartments in Kilbeggan and these had been sold long ago. An inadequate explanation in his first affidavit led to the Official Assignee expending considerable effort exploring matters further before the matter was fully explained in his fourth affidavit.
55. I regard his failure to cooperate with the Official Assignee as being on the very serious end of the spectrum. He made belated, qualified, efforts to cooperate but meaningful substantive cooperation has still been withheld. I regard this failure to take the opportunity to comply, albeit belatedly, with his statutory obligations as an exacerbating factor. I therefore order that the bankruptcy shall stand discharged on the tenth anniversary of the date of the making of the adjudication of order, on the 23rd November, 2025.
Re: John Hoey
(a bankrupt) [2018] IEHC 580 (15 October 2018)
JUDGMENT of Ms. Justice Costello delivered on the 15th day of October, 2018
1. On the 29th February, 2016 Mr. John Hoey (“the bankrupt”) was adjudicated bankrupt. The Official Assignee formed the belief that the bankrupt had failed to cooperate with him in the realisation of the assets of the bankruptcy estate or had hidden from or failed to disclose to him income or assets which could be realised for the benefit of the creditors of the bankrupt within the meaning of s.85A (1) of the Bankruptcy Act, 1988. He therefore brought an application on the 13th February, 2017 for an order extending the period of bankruptcy of the bankrupt pursuant to s. 85A of the Act and he sought orders pursuant to s. 85A (3) and (4). The application was grounded upon an affidavit sworn by the Official Assignee on the 13th February, 2017. The bankrupt swore an affidavit in reply on the 2nd March, 2017 and the Official Assignee replied to that affidavit on the 21st April, 2017. The bankrupt swore a second affidavit on the 27th March, 2018.
2. He also issued a motion pursuant to O. 40 r. 1 of the Rules of the Superior Courts seeking leave to cross examine the Official Assignee on his affidavits and this judgment is in respect of that application.
3. In Sean Dunne, a bankrupt [2017] IECA 304 the Court of Appeal granted the bankrupt in that case liberty to cross examine the Official Assignee on the affidavits sworn by the Official Assignee in the motion brought to extend the period of Mr. Sean Dunne’s bankruptcy. At para. 64, Peart J., who delivered the judgment of the court, held as follows:
“The OA has given evidence of his belief or opinion which the High Court will be invited to take into account as relevant evidence and draw inferences adverse to the applicant. This may all culminate in findings which will have implications for the duration of the bankruptcy and, for that matter, the bankrupt’s ability to exit the bankruptcy process. As this evidence cannot effectively be challenged absent the right of cross-examination, in my view he ought as a matter of procedural fairness be entitled to cross-examine the OA in respect of basis for his beliefs or opinions. ” (emphasis added).
4. This position is of course binding upon the High Court. The Official Assignee, as he is required to do pursuant to s. 85A (1) of the Act of 1988, has averred to his belief that the bankrupt has failed to cooperate with him in the realisation of the bankrupt’s assets and has hidden from or failed to disclose to the Official Assignee assets which could be realised for the benefit of the creditors of the bankrupt. He has set out the factual basis for that belief. The effect of the decision of the Court of Appeal is that the bankrupt is entitled to cross examine the Official Assignee in relation to that stated belief.
5. However, an application brought pursuant to s. 85A is not a lis inter partes . It is not an invitation to a bankrupt to criticise the conduct of the bankruptcy and the administration of the estate by the Official Assignee and his officials. It is not concerned with the evidence which was presented before the court on previous applications during the course of the administration of the bankruptcy estate, such as applications for orders pursuant to either s.21 or s.28 of the Act.
6. In para. 5 of his affidavit sworn on the 11th April, 2018 to ground the application seeking to cross examine the Official Assignee, the bankrupt listed fourteen matters in respect of which he said cross examination of the Official Assignee was necessary. In fact, the matters set out are not in fact matters upon which the Official Assignee can be cross examined in the s.85A motion which is yet to be heard by the court. Peart J. made it crystal clear that the cross examination of the Official Assignee which a bankrupt is permitted to conduct on the basis of a bankrupt’s entitlement to fair procedures relates to the belief of the Official Assignee as referred to above. He is not entitled to a wide ranging cross examination of matters which are not directed towards that belief.
7. On this basis, I will order that the Official Assignee be available for cross examination on his two affidavits sworn in support of the motion brought pursuant to s.85A of the Bankruptcy Act, 1988 as amended. The bankrupt must identify the particular passages or paragraphs in the two affidavits upon which he wishes to cross examine the Official Assignee. These must be confined to the belief of the Official Assignee as to the alleged wrong doing of the bankrupt in relation to the recovery of assets or the concealing of assets. In accordance with the ruling of the Court of Appeal in Sean Dunne, a bankrupt , the passages must be identified in advance of the hearing of the motion and he may not attempt to cross examine the Official Assignee on matters which fall outside the scope of these passages or which is not addressed to the belief of the Official Assignee as set out in s 85A (1) of the Act.
Killaly – a bankrupt – v The Official Assignee
[2014] IESC 76 (19 December 2014)
Concurring
Clarke J.
Link
Appeal dismissed
MacMenamin J., Charleton J.
Outcome:
Dismiss
___________________________________________________________________________
THE SUPREME COURT
[Appeal No: 273/2014]
Clarke J.
MacMenamin J.
Charleton J.
In the Matter of Section 85A the Bankruptcy Act, 1988
In the Matter of Gerard Killally, a bankrupt
Between/
Gerard Killally, a bankrupt
Appellant
and
The Official Assignee
Respondent
Judgment of Mr. Justice Clarke delivered the 19th December, 2014.
1. Introduction
1.1 The bankruptcy regime in this jurisdiction has come under significant scrutiny in recent times, not least because of the fallout from the financial crisis. As a result of the very significant differences between the bankruptcy regimes in Ireland and other relevant jurisdictions, many investigated the possibility of seeking bankruptcy abroad. A bankruptcy tourism developed. In that context, a range of measures were introduced to amend the relevant law. One of those measures was the Personal Insolvency Act, 2012 (“the 2012 Act”). Part 4 of the 2012 Act was commenced by Ministerial order made on the 3rd December, 2013. One of the consequences of the amendments thereby brought about was to reduce the period during which a person was to remain undischarged from bankruptcy. The period had previously been 12 years. Amongst other changes introduced by the 2012 Act, all personal bankruptcies which had been of more than three years duration as of the 3rd December, 2013 were given the benefit of an automatic discharge from bankruptcy six months later (on the 3rd June, 2014) subject to the provisions of s.85A of the Bankruptcy Act, 1988 (“the 1988 Act”) which was inserted into that act by s.157 of the 2012 Act.
1.2 The appellant (“Mr. Killally”) had been adjudged a bankrupt more than three years prior to the 3rd December, 2013 (on the 27th July, 2009) and was, therefore, prima facie entitled to be discharged on the 3rd June of this year. The entitlement, however, to be so discharged is expressly, under s. 85(2) of the 1988 Act, as substituted by the 2012 Act, “subject to section 85A”. Section 85A permits a court to specify a later date (not itself later than the eighth anniversary of the original making of an adjudication order in bankruptcy) as the date of discharge.
1.3 The respondent (“the Official Assignee”) applied to the High Court for an order under s.85A postponing the discharge of Mr. Killally from bankruptcy. The motion seeking that order specified the grounds relied on as being that Mr. Killally had pleaded guilty to certain criminal offences. Those offences arose from the theft of property which should properly have been available to the Official Assignee to be used in dealing with Mr. Killally’s estate. The High Court heard the application of the Official Assignee on the 26th May, 2014 and the Court (McGovern J.) ordered that Mr. Killally should not be discharged until the 3rd June, 2015, being one year after the default date by which he would, in the absence of an order of the Court, have been so discharged. Mr. Killally has appealed to this Court against that order. In so appealing, Mr. Killally has raised two issues to which I will now turn.
2. The Issues
2.1 The first issue was one of principle. In substance, Mr. Killally argued that the statutory regime properly understood and interpreted is designed only to allow for a postponement of the discharge of a bankrupt where such a postponement is necessary to enable further inquiries or actions to be made or taken by the Official Assignee in circumstances where it has been established that the bankrupt has not dealt properly with his bankruptcy in accordance with law and, it is said, where such inquiries or actions are necessary to ensure that the bankrupt’s estate is properly dealt with. On that basis it was argued that s.85A is not intended to provide an additional punishment or sanction to be applied to a bankrupt for failure to cooperate or disclose but rather is designed to allow the Court to direct that the bankruptcy should continue beyond what might otherwise be its normal length where such extension is necessary, due to a default on the part of the bankrupt, to enable the bankruptcy to be properly conducted and concluded. In like manner, it was argued that the function of the Official Assignee, under s.61 of the 1988 Act, is to ensure that all of the assets of the bankrupt are secured and distributed in accordance with law. Such a function of the Official Assignee was said to be entirely consistent with the conferring on the Official Assignee of a role in applying to the Court for an extension of a bankruptcy to enable that task to be properly brought to a conclusion in circumstances where it had not proved possible to complete the relevant task in the normal or default time by virtue of wrongdoing on the part of the bankrupt. On the other hand, it was said that it is not part of the proper statutory function of the Official Assignee to invite the Court, even in the case of established wrongdoing, to extend the period of bankruptcy simply as a sanction or punishment for that wrongdoing.
