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C. (N.) (A Bankrupt), Re
[1999] IEHC 203 Judgment of Ms. Justice Laffoy delivered on the 26th day of November, 1999.
By Order of this Court made on 1st February, 1999 it was ordered, in pursuance of Section 87 of the Bankruptcy Act, 1988 (the Act of 1988), that the person and property of the debtor named on the title hereof (the Arranging Debtor) be protected from any action or other process until further order. Pursuant to the direction of the Court, the preliminary meeting of creditors pursuant to Section 90(a) of the Act of 1988 was held on 6th October, 1999. Subsequently, at the private sitting, which was adjourned from time to time until last Monday, 22nd November 1999, the creditors voting either in person or by proxy unanimously accepted the proposal of the Arranging Debtor. Those creditors included Ulster Bank Commercial Services Limited (UBCS) whose claim was allowed by the Official Assignee and is deemed to be admitted in the sum of £1,158,000.
Section 92(1) of the Act of 1988 provides that if, at the private sitting, three-fifths in number and value of the creditors voting accept the proposal of an arranging debtor, it shall be deemed to be accepted by the creditors, subject to the approval of the Court and, if approved by the Court, the proposal shall be binding on the arranging debtor and on all persons who were creditors at the date of the petition and who had notice of the sitting. Section 105 of the Act of 1988 provides that the Court may, if it thinks fit, adjudicate the debtor bankrupt if, inter alia, his proposal is not reasonable and proper to be executed under the direction of the Court. The issue addressed in this judgment is whether the Court should approve of the proposal of the Arranging Debtor.
1. The reason this issue is controversial, notwithstanding the clear statutory majority in favour of the proposal, is that in the interim period between the granting of protection to the Arranging Debtor and the private sitting, in July 1999, the Official Assignee, as he is empowered to do under Section 61(6) of the Act of 1988 “in case of doubt or difficulty… in connection with the affairs of any bankrupt or arranging debtor”, sought the directions of the Court as to whether the Arranging Debtor should receive the continuing protection of the Court in the light of the evidence put by the Official Assignee before the Court. The evidence consisted of affidavits put by UBCS before the Official Assignee in support of its proof of debt, in which it was alleged that the debt claimed by UBCS to be due by the Arranging Debtor to it had arisen or had been contributed to by fraudulent conduct on the part of the Arranging Debtor.
2. The reference of the Official Assignee was heard on 28th July, 1999. Having heard the Official Assignee, Counsel for the Arranging Debtor and Counsel for UBCS, the Court ordered that the protection should be continued until further order. Counsel on behalf of UBCS had submitted that the protection should continue until all the creditors would have their “say” at the private meeting.
3. The Arranging Debtor is a director of The Label Centre Limited (the Company). The claim of UBCS is the subject of plenary proceedings in this Court against the Arranging Debtor, the Company and three other defendants. In the plenary proceedings it is alleged that UBCS was induced to pay out and did pay out on foot of an Invoice Discounting Agreement dated 17th November, 1992 made between the Company of the one part and UBCS of the other part sums amounting to £1,700,000 by the acts of the defendants and by means of fraudulent and false documentation, that is to say, fictitious or bogus invoices. The attitude adopted by the Arranging Debtor to the claim of UBCS in these proceedings is to admit for the purposes of the Scheme of Arrangement liability to UBCS for the claim as allowed by the Official Assignee, but on the basis that he personally derived no benefit from the sum involved. Against a background of an ongoing criminal investigation, the Arranging Debtor relies on his privilege against self-incrimination.
4. While there is a wealth of authority on the provision which section 105 of the Act of 1988 replaced, section 353 of the Bankruptcy (Ireland) Act 1857, I have not been referred to any authority on section 92 or on section 105. Under section 353 the Court was empowered to override the majority of the creditors in an arrangement and to adjudge the petitioner bankrupt in certain cases including-
“… if it shall be shown that… [the petitioner] is not desirous of making a bona fide arrangement with all his creditors, or that his proposal to that effect is not reasonable and proper to be executed under the direction of the Court.”
5. The most recent authority on section 353 is In Re J.H., an Arranging Debtor, [1962] I.R. 232. In his judgment in that case Maguire C.J. (at page 240) quoted the following passage from the judgment of Kennedy C.J. in In Re C., an Arranging Debtor, [1926] I.R. 14 as being of a great deal of help in determining in general the nature of the grounds upon which an offer might be rejected as being unreasonable under section 353:-
“I accept it as clear and settled that there must be some specific ground for depriving a debtor, under the clause in section 353 relied on here, of the benefit of the statutory provisions which allow him to carry an arrangement with his creditors. I think that such specific ground must be either that the arrangement would work a gross injustice upon the opposing creditors, as in In Re Beck, so that it would be unreasonable or improper to force them to accept it, or that it offends against the public policy to which the court should look in exercising discretion in its bankruptcy jurisdiction, that is to say, that the Court should not lend its countenance to a transaction shown to be actually characterised by commercial immorality or dishonesty. Misfortune or imprudence must make the bulk of the ordinary cases for which the system of arrangement has been given statutory sanction. There must be special facts – not merely possibilities or even suspicions – constituting some specific ground upon which the opposing creditors are entitled to rely, or upon which the Court, in the interest of the public, and especially the commercial community, should intervene to justify the refusal to a debtor and the statutory majority of his creditors of the benefit of an arrangement to be carried in accordance with the statute”.
6. Later in his judgment, Maguire C.J. summarised his views in the following passage (at page 242):-
“If the creditors by the requisite majority accept the figures and the estimates it seems to me that their judgment ought normally to be accepted – that is, of course, provided that the debtor’s conduct has been unimpeachable and that it is not proved that he is guilty of immoral, reckless or dishonest conduct”.
7. At the hearing of the reference by the Official Assignee, it was submitted by Counsel for the Arranging Debtor, Mr. McCann, that in the instant case the appropriate regime for the protection of the public and the commercial community is Part VII of the Company’s Act 1990 (the Act of 1990), which governs the disqualification and restriction of directors and other officers of a company. Moreover, at the private sitting, Mr. McCann, in effect, pre-empted the necessity of determining whether the Arranging Debtor has been guilty of immoral, reckless or dishonest conduct by intimating that the Arranging Debtor would submit to a restriction order under section 150 or a disqualification order under section 160 of the Act of 1990.
8. The Court was told that the Company is in receivership, but not in liquidation. The provisions of Chapter 1 of Part VII of the Act of 1990 are applied to a company in receivership by virtue of section 154. The Arranging Debtor’s Petition of 1st February, 1999 was presented on the basis that the Company was then “hopelessly insolvent, being unable to pay its debts as they fall due and having a substantial deficiency of assets as against liabilities”. In the circumstances, the Court would appear to have jurisdiction to make a restriction order under section 150. Nonetheless, I am of the view that it would be more appropriate to make a disqualification order under section 160 in this case. If the Arranging Debtor were adjudicated a bankrupt he would be debarred from being an officer of a company while an undischarged bankrupt.
9. Sub-section (2) of section 160 provides that, where the Court is satisfied in any proceedings or as a result of an application under Section 160 as to any of the matters set out in paragraphs (a) to (f) inclusive of that sub-section, the Court may, of its own motion, or as a result of the application, make a disqualification order against any such person for such period as it sees fit. While most of the matters stipulated in sub-section (2) are of a specific nature, paragraph (d) is framed in general terms and stipulates that –
“the conduct of any person as promoter, officer… of a company makes him unfit to be concerned in the management of a company.”
10. The word “officer” in section 160 includes any director, shadow director or secretary of the company (section 159). By submitting to an order under section 160, the Arranging Debtor, although not necessarily admitting to any specific form of misconduct, is clearly implicitly admitting to past conduct which makes him unfit to be concerned in the management of a company.
11. On the facts of this case, in which the indebtedness of the Arranging Debtor is inextricably linked to the management and business of the Company, I think that the protection of the public and of the commercial community, which must be a factor which the Court should have regard to in determining whether to approve a proposal under section 92 will be adequately met by the making of a disqualification order under section 160. However, this case turns very much on its own facts and the approach adopted by the Court in this case would not necessarily be appropriate in the case of an individual debtor who traded or practised his profession in his own name.
12. Accordingly, I make a disqualification order under section 160 of the Act of 1990 for the period of five years from today’s date and I approve the proposal of the Arranging Debtor.
In the Matter of a Petition for arrangement by PA. D
with an address c/o …. Co. Dublin [2012] IEHC 574 (20 January 2012)
JUDGMENT of Ms. Justice Dunne delivered the 20th day of January 2012
The petitioner herein, Ms. D, filed a petition for arrangement herein and an order for protection of the petitioner was made on the 24th November, 2010. Ancillary orders were also made on that date.
An affidavit was filed by David McGregor on behalf of Anglo Irish Bank Corporation (International) plc (Anglo) on the 4th February, 2011, in which the entitlement of the petitioner to invoke the jurisdiction of this Court was challenged. Following an exchange of affidavits, ultimately the matter came before me for hearing on the 21st July, 2011.
The principle issue canvassed before me was as to whether the petitioner satisfies the requirements of Council Regulation (EC) No. 1346/2000 on Insolvency Proceedings (The Insolvency Regulation) such that the court has jurisdiction to hear and determine the petition. At the time of the hearing before me, this issue had been distilled down to the question as to whether or not the arrangement before the court was a vesting arrangement or not. I now propose to consider that issue.
The Law
The Insolvency Regulation was given effect in this jurisdiction by SI No. 334/2002. Reference was made to a number of Recitals and Articles in the Insolvency Regulation. Recital 12 provides as follows:-
“This Regulation enables the main insolvency proceedings to be opened in the Member State where the debtor has the centre of his main interests. These proceedings have universal scope and aim at encompassing all the debtor’s assets. To protect the diversity of interests, this Regulation permits secondary proceedings to be opened to run in parallel with the main proceedings. Secondary proceedings may be opened in the Member State where the debtor has an establishment. The effects of secondary proceedings are limited to the assets located in that State. Mandatory rules of coordination with the main proceedings satisfy the need for unity in the Community.”
Recital No. 16 provides as follows:-
“The court having jurisdiction to open the main insolvency proceedings should be enabled to order provisional and protective measures from the time of the request to open proceedings. Preservation measures both prior to and after the commencement of the insolvency proceedings are very important to guarantee the effectiveness of the insolvency proceedings. In that connection this Regulation should afford different possibilities. On the one hand, the court competent for the main insolvency proceedings should be able also to order provisional protective measures covering assets situated in the territory of other Member States. On the other hand, a liquidator temporarily appointed prior to the opening of the main insolvency proceedings should be able, in the Member States in which an establishment belonging to the debtor is to be found, to apply for the preservation measures which are possible under the law of those States.”
The definition of insolvency proceedings is contained in Article 2(a) is as follows:-
“(a) insolvency proceedings’ shall mean the collective proceedings referred to in Article 1(1). These proceedings are listed in Annex A.”
Annex A includes the following:-
“Arrangements under the control of the court which involve the vesting of all or part of the property of the debtor in the Official Assignee for realisation and distribution.”
Article 3(1) of the Insolvency Regulation describes the international jurisdiction as follows:-
“The courts of the Member State within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal persons, the place of the registered office shall be presumed to be the centre of its main interest in the absence of proof to the contrary.”
It will be seen from Annex A therefore that the Insolvency Regulation only applies to arrangements which involve the vesting of all or part of the property of the debtor in the Official Assignee.
There are certain statutory provisions to which it would also be of assistance to refer. Section 87 of the Bankruptcy Act 1988 provides for the presentation of a petition by any debtor unable to meet his engagements with his creditors and enables the court to grant protection to such debtor. Section 90, sets out the procedure to be followed on the granting of an order for protection. Section 91, provides for the filing of a statement of assets and liabilities by the debtor prior to a private sitting. Section 93 provides as follows:-
“(1) If the proposal provides for the vesting of all or part of the arranging debtor’s property in the Official Assignee either as security for an offer or for realisation and distribution, that property shall vest in the Official Assignee, if he consents, in accordance with the terms of the proposal on the approval of the proposal by the Court.
(2) Where all or part of the property is vested in the Official Assignee for realisation and distribution, the Official Assignee shall have for that purpose all such powers in relation to the property as he has in a bankruptcy matter. A proposal under which property is so vested is referred to in this Act as a ‘vesting arrangement’.”
The Petition for Arrangement
The petition in this case is in the usual form provided for in the Rules of the Superior Courts. In the petition, the petitioner listed three events giving rise to her inability to pay her debts, namely a judgment in the sum of €2,780,722.92, obtained against her by Anglo, a judgment in the sum of €5,637,398, obtained against her by one J D and the collapse in the value of her shares in Anglo which she estimates as being in excess of €9million. These issues were dealt with in more detail in the affidavit sworn by the petitioner herein on the 28th October, 2010. She noted in paras. 13 and 14 of that affidavit as follows:-
“In respect of the enforcement of the orders of the High Court in the Isle of Man, AIB (IOM) have moved by execution order of the Isle of Man coroner (ie. the Isle of Man Sheriff) over my private dwelling home where I have resided and worked from (sic) over the last 20 years. I have vacated and surrendered the said property in the aftermath of the fixing of the notices of execution on the door of my home at the direction of the AIB (IOM). In all the circumstances, I believe that Anglo Irish plc and/or the directors of the Isle of Man subsidiary bank are determined to bankrupt me and have caused me to vacate and surrender my family home in the belief that I would not then be in a position to proceed against them in this jurisdiction….
I ordinarily reside in the Isle of Man but since having been forced to vacate my home in the Isle of Man, I currently reside in Northern Ireland at the will and grace of my aging mother and, by economic necessity, continue to reside there due to the regrettable and unforeseen circumstances I now find myself in.”
Proposal for the Composition of her Debts.
It is relevant at this point to refer to the proposal for the composition of her debts made by the petitioner herein on the 4th January, 2011. The proposal related to a total sum of €615,923 being available which after costs would allow for a distribution of €591,286.08 representing a dividend of less than 8c per euro.
Submissions
Mr. Dunleavy on behalf of Anglo, submitted that this was not a vesting arrangement within the meaning of the Bankruptcy Act 1988 and that there was no intention evinced on behalf of the petitioner to have a vesting arrangement as part of her proposal. He noted the provisions of O. 76, r. 90(3) which provide for the making of a lodgement in the case of a vesting arrangement and he pointed out that no such lodgement has been made in this case. Nevertheless he noted that in the last few days before the hearing, it was proposed on behalf of the petitioner that there should now be a vesting arrangement. In that context he referred to a letter of the 11th July, 2011, from the petitioner’s solicitors to the Official Assignee which contains the following paragraph:-
“The petitioner shall vest in you in your capacity as Official Assignee an Irish Government convertible exchequer bond to fund the hereinbefore mentioned proposal and to further enable you to realise and distribute the proceeds of the realisation of the exchequer bond arising from this vesting arrangement.”
The proposal contained in that correspondence indicated that the net sum available for distribution was now €331,032, thus providing for a distribution of just over 4c in the Euro.
