PIA Course
Personal Insolvency Act 2012
Effect of Personal Insolvency Arrangement.
116.— (1) Upon a Personal Insolvency Arrangement being registered in the Register of Personal Insolvency Arrangements it shall have effect according to its terms and remain in effect until—
(a) it is completed in accordance with its terms or the terms of any variation made, or
(b) it is terminated in accordance with this Chapter.
(2) While a Personal Insolvency Arrangement is in effect, the following shall be parties to it and, subject to this Act, shall be bound by its terms—
(a) the debtor, and
(b) in respect of every specified debt, the creditor concerned.
(3) Where a Personal Insolvency Arrangement is in effect, a creditor who is bound by it shall not, in relation to a specified debt—
(a) initiate any legal proceedings;
(b) take any step to prosecute legal proceedings already initiated;
(c) take any step to secure or recover payment;
(d) execute or enforce a judgment or order of a court or tribunal against the debtor;
(e) take any step to enforce security held by the creditor;
(f) take any step to recover goods in the possession or custody of the debtor (whether or not title to the goods is vested in the creditor or the creditor has security over the goods);
(g) contact the debtor regarding payment of the specified debt otherwise than at the request of the debtor;
(h) in relation to an agreement with the debtor, including a security agreement, by reason only that the debtor is insolvent or that a Personal Insolvency Arrangement is in effect—
(i) terminate or amend that agreement, or
(ii) claim an accelerated payment under that agreement.
(4) Where a Personal Insolvency Arrangement is in effect, a creditor of that debtor shall not apply for the issue of a summons under section 8 of the Bankruptcy Act 1988 or present a petition to have the debtor concerned adjudicated a bankrupt in respect of a debt covered by the Personal Insolvency Arrangement.
(5) Where a Personal Insolvency Arrangement is in effect, and a creditor of that debtor has applied for the issue of a summons under section 8 of the Bankruptcy Act 1988 or has presented a petition to have the debtor concerned adjudicated a bankrupt in respect of a debt covered by the Personal Insolvency Arrangement, the creditor shall not proceed with the summons or the petition.
(6) Nothing in subsections (3) and (4) shall operate to prevent a creditor taking the actions referred to in that subsection as respects a person who has jointly contracted with the debtor or is jointly liable with the debtor to the creditor and that other person may sue or be sued in respect of the contract without joining the debtor.
(7) Subsection (6) does not apply where a Personal Insolvency Arrangement is also in effect as respects the other person.
(8) In reckoning any period of time for the purpose of any applicable limitation period in relation to any proceedings or process to which this section applies (including any limitation period under the Statute of Limitations 1957), the period in which the Personal Insolvency Arrangement is in effect shall be disregarded.
(9) The period for which any judgment against the debtor in relation to a debt which is the subject of a Personal Insolvency Arrangement has effect (whether under statute or rule of court) shall subject to the provisions of this Act be extended by the period that the Personal Insolvency Arrangement is in effect.
(10) Notwithstanding subsections (3) and (4), the fact that a Personal Insolvency Arrangement is in effect in relation to a debtor under this Chapter shall not operate to prevent a creditor taking the actions referred to in subsection (3) or (4) as respects another person who has guaranteed the specified debts concerned.
(11) The Deeds of Arrangement Act 1887 does not apply to a Personal Insolvency Arrangement.
(12) In this section, “specified debt” means a debt that is specified in a Personal Insolvency Arrangement as being subject to that Arrangement.
Operation of terms of Personal Insolvency Arrangement.
117.— (1) Subject to the provisions of this section, a Personal Insolvency Arrangement shall operate according to its terms and the debtor and creditors concerned shall perform their obligations in accordance with the Arrangement.
(2) Unless otherwise provided by the Personal Insolvency Arrangement payments to be made to creditors under the terms of the arrangement shall be made by the debtor through the personal insolvency practitioner concerned.
(3) The personal insolvency practitioner shall transmit payments received to each of the creditors in the agreed proportion on a timely basis.
(4) The personal insolvency practitioner shall maintain regular contact with the debtor and request such reports and conduct such reviews as may be required, but such review shall in any event be carried out at least once in every period of 12 months.
(5) The personal insolvency practitioner shall monitor implementation of the Arrangement and where the debtor has defaulted or appears likely to default in his or her obligations under the Arrangement, discuss the matter with the debtor.
(6) Where the circumstances of the debtor have changed in a material respect the personal insolvency practitioner shall provide information to the debtor regarding his or her right or obligation to initiate an application to vary the Arrangement in accordance with section 119 .
(7) Where the circumstances of a debtor have changed to such an extent that a variation in the terms of an Arrangement is appropriate, the personal insolvency practitioner shall take the necessary steps to initiate a variation of the Arrangement under section 119 .
(8) The personal insolvency practitioner shall deal with the property of the debtor in accordance with the Personal Insolvency Arrangement.
(9) The personal insolvency practitioner shall respond in a timely manner to requests for information regarding the operation of the Arrangement from—
(a) the Insolvency Service,
(b) the debtor, and
(c) the creditors.
(10) The personal insolvency practitioner shall maintain complete and accurate records of account of the moneys received from the debtor and the moneys disbursed to the creditors and such moneys shall while in the possession and control of the personal insolvency practitioner be maintained in an account in the State with a bank authorised to carry on business in the State, which account is used solely for the purposes of receiving payments from the debtor and transmitting such payments to creditors (after the deduction of any fees, costs and outlays payable to the personal insolvency practitioner permitted to be made under this Act and in accordance with the Personal Insolvency Arrangement).
General duties and obligations of debtor arising under Chapter 4.
118.— (1) A debtor who participates in any process under this Chapter is under an obligation to act in good faith, and in his or her dealings with the personal insolvency practitioner concerned to make full disclosure to that practitioner of all of his or her assets, income and liabilities and of all other circumstances that are reasonably likely to have a bearing on the ability of the debtor to make payments to his or her creditors.
(2) A debtor who participates in any part of the process of applying for or operating a Personal Insolvency Arrangement shall co-operate fully in the process, and in particular comply with any reasonable request from the personal insolvency practitioner to provide assistance, documents and information necessary for the application of the process to the debtor’s case or the carrying out of the personal insolvency practitioner’s functions, including any debt, tax, employment, business, social welfare or other financial records.
(3) A debtor in respect of whom a Personal Insolvency Arrangement is in effect is under an obligation to inform the personal insolvency practitioner as soon as reasonably practicable of any material change in the debtor’s circumstances, particularly an increase or decrease in the level of the debtor’s assets, liabilities or income, which would affect the debtor’s ability to make repayments under the Personal Insolvency Arrangement.
(4) A debtor in respect of whom a Personal Insolvency Arrangement is in effect shall not, either alone or with any other person, obtain credit in an amount of more than €650 from any person without informing that person that he or she is subject as a debtor to a Personal Insolvency Arrangement.
(5) A debtor in respect of whom a Personal Insolvency Arrangement is in effect shall not transfer, lease, grant security over, or otherwise dispose of any interest in property above a prescribed value otherwise than in accordance with the terms of the Personal Insolvency Arrangement.
(6) A debtor shall inform the personal insolvency practitioner as soon as reasonably practicable after becoming aware of any inaccuracy or omission in the debtor’s statement of affairs based on the Prescribed Financial Statement.
(7) A debtor who participates in a Personal Insolvency Arrangement shall not pay to creditors any additional payments separate to the Personal Insolvency Arrangement in respect of debts covered in the Personal Insolvency Arrangement.
Variation of a Personal Insolvency Arrangement.
119.— (1) Subject to this section a variation of a Personal Insolvency Arrangement shall be made in accordance with the terms of the Personal Insolvency Arrangement.
(2) The debtor’s written consent shall be required to any variation of a Personal Insolvency Arrangement provided that any unreasonable refusal by the debtor to consent to a variation shall be subject to challenge in accordance with section 120 .
(3) A debtor shall be considered to be acting reasonably where the debtor refuses to consent to a variation of a Personal Insolvency Arrangement where that variation would require the debtor—
(a) to make additional payments in excess of 50 per cent of the increase in his or her income available to him or her after the following deductions (where applicable) are made:
(i) income tax;
(ii) social insurance contributions;
(iii) payments made by him or her in respect of excluded debts;
(iv) payments made by him or her in respect of excludable debts that are not permitted debts;
(v) such other levies and charges on income as may be prescribed,
or
(b) to make a payment amounting to more than 50 per cent of the value of any property acquired by the debtor after the coming into effect of the Personal Insolvency Arrangement unless receipt of that property had been anticipated by the terms of that arrangement.
(4) In order that a variation of a Personal Insolvency Arrangement take effect, in addition to the consent in writing of the debtor referred to in subsection (2), the variation shall be approved at a creditors’ meeting where—
(a) a majority of creditors representing not less than 65 per cent of the total amount of the debtor’s debts remaining 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.
(5) Where a variation is approved in accordance with subsection (4) such variation shall, subject to the provisions of this Act, be binding on every creditor who was entitled to vote at the creditors’ meeting.
(6) The procedures and other steps to be taken by the personal insolvency practitioner and the Insolvency Service pursuant to sections 109 to 115 shall apply to the variation of a Personal Insolvency Arrangement and the reference in those sections to a Personal Insolvency Arrangement shall for the purposes of a variation of a Personal Insolvency Arrangement be construed as referring to such variation.
(7) Unless otherwise specified in the terms of a Personal Insolvency Arrangement, the debtor or any creditor may require the personal insolvency practitioner to call a creditors’ meeting under this section to consider a variation to the Personal Insolvency Arrangement on the basis that there has been a material change in the debtor’s circumstances, in particular as respects an increase or decrease in the extent of the debtor’s assets, liabilities or income, which would affect the debtor’s ability to make payments under the Personal Insolvency Arrangement.
(8) For the purposes of voting at a creditors’ meeting the voting rights of creditors shall be the same as those applying at the creditors’ meeting to consider a proposal for a Personal Insolvency Arrangement unless the debt due to the creditor concerned is considered to have been discharged under the terms of the Personal Insolvency Arrangement at the date of the calling of the creditors’ meeting to consider the variation.
(9) For the purposes of subsection (4)(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 on which the vote takes place,
whichever is the lesser.
(10) A reference in this Chapter to a Personal Insolvency Arrangement shall be construed as including such an arrangement as varied in accordance with this section.
Grounds of challenge by creditor to coming into effect or variation of Personal Insolvency Arrangement.
120.— The grounds on which a Personal Insolvency Arrangement may be challenged by a creditor under section 114 are, without prejudice to section 122 , limited to the following matters:
(a) that the debtor has by his or her conduct within the 2 years prior to the issue of the protective certificate under section 95 arranged his or her financial affairs primarily with a view to being or becoming eligible to apply for a Debt Settlement Arrangement or a Personal Insolvency Arrangement;
(b) the procedural requirements specified in this Act were not complied with;
(c) a material inaccuracy or omission exists in the debtor’s statement of affairs (based on the Prescribed Financial Statement) which causes a material detriment to the creditor;
(d) the debtor, when the Personal Insolvency Arrangement was proposed, did not satisfy the eligibility criteria specified in section 91 ;
(e) the Personal Insolvency Arrangement unfairly prejudices the interests of a creditor;
(f) the debtor has committed an offence under this Act, which causes a material detriment to the creditor;
(g) the debtor had entered into a transaction with a person at an undervalue within the preceding 3 years that has materially contributed to the debtor’s inability to pay his or her debts (other than any debts due to the person with whom the debtor entered the transaction at an undervalue);
(h) the debtor had given a preference to a person within the preceding 3 years that had the effect of substantially reducing the amount available to the debtor for the payment of his or her debts (other than a debt due to the person who received the preference).
Excessive pension contributions.
121.— (1) Where, as respects a debtor who has entered into a Personal Insolvency Arrangement which is in force, a creditor or the personal insolvency practitioner concerned considers that a debtor has made excessive contributions to a relevant pension arrangement, the creditor or personal insolvency practitioner may make an application to the appropriate court for relief in accordance with this section.
(2) The reference to the debtor having made contributions to a relevant pension arrangement shall be construed as a reference to contributions made by the debtor at any time within 3 years prior to the making of the application for a protective certificate on behalf of the debtor under section 93 .
(3) Where the appropriate court considers that having regard in particular to the matters referred to in subsection (4) the contributions to a relevant pension arrangement were excessive it may—
(a) direct that such part of the contribution concerned (less any tax required to be deducted) be paid by the person administering the relevant pension arrangement to the personal insolvency practitioner for distribution amongst the creditors of the debtor, and
(b) make such other order as the court deems appropriate, including an order as to the costs of the application.
(4) The matters referred to in subsection (3) as respects the contributions made by the debtor to a relevant pension arrangement are:
(a) whether the debtor made payments to his or her creditors in respect of debts due to those creditors on a timely basis at or about the time when the debtor made the contribution concerned;
(b) whether the debtor was obliged to make contributions of the amount or percentage of income as the payments actually made under his or her terms and conditions of employment and if so obliged, whether the debtor or a person who as respects the debtor is a connected person could have materially influenced the creation of such obligation;
(c) the amount of the contributions paid, including the percentage of total income of the debtor in each tax year concerned which such contributions represent;
(d) the amount of the contributions paid, in each of the 6 years prior to the making of the application for a protective certificate on behalf of the debtor under section 93 including the percentage of total income of the debtor concerned which such contributions represent in each of those years;
(e) the age of the debtor at the relevant times;
(f) the percentage limits which applied to the debtor in relation to relief from income tax for the purposes of making contributions to a relevant pension arrangement in each of the 6 years prior to the making of the application for a protective certificate on behalf of the debtor under section 93 ; and
(g) the extent of provision made by the debtor in relation to any relevant pension arrangement prior to the making of the contributions concerned.
Application to appropriate court to have Personal Insolvency Arrangement terminated.
122.— (1) Without prejudice to section 120 , a creditor or a personal insolvency practitioner may, as respects a Personal Insolvency Arrangement, at any time during which the arrangement concerned is in effect, apply to the appropriate court to have that Personal Insolvency Arrangement terminated, and such application shall be limited to the following grounds:
(a) a material inaccuracy or omission exists in the debtor’s Prescribed Financial Statement which causes a material detriment to the creditor;
(b) the debtor, when the Personal Insolvency Arrangement was proposed, did not satisfy the eligibility criteria specified in section 91 ;
(c) the debtor did not comply with the duties and obligations imposed on him or her under the Personal Insolvency Arrangement process;
(d) the debtor has since the coming into effect of the Personal Insolvency Arrangement been convicted of an offence under this Act;
(e) the debtor is in arrears with his or her payments for a period of not less than 3 months;
(f) the debtor has failed to carry out any action necessary to enable a term of the Personal Insolvency Arrangement to have effect;
(g) the debtor has unreasonably refused to consent to a variation of the Personal Insolvency Arrangement.
(2) For the purposes of subsection (1)(e), a debtor is in arrears with his or her payments for a period of not less than 3 months where—
(a) at the beginning of the 3 month period ending immediately before the day on which the application was made, one or more than one payment in respect of the debts became due and payable by the debtor under the Personal Insolvency Arrangement, and
(b) at no time during that 3 month period were any obligations in respect of those payments discharged.
(3) On hearing an application under subsection (1) the appropriate court may—
(a) dismiss the application,
(b) terminate the Personal Insolvency Arrangement, or
(c) order that the personal insolvency practitioner prepare a proposal for a variation of the arrangement in accordance with section 119 .
Personal Insolvency Arrangement deemed to have failed after 6 month arrears default.
123.— (1) Where the debtor is in arrears with his or her payments for a period of 6 months the Personal Insolvency Arrangement shall be deemed to have failed and shall terminate where the personal insolvency practitioner notifies the Insolvency Service and the debtor of such default.
(2) For the purposes of subsection (1), a debtor is in arrears with his or her payments for a period of 6 months on a given date if—
(a) at the beginning of the 6 month period ending immediately before that date, one or more than one payment in respect of a debt became due and payable by the debtor under the Personal Insolvency Arrangement, and
(b) at no time during that 6 month period were any obligations in respect of those payments discharged.
(3) Where the Insolvency Service receives a notification of default referred to in subsection (1), it shall record the failure of the Personal Insolvency Arrangement in the Register of Personal Insolvency Arrangements.
Effect of premature termination of Personal Insolvency Arrangement on debts.
124.— (1) Subject to subsection (2), where a Personal Insolvency Arrangement has been deemed to have failed or has terminated under this Chapter, the debtor shall thereupon be liable in full for all debts covered by the Personal Insolvency Arrangement (including any arrears, charges and interest that have accrued during the continuance of the Personal Insolvency Arrangement but excluding any amounts paid in respect of those debts during the continuance of the Personal Insolvency Arrangement), unless—
(a) the terms of the Personal Insolvency Arrangement provide otherwise; or
(b) the appropriate court has made an order otherwise.
(2) Subsection (1) has effect without prejudice to the validity of any act done or property disposed of in accordance with the Personal Insolvency Arrangement.
Successful completion of Personal Insolvency Arrangement.
125.— (1) Upon the expiration of the Personal Insolvency Arrangement, and where the debtor concerned has complied with his or her obligations under the Personal Insolvency Arrangement, the personal insolvency practitioner shall notify the debtor, creditors and the Insolvency Service.
(2) Where the debtor has complied with his or her obligations under the Personal Insolvency Arrangement, subject to the provisions of section 99 (2), and 102 (3) and (7) the debtor stands discharged from the unsecured debts specified in the Personal Insolvency Arrangement.
(3) Where the debtor has complied with his or her obligations under the Personal Insolvency Arrangement, the debtor shall not stand discharged from the secured debts covered by the Arrangement except to the extent specified in the Personal Insolvency Arrangement.
(4) Where the Insolvency Service receives the notice referred to in subsection (1), it shall record the successful completion of the Personal Insolvency Arrangement in the Register of Personal Insolvency Arrangements.
Cases
Re: Enright (a debtor)
[2018] IEHC 314 (31 May 2018)
JUDGMENT of Ms. Justice Baker delivered on the 31st day of May, 2018
1. This judgment is directed to the difference between an “amended” proposal for the purposes of s. 111A(3) of the Personal Insolvency Act 2012 to 2015 (“the Act”) and a “modification” for the purposes of s. 111A(5). The distinction is of some consequence, as where a proposed Personal Insolvency Arrangement (“PIA”) has been amended, the time limit for the service by a creditor of an objection to the proposed PIA is enlarged.
2. Section 111A of the Act, as inserted by s. 15 of the Personal Insolvency (Amendment) Act 2015, commenced by SI 414 of 2015, governs engagement by a PIP where a debtor has only one relevant creditor entitled to vote on a proposed PIA. This amending section replaces the procedures set out in ss. 106, and 108 to 111 of the Act of 2012 by obviating the need, in those circumstances, for the holding of a formal meeting of creditors.
3. The general procedure provided by s. 111A(2)(a) requires the PIP to:
“give written notice to the creditor that the proposal for a Personal Insolvency Arrangement has been prepared and that the creditor may, within [14 days of the giving to him or her of such notice], notify the personal insolvency practitioner in writing of his or her approval or otherwise of that proposal”.
4. The PIP, in addition to giving notice of the proposal for a PIA, must furnish the creditor with the documents identified in s. 107 of the Act, including a statement of the debtor’s financial affairs in the form of a prescribed financial statement (“PFS”), the terms of the proposal for a PIA, together with a report of the PIP describing the outcome for creditors and expressing a view that the proposal PIA represents “a fair outcome for the creditors” and how that outcome differs from the likely outcome in bankruptcy, and indicating that he or she considers that the debtor is reasonably likely to comply with the terms of the proposed PIA.