2.2 The issues which arise under that heading are, therefore, directed to the proper interpretation of the personal bankruptcy code with particular reference to the role of the Official Assignee in seeking, and the Court in directing, an extension of the bankruptcy period. In particular, the issue is concerned with whether the relevant provisions include an entitlement on the part of the Official Assignee to seek, and the Court to direct, such an extension as a sanction for established wrongdoing.
2.3 Clearly, if Mr. Killally is correct in his contention under that heading, then it may well be that the Official Assignee had no jurisdiction to seek, and/or the Court had no jurisdiction to direct, an extension of Mr. Killally’s bankruptcy unless there were further inquiries which needed to be made which would warrant such an extension. Such an extension could not, if the legislation is to be interpreted in that way, be directed simply because of established wrongdoing whose effects had already been remedied.
2.4 However, even if, contrary to those submissions, a general jurisdiction is found to exist to extend a period of bankruptcy in respect of completed and remedied acts of wrongdoing, it is argued on behalf of Mr. Killally that the sanction imposed in this case is disproportionate in circumstances where he has already been the subject of a criminal sanction for the same wrongdoing and where, in those circumstances, it is said that the imposition of an additional sanction would be disproportionate. As the issues which arise under that second question only properly arise in the event that there is jurisdiction in the first place, I turn to the question of jurisdiction.
3. Jurisdiction
3.1 The starting point has to be to consider the text of both sections 85 and 85A. S.85(2) is in the following terms:-
“(2) Subject to section 85A, a bankruptcy subsisting on the coming into operation of section 157 of the Personal Insolvency Act 2012 where the order of adjudication was made more than 3 years prior to the coming into operation of that section, shall stand discharged 6 months after that day unless the bankruptcy has otherwise been discharged or annulled.”
3.2 As appears therefrom, s.85(2) is subject to s.85A which, as to the material part, is in the following terms:-
“85A. (1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(2) An application under subsection (1) shall be made on notice to the bankrupt and where made by the trustee in bankruptcy or a creditor, notice shall also be given to the Official Assignee.
(3) Where it appears to the Court that the making of an order pursuant to subsection (4) may be justified, the Court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.
(5) Where the Court has made an order under subsection (4), no further application may be made under subsection (1).”
3.3 There is no controversy over s.85(2). Prima facie, on the facts of his case, under s.85(2) considered on its own, Mr. Killally was undoubtedly entitled to be discharged on the 3rd June of this year. However, equally clearly that entitlement is “subject to section 85A”. Thus the real question concerns the circumstances in which an order under s.85A can be made.
3.4 The operative subsection is s.85A(4) which allows the Court “where it considers it appropriate to do so” to order a later date for discharge and, thereby, in effect, to extend the period of bankruptcy. In its terms the Court appears to be entitled so to do provided that either of the matters specified in subsection (4) are met, being either that it has been shown that the bankrupt has failed to cooperate with Official Assignee in the realisation of assets or has hidden or failed to disclose income or assets.
3.5 That subsection does not, in its terms, confine the making of an order to a situation where the Court is also satisfied that it is necessary to prolong the bankruptcy to enable inquiries to be made.
3.6 It is also necessary in that context to consider the other provisions of s. 85A. It is clear that subsection (3) allows the Court, if it is satisfied that an order under subsection (4) might be justified, to order a further investigation in relation to a possible failure of cooperation or a hiding or failure to disclose assets. In such circumstances it seems clear that discharge from bankruptcy will be postponed “pending the making of a determination of the application”. The application to which reference is made is an application under subsection (1) by the Official Assignee to object to the discharge of a bankrupt. Thus, it would seem that the combined effect of subsection (1) and subsection (3) is that one of the consequences of an application by the Official Assignee under subsection (1) is that the Court, if it is satisfied that there may have been a failure of cooperation or a hiding or a failure to disclose assets, can postpone the making of a final order on the Official Assignee’s application and can direct an appropriate investigation under subsection (3). In those circumstances the discharge will be postponed until after the Court has finally made a decision on the Official Assignee’s application which, one must assume, would await the results of the investigation ordered under subsection (3) unless the court were to subsequently consider that there was some good reason for not continuing with such investigation.
3.7 But what appears to be contemplated by subsection (4) is a different regime. While the combined effect of subsections (1) and (3) is to, in substance, allow for the postponement of discharge pending an investigation, the effect of an order being made under subsection (4) simpliciter is to postpone the discharge to a specified date. It is also clear that, once a final order under subsection (4) has been made, no further application for postponement can be brought by the Official Assignee for such an application is precluded by subsection (5). Thus there is a distinction between two possible ways of dealing with an established failure of cooperation or hiding or failure to disclose assets. First, the Court may postpone making any final order on the application of the Official Assignee and direct an investigation. Alternatively the Court may simply extend, on a once only basis, the period of the bankruptcy.
3.8 The existence of two separate strands might well suggest that they were intended to deal with two different sorts of circumstances. However, before reaching a concluded view on that question it is helpful to look at the corresponding United Kingdom legislation for both sides made reference to same in the course of their submissions.
3.9 The relevant legislation is the United Kingdom Insolvency Act, 1986 (“the UK Act”). Section 279 of same, in material part, provides as follows:-
(1) A bankrupt is discharged from bankruptcy at the end of the period of one year beginning with the date on which the bankruptcy commences.
…
(3) On the application of the official receiver or the trustee of a bankrupt’s estate, the court may order that the period specified in subsection (1) shall cease to run until—
(a) the end of a specified period, or
(b) the fulfilment of a specified condition.
(4) The court may make an order under subsection (3) only if satisfied that the bankrupt has failed or is failing to comply with an obligation under this Part”.
3.10 The statutory regime in the United Kingdom is, therefore, somewhat different. What the Court in the United Kingdom is empowered to do is to make an order which stops time running either for a specified period or until a particular condition has been fulfilled. It is clear from the definitions contained within s.279 of the UK Act that “condition” includes a condition that the Court be satisfied of something. Thus, doubtless, in substance a court could direct inquiries to enable it to be satisfied of something material to the conduct of the bankruptcy and the one year period would stop running until the Court had been so satisfied. It is clear that, in both Ireland and the United Kingdom, the underlying basis for the making of any order derives from a failure of obligation on the part of the bankrupt. In the case of such failure it is also true that, in both cases, the Court has something of a choice. In Ireland, under s. 85A, it is a choice between directing an inquiry under subsection (3) (and postponing a final order) or making an order postponing discharge from bankruptcy under subsection (4). In the United Kingdom, under s.279, there is a choice between stopping time running either until a condition has been fulfilled or until a specific period has elapsed.
3.11 In construing s.279 of the UK Act, the Court of Appeal for England and Wales, in Bramston v. Haut [2013] 1 WLR, 1720, (per Kitchin L.J.) said the following concerning the purpose of the section:-
“51. A purpose of the power conferred by s.279 is therefore to extend the period of the bankruptcy and to ensure that the bankrupt continues to suffer the disabilities arising from his undischarged bankruptcy until he complies with his obligations. I accept the submission advanced by the Trustee that in this sense the power is intended to be penal in character and used for purposes connected with the functions of the official receiver and the trustee and to allow the trustee to get in, realise and distribute the bankrupt’s estate in accordance with the provisions of Chapter IV.
52. Applying these principles in the context of the present appeal, it is clear that the order made by the judge on 3 April 2012 was not linked to the failure by Mr Haut to comply with his obligations; nor was it made to ensure that Mr Haut continued to suffer from the disabilities of being an undischarged bankrupt until he had fully complied with those obligations. Nor is it suggested that it was made for any other purpose that might be within s.279(3). Instead it was made to give Mr Haut time to put before the creditors in his bankruptcy an IVA proposal and thereafter secure the annulment of his bankruptcy order. That, it seems to me, was impermissible and outside the scope of the jurisdiction conferred by s.279(3).”
3.12 However, it must be noted that the context of that decision concerned a bankrupt who wished to remain in bankruptcy so that he might avail of the opportunity to make a voluntary arrangement with his creditors. The finding of the Court was that he could not.
3.13 First, it is important to note that the passage cited from para. 51 of the judgment of Kitchin L.J. refers to “a purpose” of the power and also refers to the intention or purpose of the power “in this sense” being penal in character and required to be used for purposes connected with getting in, realising and distributing the bankrupt’s estate. For obvious reasons Kitchin L.J. concluded that Mr. Haut’s application could have no connection with that purpose for it was clear that Mr. Haut’s sole intention in making the application was to give him an opportunity to enter into a voluntary arrangement. It is significant Kitchin L.J. went on, in the course of para. 52, to say the following:- “nor is it suggested that it was made for any other purpose that might be within s. 279(3)”. Thus, it is not clear to me Kitchin L.J. was excluding the possibility that there might not be, in the context of other cases, other purposes to be found within s.279 beyond the one identified being to facilitate the completion of the bankruptcy. Given that there was, at least on Mr. Haut’s case, (and he was the applicant) no question of him being in default, then it is clear that no question of a purely punitive or sanctioning extension of bankruptcy could have arisen on the facts of that case.
