PIA Terms
Re Tinkler and Tinkler
[2018] IEHC 682
JUDGMENT of Mr. Justice Denis McDonald delivered on the 3rd day of December, 2018.
Introduction
1. In both of the above cases, the debtors (who are husband and wife) have brought applications pursuant to s. 115A (9) of the Personal Insolvency Act 2012 (“the 2012 Act”) (as inserted by s. 21 of the Personal Insolvency (amendment) Act 2015 (“the 2015 Act”)) seeking orders confirming the coming into effect of a proposed Personal Insolvency Arrangement (“PIA”) notwithstanding that the PIA, in both cases, has not been approved in accordance with Chapter 4 of Part 3 of the 2012 Act (as amended).
2. In each case, a creditors’ meeting took place on 27th January, 2017 to consider the respective PIAs. In the case of Mr. Noel Tinkler, 22% of creditors voted in favour of the proposal with 78% voting against. When this is broken down as between secured creditors and unsecured creditors, 42.74% of secured creditors voted in favour of the proposal whereas 57.26% voted against. In the case of the unsecured creditors, 8% voted in favour while 92% voted against.
3. However, of the secured creditors, one class, namely the principal private residence class, voted in favour of the proposal and, on this basis, it has been possible to satisfy the requirement set out in s. 115A(9)(g) of the 2012 Act (as amended). That subsection makes it a precondition of any application under s. 115A that at least one class of creditors has approved the proposal.
4. In the case of Mrs. Britt Tinkler, the percentages were slightly different, but the overall outcome was similar. In her case, 19.1% of creditors voted in favour of the proposal while 80.9% voted against. Insofar as secured creditors are concerned, 42.73% voted in favour while 57.26% voted against. In the case of unsecured creditors 100% of those creditors voted against the proposal. Again, as in the case of her husband, the principal private residence creditor voted in favour of the proposal.
Material terms of the PIA in each case
5. In each case the terms of the PIA are similar. It is unnecessary to set out all of the terms here. In the case of Mr. Noel Tinkler, the dividend payable under the PIA to unsecured non-preferential creditors will be 6.32 cents per euro. In the case of Mrs. Britt Tinkler, the dividend will be 6.15 cents.
6. In the case of the principal private residence creditor, Start Mortgages Limited (“Start”), the debt to it is secured on the family home. Although the value of the family home was agreed at €380,000 there will be no write-down of the full mortgage debt outstanding at €502, 291.87. Instead, interest only repayments will be applied to this account for the term of the PIA (which is 72 months). On the successful completion of the PIA mortgage repayments will revert to full capital and interest repayments. An interest rate of 1.25% will be applied.
7. The debtors also own property at 14 Franford Close, Enniscrone, Co. Sligo. Under the respective PIAs, the debtors will sell this property and the residual mortgage balance due to Bank of Ireland Mortgage Bank (“BOIMB”) will be treated as an unsecured debt after the proceeds of sale have been paid to BOIMB less the agreed costs of sale. BOIMB will be paid the same dividend as all of the other unsecured creditors and, on successful completion of the PIA, the balance of the unsecured debt will be written off.
8. The debtors also own commercial property known as “Tinkler’s Yard”, Main Street Rathcoole, Co. Dublin. This yard has a current market value of €350,000. Cheldon Property Finance DAC (“Cheldon”) have the benefit of a mortgage over this property which was originally granted by the debtors to Permanent TSB. Under the PIAs, the debtors will retain this commercial property for business purposes. The rental income of this property (from a number of business tenants) forms a significant part of the debtors’ overall income. The amount outstanding to Cheldon is in excess of €1,750,000. Under the PIA, the secured debt would be reduced to €350,000 with a balance of €1,430,522.11 being treated as an unsecured debt and ranking for a dividend accordingly. The term of the loan would be extended from 85 months to 252 months. The applicable rate of interest would be reduced from 6.95% to 4.5%. For the 72-month duration of the PIAs the debtors would make interest-only repayments in respect of the restructured commercial loan in the combined sum of €1,312.50 reverting to capital and interest repayments of €2,667.48 thereafter.
9. As I understand the proposal, Cheldon would receive a total of €90,344.22 by way of dividend in respect of the unsecured portion of its debt under the Noel Tinkler PIA while it would receive a further dividend of €87,911.41 under the Britt Tinkler PIA. On completion of the respective PIAs, the remaining debt of €1,252,266.48 would be written off.
10. The debtors also own a quarry site at Calligstown, Rathcoole, Co. Dublin. There are three judgment mortgages registered against that property which, together, exceed the current market value of the property at €165,000. Under the PIA, the debtors will retain this site as it is their place of work. At retirement age, the debtors will sell this property, at which stage the judgment mortgage debts secured on it will be discharged in full.
The Notice of Objection
11. Cheldon has filed a notice of objection in both cases. The grounds of objection in both cases are the same. While there were a large number of grounds set out in the notice of objection in each case, there were essentially three grounds relied upon by Cheldon at the hearing, namely:-
(a) concern was expressed about the treatment of Revenue debt in the PIAs which it was suggested would have unintended consequences for unsecured creditors given that part of the Revenue debt has preferential status;
(b) Cheldon argued that the proposed PIA in each case is not 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;
(c) the proposed PIA in each case is alleged to be unfairly prejudicial to the interests of Cheldon.
The hearing
12. The hearing of the application under s.115A together with Cheldon’s objections took place over the course of two days namely on 23rd July, 2018 and on 8th October, 2018. Very helpful and detailed submissions were made by counsel on behalf of the Personal Insolvency Practitioner (“the practitioner”) and on behalf of Cheldon. The submissions addressed each of the three grounds of objection summarised in para. 11 above.
13. I now consider, in turn, each of these grounds of objection.
The position of the Revenue
14. The Revenue Commissioners were not represented at the hearing. However, counsel for Cheldon emphasised that s. 115A confers a far-reaching power on the Court. He argued that this places a significant onus upon the practitioner to satisfy the Court that all of the relevant statutory conditions are met. Counsel submitted that there were a number of issues of concern in relation to the way in which the Revenue Commissioners were dealt with in this case, namely:-
(a) in the first place, in s. 5 of the PIA in each case, it is stated that there are no ” permitted debts ” and no ” preferential debts ” and that the PIA does not include any ” excludable debts “. This is relevant in the context of s. 115A(8)(iii) which requires that, on an application under s. 115A the Court must be satisfied that the proposed PIA does not contain any terms that would release the debtor from ( inter alia ) an excludable debt (other than a permitted debt). For this purpose, s. 2 of the 2012 Act defines an excludable debt as including a liability of a debtor in respect of taxes. Thus, amounts due to the Revenue would fall within the ambit of an ” excludable debt “. S. 92(1) makes clear that such a debt can be included in a proposal for a PIA only where the creditor (in this case the Revenue) has consented to the inclusion of that debt in the PIA. Where such consent is given, s. 92(a) provides that the debt in question will then be regarded as a ” permitted debt”.
(b) in the case of Mr. Noel Tinkler, the statements made in s. 5 of the PIA (as summarised in subpara. (a) above) are incorrect. It is clear that the PIA does in fact include debts in that it shows a total of €261,599.20 due to the Revenue of which €145,940.56 is to be repaid to Revenue on sale of the Calligstown property on the retirement of Mr. Tinkler. The statements of s. 5 of the report are therefore manifestly incorrect. As noted by me in para. 63 of my judgment in Donal Taffe [2018] IEHC 468, there is no mechanism under the 2012 Act to correct an error of this kind in a PIA. Where an error is inconsequential, it is possible, in the order of the Court confirming the PIA to note that the error exists and to set out the correct position in the order. It is open to question whether the error in s. 5 of the Noel Tinkler PIA could be said to be inconsequential. However, when the PIA is read as a whole, I believe it would readily be seen by any creditor that s. 5 could not possibly be correct given the detailed information which is given in s. 12 of the PIA dealing with the position of creditors including the Revenue. However, the creditors might not have been aware that any aspect of the Revenue debt was preferential. Section 12 of the PIA simply identifies how much of the Revenue debt is secured and how much of it is unsecured. Section 25.5 of the PIA provides that where Revenue debt has a preferential status this will be specified in Part IV. I can see nothing in Part IV of the PIA in Mr. Tinkler’s case which identifies that any part of the Revenue debt is preferential. On the contrary, there is a statement in s. 5 (which is contained in Part IV) that there is no preferential debt. Furthermore, s. 3 of Part IV simply records the amount that will be paid to Revenue on foot of its secured debt together with the small dividend to be paid in respect of the unsecured balance.