The solicitors on behalf of Anglo responded to the correspondence in relation to the proposed vesting by letter dated the 20th July, 2011. It was noted in the course of that letter as follows:-
“The Bank contends that the time that Ms. D is required to meet the jurisdictional requirements of the regulation is the time the application is brought, not nine months later. Put simply, the current proposal seems to the Bank to be little more than an attempt by Ms. D to use the office of the Official Assignee to camouflage the initial want of jurisdiction which attended her original application. The bank – which has a substantial judgment which it was in the process of executing at the time of the application for the protection order- is of the view that Ms. D should not be assisted in this regard.”
A further issue was referred to in that the bond proposed to be vested in the Official Assignee was not the property of the petitioner but was owned by two third parties.
Thus, it was submitted on behalf of Anglo that the petitioner was seeking to mend her hand by proposing at this late stage to vest property in the Official Assignee. This was described as an attempt to cure the apparent want of jurisdiction. It was submitted that a want of jurisdiction cannot be cured subsequently by a new proposal to vest property. In any event it was pointed out that what was proposed was not in fact a vesting arrangement within the meaning of s. 93 of the 1988 Act as what was proposed to be vested was not the property of the petitioner, but was the property of M T. D and A T. D.
Mr. Dunleavy in support of his arguments in relation to the question of jurisdiction referred to Halsbury’s Laws of England, 5th Ed., Vol. 24, para. 623 where it was stated therein as follows:-
“Jurisdiction must be acquired before judgment is given.”
The authority given for that statement is the case of Thompson v. Shiel [1843] I.R. Eq. R. 135, in which the Master of the Rolls stated at p. 141:-
“… it is well settled, that the order of justices, or the judgment of any foreign or inferior court is examinable as to the matters touching its jurisdiction; and if it appears that there was not jurisdiction, the proceeding is absolutely void.”
In the circumstances it is contended on behalf of Anglo that there was no jurisdiction to make the order for protection and in those circumstances it is submitted that the order of protection should be set aside.
Mr. Foley S.C. in his submissions on behalf of the petitioner outlined the history of these proceedings to date. The petition for an arrangement was brought in this jurisdiction in reliance on the Insolvency Regulations on the basis that the petitioner had her centre of main interest in this jurisdiction. Submissions to that effect were furnished to the court when the order of protection was made. It was accepted by Mr. Foley that to come within the framework of the Insolvency Regulation, there has to be a total or partial divestment of property of the debtor vesting in the Official Assignee.
Mr. Foley was highly critical of the conduct of Anglo in relation to these proceedings and in relation to their conduct in the Isle of Man. However, having noted his criticism, I think I can say that the matters raised by Mr. Foley in that connection do not have a bearing on the issues I have to decide on this application.
Mr. Foley then examined the provisions of the Bankruptcy Act 1988, and in particular those provisions commencing with s. 90 of the Act. Section 90, as set out previously, provides the procedure to be followed on the grant of protection. Section 91 provides for the filing of statements and has been amended to provide that the arranging debtor can file a statement of affairs at least seven days before a private sitting. He noted also the provisions of s. 92 and noted in particulars. 92(1)(b) which provides for the proposal or any modification thereof to be binding on the arranging debtor and all persons, where creditors at the date of the petition and who have notice of the sitting if the proposal or any modification thereof has been approved by the court. Given the terms of s. 92(1)(b) Mr. Foley pointed out that it is clear that a proposal may be modified. The proposal originally before the court in this case did not include a vesting arrangement, but there is now a proposal to vest a bond in the Official Assignee. He argued that what was required at the date of presentation of the petition for arrangement was simply a proposal, not necessarily a proposal which included vesting arrangement. He emphasised therefore, that the time to make a vesting arrangement or proposal containing a vesting arrangement remained open until the court approved the proposal of the arranging debtor. There was no time frame in this regard provided for in the 1988 Act. Therefore he contended that it was not until a final proposal was approved by the court that one could say whether or not one came within the framework of the Insolvency Regulation. On that basis he argued that the application by Anglo to set aside the order of protection at this stage was premature.
Finally, he commented that it was fatuous to argue that the petitioner was not the owner of the bond proposed to be vested in the Official Assignee. An undertaking had been provided to make the money available.
Counsel on behalf of Mr. D, the largest creditor of the petitioner, supported the arguments of Mr. Foley.
Mr. Dunleavy in reply commented that the proceedings in this jurisdiction were not yet opened. There was no evidence at the time of the presentation of the petition that the arrangement included a vesting arrangement. He made the analogy with the situation where a vesting arrangement was included in the original proposal but not followed through by the arranging debtor. In those circumstances, he contended that the jurisdiction of the court would lapse. Finally he reiterated that it was clear in this case that no insolvency proceedings have been opened in this case because the petitioner’s original proposal did not contemplate a vesting arrangement. In those circumstances, these proceedings do not come within the framework of the Insolvency Regulation and accordingly the court does not have jurisdiction to deal with this matter pursuant to the Insolvency Regulation and the proceedings should therefore be set aside.
Decision
Annex A of the Insolvency Regulation defines insolvency proceedings as including “arrangements under the control of the court which involve the vesting of all or part of the property of the debtor in the Official Assignee for realisation and distribution”. Article 3(1) of the Insolvency Regulation deals with the question of jurisdiction and I think it would be helpful to set out the terms of Article 3(1) again. It provides:-
“The courts of the Member State within the territory of which the centre of a debtor’s main interests is situated shall have jurisdiction to open insolvency proceedings. In the case of a company or legal person, the place of the registered office shall be presumed to be the centre of its main interests in the absence of proof to the contrary.”
The point made on behalf of Anglo in this case is that this Court does not have jurisdiction to deal with the petitioner’s proceedings as these are not insolvency proceedings within the meaning of the Insolvency Regulation.
The provisions of s. 93 set out above are of relevance in considering what constitutes a vesting arrangement.
It is not disputed on behalf of the petitioner that to bring these proceedings within the framework of the Insolvency Regulation, it is necessary that there should be a vesting arrangement contained in the proposal of the petitioner. Absent a vesting arrangement, the proceedings cannot come within the provisions of the Insolvency Regulation.
Section 87 of the 1988 Act permits any debtor unable to meet his engagements with his creditors and wishing to place the state of his affairs before them with a view to making a proposal for the composition of his debts, under the control of the court, to present a petition to the court setting out the reason for his inability to pay his debts and requesting that his personal property may be protected until further order. Once an order is granted, directions are given for the calling of a preliminary meeting of the creditors at which a statement of assets and liabilities should be presented. The arranging debtor must also keep a minute of the proceedings at that preliminary meeting. Subsequent to the preliminary meeting a private sitting has to be held before the court to consider the arranging debtors proposal. Sanfey and Holohan in Bankruptcy Law and Practice (2nd Ed.) set out the purpose of the preliminary meeting at para. 16-11 as follows:-
“The purpose of the meeting is to allow the arranging debtor to meet his creditors and explain his failure to meet his engagements and outline any proposal he intends to make to his creditors. The creditors have the opportunity to question the debtor on any aspect of his affairs and to discuss any proposal which the debtor may make.”
The application for an order of protection was made herein on an ex parte basis on the 24th November, 2010, as all such applications are made. The application was grounded upon an affidavit of the petitioner and she sought the protection order with a view to making a proposal to her creditors for the payment or compromise of her debts. She referred in the course of her affidavit grounding the petition to a statement of affairs filed with the petition and affidavit dated the 21st October, 2010. It was noted by the court at the time of making of the order of protection that no binding conclusions were being made regarding the residency of the petitioner. It was also indicated that nothing done by virtue of making the order of protection was to be taken as preventing or prohibiting any interested party from raising the issue of the debtor’s centre of main interest. Following the making of the order of protection, directions were given as is required under the Bankruptcy Act 1988 for the holding of a preliminary meeting and fixing the date for a private sitting.
A preliminary meeting took place as directed on the 4th January, 2011. At that meeting a proposal was put to the petitioner’s creditors. The proposal on that date was in the following terms:-
€100,000 within fourteen days of the ih February, 2011.
€232,932 within eight weeks of the 7th February, 2011, (being net proceeds of sale of Knockchree, IOM).
€283,000 within sixteen weeks of the 7th February, 2011, (being the net proceeds of sale of …, Sandymount, Dublin 4).
Total €615,923.
Less Official Assignee’s costs €24,636.92
Net total for distribution: €591,286.08
Dividend: €0.07409 per €1.
The proposal was dated the 4th January, 2011, and signed by the petitioner. At the preliminary meeting a number of parties were in attendance and there was discussion about various matters set out in the petitioner’s statement of affairs. Ultimately a vote was taken and the majority of creditors voted in favour of the proposal.
There is no dispute between the parties that the proposal put to the preliminary meeting following the making of the order of protection was not a proposal which included a vesting arrangement. In the normal course, a private sitting takes place following the preliminary meeting. The private sitting was scheduled to take place in this case on the 7th February, 2011. The private sitting was adjourned to the 11th April, 2011, as the proof of debts was not completed.
As I have indicated above, Mr. Foley S.C. has conceded that in order for the court to have jurisdiction to deal with this matter under the Insolvency Regulation, the arrangement proposed by the petitioner must be a vesting arrangement. On the face of it, given that the proposal put to the preliminary meeting did not contain a vesting arrangement that would appear to dispose of the issue raised herein. However, Mr. Foley made two further points. The first of those was that the application now made by Anglo is premature given that the proposal voted on by the creditors has not yet been approved or disapproved by the court. The second point made by Mr. Foley is that there is now a further proposal which does involve a vesting arrangement.
I think it is necessary to refer briefly to the effect of making a protection order. Section 88 of the Act, provides that the arranging debtor cannot without the sanction of the court pledge, part with or dispose of property or any part thereof, save in the ordinary course of trade or business. Such a provision clearly protects the creditors from any act on the part of the arranging debtor which would have the effect of reducing the assets available to the creditors for the payment of the debts of the arranging debtor. Section 89 protects the debtor from process in relation to execution orders in circumstances where the Sheriff or County Registrar has not made a seizure or gone into possession on foot of an execution order. Thus it will be seen that the effect of the making of a protection order restricts the ability of a creditor from seeking to recover a debt in the normal way.
The petitioner in this case as mentioned previously, invoked the jurisdiction of the court under the Insolvency Regulation. The court has jurisdiction under the Insolvency Regulation in the case of a vesting arrangement but has no jurisdiction in respect of a non-vesting arrangement. The arrangement put to the creditors of the petitioner herein was not a vesting arrangement. In circumstances where it is clear that the proposal put to the creditors involves a non-vesting arrangement and, therefore, is one which the court does not have jurisdiction to deal with under the Insolvency Regulation, I do not think it can be necessary for a creditor who wishes to challenge the jurisdiction of the court making the protection order to wait until the court is dealing with a request to approve the proposal of the petitioner before seeking to set aside the protection order. A proposal must be approved by the court. Nevertheless the proposal can only be approved if the court has jurisdiction to deal with the matter. It is clear that the court does not have jurisdiction to deal with a non vesting arrangement under the Insolvency Regulation. In those circumstances I see no reason why the creditor, in this case Anglo, cannot make an application for the setting aside of the order of protection before the proposal for the arrangement comes before the court for approval.
The second point raised in this regard by Mr. Foley on behalf of the petitioner related to the argument that the application was premature in circumstances where the proposal was open to the possibility of modification. To that extent I think it is important to consider in full the provisions of s. 92 of the Bankruptcy Act 1988, which was relied on by Mr. Foley in respect of this issue. It provides as follows:-
“(1) (a) If, at the private sitting referred to ins. 90 or any adjournment thereof, three-fifths in number and value of the creditors voting at such sitting either in person or by an agent authorised in writing in that behalf accept the proposal or any modification thereof, it shall be deemed to be accepted by the creditors, subject to the approval of the Court.
(b) If approved by the Court, the proposal or any modification thereof shall be binding on the arranging debtor and on all persons who were creditors at the date of the petition and who had notice of the sitting.
(2) A creditor whose debt is less than £100 shall not be entitled to vote. (3) The arranging debtor shall attend the sitting and the Court shall have power to examine him on oath or any witness produced by him or any creditor or person claiming to be a creditor.
(4) The Court may require any person so examined to sign a transcript of his evidence.
(5) Debts may be proved at the sitting.”
It is clear from the provisions of the section that a proposal can be modified. The scheme of the Act seems to me to be predicated on the basis that full information as to the assets and liabilities of the arranging debtor is provided at all stages to the creditors. The creditors are able to examine the arranging debtor as to the statement of affairs and the proposal at the preliminary meeting. After that the matter comes before the court at a private sitting for approval or otherwise, as the case may be, of the proposal. It would, I accept, be very unusual for a court not to give approval to a proposal which has been accepted by the creditors.
In this case the petitioner is now proposing a vesting arrangement which has not been through the rigours of a preliminary meeting. The proposal made at the preliminary meeting and accepted by the creditors is entirely different to that now proposed. It is now proposed to have a vesting as opposed to a non-vesting arrangement. It could be said that the creditors could question and examine the petitioner at the private sitting but that is not the procedure provided for under the Act. Bringing forward a different proposal to the private sitting from that which was approved at the preliminary sitting means that the creditors have been deprived of the opportunity they would otherwise have had to examine the arranging debtor at the preliminary meeting in relation to their statements of affairs, their assets and liabilities and as to the proposal to be made. Given that this is so, I have misgivings about the approach of the petitioner in this case in attempting to change the arrangement originally proposed at the preliminary meeting into a vesting arrangement. This is not so much a modification of the proposal as a complete change to the proposal originally made.
Apart from any such misgivings, it is clear from the provisions of s. 93 of the 1988 Act that there are other stumbling blocks in the path of the petitioner in seeking to change the proposal from a non vesting arrangement into a vesting arrangement. First of all the consent of the Official Assignee is required to a vesting arrangement. Until the consent of the Official Assignee is obtained, no property can vest in him.
Secondly, and perhaps more importantly, the point is made by Mr. Dunleavy that s. 93 of the 1988 Act, envisages “the vesting of all or part of the arranging debtor’s property”. The new proposal is to vest a bond which is not the property of the petitioner in the Official Assignee. This does not appear to be something contemplated by the Act. It raises a number of questions. For example, does the provision of a bond by the third parties amount to a gift? Is there any tax implication from the provision of the bond? If not a gift, what are the terms upon which the bond is to be provided? Does the petitioner have any legal obligations to the owners of the bond? These are questions which could create concerns for the creditors and indeed, for the Official Assignee. For these reasons, the fact that the bond is not the property of the petitioner is a matter of substance and it does not appear to me that the bond can be regarded as the property of the petitioner. Therefore, the petitioner does not appear to me to come within the ambit of s. 93 of the Act.
In those circumstances, the proposal, even if it could be modified to the extent suggested at this stage of the proceedings, is not a vesting arrangement and therefore the court has no jurisdiction to deal with the matter.
The Petitioner’s Centre of Main Interest
The decision in relation to whether or not there is a vesting arrangement is sufficient to dispose of this application. Nevertheless, given the importance of the other issue raised, I feel I should deal with it.