3.14 Some further light on the interpretation of the UK Act can be found from the judgment of the Chancellor in Shierson & anor v. Rastogi (a bankrupt) [2007] EWHC 1266 (Ch). At paragraph 65 of his judgment the Chancellor said the following:-
“65. It is clear from the terms of s.279 that postponement of discharge is linked to a failure to comply with the obligations imposed on a bankrupt by Part IX. But is the purpose of the power to postpone a discharge to provide an incentive to full compliance? Or is it that the disabilities arising from being an undischarged bankrupt should, in the public interest, continue until there has been full compliance? I doubt whether, on the facts of this case, it is necessary to reach a final conclusion on those questions. But in my view the purpose of the power is the latter, even though its effect may be to achieve the former. Were it otherwise I would have expected Parliament to have made discharge conditional on full compliance.”
3.15 However, it is clear from the remainder of the judgment that the issue as to the proper interpretation of the purpose of s.279 of the UK Act was not decisive. The Court went on to hold that there clearly were uncompleted inquiries which would have justified an extension of the bankruptcy in that case, irrespective of the proper interpretation of the section. As appears from the passage cited, Shierson does not, in fact, reach any concluded view on the purpose of the section.
3.16 In any event it does not seem to me that, because of the significant difference in wording between the relevant Irish and UK legislation, the interpretation placed on s. 279 of the UK Act is of particular assistance in attempting to construe s. 85A of the 1988 Act.
3.17 For the reasons already set out I am satisfied that s. 85A involves two potentially different approaches which the Court can apply depending on the circumstances of the case. Where, as a result of an established failure to cooperate, hiding or failure to disclose, the Court feels that further inquiries require to be made, then the Court can postpone making an order under s. 85A(4) and direct inquiries under s. 85A(3). The Court can, thereafter, consider what to do about making a substantive order under s. 85A(4) in the light of the progress and results of the relevant inquiries.
3.18 On the other hand, the Court can, independently of directing any inquiries, and, it seems to me, independently of taking the view that such inquiries might be required, simply extend the period of bankruptcy as a sanction to reflect the established failure to cooperate, hiding or failure to disclose relevant assets. It is, of course, the case, as the Court of Appeal in the United Kingdom pointed out, that a suspension of discharge from bankruptcy of that nature is necessarily penal in character and it follows that any wrongdoing would require to be clearly established before the jurisdiction is invoked and further that the extent of any extension of the period of bankruptcy ordered by the Court would have to be proportionate to the established wrongdoing.
3.19 It is of some relevance to note that s. 123 of the 1988 Act, as amended from time to time and most recently by s.158 of the 2012 Act, provides that various actions or inactions on the part of a bankrupt amount to a criminal offence. On that basis, it was argued for Mr. Killally that the proper consequence of a culpable failure on the part of a bankrupt either to cooperate with the Official Assignee or to disclose assets is that criminal proceedings be brought. On that basis it was argued that s.85A should not be construed as creating a parallel jurisdiction to impose sanctions for such failure on a bankrupt. It was further argued that the only circumstances where it was proper to invocate s.85A was where some level of further inquiry or action were required for. In the absence of such requirement, it was said that the imposition of an additional sanction under s.85A in respect of a completed and, in particular remedied, breach of obligation by the bankrupt would amount to an impermissible form of double sanction.
3.20 On behalf of the Official Assignee, on the other hand, it was contended that the personal bankruptcy regime relies to a significant extent on individual bankrupts to cooperate fully with the Official Assignee and the process. In those circumstances it is said that it is entirely appropriate for the Oireachtas to consider, for the purposes of discouraging non-compliance, that the Court should be empowered, in an appropriate case, to extend the period of bankruptcy in cases of significant failure of compliance. In my view that argument is well-founded. Unlike its counterpart in the United Kingdom, s.85A speaks entirely of failures in the past and makes no reference to continuing failures. Clearly, however, such activities as failing to cooperate or hiding assets while referred to in the past tense in the section may be alleged to be continuing as of the date of an application to court. What cannot be done is to invoke s.85A where the bankrupt is already discharged from their state. Fundamentally, however, there is nothing in the language used to suggest that the section cannot be applied as a penalty or sanction to be imposed on a bankrupt for a sufficiently serious failure of compliance. Such an interpretation is entirely consistent with the need to impose a significant discouragement to prevent bankrupts from failing to comply with their clear obligation to cooperate.
3.21 In passing I should add that it does not seem to me that the fact that Mr. Killally himself applied for his own bankruptcy changes the situation one way or the other. It is obviously the case, as counsel for the Official Assignee pointed out, that there are few benefits to bankruptcy from the perspective of the potential bankrupt but that one benefit is the protection afforded from creditors. It might, in that context, be said that there is a particular duty on persons who seek bankruptcy themselves and thus, if successful, obtain protection from their creditors, to cooperate with the bankruptcy process. Be that as it may, s.85A does not make any distinction between persons who become bankrupt on their own application and those who are adjudicated on the application of a creditor.
3.22 Before finally concluding on this aspect of the case, I should address some of the further arguments put forward on behalf of Mr. Killally in favour of the construction which he seeks to place on s. 85A. First counsel for Mr. Killally draws attention, correctly so far as it goes, to the fact that there is an absolute limitation on the making of any order which would have the effect of extending the period of bankruptcy beyond its eighth anniversary. Thus, as he points out, a person who had been in bankruptcy for a period of seven years and six months prior to the 3rd December, 2013, could not have had any order made under s. 85A for any such order would have had the effect of extending his bankruptcy beyond the 3rd June, 2014, and to make such an order would have breached the eighth anniversary rule. However, it does not seem to me that this point has any relevance to the construction issue with which this Court is concerned. The eighth anniversary rule applies equally to a case where it might be suggested that a bankruptcy might be extended as a sanction, on the one hand, or for the purposes of an inquiry, on the other. If, as Mr. Killally argues, the sole remitted purpose of the making of an order under s.85A is to facilitate compliance, then the eighth anniversary rule interferes with that purpose just as much as it would interfere with the imposition of an extension as a means of sanction.
3.23 Next, it is contended that the role of the Official Assignee under s.61 of the 1988 Act is to get in and distribute the estate of the bankrupt in accordance with law. That much is certainly true. On that basis it is argued that the exercise by the Official Assignee of the power conferred by s. 85A must be confined to that end. However, the Official Assignee is given the power to apply to the court under s. 85A(1) provided that the Official Assignee can properly allege a failure to cooperate or a hiding or failure to disclose assets. The power is not expressly stated to be limited to cases where, as a result of such wrongdoing, further inquiries or action requires to be taken. It seems to me to follow that s. 85A itself provides authority to the Official Assignee to bring an appropriate application before the court where the Official Assignee is of the view that it will be possible to establish such absence of cooperation or hiding or failure to disclose assets. Whether to impose the sanction is, of course, a matter for the court and not the Official Assignee.
3.24 Thus, I am satisfied that, at the level of principle, s. 85A confers on the Official Assignee a function of bringing to the attention of a court any alleged failure to cooperate, hiding or failure to disclose with a view to inviting the court to consider whether it should exercise its jurisdiction under s. 85A(4) to extend the time during which the bankruptcy should remain undischarged. This is an alternative to the jurisdiction of the Official Assignee to bring such an application in circumstances directed towards inviting the court to require further investigation thus postponing any discharge from bankruptcy while the progress of any such investigation is under review. It follows that, in my view, the Official Assignee had standing to bring this application and, at the level of broad principle, the court had jurisdiction to extend the period of Mr. Killally’s bankruptcy in the light of any established failure to cooperate, hiding or failure to disclose assets.
3.25 It should also be noted that Mr. Killally accepts that a person in bankruptcy should not be immune from punishment for failure to cooperate or the hiding or failure to disclose assets. However, it is suggested that any sanction in that regard must be found in the criminal law. On that basis it is said that s. 85A cannot be used to impose a sanction which, while civil in nature, is undoubtedly of very serious consequence. I do not doubt that it is proper to characterise the consequences of bankruptcy (and thus the consequences of any extension of the period of bankruptcy) as very serious. In that context it is well settled that it is necessary that all procedures leading to a proper adjudication in bankruptcy are fully complied with (see for example, O’Maoileoin v. Official Assignee [1989] 1 I.R. 647 and Murphy v. Bank of Ireland [2014] IESC 37). However, it does not follow that it is not permissible for the Oireachtas to impose a civil consequence for a failure to cooperate or hiding or failure to disclose assets and that such consequence can involve an extension of the bankruptcy period even where there are no further inquiries to be carried out. For the reasons which I have already sought to analyse I am satisfied that, on its proper construction, that is precisely what s. 85A seeks to do. It does, however, have to be recognised that, by virtue of the serious consequences of an extension of bankruptcy, any sanction so imposed must be proportionate to the wrongdoing on which it is based.
3.26 That leads to the second question as to whether the extension of one year imposed on the facts of this case was appropriate in all the circumstances including the fact that Mr. Killally had already been the subject of a criminal sanction for much (or on one view for all) of the relevant wrongdoing.
4. Was the Sanction Proportionate?
4.1 There are two principal points relied on by Mr. Killally under this heading. First, he draws attention to the fact that he has already been the subject of a criminal sanction arising out of the allegation of theft which formed the basis of the Official Assignee’s application to postpone his discharge from bankruptcy. The facts relevant to this point can be briefly stated. Mr. Killally sold kitchen equipment (between October, 2010 and February, 2011) which had vested in the Official Assignee as part of Mr. Killally’s estate as a bankrupt. In that regard he was charged with theft and came before the Circuit Criminal Court (His Honour Judge Hunt) on the 12th November, 2012.