5. These documents must be served also on the Insolvency Service of Ireland (“ISI”).
6. Section 111A(6) makes provision for the response by a single creditor by which it indicates “approval or otherwise” of a proposed PIA within the time limits therein provided:
“A creditor to whom this section applies shall notify the personal insolvency practitioner in writing of his or her approval or otherwise of a proposal for a Personal Insolvency Arrangement within —
(a) 14 days of the giving to him or her of the notice under subsection (2), or
(b) if later, 7 days of the date on which a notice under subsection (4)(a) is first given to him or her.”
7. Section 111A(7)(b) of the Act makes provision for a stark result so that, if a single creditor fails to notify an objection within the statutory time limit, the proposed PIA is deemed to have been approved by the creditor concerned.
The present appeal
8. This is an appeal from an order of Judge Lambe made on 24 May 2017, by which she determined that certain alterations made to the proposed PIA of the debtor were amendments to which the provisions of s. 111A(3) applied, and that the extended time period provided by s. 111A(6)(b) applied to the proposal.
9. Whether this conclusion was correct depends on the correctness of her finding that a second document sent by the PIP was, in truth, an amended PIA. If the second proposed PIA was an amended PIA, the proposed PIA fails, subject only to a possible application by the debtor under s. 115A(9) of the Act. If the second proposed PIA was a modification, the proposed PIA is deemed to have been approved by the single creditor.
10. The judgment also deals with the appeal of an identical order of the Circuit Court judge in respect of the wife of the debtor, Patricia Enright, an interlocking debtor (Record No. 2017 160 CA).
Material dates
11. On 13 October 2016 a Protective Certificate issued to the debtor in accordance with s. 95(2)(a) of the Act. On 4 November 2016, proof of debt was served by Capita Asset Services (Ireland) Limited (“Capita”), the duly authorised loan management agent on behalf of ACC Loan Management DAC (“ACC”).
12. The PIP, Mr. Colm Arthur, made a proposal for a PIA (“the first proposed PIA”) in respect of Mr. and Mrs. Enright and on 7 December 2016, in performance of his obligations under s. 111A(2), the PIP sent the proposal to ACC.
13. The first proposed PIA contained a number of inconsistencies which were clarified in a telephone communication on 14 December 2016, between the PIP and Ms. Jackie Sheridan of the Debt Solutions Department of Capita. In particular, the creditor had sought confirmation as to whether the proposed term of the PIA was 24 or 72 months, as both terms had been included in the proposal. The creditor also clarified the extent of its security interests and that ACC already held a second charge or an extension of an existing charge over the principal private residence of the debtors. No discussion was had between the PIP and the agent of the creditor with regard to the treatment of a small plot of land which is central to this judgment. For ease, I will refer to this land as “the small plot”.
14. On 16 December 2016, following the telephone conversation, a second proposed PIA (“the second proposed PIA”) was prepared and served on Capita.
15. No response for the purposes of s. 111A(6)(a) was served within the 14 day time limit provided therein, and the PIP therefore treated the proposed PIA as having been approved on 21 December 2016 by virtue of s. 111A(7)(b), and thereafter issued a “Notice of Outcome” to the creditor in accordance with the statutory procedures.
The basis of objection
16. The creditor brought an application pursuant to s. 112(3) of the Act, objecting to the coming into force of the second proposed PIA on the grounds that time had not run against it for the purposes of the Act, as an amended proposal had been served within the meaning of s. 111A(3) and the time for delivery of the vote of the creditor had been extended for a period of seven days in accordance with s. 111A(6)(b).
The facts on which the creditor bases its objection
17. Three factual changes were identified by the creditor in the Circuit Court. The first concerned the term of the proposed PIA as in different parts of the statutory form “24 months” and “72 months” were mentioned. The second related to the nature of the security. These first two ambiguities were clarified and the proposal amended. The Circuit Court rejected the argument of the creditor that the second proposed PIA was, on account of the correction of these errors, to be considered to be an amendment. That ground of objection is no longer maintained.
18. The ground on which the creditor argues that the second proposed PIA was an amended PIA governed by s. 111A(3) concerns the details of the small plot, an asset comprising 0.1322 hectare of land, circa 0.33 acres, in the joint names of the debtors and held free from encumbrances, and in respect of which the creditor argued, and the Circuit Court accepted, the second proposed PIA provided for a different treatment amounting to an amendment.
19. The ownership of the small plot was disclosed by each of the debtors in their respective PFS, in the case of Mr. Enright, on p. 6 of his PFS, and in the case of Mrs. Enright, on p. 8 of hers.
20. In an email of 25 November 2016, and before the first proposed PIA was prepared, ACC had indicated its intention to rely on its security over two named folios: the principal private residence of the debtors (folio WH20718F) and lands at a different address (folio WH12726) with a value of €30,000. The small plot was not mentioned in this email as it was not held by ACC as security and the purpose of the letter was to identify the intentions of ACC regarding its security.
21. On 6 December 2016, following the creditor’s request under s. 105(3) of the Act which allows the PIP, the debtor, or the relevant secured creditor, to “appoint an appropriate independent expert to determine the market value for the security”, DNG Duncan was appointed to value the secured assets, and their report valued the small plot at €6,000. In her affidavit, Ms. Sheridan avers that it was only on 6 December 2016, when she received the valuation from DNG Duncan, that she became aware of the plot of land in question, what she describes as “a further asset”.
22. The PIP then prepared the first proposed PIA, and the small plot was described in the schedule of assets, at p. 36 thereof, by reference to its value of €6,000, but not designated otherwise with an address or folio number, but as “0” (or perhaps the capital letter “O”). As the land was not held as security, it did not thereafter appear in the proposal, as the statutory form does not provide for further reference to unsecured assets unless it is intended to treat them for the purpose of the PIA.
23. In the second proposed PIA, a narrative was added specifically referable to the small plot. This text reads as follows:
“The debtor and his wife own 0.1322 Hectares of land, less than 1/3 of an acre which is unencumbered. This piece of land is landlocked with no road entrance and is therefore unsaleable. This piece of land is to be retained as part of the debtor’s horse enterprise.”
It is that addition in the second proposed PIA which ACC seeks to characterise as an “alteration” within the meaning of s. 111A(3).
Arguments of counsel
24. The debtor argues that the second proposed PIA was not an amended proposal but that the alterations were modifications rectifying an error or addressing an ambiguity in the first proposal. That proposition is accepted with regard to the discrepancy found regarding the length of the proposed PIA and the nature of the security, and counsel argues that a similar treatment ought to be afforded to the addition of the narrative regarding the proposed retention of the small plot, and that no amendment was made within the meaning of s. 111A(3).
25. Counsel for the creditor argues, on the other hand, that the second proposed PIA did contain an alteration within the meaning of s. 111A(3) in that it made for the first time a proposal as to the treatment of the debtor’s ownership in the unencumbered plot, i.e. that it be retained as part of the debtor’s horse enterprise. It is argued that in the first proposed PIA no treatment whatsoever was proposed, and that no error was corrected. It is further argued that no ambiguity had been identified either by the creditor or the PIP which needed to be clarified, and that accordingly, the second proposed PIA was a new or amended proposal in respect of which the creditor had a further seven days in which to respond.
26. It is also argued by the creditor that to be a rectification or a modification, the error or ambiguity must be “minor”, not in the sense that the difference must be small with regard to the value of an asset, but “minor” in the sense that it is not material.
The correction of errors and the clarification of ambiguities
27. A proposed PIA may contain errors or ambiguities or require for one reason or another to be rectified. The need to amend or rectify can arise in the normal course because an error which is no more than a typographical or calculation error might have been discerned, or because an element of the proposed PIA lacks clarity. In that case, the PIP has power from s. 111A(5) to modify a proposed PIA “where the modification addresses an ambiguity or rectifies an error”. The circumstances in which this can occur are set out in s. 111A(5) as follows:
“A proposal for a Personal Insolvency Arrangement may, before the creditor has notified the personal insolvency practitioner of his or her approval or otherwise of the proposal, be subject to a proposal for a modification where the modification addresses an ambiguity or rectifies an error in the proposed Personal Insolvency Arrangement and where —
(a) the modification has been proposed by the creditor or the personal insolvency practitioner, and
(b) the debtor gives his or her written consent to the modification.”
Amendments to a proposed PIA
28. However, a perceived need to change a proposal may arise following further consideration by the PIP of an intended proposal where, for example, after consultation with one or more creditors, the PIP forms a view that an alternative proposal is more likely to be acceptable, or where a third party has come forward and offers to make available a lump sum to assist in the resolution of the insolvent debtor’s financial affairs. The PIP may then need to alter a proposed PIA, for which provision is made in s. 111A(3):
“A personal insolvency practitioner who has complied with subsection (2) may, where he or she believes it is in the interests of obtaining approval of a proposed Personal Insolvency Arrangement by the creditor and with the consent in writing of the debtor, prepare an amended proposal for a Personal Insolvency Arrangement.”
29. The preparation of an amended proposal occurs only when the PIP believes that an amendment is likely to result in approval by the single creditor of the proposal, or might alleviate or fully deal with concerns expressed by the single creditor, or even arising by implication from observations or informally made objections.
30. Thus, an amendment of a proposal for a PIA is envisaged by the Act as arising following a discourse or further consideration by the PIP of the proposals, perhaps in the light of new information obtained from the debtor, or information gleaned by the PIP from other sources, including perhaps decided cases, or other applications in which the PIP has been involved or in which a particular observation or objection has been rejected or upheld. The amendment must be made in the light of a belief by the PIP that that amendment is likely to make the proposed PIA more attractive to a creditor.
31. The amendment of a proposal is not permitted merely on account of a desire on the part of the debtor to amend the proposed PIA, and the PIP must exercise his or her own personal and reasoned judgment in coming to a belief that the amendment is likely to be positively received before the PIP may avail of the provisions of s.111A(3).
32. Two statutory provisions exist by which a creditor may make formal submissions regarding the treatment of its debt, or give an indication as to its preference as to how it wishes to have a security and secured debt treated before the PIA is formulated. Section 98 is to be triggered, and permits the general body of creditors to make submissions. Section 102 envisages that a secured creditor would indicate a preference as to its preferred outcome. In either case, the PIP is obliged by statute to have regard to these formal submissions or indications of preference. It is essential, therefore, that the PIP have the capability to make alterations or clarify ambiguous or incorrect entries in the proposal before it is submitted to a vote or for consideration by a single creditor.
33. Section 111A(3) was inserted by the Oireachtas to deal with the circumstance where a PIA is prepared without any prior indication of preferred treatment of a creditor, and enables the PIP to formulate an amended proposal after discussions have led him or her to a view that an amended proposal was likely to be accepted.
34. This restriction on the ability of a PIP to reformulate a proposal is consistent with the purpose of the Act that resolution of indebtedness be done in an “orderly” manner (see recital to the Act of 2012 and In Re Nugent [2016] IEHC 127) and also, is necessary in the light of the strict and short time limits within which the process is intended to be completed. A long and fluctuating process could not be readily justified in the light of the statutory protection from action by creditors during the period of protection, and a debtor may not unduly prolong the considerable benefit that such protection affords by unnecessarily seeking to alter the proposals, as the making of an alteration is the decision of the PIP on a reasoned expectation of obtaining approval from creditors.
35. Simple clarification or rectification of an error of a PIA does not require that the PIP have formulated a view that the modification or rectification of an error is likely to lead to acceptance by a creditor, and the mere modification of a PIA for the purposes of clarification or rectification requires a much less onerous procedure.
Consideration of the statutory meaning
36. An alteration or modification of a proposed PIA must fall to be characterised either as an amendment for the purposes of s. 111A(3) or a modification for the purposes of section 111A(5). The making of provision for the correction of clerical errors or addressing an ambiguity is logical and practical and can benefit of both parties.
37. It seems to me that the Oireachtas did not intend that the provisions of s. 115A(3) or (5) were to be distinguished on account of the monetary value of an asset. Rather, it seems that the Oireachtas intended a rectification or modification to be permissible to correct something obviously incorrect or unclear, and that the change would not be material.
38. If the correction of an error results in, for example, a material change in the income or liabilities of a debtor, the change could be sufficiently material to amount to an amendment. If the correction is merely made to correct an ambiguity in the document itself, the alteration does not change the proposal but, rather, is a modification made so that the proposed PIA is clearer.
The principles of statutory interpretation
39. Counsel for the creditor relies on the rule of statutory interpretation expressio unius est exclusio alterius and the interpretation of that maxim by Laffoy J. in O’Connell v. An t’árd Chláraitheoir [1997] 1 IR 377:
“In my view, the grammatical or linguistic meaning of the definition of ‘occupier’ in s. 38 is quite clear and unambiguous and the words ‘or his agent’ do not relate back to the first limb and the first limb stands on its own. Secondly, in my view, the ejusdem generis principle has no application in the construction of the first limb: the first limb does not postulate a narrow genus followed by wider words. In my view, the canon of construction which comes into play in construing the first limb is the maxim expressio unius est exclusio alterius (to express one thing is to exclude another). It is obvious that the draftsman doubted that the word ‘occupier’ in its ordinary meaning would include the various officials of public institutions mentioned in s. 38 and he expressly included them in the definition. The draftsman having expressly included the named officials, it must be implied that other officials and employees of such public institutions are excluded.”
40. It is argued that, as s. 111A(5) identifies two limited circumstances, namely the clarification of an ambiguity or the rectification of an error, all other alterations must be amendments within the meaning of section 111A(3).
41. I agree, and I consider that the Oireachtas intended the use of the less onerous s. 111A(5) procedure only when an alteration is a clarification of something that is not clear or the correction of an error, where the error is likely to confuse or make it difficult to reconcile one part of the proposal with another, or to elucidate and avoid confusion.
42. An error for the purposes of s. 111A(5) is to be treated as equivalent to an amendment where, for example, the value of an asset or the amount of income or liabilities are altered. The change must alter the proposal in some material way, by alerting the description or value of the assets or liabilities, the proposed treatment of the asset, or other solution to the insolvency.
43. In the light of these considerations I turn now to analyse the two versions of the PIA and whether the addition of the narrative concerning the small plot means that there was alteration in the second proposed PIA within the meaning of section 111A(3).
The standard terms of a PIA: discussion
44. Clause 6 of the second proposed PIA deals with the “Arrangement Assets” and is the focus of the argument made by the objecting creditor. The standard PIA requires at clause 6.1 the identification of any assets proposed to be sold by the debtor, and this subject line was marked “N/A” not applicable. Clause 6.1.2, under the heading “Assets other than secured arrangement assets”, and at 6.2, under the heading “transfer of assets to creditors” were also marked “N/A”.
45. Clause 6.3, under the heading “other treatment”, was blank in the first proposed PIA, and there was no entry regarding the small plot. The second proposed PIA contained the narrative that explained that the debtor and his wife intended to retain the small plot of land as part of the debtor’s horse enterprise.
46. In order to characterise that correction, it is necessary to note the definition of “Arrangement Assets” in the standard form PIA, where such assets are defined as meaning “the assets of the Debtor specified in clause 6 of part IV which are to be made available to Creditors in accordance with part IV for the purposes of the arrangement”. The entries in clause 6, therefore, are intended to identify “arrangement assets”, whether they be secured or unsecured assets, and the means by which they are to be made available to creditors, whether by sale, the provision of new or additional security, or the alteration of such security. It is not intended that clause 6 would contain details of assets not intended to be made available to creditors for the purposes of the arrangement, as such assets are not “arrangement assets”.
47. In that regard, it is also of note that “Creditors” is defined in the interpretation section of the statutory form (clause 1(e) as meaning “unsecured creditors who, upon the Arrangement coming in to effect are […] party and subject to the Arrangement in accordance with section 116(2)”.
48. “Secured Arrangement Asset” is defined in clause 1(ee) of the statutory as an “Arrangement asset which is a Secured Asset”, and therefore, an asset which is not secured, and in the case of Mr. and Mrs. Enright, the small plot, is not a secured arrangement asset.
49. No treatment for the purpose of the PIA was intended, as it was not intended that the small plot was to be treated as an arrangement asset, i.e. it was not to be made available to creditors.
Analysis: was there an alteration of the proposed treatment?
50. I accept that the terms of the statutory form may, because of its format, create some ambiguity, and the PIP is not to be faulted for inserting in the second proposed PIA the narrative regarding the proposed retention of the small plot, but it seems to me, on a reading on the interpretation section, that as an arrangement asset is an asset intended to be made available to creditors, there was no requirement for the inclusion of any reference to the small plot in clause 6.
51. In the second proposed PIA, the small plot was included in clause 6, more by way of a negative assertion than a positive statement of an intention regarding its treatment, as it was an asset intended to be excluded from the arrangement assets, and intended to be treated as not available for creditors.
52. For that reason, I reject the argument by the creditor that the alterations to the second proposed PIA went further than the mere correction of an error or the clarification of an ambiguity and that the second proposed PIA proposed a new or amended different treatment with regard to the treatment of the small plot. No treatment was proposed in either draft.
53. The small plot is identified in both versions of the PIA by reference to its value of €6,000. The creditor reviewing the PIA for the purpose of coming to a determination whether to oppose or support it, could not but have been aware of the total value of the assets of the debtors and that what was purposed to be included as arrangement assets were the principal private residence and the plot over which security existed. What was proposed was the restructure of the mortgage on the principal private residence and the writing off of a portion of the secured balance at the successful completion of the proposed PIA. A reading of the first proposed PIA would have left no ambiguity regarding the treatment of the small plot of land but the PIP, in the second proposed PIA, spelt out that it was not intended to dispose of or offer this plot as security, i.e. that that plot of land was not to be offered as an arrangement asset.
54. I reject the argument of the creditor that the altered clause 6 in the second proposed PIA introduced an unencumbered asset which had not been previously referred to and made a proposal for the treatment of that asset for the first time. It is the case that no reference was made to the small plot in clause 6 of the first proposed PIA, but that is because it was not proposed to treat the small plot as an arrangement asset. The treatment that the small plot was to be retained was clear from a reading of the first proposed PIA. It was not therefore necessary, or possibly even appropriate, that there should have been any reference to the small plot in clause 6 which is specifically referable to arrangement assets, whether they be secured or not secured. The PIP saw fit to add a narrative but did not change the proposal or propose for the first time for the retention of this asset.
55. Accordingly, I consider that the inclusion of a narrative relating to the small plot in clause 6.3 of the second proposed PIA did not amount to an alteration within the meaning of section 111A(3). There was in fact no new proposal for the treatment of this asset and no material change in the value of the assets proposed to be retained or kept outside the arrangement.
Conclusion
56. I consider that the alteration was not one regarding the substance or meaning of the proposal, but was a clarification, and possibly one that was not essential, as the intention to retain the small plot was apparent from the first proposal, and that the second proposed PIA contained corrections or clarifications within the meaning of s. 111A(5).
57. I therefore consider that the Circuit Judge was in error and that the appeal is to be allowed in this matter and that of the interlocking debtor.
In the Matter of the Personal Insolvency Acts, 2012-2015 and in the
Matter of Maeve Griffin (a Debtor)
); and in the Matter of the Personal Insolvency Acts, 2012-2015 and in the Matter of Timothy Gerard Griffin (a Debtor)
[2018 No. 445 C.A.]