The second issue that has to be considered by the court is whether or not the court has jurisdiction to deal with any application on behalf of the petitioner having regard to question of the location of the petitioner’s centre of main interests. I have already set out the provisions of Article 3 of the Insolvency Regulation which provides that the courts and the member’s State within the territory of which the centre of a debtor’s main interests is situated will have jurisdiction to open proceedings. Thus, regardless of the issue in relation to whether or not these proceedings constitute a vesting arrangement, it is necessary for the petitioner to be shown to have the centre of her main interests (COMI) in this jurisdiction for any proceedings commenced in this jurisdiction to be recognised on the basis of the Insolvency Regulation elsewhere,
The petitioner and Anglo in their respective submissions referred to a number of factual matters in respect of the question of COMI. I was also referred to certain legal principles which were said to apply to the determination of COMI. I want to refer to three decisions relied on in the course of the submissions in respect of the question of COMI. They are the cases, Eurofood IFSC Ltd. (No.2) [2006] 4 IR 307, Official Receiver v. Eichler [2007] B.P.I.R. 1636 and Shierson v. Vlieland-Boddy [2005] 1 WLR 3966. It would be helpful to refer very briefly to the head note in the case of Shierson v. Vlieland-Boddy in which it was held as follows:-
“A debtor’s centre of main interests was to be determined at the time that the court was required to decide whether to open insolvency proceedings in the light of the facts as they were at the relevant time for determination which included historical facts which had led to the position as it was at that time; that in making its determination, the court had to have regard to the need for the centre of main interests to be ascertainable by third parties, in particular creditors and potential creditors; that it was important, therefore, to have regard not only to what the debtor was doing but also to what he was perceived to be doing by an objective observer, and to have regard to the need for an element of permanence; that the place where the debtor lived and had his home was likely to be relevant to a determination of where he conducted the administration of his interests; that there was no principle of immutability and a debtor had to be free to choose where he carried on those activities which fell within the concept of administration of his interests; that it was a necessary incident of the debtor’s freedom to choose where he carried on those activities, that he might choose to do so for a self serving purpose, for example, in order to alter the insolvency rules which would apply to him in respect of existing debts; that in those circumstances, the court would need to scrutinise the facts which were said to give rise to a change in the centre of main interests and to be satisfied that the change in the place where the activities which fell within the concept of ‘administration of its interests’ were carried on which was said to have occurred, was based on substance and not an illusion and that it had the necessary element of permanence; that the judge had been entitled to reach the conclusion that the debtor’s centre of main interests had moved to Spain; that, therefore, the jurisdiction to open main insolvency proceedings had not been established under Article 3(1) of the Regulation; but that, in the circumstances, the debtor had an establishment for the purposes of the territorial insolvency jurisdiction specified in Article 3(2); and that, accordingly the petition would be restored.”
I think it would also be helpful in the context of the present case to refer to a passage from the judgment of Chadwick L.J. in that case at para. 39, where he stated as follows:-
“There is not, I think, any doubt as to the date in relation to which the debtor’s centre of main interests falls to be determined for the purposes of the Regulation. Jurisdiction to open insolvency proceedings is conferred, under Article 3.1, on the courts of the member state ‘within the territory of which the centre of main interests is situated’. The ‘time of the opening of proceedings’ means ‘the time at which the judgment opening proceedings becomes effective, whether it is a final judgment or not’, Article 2(f). ‘Judgment’, in that context, includes the decision of any court empowered to open such proceedings: Article 2(e). The judge was correct to take the view that, before it could assume jurisdiction to open main insolvency proceedings, the court of a member state must be satisfied that, at the time that it did so, the debtor’s centre of main interests was situated within the territory of that state. That, too, had been the view of the registrar, as appears from the third sentence of para. 16 in his judgment, ‘I have to decide now what is his centre of main interests’ is.”
A further passage from the judgment of Chadwick L.J. is also of assistance. At para. 55 having considered a number of authorities he concluded as follows:
“I can summarise my own conclusions as follows:
1. A debtor’s centre of main interests is to be determined at the time that the court is required to decide whether to open insolvency proceedings. In a case where those proceedings are commenced by the presentation of a bankruptcy petition, that time will normally be the hearing of the petition. But, in a case such as the present, where the issue arises in the context of an application for permission to serve the petition out of the jurisdiction, the time at which the centre of the debtor’s main interests falls to be determined will be at the hearing of that application. Similar considerations would apply if the court were faced with an application for interim relief in advance of the hearing of the petition.
2. The centre of main interests is to be determined in the light of the facts as they are at the relevant time for determination. But those facts include historical facts which have led to the position as it is at the time for determination.
3. In making its determination the court must have regard to the need for the centre of main interests to be ascertainable by third parties; in particular, creditors and potential creditors. It is important, therefore, to have regard, not only to what the debtor is doing but also to what he would be perceived to be doing by an objective observer. And it is important, also, to have regard to the need, if the centre of main interests is to be ascertainable by third parties, for an element of permanence. The court should be slow to accept that an established centre of main interests has been changed by activities which may turn out to be temporary or transitory.
4. There is no principle of immutability. A debtor must be free to choose where he carries on those activities which fall within the concept of ‘administration of his interests’. He must be free to relocate his home and his business. And, if he has altered the place at which he conducts the administration of his interests on a regular basis, by choosing to carry on the relevant activities (in a way which is ascertainable by third parties) at another place, the court must recognise and give effect to that.
5. It is a necessary incident of the debtor’s freedom to choose where he carries on those activities which fall within the concept of ‘administration of his interests’, that he may choose to do so for a self-serving purpose. In particular, he may choose to do so at a time when insolvency threatens. In circumstances where there are grounds for suspicion that a debtor has sought, deliberately, to change his centre of main interests at a time when he is insolvent, or threatened with insolvency, in order to alter the insolvency rules which will apply to him in respect of existing debts, the court will need to scrutinise the facts which are said to give rise to a change in the centre of main interests with that in mind. The court will need to be satisfied that the change in the place where the activities which fall within the concept of ‘administration of his interests’ are carried on which is said to have occurred is a change based on substance and not an illusion; and that that change has the necessary element of permanence.
Applying those principles to the facts in the present case, I find it impossible to say that the judge was not entitled to reach the conclusion that he did, that the debtor’s centre of main interests had moved to Spain. The judge was clearly aware that there were grounds for suspicion that the move was self serving and might not be genuine. But, unless he were prepared to disbelieve the debtor’s evidence as to what he was doing in Spain and why he was living there, the judge was bound to take that evidence into account. He held that it would not be fair to the debtor to disbelieve that evidence in the circumstances that the petitioner had chosen not to test it by cross-examination.”
I accept the summary of principles set out by Chadwick L.J. as being applicable to the question of the determination of the centre of main interests. Therefore, one of the first issues that has to be considered by me applying those principles to the facts of this case is, when does the question of the petitioner’s centre of main interest fall to be determined? Such a determination was not made by the court at the time of the ex parte application made by the petitioner for a protection order. It was stated in Shierson v. Vlieland-Boddy, that the appropriate time for consideration of that issue would normally be at the time of the hearing of the petition in the context of applications commenced by the presentation of a bankruptcy petition. These proceedings were commenced by an ex parte application for a protection order as I have already indicated. It would not, in my view, have been appropriate to make a determination as to COMI on an ex parte application. In Shierson v. Vlieland-Boddy the appropriate time was found to be at the hearing of the application for leave to serve out of the jurisdiction. The hearing in this case took place in July challenging the entitlement of the petitioner to bring proceedings in this jurisdiction having regard to the question of COMI and thus I am satisfied that once the challenge to COMI was made, it was necessary to consider the issue. It seems to me that it would be incongruous to allow a petitioner to enjoy the benefit of a protection order if, in fact, the Court lacked jurisdiction to open main proceedings. For that reason, I am satisfied that the decision on COMI can be made now based on the facts and circumstances pertaining at the date of hearing.
There are a number of basic principles to be considered in relation to the question of COMI. First of all, COMI should correspond to the place where the debtor conducts the administration of his or her interests on a regular basis and is therefore ascertainable by third parties. (See Recital 13, of the Insolvency Regulation.) Secondly, it is important to bear in mind that COMI is a matter of substance and not illusion. The third point I want to refer to briefly, is the relevance of residence in considering the question of COMI. To that extent, I think it is useful to refer to the decision in the case of Official Receiver v. Eichler, to which I have referred above. In that case, Chief Registrar Baister made the following comments at para. 18:-
“I have little difficulty in concluding that at the date when these proceedings were opened (which was the same as the date on which they were presented) Dr. Eichler’s centre of main interests was in the UK. It is likely that before he came here it was in Germany, but it clear from the authorities to which I am referred that he was free to change it and that he did so. He appears to continue to work here, so there is no basis on which I conclude that his being here is purely temporary. This country appears to be, at present, the place where he is conducting the administration of his interests on a regular basis; it is readily ascertainable by third parties. It may well be that he returns to Germany from time to time, but it is also plain that his habitual residence, in the sense of the residence where he is most often to be found, is here. Certainly, there is no evidence to the contrary. To the extent that it may be relevant (which I doubt) it would also appear that his professional domicile is here if all the expression means is that it is the place where he is carrying on his profession at the present time.
Even if it could be said that Dr. Eichler’s presence here was purely temporary, that would not necessarily, of itself, prevent his centre of main interests from being here. As far as I am aware, there is no authority which establishes any minimum period of time which a person must spend in a Member State before it can be said to have become his centre of main interests. Common sense would seem to indicate that a few days (or even a few weeks) would be unlikely to suffice because that would be at odds with conducting the administration of one’s interests in a place ‘on a regular basis’ (as well as being at odds with the idea of an ‘habitual residence’). It is unnecessary for me to form a view, however, as that is not the case here.”
With those principles in mind, I now propose to look at the factual situation. In the course of Anglo’s submissions, a large number of factual matters were set out.
It was submitted on behalf of Anglo that although those were not agreed facts as such, the matters set out in Anglo’s submissions were based on facts deposed to in the affidavits before the court and which have not been controverted. I now propose to refer to a number of those facts.
1. The Bank obtained judgment against the petitioner on the 16th June, 2010, in the sum of €2,780,722.97.
2. The Bank subsequently obtained a freezing injunction equivalent to a Mareva injunction in aid of execution directed to inter alia the petitioner’s movable and immovable property in the Isle of Man, Northern Ireland and in this jurisdiction.
3. The freezing order required the petitioner to disclose to the Bank’s lawyers all of her assets worldwide, giving the value, location and details of the same, within 48 hours of the serving of the freezing order upon her.
4. The High Court of Justice of the Isle of Man provided that service of the freezing order upon the petitioner’s solicitors in the present matter would be good service upon the debtor.
5. The freezing order was served upon the petitioner’s solicitors on the 20th July, 2010. There was a dispute between the parties as to whether or not the petitioner had complied with the obligations pursuant to the freezing order referred to.
6. The existence of the judgment was disclosed to this court in the course of the petition and affidavit filed herein.
7. The existence of the freezing order was not disclosed to this Court in the course of the petitioner’s ex parte application for protection.
8. The address provided for the debtor in the petition is care ofher solicitor’s office.
9. The petition does not disclose the jurisdiction of this Honourable Court to deal with this matter, save to the extent that it recites, inter alia, “Your petitioner therefore submits herself to the jurisdiction of the court ….”
(It was agreed by Mr. Foley and Mr. Dunleavy that one cannot confer jurisdiction on the court if the court does not, in fact, have jurisdiction to deal with the matter).
10. The petitioner is ordinarily resident in the Isle of Man.
(This particular assertion of fact was in dispute. The petitioner contends that she ceased to be resident in the Isle of Man on the 7th July, 2010. At the time that the petition was presented to this Court on the 2nd November, 2010, the petitioner was residing in Northern Ireland.)
11. The petitioner moved to the Isle of Man- to take up a job … – in 1989.
12. Between November 2002 and December 2006, the petitioner had some need to work in Dublin for short periods ….
13. The petitioner has resided and worked from her dwelling house on the Isle of Man … for the last twenty years.
14. The petitioner categorises her dwelling house as aforesaid as her family home.
15. The petitioner did not vacate and surrender her family home on the Isle of Man until after the Isle of Man coroner had arrested her family home by affixing an execution order to the door of the property in efforts to enforce the substantial judgment that had been obtained by the Bank.
16. The petitioner’s household chattels remain in the Isle of Man, the locus of her family home.
17. The petitioner resided as at the swearing of the first affidavit in Northern Ireland with her mother.
18. The petitioner resides in Northern Ireland as a result of, inter alia, “being forced to vacate my home in the Isle of Man …”
19. The petitioner was born outside the jurisdiction of this Honourable Court.
20. The petitioner is a British citizen.
21. From the 10th December, 2001, the petitioner carried a British passport issued in the Isle of Man.
22. The petitioner was issued with an Irish passport on the 15th November, 2010.
23. The petitioner previously held an Irish passport issued on the 9th September, 1988 …
24. The petitioner has a PPS number issued by the State.
25. The petitioner has resident bank account status with Allied Irish Bank plc.
26. The petitioner has paid Deposit Income Retention Tax from her Irish bank account.
27. The petitioner completed Irish tax returns between 2005 and 2010.
28. All of the income returned on the petitioner’s tax returns in this jurisdiction for the period from 2005 to 2010, is comprised of rental income.
29. All of the tax returns filed by the petitioner in this jurisdiction for the period from 2005 to 2010, indicate that her address, which she styles for tax purpose as her, inter alia:
Main residence address is either her family home in the Isle of Man or the address of her tax agent in the Isle of Man.
30. All of the tax returns filed by the petitioner in this jurisdiction for the period from 2005 to 2010 indicate that she is non-resident for tax purposes.
31. The tax return filed by the petitioner in this jurisdiction for the year 2005, the only form on which she was required to respond to such a question, indicates that she is not domiciled within the jurisdiction of this Honourable Court.
32. The petitioner made a tax return in the Isle of Man up to the day the Bank requested the coroner to levy execution against her family home.
It will be seen from the above summary of factual matters relied on by Anglo, that from 1989 onwards, the petitioner worked and lived in the Isle of Man. She was tax resident in that jurisdiction. She worked in this jurisdiction between the period November 2002 and December 2006, but as she herself had said in her affidavits, this work was for short periods only. She continued to reside in the Isle of Man during that period. Clearly, working in this jurisdiction did not affect her place of residence. It is clear from her own affidavits that she regarded her home on the Isle of Man as her “family home”. She remained in her home in the Isle of Man until she was “forced” to leave in July 2010, as a result of execution proceedings taken against her in the Isle of Man by Anglo at which time she went to reside in Northern Ireland.
The petitioner has held both British and Irish passports over the years. Most recently, she obtained an Irish passport on the 15th November, 2010. That was just a short time before the presentation of the petition for arrangement herein and the making of the protection order on the 24th November, 2010. In general, I do not think that one could draw a final conclusion on the question of COMI simply by reference to the passports held by the petitioner at any given time. The question of nationality and the use of a particular passport may be of assistance in coming to a view in some cases but given the context of the petitioner who was born in Northern Ireland and is someone entitled to apply for a passport either in the UK or in this jurisdiction, it does not seem to me that the holding of an Irish passport or indeed the existence of a valid UK passport determines the issue one way or the other. One cannot avoid the suspicion that the Irish passport was obtained to bolster the position of the petitioner and accordingly, having regard to the overall circumstances of the petitioner I would not attach too much weight to the fact that she presently holds an Irish passport.