4.2 Mr. Killally pleaded guilty at his arraignment. He then, prior to his sentencing hearing, paid into the bankruptcy office the full value of the relevant goods. His Honour Judge Hunt had deferred sentencing for two weeks and remanded Mr. Killally in Cloverhill Prison for that period. Mr. Killally appears to place some reliance on the fact that his time in prison was a harrowing experience which caused him to end up in a padded cell. However, I find it difficult to see how that account is of any relevance to the issue which this Court has to decide. Mr. Killally had been guilty of a significant offence of theft and the sentencing judge, quite properly and well within his jurisdiction, took the view that he should be remanded in prison pending a considered view as to the appropriate sentence to be imposed.
4.3 In any event, on the 26th November, 2012, His Honour Judge Hunt imposed a sentence of three years imprisonment with the full term suspended but also directed that Mr. Killally serve 240 hours of community service. Mr. Killally has completed that period of community service.
4.4 Against that background Mr. Killally argues that he has already, as it were, paid the price for his acts of theft. In those circumstances it is argued that the imposition of a second penalty or sanction against him, by means of the extension of his period of bankruptcy as a result of an order under s. 85A, is either impermissible in principle or is disproportionate.
4.5 It is at this point necessary to touch on an issue which arose before the trial judge concerning a contention that Mr. Killally had failed to disclose pensions. Such a failure could, potentially, have been relevant in one of two ways. First, it might have been argued that, while the consequences of Mr. Killally’s theft had been finally dealt with in the criminal process (not least by his repayment of the proceeds), further inquiries needed to be made in relation to the pensions issue thus justifying an order under s. 85A(4) even if that provision were to be construed in the manner contended for by Mr. Killally. Second, it might have been said that the failure to disclose in respect of the pensions was itself a further item of wrongdoing which could and should have properly been taken into account by the trial judge in assessing whether to make an order under s. 85A and also, if persuaded to make such an order, in determining the period of postponement to be provided for.
4.6 In that context it is appropriate to note the order sought in the motion brought before the bankruptcy judge. The motion was in the following terms:-
“1. An order postponing the automatic discharge of the bankrupt due on the 3rd day of June 2014 for a period of 12 months and that the bankrupt accordingly be discharged from bankruptcy as of the 3rd day of June 2015 on the basis that the bankrupt has been convicted of having stolen assets from his bankruptcy estate by order of the Circuit Criminal Court (Midland Circuit) dated the 13th day of November 2012.”
4.7 In passing it should be noted that a second, uncontroversial, order was sought and granted requiring a continuing payment of €433 per month for a period of two years. Nothing turns on that second order.
4.8 It first should be noted that the only basis suggested in the motion for the making of an order under s.85A was the criminal conviction to which reference has already been made. Furthermore, there was no reference to any other basis for seeking an order under s.85A to be found in the body of the grounding affidavit sworn in support of the motion. The only reference to the pensions issue was to be found in a letter (dated 14th May, 2014) which had been written by the Official Assignee to Mr. Killally in advance of bringing the application to the Court. The letter in question was exhibited in the grounding affidavit. In that letter, and having made reference to the criminal proceedings, it is suggested that it was proposed to seek to extend Mr. Killally’s bankruptcy for this reason (being the criminal conviction) “and for failing to disclose assets, namely two pensions which were subsequently found by my office”.
4.9 On that basis Mr. Killally complained that there was no evidence either before this Court or before the High Court as to the details of the relevant pensions, their value or whether they were amenable to seizure by the Official Assignee. Insofar as it might be said that it was necessary to carry out further investigations into those pensions, Mr. Killally argued that the Official Assignee had been aware of the existence of those pensions for some time and that Mr. Killally should not be prejudiced by what is said to have been a delay on the part of the Official Assignee in carrying out any necessary inquiries. In that context reliance was placed on Grace v. Ireland [2007] IEHC 90, where Laffoy J. accepted that delay on the part of organs of the State which had the effect of prolonging a bankruptcy would amount to a breach of Article 6.1 of the European Convention on Human Rights. Thus, it was argued, there could not be a legitimate order made under s. 85A for the purposes of carrying out inquiries where those inquiries could and should have been completed at an earlier stage, for to make such an order in such circumstances would amount to a prolongation of bankruptcy deriving from delay on the part of an organ of the State.
4.10 However, given that, in my view, it is unnecessary for a judge of the High Court, in making an order under s. 85A to postpone discharge from bankruptcy, to be satisfied that inquiries remain to be made, it does not seem to me to be necessary to address this aspect of the issue since the trial judge was entitled to direct such a postponement under s. 85A on the basis of established wrongdoing.
4.11 Insofar as the pensions issue might be said to have been relied on as an additional ground of wrongdoing to justify the making of an extension order under s. 85A, it is said that no complaint concerning, or evidence in relation to, the pensions issue was put before the High Court on the application made by the Official Assignee. In those circumstances it is said that it would be a breach of fair procedures to allow the High Court to take into account any alleged breach of obligation in respect of the pensions issue in assessing the overall culpability of Mr. Killally.
4.12 I am satisfied that it would not, in all the circumstances of this case, be appropriate to take into account any breach of obligation in respect of the relevant pensions in determining whether an order should be made under s.85A or in determining the scale or scope of any such order should one be made. It is true, as counsel for the Official Assignee pointed out, that Mr. Killally did not respond to the letter from the Official Assignee raising the pensions issue. Likewise, it is also correct to note that Mr. Killally did not file any replying affidavit in relation to the motion. However, given that the grounds for reliefs specified in the motion before the court were confined to the criminal conviction for theft it does not seem to me that, on the facts of this case, the issue of the pensions was properly before the Court as a potential ground for making an order extending bankruptcy. In different proceedings, where an issue, such as the failure to disclose pensions mentioned in the Official Assignee’s letter in this case, was properly brought before the court then, it might well be said, given the obligations of cooperation which lie on a bankrupt, that a significant onus would rest on the bankrupt to engage with the question if he wished the Court to have significant regard to his side of the story in determining what action, if any, to take under section 85A.
4.13 However, on the facts of this case it seems to me that the pension issues were not properly before the court as part of the potential grounds for making an order under section 85A. The decision of the trial judge needs to be assessed, therefore, on the basis of the issue which was properly before the court being the theft of assets which had properly formed part of the bankruptcy estate. Having determined that the High Court had, at the level of general principle, a jurisdiction to make an order under s.85A in respect of such a matter, the second issue which arises is as to whether the trial judge was correct, in the circumstances of this case, to make the order which he did.
5. Proportionality of the Sanction
5.1 The starting point must be the reasoning of the trial judge himself. In a note supplied to this Court dated the 2nd July, 2014 the trial judge said the following:-
“I have signed Counsel’s Note and approve it on the basis that it, broadly speaking, represent what occurred. I would add one further note of my own. I acceded to the application of the Official Assignee, principally on the ground that the integrity of the bankruptcy process must be maintained and can only be maintained by parties cooperating totally with the Official Assignee and the Examiner’s Office. I was satisfied that this as not the case here.”
5.2 There is nothing in either that note or, indeed, in the agreed note of what transpired at the hearing, to suggest that McGovern J. placed any significant reliance on the pensions issue. It is clear that counsel for Mr. Killally argued, correctly in my view, that the pensions issues was not truly before the Court. A counter argument was put forward by the Official Assignee. The trial judge did not expressly resolve that argument but it seems to me that, if McGovern J. had been inclined to take the pensions issue into significant account, he would have resolved that argument expressly in favour of the Official Assignee.
5.3 In any event, it seems to me that the proportionality of the sanction imposed by McGovern J. must be seen in the light of the reasons which he gave in the note to which reference has already been made. It is clear that the trial judge took the view that the integrity of the bankruptcy process requires total cooperation by persons in bankruptcy and that a significant failure of such cooperation must point towards a sanction being imposed. It should also be noted that, as pointed out by counsel for the Official Assignee, the maximum sanction which was open to the trial judge, if in the light of the eighth anniversary rule, would have been to prolong Mr. Killally’s bankruptcy by a period of just in excess of three years (until the 26th July, 2017). The sanction imposed was, of course, one of a single year’s prolongation although it must be noted that such was the period of postponement sought by the Official Assignee.
5.4 It is also necessary to have regard to the fact that Mr. Killally has been the subject of a criminal penalty in respect of what is substantially the same wrongdoing. Even though, for the reasons already analysed, I am satisfied that there is jurisdiction to make an order under s.85A in respect of completed and remedied wrongdoing, it is appropriate for a judge in considering whether, and if so to what extent, to exercise the powers conferred under s.85A to consider any other sanctions or consequences which may arise in the context of the case under consideration. Where the wrongdoing is completed and remedied and where, therefore, the extension of bankruptcy is not being sought for the purposes of further inquiries or action but rather is being sought as a sanction, then it is appropriate for the Court to look at all the consequences on the bankrupt in assessing the appropriate measures to put in place.