(c) Counsel for Cheldon also raised an issue as to whether the Revenue Commissioners had in fact opted into the PIA process in this case such as to make the “exc ludable debt ” due to them a ” permitted debt ” for the purposes of the PIA. If it was not a permitted debt, this would raise an issue as to whether s. 115A(8)(a)(iii) of the 2012 Act had been complied with. In order for an excludable debt to become a permitted debt, the creditor concerned (in this case the Revenue) must consent or be deemed to consent under s. 92 to the inclusion of the debt in the proposal for a PIA. In this context, my attention was drawn by counsel for the practitioner to the proof of debt form which was submitted by the Revenue Commissioners in this case which shows the total amount of the Revenue claim to be €261,559.20 of which €249,046.51 is secured by the judgment mortgage on the Calligstown property. It also shows that €78,957.27 is a preferential debt. In the table attached to the proof of debt, one can see that the entire of the preferential debt is secured by that judgment mortgage. My attention was also drawn to an email of 11 January 2017 furnished by the Insolvency Unit of the Revenue Commissioners in which the Revenue advised the practitioner that: –
“Revenue opts in to the Personal Insolvency Arrangement . . . proposed on the 9th January 2017.
Please find attached a proof of debt listing all the outstanding amounts to be as Revenue’s specified debt in the PIA.”
In these circumstances, it appears to be clear that the Revenue debt is covered by s. 92 of the 2012 Act and is accordingly a “permitted debt”. In those circumstances, there would not appear to me to be any danger that the provisions of s. 115A (8)(a)(iii) have not been complied with.
(d) However, a further point was made by counsel for Cheldon that there is no evidence in writing that Revenue have agreed that the preferential debt due of €78,957.27 will not be paid in priority. S.101(1) of the 2012 Act is very relevant here. It provides as follows: –
“Unless the creditor concerned otherwise agrees in writing and provision is so made in the terms of the [PIA], a preferential debt shall, subject to subsection (3), be paid in priority by the debtor . . ..”
S.101(3) is not relevant here, since it only applies where a creditor fails to satisfy the practitioner that the debt in question is a preferential debt. There was no suggestion in the hearing before me that the practitioner here was not satisfied that €78,957.27 is preferential. Counsel for Cheldon made the simple point that, for s. 101(1) to be disapplied, there must be consent in writing from the creditor concerned (in this case the Revenue) and specific provision to that effect must also be made in the PIA. In this case, it is implicit in the PIA that no part of the Revenue debt will be paid in priority to other debts. On the contrary, it is envisaged that €145,940.56 will be paid out of the proceeds of sale of the Calligstown site (but this will not take place until the retirement of Mr. Tinkler) while the Revenue will receive no more than €7,301.86 by way of dividend in respect of the balance of its debt of €115,658.64. However, counsel makes the point that, absent consent in writing from the Revenue Commissioners, s. 101(1) nonetheless applies and accordingly the Revenue Commissioners would be entitled, as a matter of law, to enforce the preferential element of the debt at the expense of the other creditors. In response, counsel for the practitioner argued that this would have no more than a marginal impact on the creditors reducing the anticipated dividend from 6.32% to approximately 6%. He argued that the PIA could therefore still be performed even if the Revenue were to proceed in that way. He also submitted that it was unlikely that Revenue would proceed in that way, given that Revenue did not appear at the hearing to oppose the application under s. 115A. He drew attention to an email from the Insolvency Unit of Revenue of 27 January 2017 in which Revenue had indicated that it would not be voting in favour of the proposal. However, these points on behalf of the practitioner are undermined by the fact that the Revenue proof of debt refers very clearly to the preferential element of the debt such that there can be no guarantee that the Revenue Commissioners will not wish to rely on their rights under s. 101(1). The proof of debt form also makes it difficult to understand how the preferential debt was overlooked in the PIA.
15. In my view, it is unsatisfactory that a PIA should be presented to creditors and voted upon by creditors in circumstances where the PIA does not expressly identify the preferential element of the debt due to Revenue. Not only is this inconsistent with s. 25.5 of the PIA but it is manifestly wrong that creditors should be asked to vote upon a PIA without any explanation as to how the preferential element of the debt to Revenue is to be dealt with. Furthermore, in my view, counsel for Cheldon was correct insofar as he suggested that, absent a written consent from Revenue, s. 101(1) continues to apply and that it would therefore be open to Revenue, notwithstanding the existence of the PIA, to enforce its right to be paid in priority in respect of the preferential debt of €78,957.27.
16. If this were the only issue to be considered, I would adjourn my consideration of the matter and require the practitioner to provide a full explanation on affidavit as to how this occurred. However, this is not the only issue that falls to be considered. The delivery of such an affidavit would serve no useful purpose if it transpires that Cheldon is to succeed on one of its remaining grounds of objection raised by Cheldon, namely: –
(a) Whether the proposed PIA is fair and equitable in relation to each class of creditors that has not approved the proposal;
and;
(b) Whether the proposed PIA is unfairly prejudicial to the interests of Cheldon.
Is the proposed PIA fair and equitable in relation to each class of creditor?
17. Under s. 115A(9)(e), the court must be satisfied (if it is to confirm the coming into effect of the proposed PIA) that the PIA 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 its coming into effect.”
18. For the purposes of this issue, counsel for Cheldon argued that Start and Cheldon are in different classes and that the proposed PIA is not fair and equitable as between those classes.
19. The judgment of Baker J. in Sabrina Douglas [2017] IEHC 785 provides considerable guidance as to the constitution of classes for this purpose. As Baker J. observes in para. 27 of her judgment, the governing criterion is contained in s.115A(17)(a)(ii) under which the court is to have regard to whether the creditors: –
” . . have, in relation to the debtor, interests or claims of a similar nature”
20. In Sabrina Douglas, Baker J. referred to the decision of Laffoy J. in Re: Millstream Recycling Ltd [2010] 4 IR 253 where Laffoy J. (in the context of the constitution of classes for the purposes of a scheme of arrangement under s. 201 of the Companies Act 1963) applied the classic test laid down in Sovereign Life Assurance Company v. Dodd [1892] 2 QB 573 where Bowen L.J. said: –
“The word ‘class’ used in the statute is vague, and to find out what it means we must look at the general scope of the section, which enables the Court to order a meeting of a ‘class of creditors’ to be summoned. It seems plain that we must give such a meaning to the term ‘class’ as will prevent the section being so worked as to produce confiscation and injustice, and that we must confine its meaning to those persons whose rights are not so dissimilar as to make it impossible for them to consult together with a view to their common interest.”
21. That test has been consistently applied by the courts ever since. In the Millstream case, Laffoy J. also referred to the observation by Chadwick L.J. in Re: Hawk Insurance Co. Ltd. [2001] BCLC 480. Laffoy J. at p. 277 summarised the approach proposed by Chadwick L.J. in that case as follows: –
“are the rights of those who are affected by the scheme proposed such that the scheme can be seen as a single arrangement; or ought to be regarded, on a true analysis, as a number of linked arrangements? . . . it is necessary to ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a common interest should be treated as parties to distinct arrangements and have their own separate meetings, but also that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be required to do so. . ..”