Another issue that may be seen to be of importance in considering the question of COMI is the fact that the petitioner has owned investment properties in this jurisdiction. It also appears that she has owned investment property in the Isle of Man and in the UK. So far as the rental income from her investment property here is concerned, she has paid income tax on that income in this jurisdiction.
The fact that the petitioner paid income tax on the rental income derived from her investment property in this jurisdiction is a factor that could be considered in determining the question of COMI. However, it is one small element of the overall picture.
Taking a snapshot of the position of the petitioner as of November 2010 and applying the principles set out above, it is difficult to come to any other conclusion that considered from the point of view of a third party, the petitioner’s centre of main interests at that time, corresponding to the place where she conducted the administration of her interests on a regular basis, was the Isle of Man.
I have indicated above that it would not have been appropriate to consider the question of COMI at the time of the presentation of the petition given that the petition was presented on foot of an ex parte application. At the time of making the protection order on the 24th November, 2010, I expressly made it clear that I was granting the order without regard to any argument that might be made at a later stage in relation to the issue of COMI. Therefore, I think it is undoubtedly the case that the time to consider the question of COMI is not November 2010, but rather the time of the hearing before me in July 2011. For that reason I have to ask myself the question, have events changed in such a way between November 2010 and July 2011 as to result in the centre of the petitioner’s main interests relocating from the Isle of Man to this jurisdiction.
There can be no doubt that the place of residence of the petitioner is a matter of significance in considering the question of an individual’s centre of main interest. The place of residence of the petitioner was the Isle of Man until, to use her own words, she was forced to leave her home there, by reason of the execution process taken against her home in that jurisdiction. In the affidavits sworn by the petitioner in these proceedings, she has referred to the Isle of Man property as being her place of main residence and she has also indicated that the only reason she left the Isle of Man was because of the execution process being taken in the jurisdiction. If there was any doubt about the importance of the place of residence, one only has to consider again briefly the conclusions reached by Chadwick L.J. in the course of the judgment in Shierson v. Vlieland-Boddy at para. 55, which I have referred to above. He emphasised that the centre of main interest was to be determined in the light of the facts as they are at the relevant time for determination, but he added that those facts include historical facts which have led to the position as it is at the time for determination. He pointed out that the court would need to scrutinise the facts which are said to give rise to a change in the centre of main interests bearing in mind that there may be a suspicion that a debtor may have deliberately sought to change COMI when insolvent or threatened with insolvency. The court would need to be satisfied that the change in the place where the activities which fall within the concept of ‘administration of his interests’ are carried on which is said to have occurred is a change based on substance and not an illusion; and that the change has the necessary element of permanence if the centre of main interests is to be ascertainable by third parties.
As I have set out above, the historical facts are that the centre of main interest of the petitioner was the Isle of Man. The petitioner resided in Northern Ireland until shortly before the hearing before me on this issue. It was only on the 1st July 2011, that the petitioner took a lease on a property in this jurisdiction, a move which does not appear to have the necessary degree of permanence. I should add for completeness that in the affidavit sworn by the petitioner on the 20th July 2011 in which she deposed to the fact that she had taken up residence of property in this jurisdiction on the 1st July 2011 pursuant to a letting agreement, the following averment was contained:
“I confirm that … [Sandymount, Dublin 4] has been my habitual residence since I acquired it in 1995.”
I simply do not understand how the petitioner could have sworn an affidavit containing that averment in the light of the other affidavits sworn by her describing her “family home” in the Isle of Man. It cannot be correct.
Mr. Foley in his submissions on this issue emphasised that the petitioner’s assets are within the State and that her investments are administered from within the State. She owned property here although she resided and was employed in the Isle of Man. Her shares, property transactions and so on, were here and rent was collected here. On that basis he submitted that although the petitioner was employed in the Isle of Man and worked there, this was the jurisdiction in which her main investments were located. He pointed out also that the judgment obtained in favour of her major creditor was obtained in this jurisdiction.
Mr. Foley also relied on the decision in the case of Shierson v. Vlieland Boddy. Further, he referred to the statement in para. 3, of the decision in the case of In the Matter of Hellas Telecommunications (Luxemburg) II S.C.A [2009] EWHC 3199 where it was stated by Lewison J. that:-
“It is also the case as one might expect in a system of law which encourages a single market across the whole of the European Union that it is possible for an entity, whether a corporate entity or an individual, to change its COMI from its original or presumed location.”
It was also said at para. 5, of that judgment as follows:-
“The purpose of the COMI is to enable creditors in particular to know where the company is and where it may deal with the company. Therefore, it seems to me that one of the most important features of the evidence, which is the feature I mention next, is that all negotiations between the company and its creditors have taken place in London.”
Decision
I have referred in detail to the very helpful judgment in the case of Shierson v. Vlieland-Boddy and to the decision in the case of Official Receiver v. Eichler. The passages referred to from the judgment in Hellas Telecommunications Ltd. are also of some assistance in considering the question of COMI. As pointed out in that case the purpose of COMI is to enable creditors to know where the company is or in the case of an individual, where that individual is so that the creditors may deal with the company or the individual. Looking at the evidence before the court in this case, it seems to me, that there is little objective evidence to demonstrate that the petitioner had her centre of main interest in this jurisdiction prior to July 2011. The petitioner undoubtedly and clearly had investments in this jurisdiction. However, there is nothing to show that she conducted any particular aspect of the administration of her interests in this jurisdiction. She resided up to July 2010, in the Isle of Man. She was tax resident in that jurisdiction. She did not reside in this jurisdiction. I accept that from to time she came to this jurisdiction and that she stayed from time to time in property owned by her in this jurisdiction. However, she was not resident in this jurisdiction. In the case of Eichler, one of the important considerations was the question of the habitual residence of the debtor. In that case, the debtor was based in the UK, working in the UK, resident in the UK and on that basis it was found that his centre of main interest was in the UK. It was found that the fact that his creditors were in Germany was not a relevant consideration.
If one examines the position of the petitioner from the point of view of what would have been ascertainable by the creditors of the petitioner up to July 2011, what would their view have been as to where the petitioner was conducting her main interest? I think the fact that the petitioner was not habitually resident in this jurisdiction, would have, by itself, almost certainly led to the conclusion that this jurisdiction was not the centre of the petitioner’s main interest. I accept that the petitioner took a lease of the property in this jurisdiction shortly before the hearing before me. However, as was stated in the Eichler case, common sense would seem to indicate that a few days or even a few weeks would be unlikely to suffice in order to establish that a person can be said to have his centre of main interest in a particular place. Clearly, insofar as the petitioner is concerned, it could not be said that she habitually resided in this jurisdiction at any time. The real issue is whether or not the petitioner’s centre of main interests or her business activities could be said to have been conducted on a regular basis in this jurisdiction coming up to the date of the hearing before me. On any objective basis I do not see how that could be said to be the case.
In those circumstances, I have reached the conclusion that the petitioner’s centre of main interest is not in this jurisdiction. There may be an argument as to whether it remains in the Isle of Man or could be said to have transferred from that jurisdiction to Northern Ireland, but that is not a question I need to consider or decide.
Finally, I should add that the fact that judgment was obtained by the major creditor of the petitioner in this jurisdiction does not alter my view in this regard. I noted the submissions made on behalf of the creditor in question, Mr. D, but nothing in those submissions alters the conclusion I have reached. As noted in Eichler above the fact that creditors of the individual are found in one jurisdiction does not mean that the individual has their centre of their main interests located in that place. In those circumstances, I have reached the conclusion that this Court does not have jurisdiction to deal with the application of the petitioner and for that reason I will set aside the protection order made herein.
O’Callaghan (A Bankrupt)
[2015] IEHC 185
THE HIGH COURT
BANKRUPTCY
[No. 1450 P.]
IN THE MATTER OF ERIC O’CALLAGHAN OF 31 HIGHER O’CONNELL STREET, KINSALE, CO. CORK A PETITIONING DEBTOR
JUDGMENT of Ms. Justice Costello delivered on the 27th day of March, 2015
1. The petitioner presented a petition for his adjudication in bankruptcy pursuant to s.15 of the Bankruptcy Act 1988, as amended, by a petition dated 16th December, 2014. He confirmed that he was unable to meet his engagements with his creditors. In his verifying affidavit he stated as follows:-
“2. I have, prior to presenting the petition, made reasonable efforts to reach an appropriate arrangement with my creditors relating to my debts by making a proposal for an informal arrangement.
3. On the 29th day of November, 2013 I met with a Personal Insolvency Practitioner (PIP) Mitchell O’Brien… for a face to face interview at his offices…. I provided details of my financial circumstances and other relevant information. On the 26th day August 2014 a Protective Certificate with respect of a Personal Insolvency Arrangement (PIA) was issued by Cork Circuit Court… and a creditors’ meeting was held on the 3rd day of November 2014 to consider the PIA proposal developed by my PIP. Ulster Bank as my dominant secured creditor voted against my PIA proposal despite it showing a return for Ulster Bank that was 113% better for them than will be the outcome in Bankruptcy.”
2. The petitioner’s Statement of Affairs shows that he had a monthly income of €2,529.19 and his reasonable living expenses in accordance with the Insolvency Service of Ireland’s guidelines is €2,746.73 This sum includes mortgage repayments due to Ulster Bank Ireland Ltd. (“Ulster Bank”) in the sum of €1,590.94. The total secured debt due to Ulster Bank is €367,165.33. His total unsecured debts are €27,786.95. The net deficit in his estate is €266,692.28. The estimated value of his home is €120,000.00 and the estimated net realisable on sale of the home is €108,000.00.
3. The PIA proposed by the petitioner’s PIP involved restructuring the mortgage debt so as to ensure that there was a sustainable monthly repayment due in respect of secured debt and in effect writing off the excess of that sum as an unsecured debt. It was proposed to pay a nominal sum of €100.00 to all of the unsecure creditors which would include Ulster Bank in respect of the sum that was to be converted into an unsecured debt. According to the PIA proposal subsequently furnished by the PIP to the creditors, the debt due by the petitioner to Ulster Bank comprised 93% of the petitioner’s total debt, 100% of his secured debt and 83.2% of his unsecured debt. It was estimated that the petitioner could afford to pay a monthly mortgage repayment of €1,358.58. This entailed reducing the mortgage balance to €230,000.00 i.e. a write down of €137,165.33. This was because the term of the mortgage was to be reduced from aged 75 to aged 68/69.
4. The PIP calculated that the return for the secured creditor in the event of the debtor being adjudicated a bankrupt was €108,000.00. It is argued that if Ulster Bank had accepted the proposed PIA it would recover €230,000.00 and that this was a 129% better return than in bankruptcy. Of course this is based upon the petitioner meeting all of his revised mortgage repayments over a period of 16 years.
5. While it was not on affidavit before the Court, it was accepted by both the petitioner and Ulster Bank that the petitioner had made three payments in 2014 of €350.00 and one payment of €700.00. It was explained that the petitioner’s inability to make the repayments was due to his difficulties in employment. He was a self-employed tiler until 2008. Thereafter, between autumn 2008 and June, 2013 his sole source of income was his Jobseeker’s Allowance from the Department of Social Protection. He fell into arrears as a result of his unemployment. It was said that he would now be able to make the repayments proposed in the PIA as he had, as of October, 2014, obtained employment as a PAYE worker with a construction company working for Eli Lilly in Dunderrow, Kinsale, Co. Cork.
6. Ulster Bank voted against the PIA as the proposal involved writing down a considerable portion of the mortgage debt. It was not prepared to engage in this form of arrangement. On the other hand, Ulster Bank had offered to accept reduced payments from the petitioner for a period of 5 years. It is said that the reduced payments was less than the sum allowed for as a mortgage repayment in the PIA. Ulster Bank emphasised that it was prepared to work with debtors, and the petitioner in particular, to achieve a solution where they could remain in their homes.
7. The petitioner’s fundamental objection to the solution offered by Ulster Bank was that it would not ensure his return to solvency. At the end of 5 years, he would still be left with a very considerable debt which he simply would not have the ability to repay during the remainder of his working life. His priority was not so much to remain in his home as to return to solvency. In presenting the petition for his own bankruptcy he was motivated by his desire to return to solvency.
8. Section 15 of the Bankruptcy Act 1988, as amended, provides as follows:-
“(1) Subject to subsection (2), where the petition for adjudication is presented by the debtor the Court may, where it considers it appropriate to do so, and where it is satisfied that the debtor is unable to meet his engagements with his creditors and that the requirements of section 11(4) and (5) have been complied with, by order adjudicate the debtor a bankrupt.
(2) Before making an order under subsection (1), the Court shall consider the nature and value of the assets available to the debtor, the extent of his liabilities, and whether the debtor’s inability to meet his engagements could, having regard to those matters and the contents of the debtor’s statement of affairs filed with the Court, be more appropriately dealt with by means of—
(a) a Debt Settlement Arrangement, or
(b) a Personal Insolvency Arrangement,
and where the Court forms such an opinion the court may adjourn the hearing of the petition to allow the debtor an opportunity to enter into such of those arrangements as is specified by the Court in adjourning the hearing.¬”
9. The issue the petitioner submitted was for consideration by the Court is its jurisdiction in the event that a party petitioned for his own bankruptcy pursuant to s.15 following a failed PIA “in circumstances where the Honourable Court considers that a creditor’s position in respect of the PIA was unreasonable”. It was submitted that prior to adjudicating a debtor a bankrupt on his own petition, the Court must be satisfied that it is appropriate so to do. In deciding this matter the Court must consider whether the debtor’s inability to meet his engagements could be more appropriately dealt with, in this case, by means of a PIA.
10. Under s.15 the first matter the Court has to consider is the nature and value of the assets available to the debtor, the extent of his liabilities and whether the debtor’s inability to meet his engagements could, having regard to those matters and the contents of the debtor’s statement of affairs filed with the Court, be more appropriately dealt with by means of … a debt settlement arrangement (emphasis added). The Court is clearly in a position to consider the nature and value of the assets available to the debtor and the extent of his liabilities as they have been detailed in his Statement of Affairs and they are presented in the proposed PIA exhibited by the petitioner. The question to be decided is whether his inability to meet his engagements could be more appropriately dealt with by means of a PIA. This involves determining what is meant by “could” in the context of s.15(2) of the Act of 1988, as amended. Obviously, as a matter of mathematics, any debtor’s inability to meet his engagements could be dealt with by a PIA if sufficient amount of the debts are written off. It would follow that if the Court is solely concerned with mathematics all indebtedness could be dealt with by PIAs.
11. Personal Insolvency Arrangements are dealt with in Chapter 4 of the Personal Insolvency Act 2012. Section 99 provides that the terms of a PIA shall be those which are agreed to by the debtor and subject to Chapter 4 approved by a majority of the debtor’s creditors in accordance with Chapter 4. There are detailed provisions governing secured creditors and PIAs set out in ss. 102, 103 and 105 of the Act of 2012. Section 108(1) provides:-
“A vote held at a creditors’ meeting to consider a proposal for a Personal Insolvency Arrangement shall be held in accordance with this section, section 110 and regulations made under section 111…
(9) Where on the taking of a vote at a creditors’ meeting held for the purpose of considering a proposal for a Personal Insolvency Arrangement the proposal is not approved in accordance with subsection (1), the Personal Insolvency Arrangement procedure shall terminate and a protective certificate issued under section 95 shall cease to have effect.”