5.5 It follows that it is necessary to have regard to the fact that Mr. Killally was subject to criminal sanction and has fully borne the burden of that sanction. It does not seem to me that there is any reason in principle, however, why an additional civil sanction cannot be imposed provided that, in all the circumstances of the case, the totality of the consequences for Mr. Killally cannot be said to be disproportionate. There are many situations in which there may be both criminal and civil consequences of the same wrongdoing. Even where the civil consequences are more in the nature of a sanction rather than in compensating a person who has suffered loss, such remains possible. A person may be subject, for example, to disciplinary proceedings or loss of benefits or licence, arising out of the same set of circumstances which can give rise to a criminal conviction. It follows that there is no reason in principle why there cannot be, subject to overall proportionality, both civil and criminal consequences of the same act. It is, therefore, necessary to assess the trial judge’s view of the seriousness of the matter with which he was faced.
5.6 The trial judge was entitled to take the view, as he clearly did, that this was a serious breach of the obligation placed on Mr. Killally to cooperate with the Official Assignee and not to seek to gain personal advantage by the sale of equipment which should have formed part of his estate for bankruptcy purposes. The seriousness of that breach needs to be measured in the light of the correct view taken by the trial judge that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breach. In the light of those considerations, and notwithstanding the fact that Mr. Killally had already been sentenced by the criminal courts, I am of the view that it was within the range of sanctions open to the trial judge in all the circumstances of this case to impose, by way of additional civil sanction, an extension of one year on Mr. Killally’s bankruptcy.
5.7 This Court should only interfere with the assessment of a trial judge as to the appropriate sanction to impose under s.85A where either the trial judge has been guilty of some significant error of principle in the way in which the trial judge approached the question in the first place or where the sanction is, in this Court’s view, outside the range of sanctions which the trial judge could proportionately regard as appropriate. In this case I am not satisfied that there is any such error of principle and I am also satisfied that the sanction (which was, of course, less than one third of the maximum sanction which could have been imposed) was within the range of sanctions which could have been proportionately imposed.
6. Conclusions
6.1 For the reasons set out in this judgment I am, therefore, satisfied that, on its proper construction, s.85A of the 1988 Act confers on the Official Assignee a jurisdiction to seek, and on the High Court a jurisdiction to impose, a postponement of the entitlement of a bankrupt to be discharged provided that the Court is satisfied that a failure to cooperate or a hiding or failure to disclose assets, in accordance with the terms of the section, has been established. That jurisdiction exists even though any wrongdoing thus established may be completed and, indeed, remedied. It is not necessary, in order for the jurisdiction to arise, that it be established that there are further inquiries to be made or action to be taken for the purposes of furthering the getting in and distribution of the estate of the bankrupt. I am, therefore, satisfied that a jurisdiction arose to make the order in this case.
6.2 I am also satisfied that the sanction of an extension of one year to the bankruptcy of Mr. Killally did not involve any error in principle on the part of the trial judge and was not outside the range of sanctions which were, in all the circumstances of this case, proportionately open to the trial judge to impose. In so holding I have excluded from consideration, as a matter not properly before the High Court, any issues connected with the suggestion that Mr. Killally may have failed to disclose pensions to the Official Assignee. I am not, however, satisfied that the pensions issue played any material part in the trial judge’s adjudication.
6.3 In those circumstances I would dismiss the appeal and affirm the order of the trial judge.
Lehane -v- Hoey
(Approved) [2020] IEHC 223 (08 April 2020)
JUDGMENT of Ms. Justice Pilkington delivered on the 8th day of April, 2020
1. This application, pursuant to s. 85A of the Bankruptcy Act, 1988 (as amended) (the “1988 Act”) seeks an extension of the respondent’s period of bankruptcy for a period of ten years, or such other period as this Honourable Court deems appropriate, based upon the two criteria within that section being:-
(a) a failure to cooperate with the Official Assignee (“OA”) in the realisation of the assets of the bankrupt;
(b) hiding from or failing to disclose to the OA income or assets which could be realised for the benefit of the creditors of the bankrupt.
2. After the issue of the s.85A application and within that application Mr. Hoey, the respondent, issued a motion on the 11th day of April, 2018 seeking an order to cross-examine the OA, pursuant to RSC Order 40, r. 1.
3. Order 40, rule 1 of the Rules of the Superior Courts, simply states that:-
“Upon any petition, motion, or other application, evidence may be given by affidavit, but the Court may, on the application of either party, order the attendance for cross-examination of the person making any such affidavit.”
4. Accordingly, whilst that provides the genesis for this application, it gives no guidance as to how, in circumstances such as this, the cross-examination of the OA is to take place. However the caselaw, whilst limited, is instructive.
5. That motion, seeking reliefs pursuant to RSC 40 r.1 was heard by Costello J. who delivered judgment in respect of this discrete issue on 15th day of October, 2018.
6. In granting the order sought Costello J. quoted from the Court of Appeal judgment in Sean Dunne, A Bankrupt [2017] IECA 304, where Peart J. held as follows:-
“The OA has given evidence of his belief or opinion which the High Court will be invited to take into account as relevant evidence and draw inferences adverse to the applicant. This may all culminate in findings which will have implications for the duration of the bankruptcy and, for that matter, the bankrupt’s ability to exit the bankruptcy process. As this evidence cannot effectively be challenged absent the right of cross-examination, in my view he ought as a matter of procedural fairness be entitled to cross-examine the OA in respect of basis for his beliefs or opinions.”
7. Costello J. continued:-
“However, an application brought pursuant to s. 85A is not a lis inter partes. It is not an invitation to a bankrupt to criticise the conduct of the bankruptcy and the administration of the estate by the Official Assignee and his officials. It is not concerned with the evidence which was presented before the court on previous applications during the course of the administration of the bankruptcy estate, such as applications for orders pursuant to either s. 21 or s. 28 of the Act.
In para. 5 of his affidavit sworn on the 11th April, 2018 to ground the application seeking to cross examine the Official Assignee, the bankrupt listed fourteen matters in respect of which he said cross examination of the Official Assignee was necessary. In fact, the matters set out are not in fact matters upon which the Official Assignee can be cross examined in the s. 85A motion which is yet to be heard by the court. Peart J. made it crystal clear that the cross examination of the Official Assignee which a bankrupt is permitted to conduct on the basis of a bankrupt’s entitlement to fair procedures relates to the belief of the Official Assignee as referred to above. He is not entitled to a wide ranging cross examination of matters which are not directed towards that belief.
On this basis, I will order that the Official Assignee be available for cross examination on his two affidavits sworn in support of the motion brought pursuant to s. 85A of the Bankruptcy Act, 1988 as amended. The bankrupt must identify the particular passages or paragraphs in the two affidavits upon which he wishes to cross examine the Official Assignee. These must be confined to the belief of the Official Assignee as to the alleged wrong doing of the bankrupt in relation to the recovery of assets or the concealing of assets. In accordance with the ruling of the Court of Appeal in Sean Dunne, a bankrupt, the passages must be identified in advance of the hearing of the motion and he may not attempt to cross examine the Official Assignee on matters which fall outside the scope of these passages or which is not addressed to the belief of the Official Assignee as set out in s. 85A(1) of the Act.”
8. The background to this matter is the adjudication of Mr. Hoey as a bankrupt on the 29th February, 2016. The present application issued on the 13th February, 2017 and, a number of affidavits have been sworn by each party; the OA on 13th February, 2017, Mr. Hoey in reply on the 2nd March, 2017, the supplemental affidavit of the OA on 21st April, 2017 and a second affidavit by Mr. Hoey on the 27th March, 2018.
9. By order dated 20th February, 2017, Mr. Hoey’s bankruptcy period was, pursuant to s. 85A(3) extended up to 27th April, 2017 and, thereafter, the period of bankruptcy was extended pending the determination of this application.
10. Since the notice of motion to cross-examine was issued, there has been a further replying affidavit from Mr. Hoey on 2nd March, 2017 and a supplemental affidavit by the OA on 21st April, 2017. Thereafter, there were adjournments from time to time whilst the bankrupt indicated to the court that he was awaiting the outcome of his application for civil legal aid. On 22nd January, 2018, the bankrupt advised the court that this application had been unsuccessful and that he would be proceeding to represent himself.
11. In any event, he was represented in this application by senior and junior counsel.
12. Strictly speaking, in my view the Order of Costello J. only dealt with the affidavits that had been filed within this application up to that date. It was not prospective. However, as set out above, additional affidavits were subsequently filed by the OA (and Mr. Hoey) and the issues between the parties have, in my view, narrowed considerably over time. In such circumstances, I have considered this aspect of the matter on the basis of all of the affidavits which have been filed.
13. Before setting out or dealing with these matters in more detail, in seeking reliefs pursuant to s. 85A, it is necessary to identify the issues raised on the facts of this specific case.
14. Section 85A(1),(4),(5) and (6) states as follows:-
“85A .
(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85 , apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has —
( a ) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
( b ) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
…
(4) Where the Court is satisfied that the bankrupt has —
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt, the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date
(i) being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers just, or
(ii) being not later than the 15th anniversary of the date of the making of the adjudication order, which the Court considers just in view of the seriousness of the failure to co-operate referred to in paragraph (a) or the extent to which income or assets referred to in paragraph (b) were hidden or not disclosed, or both, as the case may be.
…
(6) The making of an order under this section shall not prevent an application being made for discharge or annulment under section 85B.”