22. Each of the decisions in Sovereign Life Assurance Co. v. Dodd , Re: Hawk Insurance Co Ltd ., and Re: Millstream Recycling Ltd were concerned with whether class meetings were properly constituted for the purposes of voting on a scheme of arrangement. That is not the issue here. However, the approach taken in those cases is nonetheless of significant assistance in deciding whether, for the purposes of the application under s. 115A, Start Mortgages and Cheldon should be considered to be in separate classes of creditors. In Sabrina Douglas , Baker J. held that the principal private residence creditor in that case was in a different class to the secured creditors. She arrived at that conclusion applying the approach taken by Laffoy J. in the Millstream Recycling case. In particular, she drew attention to which the 2012 Act (as amended in 2015) gives special protection for the principal private residence of a debtor. In my view, applying the approach taken by Laffoy J. in Millstream Recycling , Start and Cheldon should be treated as different classes for present purposes. Their rights under the proposed PIA are quite different. In truth, the scheme is not a single arrangement which treats all secured creditors in the same way; instead it is, on a true analysis, a number of linked arrangements, insofar as the secured creditors are concerned. In particular, Start is dealt with quite separately and distinctly under the scheme from the way in which the position of Cheldon is addressed.
23. In contrast to Cheldon, Start does not suffer any write down of the indebtedness secured on the family home of Mr. and Mrs. Tinkler. In the case of both Start and Cheldon, the underlying security is worth less than the amount of the secured debt. In the case of Start, the current market value of the family home of Mr. and Mrs. Tinkler is €380,000. This leaves a deficit of €122,292.00. The proposed PIA does not involve any write down of that deficit. Nor does it envisage that Start will be paid only a dividend in respect of that element of the debt.
24. In the case of Cheldon, the indebtedness is €1,780,522.11. The value of the underlying security is €350,000. Under the proposed PIA, the balance of €1,430,522.11 will fall to be dealt with as an unsecured debt resulting in a dividend payment at a rate of 6.32% (or a rate of 6% in the event that the Revenue exercise their priority right in respect of the preferential debt).
25. In the circumstances described in paras. 23-24 above, I find it impossible to understand how Cheldon and Start could, to paraphrase Bowen L.J. consult together with a view to their common interest. Under the proposed PIA, their respective rights are simply too dissimilar. There is an obvious incentive for Start to vote in favour of the PIA. If the PIA succeeds, Start will achieve a much better result under the PIA than it would in the event of bankruptcy. Under the PIA, Start will ultimately get paid in full. In a bankruptcy, Start would have to compete with the other creditors of the debtors in relation to the extent of the indebtedness over and above the value of their security.
26. In contrast, there is no such incentive available to Cheldon. Its rights are different under the proposed PIA. It will simply receive a dividend in respect of the element of the debt which exceeds the value of the underlying security.
27. Given the dissimilar ways in which Start Mortgages on the one hand and Cheldon on the other are addressed in the proposed PIA, I believe the PIA is better characterised as a series of interlinked compromises or agreements – there is one form of agreement with Start and another with Cheldon. In all of these circumstances I have come to the conclusion that Start and Cheldon are not to be treated as being in the same class for the purposes of this application under s. 115A. For completeness, I should add that, although BOIMB was not represented at the hearing, it appears to me that its rights under the proposals are also quite different to the rights of either Cheldon or Start, such that the arrangement with it should be treated as separate to that with either Cheldon or Start. In para. 7 above, I have summarised the way in which the BOIMB debt is to be addressed under the proposals. The manner in which it is to be dealt with is markedly different from the way in which the proposals treat either Cheldon or Start. It will be able to realise its security under the proposals, such that it is impossible to see how it could plausibly be suggested that it could consult together with Start and Cheldon or either of them in the manner envisaged in the Sovereign Life case. The true position is that each of the three is being pulled in different directions given the very different ways in which each is treated under the proposals.
28. Having decided that Start and Cheldon should each be classified as a separate class of creditor, the next question to be considered is whether the proposed PIA is unfair and inequitable as between Cheldon on the one hand and Start on the other. In this context, as counsel for Cheldon has very properly acknowledged, there are circumstances where classes of creditors can be treated differently without unfairness. For example, in the context of a scheme of arrangement formulated under the Companies (Amendment) Act 1990, McCracken J. in Re: Antigen Holdings Ltd . [2001] 4 IR 600 had to consider whether it was unfair that trade creditors of the company in examinership were treated more favourably then banking creditors. In that case, the banking creditors were to be paid in full but without interest. However, the banking creditors were subject to a longer repayment period than trade creditors. McCracken J. had to consider whether this was unfair. He came to the conclusion, that, notwithstanding the difference in treatment, it was not unfair. He said at p. 603: –
“It has to be said that no creditors are getting paid interest. The banks’ debt . . .. is by far the largest proportion of the debts owed to the creditors and they undoubtedly are not being treated in the same way as the ordinary creditors. They are being paid off over a longer period and there is some validity in their point that interest to a bank is the equivalent to the profit made by an ordinary trade creditor on selling his goods and the trade creditors are in fact getting paid that profit. However, the question is: is this unfair?
The purpose of the scheme is to ensure the viability of the company. This can only be done if there is a reasonable time span in which to discharge the debt and if there is an amount being paid which is within the capacity of the company to pay. Now the vast bulk of remaining creditors are trade creditors who are presumably going to continue trading with the company. I do not think it is unfair they should get some priority because they are going to keep the company going.”
29. It will be seen that in the Antigen case, there was an objective justification for the difference in treatment between trade creditors and banking creditors. As McCracken J. said, the trade creditors were entitled to get some priority in that case because they were going to keep the company going.
30. In the present case, it is therefore necessary to consider whether there is some objective justification for the difference in treatment between Cheldon and Start. In this context, it must be acknowledged that, as counsel for the practitioner has argued, s. 100(3) of the 2012 Act implicitly acknowledges that creditors in different classes can be treated differently. While s.100(3) expressly envisages that creditors within the same class must be treated on a pari passu basis, there is no statutory requirement that the pari passu rule applies as between classes. Nonetheless, s. 115A(9)(e) requires that the Court must be satisfied that the proposed PIA is fair and equitable in relation to each class of creditors that has not approved the proposal and whose interests would be impaired by the PIA. In the present case, Cheldon has not approved the proposal. Furthermore, it is clear that its interests will be impaired by the PIA since it will be prevented from enforcing its security over the Tinkler’s Yard property and will suffer a write down of the secured indebtedness. In these circumstances, if the court is to approve the PIA pursuant to s. 115A, the Court must be satisfied that there is some objective justification for the difference in treatment.
31. In his affidavit sworn on 6 July 2017, the practitioner seeks to justify the difference in treatment in the following terms in para. 15-17 of his affidavit: –
“15. . . I say that . . . it is clear that there is both a justifiable and legal reason why the two creditors are treated differently under the PIA proposal. However, the said different treatment is not what one would describe as a prejudice or an unfair prejudice in the circumstances.
16. I say that there is a justifiable reason for the keeping and retention of the family and family home debt as opposed to the more variable and vulnerable commercial debt. I say that the commercial debt has been restructured but remains profitable for the creditor and represents a far greater return than bankruptcy. I say that the PIA is in reality contingent on the working life of the debtor to fund any payment and thus there must be a certain degree of reality in all of the restructuring.
17. . . . I say that it may be the case that the debtor’s income is generated from rental income from the objector’s security, however in the circumstances it is clear that the PIA both generates an income for the objecting creditor, a dividend for the objecting creditor, a better return than bankruptcy . . . and enables the debtors to retain their family home as per the objectives of the Act
18. For the avoidance of any doubt, I say and believe that there is no unfair or inequitable treatment of creditors but rather proper compliance with the Act and the realities of both personal insolvency practice and what would occur under the bankruptcy regime.”
32. Essentially, what the practitioner appears to suggest in those paragraphs is that Start is entitled to preferential treatment because it holds security over the principal private residence of the debtors. It is certainly true that the 2012 Act (as amended) includes a number of provisions which display a clear legislative intention to protect the principal private residence. Thus, for example, s. 99(2)(h) expressly provides that a PIA shall not require that a debtor dispose of his or her interest in the debtor’s principal private residence or to cease to occupy such residence unless the provisions of s. 104(3) applies. This is reinforced by s. 104(1) which makes clear that, in formulating a proposal for a PIA, a practitioner must, insofar as reasonably practicable, formulate the proposal on terms that will not require the debtor to dispose of an interest in or to cease to occupy his or her principal private residence. The only exception to this is under s. 104(3) where the debtor confirms in writing to the practitioner that he or she does not wish to remain in occupation of the residence or where the practitioner, having discussed the issue with the debtor, has formed the opinion that the costs of continuing to reside in the residence are disproportionately large.