12. Section 110 provides:-
“(1) Subject to subsection (2) a proposed Personal Insolvency Arrangement shall be considered as having been approved by a creditors’ meeting held under this Chapter where—
(a) a majority of creditors representing not less than 65 per cent of the total amount of the debtor’s debts due to the creditors participating in the meeting and voting have voted in favour of the proposal,
(b) creditors representing more than 50 per cent of the value of the secured debts due to creditors who are—
(i) entitled to vote, and
(ii) have voted,
at the meeting as secured creditors have voted in favour of the proposal, and
(c) creditors representing more than 50 per cent of the amount of the unsecured debts of creditors who—
(i) are entitled to vote, and
(ii) have voted,
at the meeting as unsecured creditors have voted in favour of the proposal.
(2) For the purposes of subsection (1)(b) the value of a secured debt shall be—
(a) the market value of the security concerned determined in accordance with section 105 , or
(b) the amount of the debt secured by the security on the day the protective certificate is issued,
whichever is the lesser.”
13. It is apparent from the above that creditors of a debtor are entitled to vote to accept or to reject a proposed PIA. An essential element of the scheme is that they are free to vote in favour or against as they interpret is in their best interests. It follows that the Court is not entitled to oblige them to vote in favour of a PIA. The question of the reasonableness or unreasonableness of a creditor in refusing to vote for a PIA is not a matter for consideration by the Court when considering the matters set out in s.15(2) of the Act of 1988, as amended. If I were to construe the legislation in the manner contended for by the petitioner, the effect would be to empower the Court to decide whether or not a PIA is acceptable or not. This is not for the Court to decide: it is expressly a matter for the creditors as is set out in the provisions of the Act of 2012 which I have cited above. This reflects the balance which has been struck by the Oireachtas when enacting the Personal Insolvency Act 2012 between the interests of debtors and the interests of creditors. It is important to bear in mind that a debtor is not obliged to present a petition once a proposal for a PIA is not approved in accordance with s.108 of the Act of 2012. The only result is that the procedure terminates and the protective certificate issued ceases to have effect.
14. It follows from my construction of s.15 of the Act of 1988, as amended, that the question of the reasonableness or otherwise of Ulster Bank in refusing to accept the proposed PIA is not a matter which I can consider. On the other hand, there is evidence before the Court of the fact that the petitioner has attempted to enter into a PIA and that the proposed arrangement has not been approved. As it is not open to the petitioner to present a second PIA at this stage it follows, as a matter of fact, that his inability to meet his engagements could not more appropriately be dealt with by means of a PIA. I have therefore formed the opinion that the petitioner’ s inability to meet his engagements could not more appropriately be dealt with by means of a PIA and therefore the question of adjourning the petition to allow the debtor an opportunity to enter into any such PIA does not arise.
15. The next argument advanced on behalf of the petitioner was based upon s.15(1). It was accepted that the requirements of s.11 (4) and (5) of the Act of 1988, as amended, have been complied with. It was argued that the Court might consider it inappropriate to adjudicate the debtor a bankrupt by reason of the alleged unreasonable stance of Ulster Bank in relation to the petitioner’s proposed PIA. It is argued that if the Court is of the view that a debtor’s inability to meet his engagements could be more appropriately dealt with by means of a PIA had the creditor not unreasonably refused the proposed PIA that therefore the Court must be of the view that an adjudication in bankruptcy is not appropriate in the circumstances. In view of the fact that I have rejected the argument that the Court can enter into an assessment as to the reasonableness or otherwise of a creditors decisions in relation to proposed PIAs, it follows that this argument also must be rejected. On the contrary, the Court is in a position to adjudicate the petitioner a bankrupt on his own petition as he has requested the Court so to do. To put it in the alternative, there is no reason for the Court to refuse the petition.
16. I wish to state that I have approached this case on the assumption that the petitioner is correct in his argument that Ulster Bank behaved unreasonably in rejecting the proposed PIA in the circumstances. I have made no such determination and I expressly decided the case as a matter of law. This judgment is not to be taken as in any way endorsing the criticisms advanced by the petitioner against Ulster Bank. Ulster Bank is entitled to have regard to its own legitimate commercial interests in its dealings with debtors.
17. Counsel for the petitioner has clearly indicated that the petitioner’s first priority is to return to solvency rather than to remain in his home. He wishes to be adjudicated a bankrupt pursuant to his petition if the Court is satisfied that it is appropriate for the Court to make the Order pursuant to s.15 of the Act of 1988, as amended. In those circumstances, I am satisfied that it is appropriate to make the Order sought and I adjudicate the petitioner a bankrupt.
In re C., An Arranging Debtor
[1926] IR 16
Supreme Court
KENNEDY C.J. :
I confess that I have had some doubt whether we should disturb the exercise of the Judge’s discretion in refusing to sanction this arrangement; not doubt as to the legal principles governing the exercise of that discretion under sect. 353 of the Irish Bankrupt and Insolvent Act, 1857, but rather a difficulty as to the application of those principles to the special facts of the present case. Upon further careful consideration of all the facts, however, my difficulty, which would be serious if the actual facts were somewhat varied, has disappeared.
The section gives power to override the majority of the creditors in an arrangement, and to adjudge the petitioner bankrupt in certain cases. One is a case where it is shown that the affidavit filed with the petition is wilfully untrue as to the debtor’s assets. Counsel for the opposing creditors here have expressly disclaimed the making of that charge. Another case is where it is shown that the petitioner has not made a full disclosure of his debts and credits, estate and effects, and is not desirous of making a bona fide arrangement with all his creditors. The opposing creditors here refrain from committing themselves to a charge of such non-disclosure by the debtor.
Another case is where is it shown that the debtor’s proposal for an arrangement “is not reasonable and proper to be executed under the direction of the Court.” The opposing creditors say, and Johnston J. held, that on the facts the arrangement proposed here is within that case, and ought not to receive the sanction of the Court.
Several cases are reported in which the principles governing the application of these provisions have been considered. The earliest reported case appears to be In re Beck (1), in which the Bankruptcy Judge, Berwick J., in face of an overwhelming majority of creditors, adjudged a petitioner bankrupt on the demand of an opposing creditor whose claim was in respect of valuable machinery supplied to the debtor, and then forming a substantial part of his assets. The assenting creditors were to have a benefit at the expense of the opposing creditor. The arrangement was held not to be a bona fide proposal for the benefit of all the creditors, and not a proposal reasonable or proper to receive the sanction of the Court.
In re Max Schroeder, a Bankrupt (2), was a case where the debtor had no assets in this country, and his proposed composition rested upon moneys raised by friends. He had, however, a contingent interest in valuable property abroad, which was not proposed to be brought in as an asset. The Court of Appeal refused to reverse Boyd J., who adjudged the petitioner bankrupt on the ground that the proposal, though accepted by the necessary majority of creditors, was not reasonable and proper to be executed by the Court. Ashbourne L.C. emphasised the discretionary character of the jurisdiction of the Bankruptcy Judge in such a case.
In re A. and B., Arranging Debtors (3), was a case where debtors went on trading after they knew they were insolvent. The Recorder of Belfast, notwithstanding the majority supporting the proposed arrangement, adjudged the debtors bankrupt, and was affirmed by the Court of Appeal on the ground that the debtors’ conduct was not commercially honest, and that the case called for the fullest investigation which would be open in bankruptcy.
In Pelan’s Case (not reported, but stated by Holmes L.J., [1913] 2 I.R. 279, and in a note in 46 I.L.T.R. 290) the Recorder of Belfast adjudged the debtor bankrupt notwithstanding the majority supporting his proposed arrangement. He did so on the ground that the debtor kept no books or accounts, had been given to bet at races, and was careless and extravagant. The Court of Appeal reversed the Recorder on the ground that it was the ordinary case of a proposal accepted by a statutory majority of creditors, which ought to be acted on by the Court in the absence of any specific ground for rejecting it.
The latest case appears to be In re Fry (1), where the Court of Appeal reversed the decision of the Recorder of Belfast adjudging the debtor bankrupt, notwithstanding a statutory majority in favour of accepting his proposal for an arrangement. The facts upon which the Recorder acted were that the debtor, at a time when he had sanguine expectations of success in business not subsequently justified, took a large residence and expended a considerable sum in equipping it in a manner suitable to the career of a wealthy merchant, upon which he believed himself about to enter, and that he made a present to his mother of the furniture, to the value of about £300, which he previously had. He was then solvent. The Court of Appeal held that the principle laid down in Pelan’s Case should be applied, viz., that there must be some specific ground for rejecting an arrangement accepted by a majority of creditors, and that suspicion of impropriety is not enough to support an exercise of the jurisdiction given by the section.
I accept it as clear and settled that there must be some specific ground for depriving a debtor, under the clause in sect. 353 relied on here, of the benefit of the statutory provisions which allow him to carry an arrangement with his creditors. I think that such specific ground must be either that the arrangement would work a gross injustice upon the opposing creditors, as in In re Beck (2), so that it would be unreasonable or improper to force them to accept it, or that it offends against the public policy to which the Court should look in exercising discretion in its bankruptcy jurisdiction, that is to say, that the Court should not lend its countenance to a transaction shown to be actually characterised by commercial immorality or dishonesty. Misfortune or imprudence must make the bulk of the ordinary cases for which the system of arrangement has been given statutory sanction. There must be special factsnot merely possibilities or even suspicionsconstituting some specific ground upon which the opposing creditors are entitled to rely, or upon which the Court, in the interests of the public, and especially the commercial community, should intervene, to justify the refusal to a debtor and the statutory majority of his creditors of the benefit of an arrangement to be carried out in accordance with the statute.
Now, turning to the facts of the present case, what do we find? I am not impressed by the relevance of the early history of the debtor’s trading. I do not think that the events of 1916 and their consequences have any real bearing on the present insolvency. In 1920 the Earl Street premises were restored and business was resumed there, and is now, I understand, fairly successful. In 1919 the debtor acquired a second and very expensive place of business in College Green. Whether that would have been a prudent venture in normal times we cannot judge, but the events which followed soon afterwarfare in the streets and military restrictionsrobbed it of any chance of success. With very large outgoings to meet and business seriously hampered, the debtor found himself insolvent in the beginning of 1923, but apparently hopeful of extricating himself with improving conditions. He wrote to his principal creditors, the Imperial Tobacco Combine, who are now his principal opponents in this arrangement. He told them how he stood, and that he proposed to sell his College Green business, and said that he hoped, given timea breathing spaceto meet all his obligations. The Tobacco Combine, through their solicitor, replied, agreeing to let their claim remain in abeyance for the present, on the assurance that the proceeds of the sale of the College Green business would be divided amongst his creditors, and that no preference would be given to any creditors. The debtor continued to carry on business, and clearly did so to the knowledge of the Imperial Tobacco Combine, though they did not give him further credit. There was much delay in disposing of the College Green business. The debtor was holding out for too large a price. It was not sold until June, 1924, and then at a price which did little more than pay off arrears of rent and taxes, large law charges, and the rent of the Earl Street premises. It is not alleged that the debtor dishonestly delayed the sale, but complaint is made because of the accumulation of rent, rates, and taxes which resulted.
After a breathing space of two years, the debtor is forced to take protection. His statement shows a large number of creditors, a very large total debt, and trivial assets, not likely to produce more than about 8d. in the pound. His offer (stated to be made with the assistance of friends) is 2s. in the pound. It is a notable fact that, though the creditors’ claims are almost entirely for goods supplied, the value of the stock-in-trade in hand is negligible, which might lead one to suspect that the wholesale goods supplied were not traded with in the ordinary way, not turned over, but sold for daily needs.
Now, the body of the creditors supporting the arrangement are new creditors, whose claims have arisen since the debtor confessed himself insolvent early in 1923. If they had been the opposing creditors, even in a minority, it would be difficult to say that they might not make a very strong case for rejecting the arrangement as a piece of commercial dishonesty. They, however, support the arrangement. They are apparently satisfied with the debtor’s bona fides.
The opposition to the arrangement comes practically only from those who knew of the insolvent condition of the debtor in the early part of 1923, and who allowed him to go on trading without risking anything themselves. They were offered 2s. in the pound in March, 1924, no more than the present proposal. Their sole ground stated here in support of the adjudication is that the debtor has been guilty of reckless trading since 1923. Now the indulgence granted by these traders, without giving him further credit, might be complained of by the new traders as a permission to trade at their risk on the chance of restoring his solvency for the benefit of the old creditors; but I do not think that the old creditors can be heard to complain of that trading in the circumstances as reckless trading, more particularly when the composition available is not diminished, and when they say that they make no specific charge of non-disclosure, or of wilful untruth, and simply rely on the fact of continued trading as a fact from which commercial dishonesty is to be inferred. I am not sure how that might stand as between the old creditors and the new, if the new creditors complained of it; but, as between the old creditors and the debtor, I am of opinion that they have not substantiated any specific grounds upon which they are entitled to rely to have the arrangement turned into bankruptcy.
One of the matters complained of is that the debtor has not kept books of account. I think it is a very reprehensible thing not to keep books. I should hope that some means will be found to impose a legal obligation on every business man to keep books. Indeed, income tax requirements of the past few years have almost gone so far. But the debtor says that he has all the materials for constructing perfect accounts of his trading in his bank account, invoices, and receipts; and this is not denied, nor is it shown that he refrained from keeping books because of some dishonest motive. Moreover, his trading accounts have been examined by a competent accountant. Failure to keep books is not, in my opinion, a sufficient ground per se for converting an arrangement into bankruptcy against the wish of the statutory majority of creditors.
I am of opinion, therefore, that on the facts of this case no sufficient ground has been shown for overruling the will of the majority of the creditors accepting the debtor’s proposal for an arrangement, and that the appeal should be allowed, with costs, the order of adjudication to be discharged.
FITZGIBBON J. :
This is an appeal by the arranging debtor against an order of Johnston J. dated March 13th, 1925, made upon the adjourned first Private Sitting, whereby it was ordered that the appellant should be adjudged bankrupt.
The arranging debtor took the protection of the Court on January 6th, 1925, and in his statement of affairs he returned unsecured debts amounting to £3,020 12s. 8d. and assets amounting to £133 9s. 7d. There was also a debt due to his bankers of £745 11s. 6d., partially secured by the policies of assurance.
The debtor appears to have carried on a tobacconist business for several years, commencing in Parnell Street, and, after a short period of trading there, he took a second shop in North Earl Street on a 21-year lease, paying a rent of £185 and taxes for a ground-floor shop and a cellar.
In April, 1916, these premises, with all the neighbourhood, were destroyed, and the debtor did not resume trading until August of the same year, when he started again in a temporary structure in which he carried on until the rebuilding was completed in 1920.
The lease of his Parnell Street shop was due to expire in 1920, and in 1919 he took a ten years’ lease of a shop and room in College Green at a rent of £225 and taxes, and commenced to trade there early in 1920.