15. Counsel for the OA was explicit in identifying four specific grounds (and only four) upon which the application for the extension of time of this respondent’s bankruptcy was sought. Counsel made it clear that this was in part against a background where a number of the allegations, with which the OA was concerned, were not matters that could be definitively adjudicated in an application such as this. In other words, the application had to be advanced on the basis of what the OA contended to be non-contested evidence, as this Court was not in a position to resolve any factual conflicts in evidence with regard to this respondent debtor’s conduct. The four grounds will be examined in detail below
16. Two cases form the basis of the submissions on behalf of the OA; Thomas McFeely, A Bankrupt [2016] IEHC 299 (“McFeely”) and the Supreme Court decision in Killally v. The Official Assignee [2014] IESC 76 (“Killally”).
17. In Killally, the bankrupt had pleaded guilty to certain offences relating to the theft of property that should properly have been available to the OA in dealing with his estate. The High Court had ordered an additional year be added to his period of bankruptcy and Mr. Killally appealed to the Supreme Court. The issue in Killally, relevant to the issues in this case, is whether a postponement in any discharge of an individual’s bankruptcy can only be ordered to enable further enquiries or actions to be taken by the OA. In analysing s. 85A, Clarke J. stated:-
“3.17 …I am satisfied that s. 85A involves two potentially different approaches which the Court can apply depending on the circumstances of the case. Where, as a result of an established failure to cooperate, hiding or failure to disclose, the Court feels that further inquiries require to be made, then the Court can postpone making an order under s. 85A(4) and direct inquiries under s. 85A(3). The Court can, thereafter, consider what to do about making a substantive order under s. 85A(4) in the light of the progress and results of the relevant inquiries.
3.18 On the other hand, the Court can, independently of directing any inquiries, and, it seems to me, independently of taking the view that such inquiries might be required, simply extend the period of bankruptcy as a sanction to reflect the established failure to cooperate, hiding or failure to disclose relevant assets. It is, of course, the case, as the Court of Appeal in the United Kingdom pointed out, that a suspension of discharge from bankruptcy of that nature is necessarily penal in character and it follows that any wrongdoing would require to be clearly established before the jurisdiction is invoked and further that the extent of any extension of the period of bankruptcy ordered by the Court would have to be proportionate to the established wrongdoing.”
18. In conclusion, the court stated:-
“6.1 For the reasons set out in this judgment I am, therefore, satisfied that, on its proper construction, s.85A of the 1988 Act confers on the Official Assignee a jurisdiction to seek, and on the High Court a jurisdiction to impose, a postponement of the entitlement of a bankrupt to be discharged provided that the Court is satisfied that a failure to cooperate or a hiding or failure to disclose assets, in accordance with the terms of the section, has been established. That jurisdiction exists even though any wrongdoing thus established may be completed and, indeed, remedied. It is not necessary, in order for the jurisdiction to arise, that it be established that there are further inquiries to be made or action to be taken for the purposes of furthering the getting in and distribution of the estate of the bankrupt. I am, therefore, satisfied that a jurisdiction arose to make the order in this case.”
19. In “McFeely”, Costello J., having quoted ss. 19 and 20 of the 1988 Act, stated as follows:-
“It follows that the bankrupt was obliged to furnish the Official Assignee all of the documentation that he had in relation to his estate and insofar as there was documentation in the possession of third parties he was obliged to identify that documentation and the parties who had possession of the documentation to the Official Assignee. He was required to swear a statement of affairs which must disclose all of his assets. He was obliged to deliver up possession of all of his property to the Official Assignee. He was obliged to confirm his name and address. If during his bankruptcy he changes his address or leaves the jurisdiction, he is obliged to notify the Official Assignee.”
20. The court also considered the issue of search warrants pursuant to s. 28 of the 1988 Act (which also figure on the facts of this case) and, in that regard, the court stated:-
“Cooperation, first and foremost by the bankrupt, but by others also, with the Official Assignee is absolutely essential to the operation of the bankruptcy process. Quite simply, it cannot operate without the full cooperation of bankrupts. They have the information in relation to their estates and normally have possession of both the property and the relevant documentation or the relevant information and/or documentation is in the possession of their accountant, solicitor or other agents. It is essential to the integrity of the bankruptcy regime that the various obligations imposed by the Act on each bankrupt personally are observed and complied with fully and to the best of their respective abilities. There is no such thing as a minimum threshold of cooperation. It is for this reason that the Oireachtas has conferred a power upon the court to extend the period of bankruptcy and not to permit the automatic discharge from bankruptcy after the expiration of three (and now one) years from the date of adjudication where the court is satisfied that there has been either non-cooperation by the bankrupt with the Official Assignee in the conduct of the bankruptcy or there has been a failure to disclose assets or an attempt to hide assets from the Official Assignee.”
21. In McFeely, as in this case, the three matters were identified by the OA, as grounding an application pursuant to s. 85A were specifically set out and identified. The court, considered each in turn and continued:-
“17. The Official Assignee also advanced his application to court based upon the bankrupt’s failure to swear and file a statement of affairs but he placed less emphasis upon this failure than those discussed already. Nonetheless, he drew that failure to the attention of the court. In response, the bankrupt stated that he had furnished the Official Assignee with a copy of the statement of affairs which he had prepared for his English bankruptcy and which he had furnished to his trustee in bankruptcy in England. As a matter of principle, this does not and cannot amount to compliance with the statutory obligation under the regime in this jurisdiction. That obligation extends to disclosing all the property of a bankrupt of which the bankrupt is aware. Mr. McFeely was aware of his interest in the properties at issue in these proceedings… None of these properties are disclosed in the statement of affairs prepared for the English bankruptcy… Mr. McFeely has made no attempt to explain or excuse his failure for three and a half years to comply with this statutory obligation. This is in circumstances where he knew that the English statement of affairs did not disclose all his assets. It is a breach which stands proud of the three other complaints and applies whether or not the evidence obtained by the Official Assignee from the premises of… and applies whether or not the bankrupt has properly notified the Official Assignee of his address.”
22. On the basis that the court established a failure on the part of the bankrupt, in that he had hidden assets or failed to disclose them, as being a breach of his statutory obligations, including a failure to file a statement of affairs. On that basis, the court made an order pursuant to s. 85A extending the period of bankruptcy and, thereafter, considered the appropriate duration of such an extension.
23. The quotation from Clarke J. in Killally above, particularly highlighted the view of the court that an extension of an adjudication in bankruptcy can also be considered as one designed to discourage bankrupts from failing in the performance of their clear statutory obligations, which is in turn linked to the maintenance and integrity of the bankruptcy process. In McFeely, the court held that the breach was at the very grave end of the spectrum and should be for the maximum period with slight reduction due to the age of the bankrupt.
24. In this case, in considering the possible period of extension, counsel for the Official Assignee opened case law with the analogous references to disqualification of a director. In that regard, the decision of Kelly J. (as he then was) in The Director of Corporate Enforcement v. D’Arcy [2005] IEHC 333, initially considered that there were grounds for disqualification, and derived, assistance from the observations of the English Court of Appeal in In re Seven Oaks Stationers (Retail) Limited [1991] Ch 164 in considering the rationale for the period of disqualification and quoted from that decision, by dividing a potential fifteen year disqualification into three discrete periods as follows:-
“(i) The top bracket of disqualification for periods over ten years should be reserved for particularly serious cases. These may include cases where a director who has already had one period of disqualification imposed on him falls to be disqualified yet again.
(ii) The minimum bracket of two to five years’ disqualification should be applied where, though disqualification is mandatory, the case is, relatively, not very serious.
(iii) The middle bracket of disqualification for from six to ten years should apply for serious cases which do not merit the top bracket.”
25. By analogy, counsel for the Official Assignee submitted that the range of extension should be within a six to ten year limit, being not at the most egregious end of the scale (as in McFeely) but sufficiently serious to warrant a significant extension of Mr. Hoey’s adjudication as a bankrupt.
Section 21 of the 1988 Act
26. Within his affidavit grounding his application to cross-examine the Official Assignee, Mr. Hoey seeks that he be given “leave to cross-examine the applicant on the totality of matters referred to in his affidavit as the best interests of justice can only be served in that manner and by the adoption of that process. No prejudice arises to the applicant as he has, by this time, destroyed my farm and properties and all that was on it”.
27. As highlighted by Costello J. in Killally, this is precisely what an application to cross-examine the OA is not designed for. It cannot be that the Official Assignee is obliged to answer any and all matters relating to a complex and vexed bankruptcy estate.
28. I understand that there have now only been two occasions where the OA has been cross-examined pursuant to s. 21 (Re: Dunne, a bankrupt, [2018] IEHC 813 and these proceedings). In my view this procedure must be carefully monitored so that it is not used (incorrectly, in my view) to provide any person to a wide-ranging cross-examination upon all aspects of an examination of the bankrupt’s estate.
29. The affidavits sworn by Mr. Hoey were wide-ranging and raised a number of instances and a series of complaints with regard to the administration of his estate. Numerous exhibits containing photographs with handwritten explanations were also furnished to the court. I appreciate that this bankruptcy or the administration of this bankrupt’s estate has clearly been and remains difficult.