33. The intention to preserve the principal private residence is further reinforced by the provisions of s. 115A itself which permits the Court (subject to being satisfied that each of the conditions stated in s. 115A have been complied with) to confirm a proposal for a PIA even where it has not been approved by a majority of the creditors
34. On the other hand, there is nothing in the 2012 Act (as amended) which suggests that the holders of security over a principal private residence should be treated more favourably than other secured creditors. In particular, there is nothing in s. 102 of the 2012 Act (which deals with the manner in which secured debts should be addressed in a PIA) which suggests that the holder of security over the residence should be treated more favourably than those holding security over other assets. Similarly, there is nothing in s.103 or s.105 (which also deal with the position of secured creditors) which suggests that the holder of security over the residence is entitled to any more favourable treatment than any other secured creditors. What the Act envisages is that the residence, the subject matter of the security held by the principal private residence lender, will not be sold (save in the very limited circumstances outlined in the Act). However, the value of the security held by such a creditor still falls to be assessed in accordance with s. 105(1) of the 2012 Act – namely the market value of the security. In the event that the PIA did not proceed, that is what the holder of security could realise through a forced or consensual sale of the residence. That is precisely the same as the holder of security over any other property could expect to receive on a sale.
35. In those circumstance, it is very difficult to understand the justification for the treatment of the Start debt in this case. As noted above, under the terms of the proposed PIA, Start will receive payment not merely of the value of the residence (which has been agreed at €380,000) but it will also receive payment of the balance of €1,222,292.00 albeit over a significantly extended term. Prior to the proposal for the PIA, the remaining term was 105 months. Under the PIA this will be extended to 252 months. In addition, for the duration of the PIA, interest only will be paid at a reduced rate of 1.25%. While that rate appears to be significantly lower than a market rate, the proposal is that on completion of the PIA, all mortgage arrears will be capitalised. This means that they will be treated as principal. Furthermore, on completion of the PIA, the payments will revert to full capital and interest repayments. Thus, in circumstances where the arrears will be capitalised, the interest in the 180-month period subsequent to the PIA will be charged on this capitalised sum rather than on the existing principal. Of course, as counsel for the practitioner correctly argued, Start is itself adversely affected by the terms of the proposed PIA. The interest rate is to be reduced for the duration of the PIA, no payments of principal are to be made during the currency of the PIA, and the repayment period is to be significantly extended. However, even allowing for these factors, it seems to me to be clear that Start is treated significantly more favourably under the PIA than Cheldon. In contrast to Start, the secured indebtedness in Cheldon’s case will be reduced to the current market value of the Tinler’s Yard property namely €350,000. The balance of €1,430,522.11 will be treated as unsecured and Cheldon will be confined to a dividend of somewhere between 6% – 6.3% (depending upon whether or not Revenue exercise their rights under s. 101(1) of the 2012 Act). That seems to me to be manifestly less favourable than the treatment of the Start debt. I can see no justification for this disparity in treatment on the basis of anything said by the practitioner in paras. 15-17 of his affidavit sworn on 6th July 2017. Furthermore, as outlined in more detail below, the further justification offered by the practitioner (in a later affidavit) for the disparity in treatment gives cause for concern,
36. In this context, it should be noted that Mr. John Burke of Cheldon swore an affidavit on 7 June 2018 in which he responded to the practitioner’s affidavit. In para. 17 of this affidavit, Mr. Burke said: –
“17. It is not contended, nor could it be, that the preferential treatment of the Start debt is necessary to ensure that the Debtors continued to reside in their principal private residence. It would clearly have been open to the PIP to formulate a PIA under which the Debtors retained their principal private residence but with a reduction in debt owed to Start. Thus I do not accept that the differential treatment of two similarly situated creditors can be justified in the manner contended for by the PIP”.
37. In turn, this contention on the part of Mr. Burke was addressed in a subsequent affidavit sworn by the practitioner on 19 June 2018 in which he said, in para 26: –
“26. I say in particular response to para. 17 of the objector’s Affidavit . . . Start Mortgages engaged pursuant to s. 98 and s. 102 with my offices and submitted a counterproposal that they would accept. I say and I took it that they would not accept anything beyond this and in circumstances where the PIA is predicated on the retention of the family home and where the s. 115 A application is predicated on the principal private residence class of creditors it therefore was necessary to obtain the support of Start Mortgages”.
38. I have to say that I am deeply troubled by this averment on the part of the practitioner. It clearly suggests that the practitioner considered it necessary to offer favourable terms to Start in order to obtain its support for a proposed PIA. In my view, such an approach is manifestly at odds with the requirement that there should be fair and equitable treatment of different classes of creditors. It is also impossible to reconcile this statement with earlier averments made by the practitioner on affidavit. For example, in para. 5 of his affidavit sworn on 22 February 2017, grounding the application under s. 115A, he expressly stated: –
“5. For the record, I say that I am an independent Personal Insolvency Practitioner . . .and as such, whilst I stand over the . . .PIA . . .I do same whilst . . . balancing the interests of each specified creditor and the Debtor . ..”
39. It also seems to me to be at variance with what is said by the practitioner in para. 14 of his affidavit sworn on 6 July 2017 in which he said: –
“14. . . I say that . . . I therefore drafted the PIA proposal ‘in the dark’ to the best of my abilities and with a view to ensuring a return to solvency, the retention of the family home and a fair and equal treatment of all creditors.” (emphasis added)
40. In my view, the approach set out in para. 5 of his first affidavit and para. 14 of his second affidavit, very correctly identifies the approach which a practitioner should take in formulating proposals for a PIA. I cannot see any proper basis on which a practitioner could formulate proposals favourable to a particular creditor with a view to securing the approval of that creditor to the proposal. If proposals for a PIA were to be formulated on that basis, it would inevitably distort and fundamentally undermine the ability of a PIA to operate fairly and equitably in relation to each class of creditors and to ensure that the PIA is not unfairly prejudicial to the interests of any interested party.
41. The practitioner makes the point in his affidavits that, in contrast to Start, Cheldon did not engage with him pursuant to s. 98 and s. 102. Cheldon did not respond to the notice under s. 98. At this point, I should explain that under s. 98(1) of the 2012 Act, the practitioner is required, as soon as practicable after a protective certificate has been issued, to give written notice to the creditors of the debtor that the practitioner has been appointed for the purposes of making a proposal for a PIA and he or she is required to invite creditors to make submissions regarding the debts concerned and the manner in which the debts might be dealt with as part of a PIA. The practitioner is also required to consider any submissions made by creditors including any submission made by a secured creditor under s. 102.
42. S. 102(1) imposes an obligation on a secured creditor, following receipt of the notification under s. 98, to furnish to the practitioner an estimate, made in good faith, of the market value of the securities. In addition, s. 102(1) envisages that the secured creditor may also indicate, a preference as to how that creditor wishes to have the security and the secured debt treated under the PIA. In turn, s. 102(2) provides that the practitioner, in formulating the proposal for a PIA, is to have regard to any preference indicated by the secured creditor under s. 102(2) as to the manner in which the security and the secured debt should be dealt with. This is subject, however, to the qualification that this is ” to the extent [that the practitioner] considers it reasonable to do so” . That very clearly indicates that the practitioner is required to form his own view on the preference suggested by the secured creditor. It does not authorise the practitioner to accept whatever is put forward by the secured creditor without scrutiny or evaluation by the practitioner. One further feature of the statutory scheme to be borne in mind is that, as 102(4) makes clear, a failure by a secured creditor to furnish a valuation and an indication of preference will not operate to prevent the practitioner from formulating a proposal for a PIA.