By the beginning of the year 1923 he appears to have got into financial difficulties, which he attributes to the conditions which existed in the city during the year 1922, and the duties imposed upon tobacco and cigarettes in April, 1923.
It is unlikely that the latter cause had any serious influence in his affairs, which seem to have been very embarrassed before the duties came into operation; but on the 27th of April, 1923, he was unable to meet his engagements, and his solicitors wrote as follows to the Imperial Tobacco Company, who were his principal creditors:
27th April, 1923.
Re C., Dublin.
Dear Sirs,
Our client has consulted us in reference to your letter of the 24th inst. During the past year or so, owing to the disturbed condition of the city, his receipts have suffered very greatly, and the recent changes in taxation have had a very serious effect on the retail tobacco business in this city. He is very anxious to meet his accounts with the various firms constituting the Imperial Tobacco Co., and indeed all his creditors in full, but this is quite impossible at present. He has instructed us to sell his business in College Green, for which we believe he will obtain a substantial sum, and one which will enable him to discharge his obligations and enable him to continue business at the North Earl Street premises under much easier financial conditions.
If proceedings are taken against him the only course open to him will be to take protection. Apart from the fact that this would be very distasteful to him, tarnishing as it would his good name in this city, it would also be anything but beneficial to the creditors. You will readily understand that a forced sale in connection with an arrangement matter, and coming under present local conditions, would be very materially affected in price.
We trust the Company will give a little breathing space to our client, who has been a good customer for a number of years. We have no doubt that if they do so it will be to the advantage of all concerned.
Yours faithfully, Joynt & Crawford.The Solicitor, Imperial Tobacco Co., Ltd., Bristol.
To this letter the following reply was sent:
Solicitor’s Office,Imperial Tobacco Company,Bristol,
30th April, 1923.
Re C., Dublin.
Dear Sirs,
John Player & Sons £321 9 7
W. D. & H. O. Wills 192 13 4
Stephen Mitchell & Son 56 6 11
Hignett Bros. & Co. 10 17 7
———- £581 7 5
I am in receipt of your letter of the 27th inst.
My clients regret to note your client’s present financial position. They are anxious to avoid the necessity of your client obtaining a Protection Order, and payment of the Company’s claim can remain in abeyance for the present, on the assurance that the proceeds of the sale of his business in College Green will be divided amongst his creditors, and that no preference will be given to any creditors.
Kindly let me have his assurance.
Yours faithfully, E. Robert Still.Messrs. Joynt & Crawford, Solicitors, Dublin.
He appears to have made some attempts to dispose of his interest in the College Green premises, but whether in consequence of his looking for too high a price or for some other cause, he did not succeed in getting rid of them till some date in 1924, when they were sold with the stock-in-trade for something over £500. In the meantime he had been carrying on trade there at a loss.
On March 6th, 1924, he called a meeting of his creditors, and made an offer of 2s. in the £1 which was not accepted, and after negotiations lasting over eight months the debtor took protection in January, 1925.
An offer of 2s. payable in cash one month after confirmation was made on behalf of the debtor, and creditors, in number 28 out of 32, and representing £1,701 out of £2,738 10s. 6d. in value, assented to this proposal. It will thus be seen that there was the requisite three-fifths in value and an overwhelming majority in number in favour of acceptance. Notwithstanding this, the Court, in the exercise of its powers under sect. 353 of the Act of 1857, adjudged the petitioner a bankrupt, and it is against that adjudication that the present appeal has been taken. The section recognises four grounds for such an order: that the affidavit verifying the petition was wilfully untrue; that the debtor has not made a full disclosure, and is not desirous of making a bona fide arrangement with his creditors; that his proposal is not reasonable and proper to be executed under the direction of the Court; or that within three months of his petition he has made away with some portion of his estate otherwise than in due course. The order appealed from is based upon the third of these grounds only, that the offer of the debtor is not reasonable and proper to be carried out under the direction of the Court.
The debtor was cross-examined, and no attempt was made to show that he had not made a full disclosure, nor, although it was admitted that he did not keep the usual trading books, was it suggested that he had suppressed any information from the Court or his creditors. While I am of opinion that the failure to keep books is a very serious omission from a commercial point of view, and justifies the Court in approaching with grave suspicion the case of a defaulting trader, he does not thereby merit the punishment of dishonesty if he appears in fact to have made a full and honest disclosure so far as it is possible for him to do so.
In the present case, the debtor explained that, with his bank books and the invoices in his possession, the method and result of his trading could be ascertained; and Mr. Brown, the well-known accountant, appears to have been able to make out a satisfactory statement of the debtor’s affairs, which was not seriously challenged upon the ground of inaccuracy or incompleteness, and the order of adjudication is not grounded upon any failure by the debtor to make a full disclosure of his affairs.
The assets would afford a distribution of a fraction over 8s. in the £1, and the debtors stated that the balance of the offer would be provided by friends. It is not suggested, or at least there is no shadow of evidence, that the debtor has any concealed hoard, or other assets from which a larger contribution could be provided.
The creditors who oppose the acceptance of the debtor’s proposal are four in number. The Imperial Tobacco Company with a debt of £688, all of which was incurred before March, 1923; Messrs. Carroll & Company, of Dundalk, with a debt of £303 7s. 5d., which started on December 1st, 1923, with an”account furnished” of £203 8s. 7d., and closed on February 16th, 1924, during which period the debtor received goods from Messrs. Carroll to the value of £321 16s. 2d., and made fairly regular payments of £30 a week, amounting in all to £221. These two creditors represent all but £45 of the minority of £1,036, and two other creditors supply the balance.
The Imperial Tobacco Company were fully advised of the debtor’s position in April, 1923, and it is difficult to see what right they have to contend that their vote should outweigh those of the large number of creditors to whom the petitioner became indebted between April, 1923, and January, 1925. He continued to trade, if not with the connivance, at least with the knowledge of the Imperial Tobacco Company, and to my mind the desire of those later creditors, who would never have dealt with him at all if the Imperial Tobacco Company had put an end to his activities early in 1923, when they were aware of his financial embarrassments, is entitled to the greater consideration.
If continuing to trade after April, 1923, was, as the learned Judge appears to think, “reckless, not to say dishonest,” at least those creditors who did not discourage it when it was in their power to do so are the last who should be heard to complain of the result.
But I confess that I cannot quite follow the reasoning of the learned Judge upon this question of the nature of the debtor’s trading. At the outset of his judgment he says: “It is a material fact that the great bulk of the trading debt was incurred in 1924 and 1925, and is therefore of very recent origin.”The fact is that of a total trading indebtedness of about £2,650 over £2,000 had been incurred before 1924 and a considerable portion of it before 1923. Yet when the learned Judge comes to state “the specific reason for rejecting the offer,” it is because”there is evidence in the debtor’s own statement of affairs, which satisfies me that there was reckless, not to say dishonest, trading on his part for some years before the petition was presented.” So far as I can discover from the statement of affairs and the documents upon the file, the petitioner seems to have added very little to his indebtedness during the twelve months preceding his petition, and the proceeds of sale of the stock which he had on hand in 1923 are to a great extent accounted for by the rent, rates, and running expenses of his two establishments and his own family of a wife and seven children.
A matter which is stated by the learned Judge to have “left a bad impression” upon his mind was connected with a judgment for £55 and costs recovered by the Ardath Tobacco Co. against the debtor immediately before he took protection.
This judgment appears to have been purchased by a Mr. Raftery for £35, and the purchaser lodged a proof for £73, the total amount secured by the judgment. He voted in the majority for acceptance of the debtor’s offer. I cannot see anythingprima facie improper in this transaction, nor any evidence upon which I can come to the conclusion that Raftery purchased the judgment as a trustee for the debtor or with moneys supplied by him.
Believing, as I do, that the duty of the Court in deciding whether to sanction the proposal of a debtor or to turn the arrangement into bankruptcy is correctly stated by the Lord Chancellor and Holmes L.J. in the case of In re Fry (1), I find myself unable to come to the conclusion that the debtor in the present case was “immoral, reckless, or fraudulent” in the incurring of the debts proved here. He may have been imprudent in embarking upon the College Green adventure in 1920 at the moment which was selected for the inauguration of the still-born parliament of Southern Ireland; or he may have been the victim of circumstance, but it seems fairly clear upon the evidence that his failure was due to the large liability for rent and rates which he then undertook and he can hardly be called immoral or reckless because he failed to foresee the events of the next three years.
I cannot attribute blame to him for the delay in getting rid of the white elephant in College Green after he had made up his mind to withdraw to Earl Street. Business premises cannot be sold at a moment’s notice, and the hope of obtaining a better price often leads a vendor to go further and fare worse, as here, with the result that the accrued rent and rates almost exhausted the purchase-money which the debtor eventually received for his interest. I am satisfied that, upon the true construction of the correspondence with the Imperial Tobacco Co. already referred to, there is no ground for the charge of breach of faith in the application of this purchase-money, which has been made by counsel for the Company, and Johnston J. has not based his judgment upon this ground.
In In re O’Neill and Young (2), referred to in Fry’s Case (1),a debtor knowing himself to be hopelessly insolvent submitted a proposal which was opposed by a minority of creditors whom he had dishonestly induced to give him credit, and who had had no previous dealings with him. In the present case the arrangement is supported by the late creditors of the debtor, who make no allegation of dishonesty against him, and the opposition comes, as I have already pointed out, from those earlier creditors who did not put a stop to his trading when they might have done so, but from whom he did not obtain any further goods on credit after he had disclosed his position to them.
Mere suspicion of dishonesty or recklessness is not a sufficient ground for refusing to sanction an offer which has the support of the required proportion in number and value of creditors, and I am unable to find any real evidence, as distinct from suspicion, of dishonesty or recklessness here. Upon the figures it is impossible to believe that the debtor himself could make a more favourable offer, and a merely punitive adjudication would not be to the advantage of any creditor.
I am of opinion that the order appealed against should be discharged, and that the case should be remitted to the Judge in Bankruptcy to appoint another private sitting for the confirmation of the proposal and to proceed therein according to the course of the Court.
MURNAGHAN J. :
In this case it has been held that the proposal of the debtor is not reasonable and proper to be executed under the direction of the Court, and the debtor has been adjudged a bankrupt in conformity with the provisions of sect. 353 of the Irish Bankrupt and Insolvent Act, 1857. I have been forced, by reasons which I shall state, to the conclusion that the debtor’s proposal should be approved by the Court. The case is one of considerable importance, as it involves the consideration of the principles which should guide the Court in dealing with arrangements under the above-mentioned Act.
The debtor took protection on 6th January, 1925, and the proposal which he has made is that he should pay to his creditors 2s. in the pound in cash within one month. His statement of affairs has disclosed an extremely hopeless position. His debts amount to £3,634 4s. 2d., of which £3,020 12s. 8d. is altogether unsecured, whilst the Hibernian Bank, Ltd., hold, in respect of a debt of £745 11s. 6d., two policies of insurance estimated to produce £132. As against these liabilities, the assets shown are estimated to produce £133 9s. 7d., of which £90 3s. 2d. represents the value of the debtor’s stock-in-trade. The liabilities are largely trade debts. At the sitting, the proposal of the debtor has been supported by a bare statutory majority in value of the creditors, the dissentient minority, consisting of the Imperial Tobacco Co. and its subsidiary companies, with a debt of £688; Messrs. Carroll, Ltd., with a debt of £303 7s. 5d.; and two small creditors, with debts exceeding together £40.
The debtor, who has carried on trade as a tobacconist in Dublin, has been engaged in business for seventeen years, but it is not necessary to consider his trading prior to the year 1916. He carried on business in a small shop in Parnell Street, and also in North Earl Street. In the year 1916 his premises in North Earl Street were destroyed, and, although he was compensated for the stock-in-trade which was destroyed, the debtor alleges that his business was very seriously injured, as it had subsequently to be carried on for some time in a wooden structure. About the year 1919 the debtor gave up the business carried on in Parnell Street, and took on a short lease more expensive premises in College Green. This latter business was the reverse of successful, and the debtor disposed of the premises in College Green, together with the stock-in-trade, in June, 1924, for the sum of £522, of which about £70 represented stock-in-trade. The debtor has accounted for his loss of about £3,500 in a period of nine years by the generally disturbed state of affairs, his liability to rent, rates, and taxes amounting to close upon £600 a year, and expenditure incurred in support of himself, his wife, and seven children estimated at £7 per week. The debtor did not keep regular books of accounta practice which has been made the subject of grave comment, and one which must indeed be severely reprimanded. His bank pass-books were, however, available, and certain entries, according to the debtor’s statement of his takings every week, after deducting wages and household expenses.
In April, 1923, some correspondence took place between the solicitors of the Imperial Tobacco Co. and the solicitors of the debtor. The debtor, in a letter dated 27th April, 1923, referred to the disturbed conditions of the city during the previous year, and stated that he was very anxious to meet his account and pay all his creditors in full, but that such a course was quite impossible at the time. It was stated in the letter that the College Green business was about to be sold, and that a substantial sum was likely to be realised, which would enable the debtor to discharge his obligations and to continue business at his premises in North Earl Street. By a letter dated 30th April, 1923, the Imperial Tobacco Co. agreed to allow the account to remain over so as to avoid the necessity of the debtor taking protection, on the assurance that the proceeds of the sale of his business in College Green would be divided amongst his creditors, and that no preference would be given to any creditors. In March, 1924, the debtor called a meeting of his creditors, and submitted the report of a chartered accountant as to his affairs. He then made an offer of 2s. in the pound, which offer was not accepted. The premises in College Green, together with the stock-in-trade, were sold in June, 1924, but realised only £522, and the proceeds of the sale, after deducting legal charges, were entirely absorbed in paying arrears of rent, rates, and taxes. In December, 1924, the Ardath Tobacco Co. obtained a judgment for £55 and costs, and, to save an execution, this judgment was purchased by a friend of the debtor for £35; a proof in respect of this debt has been lodged, amounting to £73. Without this proof, the statutory majority is in favour of the debtor’s proposal; but on the actual voting there would not have been such a majority had this amount been added to the dissentient minority. The debt of the Imperial Tobacco Co. was substantially in existence in April, 1923, but in consequence of their refusal to supply goods save for cash, the debtor was not, he alleges, able to deal with this company. A considerable portion of the debt of Messrs. Carroll, Ltd., also existed in 1923; the amount proved for is the balance of a running account up to 15th February, 1924, payments having been made by the debtor in the meantime.
It is neither desirable nor possible to attempt to define in any exhaustive manner what is meant by saying that a proposal is not reasonable and proper to be executed by the Court. A line of authorities since the passing of the Bankrupt and Insolvent Act has laid down that in considering the approval of an arrangement the Court has wide powers both for the protection of the creditors as a whole and for the protection of the public generally. The debtor may in his dealings with the minority creditors have acted in a manner which the Court holds to be beneath the standard of honesty required in commercial transactions. For example, the debtor may have continued to purchase goods on credit at a time when he knew that he was quite insolvent, and that he would be unable to pay for these goods; and it would not be proper that creditors, who had not suffered in this particular way, should, by a majority vote, carry a proposed arrangement. Again, the debtor may have acted in a manner which the Court considers should be dealt with by an exercise of punitive jurisdiction in the interests of public morality. The main and guiding rule is that the Court will approve of the arrangement where the statutory majority of the creditors agree to accept the offer of the arranging debtor, and the Court will refuse to sanction an arrangement approved of by such a majority of the creditors only where such action is necessary for the just protection of the creditors as a whole, or for the necessary protection of the public generally. The numerous cases which have been decided offer illustrations of how far the Court will go either in protecting minority creditors or in protecting the public, but these cases must be read with reference to the particular facts of each of them.