30. In his affidavit grounding the application to cross-examine the Official Assignee dated the 11th day of April, 2018, Mr. Hoey avers that he only very recently obtained the services of solicitor and counsel and sets out a number of examples (numbering 1 to 14) as to the potential issues requiring cross-examination.
31. In this case counsel for both parties thereafter, spent a considerable period of time seeking to narrow the issues. Ultimately the OA distilled the matter to four issues. In my view, if the OA states that these are the only issues upon which this court can accept or reject any extension of Mr. Hoey’s adjudication as a bankrupt, then his cross examination must be restricted to those issues.
Basis of the Application to extend the period of adjudication
32. In this case the four specific grounds relied upon by the OA for an extension of Mr. Hoey’s bankruptcy comprise;
(a) That a substantial amount of our machinery was moved from the family farm into storage (hidden) within the grounds of a local hotel.
(b) The discovery of €12,000 in cash on the debtor’s premises.
(c) The hiding of the Kepak money.
(d) The failure by Mr. Hoey throughout the entirety of the bankruptcy process to furnish a proper statement of affairs, to meet the OA’s requirement and those of s.19 of the 1988 Act.
33. The first three grounds are advanced pursuant to the criteria within s.85A (1)(a), with the fourth ground being the pursuant to s.85A (1)(b). I shall consider each ground in turn.
That a substantial amount of machinery was moved into storage at a local hotel.
34. The OA avers in his affidavit sworn on the 13th day of February, 2017 that, pursuant to a search warrant (five search warrants in total were obtained by the OA in this matter), granted by Costello J. on 25th March, 2016, for a search and seizure of items at a premises known as the “Oasis Hotel”, Kingscourt Road, Carrickmacross, the OA attended at the premises and seized items of farm machinery listed from subpara. (a) to (m) within his affidavit, which had previously been located at Anna Croft (the property of Mr. Hoey) and which were stated to all be his property and which accordingly vested in the OA by operation of law.
35. Mr. Hoey in his affidavit sworn the 2nd March, 2017, avers that the various items were not in his possession when he was made bankrupt, they were in possession of a Mr. Eugene Sheridan and that Mr. Sheridan had informed the applicant of the situation and the location of the assets.
36. In reply, the Official Assignee in his supplemental affidavit sworn on the 31st day of April, 2017, re-iterating that the averments of Mr. Hoey set out above made no material difference to the substance of his complaint, avers that:-
(a) There was farm machinery missing from Anna Croft which, it transpired, was concealed at the Oasis Hotel;
(b) That the assets were properly seized as assets in the bankrupt’s estate;
(c) Contrary to any averments of Mr. Hoey, that the OA was informed by An Garda Síochána of potential items within the bankrupt’s estate located at the Oasis Hotel which, in turn, necessitated the application for a search warrant and the discovery of the items above.
37. Mr. Hoey, in his affidavit, sworn on the 27th day of March, 2018 does not directly deal with these matters – the only averment which appears to relate to this aspect of the matter generally is at para. 4 and is set out below in its entirety:-
“4. All averments of the applicant relative to my character and to the perception held in the community of me are disavowed as if they were set forth herein and traversed seriatim and the respondent calls for actual evidence as opposed to the mere speculation relied upon and offered by the applicant to seek to persuade this Court that I am something that I am not. At all times throughout the initial destruction of my life by the applicant, he was surrounded by a group of bullyboys and thugs and, in particular, by one Eugene Sheridan, a man, and a supposed friend of mine who had a clear agenda relative to my property and to such an extent that he was deliberately caught out by me and my partner over a period of time by setting traps for him, all of which he fell into, took the bait and informed/provided the applicant with bogus information, all of which promoted a reaction at all times. I believe the expression to be to keep your friends close and your enemies closer. I did, but I did not conceal material/machinery or money, Sheridan did.”
38. In the cross-examination of Mr. Lehane, aside from his being questioned with regard to a suggestion that the items were concealed or camouflaged, no other issue of substance was raised. All of the items were recovered and are now part of the bankrupt’s estate vesting in the Official Assignee. Nevertheless, it is noteworthy and not disavowed that they were procured subsequent to a search warrant, moved to the property of a third party and the subsequent averments of Mr. Hoey do not provide any evidence before this Court that they were not properly estate assets that should have properly vested in the Official Assignee, from the outset and form part of Mr. Hoey’s estate.
€12000 held in cash.,
39. Mr. Lehane at para. 31 of his affidavit sworn on the 13th day of February, 2017 avers that on the 22nd June, 2016, pursuant to a further search warrant, there was a search of Mr. Hoey’s property and approximately €12,000 in cash was discovered hidden behind a radiator. In evidence before this Court, Mr. Lehane confirmed that he had informed Mr. Hoey in advance that a sniffer dog was on the premises and that it was to be used to seek cash. Mr. Hoey disavowed that he had any significant items of cash on the premises. The search ensued and resulted in the recovery of the €12,000.
40. By way of reply, Mr. Hoey states that he kept the money in cash but it was part of a sum of some €57,539.85 arising from a cheque issued by Kepak (dealt with in the next category below) that he received prior to his bankruptcy on the 29th February, 2016 and that he had retained this money as he needed it to live on, as he had no income.
41. Mr. Lehane, in his affidavit sworn on 21st April, 2017, confirms that the cash was concealed in a plastic bag in a timber panel behind a radiator and was only discovered through the use of a specialised customs and excise sniffer dog. Equally, the OA made clear in his response to questions that all assets vested in him from the date of adjudication and it was not Mr. Hoey’s entitlement to retain such monies as he might please. There are provisions within the bankruptcy code for the provision of reasonable living expenses and these do not extend to the concealment of monies in this debtor’s house.
42. Finally, in his final affidavit, Mr. Hoey states as follows at para. 6:-
“It is indeed a curious thing that having had specialist sniffer dogs roam through my house and farm on more than one occasion, finding, it is claimed €12,000 behind a radiator contained within a bag that a further €5,000 was missed in the same search and allegedly found in one of the sheds, which had been searched on previous occasion several months later. The only logical conclusion that can be inferred from this supposed find, given the nature of the dog’s specialty, is that the money was placed there. Not by me. The applicant is wrong in his bald assertion…”
43. I am satisfied that Mr. Hoey was given every opportunity to disclose, and indeed his obligation pursuant to s. 19 of the 1988 Act, was to disclose all of his assets, including this cash sum. It is also in turn linked to the disbursement of monies from a Kepak cheque which is dealt with below.
44. I am satisfied that an explanation was sought from him in August, 2016, that no proper explanation or accounting for this cash was forthcoming.
The Kepak money.
45. This matter is set out in the affidavit of Christopher Lehane at paragraph 33. Within that paragraph, he states that in the course of investigation, he became aware that Mr. Hoey had sold a significant number of animals by sending them for slaughter to Kepak in County Meath. Kepak confirmed in correspondence, which is exhibited, that cheques were paid over the period from 16th February, 2016 to 8th March, 2016 with the cheque on the 16th February, 2016 for the sum of €57,539.85 (the bankruptcy date is 29th February, 2016). Also exhibited are five subsequent cheques by Kepak to Mr. Hoey, all marked “A/C Payee Only” – all were endorsed to different third party organisations, resulting in applications for Mareva injunctions to prevent the relevant banks disposing of the amounts held in the accounts of those third party entities. In respect of the monies paid to Mr. Hoey by Kepak, letters were sent both to Mr. Hoey and to his solicitor in the family law proceedings in August, 2016, requesting repayment of the monies. No response has been received.
46. With regard to these matters, Mr. Hoey in his replying affidavit at paras. 54 and 55 firstly says that all of the Kepak cheque monies have been recovered and that the first Kepak cheque dated 16th February, 2016 was cashed before he was made bankrupt and that the monies were used to pay various expenses, as he was trying to keep his business afloat prior to his bankruptcy.
47. Accordingly, Mr. Hoey avers that there is no loss to any creditors, all the monies have been located and, accordingly, everything is now in order.
The absence of a statement of affairs.
48. The Official Assignee avers that Mr. Hoey has never provided a statement of affairs. This has been the position up to and including this hearing. Mr. Lehane in his affidavit avers that he received a copy of a partial statement of affairs, which he obtained from a petitioning creditor, which had been utilised prior to Mr. Hoey’s adjudication as a bankrupt and a trust document, furnished by Mr. Hoey, which contained a schedule of assets which Mr. Hoey claimed were not any part of his bankruptcy estate but rather held pursuant to this purported trust.
49. In addition, Mr. Lehane gave evidence that the OA was obliged to apply to be joined as a notice party in respect of family law proceedings, involving Mr. Hoey and his former wife, in order to obtain additional information regarding his assets. Accordingly, there are three sources of information: the matters set out in the purported trust documentation, information pursuant to the family law proceedings (which required the OA to be joined as a party), and information provided from the petitioning creditor prior to Mr. Hoey’s adjudication as a bankrupt.
50. Mr. Hoey avers that a statement of affairs was hand delivered to the Examiner’s Office on 2nd November, 2015 and he was aware that the applicant received a copy provided to him by the creditor (of course, in advance of his bankruptcy). He also says he made full disclosure of his assets when he instructed his solicitor to provide him with a copy of his sworn affidavit of means and that of his ex-wife as part of their ongoing divorce proceedings. Mr. Lehane gave evidence (uncontroverted) that in fact, this documentation was procured once they were joined as a notice party to those proceedings. Reference is also made to the provision of a copy of the trust which Mr. Hoey states comprises a comprehensive list of his assets.