High Court
8 November 2019
unreported
[2019] IEHC 751
Mr. Justice Denis McDonald
November 08, 2019
JUDGMENT
Introduction
1. In each of the above cases, KBC Bank Ireland Plc (“ the bank ”) has appealed the decision of his Honour Judge Meghen in the Circuit Court made under s. 115A (9) of the Personal Insolvency Act, 2012 (“ the 2012 Act ”) (as amended by the Personal Insolvency (Amendment) Act, 2015), confirming the coming into effect of two interlocking personal insolvency arrangements proposed by Maurice Lenihan, personal insolvency practitioner (“ the practitioner ”) on behalf of the above named debtors Ms. Maeve Griffin and Mr. Timothy Gerard Griffin. In the very helpful written submissions delivered on behalf of the bank, the following grounds of objection have been canvassed:-
(a) That the proposed arrangements are not fair and equitable to the bank, as a class of creditor which has not approved them, contrary to s.115A (9) (e) of the 2012 Act;
(b) That the proposed arrangements are unfairly prejudicial to the bank, contrary to s. 115A (9) (f); and
(c) The arrangements do not enable the creditors of Mr. Griffin and Ms. Griffin to recover the debts due to them to the extent that their means reasonably permit, contrary to s. 115A (9) (b) (ii) of the 2012 Act.
2. In the course of the hearing which took place on 5th July, 2019, counsel for the bank indicated that the primary grounds of objection are those set out at para. 1 (a) and (b). Nonetheless, the ground set out at para. 1 (c) has not, in any sense, been abandoned. All three grounds were fully argued in the course of the hearing. As discussed further below, it seems to me that there is some overlap between these three grounds. I will, nevertheless, consider each ground separately.
3. For completeness, it should be noted that no issue arises in this case in relation to the availability of s. 115A. It was accepted, in the course of the hearing, that the family home of Mr. Griffin and Ms. Griffin in County Limerick is a “principal private residence ” within the meaning of s. 2 (1) of the 2012 Act. It is also accepted that the debt owed to the bank which is secured over the family home is a “ relevant debt ” within the meaning of s. 115A (18) – namely a debt secured over the principal private residence of Mr. Griffin and Ms. Griffin which was in arrears on 1st January, 2015.
4. It was also very helpfully acknowledged, in the course of the hearing, that, for the purposes of s. 115A (9) (g) of the 2012 Act, Charleville Credit Union (“the credit union”) (which, along with the Revenue Commissioners voted in favour of the proposed arrangement) constitutes a separate class of creditors to the bank notwithstanding that both the bank and the credit union are secured creditors of Mr. Griffin and Ms. Griffin. Counsel for the bank acknowledged that, having regard to the decision of Baker J. in Sabrina Douglas [2017] IEHC 785, the bank, as a secured creditor over the principal private residence of Mr. Griffin and Ms. Griffin was in a separate class to the credit union which holds no security over the residence in question.
Relevant facts
5. Before attempting to address the issues which fall to be considered, it is important that the relevant facts should first be identified. At the time the proposed arrangements in this case were first proposed in August 2017, Mr. Griffin was aged 50 years of age and Ms. Griffin was 49. They are married and have two children. At the time the arrangement was proposed, their daughter was nineteen years of age and their son was seventeen years of age. Mr. Griffin works as a probation officer with the Department of Justice where he has worked since 2014. Ms. Griffin is currently unemployed. According to the proposed arrangement in her case, Ms. Griffin was a care assistant. Previously both she and Mr. Griffin appear to have operated a nursing home business which ultimately failed in 2009. The credit union holds security over the former nursing home.
6. Mr. Griffin and Ms. Griffin have the following liabilities:-
(a) There is a total sum of €277,308 owed to the bank which is secured over the family home which has been valued at €140,000;
(b) There is a sum of €638,505 owed to the credit union which is secured over the former nursing home which has been valued at €80,000;
(c) Mr. Griffin owes €23,560 to Tipperary Credit Union. This is unsecured;
(d) Mr. Griffin has a credit card debt of €1,628 while Ms. Griffin has a credit card debt of €2,269;
(e) Ms. Griffin owes €19,522 on an unsecured basis to Allied Irish Banks Plc in respect of an overdraft;
(f) Ms. Griffin owes €28,693 to the Revenue Commissioners in respect of unpaid PAYE/PRSI. There is also a preferential debt owed by her to the Revenue Commissioners in respect of income tax in the sum of €2,100;
(g) Mr. Griffin also has a small debt owed to Cabot Financial in the sum of €3,598.
7. The monthly household income of Mr. Griffin and Ms. Griffin is not sufficient to discharge their monthly expenses. Mr. Griffin’s net monthly income is €3,410. Ms. Griffin receives unemployment benefit of €780 per month. This provides them with a total household income of €4,190 per month. Out of this sum, their set costs calculated in accordance with the guidelines issued by the Insolvency Service (“ISI”) are €1,901.53 (based on a two adult household with one motor vehicle). Their monthly obligations on foot of a mortgage to the bank are €1,839.07. In addition, they incur what are described as “ special circumstance costs” in the sum of €699 per month which are made up of €144 in respect of the cost of prescription medicine for their son who suffers from asthma together with €555 in respect of the cost of maintaining their daughter in third level education. That is marginally higher than the monthly figure of €549 which would be allowed by the Official Assignee in a bankruptcy.
The proposed arrangements
8. Under the proposed arrangements put forward by the practitioner, the indebtedness of Mr. Griffin and Ms. Griffin would be addressed over a six year (i.e. 72 month) term as follows:-
(a) Insofar as the debt of €277,308 to the bank is concerned, the secured debt would be written down to €140,000 (i.e. the agreed value of the family home) with the balance being addressed as an unsecured debt. For the 72 month duration of the arrangement, no element of principal would be repaid. Instead, interest at 4.25% would be paid of €495.83 per month. Following the completion of the arrangements, the interest rate would revert to the then standard variable rate applicable to mortgage loans of this kind. The term of the mortgage would be restructured to 240 months from the date the arrangements come into effect. After the arrangements come to an end, capital and interest monthly mortgage payments of €1,107.12 would be made for the 168 month period from the end of the proposed arrangements to the end of the restructured mortgage term. This is based on an assumed rate of 4.25% as at the end of the proposed arrangements. This, however, is obviously subject to the rate which is actually applicable at that time.
(b) Insofar as the credit union debt is concerned, Mr. Griffin and Ms. Griffin are to arrange for the sale of the former nursing home property. All costs associated with the sale of the property will be deducted from the proceeds of sale. In the event that the property is sold for less than €80,000 (which is the agreed valuation) the credit union will not be entitled to make any claim against Mr. Griffin or Ms. Griffin in respect of any shortfall. In the event that it is sold for more than €80,000, the credit union will be entitled to retain the proceeds for its own benefit. Mr. and Ms. Griffin agree to cooperate with the auctioneers during the sale process and will remove all personal effects from the property and assist the auctioneers. Any offers that are made will be subject to acceptance by the credit union. In the event that the credit union declines any offers over €60,000, the property will be voluntarily surrendered to the credit union. Similarly, if the property has not been sold within twelve months of the coming into effect of the proposed arrangements, the property will be voluntarily surrendered to the credit union.
(c) The preferential debt owed to the Revenue Commissioners by Ms. Griffin will be paid in full;
(d) The unsecured creditors will receive a dividend of 6.53% in the case of Ms. Griffin and 6.77% in the case of Mr. Griffin. In this context, it should be noted that, on p. 15 of the proposed arrangement in Ms. Griffin’s case, the rate of dividend is stated to be 7.09%. However, in the bankruptcy comparison, in her case, it is stated to be 6.53%. For the purposes of this judgment, I will proceed on the basis of the figure set out in the bankruptcy comparison.
Comparing the outcome under the proposed arrangements with the outcome in bankruptcy
9. The practitioner has prepared a comparison of the outcome under the proposed arrangements with the outcome in the event of a bankruptcy. On the basis of the figures provided by the practitioner, the return to the secured creditors (on a combined basis) under the proposed arrangements is 24 cent in the euro compared to 22 cent in the euro in a bankruptcy. Insofar as the unsecured creditors are concerned, they will, as noted in para. 8 (d) above, receive 6.53 cent in the euro in Ms. Griffin’s case and 6.7 cent in the euro in Mr. Griffin’s case. This compares to 0.22 cent in the euro in the event of Ms. Griffin’s bankruptcy and 0.50 cent in the euro in the event of Mr. Griffin’s bankruptcy.
10. In my view, it would have been helpful if the return to each of the secured creditors had been shown separately in the bankruptcy comparison. On the basis of my own calculations, the outcome for the bank under the proposed arrangements is significantly greater than 24 cent in the euro. By my calculations, it is 50.5 cent in the euro. In the event of a bankruptcy, the outcome is also better than 22 cent in the euro. By my calculations, the return for the bank in the event of bankruptcy is 45.40 cent in the euro. In contrast, the return for the credit union under the proposed arrangements (on the assumption that the nursing home sells for €80,000) will be of the order of 12.5 cent in the euro whereas, in a bankruptcy, the outcome would be 11.27 cent in the euro. In both cases, these rates of return exclude the dividend that will be paid as part of the distribution to the unsecured creditors. As outlined further below, a significant issue arises in this case in relation to the extent of the distribution to be made to the unsecured creditors.
The counter-proposal made by the bank
11. As discussed further below, a counter-proposal was made by the bank. That counterproposal must be seen in the context of the statutory scheme for the making of representations by creditors to a practitioner. Under s. 98 of the 2012 Act, the practitioner is required to give notice to creditors of his or her appointment and to invite the creditors to make submissions regarding the manner in which the debts of a debtor might be dealt with under a proposed arrangement. The practitioner is also under an obligation to consider any submissions made by creditors. Insofar as secured creditors are concerned, s. 102 (1) imposes a specific obligation on such creditors (following receipt of the notification under s. 98) to furnish to the practitioner an estimate of the market value of the security. In addition, s. 102 (1) enables the secured creditor to also indicate a preference as to how that creditor wishes to have the security and secured debt treated under the arrangement. This is, however, expressly made subject to s. 102 (3) and ss. 103 to 105 of the 2012 Act. In this context, it is important to bear in mind that under s. 104 (1) practitioners are required, in formulating proposals for personal insolvency arrangements, to do so in a manner which secures, insofar as reasonably practicable, the retention by a debtor of his or her principal private residence.
12. In this case, according to the evidence of the practitioner, the bank did not make any submission to him under either s. 98 or s. 102. The practitioner says that, in those circumstances, he had no alternative but to seek to formulate proposals in the absence of any submission from the bank. However, in para. 5 of his affidavit sworn in support of the bank’s notice of objection, Mr. Gately explained that, on 16th June, 2017, the bank submitted a request for further information which was never answered by the practitioner.
13. Subsequently, the bank, by email sent at 12.18 pm on 17th August, 2017 (which was one day immediately prior to the creditors’ meeting held on 18th August, 2017) submitted a counter-proposal. In that email, the bank complained that, in comparison to the credit union, it would fare significantly worse under the proposed arrangements. It said that, under the proposed arrangement, the credit union would be in a position to immediately recover the full value of its security over the nursing home and, over the course of the arrangement, would recover the same amount again through dividends over a six year period (€80,000). The email complained that: “on a very basic level, the Credit Union will recover double the value of its security over the next six years. Conversely KBCI … will be precluded from realising its security and will recover only €19,500 over the same period as a secured creditor. In reality the proposed large dividend is not being generated from the means of the debtor in a true sense, but from the draconian reduction of, and six year deferral of capital repayments to, the KBCI debt. The proposal fails to recognise the priority of the KBC debt and unfairly seeks to provide a disproportionate return to the Credit Union relative to its security” . Those concerns on the part of the bank were subsequently reiterated in para. 11 of the affidavit of Mr. Garret Gately.
14. In the email, the bank also complained that, on completion of the proposed arrangements, Mr. Griffin and Ms. Griffin would have a surplus monthly income of €1,596.26. The email made the point that even if 50% of that surplus was made available it would be sufficient to service payment of that part of the debt owed to the bank which it was proposed to write down (namely €138,000) over the remaining term of the mortgage.
15. The email concluded by making a counter-proposal as follows:-
(a) An extension of the mortgage term to 240 months;
(b) A 36 month personal insolvency arrangement (i.e. half the length of the proposed arrangements here);
(c) Interest only payments of €981 for the duration of the three year arrangement;
(d) A dividend pool of €24,500 from which the practitioner would receive a fee of €9,500 with the preferential debt due to the Revenue of €2,100 being repaid in full;
(e) The unsecured creditors would therefore receive a net dividend of €17,000 for distribution between them;
(f) The credit union (as the largest unsecured creditor) would receive €16,000. This is in addition to whatever it would recover through the realisation of the nursing home;
(g) Post the arrangement, Mr. Griffin and Ms. Griffin would commence full annuity repayments of €1,909 leaving them with a monthly surplus of €794 above the ISI guideline figure.
16. It should be noted that, under the terms of the arrangement proposed by the practitioner in each of these cases, it is acknowledged that the elder child of Mr. Griffin and Ms. Griffin (namely their daughter) would leave third level education in year 3 of the arrangement proposed by him. As I understand it, the monthly surplus of €794 suggested in the counter-proposal is based on this proposition.
17. In his replying affidavit, the practitioner deals with the counter-proposal at paras. 29-30 and paras. 42-43. In para. 29, he explained that, by reducing the term of the proposed arrangements to 36 months and increasing the monthly mortgage payment from €495.83 to €981, the counter-proposal would significantly reduce the monthly surplus that would otherwise be available to pay a dividend to the unsecured creditors. The proposal also envisaged a 50% reduction in his own fee but this is likely to be attributable, at least in part, to the fact that the duration of the arrangement proposed by the bank is 50% shorter than the 72 month arrangements proposed by the practitioner.
18. The practitioner says that the counter-proposal was considered and rejected by the debtors “ on the basis that it would not be supported by a majority of creditors and would not return them to solvency, particularly as it provided for the payment of the full mortgage loan and did not take account of the possibility of illness, marriage breakdown or other issues”. He also says that: “it was unrealistic to assume that unsecured creditors would support the KBC counter-proposal where it clearly demonstrated a significant reduction in the return to them when compared to the PIA proposal which was circulated in advance of the meeting of creditors and on which proxies (voting in favour) had already been received”.
19. In para. 43 of his affidavit, the practitioner expands on this and says:-
“43. I discussed the counter-proposal with the debtors at a meeting on 17th August called at very short notice to them. I expressed the view that the KBC counterproposal was self-serving and would not be acceptable to the other creditors on the basis that it provided a lower return than the existing PIA and denied those creditors scope to maximise their return over a 72 month term. I indicated to the debtors that the counter-proposal would not return them to solvency at the end of the PIA on the basis that the loan owed on their PDH will be almost twice the market value of the property. Accordingly, in the event of some unforeseen life event (illness, death, marriage breakdown, etc.) occurred (sic) which resulted in the sale of their home it was possible that they would be insolvent (again) and would be forced to consider bankruptcy in such circumstances. I also pointed out… that if the PIA was amended to reflect … the counter-proposal that it was highly likely that it would not be acceptable to their other creditors (who had already submitted proxies…) and that it was inevitably going to be rejected at the meeting … notwithstanding the support of the Objector. Accordingly, the debtors agreed to leave the proposal unchanged.
20. It should also be noted that, in para. 36 of his affidavit, the practitioner explained the reason why he had included a provision in the proposed arrangements that the bank would be paid interest only for the term of such arrangements. He said this was: “…for the benefit of all creditors, and in particular of creditors with debts that will be extinguished at the end of the PIA. I say for the most part, this arises in circumstances where the negative equity is to be extinguished and written off at the end of the PIA. I say and believe that in placing the mortgage loan on interest only I have increased the dividend to unsecured creditors, and ensured the best possible return in the circumstances”.
21. In the course of the hearing, counsel for the bank drew attention to what was said by the practitioner in these paragraphs and submitted that the explanations given by the practitioner strongly suggests that the practitioner favoured the credit union who, after payment of the proceeds of sale of the nursing home, is, by far, the largest unsecured creditor of Mr. Griffin and Ms. Griffin. As will appear in more detail below, the case made on behalf of the bank is that the credit union has been treated significantly more favourably than the bank.
22. Counsel for the practitioner submitted that the counter-proposal was made at the last minute. He also argued that the proposal would see payments being made to the bank at more than the rent for a comparable property in the locality in which Ms. Griffin and Mr. Griffin currently resides. Counsel drew attention to the information contained in the proposed arrangement which indicates that the market rent for an equivalent property in the locality would be €950 per month which is less than 50% of the monthly payment to be made under the counter-proposal namely €1,909. Counsel submitted that the bankruptcy would accordingly be a more favourable outcome for Ms. Griffin and Mr. Griffin than the regime envisaged in the bank’s counter-proposal.
23. Counsel for the practitioner also drew attention to the fact that, under the counterproposal, Ms. Griffin and Mr. Griffin would, for the three year duration of the arrangement proposed by the bank, have to live at a level beneath the reasonable living expenses set out in the ISI Guidelines. As set out on p. 40 of the proposed arrangement in Ms. Griffin’s case, a sum of €1,901.53 would be regarded as appropriate for a two adult household with a vehicle. In addition, for the first three years of the arrangement, there are special circumstance costs of €699 payable per month (to cover the cost of third level education for the daughter of Ms. Griffin and Mr. Griffin) and also to cover the costs of asthma medication for their son. The total monthly income of the household is €4,190. When one sets off the sums of €1,901.53 and €699 against the monthly income of €4,190.00, that would leave no more than €1,590.00 to meet the mortgage repayments of €1,909 per month under the counter-proposal. Counsel for the practitioner submitted that the only way, therefore, in which the monthly mortgage payment could be met was if the family lived below the reasonable living expenses set out in the ISI Guidelines.
24. Counsel for the practitioner also rejected the suggestion that there would be a monthly surplus of €794 after year 3 under the counter-proposal. As noted in para. 16 above, the case made by the bank is that there will be such a surplus from year 3 of the proposed arrangement when it is understood the daughter of Ms. Griffin and Mr. Griffin will leave third level education. Counsel for the practitioner suggested that it was reasonable to suppose that the son of Ms. Griffin and Mr. Griffin would go on to third level education (although counsel for the bank trenchantly submitted that this is nowhere mentioned in the proposed arrangement or in the evidence before the court). In fact, the practitioner, in para. 21 of his affidavit sworn on 19th June, 2018 does refer to the possibility (it is put no higher than that) that the son may go on to further education. The practitioner also says that the special circumstance costs in respect of the prescription medication in the amount of €144 should be extended beyond year 3. In my view, it is reasonable to take the cost of this prescription medication into account as an ongoing household expense. It is also understandable that the practitioner was not in a position to say that the son would definitely go on to third level education. For that reason, the continuing cost of third level education has not been factored into the calculation set out in the proposed arrangement. I am conscious that a very large number of students progress to third level education in Ireland. I therefore believe it is realistic to assume, for the purposes of this judgment, that it is reasonably likely that the son will progress to third level education. In those circumstances, I believe that it is appropriate to continue to take into account the special circumstance costs of €644 per month for a further three year period after the expiry of the three year arrangement proposed by the bank. For those years, the appropriate allowance to be made in respect of Ms. Griffin and Mr. Griffin (for a couple with no children) would be €1,509.59 (on the basis that they require a motor vehicle). If one adds €699 to that figure, that would mean that Mr. Griffin and Ms. Griffin would require €2,208.59 per month in order to meet reasonable living expenses and the special circumstance costs. If they were also to pay a further €1909 in respect of the mortgage repayment envisaged under the counter-proposal, they would have total monthly expenditure of €4,117.59. Assuming no substantial shocks, there would be a very marginal buffer available to them of €72.41 per month. However, this does not take account of the possibility that interest rates might rise. While we currently live in an era of low interest rates, there is no guarantee that this will still be the case in several years’ time.