The learned Judge dealt with the present matter on the basis that the great bulk of the trading debt had been incurred in the years 1924 and 1925. He allowed himself to be impressed with the case presented by the opposing creditors, i.e., that £3,000 worth of goods purchased during the last two or three years had disappeared, and that such a disappearance raised a case for investigation which required that the matter should be turned into bankruptcy. He also came to the conclusion that there was reckless, if not dishonest, trading on the part of the debtor before the petition was presented, and that the debtor, being aware of his hopeless condition, continued notwithstanding to contract debts amounting to £3,000 in the past few years. At the hearing
before us the figures have been carefully scrutinised, and it appears now to be clear that of the total liabilities of £2,600 due to trade creditors, £2,000 in amount was due at the end of 1923, representing accounts extending over several years. It also appears, as I have pointed out, that the substantial portion of the respective debts of the Imperial Tobacco Co. and Messrs. Carroll, Ltd., was contracted early in the year 1923. Once these figures have been ascertained, there is not the necessity for an investigation in bankruptcy which the disappearance of such large assets contemplated by the learned Judge would have required.
Mr. Blood, on behalf of the debtor, has referred to In re Fry (1), where the Court of Appeal, following a previous case in the same Court ( In re Pelan , unreported, but referred to in the judgment of Holmes L.J.), held that general allegations as to the debtor’s conduct alone cannot be relied upon as a ground for refusing to accept the offer. In Pelan’s Case the grounds of opposition relied upon were that the debtor had kept no books or accounts, had been once given to bet at races, was careless and extravagant, and that insolvency was the necessary consequence of the mode in which he had conducted his business. The Court of Appeal, reversing the Recorder of Belfast, approved of a proposal supported by the statutory majority of creditors, on the ground that such a proposal ought to be acted on in the absence of any specific ground for rejecting it. This principle was adopted in In re Fry (1), Barry L.C. stating that the Court could not act upon mere guess or suspicion, but before rejecting such a proposal it should be satisfied on reasonable and proper evidence that the debtor’s conduct had been immoral, reckless, or fraudulent in the incurring of debts, or that the proposal itself was unreasonable. The same view of the law was adopted in Re M., an Arranging Debtor (2).
It has been argued that on the evidence it should be held that the debtor was guilty of a breach of faith, and did not adhere to the arrangement made with respect to the sale of the premises in College Green. On any reasonable interpretation of the letters referred to, I cannot find that there was any breach of faith. I cannot find that there was anything fraudulent in the debtor’s representations, although in fact his expectations were not realised. Further, it is contended that the debtor contracted a substantial liability after the date when he knew that he was insolvent. The debtor, however, informed the Imperial Tobacco Co. of his position in April, 1923; and in March, 1924, a complete account of his difficult position was put before his creditors. The creditors, who might have felt some grievance on this head, have not thought themselves justified in accusing the debtor of dishonesty; and I can find no evidence to show that either the Imperial Tobacco Co. or Messrs. Carroll, Ltd., have supplied goods under circumstances which are inconsistent with the required standard of business morality.
In the full knowledge of the circumstances now before the Court, I cannot hold that the debtor has been guilty of such dishonest conduct as makes it necessary for the protection of any creditor who has been damnified, or in the interests of public morality, to reject the offer approved by the statutory majority of the creditors.
[1935]
1 I.R. 733
In re An Arranging Debtor
JOHNSTON J. :
This case comes before me as an application by two sureties who desire to be relieved from an obligation to sign certain composition bills. The undertaking to become liable on these bills, which was actually signed by the sureties on March 29th, 1935, is a document of a most formal character. It is entitled “In the High Court of Justice (in Bankruptcy)” and in the matter of the arrangement of one, X. It recites that he had presented a petition to the Court, dated March 2nd, 1935, asking that the “proposal” which he was about to make to his creditors for the payment or compromise of his debts should be executed under the direction of the Court. The proposal is one that the debtor should pay a composition of six shillings and eight pence in the pound, payable in equal instalments at three, six, nine and twelve months, respectively, from the date of the confirmation of the offer by the Court, “all such instalments to be secured by the joint and several promissory notes of the petitioner and of Laurence Brennan of 171 Parnell Street, Dublin, publican, and Richard Kenna of 9 Little Britain Street Dublin, publican, and Elizabeth Foxe of Naas, County Kildare, widow.” Each of the sureties then agrees to carry out his or her undertaking “in consideration of the said proposal being agreed to by the creditors of the said [X]”; and it was agreed that the undertaking or consent should be filed and made a rule of Court. The undertakings of Brennan and Kenna were signed by the sureties in the presence of Mr. Allen, the solicitor for the arranging debtor. The undertaking of Elizabeth Foxe, widow, was signed by her on March 28th, 1935, in the presence of another solicitor, and the first private sitting was carried on April 5th. Notice of the second private sitting was given by Mr. Allen to the unsecured creditors on April 17th, and the proposal of the debtor was fully set out on the face of the notice. The second private sitting was carried on May 3rd, and the proposal to which the creditors had agreed was again set out on the face of the resolution filed on the passing of this sitting. A sitting in the matter came before the Chief Registrar on July 2nd, when it was established that the debtor and Elizabeth Foxe had signed the necessary composition bills, but that the two other sureties had failed to do so and had not attended before him nor informed him why they had declined to sign the bills.
The matter then came before the Court on July 5th, when an order was made that the undertakings should be received and made a rule of Court, and a further order was made ordering the sureties to sign the bills forthwith. This order was served on the sureties on July 16th, and on July 31st an order was made for the committal of these gentlemen. Even on that occasion they did not think it worth while to attend or to give any explanation of their conduct. It was not until September 17th that the sureties made any move in the matter. On that date they issued a notice of an application that they should be relieved of their liability to the Court on the ground that a fraud had been committed on them by the debtor in misrepresenting to them the amount of his liabilities. Brennan says that he was acquainted with the debtor “in a casual way.” He adds that when the debtor called upon him he “was very busy at the time and had a rather hurried conversation with him in which he stated he was in financial difficulties and asked me to sign a bill for him for the sum of £40.”Now, that affidavit was sworn on September 10th, but six
days later Brennan swore a second affidavit in which he tells a different story and makes a case which differs materially from the first one. He says: “When the debtor, . . . asked me to sign a document as security for him in this matter, he emphatically led me to believe that the liability he was asking me to incur was £40 or approximately £40. I cannot remember the exact words he used, but I am positive that they amounted to an assurance that the total amount of the liability he asked me to assume was either £40 exactly or £40 and a negligble fraction. The arranging debtor told me that he had gone bankrupt for £400 and that he had offered 6s. 8d. in the pound and that he required three sureties each of whom would be liable for one-third of the amount of his offer and no more.”These are the two accounts of the matter that are before the Court, and which of them is the true one—if either— I am at a loss to know.
Mr. Kenna makes a somewhat different case. He says that the debtor informed him that he “had gone smash to the extent of about £400 and required security to the amount of about £40.” He adds that he agreed to become a surety, “the debtor promising to lodge with me the sum of £40 to cover my possible liability.” The debtor denies that he made any such representations to the sureties or that he agreed to lodge any sum with Kenna. I am satisfied that, as a matter of fact, the debtor did not know his liabilities with any degree of exactitude, and it is unlikely that he made any definite representation as to the amount to the sureties. In his affidavit, sworn on March 2nd, he says: “I say my unsecured liabilities as nearly as I can estimate them amount to £500”; but in his statement of affairs he sets out the amount of his unsecured liabilities at £900 19s. 1d. As a matter of fact the unsecured debts which were proved in the matter amount only to £641 1s. 2d. and the total amount of the composition is £213 13s. 8d. This sum divided amongst the three sureties amounts only to a sum of £71 4s. 7d.
I am satisfied that in the present case there are no grounds whatever for relieving the sureties of their liability. An agreement by a person to become liable for the debt of an arranging debtor is a contract of a very special character. It is a contract with which not merely the surety in question and the debtor but many other persons—the Court itself, the creditors and the other sureties—are concerned, and the freeing of one of the sureties from liability involves grave consequences in respect of all those persons.
It would be impossible to enumerate the conditions under which the Court would have jurisdiction to relieve a surety from the liability incurred by him to the Court, the creditors and the other sureties; it is sufficient to say that this is not a case for such relief. The preliminary conversations that Mr. Brennan and Mr. Kenna had with the debtor— whatever they were—are of no consequence. The important matter is the signing of these undertakings in the presence of an officer of the Court, the facts and the nature of the liability being fully and clearly set out upon the face of the document. There is no suggestion that either of these gentlemen made any inquiry as to the extent of their liability or that they made it known to Mr. Allen that they were undertaking only limited or conditional responsibility. I am absolutely satisfied that they knew perfectly well the nature of the document that they were signing and it is not without importance that the debtor’s statement of affairs, setting out the whole financial situation, had been filed in Court two days before the undertakings were executed. Rule 124 of Order LXXXVIII provides that the undertaking of a surety must be executed in the presence of a Justice of the Peace, clergyman, solicitor, commissioner for taking affidavits or bank manager. This precaution is for the purpose of having some responsible person present when a document of this kind is executed who will supply the surety with any information that he may require, and is a clear intimation of the solemn and serious character of such documents.
In the case of In re F. (1), which came before the Court on an application very similar to the present one, Lord Ashbourne, upholding the decision of Boyd J., said: “A surety was always entitled to a great deal of sympathy. It was said that he had understood and expected that he would not be called upon to pay, that he would be secured and held free from loss; but it was to be borne in mind that it was not a contract between A. B. and C.D., but with the Court and with all the creditors, and that when he gave his signature the Court acted on the faith of it and the creditors were entitled to rely upon it.” Lord Justice FitzGibbon said that the surety “had signed a paper which on the face of it was a contract with the Court, and the Court acting for the creditors and relying upon it had sanctioned a first and second sitting.” The present case, however, is very much stronger than that one, because here there is a third surety who has not sought to be freed
from her liability, and I am satisfied on the evidence before me that if the debtor made any representation at all to the sureties as to his liabilities, that representation amounted at the most to an estimate—an optimistic estimate, it may be—as to the amount that he owed. The sureties, if they had really desired more definite information, could have got it by looking at the statement of affairs which had at the time been filed, or by inquiring from Mr. Allen before they appended their respective signatures. The case of In re Larmour (1) is a further decision as to the sanctity of such undertakings. The case of In re an Arranging Debtor (2) upon which Mr. Kingsmill Moore so strongly relies is a case dependent on its special facts and has no applicability. In that case a surety had signed an undertaking, being at the time under the impression that there was to be a second surety. There were good grounds for that belief and the Court of Appeal held that under the circumstances he should not be compelled to sign the composition bills as a sole surety.
This application, therefore, must be refused and the stay on the issue of the warrants will be removed. They will, however, not be issued until Tuesday next.
In re J.H., an Arranging Debtor
[1962] IR 232
Maguire C.J. 232
Supreme Court.
The question for consideration in this appeal is whether the learned Judge of the High Court sitting in bankruptcy properly exercised the discretion given him by s. 353 of the Irish Bankrupt and Insolvent Act, 1857, in overruling the statutory majority of the creditors and refusing to approve of an offer made by the debtor in an arrangement on the ground that it was unreasonable.
A number of cases have been cited as to the principles which should guide the Court in applying the section. Many of these cases were considered in In re C., an Arranging Debtor (1), which is not alone the latest case cited but is a decision of this Court and binding upon us.
The Court laid down that where the proposal of an arranging debtor is accepted by the statutory majority of his creditors it ought to be acted upon by the Court unless there be some specific ground for rejecting it. This had been decided in Fry’s Case (2), which was expressly approved of by all three members of the Court. While no member of the Court purported to make an exhaustive list of the grounds upon which all offer might be rejected as unreasonable a great deal of help is given as to what in general the nature of these grounds may be. Kennedy C.J., at p. 18, says:””I accept it as clear and settled that there must be some specific ground for depriving a debtor, under the clause in sect. 353 relied on here, of the benefit of the statutory provisions which allow him to carry an arrangement with his creditors. I think that such specific ground must be either that the arrangement would work a gross injustice upon the opposing creditors, as in In re Beck (3), so that it would be unreasonable or improper to force them to accept it, or that it offends against the public policy to which the Court should look in exercising discretion in its bankruptcy jurisdiction, that is to say, that the Court should not lend its countenance to a transaction shown to be actually characterised by commercial immorality or dishonesty. Misfortune or imprudence must make the bulk of the ordinary cases for which the system of arrangement has been given statutory sanction. There must be special facts”not merely possibilities or even suspicions” constituting some specific ground upon which the opposing creditors are entitled to rely, or upon which the Court, in the interests of the public, and especially the commercial community, should intervene, to justify the refusal to a debtor and the statutory majority of his creditors of the benefit of an arrangement to be carried out in accordance with the statute.”
Mr. Justice Murnaghan, at p. 29, in somewhat different language expresses the same view. Referring to Pelan’s Case (unreported) he says:””The Court of Appeal, reversing the Recorder of Belfast, approved of a proposal supported by the statutory majority of creditors, on the ground that such a proposal ought to be acted on in the absence of any specific ground for rejecting it. This principle was adopted in In re Fry (1), Barry L.C. stating that the Court could not act upon mere guess or suspicion, but before rejecting such a proposal it should be satisfied on reasonable and proper evidence that the debtor’s conduct had been immoral, reckless, or fraudulent in the incurring of debts, or that the proposal itself was unreasonable.”
In none of these judgments is there more than an indirect reference to the ground that a more substantial dividend would be received by the creditors if the matter is turned into bankruptcy. Even if it had been referred to it would, as in Fry’s Case (1), have been obiter as the Court sanctioned the debtor’s proposal. Where it is mentioned it is only relied upon in conjunction with other grounds. This is so in Gaston’s Case (2), which incidentally is a decision in Northern Ireland and is not binding on this Court. It was not cited to the Court in In re C., an Arranging Debtor (3).The Court there may have been misled into accepting the headnote in Fry’s Case (1) in which it is stated that a specific ground may be that the creditors would get a substantially larger sum if the estate were wound up in bankruptcy. Seeing that in the case the Court reversed the decision of the Recorder and held that the arrangement was reasonable and proper to be executed under the direction of the Court such an opinion, if expressed, would have been obiter. There is nothing in the judgment to justify this part of the headnote beyond an indirect reference to it by Lord Justice Cherry.
In Gaston’s Case (2), however, it is clear that the refusal to sanction the offer duly considered by the creditors was on a number of grounds, amongst others that the creditors who opposed the offer had been denied an inspection of furniture which formed a substantial portion of the estate. As a result Andrews J. obviously considered that the valuation of the estate was not a fair or honest one.