43. The provisions discussed in paras. 41-42 above clearly envisage that a secured creditor will respond to the notice from the practitioner. While it is not mandatory for a secured creditor to indicate any preference as to how the secured debt should be dealt with, it is highly desirable that a secured creditor should indicate a preference so that the practitioner will not have to approach the matter “in the dark” to paraphrase what was said by the practitioner in his affidavit evidence before the Court. In this case, it is regrettable that Cheldon did not respond in any way to the notification sent by the practitioner under s. 98. That undoubtedly placed the practitioner at a significant disadvantage. In contrast, as the practitioner explains in his affidavits, Start engaged and submitted a counterproposal. In para. 26 of his final affidavit, the practitioner says that he: – “took it that they would not accept anything beyond this “. This appears to suggest that the manner in which the Start debt is proposed to be addressed in the PIA is derived from the Start counterproposal.
44. I accept that the practitioner was placed in a difficult situation in circumstances where he received no communication from Cheldon. However, I can see no basis on which the failure of Cheldon to respond could in any way relieve the practitioner from the obligation to formulate a proposal for a PIA that was fair and equitable as between all classes of creditors. In addition, I do not believe that the failure of Cheldon to respond can in any way justify the decision of the practitioner (as frankly acknowledged in para. 26 of his final affidavit) to agree to the favourable treatment accorded to Start in order to obtain their support for a proposed PIA. Whether or not a response was received from Cheldon, there was, in my view, an obligation on the practitioner to formulate proposals for a PIA which were fair and equitable as between the different classes of creditors. The failure to respond did not give the practitioner carte blanche to formulate proposals for a scheme of arrangement which included such a disparity of treatment as between Start Mortgages and Cheldon. On the contrary, the obligation remained, as stated above, to formulate proposals which involved the fair and equitable treatment of the classes. I fully accept that did not require identical treatment as between Start and Cheldon. I do not rule out the possibility that it might be possible to justify a level of disparity of treatment. The difficulty in the present case is that I can see no justification for the disparity in treatment here. In my view, the desire to win the support of an individual secured creditor (even where that secured creditor holds security over a principal private residence) cannot justify the disparity in treatment.
45. It is true that, of course, 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.
46. I have therefore come to the conclusion that the proposals for a PIA which have been formulated in these interlocking cases, are not fair and equitable in relation to Cheldon (when compared with the proposals insofar as they affect Start). In those circumstances, the requirement set out in s. 115A(9)(e) of the 2012 Act (as amended) cannot be satisfied. It necessarily follows that an order cannot be made confirming the coming into effect of the proposed PIA.
Unfair prejudice
47. Lest I am wrong in the conclusion which I have reached in relation to s. 115A(9)(e) I will, for completeness, also consider the case made by Cheldon by reference to s. 115A(9)(f) under which the Court cannot make an order confirming proposals for a PIA if the proposed arrangement is unfairly prejudicial to the interests of any interested party. It is clear that the proposed PIA here is prejudicial to the interests of Cheldon in circumstances where its secured debt is being written down to the value of the underlying securities and where Cheldon will receive only a dividend of between 6% and 6.3% in respect of the balance of the sum due to it. The question is whether that prejudice is unfair in all of the circumstances.
48. Unfair prejudice is not defined in the 2012 Act (as amended). Nor is it defined in the equivalent provisions in the Companies Act 2014 dealing with examinerships. However, significant guidance as to the meaning of ” unfair prejudice ” was given by the Supreme Court in the context of examinerships in Re: McInerney Homes Ltd . [2011] IESC 31 where O’Donnell J. said at paras. 29 – 30: –
“It might be said that the Act contemplates necessary prejudice to creditors, and only prohibits prejudice which is unfair. However, it may be more correct to conceive of any scheme as being prejudicial since it requires a creditor to accept a lesser amount than is, in theory, his or her legal entitlement. For example, in this case the scheme was prejudicial in that it required creditors to accept a written down amount for their debt. But it was said to be unfairly prejudicial because that was less than the banks could obtain on a receivership. The question in any particular case is whether that particular prejudice is “unfair”. 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 fact that any proposed scheme must receive the approval of the Court means that there will be a hearing. 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.
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 . . . a receivership, but those circumstances would normally require weighty justification. However, as this case illustrates, there may remain considerable difficulty in determining the value which a creditor, and in particular a secured creditor, might otherwise obtain, by reference to which the proposal can be judged.”
49. The decision of the Supreme Court in Re: SIAC Construction Ltd . [2014] IESC 25 is also relevant. In that case, Fennelly J. said at para. 69: –
“There are two aspects to the notion of unfairly prejudice. The underlying assumption is that the person in question is, to begin with, prejudiced, that is to say that his interests as a creditor . . . are adversely affected or impaired by the proposals. It is the inevitable consequence of the insolvency . . . that every creditor will, in that sense, suffer prejudice no matter what proposals are put forward. But prejudice is not enough to trigger the court’s obligation to refuse to confirm the proposals. It must in addition be unfair. Unfairness, in turn comprises two essential aspects, the general notion of injustice and the more specific one of unequal treatment.”
50. It is clear from the observations of O’Donnell J. that the concept of ” unfair prejudice ” is a flexible one and that, in assessing whether any prejudice is unfair, the concept of fairness should be considered in the round. It is also clear from the observations of Fennelly J. in the SIAC case, that the concept of unfairness is not confined to cases where a creditor will fare worse in an examinership (or in this case a PIA) as compared to a receivership or a bankruptcy. Inequality of treatment is also a facet of unfairness.
51. Counsel for Cheldon submitted that Cheldon will be worse off under the PIA than it would be in the event of a bankruptcy. In the event of a bankruptcy, Cheldon would be entitled to rely upon its security and remain outside the bankruptcy. It would therefore be entitled, for example, to appoint a reciever over the rents currently paid by the tenants of the debtors at Tinkler’s Yard. Under the terms of the PIA, the debtors would make interest only repayments in respect of the Cheldon loan in the sum of €1,312.50 per month for the 72 month duration of the PIA, reverting to capital and interest repayments of €2,667.48 for the remaining 150 months of the extended mortgage term. However, the monthly rent roll from Tinkler’s Yard significantly exceeds these figures. The point made by Mr. Burke on behalf of Cheldon in para. 22 of his first affidavit is that, absent the proposed PIA, Cheldon would be entitled to appoint a receiver over Tinkler’s Yard and collect the entire rent roll. Mr. Burke suggests that, accordingly, the outcome for Cheldon is clearly better outside the PIA.
52. In response to Mr. Burke’s affidavit, the practitioner swore an affidavit on 6 July 2017 in which he said, at para. 9, that the net monthly rent (referable to Mr Noel Tinkler) is €2,041.20 from Tinkler’s Yard. As discussed further below, this is incorrect. In addition, it should be noted that it is clear from the terms of the PIA itself that one of the principal reasons why the practitioner proposes the retention of Tinkler’s Yard is that it generates 45% of the debtors’ income. By retaining Tinkler’s Yard, there will be a continued source of income from which other payments due by the debtor can be made, including, of course, the payments to be made to Start and Cheldon itself. The other side of that coin is that, in the absence of the PIA, the entire of the rent roll would be available to pay Cheldon in the event that Cheldon were to appoint a receiver over the rents. Cheldon would, in due course, also be in a position to sell Tinkler’s Yard but would be unlikely to achieve anything more on a sale than the value attributed to Tinkler’s Yard in the PIA. The sale would, however, generate an immediate return for Cheldon whereas under the PIA it will have to await payment of the stage payments envisaged over the course of the 72 month duration of the PIA.
53. In his replying affidavit sworn on behalf of Cheldon on 7 June 2018, Mr. Burke took issue with the suggestion made by the practitioner that the net income of Tinkler’s Yard in the case of Noel Tinkler was only €2.041.20. In para. 15 of his affidavit, Mr. Burke drew attention to the fact that in the repayment tables appended to the respective PIAs the income of Mr. Tinkler from the yard is stated to be €3,995.43, while the income of Mrs. Tinkler is stated to be €3,050.73, giving a total combined income of €7,046.16. Mr Burke made the point that the repayment provisions of the proposed PIAs are based on the figures of €3,995.43 and €3,050.73 respectively.