25. Counsel for the practitioner also argued that the bank’s counter-proposal was made too late. It was not made until the eve of the creditor’s meeting. He argued that there had been a failure to comply with either s. 98 (1) or s. 102 (1) of the 2012 Act. In my view, the court must be cautious about any suggestion that a counter-proposal or submission should be wholly disregarded. The court has an obligation under s. 115A (10) (b)(i) to have regard to any submission made by a creditor under s. 98(1) or s. 102(1). Nonetheless, in this case, an issue arises as to whether the requirements of those subsections were actually observed by the bank. Section 98(1) does not expressly require that submissions should be made by a creditor within any specific time frame. However, it is clear from a consideration of s. 98(1) in the context of the 2012 Act as a whole, that it contemplates that the submissions will be made prior to the formulation of a proposed arrangement so that the practitioner will be in a position to have regard to them when he comes to formulate the proposal. The same considerations arise in relation to any indication of preference to be advanced by a secured creditor under s. 102(1). It is quite clear from s. 102(2) that the Act envisages that any indication of preference as to how the secured debt should be addressed, should be made prior to the formulation of the practitioner’s proposal. While s. 102 does not prescribe a statutory time period for taking this step, s. 102 (4) makes it clear that the secured creditor should act within whatever period of time may be specified by the practitioner. In the present case, the counter-proposal was not made until the day prior to the meeting of creditors at which the proposals were to be considered. Consistent with the email of 17th August, 2017 (quoted in para. 13 above) Mr. Gately explained in para. 5 of his affidavit that, within three days of receipt of the protective certificate, the bank had sought clarification on a number of points in order to enable the bank to submit a s. 98 or s. 102 response. Although the practitioner responded on the same day advising that he would arrange to get the additional information to the bank, the information was not provided. In these circumstances, it seems to me that, in fairness to the bank, I should treat the bank as having made a submission under s. 98 and s. 102 of the Act. However, as a consequence of the timing of the counter-proposal, the reality is that the practitioner had no sufficient opportunity to take the counter-proposal into account in formulating his proposals in circumstances where it was received at such a late stage in the process. It is important to bear in mind in this context that the court, under s. 115A (10) (b)(i), is required not only to have regard to the submission made by a creditor but also to the date on which such submission was made.
26. Having regard to the date of receipt of the counter-proposal, I do not believe that there is anything that the practitioner could reasonably have done in the circumstances. He had already formulated proposals. Those proposals had been circulated to all of the creditors. On the basis of those proposals, decisions had already been made by creditors as to whether to support or reject the proposed arrangement. While it was theoretically open to the practitioner to go back to the creditors with revised proposals, I can well understand why the practitioner, at that point, might have considered that it was not feasible to do so. I will examine in greater detail below the particular reasons given by the practitioner as to why he decided to proceed with the existing proposal. On the basis of the arguments put forward by counsel for the bank, those reasons are potentially material to the question as to whether the credit union was unduly favoured, under the proposals, at the expense of the bank. At this point, it is sufficient to record that, in my view, the timing of receipt of the counter-proposal was such as to make it reasonable for the practitioner to proceed with the creditors’ meeting on the following day on the basis of the existing proposals. I am, of course, conscious in this context of the observations of Baker J. in Paula Callaghan [2017] IEHC 332 at paras. 13-17 as to the obligation of a practitioner to consider submissions made by a creditor. However, those observations by Baker J. were made in the context of submissions made prior to the formulation of proposals. The present case is in a different category. Moreover, it is clear from para. 43 of the practitioner’s replying affidavit (quoted in para. 19 above) that the practitioner here did, in fact, consider the proposals. They were not ignored by him. He clearly took a considered decision to proceed with the creditors’ meeting and to reject the counter-proposal made by the bank.
27. In the same judgment, Baker J. suggested that a margin of appreciation will be afforded to a practitioner in formulating an arrangement and she indicated that the court should not interfere unduly with a proposal even if another and possibly equally reasonable proposal could be formulated. At para. 59 of her judgment in that case she said:-
“ Section 115A(9)(b) (ii) constrains a court by considerations of reasonableness, that there be a reasonable prospect that confirmation of a proposed PIA will enable the debtor to resolve his or her indebtedness, and enable the creditors to recover their debts to the extent that the means of the debtor ‘reasonably permit’. The inclusion of a requirement of reasonableness supports the argument that a margin of appreciation will be afforded to a PIP in formulating a PIA, that the court will not interfere unduly with a proposal even if another, and possibly equally, reasonable proposal could be formulated, and the objection of a creditor will not be upheld merely on account of the fact that it can offer an alternative proposal. Reasonableness is assessed in the context of the means of the debtor, the likely return to the creditor of a proposal, the likely return on bankruptcy as an alternative, and the reasonableness of the proposed scheme taken as a whole, and in the light of the objective of the legislation that a debtor be facilitated in a return to solvency.”
28. Nevertheless, as noted in para. 25 above, the position taken by the practitioner is not determinative. It is clear from s.115A (10) (b)(i) that there is an obligation on the court to independently consider and have regard to any counter-proposal that may have been made by a creditor. I therefore believe that I must consider whether the counter-proposal made by the bank is one that achieves a better and fairer result than the proposal put forward by the practitioner. I reiterate that, in considering this issue, I will postpone any consideration of the motivation underlying the practitioner’s proposals. That is an issue which I address separately in the context of the bank’s contention that the arrangement unduly favours the credit union at its expense.
29. I have come to the conclusion that the counter-proposal put forward by the bank lacks reality. In the first place, it does not take account of the current market value of the family home of Ms. Griffin and Mr. Griffin. While I must separately consider whether the practitioner was correct in writing the secured debt down to the value of the family home, it seems to me that, in cases of significant “ negative equity ”, the current market value of the family home is a relevant factor in any arrangement proposed under the 2012-2015 Acts. It seems to me to be clear from a consideration of the provisions of ss. 102-103 of the 2012 Act that the legislature envisaged that, in arrangements of this kind (where the home is in “ negative equity ”), it will often be appropriate that the value of secured debt should be written down to some extent albeit that, in accordance with s. 103(2), it cannot be reduced below the value of the underlying security. Of course, there are cases where a write-down might not be appropriate. For example, if the debtors were of reasonably substantial means and were in a position to sustain mortgage payments of sufficient size, a write-down might be entirely inappropriate. However, in my experience, such cases are rare. This is not such a case. The means of Mr. Griffin and Ms. Griffin are clearly not sufficient to sustain mortgage repayments on the scale suggested by the bank in its counter-proposal. As discussed in para. 24 above, if they were to pay €1,909 in respect of the mortgage repayment envisaged under the counter-proposal, they would have no more than €72.41 available to them on a monthly basis over and above their monthly expenditure. As noted in para. 24, that seems to me to be a very marginal buffer. While I acknowledge that the buffer is likely to increase over time (as the children of Mr. Griffin and Ms. Griffin complete full time education) the Griffin family would nonetheless have to live for a sustained period of time at or very near the upper limit of the reasonable living expenses measured by the ISI. While there are cases where there may be no alternative to an arrangement on such stringent terms, it seems to me that the proposal put forward by the bank would impose a burden on Mr. Griffin and Ms. Griffin which is disproportionate to their means. I also bear in mind that, under the counter-proposal, Ms. Griffin and Mr. Griffin would have to make payments to the bank significantly in excess of the market rent for an equivalent property in the locality. As counsel for the practitioner observed, this would make bankruptcy a more favourable outcome for Ms. Griffin and Mr. Griffin than the regime envisaged in the bank’s counter-proposal. In these circumstances, I have come to the conclusion that the practitioner was right to reject the counter-proposal. I am furthermore of the view that the counter-proposal is not relevant to the remaining issues which arise for consideration (and which are addressed below).
The issues raised by the bank
30. To the extent that it is necessary to do so, I now turn to consider each of the grounds of objection which were debated in the course of the hearing before me in July 2019.
The alleged inequality of treatment
31. Under s. 115A (9) (e), the court, on an application of this kind, must be satisfied that the proposed arrangement is: “fair and equitable in relation to each class of creditor that has not approved the proposal and whose interests or claims would be impaired by its coming into effect.” The debate between the parties in relation to this issue occupied most of the time at the hearing in July.
32. In his written submissions, counsel for the bank sought to illustrate that, under the proposed arrangements, the return to the credit union was significantly better relative to the return to the bank. He drew attention to the fact that, under the proposed arrangement, the bank would receive a dividend from Mr. Griffin of €9,294.99 and a dividend from Ms. Griffin of €8,690.93 during the currency of the arrangement. This is in addition to the value of the bank’s security of €140,000. Insofar as the credit union is concerned, it would receive the value of its security namely €80,000 together with a dividend from Mr. Griffin of €37,807.68 and a dividend from Ms. Griffin of €36,448.89. The total to be received by the bank (excluding interest payable over the term of the arrangement and subsequently over the term of the mortgage) would be €158,255.92. In the case of the credit union, the total to be received would be €154,256.57.
33. Counsel for the bank then looked at the projected return in a bankruptcy. In a bankruptcy, the bank would receive €126,000 in respect of the family home together with an approximate dividend of €707.50 from Mr. Griffin and €300 in respect of Ms. Griffin. This would be a total realisation of €127,007.50. The credit union would receive €72,000.00 in respect of its security, a dividend of €1,222.00 from Mr. Griffin and a dividend of €2,878.00 from Ms. Griffin. This would be a total realisation of €76,100.00.
34. Counsel argued that, when one took account of the difference between the proposed realisation under the proposed arrangement of €158,255.92 as compared with €127,007.50 in a bankruptcy, the bank would achieve a 24.6% better return under the proposed arrangement than in a bankruptcy. In contrast, when one takes the difference between €76,100 which the credit union would receive in a bankruptcy and €154,256.57 which the credit union will receive under the proposed arrangement, the return for the credit union under the proposed arrangement is 102% better than in a bankruptcy.
35. Counsel also submitted that, if one takes the total realisation for the bank, under the proposed arrangement, to be €158,255.92, the difference between that sum and €140,000 reflects a 13% return for the bank over the value of its security. In contrast, if one takes the sum of €154,256.57 which would be payable to the credit union under the proposed arrangements, the credit union will receive a return of 93% on top of the value of its security. Counsel submitted that the comparison of the combined returns illuminates the reasons why the bank says that the arrangements are not fair and equitable to it and why they unduly favour the credit union. Counsel also submitted that the counter-proposal had been put forward by the bank to “ rebalance the equities” and he said that this counter-proposal was still on offer from the bank.
36. Counsel for the bank argued that there was no justification for the approach taken by the practitioner here in “ favouring ” the credit union in the manner summarised above. As noted in para. 21 above, counsel argued that the explanation given by the practitioner (as quoted in paras. 18-20 above) demonstrates that the practitioner consciously favoured the credit union at the expense of the bank. Counsel sought to rely in this context on my decision in Noel Tinkler [2018] IEHC 682. In that case, very unusually, the proposed arrangement envisaged that the secured creditor over the principal private residence of the debtors would be paid in full notwithstanding that the value of the property was significantly less than the debt owed. The practitioner involved in that case had sworn an affidavit, in the course of the proceedings, in which he had acknowledged that the arrangement proposed by him had been formulated with a view to obtaining the support of the secured creditor concerned. An entirely different approach had been taken in the context of the objecting creditor (which held security over other property of the debtors). In para. 45 of my judgment in that case I said:-
“It is true that … a practitioner, when formulating proposals, must have in mind that any proposed PIA must have a reasonable prospect of appealing to creditors. It would be foolhardy for a practitioner to seek to formulate proposals which did not have any prospect of success. However, that does not, in my view, entitle a practitioner to single out one creditor or one class of creditors for particularly favourable treatment in order to secure the support of that creditor or class of creditors for a particular proposal. On the contrary, the obligation is always to formulate proposals which are fair and do not give rise to manifestly inequitable treatment as between different classes. The usual way in which to persuade creditors to vote in favour of proposals is to demonstrate that the proposals will achieve for the creditors a more favourable outcome than is likely to be achieved in a bankruptcy. If proposals are formulated with that object in mind, there is unlikely to be any basis on which a creditor can show that it has been unfairly treated or unfairly prejudiced by the proposals. On the other hand, if practitioners were to formulate proposals aimed at securing the support of particular creditors or particular classes of creditors, this is a recipe for unfairness and will inevitably give rise to objections which will add enormously to the length and expense of the process and put the confirmation of the proposals in jeopardy”.
37. Counsel for the bank argued that, on the basis of the calculations set out in paras. 32-35 above, the proposals here unduly favour the credit union. Counsel also argued that there has been no objective justification for that difference in treatment. He submitted that, as occurred in Tinkler, the practitioner has explicitly stated that he refused to put the counter-proposal to the credit union on the basis that it would not be accepted by it. Counsel referred in this context to the averments made by the practitioner (quoted in paras. 18-20 above).
38. In contrast to the position in Re. Antigen Holdings [2001] 4 IR 600, counsel submitted that there was no objective justification for the difference in treatment, as between the credit union and the bank. In the Antigen case, the court accepted that the trade creditors were entitled to some priority under the arrangement proposed by the examiner in that case in circumstances where, as McCracken J. observed, they were going to continue trading with the company. Counsel argued that, in contrast, no such justification existed in the present case. He drew attention in this context to the additional affidavit that had been served, with the leave of the court, in the course of the appeal, in which Mr. Gately had explained that the credit union was now in liquidation (although this had not been known at the time of the Circuit Court hearing). Counsel submitted that the “ preferential treatment ” given to the credit union, in those circumstances, cannot be justified. There is no question of any ongoing relationship between the credit union and Ms. Griffin and Mr. Griffin. The nursing home has ceased business.
39. In response, counsel for the practitioner argued that the credit union and the bank are dealt with in precisely the same way under the scheme. In both cases, the property secured in their favour is in negative equity and the secured debt is to be written down to the value of the secured property. In both cases, the balance of the indebtedness (after making due allowance for the value of the secured property) is treated as an unsecured debt. In both cases, the dividend payable to the bank and to the credit union is calculated in the same way. Counsel said that this was in compliance with s. 100 (3) of the 2012 Act which applies the pari passu principle. Section 100 (3) is in the following terms:-
“(3) Unless provision is otherwise made in the …, arrangement and subject to section 101, the arrangement shall provide for payments to creditors of the same class to be made on a pari passu basis, and where so otherwise provided the … Arrangement shall specify the reasons for such provision being made”.
40. The reference in s. 100 (3) to s. 101 is not relevant for present purposes. Section 101 deals with preferential debts. Counsel for the practitioner stressed that the pari passu principle also features in bankruptcy, examinerships and the winding up of companies. It has often been described as a fundamental principle in the context of insolvent estates (whether corporate or personal). That said, I believe that counsel for the practitioner is mistaken in suggesting that s. 100 (3) of the 2012 Act is immediately relevant. It will be seen from the terms of the subsection (quoted in para. 39 above) that the statute envisages that the pari passu principle will be applied as between creditors of the same class. It has been agreed in this case (and the parties were correct to do so) that, although both are secured creditors, the bank and the credit union are not in the same class of creditor for the purposes of the 2012-2015 Acts. In those circumstances, I do not believe that it is entirely correct to suggest that s. 100 (3) has application save to the extent that both the bank and the credit union are also unsecured creditors.
41. Nonetheless, the pari passu principle has, for many years, been regarded as a hallmark of fairness insofar as distributions to creditors are concerned. Thus, although section 100 (3) may have no immediate application, the pari passu principle is relevant to the question of fairness and it is clear from the terms of the proposed arrangement that it is proposed by the practitioner that it should apply in this case. All of the unsecured creditors will be paid at the same rate. This includes the unsecured element of the debt due to the bank and the unsecured element of the debt due to the credit union. In principle, it is difficult to see how the application of the pari passu rule, of itself, could be said to give rise to unfairness. That does not, however, resolve the fairness issue. A separate question arises as to whether the arrangements here have been framed in a way that gives rise to unfairness as a consequence of the amount set aside for payment to the unsecured creditors (under which the bank argues that the credit union is to benefit at the bank’s expense).
42. Counsel for the practitioner acknowledged that the bank is treated differently to the credit union insofar as the property secured in favour of the latter is to be realised whereas the property secured in favour of the bank (namely the family home of Ms. Griffin and Mr. Griffin) will be retained. However, in common with the credit union, the bank would get the benefit of the market value of its security namely the family home. While the arrangements do not allow for the realisation of the family home in the way in which the property secured in favour of the credit union is to be realised, the bank would be compensated for this by the interest which would be paid between now and the completion of the term of the mortgage. He drew attention, in this context, to the policy of the 2012-2015 Acts to ensure that the family home should be retained. In this context, s. 99 (2) (h) of the 2012 Act expressly provides that an arrangement “ shall not require that the debtor dispose of his or her interest in the debtor’s principal private residence or cease to occupy such residence unless the provisions of section 104 (3) apply”. In turn, s. 104 (1) reinforces the level of protection given to the family home under the 2012 Act. That subsection is in the following terms:-
“(1) In formulating a proposal for a Personal Insolvency Arrangement a personal insolvency practitioner shall, insofar as reasonably practicable, and having regard to the matters referred to in subsection (2), formulate the proposal on terms that will not require the debtor to—
(a) dispose of an interest in, or
(b) cease to occupy ,
all or a part of his or her principal private residence and the personal insolvency practitioner shall consider any appropriate alternatives.”
43. Counsel for the practitioner contended that the only other difference envisaged by the proposed arrangements between the position of the bank, on the one hand, and the credit union, on the other, arises from the size of the respective debts. Given the sheer size of the unsecured debt owed to the credit union, it must, of necessity, receive a larger dividend than the bank. In this context, counsel submitted that the debt owed to the bank comprised no more than 18% of the unsecured indebtedness of Ms. Griffin and Mr. Griffin whereas the debt owed to the credit union comprised 77% of that indebtedness. Applying the pari passu approach (which he argued was the correct approach), it was inevitable that the return to the credit union would greatly exceed in absolute terms the return to the bank.
44. Counsel for the practitioner also argued that the bank’s interests were not harmed by the proposal under which it would be paid interest only for the duration of the proposed arrangements. He argued that such an arrangement is expressly envisaged by s. 102 (6) (b) of the 2012 Act. Section 102 addresses the position of secured creditors. Section 102 (6) sets out a number of approaches which can be taken in relation to secured debt. Under s. 102 (6) (a), provision can be made that the debtor should pay interest and only part of the capital amount of the secured debt for a specified period of time (not exceeding the duration of the arrangement).Section 102 (6) (b) permits an arrangement to provide that the debtor should make interest only payments on the secured debt for a specified period of time (which again must not exceed the duration of the proposed arrangement).Section 102 (6) (c) provides that the period over which the secured debt is to be paid may be extended by a specified period of time. Furthermore, under s. 102 (6) (d), a complete moratorium on payments could be imposed for the duration of a proposed arrangement. Obviously, the arrangement here does not go that far. Counsel for the practitioner suggested that no injury is done to the bank by taking the approach set out in s. 102 (6) (b). He suggested that, once the arrangement comes to an end, the capital sum owed to the bank will remain to be paid in full and, in addition, interest will apply at the appropriate variable rate which the bank is entitled to charge under the terms of the loan contract with Ms. Griffin and Mr. Griffin.