In this case three grounds are relied upon by the learned Judge for refusing his sanction. That upon which most emphasis was laid in his judgment, and pressed by Mr. O’Neill in argument, was that a better offer could have been made and that the creditors would receive substantially more if the estate is wound up in bankruptcy. This, it is submitted, is demonstrable even on the figures placed before the creditors in a circular and in the statement of affairs. It is furthermore urged that there has been a drastic scaling down of the value of the assets as between an earlier date and the preparation of the statement of affairs. This submission was accepted by the learned Judge as was also the submission that there had been an undervalue of the premises. The figures were prepared by a well-known firm of auditors. Non-disclosure is not alleged. There is no allegation of commercial dishonesty, recklessness or fraud. Nor is it alleged that any action had been taken by the debtor, such as that relied upon in Beck’s Case (1). Fry’s Case (2) and In re C., an Arranging Debtor (3)expressly lay it down that guess or suspicion of improper conduct by the debtor are not sufficient. All that is alleged is that he failed fully to explain his figures and how he arrived at them. Even if it were a sufficient ground upon which to exercise the judge’s discretion under s. 353 that a larger dividend would probably be obtained by the creditors if the matter is turned into bankruptcy”and as to this I entertain some doubt”I am clearly of opinion that in this case it is not established that in bankruptcy the creditors would fare better than if they accept the offer. This question is to my mind primarily for business men to solve. They are in a better position to do so than the Court where, as here, all the cards are on the table”nothing being concealed” and it is surely a matter of speculation as to whether estimates of value honestly put forward are below the mark. If the creditors by the requisite majority accept the figures and the estimates it seems to me that their judgment ought normally to be accepted”that is, of course, provided that the debtor’s conduct has been unimpeachable and that it is not proved that he is guilty of immoral, reckless or dishonest conduct. If, which as I said I very much doubt, the terms of the offer may be looked at in relation to the available assets it must be clear that in bankruptcy the creditors would obtain a more substantial dividend. I think, on the figures here presented, that it is very doubtful indeed that they would do so in this case.
The next ground relied upon is that the creditors were influenced by an improper motive in casting their votes and in that they were actuated by benevolence rather than business considerations. The only evidence relied upon for this is that the debtor’s wife’s vote turned the scale. It is said that she must be taken to be influenced by her natural concern for her husband in his difficulties. There is no evidence beyond the fact that she is the debtor’s wife to support this. She is entitled to vote and I cannot see why her vote should in effect be taken away by treating it as given for a wrong motive because of her position as the wife of the debtor.
Another ground pressed is that the basis of the offer is that the debtor should be permitted to retain sufficient assets to enable him to carry on. This again seems to me to be a matter for the creditors. While it is true that this object is obviously in the mind of the debtor and his advisers, it is altogether a matter for the creditors whether they will accept an offer made with this object in mind. They may” and I would say, on the evidence, might reasonably”be satisfied, looking at the matter broadly and in a common-sense and businesslike manner, that they would fare no better on bankruptcy than by accepting the offer made.
I am reluctant to hold that the learned Judge has not properly exercised his discretion in the matter. I am satisfied, however, that no specific ground for refusing to approve of the offer exists. Putting the matters which have influenced Mr. Justice Budd at their highest, they only amount to doubts and suspicions”doubts as to whether the debtor has presented a correct and reliable estimate of his assets and suspicions as to the motive of the creditors. As emphatically stated In re Fry (1) and accepted In re C., an Arranging Debtor (2), doubts or suspicions are not enough to justify the rejection of an offer which has won the approval of a statutory majority of the creditors.
I am of opinion that the order appealed against should be discharged and the case should be remitted to the High Court to appoint another private sitting for the confirmation of the proposal and to proceed therein according to the course of the Courts.
KINGSMILL MORE J. :”
The Irish bankruptcy and insolvency code allows a debtor who is unable to meet his engagements to petition the Court for protection from process. On this being granted he must then endeavour to secure the assent of his creditors to an arrangement whereby he offers a composition upon his debts. A private sitting before the Court is ordered at which creditors may prove. If, of the creditors proving debts to the value of £10 or more, three-fifths in number and value assent to the debtor’s proposal, a second private sitting is ordered: and if, at this second private sitting (at which further creditors may prove), three-fifths in number and value of the £10 creditors agree to accept the proposal to which assent was given at the first private sitting, the Court may affirm and approve of the proposal, and continue the protection granted. If the debtor fails to obtain the requisite majority in number and value the debtor is adjudicated bankrupt. The obtaining of the requisite majority is thus a sine qua non for avoiding bankruptcy. But, even if the majority is obtained, it does not follow that bankruptcy is avoided, for, on various grounds set out in s. 353 of the Act of 1857, the Court may still adjudicate the debtor a bankrupt. The only ground involved in the present case is that “his proposal is not reasonable and proper to be executed under the direction of the Court.”
The arranging debtor in this case obtained at the second private sitting the support to his offer of 102 creditors whose debts totalled £17,070 and was opposed by 31 creditors whose debts came to £7,578. He thus had a large surplus over the required majority in number and a comfortable margin over the required majority in value. Among those voting in favour of the acceptance of the proposal the largest creditor was his wife who proved a debt of £6,000. Without her support he would have failed by a considerable amount to have obtained the necessary majority in value, though he would have had the necessary majority in number. Mr. Justice Budd in the exercise of his discretion refused to approve the debtor’s proposal on the ground that it was not “reasonable and proper to be executed under the direction of the Court.” From his refusal the debtor has appealed to this Court on the ground that the learned Judge misdirected himself in law and fact and exercised his discretion on a wrong basis.
Kennedy C.J. in In re C., an Arranging Debtor (1) said, at p. 18:””I accept it as clear and settled that there must be some specific ground for depriving a debtor, under the clause in sect. 353 relied on here, of the benefit of the statutory provisions which allow him to carry an arrangement with his creditors. I think that such specific ground must be either that the arrangement would work a gross injustice upon the opposing creditors, as in In re Beck (2),so that it would be unreasonable or improper to force them to accept it, or that it offends against the public policy to which the Court should look in exercising discretion in its bankruptcy jurisdiction, that is to say, that the Court should not lend its countenance to a transaction shown to be actually characterised by commercial immorality or dishonesty.” In the same case Murnaghan J. said, at p. 28:””It is neither desirable nor possible to attempt to define in any exhaustive manner what is meant by saying that a proposal is not reasonable and proper to be executed by the Court. A line of authorities since the passing of the Bankrupt and Insolvent Act has laid down that in considering the approval of an arrangement the Court has wide powers both for the protection of the creditors as a whole and for the protection of the public generally. . . . The main and guiding rule is that the Court will approve of the arrangement where the statutory majority of the creditors agree to accept the offer of the arranging debtor, and the Court will refuse to sanction an arrangement approved of by such a majority of the creditors only where such action is necessary for the just protection of the creditors as a whole, or for the necessary protection of the public generally.”
In the present case no question arises of protection of the general public. It is not suggested that the debtor was dishonest or duplicious or that there has been any concealment of assets. There are no grounds for a punitive adjudication. But the learned Judge has found a ground for refusing to approve of the offer which is, substantially, that the offer is not fair and reasonable to the creditors as a whole.
After a careful examination of the debtor’s accounts and statements of affairs he reached the conclusion that the dividend of 4s. 0d. in the £ which was offered was quite inadequate, that a much greater dividend could be paid, and that the creditors would receive more if the matter were administered in bankruptcy. We have had the benefit of a close examination of the accounts, valuations and relevant figures by counsel on both sides and, for myself, I am certainly not prepared to disagree with the learned Judge. If this conclusion be correct it appears to me that the proposal is not fair to the minority creditors, and that it is not reasonable and proper to be executed under the direction of the Court. Such a ground for refusal was recognised as proper by Andrews J. in Re Gaston (1).In In re C., an Arranging Debtor (2), FitzGibbon J., at p. 26, notes as one of the reasons for reversing the trial judge that “Upon the figures it is impossible to believe that the debtor himself could make a more favourable offer, and a merely punitive adjudication would not be to the advantage of any creditor.” In In re Fry (1) Cherry L.J., at p. 281, relied on the fact that “if the arrangement be not carried out, it will most certainly mean loss for all the creditors.”
In most cases it might be assumed with safety that the majority creditors were the best judges of the commercial interests of the creditors as a whole and a Court would be slow to interfere with their business judgment. But, as Mr. Justice Budd has pointed out, this conclusion cannot be safely drawn in the present case. If the vote of the debtor’s wife is excluded the statutory majority in value was not reached. She had an interest in supporting the offer which was peculiarly her own and was not common to”indeed, might be considered to conflict with”that of the other creditors. From motives of affection and loyalty she would support any proposal which prevented her husband from being made a bankrupt; but she also stood to share in any advantage which he might gain in avoiding bankruptcy; and she had the further interest that in an arrangement she would share pari passu, with other ordinary creditors whereas in a bankruptcy the effect of s. 3 of the Married Women’s Property Act, 1882, might be to postpone her claim. There is no doubt that, on the authority of Re J. G. Byrne (2), a Court of first instance was bound to receive her vote, but, as her interest might conflict with, or at least not coincide with, the interests of the creditors as a whole, the weight to be attached to a majority obtained only by the inclusion of that vote is diminished when the question of fairness to the creditors as a whole and consequent reasonableness is to be considered.
The learned Judge also came to the conclusion that the majority creditors had been influenced by benevolence towards the debtor rather than by commercial considerations. The circular letters issued on behalf of the debtor, while perfectly candid, were very able and persuasive pieces of advocacy and made a moving appeal not to force this hundred-year-old firm into bankruptcy. A creditor may be benevolent at his own expense but not at the expense of other and more commercially minded creditors.”Resolutions in order that they may bind the minority must be passed bona fide in the interest of the creditors”:per Jessel M. R. in Ex parte Russell (3). The learned Judge drew his conclusion of benevolence from the fact that in
his opinion the acceptance of the offer was clearly against the monetary interest of the creditors. While I might not have come so clearly to this conclusion myself I do not feel justified in differing from the trial Judge on this point, or in overruling his exercised discretion unless I have a clear opinion that he was wrong: see Ex parte Rogers (1),per Cave J. at p. 450; In re Gaston (2), per Andrews J. at p. 183. I am, therefore, of opinion that the order of the learned Judge should be affirmed.
MAGUIRE J. :”
I am in complete agreement with the judgment of the Chief Justice and I do not feel there is anything I can usefully add.
Re M., an Arranging Debtor
Supreme Court of Judicature.
Court of Appeal.
26 November 1912
[1913] 47 I.L.T.R 26
Barry L.C., Holmes, Cherry L.JJ.
Holmes, L.J.
It has been decided by this Court in several recent cases (videRe an Arranging Debtor, 46 Ir. L. T. R. 289) that the policy of the law is that where the statutory majority of the creditors agree to accept the composition offered by the arranging debtor, the wishes of that majority must prevail over those of the minority unless there has been bad trading or something wrong in the conduct of the debtor.
Barry, L.C., and Cherry, L.J., concurred.
In the Matter of an Arranging Debtor
Supreme Court of Judicature.
Court of Appeal.
17 January 1911
[1911] 45 I.L.T.R 20
Sir Samuel Walker, Bart., L.C.
We are all of opinion that this order cannot stand. This petitioning debtor made a representation to his creditors that he would pay twenty shillings in the pound within sixteen months *20 Influenced by that offer Mr. Gibson’s clients said they would not stand on their judgment mortgage and that they would take the twenty shillings. The arranging debtor was able to pay only two shillings and sixpence in the pound. It is now sought to bind Mr. Gibson’s clients by their proof of debt, but they proved on the basis that they were to get twenty shillings, and in that event they would be bound not to realise their security; but it is contended that they are also bound not to realise though the offer has been reduced to two shillings and sixpence. The letters of Oct. 4th and 6th are all in favour of Mr. Gibson. In my opinion this was not a case of mistake at all—a man should not be bound by a state of facts he never had before his mind. We, therefore, discharge the order and allow the appellants to withdraw their proof.
Holmes, L.J.
It is a mistake to suppose that this case turns upon a question of mistake. In the case of mistake it is admitted that the proof may be withdrawn, but this is not a case of mistake at all, it is a much stronger case. On the facts the creditors are, as a matter of right, entitled to withdraw their proof.
Cherry, L.J., concurred.
Re Molesworth, a Bankrupt
Supreme Court of Judicature.
Court of Appeal.
31 October 1912
[1913] 47 I.L.T.R 17
Barry L.C., Holmes, Cherry L.JJ.
Barry, L.C.
This is a very important question, and undoubtedly the order made by the learned judge was one very much in his discretion, depending not only on what was proved by the documents in the case, but on the evidence given before him. He came to the conclusion that the arrangement proposed was not a reasonable one within the meaning of the statute, and that it ought not to be executed under the direction of the Court. The learned judge gave a very short judgment, in which he refrained from saying anything that would prejudice the future investigation of the matter, and this Court is not disposed to say anything that could have such an effect. Speaking generally, the case is a very peculiar one, scarcely precedented in its circumstances. It is a very surprising thing to find a gentleman in a position worth only £300 a year engaging in Stock Exchange transactions to such an extent as the debtor had done during a time in regard to which the Court is left wholly uninformed as to the condition of his banking account. The counsel for the appellant had admitted that if the secured and partially secured creditors were excluded from the calculation there would not be the requisite statutory majority in support of the arrangement. The money dealings between the debtor and his wife; the dealings with Mr. Shannon, his partner in some of the Stock Exchange speculations, were transactions requiring investigation in order that the full situation might be disclosed. The appeal must be refused and the order of Mr. Justice Boyd affirmed.
Holmes, L.J.
One of the reasons why I find great difficulty in differing from Mr. Justice Boyd is that I do not know the grounds of his decision; another is that we have not got a single note or line of the evidence given by the debtor, who had been fully examined and cross-examined in the Court below. It would be very difficult for me, in these circumstances, to reverse the Judge of first instance. To come to what we really know about the case, there are two creditors, stockbrokers, to whom nearly £3,000 is due, who strongly oppose the arrangement. The transactions between these stockbrokers and the debtor appear to have been perfectly legitimate. Up to a comparatively recent time he paid them when he lost, and they paid him when he won. A short time ago he was not able to pay either of these gentle *18 men, and one of them was obliged to bring an action against him. That action was resisted by the debtor in overy possible way. The Gaming Act was pleaded, and everything was done for the purpose of having the case tried before a special jury. The case was ultimately listed for trial before a judge without a jury, and at the last moment the debtor did not appear at all. If the debtor was a person without money I cannot understand why he should for twelve months have spent large sums in that litigation instead of simply allowing judgment to go against him. Then there are money transactions between the debtor and his wife which are peculiar and difficult to understand. On one or two occasions he gave her money amounting in the aggregate to over £1,000. Further, we have the fact that Mr. Shannon, who had been acting in partnership with the debtor, was a large creditor, partly secured, and that without Mr. Shannon’s vote the debtor could not have obtained the necessary majority. In these circumstances I think we would not be justified in allowing this appeal.
Cherry, L.J., concurred.