54. In his final affidavit sworn on 19 June 2018, the practitioner confirmed that Mr. Burke was correct and he apologised for what he described as a ” typographical error ” in his earlier affidavit. I have to say that I am surprised by the suggestion that the figure given in the practitioner’s first affidavit could be said to be a typographical error. On no reading of para. 9 of the practitioner’s affidavit sworn on 6 July 2017, could one conclude that the reference to €2,041.20 as the net monthly rent was simply a typographical error. On the contrary, it is clear that the practitioner very deliberately referred to that sum in contradistinction to the amount of €3,200.00 which had been the figure given by Mr. Burke in his first affidavit. In substance, the practitioner, in para. 9 of his affidavit is purporting to contradict what Mr. Burke had said as to the level of rental income available from Tinkler’s Yard. The practitioner, in para. 9, is seeking to suggest that Mr. Burke had overstated the amount of rent. I therefore cannot see any basis on which the practitioner can now plausibly suggest that his reference to €2,041.20 was merely a typographical error. I regret to say that I am wholly unimpressed by the practitioner’s attempt to characterise this as a typographical error.
55. I am also deeply unimpressed by a further feature of the practitioner’s affidavit sworn on 19 June, 2018. In para. 21 pf his affidavit, the practitioner says that: –
“If a receiver was appointed then there would be no tenants, no rent, and thereafter there would be the sale of the land and the factual and financial position would be that the creditor would have to discharge the cost of sale, the cost of the receiver and thus the comparison with bankruptcy is in fact absolutely one hundred percent correct.”
56. This averment on the part of the practitioner is, in turn, based on an averment by Mr. Noel Tinkler in his affidavit sworn on 25 June 2018 in which he says that the yard is a: – ” very old yard and is in disrepair “, and that he operates his gravel business from it together with his ” two other small businesses “. More pertinently, Mr. Tinkler continues in para. 8 of his affidavit as follows: –
“8. I say and believe that there are three tenants in situ since 2010. A Chinese take away, Indian take away, by the names of Mandarin House and Pure Indian and a mechanic business called Best Price Tyres. I say that I have spoken to the three tenants, being Jimmy Chan, Bhapa Singh, and Valdes Lydnusky. I say that they have outlined to me that if it was the case that a receiver and the uncertainty that brings was appointed on the basis of an inevitable sale in any event, they would immediately seek to transfer their business and move out of the yard. I beg to refer to a copy of a letters (sic) from each of them confirming the said position . . ..”.
57. Mr. Tinkler then exhibits two letters which are both in identical form and both very obviously typed on the same machine. One of them is signed by both Mr. Chan and Mr. Singh. The other is signed by Mr. Lydnusky. In both documents, the signatories confirm that they have ” developed a very strong professional relationship with . . .my landlords “. The documents then conclude in the following terms: –
“As a result, should Mr. and Mrs. Tinkler stop renting the premises and a new landlord appointed, I confirm that I would not hesitate to relocate my business to a different premises, as I do not believe I would enjoy the same working relationship with a new owner”.
58. These documents bear all the hallmarks of having been pre-prepared and placed in front of the tenants for signature. Quite apart from the hearsay nature of this material, it is of no evidential value in circumstances where the documents were not prepared by the tenants themselves. It is important to bear in mind that, in an application of this kind, the onus is on the practitioner and the debtors to place appropriate evidence before the Court to show that the proposals are not unfair. This was made clear by the Supreme Court in the context of examinerships in Re Tivway [2010] 3 IR 49. I am deeply unimpressed by this very naked attempt to manufacture evidence to support the proposition that Cheldon would be worse off in a receivership than it would be under the PIA. If there was genuine evidence to support such a case, it should have been presented to the court in the usual way on affidavit and any such affidavit should be drafted on the basis of the personal input of the deponent.
59. I must also record that, in my view, it is inherently improbable that tenants would choose to leave premises in which they have an established business just because there is a change in the landlord’s interest or because a receiver has been appointed over the rents. Unhappily, since the financial crisis in 2008, there have been a significant number of appointments both of receivers and of rent receivers. The Court would require evidence that such appointments have led to the loss of tenants. In the absence of evidence of that kind, I do not believe that I can place any reliance on the averments made by Mr. Tinkler and by the practitioner respectively in relation to the suggestion that the tenants will move if a reciever is appointed.
60. A separate point is made by the practitioner and by Mr. Tinkler in the same affidavits. It is suggested that there is no unfair prejudice in circumstances where (so it is contended) Cheldon purchased the loan book sold by Permanent TSB (to whom the original mortgage over the Tinkler’s Yard property was originally granted) at a very significant discount. Mr. Tinkler suggests that the loan book in question was ” one of the most impaired loan books in the Irish market ” and was sold for ten cents in the euro. On the basis of this suggestion, Mr. Tinkler speculates that his loan was purchased for ” circa 80,000.00″ whereas the return under the PIA would be €350,000.00.
61. In response, Mr. Burke, in his affidavit sworn on behalf of Cheldon on 7 June, 2018, makes the point that the test for unfair prejudice involves a comparison of the anticipated outcome for the relevant creditor under the proposed arrangement and the outcome that would arise in the likely alternative in the absence of such an arrangement. He reiterates the point previously made by him that the appointment of a receiver over Tinkler’s Yard would result in a: – ” manifestly better outcome . . . than under the PIA “. He also notes the concession made by Mr. Tinkler in para. 10 of his first affidavit that Cheldon stands in the shoes of the original lender and has the right to claim and sue on foot of the purchased debt.
62. It is this paragraph of Mr. Burke’s affidavit that leads to the averment made by the practitioner (in para. 21 of his affidavit sworn on 19 June 2018) that Cheldon would be worse off in the case of a receivership because it would be left with no tenants and no rent. I have already expressed my dissatisfaction with that suggestion. In my view, Mr. Burke is correct in what he says in para. 9 of his affidavit. In my view, it is very clear that Cheldon would be better off in a receivership than under the proposed PIA. Under the proposed PIA, Cheldon will not be in a position to recover any part of the rents other than the reduced monthly amount to be paid to it under the terms of the PIA for the 72 month period of the PIA. Furthermore, most of its debt will be written down very significantly. In contrast, in a receivership, while Cheldon will, of course, suffer a significant loss in the event that the premises are sold for €350,000, it will, in the event of a sale, have the ability to obtain an early payment of the full value of the property (less the costs of sale). While the costs of sale must of course be factored into the equation, the fact remains that pending any sale Cheldon will be in a position to appoint a receiver to collect the rents and will therefore have a significant income stream of just over €7,000 per month which it can use to discharge the costs of any sale and to pay down part of the indebtedness on foot of the loan accounts of the debtors or the loan accounts of the debtors which it purchased from Permanent TSB. In the course of the argument before me, it was suggested that Cheldon, as an investment fund, would have no interest in keeping a receiver in place for any length of time. However, that is an entirely speculative point. There are obvious commercial advantages for Cheldon in appointing a receiver over Tinkler’s Yard. The appointment of a receiver will generate a significant monthly income which, on an annualised basis, will be more than €84,000 per annum. When one compares that with the return which Cheldon will get under the PIA, it is obvious that even by leaving a receiver in place for six years (which would be the duration of the PIA if it was confirmed) Cheldon would generate receipts of more than €500,000. In addition, Cheldon would be in a position to dispose of Tinkler’s Yard at a time of its choice. If, for the sake of argument, it was to decide to sell after leaving a receiver in place for six years, and even if the value of Tinkler’s Yard had not increased in the meantime, it would ultimately generate gross receipts of more than €800,000 in respect of the debtors’ indebtedness. This is manifestly a greater return than anything it could achieve under the PIA. I fully appreciate that these are gross figures before deduction of costs and expenses. Nonetheless, one can readily see that Cheldon would be significantly better off in the context of a receivership than under the proposed PIAs. In these circumstances, it seems to me that, based on the generally accepted understanding of ” unfair prejudice ” as explained by the Supreme Court in McInerney Homes and in SIAC , Cheldon would be unfairly prejudiced by the proposal. More correctly, in the context of s. 115A(9)(f) I cannot be satisfied that the proposed PIAs are not unfairly prejudicial to the interests of Cheldon, as an interested party.
63. In these circumstances, I have come to the conclusion that, in addition to the reasons set out at paras. 17 to 46 above, I must refuse to confirm the proposals for the PIAs in these two cases in circumstances where I have not been persuaded that the requirements set out in s. 115A(9)(e) have been satisfied.