45. The issue which I must address is whether the proposed arrangement is fair and equitable in relation to the class of creditor comprising the bank on the one hand and the class of creditor comprising the credit union on the other. Section 115A (9) (e) makes it clear that, before the court can approve an arrangement of this kind, it must be satisfied that the arrangement is fair and equitable in relation to each class of creditors that has not approved the proposal (and whose interests or claims would be impaired by the arrangement coming into effect). It must, however, be acknowledged that a practitioner, formulating an arrangement of this type, will rarely be in a positon to achieve mathematical or perfect equality. Furthermore, if the arrangement is to work, it is usually essential that some provision should be made for unsecured creditors. Depending on the circumstances, this may have the result that the secured creditors’ interests will be impaired to some extent by the arrangements to be made for the benefit of the unsecured creditors. The very fact that s. 102 (6) of the 2012 Act envisages circumstances where, for the duration of an arrangement, there can be a moratorium on payments to a secured creditor (or the payment of interest only to a secured creditor) suggests that the legislature envisaged that modifications of that kind to mortgage obligations might be necessary in order to give a breathing space to debtors to address their obligations not only to their secured creditors but also to the remaining unsecured creditors.
46. As Baker J. observed in Paula Callaghan, at para. 59 of her judgment (quoted in para. 27 above), a margin of appreciation will be afforded to a practitioner in formulating a personal insolvency arrangement. In part, this is in recognition of the fact that, in any given case, a practitioner will be required to balance many different competing interests in formulating a proposal for an arrangement. The court must always be conscious of the practical difficulties which confront the practitioner in undertaking this hugely important task. The court must also keep in mind the very important statutory role given to the practitioner under the 2012-2015 Acts. The practitioner is entrusted with the task of formulating proposals which are sustainable and which provide a return for the creditors of the debtor which is commensurate with the means of the debtor. As a personal insolvency professional, the practitioner is equipped with the necessary experience and expertise to assess the means of the debtor, the extent of the indebtedness, and the feasibility of any proposed arrangement, while at the same time balancing the competing interests which arise.
47. The question which arises in the present case is whether, notwithstanding this margin of appreciation, the proposal here involves a sufficiently serious difference in treatment as between the bank, on the one hand, and the credit union, on the other, as to engage the provisions of s. 115A (9) (e). In this regard, there can be no doubt that, in the absence of objective justification, inequality of treatment is an aspect of unfairness. As Fennelly J. observed in the Supreme Court in Re. SIAC Construction Ltd [2014] IESC 25 (at para. 69):-
“Unfairness, … comprises two essential aspects, the general notion of injustice and the more specific one of unequal treatment.”
On the other hand, it is clear from the decision of McCracken J. in Re: Antigen Holdings Ltd [2001] 4 I.R. 600 at p. 603 that, depending on the circumstances, a difference in treatment between different classes of creditors may be permissible if it can be objectively justified.
48. In my view, the bank has raised a very serious issue in relation to inequality of treatment. As noted in paras. 32-35 above, counsel for the bank has drawn attention to what, on its face, is a significant disparity of treatment as between his client and the credit union. As further noted in para. 34 above, the bank would achieve a 24.6% better return under the proposed arrangement than in a bankruptcy. In contrast, the return for the credit union under the proposed arrangement is 102% better than in a bankruptcy. This disparity cannot be explained by the value of the respective security held by the bank, on the one hand, and the credit union, on the other. The value of the security held by the bank is higher than the value of the security held by the credit union. The value of the bank’s security (namely €140,000) equates to 50.5% of the total indebtedness of Ms. Griffin and Mr. Griffin to the bank (€277,308). In the case of the credit union, the value of the security held by it (€80,000) equates to only 12.5% of the amount owed by Mr. Griffin and Ms. Griffin (namely €638,505) to the credit union. It is therefore clear that the claimed disparity of treatment under the proposed arrangement arises as a consequence of the extent of the provision proposed for unsecured creditors. As noted above, it is entirely reasonable for a practitioner to formulate a proposed arrangement on the basis that appropriate provision should be made for unsecured creditors as well as secured creditors. However, the concern raised by the bank relates to the extent of the provision made for the unsecured creditors which has given rise to the disparity in the rate of return under the proposed arrangements relative to the return in a bankruptcy (as outlined above).
49. The total amount to be paid to the unsecured creditors, under the proposed arrangements, is the sum of €49,051.33 in the case of Ms. Griffin and the sum of €52,904.51 in the case of Mr. Griffin. This means that, between them, the proposed arrangements envisage that a sum of €101,955.84 will be paid to the unsecured creditors of both debtors. In contrast, according to the bankruptcy comparison set out in the proposed arrangements, the unsecured creditors, in the event of the bankruptcy of Mr. Griffin would receive €3,734 while, in the case of Ms. Griffin, they would receive €1,634. On a combined basis, the unsecured creditors would therefore receive €5,368 in a bankruptcy. By my very rough calculations, this is approximately 19 times less than they would receive under the proposed arrangements. In other words, they will be 19 times better off, under the proposed arrangements, than they would be in a bankruptcy. That seems to me to raise a significant issue as to the proportionality of the proposed arrangements. Is it right that the unsecured creditors should receive 19 times the return they would obtain in the event of bankruptcy while the bank (which holds security over property) would receive a 24.6% better return under the proposed arrangement than in a bankruptcy? In turn a similar question arises as to whether it is right that the credit union will receive a 102% better return under the proposed arrangements than it would receive in the event of a bankruptcy. On the other hand, it has to be borne in mind that, under the proposed arrangements, both the bank and the credit union would each participate in the distribution of the dividend to be paid to the unsecured creditors. They would therefore each get the benefit of the 19 fold return on that part of the debts due to them which exceeds the value of the underlying security.
50. I bear in mind that, in para. 33 of his affidavit filed in June 2018 in the course of the Circuit Court proceedings, the practitioner has made the case that the total return for the bank amounts to €226,318.70 when account is taken of the payment of interest which, over time, would amount to €68,062.78 (calculated at 4.25% per anum). If the total return for the bank is taken to be €226,318.70, this would represent a return of 81.67% of the total indebtedness of €277,308. This would represent a 78% better return than in a bankruptcy. This is much closer to the 102% figure achieved by the credit union than the 24.6% figure suggested by counsel for the bank (as recorded in para. 34 above). However, I do not believe that it is reasonable or appropriate to take the return to the bank to be €226,318.70. As the practitioner acknowledges in para. 33 of his affidavit, this return would only arise over the 72 month term of the arrangement and, thereafter, the 240 month term of the mortgage. In my view, the interest to be paid over the 240 month term of the mortgage is clearly compensation for the fact that, in contrast to the credit union, the bank will not be entitled to an immediate realisation of the security held by it over the family home and instead will have to wait until the mortgage term comes to an end. In this case, it is noteworthy that the bank was the original lender. The payment of interest was always, therefore, integral to the long term nature of the mortgage arrangement put in place.
51. I must also bear in mind that the practitioner was faced with the difficulty of formulating a proposed arrangement which required appropriate provision to be made for two secured creditors, one of which held security over the family home (i.e. the principal private residence of Ms. Griffin and Mr. Griffin within the meaning of the 2012 Act) and the other (namely the credit union) which held security over commercial property. In accordance with the provisions of s. 99 (2) (h) and s. 104 (1), he was required to formulate the proposed arrangement on the basis that there would be no disposal of the family home. In the case of the credit union, he was required under s. 103 (1) to include a term in the arrangement that gave the credit union not less than the value of the security held by it over the nursing home. In the case of the bank, he was required under s. 103 (3) to ensure that the principal sum due under the mortgage would not be reduced below the value of the family home (although he was not required to reduce it to that value). There is one common thread underlying these requirements. In both cases, the practitioner is not entitled to reduce the amount due to the secured creditor below the value of the underlying security. He has formulated his proposals on that basis. In both cases, the value of the secured debt has been written down to the market value of the underlying property. In both cases, he has also taken the same approach in relation to payment of the balance of the indebtedness over and above the value of that security. In both cases, he has treated the balance as being wholly unsecured with each party participating in the dividend to be paid to the unsecured creditors at the same rate in accordance with the pari passu principle. In that way, it could be suggested that he has treated both secured creditors on an equal footing. It can be argued that the proposed arrangements accordingly bear all the hallmarks of equal treatment. While the credit union will receive a higher payment than the bank, this is simply a reflection of the fact that the unsecured debt due to the credit union is significantly higher than the amount due to the bank.
52. Based on the return to the credit union of €154,256.57 (mentioned in para. 32 above) the credit union would recover 24% of the overall debt due to it. In other words, it would suffer a loss of 76% of the amount due. In contrast, having regard to the higher value of its security and the lower extent of the debt due to it, the bank, based on the return to it (excluding interest) of €158,255.92, would recover 57% of the debt of €277,308. In other words, it would suffer a loss of 43% of the overall debt owed to it. This rate of loss is significantly less than the rate of loss which would be sustained by the credit union. To that extent, it could be suggested that the bank fares better under the practitioner’s proposals than the credit union. By my calculations, the extent of the loss sustained by the credit union (at 76%) relative to the loss sustained by the bank (43%) has the consequence that the credit union is 77% (76.74% to be precise) worse off (in terms of its overall loss) than the bank. However, this is unsurprising given the extent of the “ negative equity” in the nursing home relative to the extent of the “negative equity” in the family home. In circumstances where the negative equity in respect of the nursing home is proportionately greater than the negative equity in respect of the family home, one would expect that the credit union would be (relatively) worse off than the bank in terms of the extent of the loss suffered by it. However, the calculations highlighted by counsel for the bank (as summarised in paras. 32 to 35 above) demonstrate that, under the proposed arrangements, the credit union would benefit to a disproportionate degree. Under those proposed arrangements, the outcome for the credit union is significantly better than the outcome for the bank and no sufficient justification has been established for this disparity in treatment. In particular, the sheer extent of the provision made for the unsecured creditors (which gives rise to the significantly better return for the credit union than the bank) has not been adequately explained or justified. I do not see anything in the papers before the court which sufficiently explains why such extensive provision was made for the unsecured creditors. In my view, the extent of the provision made for the unsecured creditors is disproportionate. It results in a rate of return which is out of kilter with the range of dividends which I have seen paid to unsecured creditors in comparable cases (i.e. in cases where, in the event of a bankruptcy of the debtor, the unsecured creditors would receive a dividend of the order of 0.22 – 0.50 cent in the euro). In the circumstances, I am compelled to come to the conclusion that the arrangements proposed by the practitioner here cannot be said to be fair and equitable to the class of creditors represented by the bank. In short, the disparity of treatment cannot be said to be equitable. As a consequence, I cannot be satisfied that the requirements of s. 115A (9) (e) have been satisfied in this case.
53. I believe that the analysis undertaken by counsel for the bank (as summarised in paras. 32-35 above) demonstrates that the effect of the arrangements proposed in these interlocking cases is that the credit union will fare significantly better than the bank. There is a clear disparity in the way in which they are each affected by the terms of the arrangement. While I fully accept that perfect equality can rarely be achieved as between creditors holding security over different assets, the sheer extent of the disparity here is such as to make it impossible to conclude that the bank has not been treated inequitably. It seems to me that the terms of the arrangements require recalibration so as to provide for a more equitable distribution as between the credit union and the bank.
54. In reaching this conclusion in relation to s. 115A (9) (e), I stress that I do not believe that there is any sufficient evidence to suggest that the practitioner, in these cases, has deliberately sought to inflate the extent of the dividend to be paid to the credit union. However, on my reading of the evidence, that is not what occurred. Unfortunately, the submission made by the bank in this case (which highlighted the claimed disparity of treatment) was not made until the day prior to the creditors’ meeting. At that point, the practitioner had already circulated all of the creditors with the proposed arrangements. Each of the creditors had already reached a decision as to how to vote on the arrangement. It was simply too late at that stage to take account of the submission made by the bank. In my view, it is perfectly understandable why the practitioner should have proceeded with the creditors meeting in those circumstances. In paras. 18-20 above, I have quoted the most relevant extracts from the affidavit of the practitioner dealing with the dilemma faced by him after receipt of the counter-proposal from the bank. He expressed himself in quite blunt terms about the value of the counter-proposal. For reasons which I have explained at an earlier point in this judgment, I believe that the practitioner was entitled to reject the counter-proposal. It is true that the practitioner also advised Ms. Griffin and Mr. Griffin that if the arrangements were to be amended to reflect the counter-proposal, it was highly likely that it would not be acceptable to their other creditors (who had already submitted proxies). This does not suggest to me that the practitioner had intentionally drafted his proposal with a view to preferring the other creditors. On the contrary, it seems to me to be no more than quite pragmatic advice that, if the arrangements were to be amended to reflect the less favourable terms proposed for creditors under the counter-proposal, there was a likelihood that the creditors (who had already been in receipt of the proposals circulated by the practitioner for an arrangement that was significantly less favourable to them) would reject them. As noted in para. 15 (e) above, the net dividend available to the unsecured creditors under the counter-proposal was €17,000. It is unsurprising that the practitioner thought that the creditors would not be prepared to support such an arrangement in circumstances where, under his proposals, the sum available for unsecured creditors was €101,955.84. If one excluded the unsecured dividend to be paid to the bank of €18,255.92, there would still be a significant fund of €83,699.92 available for distribution to the remaining unsecured creditors under the practitioner’s proposals. The advice given by the practitioner to the debtors must be seen against this backdrop.
Unfair prejudice to the bank
55. In light of my conclusion in relation to s. 115A (9)(e), it is, strictly speaking, unnecessary to consider the other issues debated at the hearing of the appeal. Nonetheless, for completeness, I will now address the issue of unfair prejudice within the meaning of s. 115A (9) (f) which has also been raised by the bank. As noted above, each of the unsecured creditors will participate on a pari passu basis in the distribution of the fund available under the practitioner’s proposals for the unsecured creditors. As further noted above, the pari passu basis of distribution is universally recognised as a fair and equitable means of distribution to creditors of an insolvent estate (whether personal or corporate). However, the issue here is not with the application of the pari passu principle but with the extent of the provision that has been made for the unsecured creditors. As a consequence of the extent of provision made, it is contended that the bank suffers an unfair prejudice. The bank’s complaint is that the generous dividend to the unsecured creditors in this case is, in fact, being funded by it. Were it not for the moratorium on repayments of capital under the proposed arrangements, it would not be possible to make such a generous payment to the unsecured creditors in these cases. While I stress that there is nothing, per se, objectionable in making provision for unsecured creditors, it is the extent of the provision which has been made in this case which gives rise to potential difficulty.
56. In the context of s. 115A (9) (f), I am required to consider whether the arrangements are not unfairly prejudicial to the interests of any interested party. The concept of unfair prejudice is not defined in the 2012 Act. Significant guidance was given as to its meaning (in an examinership context) by O’Donnell J. in the Supreme Court in McInerney Homes Ltd [2011] IESC 31 at paras. 29-30. In those paragraphs, O’Donnell J. highlighted that an arrangement of this kind is inherently prejudicial to creditors insofar as it requires them to accept a written down amount for their debt. Prejudice, of itself, is not sufficient to engage the provisions of s. 115A (9) (f). As a consequence, the question in any particular case is whether the prejudice suffered by an individual creditor can be said to be unfair. O’Donnell J. then continued as follows:-
“29. … The essential flexibility of the test appears deliberate. It is very unlikely that a comprehensive definition of the circumstances of when a proposal would be unfair could be attempted, or indeed would be wise. … The Act … appears to invite a court to exercise its general sense of whether, in the round, any particular proposal is unfair or unfairly prejudicial to any interested party, subject to the significant qualification that the test is posed in the negative: the Court cannot confirm the scheme unless it is satisfied the proposals are not unfairly prejudicial to any interested party.
30. In this case, the trial judge’s approach to the question was to view the scheme against the likely return to affected creditors under the likely alternative in the event that there was no examinership, and no successful scheme. I agree that that is a vital test. Furthermore, as the trial judge recognised, there may well be circumstances where a creditor may be required to accept less than would be obtained in such circumstances on liquidation or a receivership, but those circumstances would normally require weighty justification. …”.
57. Further guidance was given by Baker J. in Michael Ennis [2017] IEHC 120 where she said at para. 40:-
“I have considered the provisions of s. 115A in a number of judgments, most recently in Re JD … and it is clear that the court, in the exercise of the statutory power, must consider the fairness of the proposed PIA, and in that regard a comparison with bankruptcy is an essential element of the manner in which the court engages the question of fairness.”
In the interlocking cases before the court, the bank will fare better under the proposed arrangements than it would in a bankruptcy. To that extent, the proposed arrangements pass the “ vital test ” mentioned by O’Donnell J. in McInerney Homes. As noted in para. 10 above, by my calculations, the bank will secure a return of 50.5 cent in the euro under the proposed arrangements whereas, the outcome for the bank in the event of bankruptcy is 45.40 cent in the euro.
58. However, it is clear from the judgment of O’Donnell J. that, while a comparison with the outcome in a bankruptcy is an essential consideration in the context of unfair prejudice, it is not the only consideration. O’Donnell J. stressed the flexibility of the test. It is also clear that, in assessing whether any prejudice is unfair, the issue should be considered in the round. The bank contends that there is manifest unfairness to it here in the circumstances where the main source of funding for the generous dividend to the unsecured creditors is generated by the moratorium on the repayment of capital over the 72 month period of the proposed arrangements. During that period, the bank loan will be paid on an interest only basis. The bank also reiterates the points made by it in the context of s. 115A (9) (e) that, as a consequence of the way in which the proposed arrangements have been formulated, the return to the credit union is “ vastly superior ” to the return under a bankruptcy when compared with the relative return for the bank under the proposed arrangements, relative to the rate of return in a bankruptcy.
59. As noted in para. 44 above, counsel for the practitioner has argued that the proposed moratorium on the repayment of capital is expressly envisaged by s. 102 (6) (b) of the 2012 Act. He is obviously correct in making that submission. However, the extent of the provision made for unsecured creditors here is striking. In my experience, it is unusually generous. As noted in para. 9 above, the return for the unsecured creditors in a bankruptcy would be of the order of 0.22 cent in the euro in the event of Ms. Griffin’s bankruptcy and 0.50 cent in the euro in the event of Mr. Griffin’s bankruptcy. This compares with 6.53 cent in the euro and 6.7 cent in the euro respectively under the proposed arrangements.
60. As noted above, the practitioner, in formulating arrangements of this kind, is to be accorded an appropriate margin of appreciation. However, that is not to be confused with carte blanche. Any arrangements proposed by a practitioner will, in the event that s. 115A has to be invoked, be subject to the myriad of considerations which arise under that section including the requirements of s. 115A (9) (f). As a number of judgments of Baker J. highlight, the onus is on the practitioner to demonstrate that the requirements of s. 115A have been satisfied.
61. As noted in the context of s. 115A (9) (e), the proposed arrangements, on their face, might appear to treat both the bank and the credit union in the same way. Nonetheless, as the submissions of counsel for the bank have demonstrated (as set out in paras. 32-35 above) the credit union will fare better than the bank, on a relative basis, under these arrangements than in the event of a bankruptcy. In considering the matter in the round, I must also bear in mind that, in the case of the security held by the bank over the family home, s. 103 (2) of the 2012 Act applies. That subsection applies to cases where property secured in favour of a secured creditor is to be retained under an arrangement and, at the same time, the arrangement provides for a reduction of the principal sum due in respect of the secured debt. In such circumstances, s. 103 (2) provides, for the protection of the secured creditor, that the principal sum cannot be reduced to an amount less than the value of the security (as determined in accordance with s. 105). However, it is clear from the case law, that a write down of the principal sum to the market value of the secured property is not automatic. As Baker J. explained in Laura Sweeney [2018] IEHC 456 at para. 54 any write down of the principal sum under s. 103 (2) is to be assessed in the light of the repayment capacity of the debtor. At para. 56 of the same judgment Baker J. emphasised that a write-down to market value is not directed by the 2012-2015 Acts and she reiterated that the extent of any write-down is to be measured by reference to the affordability of payment.