51. The trust document is unusual, but that is outside of the parameters of this application, but, for example, it does not deal at all with cash but rather land, specific machinery and farm implements. That is not to make any comment upon the efficacy or, indeed validity, of the trust document or the matters contained within it, but I have simply viewed it to examine Mr. Hoey’s contention that his assets are reflected within that document, which obviated the necessity to furnish a statement of affairs as required by the 1988 Act.
Section 85A of the 1988 Act.
52. In response to questions in the course of cross-examination by counsel for Mr. Hoey, the OA stated that in his belief, there were significant cash assets remaining within this estate, but he was not in a position to verify this. He based this upon the fact that cash had been discovered on the farm and also, perhaps somewhat unusually in a farming/haulage enterprise, there were three cash machines on the property.
53. It is very clear that this bankrupt’s affidavits are replete with numerous complaints regarding the OA’s conduct of this estate – matters such as the treatment of cattle, their disposal, the manner in which his properties and other assets are subject to a caretaker’s agreement on foot of no consideration, his rejection of any involvement in a sign erected on the lands being “No Sale Here RIP J Hoey”. Mr. Hoey takes issue, at length with the agents retained by the OA, their conduct in dealing with the animals on the farm and their disposal and complaints with regard to certain vehicle assets and, in particular, Scania haulage vehicles, as to their registration and, indeed, whether they are owned by commercial entities in Northern Ireland or within this jurisdiction.
54. That this is clearly a difficult administration is clear from the evidence of Mr. Lehane, who stated that he was advised by Gardaí to be accompanied by an armed protection unit when he first visited the premises. There was a difficulty in retaining auctioneers and other professionals within the area to deal with this estate and, Mr. Hoey strongly objects to what he contends is having his name being blackened or besmirched in such circumstances. He claims that his rights under Article 81 of the European Convention of Human Rights has been breached and that he has lost any rights he had to privacy in his family life, his home and correspondence. He avers that he has had a gun license regularly renewed by the Gardaí and strongly denies that he in any sense presented any danger throughout the context of his bankruptcy. Mr. Lehane confirmed that throughout, he had no personal difficulty with Mr. Hoey and the two dealt with each other in a properly professional manner. However, he asserted that the Garda escort to the premises was as a result of advices received from the Gardaí and not at his instigation.
55. In total, five search warrants were issued to deal with items and matters relating to the property. Mr. Hoey, in turn, states that certain damage was occasioned to his lands and property, at all of which is denied by Mr. Lehane on behalf of the OA and those he retained to deal with this vexed estate.
56. Counsel for Mr. Hoey submitted that:-
(a) There had already been a practical extension of Mr. Hoey’s bankruptcy in that the order of adjudication had been made in excess of three years ago and, accordingly, that was the tripling of the normal time for any persons being in bankruptcy.
(b) The infractions in Killally and McFeely were of a higher order than the allegations made in respect of Mr. Hoey.
(c) In essence, in respect of the bulk of the bankruptcy estate (although perhaps having some troublesome points), the assets had now largely been realised, the extent of the estate known and, accordingly, that there was now no reason to further extend the bankruptcy.
(d) Mr. Hoey deserved some credit for his limited cooperation and his sense of outrage and being aggrieved by some aspects of the ongoing administration of his estate have to be accepted.
(e) That the remaining assets being real property remained an asset within the bankruptcy in any event and did not therefore require any extension for the OA to now deal with them.
57. The Official Assignee did, in his evidence, confirm that a very substantial asset being the house and the significant yard and buildings was, essentially, the only significant assets that remained within this bankrupt’s estate. He accepted that in this bankruptcy (as in others), the first nine to twelve months of the bankruptcy had revealed the bulk of the assets comprised within Mr. Hoey’s estate.
58. However, the ongoing difficulty that the OA has is in relation to this bankruptcy is the absence of the filing of a proper statement of affairs. The OA is still having to use his expertise and to effectively “assess” Mr. Hoey’s estate and his evidence confirmed this. There has been no proper statement of affairs filed by Mr. Hoey and, in my view, that is and remains significant.
59. In a letter from Reddy Charlton (solicitors for the OA) to JV Geary, solicitors for the respondent bankrupt was sent on the 27th February, 2020. The pertinent portion of which is as follows:-
“…the primary remaining issue to be dealt with in our client’s administration of this estate is the sale of Anna Croft. This application to extend Mr. Hoey’s bankruptcy proceeds in part because of his conduct to date but also in part because the estate remains to be concluded and regulated.
If your client confirms that he will cooperate in the sale of Anna Croft and its surrounding lands and will so undertake to the court on Tuesday, then our client is prepared to seek no further extension of his bankruptcy.”
60. There has been no response to this letter and nor, more importantly, did counsel for the respondent debtor advert to it in any way in the course of the application.
61. In my view, I am satisfied, on the balance of probabilities, that Mr. Hoey had significant cash assets hidden on his property which were not disclosed to the OA, and in respect of which he failed to furnish any credible or proper explanation, other than it was needed for living expenses. It is not the amount of the cash but its non-disclosure that is the issue. I have also had regard to his conduct with regard to the Kepak monies, the distribution of some of the proceeds by cheques made out in favour of various third parties, in turn necessitating applications for Mareva injunctions. I also note the moving of certain assets formerly on the Anna Croft property. In my view, considering all of the affidavits, the evidence arising from the cross examination of the OA and the legal submissions advanced, these matters constitute a sufficient basis for the finding of a failure by Mr. Hoey to cooperate with the Official Assignee in the realisation of his assets as required by s.85A (1)(a) of the 1988 Act.
62. In my view, the most troublesome feature of this case remains the failure of Mr. Hoey to cooperate with the OA in the filing of a statement of affairs. The requirement to file a statement of affairs is well known. The OA gave evidence that its absence constitutes an ongoing difficulty within this bankruptcy. There was never any suggestion or offer by Mr. Hoey that this defect would now be rectified. His position is that the information gleaned by the OA should be sufficient in all the circumstances. I do not understand the reluctance to co-operate with the OA in this regard, but the view of Mr. Hoey that he has submitted the information regarding his estate and that is an end of the matter and should be sufficient, suggests little short of obstinacy. The requirement of s.19 of the 1988 Act is clear and applies to all without exception. His blatant failure to fully disclose to the OA his income and/or assets, which of course are to be realised for the benefit of creditors, remains unexplained.
63. The Supreme Court in Killally accepted the comments of McGovern J. in the High Court and, indeed, reinforced them with their own, that the efficacy of the bankruptcy process should be properly protected. The basic requirement that, upon an adjudication of bankruptcy, a bankrupt is obliged to furnish a proper statement of affairs (and not documentation produced over time and often from investigations instituted by the OA), is not an overly rigorous or complex requirement. That it has never been produced does not reflect well upon this respondent bankrupt and, in my view, is a very significant infraction in his conduct within this bankruptcy process. His protestations in relation to other aspects of the conduct of this bankruptcy process must be viewed in contradistinction to his failure to properly cooperate within it. The failure to furnish a statement of affairs in my view, for the reasons set out above, constitutes a failure by Mr. Hoey to comply with s. 85A (1)(b) of the 1988 Act.
64. Having found that there has been a breach of ss. 85A (1) (a) & (b) of the 1988 Act, the remaining issue is to determine the period of extension, if any, of Mr. Hoey’s bankruptcy.
65. As set out above Mr. Hoey was adjudicated bankrupt on 29th February 2016 and it has been contended by his counsel that his period of bankruptcy has already been extended significantly, in the events that have happened. Counsel for the OA seeks an extension within the range of six to ten years. I am not prepared to accept Mr. Hoey’s period of extension to the present time as sufficient, as I particularly note that his infraction (particularly with regard to the statement of affairs) is ongoing. I accept that these infractions are not at the same ‘level’ as in McFeely. Nevertheless, in my view, there has been a persistent and determined effort by Mr. Hoey not to co-operate with the OA, within the four issues or areas advanced by the OA and upon which this adjudication is based. Nothing advanced before the court led me to consider that that Mr. Hoey’s co-operation with the OA in these matters has improved over time. Many of the items recovered for the ultimate benefit of the creditors arise from the diligence of the OA and not the co-operation of Mr. Hoey. I have also had regard to the comments of the Supreme Court in Killally as to the importance of maintaining the efficacy of the bankruptcy process.
66. Whilst in my view there are grounds under both criteria set out within s. 85A(1) (a) and (b) of the Bankruptcy Act, 1988 for extending the period of Mr. Hoey’s bankruptcy, I would be happy to consider, having heard the parties, whether this matter should be adjourned for a short period of time to see if any further cooperation might arise, in which case this could well determine the extent of any bankruptcy extension concerning Mr. Hoey. This is particularly in light of the contents of the O.A’s solicitor’s letter of 27th February 2020 to Mr. Hoey’s solicitor referred to above (para. 59).
67. Accordingly, I will hear the parties as to whether it would be appropriate to permit a short extension of this matter prior to any final adjudication upon the possible time extension of the bankruptcy of Mr. Hoey and in respect of the terms of any orders that are required to be made, including any orders as to costs.