64. In reaching this conclusion, I have not taken into consideration the fact that Cheldon is an assignee of the original mortgagee, Permanent TSB. I appreciate that in Jacqueline Hayes [2017] IEHC 657, Baker J. distinguished between the position of a retail banking company and the position of a party such as Cheldon. However, that was in a very specific context – namely the fixing of an appropriate interest rate. In that case, Baker J. took the view that, insofar as interest rates are concerned, an investment fund is not in the same position as a bank. The latter would, from time to time, have to return to the market to meet ongoing capital needs such that any interest rate would have to reflect (and exceed) in some way ECB base rates. In contrast, there was no evidence in that case that an investment fund would ever have to return to the market.
65. In my view, there is nothing in the judgment of Baker J. in Jacqueline Hayes to suggest that investment funds are to be treated any differently to other creditors when it comes to a consideration as to whether they would be worse off in a bankruptcy than under an arrangement. In particular, I can see nothing in that judgment which would justify the court taking the approach suggested by Mr. Tinkler in his affidavit (summarised in para. 60 above).
66. In my view, the correct legal position is that Cheldon, as successor in title to Permanent TSB, is entitled to all of the contractual rights which were previously held by Permanent TSB including the right to recover in full the amounts due on foot of the loans purchased by Cheldon. Whether or not Cheldon purchased those loans at a discount is not, in my view, relevant. As a matter of law, Cheldon is entitled to recover the full amount due. Therefore, when considering whether Cheldon is unfairly prejudiced by the terms of the proposed PIA, the correct comparison to make is as between the amount which it would recover in a receivership (without making any discount for the fact that it may have purchased the loans at a discount) as against the recovery it is likely to make under a PIA.
67. In light of my conclusions in paras. 17 to 66 above, I do not believe that it is necessary to consider further the concerns expressed by Cheldon in relation to the preferential debt to the Revenue Commissioners.
Conclusion
68. For the reasons set out above, in each case, I must uphold the objection of Cheldon by reference to s 115A(9)(e) and (f). I must therefore refuse the application made by the practitioner in each case for an order confirming the coming into effect of the proposals.
Re Featherston
[2018] IEHC 683
JUDGMENT of Mr. Justice Denis McDonald delivered on the 3rd day of December, 2018.
Introduction
1. This is an appeal brought by Daniel Rule, Personal Insolvency Practitioner (“the practitioner”) on behalf of the above named debtor from the decision of His Honour Judge Enright in the Circuit Court of 24 July 2018 by which the learned Circuit Court Judge refused an application brought under s. 115 A of the Personal Insolvency Act 2012 (the 2012 Act) (as amended by s. 21 of the Personal Insolvency (Amendment) Act 2015) seeking an order confirming the coming into effect of a proposed Personal Insolvency Arrangement (“PIA”) notwithstanding that it had been rejected at a meeting of the creditors of the debtor held on 21 September 2017.
2. At the hearing of the appeal, I was informed by counsel for the practitioner that the principal reason why the learned Circuit Court Judge refused the application under s. 115A was the poor payment history (as described below) of the debtor in the period prior to the issue of the protective certificate which, in this case, was issued on 14 July 2017. Under s. 115A(10)(a) of the 2012 Act, the court is required to have regard to the conduct of the debtor in seeking to pay debts within a two-year period prior to the issue of the protective certificate.
The proposed PIA
3. The debtor in this case is a self-employed builder. He lives in an apartment at Ballyboden, Dublin 16. Between July 2016 and March 2018 he was employed on a contracts basis by a civil engineering company and was due to be paid €750 gross per week. However, he says that these payments were intermittent and that accordingly in March 2018, he stopped working for the civil engineering company and commenced working for himself. According to his evidence, he has a number of building projects underway which vary in price from €67,000 to €113,000 with estimated profits varying from €16,000 to €35,000.
4. The current market value of his apartment is €265,000. However, there is a debt due to AIB Mortgage Bank (“the bank”) of €511,763.39 secured on this property. In addition, the debtor owes money to AIB Leasing Ltd., Allied Irish Banks plc. and the Revenue Commissioners. In this case, there is a preferential debt owed to the Revenue Commissioners of €18,987. Although the debts to the Revenue Commissioners are “excludable debts” it should be noted that the Revenue Commissioners have participated in the PIA process and that they voted in favour of the proposed PIA. In fact, it is their vote in favour of the PIA that is relied upon for the purposes of s. 115A(9)(g) of the 2012 Act under which, on an application for an order under s. 115A, the court must be satisfied that the proposal has been accepted by at least one class of creditors. In the application before the Circuit Court, the Revenue Commissioners were characterised as the “excludable debt class of creditors”. Although this was initially disputed by the bank, no argument was addressed to that issue on the hearing of this appeal and it appears to be tacitly accepted that the Revenue Commissioners are a separate class for the purposes of the proposed PIA. I am satisfied that they do constitute a separate class.
5. Under the proposed PIA, the secured indebtedness to the bank will be reduced to €291,500 (which is somewhat greater than the market value of the apartment). The balance of €220,263 will be treated as an unsecured debt and will rank with all other unsecured debts (other than the preferential debt to the Revenue Commissioners) for payment of a dividend which is estimated to be 3c per euro. In the case of the preferential debt due to the Revenue Commissioners in the sum of €18,987, this will be paid in full in accordance with s. 101 of the 2012 Act (which makes clear that preferential debts are to be paid in priority).
6. During the currency of the proposed PIA (which will last for the maximum permitted period of 72 months), the estimated monthly payment to the bank will be €1,126.86 (based on an interest rate of 2.25% over the ECB rate). This compares to payments of €2,696.18 which are currently due per month (based on a margin of 3.81% over the ECB rate which was agreed by the debtor at the commencement of the mortgage). Subsequent to the expiry of the PIA, it is proposed that the interest rate would revert to 3.81% over the ECB rate and that the estimated monthly contractual repayment would be of the order of €1,334.18.
7. According to Appendix 4 to the PIA, the anticipated self-employed income of the debtor will be €3,024 per month for the 72 month duration of the PIA. After deduction of amounts due in respect of reasonable living expenses, mortgage repayments and other expenses including the fees payable to the practitioner, it is envisaged that there will be net funds available of €1,369 per month in the first year and €5,068 per month in the second and subsequent years which will be used in the first instance to discharge the preferential debt to the Revenue Commissioners and which, over years 5 and 6 will see the 3% dividend paid to the unsecured creditors (including the amount due to the bank over and above the figure of €291,000 mentioned above). Under Clause 12 of the standard terms of the PIA (as set out in Part V), the debtor will be required to account for any increase in his income above the amount specified in Appendix 4. If that additional income exceeds €100 per month, 50% of the additional income will have to be made available to the practitioner for distribution to the unsecured creditors by way of an increase to the 3% dividend.
The present application
8. At the meeting of creditors which took place on 21 September 2017, the Revenue Commissioners (representing 7.11% of the unsecured debt) voted in favour of the proposal. 92.89% (predominantly made up of the bank debts) voted against the proposal. However, in circumstances where the Revenue Commissioners have (correctly) been treated as a separate class for the purposes of s. 115A, it was open to the practitioner on behalf of the debtor to make an application to the Circuit Court to confirm the coming into effect of the proposed PIA notwithstanding the outcome of the vote at the creditors meeting. Accordingly, having been so instructed by the debtor, the practitioner filed a notice of motion seeking relief under s. 115A on 27 September 2017. In turn, the bank filed a notice of objection in which a large number of issues were canvassed. However, in the course of the hearing before me, it was made clear by counsel for the bank that it was confining its objection to three points: –
(a) In the first place, it was submitted that the payment history (addressed in more detail below) was such as to persuade a court to refuse relief under s. 115 A;
(b) Secondly, it was contended that the payment history was such as to call into question the bona fides of the debtor;
(c) Thirdly, it was suggested that the means of the debtor (in particular in the period following the expiry of the PIA) showed that the debtor could pay more to the bank than is provided for under the PIA.