62. Consistent with the approach taken by Baker J., I expressed a similar view subsequently in Lisa Parkin [2019] IEHC 56 where I said at para. 109:-
“I … agree with PTSB that there can be no question of any automatic write-down of a mortgage debt to the value of the underlying security. Section 102(2) makes clear that the value of the security is a ‘floor’ beneath which the proposals must not go. … That is an extremely important protection for secured creditors and is undoubtedly informed by respect for the property rights of such creditors.”
63. In order to consider the matter in the round, it seems to me that I must, therefore, consider whether the practitioner has justified the proposed write-down of the mortgage debt due to the bank to the market value of the family home. If that write-down can be justified, then the only issue that would arise under s. 115A (9) (f) is whether the generous provision made for unsecured creditors gives rise to unfair prejudice. If, on the other hand, it emerges that there is no sufficient justification put forward for the write-down in value, then it seems to me, considering the matter in the round, it would be very difficult to say that the bank has not been unfairly prejudiced by the “ double-whammy” of the imposition of a moratorium on repayments of capital and an unjustified write-down in market value. In those circumstances, I propose to move, at this point, to a consideration of the third of the issues raised by the bank.
The complaint made under s. 115A (9) (b) (ii) of the 2012 Act
64. It is a requirement of s. 115A (9) (b) (ii) of the 2012 Act that, before an arrangement can be approved, the court must be satisfied that there is a reasonable prospect that the arrangement will:
“enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit”.
65. In this case, the bank draws attention to the fact that, on the basis of the figures set out in the proposed arrangements and the written down value of the principal sum to €140,000, the debtors will have a monthly surplus, following completion of the arrangements of €1,596.26, after discharging their reasonable living expenses and the payments due on foot of the mortgage. This raises a question as to why it was necessary in those circumstances to reduce the principal sum due in respect of the mortgage over the family home to €140,000. Having regard to the principles outlined by Baker J. in Laura Sweeney, the existence of such a significant monthly surplus, after completion of the arrangements, suggests that Ms. Griffin and Mr. Griffin could afford to make repayments in respect of a higher principal sum.
66. The existence of this surplus was very specifically raised by the bank in the course of the Circuit Court proceedings. The response given by the practitioner in paras. 21 and 22 of his affidavit was in the following terms:-
“Paragraph 8 of the objecting creditor affidavit states that ‘…will have a surplus monthly income of €1,596.26’. This is entirely incorrect. Based on year 1 household income, year 7 RLE and year 7 mortgage repayment the debtors will have a ‘projected’ monthly surplus at the end of the PIA. There is no visibility or certainty to this figure. In my view it is merely a projected/theoretical amount based on ‘known knowns’ when the PIA is proposed to creditors in the first instance. It does not take account of the possible reduction or loss of illness benefit entitlements, the possibility of special circumstance costs for their son’s further education, any costs arising based on Maeve Griffin’s health situation or any other issues over the term of the PIA. Equally it does not take account of any potential salary increments that may accrue to Gerry Griffin over the period.
22. Based on the foregoing the income and RLEs have been maximised for the benefit of creditors for the maximum period of a PIA and a theoretical post PIA household monthly surplus cannot be taken as a firm/actual amount at this point in time as it may be influenced/impacted by other factors in the intervening period, and in any event, is not captured in the ‘means of the debtor’ as per the capital PIA.” (Emphasis in original).
67. In my view, these averments by the practitioner fall far short of providing any sufficient explanation as to why the practitioner reduced the principal debt due to the bank to the value of the family home particularly in circumstances where, on his own figures, there is likely to be a surplus of as much as €1,596.26 per month after the completion of the 72 month arrangements. I note, in this context, that in para. 22 of his affidavit (quoted above) the practitioner suggests that any surplus arising following completion of the proposed arrangements would not be “ captured ” by the “ means of the debtor ” as provided for in s. 115A (9) (b) (ii). As I understand the suggestion made by him, the practitioner seeks to rely on the language of the statutory provision in question which suggests that what the court is required to address is the extent to which the means of the debtor are brought to bear under the terms of the arrangements. If the court is confined to considering the terms of the arrangements, any surplus which arises post arrangement (so it might be argued) falls outside the ambit of the statutory provision. If that is what the practitioner is suggesting, it is, in my view, a mistaken understanding of the effect of the statutory provision and of the proposed arrangements which he has formulated. The fact is that it is a term of the proposed arrangements which he has formulated that the principal debt due to the bank will be written down to the value of the family home. That is an essential and integral part of the terms of the arrangements which he proposes. The write-down will endure not just for the duration of the arrangements but for the balance of the mortgage term. The question which arise here is whether that write-down has the effect that the means of Ms. Griffin and Mr. Griffin have been sufficiently brought to bear. On the face of the evidence before the court as to the surplus which will arise after the completion of the proposed arrangements, there was, in my view, a particularly heavy onus on the practitioner to justify and explain how he had come to the conclusion that it was appropriate to write-down the debt to market value. I can see nothing in the evidence which he has placed before the court in the course of the Circuit Court proceedings which justifies the extent of the write-down.
68. I fully accept that, following the successful completion of an arrangement, debtors should not, where possible, be confined to the reasonable living expenses recommended by the ISI. That is an issue which I addressed in my judgment in Lisa Parkin [2019] IEHC 56 and it is unnecessary to repeat that analysis here. However, it is difficult to see how Ms. Griffin and Mr. Griffin require a buffer of the order of €1,569.26 above the reasonable living expenses. While I appreciate that in the Lisa Parkin case, a reasonably generous buffer was accepted by the court, this was not intended to be a bench mark for what would be acceptable in all cases. In that case, I had a very significant concern that the issue in relation to the extent of the surplus had not been adequately flagged by the objecting creditor in the course of the Circuit Court hearing and therefore had not been addressed in any detail in either the affidavits filed by Ms. Parkin or by the practitioner in that case. In contrast, in the present case, the issue was raised very plainly by the bank in para. 8 of Mr. Gately’s affidavit filed in May 2018 and the point was specifically made by him that, even if 50% of that monthly surplus was made available, it would be sufficient to service payment of part of the amount which had been written down. The practitioner and Ms. Griffin and Mr. Griffin were each therefore on notice that this was an issue of concern to the bank and they failed to address it in any sufficient level of detail in response. In these circumstances, I have come to the conclusion that there is no sufficient evidence before the court which would allow the court to form the view that surplus income of the order of €1,596.26 per month is justified or reasonable. Similarly, there is no evidence to justify the extent of the write-down.
69. I appreciate that, in the course of the appeal, further evidence was delivered by Ms. Griffin and by the practitioner in response to the additional affidavit delivered by the bank with leave of the court. These affidavits go far beyond a response to the matters raised on behalf of the bank in its new affidavit. No leave was given for the delivery of such affidavits. Even if regard is given to these affidavits, they are at a level of generality which again falls far short of justifying the retention of the monthly surplus described above or the write-down of the principal sum due to the bank. While a large number of potential expenses in the future are listed in the affidavit (which may or may not arise), the explanation for the reduction in the principal sum is ultimately given in para. 32 of the practitioner’s affidavit in the following terms:-
“32. I say that an order to reach a sustainable and affordable payment, and to return the debtor to solvency, I had to reduce the debt, and the appropriate reduction was to €140,000. I say that this reduction was based on the age and means of the debtor and based on affordability. I say that fact the payment of interest only mortgage repayments over the 72 month term of the PIA would automatically result in a significant uplift in the monthly payments after the PIA for the remaining 168 month mortgage term. In this case the mortgage during the PIA amounted to €495.83 on an interest only basis increasing to €1,107.12 on a full capital and interest basis after the PIA”.
70. In my view this does not provide any rational or objectively justifiable basis for the reduction of the mortgage debt to €140,000. While the practitioner says that this is based on the age, means, and affordability of the debtors, he does not explain this in any way and, in particular, does not sufficiently explain why the debtors here need a buffer of €1,596.26 per month. On the face of it, that is a very generous buffer and requires a more detailed explanation. While reference is made to the potential for future medical expenses for Ms. Griffin, no attempt has been made to evaluate the likelihood that such expenses might arise in the future. In fact, no sufficient evidence has been given as to Ms. Griffin’s medical needs. In the circumstances, it seems to me that not only can I not be satisfied that the requirements of s. 115A (9) (b) (ii) have been satisfied but the same difficulty arises in relation to s. 115A (9) (f). In circumstances where the write-down of the mortgage debt has not been justified, it is impossible to conclude that a bank would not be unfairly prejudiced by the proposed arrangements.
Conclusion
71. In light of the considerations outlined above, I am unable to conclude that all of the requirements of s. 115A have been satisfied in this case. In those circumstances, it is not possible to make an order confirming that the proposed arrangements should come into effect. In reaching this conclusion, I am very conscious that I differ from the decision of the learned Circuit Court judge. However, I have had the benefit of more extensive submissions (both written and oral) than were made in the Circuit Court. I have also had more time to reflect on the arguments than was available to the learned Circuit Court judge.
72. At the same time, I am also conscious that more than a year has passed since the decision of the learned Circuit Court judge and that, in the meantime, the practitioner has taken steps to implement the arrangements which were the subject of the order made by the Circuit Court in July 2018. Regrettably, there is no facility available under the 2012-2015 Acts for the court to make adjustments to an arrangement that has already been voted on by creditors so as to correct or counter-balance any perceived unfairness. It is clear, on the basis of the evidence before the court, that it would be possible to formulate arrangements in both of these cases which would meet the requirements of s. 115A. The circumstances of persons such as Ms. Griffin and Mr. Griffin are precisely what the Oireachtas had in mind when enacting the 2012-2015 Acts. It should not be difficult to formulate proposals which would address the concerns outlined in this judgment while, at the same time providing a fair distribution to the other creditors of Ms. Griffin and Mr. Griffin. In this context, I do not know whether any steps might reasonably be taken which, with goodwill from all parties, might avoid the necessity to recommence the process. I believe it would be worthwhile adjourning the matter for a short period of time to see whether any such steps might be taken.
73. If it is not possible to avoid recommencing the process under the 2012-2015 Acts, it seems to me that there would be a good basis on which to apply to the Circuit Court for an order pursuant to s. 91 (3) of the 2012 Act to permit an application for a protective certificate to be made in advance of the twelve month period prescribed by s. 91 (1) (i). While it would obviously be a matter for the learned Circuit Court judge to form his or her own view on any such application, it seems to me that there are factors here outside the control of Ms. Griffin and Mr. Griffin which would make it just to permit them to make a new proposal for a personal insolvency arrangement. In this regard, I am struck by the fact that the counter-proposal from the bank was made at such a late stage that it was wholly impracticable for the practitioner to reformulate the proposals at that point. In light of the fact that proxies had already been received from creditors, it was entirely reasonable for the practitioner to take the step which he did. If the counter-proposal had been made in a more timely way, it would have highlighted the issue which became the focus of the hearing before me and would have allowed the practitioner to formulate proposals (in advance of circulation to creditors) which took account of the underlying complaint made by the bank in the email of August 2017. While the counter-proposal itself lacked reality, the complaint that the proposals then under consideration were unduly weighted in favour of the credit union was an issue that could have been taken on board and appropriate proposals prepared which provided for a fairer distribution as between the credit union on the one hand and the bank on the other.
74. In light of the considerations discussed in paras. 72 to 73 above, I propose, before making any order in this case, to adjourn the matter for a period of weeks to see whether any practical solution can be found which would avoid the re-commencement of the process. I will discuss with counsel what period of time should be allowed for that purpose. I should make clear that I am not confident that any such practical solution can be found but I believe it would be a pity not to allow an opportunity to the parties to explore whether a solution can be identified.
In re Nugent
[2016] IEHC 127
JUDGMENT of Ms. Justice Baker delivered on the 10th day of March, 2016.
1. This judgment is given in the motion by Danske Bank (“Danske”) for an order setting aside an extension of a protective certificate granted ex parte me on the 10th February, 2016 on application by the personal insolvency practitioner (“the PIP”) on the grounds that the ex parte application was made with a lack of candour. The application is made pursuant to the inherent jurisdiction of the High Court and/or pursuant to the provisions of s. 97 of the Personal Insolvency Acts 2012 – 2015 (“the Act of 2012”) and/or O.76A, r.19 of the Rules of the Superior Courts.
Background
2. Mr. Nugent is a businessman, and on 8th January, 2012 the Master of the High Court granted liberty to Danske to enter final judgment against him in the sum of €8,469,490.43. The judgment was registered in the Central Office of the High Court on 19th March, 2013. Danske claims that the debtor remains indebted to it in the sum of approximately €9.5 million excluding costs, and that interest on the judgment sum continues to accrue.
3. Danske presented a petition that the debtor be adjudged bankrupt on 5th February, 2015 and the petition has been adjourned on eight occasions on application by the debtor, for the express purpose of enabling the PIP to apply for a protective certificate under the Act of 2012 and to seek to put in place a personal insolvency arrangement under the legislation. The adjournments were contested, and affidavits have been sworn by Danske and by Mr. Nugent for that purpose. The bankruptcy petition stands adjourned to Monday 14th March 2016.
4. Application was made to me for a protective certificate pursuant to s.95 (2) of the Act of 2012 on 3rd December, 2015 and that order was made for the statutory period of 70 days from the date of issue. That 70-day period was due to expire on 11th February, 2016. Danske did not appeal the grant of the protective certificate and the grounding affidavit sworn in respect of the present motion states that it determined not to do so as a matter of expediency.
The statutory regime
5. Section 95 of the Act of 2012 makes provision for the grant of a protective certificate to a debtor who establishes the statutory proofs. The effect of the grant of a certificate is that during its currency the debtor is protected from any action or enforcement proceedings by his creditors, and by virtue of s. 96 of the Act a creditor to whom notice of the issue of a protective certificate has been given shall not initiate or continue legal proceedings, nor take any steps to secure or recover payments or judgment, or on foot of any security. Whilst a protective certificate remains in force a bankruptcy petition may not be presented, or, in a case where a petition for bankruptcy has already been presented, may not be processed. The issuing of a protective certificate is a matter of considerable benefit to a debtor in that it gives breathing space in which to seek to come to an arrangement with creditors, and avoid the less benevolent consequences of bankruptcy.
6. The long title of the Act of 2012 recites a need perceived by the Oireachtas that debtors be assisted in resolving their indebtedness…
“without recourse to bankruptcy and to thereby facilitate the active participation of such persons in the economic activity of the State.”
7. I have already considered the import of the legislation in Re P. Bankruptcy [2016] IEHC 117. The intention of the Oireachtas was to facilitate a debtor to avoid bankruptcy, and this was seen as being a matter in furtherance of the common good. I will return later to the proposition that the court might take a certain approach to an application where a person seeks the protection, or the continued protection, of a protective certificate, and whether the purpose of the Act of 2012 suggests that I should approach a creditor’s opposition to such application with some degree of caution.
8. Application for a protective certificate is brought pursuant to the provisions of s.93 of the Act by a personal insolvency practitioner, and on notice to the Insolvency Service of Ireland. The Insolvency Service of Ireland, provided it is satisfied that the application is in order, provides for an application to be made to the appropriate court for the issuing of a certificate pursuant to s. 95(2). The court, once it is satisfied that the criteria and eligibility requirements are met, is mandated to issue a certificate:
“(2) Where the appropriate court receives the application for a protective certificate and accompanying documentation pursuant to subsection (1)(a), it shall consider the application and documentation and, subject to subsection
(3)—
(a) if satisfied that the eligibility criteria specified in section 91 have been satisfied and the other relevant requirements relating to an application for the issue of a protective certificate have been met, shall issue a protective certificate, and
(b) if not so satisfied, shall refuse to issue a protective certificate.”
9. The eligibility criteria are set out in s. 91, and no issue arises as to whether the debtor does satisfy these. Application is made to the specialist judges of the Circuit Court save where the level of debt exceeds €2.5m, when application is to the High Court.
Application to set aside
10. Danske makes an application that I set aside the order made by me on the 10th February, 2016 by which I extended the original period of the protective certificate for a further period of 40 days. The application is made in reliance on the inherent jurisdiction of the court and/or pursuant to s.97 of the Act of 2012 as amended. It is convenient that I consider the extent of the jurisdiction of the High Court in this application before I turn to consider the application.
11. Section 95 of the Act and O.76A r.15 of the Amended Rules of the Superior Courts provide for the making of an ex parte application to extend the period of a protective certificate. The application is on notice to the Insolvency Service of Ireland under r.17, but not on notice to any of the creditors. The court may in its discretion direct under r.15 (2) that notice of the application for extension be given to any person as it may direct.
12. The application for the original protective certificate was heard by me on the 3rd December, 2015 on notice to the Insolvency Service of Ireland, although the Service did not participate in the hearing. There was nothing unusual about this and as the application met the statutory criteria, the order was made.
13. The application for the extension of the time was made ex parte to me on the 10th February, 2016, and the Insolvency Service of Ireland, having been served with notice of the intention to make the application, did not offer any opposition to the making of the order.
14. Thus the scheme of the legislation and the Rules of the Superior Courts provide for the making of an application ex parte for the extension of a protective certificate. Practice and procedure in the High Court makes provision for the granting of relief ex parte in various types of applications, and it cannot be said that the form of application for extension of the period of a protective certificate under s. 95 (6) of the Act of 2012 arises by virtue of a unique statutory provision, or is a unique jurisdiction of the court.
15. The court, in making an order for the extension of a protective certificate, is continuing the umbrella of protection afforded to a debtor by virtue of the certificate such that his/her creditors may not proceed to seek judgment or enforce any judgment or take any other action on foot of a debt. The period of protection is a matter of significant benefit to a debtor, and the extension of the period accordingly also offers a measure of advantage in the same way. The statutory requirement that application be made to the court for the extension of a protective certificate, and the fact that the legislature did not provide for an automatic once-only, or further, extension, imports a requirement that the court be satisfied that the extension is merited, not merely on account of the way in which the debtor has engaged with the insolvency process during the period of the original certificate, but whether the extension of the period is likely to prove beneficial to the process as a whole. This is apparent from the express language of s. 95 (6):
“(6) Where a protective certificate has been issued pursuant to subsection (2)(a), the appropriate court may, on application to that court by the personal insolvency practitioner, extend the period of the protective certificate by an additional period not exceeding 40 days where—
(a) the debtor and the personal insolvency practitioner satisfy the court that they have acted in good faith and with reasonable expedition, and
(b) the court is satisfied that it is likely that a proposal for a Personal Insolvency Arrangement which is likely—
(i) to be accepted by the creditors, and
(ii) to be successfully completed by the debtor,
will be made if the extension is granted.”
16. The extension of the protective certificate affects the rights and interests of creditors. Given that all creditors are impacted to the same extent in that none of them may seek enforcement or judgement during the period, there is no question of the loss of priority during the period of protection. However, there may be many reasons why a delay in obtaining or recovering judgment is prejudicial to a creditor.
17. I consider, accordingly, that the making of an order extending the period of the protective certificate is a matter which engages the constitutional guarantee of fair procedures. This arises by virtue of the presumption of constitutionality afforded to post 1937 statutes as identified by the Supreme Court in East Donegal Co-operative v. Attorney General [1970] I.R. 317, and has resulted in an approach to statutory interpretation which has guided the approach of the court in considering exercise of statutory powers.
18. Whether the court had an inherent jurisdiction to set aside an order made ex parte has been considered by McCracken J. in Voluntary purchasing groups Inc. v. Insurco International Limited & Anor [1995] 2 ILRM 145 in the context of the old O. 39 which dealt with procedures under the Foreign Tribunals Evidence Act 1856. He took the view that the court had an inherent jurisdiction to set aside an order made ex parte for reasons explained as follows:
“In my view however quite apart from the provisions of any rules or statute, there is an inherent jurisdiction in the Court in the absence of an express statutory provision to the contrary, to set aside an Order made ex parte on the application of any party affected by that Order. An ex parte Order is made by a judge who has only heard one party to the proceedings. He may not have not have had the full facts before him or may even have been misled, although I should make it clear that is not suggested in the present case. However, in the interests of justice it is essential that an ex parte Order may be reviewed and an opportunity given to the parties affected by it to present their side of the case or to correct errors in the original evidence for submissions before the Court. It would be quite unjust that an Order could be made against a party in its absence and without notice to it which could not be reviewed in the application of the party affected.”
19. The recent and authoritative judgment of Hogan J. in Re Belohn Limited and Merrow Limited [2013] IEHC 157 provides a helpful summary of the principles, and a guide as to how those principles impact upon the approach of a court to an application to set aside an ex parte order. Hogan J. held that there is to be imported an implied right in any party affected by an order made ex parte which affects the interests and rights of a party to apply to set aside or vary such order. In para. 13 of his judgment Hogan J., having considered the judgment of the Supreme Court in East Donegal Co-operative v. Attorney General and Dellway Investments Limited v. National Asset Management Agency [2011] IESC 14, [2011] 4 I.R. 1, said the following:
“Applying these principles, it is plain that any interim order made ex parte interferes with the contractual rights of secured creditors, even if the examinership procedure does not present the reputational issues which were also in view in both Dellway Investments and Custom House Capital. The mere fact that the order interferes with a constitutionally protected right – whether as a property right (such as a contractual right of that kind) or a right to fair procedures – does not in and of itself make this process unconstitutional, for as Costello J. put it in Daly v. Revenue Commissioners [1995] 3 I.R. 1, 11, “legislative interference in property rights occurs every day of the week and no constitutional impropriety is involved.” But all of this does mean that any interim order made in examinership process is of a necessity a provisional one, precisely because the court could not constitutionally be given the power by means of a final order to override such due process and property rights prior to at least hearing the affected parties and for all the reasons given by the Supreme Court in D.K. and applied by that Court in Dellway Investments.”
20. I adopt that statement of principle and practice of Hogan J. in Re Belohn Limited and Merrow Limited, and consider that it has the effect in the present case that the order made by me on the 10th February, 2016 must be seen as one in respect of which application to set aside may be made. I consider therefore that the High Court does have a power to set aside an order extending the period of a protective certificate and this is a concrete realisation of the constitutional imperative of fair procedure and arises from the presumption that the Act of 2012 is constitutional in its impact and effect.
21. But this does not fully address the issue before me, namely the criteria that may be engaged by the High Court in setting aside an order extending the certificate. To answer this question involves an understanding of the scheme of the Act of 2012 and the consideration of whether the High Court is exercising an identical jurisdiction to that of the specialist judges appointed by virtue of Part 6 of the Act. The specialist judges exercising their statutory function under the Act are constrained by the powers and functions conferred by the Act of 2012, and do not exercise the full powers of a Circuit Court judge under the Courts Acts or under the Constitution. The specialist judges for example do not seem to have any power to engage principles of equity, or common law provisions outside those powers expressly conferred. The specialist judge, while the role is not merely an administrative one, does not act with full judicial powers.
22. The question arises whether the High Court in exercising its power under s. 5 is engaged in the exercise of its full original jurisdiction, or whether it is constrained in its powers and functions in the same way as the specialist judges of the Circuit Court. The legislation is silent on this, and having regard to the fact that the original jurisdiction of the High Court arises not merely by statute but also under the Constitution, I consider that any constraint on the jurisdiction of the High Court could arise only were it to be expressly contained in a statutory provision. I conclude, in the absence of such express limitation, that the High Court is exercising its full original jurisdiction in hearing any application under the Act of 2012.
23. This has the consequence in the present case that in my consideration of the application to set aside the order extending the period of the protective certificate, that I am confined to the provisions of s. 97 of the Act of 2012 in regard to the factors that bear on my decision. S. 97 provides as follows:
“97.— (1) Where a creditor is aggrieved by the issue of a protective certificate that creditor may within 14 days of the giving of notice of the issue of the protective certificate to that creditor apply to the appropriate court for an order directing that the protective certificate shall not apply to that creditor.
(2) A creditor who brings an application under subsection (1) shall give notice to the Insolvency Service and the relevant personal insolvency practitioner and to such other persons as the court may direct of that fact, and the application shall be made in such form as is provided for in rules of court.
(3) In determining an application under this section the court shall not make an order directing that the protective certificate shall not apply to that creditor unless it is satisfied that—
(a) not making such an order would cause irreparable loss to the creditor which would not otherwise occur, and
(b) no other creditor to whom notice of the protective certificate has been given would be unfairly prejudiced”.
24. I will deal more fully below with the argument of counsel for the debtor that the test that must be applied by me in hearing the application to set aside is that found in s. 97, namely that the objecting creditor must show that it is being caused irreparable loss which would otherwise not occur, but I turn now to consider the jurisprudence of the Court with regard to applications to set aside an order made ex parte.
25. Hogan J. in Re Belohn Limited and Merrow Limited, having determined that the application before him was permissible, did not expressly deal with the question of whether the statutory provisions allowing for the appointment of an interim examiner would be determinative of his approach to the application to set aside. I consider however that there is implicit in his finding in that case, where he did set aside the appointment of an interim examiner on the grounds of non disclosure, that the order to set aside was “essentially restitutionary in nature” as it involved the setting aside of an order which was tainted by non disclosure. His judgment it seems to me is a strong authority for the proposition that the application to set aside is determined by the court on broad principles of fairness and the solemnity of the court and its process. The decision of Hogan J. guides my approach to the question in the present case, and I consider that my jurisdiction is not constrained by the statutory provisions contained in s. 97, and must be seen in the broader context of the requirement of candour and disclosure in ex parte applications, and because the operation of a constitutionally complete ex parte procedure must involve a degree of respect for the court by those who make such application.
Setting aside ex parte relief
26. In the circumstances I consider that I can obtain some guidance on the approach of the Court generally to the duty of a person applying for ex parte relief. Clarke J. set out the principles in what is now the leading case of Bambrick v. Cobley [2005] IEHC 43. Application was made to him to set aside a mareva type order made ex parte on the grounds that the applicant had failed to disclose what were said to be objectively material facts. As he pointed out full and frank disclosure in ex parte applications has been identified as a “golden rule” in Tate Access Floors Inc. v. Boswell [1993] All ER 303 and Clarke J. adopted the dicta of Sir Nicholas Browne-Wilkinson V-C that the rule was well established and important. Clarke J. held that there was:
“… a clear obligation on a plaintiff moving for a mareva type injunction to make full disclosure to the court of all matters relevant to the exercise of the courts discretion.”
27. As to what is required to be disclosed in furtherance of candour, Clarke J. identified this in Bambrick v Cobley:
“While I am not prepared to hold on the evidence that the plaintiff deliberately mislead the court I am constrained to the view that as a solicitor the plaintiff, in particular, ought to have been aware to his duty to disclose all material facts and must be regarded as significantly culpable in failing to bring to the attention of the court matters which on any objective view would have had the potential to influence the courts determination”
The borderline between material and non-material facts can sometimes be uncertain and he identified what I accept is the correct test namely that:
“…the test by reference to which materiality should be judged is one of whether objectively speaking the facts could reasonably be regarded as material with materiality to be construed in a reasonable and not excessive manner.”
28. Keane J. in McDonagh v Ulster Bank (Ireland) Limited [2014] IEHC 476 adopted and applied the approach of Clarke J. in Bambrick v Cobley and made an order discharging an interim injunction granted ex parte on the grounds of lack of candour.
Was the application under section 95 ex parte?
29. The PIP argues that the application before me for the extension of the period of the protective certificate was not truly an application ex parte as it was made on notice to the Insolvency Service of Ireland. The fact that the application was not on notice to the creditors does not, it is argued, make it an ex parte application. I do not consider this submission to be well founded, as the application for the extension may properly be described as ex parte in that the persons affected or likely to be affected thereby were not on notice. An ex parte application is not merely one to which no person or body is on notice, but one of which the person whose interests are impacted is not on notice. I accept that the legislation and the Rules providing for the making of an application were formulated in a way that permitted, or perhaps even required, the application to be made ex parte to the court, but the jurisprudence which I have referred to leads me to the inevitable conclusion that any person whose interests are affected by the order may have a right to seek to set aside such an order, even if that person might not be required by the statute or the rules to be on notice. This result flows from the approach identified by Hogan J. in Re Belohn Limited and Merrow Limited, where he held that the making of an order ex parte without the availability of a remedy to set aside could not be constitutionally sanctioned.
30. Before dealing with the matters alleged to amount to lack of candour in the present case, I turn briefly to consider the role of the PIP in the insolvency process.
The PIP
31. A Personal Insolvency Practitioner is in a unique role, not equivalent to the role of an examiner or a liquidator appointed by the court under the Companies Acts, although some similarities can be noted. The PIP is required to be interposed between the Insolvency Service of Ireland and the debtor. A debtor may not engage with the process envisaged by the Act, whether to seek a personal insolvency arrangement, or a debt settlement arrangement without employing a PIP. The PIP takes a role between the administrative functions of the Insolvency Service of Ireland and the creditors. The PIP is required for example to consider whether a debtor may avail of the options available under the personal insolvency legislation as an alternative to bankruptcy. The PIP is required to undergo an examination and to apply for registration as a PIP before he or she can operate within the State. Further, by S. 14 of the Bankruptcy Act 1988, a court shall, before making an order of adjudication, consider whether the debtor’s inability to meet his engagement could be more appropriately dealt with by a personal insolvency arrangement or a debt settlement arrangement, and the court hearing a petition in bankruptcy must be satisfied that this option has been explored by a PIP who has considered the alternatives and whose professional view is a factor taken into account by the bankruptcy court. All interactions that the debtor has with the Insolvency Service of Ireland, on the one hand, and the court, on the other hand are through the PIP, and this puts the PIP in a unique position of responsibility to the Insolvency Service of Ireland, the court, the creditors and of course to the debtor. That this imports a duty of frankness and full disclosure seems to me to be unequivocal, and while the PIP is not an officer of the court in a true sense, he is a professional engaged with a process in respect of which the court expects a full, professional and objective approach. The PIP may, but does not always engage a solicitor, but the obligation of frankness must be one which the PIP bears personally by virtue of his unique role at the centre of the process, and as the person uniquely with standing to bring application to the court.
32. I turn now to consider the matters in respect of which the lack of candour is alleged.
The financial basis for a personal insolvency arrangement
33. The application for an extension of the period of the protective certificate was made on the grounds that the debtor expected to be in a position to complete the contracts for the development of a thousand nursing home beds in respect of which he hoped to recover the sum of almost €4m for distribution to creditors in the context of a personal insolvency arrangement. The grounding affidavit of the application for the extension was sworn by the PIP, Tom Murray, on 8th February, 2016. He describes the financial affairs of the debtor as “extremely complex”, but which were expected to provide “a brilliant return for creditors if successful”. He explained that the debtor hoped to achieve a significant financial return from an investment, as follows:-
“10. I say that the debtor is a Director in Preference Healthcare who have concluded an agreement with Ground Lease Capital Partners, a partnership of US pension funds, to finance on a long term basis the development of an initial one thousand nursing home beds at a capital cost of €100m.
11. I say and I am informed that Balfour Beatty Plc, a world renowned construction company, has joined the agreement to act as construction partners to Preference.
12. I say and I am informed that over the past year, the group have sourced land sites sufficient to complete the development along with securing planning permissions. The locations are cleared and ready for construction. The programme will completed with eighteen months giving rise to over one thousand long term jobs. I say that the project will include a full operational management team of finely experienced clinical and caring staff with extensive nursing home management in Ireland and internationally. I say that this project has the support of government department and its agencies.
…
14. I say that as part of the project, the debtor stands to receive circa €1.2m in repayment of a director’s loan with the option of selling his shares (5%) in the company to generate a further €2.76m. These monies are to be contributed to the arrangement for the benefit of creditors and particularly to the benefit of Danske as the dominant creditor.”
34. Danske argues that the debtors failed conspicuously to disclose the true details of that possible source of funds by reference to the affidavits sworn by the debtor in his application for an adjournment of the bankruptcy petition, and other matters. The debtor disputes the relevance of any matters that arose in the context of the bankruptcy petition, and I reject that suggestion, partly because the bankruptcy legislation envisages a close connection between processes in bankruptcy and engagement with the insolvency legislation, but also because coherence between the affidavit evidence of the debtor in the two processes is desirable.
35. In an affidavit sworn 27th November, 2015, by Mr. Nugent, in support of his application for an adjournment of the bankruptcy petition, relied, inter alia, on an argument that his debts could more appropriately be dealt with by a personal insolvency arrangement. He identified the underlying financial basis for such an arrangement as “the payment of €2m in project management fees” arising from the construction of a thousand nursing home beds by the end of 2016. He avers that the relevant parties had met in Dublin prior to the end of October, 2015, and confirmed that the “project is progressing as planned and that the process is in its very final stage”. He said that “the funding is fully agreed” in the sum of €200m and that the construction company Balfour Beatty plc “have been fully retained”. He exhibited correspondence from Ground Lease Capital Partners LLC of 18th November, 2015, which confirmed that the parties were “working diligently towards the finalising of an agreement for an initial investment of some €100m to develop care homes in Ireland”. He identified that circa 2% of the initial investment of the €100m would be “allocated by way of payment for project management services” to himself which he, in turn, would “use to pay third party suppliers for work they had done in conjunction with the sourcing of the land”.
36. When the debtor was cross examined in aid of execution before the Master of the High Court, on a date which was not identified to me but which was in the last number of months, he swore that he expected to recover a sum of approximately €1.4m in respect of fees owed to him by a company, Limra Healthcare Limited/ Limra Pensions Limited. He described the company Preference Healthcare as a “branded company”, and which would have a number of nursing homes “underneath it”. He described the structure of the companies as involving “a lot of complexities” and that he was responsible for design and build in project management.
37. The application to extend the period of the protective certificate was grounded on the affidavit of the PIP. He stated that Mr. Nugent expected to receive substantial monies through the repayment of a director’s loan to Preference Healthcare, and he made no reference to management fees. In his replying affidavit to the motion to strike out sworn on 29th February, 2016, Mr. Murray explained the connection between Limra Health Limited and Ground Lease Capital Partners LLC, and said that the latter was “now the funding partner for the project”. He explained the change in the financial profile of the debtor as arising from the fact that the payment of €2m as management fees would result in a significant personal tax liability and that it was considered “more prudent” that the debtor would seek to collect his director’s loan of €1.2m from Pragma Services Limited which would, in turn, invoice Preference for services it would perform.
38. Added to that, the debtor would sell his shareholding in Preference for €4.125m which would result in a net sum after tax of €2,763,750.
39. The loan to Pragma Services Limited had been identified in the director’s prescribed financial statement prepared for the purposes of the initial application for the protective certificate. The fees accruing from Pragma Services Limited of €2m were also identified. As both of those figures were identified in the paperwork lodged with the Insolvency Service of Ireland, there may have been no requirement that the source of funds be identified specifically in the application for the extension of the protective certificate. However, the PIP in his affidavit grounding the application for extension of the protective certificate identified that a “concluded agreement” with Ground Lease Capital Partners LLC had been achieved and that a concluded agreement Balfour Beatty plc was also in place. In his second affidavit, he exhibits a letter, which I regard as of some significance, of 24th February, 2016, from the London solicitors who act for Ground Lease Capital Partners LLC, which refers to “the potential provision” of funding and to the “proposed transaction”, and makes it quite clear that no concluded agreement has been achieved and that “all necessary due diligence and contractual matters remained to be dealt with”. That letter is dated some more than two weeks after the order extending the protective certificate, and creates, in my mind, serious doubt as to whether Preference Healthcare has concluded an agreement with Ground Lease Capital Partners LLC, and whether in that context, the finance to develop the nursing home beds is or is likely to be available. It is four months since the date of the meeting referred to in the affidavit of the debtor in his affidavit grounding his application for an adjournment of the bankruptcy petition. At that stage, the debtor expected the paperwork to be completed by 4th December, 2015. At the hearing before me on 4th or 5th March, 2016, no paperwork, other than the letter from the London solicitors of the possible investor, was available and that points to no more than ongoing negotiations.
40. It is not my role at this hearing to consider the true position of the finances of Mr. Nugent, but I do consider that the affidavit grounding the application for the extension of a protective certificate wholly failed to identify the true picture with regard to the projected source of funds.
41. Even more potentially problematic is the suggestion in the affidavit grounding the application for the extension that Mr. Nugent’s share in the company Preference Healthcare was valued at €2.76 million after tax and that he had the “option” of selling these. The debtor in his statement of affairs sworn on the 6th July, 2015 valued his shareholding in that company at “nil” and in his prescribed financial statement completed on the 6th November, 2015 for the purposes of the initial application for the protective certificate valued it at €50.00. The PIP attempted to explain the position by accepting that “as matters currently stand”, the company is almost valueless, but expected that “within the next number of days” if the project commences as expected, that the value would be in line with the report furnished by Ernst and Young exhibited to his replying affidavit. That report was a draft report dated 28th April, 2014 and bears some scrutiny. It is quite clearly gives valuations contingent upon the availability of capital, which I have noted above is less than certain. The report was clearly based on data provided by management and throughout it was referred to as a preliminary working draft.
42. The PIP does not give any coherent explanation in his replying affidavit of the 29th February, 2016 as to how he could now rely on a working draft report which is two years old, and based on projections and contingencies which have not yet been realised. His affidavit was given as one of an experienced accountant and insolvency practitioner and the body of the report goes nowhere near supporting his valuation of the shares of the debtor, and does not engage at all with many assumptions made by Ernst and Young, and with the fact that the capital basis for any ongoing activity by reference health care is not yet agreed. The report estimates the value of the company, based on the successful delivery of 750 beds at €110.6 million.
43. I regard the omission of these explanations and details from the grounding affidavit as material and being matters that might have been relevant to the exercise of my statutory jurisdiction under 95(6) of the Act 2012.
44. It is also a matter of great concern that the PIP did not inform me at the ex parte hearing that the status of Preference Healthcare at the time of the application, was “strike off listed”. No evidence has been adduced as to any step being taking to regularise the position of the company, if that is to happen at all, although counsel did say that the matter was “in hand”.
Proof of debt
45. Another matter relied on by the PIP in his application to extend the period of protection is engagement with Danske since the original protective certificate issued. In his affidavit grounding the application for the extension of the certificate the PIP says he engaged with the specified creditors, as is required under the legislation. He also says that the matter “progressed as normal and without issue” until he came to engage with the London solicitors acting for the U.S. pension fund, which I have dealt with above. He goes on later in the affidavit to say that the personal insolvency arrangement which he was putting together was likely to be accepted by the creditors including Danske, and that this serves the best interest of those creditors, “a point emphasised by my actions in seeking to engage with Danske and the debtor to date”. The suggestion was that Danske had been kept informed of progress, and if not actively supportive, at least it could be said it was not hostile. Danske through its solicitor avers that there has been no engagement between the PIP and the bank whatsoever save with regard to the completion of the bank’s proof of debt to which I will return below. He suggests that the impression given by the PIP was misleading and suggests that the proposition that creditor support would be forthcoming is one not founded in the facts of which the PIP was well aware, namely that Danske which holds well in excess of 65% of the total debt, has made it clear that none of the proposals made by the debtor were in its view credible.
46. The PIP in a letter of the 29th February, 2016 notified the solicitors acting for Danske that he had knowledge as of the 5th February, 2016, three days before he swore the affidavit grounding the application for the certificate, and five days before application was made to the court, that he was potentially exposed to “a professional negligence action” were he to accept that Danske had proved its debt within the time allowed by the legislation. No information was given to the court at the hearing of the ex parte application that there was any difficulty whatsoever with regard to the validity of the proof lodged by Danske, and this of course is of particular consequence in that Danske has more than 65% of the debt and would have in those circumstances under the legislation the power to veto any personal insolvency arrangement. The PIP in his replying affidavit suggests that Danske had available to it the option of applying to the High Court to have its proof of debt admitted. While I note that in his replying affidavit the PIP outlines a number of possible scenarios that could evolve at the creditors meeting, one of which was that Danske would be unable to vote, I cannot regard this as sufficient disclosure at the ex parte hearing of the facts surrounding the Danke proof of debt. I regard it as material that the PIP did not disclose at the very least his own view that the Danske debt was not properly proved, a view which he clearly held at the time of the ex parte application, and that it was possible that Danske would not be permitted to vote at the creditors’ meeting, with the result that a personal insolvency arrangement put to that meeting would more likely than not be accepted.
47. I reject the suggestion by the PIP that, having regard to the amending legislation of 2015, there exists now a mechanism by which the court may approve a personal insolvency arrangement notwithstanding that it has been rejected at a creditors’ meeting, as that provision envisages the court involvement in the context of seeking to protect the principal private residence of a debtor. What was not disclosed in the grounding affidavit for the extension or at the ex parte hearing, is that the principal private residence of the applicant, which he owns with his wife, has been the subject matter of an order for possession in favour of KBC Bank Ireland Plc, made in late October, 2015. In those circumsatnces, I reject the suggestion of counsel for the PIP that Danske, in bringing the application to set aside the extension of the certificate, is seeking to avoid the provisions of s. 115A as inserted by the Act of 2015, as Mr. Nugent does not have any identifiable principal private residence in respect of which the protection afforded by that new section might be availed of by him.
Conclusion on disclosure
48. I consider that the PIP failed to make appropriate disclosure and that some of the matters are matters which might have affected my mind in hearing the application for the extension of the protective certificate. In particular, I consider that the PIP has failed to identify with any clarity whatsoever the precise basis on which Mr. Nugent claimed to be close to achieving a substantial amount to meet a personal insolvency arrangement. The information furnished is at best incomplete, it is to a large extent so unclear as to be difficult to understand, and it is based on a number of assumptions, including assumptions made more than two years ago, that have not yet come to fruition. Furthermore the documentation contradicts that presented to the hearings in the bankruptcy court. That is a factor that might have influenced my approach to an extension of the protective certificate, as I was aware that the debtor wished to avail of a personal insolvency arrangement to avoid bankruptcy.
49. Furthermore, I note that the PIP failed to inform me that he had taken a view on legal advice with regard to the validity of the proof of debt lodged by Danske, and that it was possible in those circumstances that he would seek to hold a creditors’ meeting without the attendance of Danske.
50. Furthermore, the suggestion that there might have been available some scope for the court to exercise its discretion under s. 115A of the Act, as inserted by the Act of 2015, is misplaced having regard to another fact not disclosed, namely that the principal private residence of the debtor has been the subject of a recent order for possession in favour of another lending institution.
51. It is not necessary for the purposes of this application that I should take a view as to whether the PIP, or the debtor, deliberately sought to present the matter to me in a way that points to a lack of bona fides. As a matter of law the test before me is whether there was a significant and material failure to disclose matters which should have been disclosed and the test is an objective one as to what could have influenced me in the exercise of my jurisdiction in making the order ex parte. I am satisfied that the test is met.
Consequences of non-disclosure
52. It is clear from the judgment of Clarke J. in Bambrick v. Cobley that the court has a discretion, in cases where failure to disclose has been established, as to what order it will therefore make. The extent to which an applicant is culpable in respect of a failure to disclose is one factor and as he put it:
“a deliberate misleading of the Court is likely to weigh more heavily in favour of the discretion being exercised against the continuance of an injunction than an innocent omission.”
Clarke J. identified that there could be intermediate cases, and one factor was the extent of materiality.
53. I regard the non-disclosure in this case as being of matters which were material in the sense in which I have explained above. I also regard the failure of full and frank disclosure to be culpable, but in that I take my guidance from the judgment of Hogan J. in Re Belohn Limited and Merrow Limited where he accepted that the non-disclosure had come about as a result of a bona fide error and oversight and that no personal blame should attach to the petitioners or their advisors, but regarded the “objective relevance and materiality” of the matters not disclosed as being such that it would be unjust to allow the order to stand. Blameworthiness, then, does not have to be established as personal blameworthiness, and it is to be tested objectively in the light of the materiality of the matters not disclosed.
54. I regard the PIP as blameworthy in that objective sense. Further, I am not convinced that there was a genuine oversight on the part of the PIP, which led him not to disclose the true picture with regard to the funding for the nursing home schemes and the difficulty that he perceived with the proof of debt lodged by Danske.
55. I accept too that I have a discretion in the order I may make as a result of a finding that there has been material non-disclosure, and that this was culpable in the objective sense. That discretion must take into account a desire on the part of the court to express its displeasure at the failure, but also must bear in mind other circumstances which might be relevant.
56. Counsel for the PIP argues that Danske has not closed the door to the insolvency process and that this is clear from Danske’s affidavit grounding this application. He also points to the fact that we are, as he puts it “early” in the process, and that were I to now vacate the order extending the period of the protective certificate, I would be failing to recognise that the order was made in part of a process which has not yet crystallised. The process to which he refers is intrinsically tied up with the negotiations for funding from the US pension fund and that has been actively in train for several months, at the latest since October of 2015 as identified above.
57. I cannot ignore the fact that the timeframe envisaged by the personal insolvency legislation is broadly similar to that in examinership, and that the legislature in each of the two processes envisages the parties thereto moving with expedition and in the light of the strict time limits under each legislative scheme. Furthermore, the strictness of the time limits is in part a reflection of the impact on the interests of creditors by the suspension of their rights during the respective periods.
58. There might be some merit in that argument in another case, but having regard to the view that I have taken, and having regard also to the limited timeframe within which a protective certificate can operate, the delay between October, 2015 when negotiations were said to have almost reached a conclusion, is a matter that weighs on my considerations.
59. I accept that the purpose of the personal insolvency legislation is to avoid a debtor being made bankrupt, and that the personal insolvency regime offers a more benevolent means by which he or she can deal with indebtedness. This is envisaged by the Oireachtas as being in the common good. That statement of principle by the Oireachtas must influence me in my thinking, but it does not in the present case influence me to such an extent that I do not regard the absence of candour as central to the approach that I should take. The availability of a more benevolent or protective regime under the personal insolvency legislation imposes a heavy burden on a PIP coming before the court seeking a protective certificate, an extension of that certificate, or approval of a personal insolvency arrangement, to act with the utmost good faith and frankness. To gain the protection of the personal insolvency legislation where a bankruptcy petition has been adjourned pending an attempt to engage with the creditors under that regime, a PIP charged with the role of engaging with the court, the creditors and the Personal Insolvency Service of Ireland must do so with the greatest of solemnity and candour, and he is not in my view to see his role as being one of an advocate presenting in an adversarial system an argument in support of his client, but rather as a person who has responsibility and obligations to all elements of the system.
Section 97 of the Act of 2012
60. Counsel for the PIP argues that my jurisdiction ought to be exercised within the context of the provisions of s. 97 of the Act which allows the court to set aside a protective certificate, and ipso facto an order extending a certificate, on the application of an aggrieved creditor but which makes one of the tests applicable to such application that irreparable loss to the creditor would result from the making of the order. It is said that the proposed personal insolvency arrangement will be to the benefit of all creditors, and specifically to the credit of Danske as the largest creditor, but that the result of a bankruptcy would be that Mr. Nugent would not be in a position to conclude the contractual negotiations for the nursing home funding.
61. I cannot accept that argument, and I have explained above that the court is exercising its full original jurisdiction in this application. I consider that I ought not to exercise my discretion in favour of the continuance of the ex parte order in the present case as I see little or no reality in the conclusion of the contractual arrangements for which Mr. Nugent contends having regard to the fact that even now none of the players is committed to that scheme. Since the making of the order by me on the 10th of February, 2016 he has had a further period of four weeks, or three weeks if one counts the time up to the presentation of the motion to set aside the ex parte order, in which to conclude the contract. Even at the hearing of the motion the PIP was not in a position to put forward any further information that would indicate that the contractual process is coming to an end, and in that context whether the insolvency process was likely to be successful.
Conclusion
62. In my view there has been material and culpable non-disclosure and in the circumstances I propose making an order setting aside the order made ex parte on 10th February, 2016. In those circumstances there is no need for me to consider further the question whether Danske has proven its debt within the requirements of the Act.
Re McManus [2016] IEHC 279, [2016] IECA 248
EX TEMPORE JUDGMENT of the President delivered on 22nd June 2016
1. There is great urgency about this matter and the court proposes to give judgment now.
2. Anyone is aware that there are perils in ex tempore judgments. Reports of decided cases draw particular attention to the frailties that arise in the case of ex tempore judgments. In this case, there are a number of exacerbating features. The first difficulty is the pressure of deciding the case today. Because of the demands on the court’s work, we do not have the luxury of reserving judgment, bearing in mind the other work obligations that the court has. The second difficulty is my unfamiliarity with this area of jurisprudence. The third difficulty is the poor quality of the materials submitted. I remain critical of this, but I was particularly struck by the contrast between the quality of the written materials and the high quality of the oral submissions.
3. This case is an appeal against the judgment of Baker J. in the High Court delivered on 27th May 2016. The application was made under s. 97 of the Personal Insolvency Act 2012. The application came before the court on a notice of motion.
4. The background to the case is outlined in the judgment of Baker J. wherein she says that on 11th February 2016, the High Court issued a Protective Certificate to the Debtor pursuant to s. 95(6) of the Personal Insolvency Acts 2012 to 2015. On 18th April 2016, the period of protection was extended.
5. The application concerns the judgment obtained by the creditor, Clones Credit Union Ltd. Clones Credit Union Ltd. brought its application in circumstances where it had got liberty to enter judgment against the Debtor on 27th October 2015. This matured into a judgment mortgage on 19th November 2015. Bearing in mind the date of 11th February 2016, this judgment mortgage fell short of the three months space that was required in order to give it immunity under s. 102, sub-section (7) of the legislation.
6. In the High Court, Clones Credit Union brought an application to invoke the facility under s. 97 of the Act whereby, on satisfying the court of the requirements in the section, it could have its debt excluded from the operation of a personal insolvency arrangement entered into by the Debtor. There are a number of affidavits filed on behalf of the Credit Union, but principally the affidavits of Mr. Jenkinson and Counsel relies and relied in the High Court on the contents of that affidavit. It seems to be that there is reason to be uneasy about the materials and matters that were raised in the course of the affidavits, specifically, the materials that were put before the High Court in Mr. Jenkinson’s affidavits. I think there are considerable reasons to be concerned about the contents of those affidavits.
7. It seems to me that the court is concerned, and concerned only with the provisions of s. 97. I do not agree with Counsel that the court has a parallel application of inherent jurisdiction. There was a debate about the provisions of s. 97(1) and whether the extent to which a range of grounds may be invoked in order to apply under s. 97(1) of the Act. Again, for the purpose of this application, it is not necessary to make any declaration about that. It would also be inappropriate, in a brief ex tempore judgment held urgently, to attempt to make any definitive point in that regard.
8. It seems to me that it comes down to sub-section (3) and whether Baker J. was correct in her analysis of sub-section (3). I also think that sub-section 3(b) can be excluded, not because it would not be relevant in the case, but that is not covered in the notice of appeal. The court has to be satisfied that if it did not make an order excluding the particular creditor that this party will suffer irreparable loss. Not only that, the irreparable loss has to be such that it would not otherwise have occurred. Counsel is correct in saying that he starts off as a secured creditor, but when the order is made by the High Court and he does not have a period of three months, he ceases to be a secured creditor for the purpose of this provision. The fact that he goes from secured to unsecured is not a relevant consideration in the issue. However, this is not what Baker J. decided in the High Court. From paras. 34 of her judgment, Baker J. applied two criteria. The judge said that there was a discretionary element to this, that it was logical and rational to be mindful of the disclosure or non-disclosures by the Debtor to the court in relation to the applications concerning the summary judgment. We have here a clear, definitive statutory provision in s. 97(3)(a). Is it the case that not making the order will result in irreparable loss to the Credit Union that it would not otherwise have suffered?
9. I cannot see how the circumstances are such that those two criteria can be met by the Credit Union in the present application. It is possible for the Credit Union, in the event that there is a personal financial arrangements in place, to apply under s. 114/s.120 on the grounds listed in s. 120. They do not include any challenge that they might decide to make in respect of the transactions for the purpose of providing some finance that will in turn enable the arrangement to go through. The challenge thereto is not specifically included in s. 120, but it may still be brought under different parts of the regime. I do not see the failure to attack that as being a ground for sustaining irreparable damage that would not otherwise be sustained. In other circumstances, I think the position of the Credit Union is no different from any other creditor who may claim to be in a particular situation. It is clear that this is not what the section means.
10. I do not find that the rationale for s. 97(3)(a) is satisfied, namely, irreparable loss which would not otherwise occur. I think this appeal has to be allowed. I cannot find grounds in the materials that were before the High Court and now before this Court to establish those twin elements. On the strict application of the section, I cannot find myself in agreement with Baker J. and I would accordingly allow the appeal.
Finlay Geoghegan J.
11. I too am in agreement that this appeal should be allowed.
12. I would echo what has been said by the President as to the assistance given by both Counsel to the court in their oral submissions in understanding the legislative intent and the structure of this new form of personal insolvency procedure to the High Court. I am in agreement that the matter must be determined as an appeal against an order made pursuant to s. 97, as it was in the High Court, and the application to the High Court on the notice of motion was for an order pursuant to s. 97 against the continuation of the Certificate against the individual creditor and the actual order made was an order pursuant to s. 97 that the Certificate is not to apply to the Clones Credit Union Ltd.
13. I am also in agreement that this appeal must be determined within the confines of s. 97 and that any parallel application which might be made pursuant to an inherent jurisdiction of the court was not made in the High Court and is a separate matter. It does appear to me that the legislation potentially distinguishes, as was referred to in the Nugent judgment, an application to set aside in its entirety the Protective Certificate, and the much more limited application envisaged by the legislature under s. 97 that a Protective Certificate shall not apply to the individual objecting creditor. Like the President, I do not propose making any observations about what grounds may be permissible to be relied upon under s. 97(1), that should be left over for another day because irrespective of what grounds a creditor may seek to put before the court under s. 97(1), it appears to me from the clear wording of s. 97(3) that a court must be satisfied of the matters set out in (a) and (b). It is, on this appeal, the appeal against the finding of the High Court judge under s. 97(3)(a).
14. In my judgment, the High Court judge, at para. 34 of her judgment, correctly observed, in relation to the section “I consider that for a creditor to seek relief under s. 97, it is necessary to show that something other than the ordinary statutory consequence of the issue of the Protective Certificate has occurred”. In my judgment, where she fell into error was in para. 35 of her judgment where she considered that the particular prejudice, and I think by that she meant the irreparable loss to the Credit Union was that it may not bring the proceedings to set aside the securities which had been granted and registered in favour of the parents and Mother-in-law of Mr. McManus on a date that was prior to the date of registration of the judgment mortgage in favour of the Credit Union and she observed that if Mr. McManus is in a position to put before his creditors an acceptable proposal for a personal insolvency arrangement, the Credit Union loses any right or entitlement to move to set aside the charges and that the value of the debt will suffer a significant diminution.
15. In submission, Counsel on behalf of the Credit Union, made essentially two submissions but one part fell into three different parts in relation to what he said was the irreparable loss. The first was that the Credit Union, by reason of s. 102, sub-section (3), for the purposes of the personal insolvency procedure is to be treated as an unsecured creditor. Secondly, that it cannot sue, not just in respect of the charges, but it cannot execute its judgment against any property of Mr. McManus or may be delayed in the execution and that arises by reason of the provisions, he submits, of s. 96(1) of the Act. I would simply observe that s. 96(3) does permit of an application to the court, but any leave would have to be granted in the context of the legislative purpose of this entire scheme.
16. On any of those bases, the detriments which Counsel relies upon before this Court are precisely the ordinary statutory consequence of the issue of the Protective Certificate in this instance. It appears to me that the Oireachtas, in specifying in s. 97(3)(a) that a creditor who makes an application under s. 97 (for an order that the Certificate should not apply to that individual creditor) must satisfy the court that not making such an order would cause “irreparable loss” envisages loss of a nature which goes beyond the ordinary statutory consequences of the issue of a Protective Certificate. I consider that interpretation is reinforced by the entire legislative scheme of putting in place what is really a breathing period by the issue of the Protective Certificate and then giving creditors the ability to object to a personal insolvency arrangement, albeit that it has been voted in favour of by virtue of s. 114 on the grounds set out in s. 120 and the matters which Counsel really wants to bring to the attention of the court are matters which are capable of, at that point in time, if it is though appropriate, being brought to the attention of the court.
17. For those reasons, I too would allow this appeal.
Irvine J.
18. Like my colleagues, I will also allow the appeal and I would do so because I am satisfied that the trial judge fell into error when she concluded that the applicant had discharged the statutory burden which is imposed on it when it seeks relief under s. 97(3)(a) of the 2012 Act. I agree with Finlay Geoghegan J. that when the trial judge relied upon or looked for the existence of irreparable loss, she relied upon the fact, at para. 35 of her judgment, that the Credit Union would be denied the opportunity to bring proceedings to set aside the security to be afforded to Mr. and Mrs. McManus on foot of the agreement of 2nd November 2015. It is very clear to me that the Credit Union is debarred from making that challenge by virtue of the provisions of s. 96(1) of the Act. In my view, their loss of that right is an inevitable consequence of the provisions of the Act itself and it is precisely what the Oireachtas intended to flow as a consequence of the issuance of a Protective Certificate. Again, like Finlay Geoghegan J., I note that arguments have been raised in relation to other prejudice by Counsel, namely the fact that he has suffered irreparable loss because he has been moved from a position of secured creditor to unsecured creditor. However, that occurs again as an inevitable consequence of the Act under s. 102, sub-section (7). As to the prejudice alleged to arise from his inability to sue out on foot of his judgment, simpliciter or otherwise execute his judgment that flows from s. 96(1). Finally, the delay upon which he relies, namely the 150 days during which he is to some extent neutered in terms of his rights that applies to all other creditors and again, is an inevitable consequence of the Act. In my view, he did not discharge the burden imposed on him under s. 97(3)(a) of the Act, and for those reasons I am satisfied that the trial judge erred such that I would allow the appeal.