The arguments of the parties
9. Counsel for the bank very properly accepted that a poor payment history is not an absolute bar to the grant of relief under s. 115A. He accepted that there well may be circumstances where a debtor will be in a position to explain why payments were not made. However, he stressed that the payment history of a debtor in the two year period prior to the grant of a protective certificate was a matter to which the court must have regard, particularly in circumstances where the court, on an application under s. 115A, is asked to grant very far reaching relief. Counsel submitted that it was incumbent on a debtor, invoking the s. 115A jurisdiction, to fully explain any poor payment record during the relevant two-year period. he also suggested that quite apart from that two year period, the debtor owed an obligation to explain any non-payment during the protection period itself.
10. Counsel for the practitioner accepted that, on an application under s. 115A, the court must look at the payment record of the debtor. However, he submitted that, in contrast to the requirements set out in s. 115A(9) the court, under s. 115A(10) retained a discretion to approve the coming into effect of the PIA even where the payment record of a debtor within the relevant two year period was poor. He also stressed that in this case, the bank had not raised this issue as one of its grounds of objection in the notice of objection described above. He said it was very significant that it was only raised in the affidavits filed on behalf of the bank. He also drew attention to the fact that it had not been an issue which featured at all in the correspondence which had taken place (largely by email) between the practitioner and the bank during the currency of the protection period. Counsel also stressed that, in this case, the bank had made a counterproposal to the practitioner (after the creditors meeting) which he suggested showed very clearly that the bank was not in fact concerned about payment history and that the bank envisaged that the bank could, in fact, do business with the debtor.
11. Counsel for the practitioner rejected the suggestion that the payment history during the currency of the protection period was relevant to an application under s. 115A. In the first place, he stressed that it is not addressed in the text of s. 115A. Quite apart from that consideration, counsel suggested that payments made during the protection period may operate almost as a preference in favour of a secured creditor, particularly in circumstances where the secured debt greatly exceeded the value of the underlying security.
12. With regard to the argument as to affordability, counsel for the practitioner argued that the submission made on behalf of the bank was based on a mistaken premise. Counsel argued that while the means of the debtor were vitally important in considering the reasonableness of proposals during the currency of a PIA, they were not relevant when it came to the post-PIA period.
Discussion and analysis
13. Before turning to the three issues raised by the bank, it is important to consider the role of the court in a s.115A application. In Michael Ennis [2017] IEHC 120 at para. 39, Baker J. described s.115A in the following terms: –
“Section 115A . . . gives the court a far reaching power to overrule the result of a vote at a creditors’ meeting if the court is satisfied that a debtor may, as a result of the proposals contained on a PIA, continue to reside in, and/or not be required to dispose of an interest in, his or her principal private residence. The court must be satisfied before engaging its jurisdiction under s. 115A that the proposal is not unfairly prejudicial to the relevant creditor.”
14. Baker J. in the same judgment made clear that the court, in the exercise of its statutory powers must consider the fairness of the proposed PIA. In considering that question of fairness, Baker J. made clear that the principal yardstick by which to assess fairness is to compare the outcome for a creditor under a PIA against the likely outcome in the event of the bankruptcy of the debtor.
15. Usually, an objecting creditor will argue that the proposed PIA is unfairly prejudicial to it. That has not been the focus of the argument in the present case. While the question of fairness is directly relevant to the third of the points raised by counsel for the bank, it is not directly in play insofar as the first two points raised on behalf of the bank are concerned. Nonetheless, fairness must always be a fundamental consideration in any application under s. 115A.
16. I now consider, in turn, the three issues which were argued before me.
The payment record of the debtor prior to the issue of the protective certificate
17. In an application under s. 115A, there are certain matters of which the court must be satisfied before the court can consider granting relief. These factors are set out in s. 115A(8) and (9). These are not the only factors that should be taken into account but they are expressly made mandatory requirements by s. 115A.
18. In contrast, s. 115A(10) sets out certain matters to which a court must have regard in considering whether to make an order confirming the coming into effect of a proposed PIA. These include the matters set out in s. 115A(10) namely: –
(a) The conduct of the debtor (within a two year period prior to the issue of the protective certificate) in seeking to pay the debts concerned; and
(b) The conduct within the same period of a creditor in seeking to recover the debts due to the creditor.
19. In my view, it is very important to bear in mind that while the court must have regard to the matters set out in s. 115A(10) the court is not required to dismiss an application under s. 115A where the payment record of a debtor is poor. On the contrary, the court is entitled to make an order confirming the coming into effect of the proposed PIA in such circumstances. That seems to me to be clear from the structure and language of s. 115A. As I have indicated, there is a marked distinction between the approach taken by the legislature in s. 115A(8) and (9) and the approach taken in s. 115A(10).
20. That is not to say that a court should lightly excuse a debtor who has failed to make any serious attempt to repay a debt in the two year period prior to the issue of the protective certificate. The legislature has very clearly indicated that the debtor’s payment record is a factor which must be considered.
21. In cases where a debtor has demonstrated a contempt for his or her payment obligations, this factor would, in my view, weigh against the grant of relief under s. 115A. On the other hand, the debtor’s circumstances may well be such that it is evident that the debtor was simply unable during that period to make any significant payments in discharge of his debts.
22. In each case, everything will depend upon the evidence placed before the court. In this context, I fully agree with the submission made by counsel for the bank that it is incumbent upon the debtor to explain why debts were left unpaid. A poor payment record requires to be adequately and comprehensively addressed by a debtor. If it has not been appropriately addressed in the evidence of the debtor, the court may well take the view that it is appropriate to dismiss the application under s. 115A. However, it would be wrong to suggest that this must happen in every case. The evidence before the court must be assessed in the round. All relevant circumstances must be taken into account. Even in cases where the explanation provided by the debtor may appear, at first sight, to be unsatisfactory, there may be sufficient material before the court to suggest that the court’s discretion should be exercised in favour of the debtor.
23. In addition, as s. 115A(10)(a) makes clear, the approach taken by the creditor in the same two-year period (insofar as steps taken to recover the debt are concerned) must also be taken into account. There may well be cases where a creditor has been prepared to step back and not to pursue a debtor in that two year period. This may operate as a countervailing factor in any consideration of the issues that arise under s. 115A(10).
24. It must also be borne in mind that s. 115A is not capable of being operated unless there was a relevant default on the part of the debtor. S. 115A(18) makes this very clear. One must bear in mind that s. 115A cannot apply unless the debts covered by a proposed PIA include a “relevant debt”. For this purpose, s. 115A(18) defines a ” relevant debt ” as a debt (secured over the principal private residence of the debtor) which was in arrears on 1 January 2015 or in respect of which (before 1 January 2015) the debtor had been in arrears but had entered into an alternative repayment arrangement.
25. The underlying purpose of the Act must also be borne in mind. As the long title to the 2012 Act makes clear, the Act was enacted in the interests of the common good with the objective ( inter alia ) to ameliorate the difficulties experienced by debtors and to enable insolvent debtors to resolve their indebtedness in an orderly and rational manner without recourse to bankruptcy. While there are obvious limits to the extent to which this underlying purpose can be taken into account, there may well be circumstances where a debtor has a poor payment record during the relevant two year period but who, on the evidence before the court, has demonstrated a genuine intention to deal with his or her debts under a PIA which appropriately addresses the payment of the debtor’s liabilities, having regard to his or her means, and which has a real prospect of securing a better outcome for the debtor’s creditors than the likely outcome on a bankruptcy of the debtor. It would be wrong, in my view, for a court to take an unduly ” box-ticking ” approach and to dismiss every application under s. 115A where the debtor has a poor payment record during the relevant two year period. In my view, that is not what s. 115A(10) has in mind.
26. That is not to say that there is not an obligation on the debtor to explain a poor payment record. As I have sought to emphasise above, there can be no doubt that there is such an obligation on the debtor. I do not intend to dilute the significance of that obligation in any way. The practitioner/debtor bears the onus of proof in applications under s. 115A. It is therefore essential that a poor payment record should be appropriately explained on affidavit by the debtor. Nonetheless, even in cases where the explanation may seem unsatisfactory or incomplete, the court retains a discretion if there are countervailing considerations that apply such as to persuade a court that, in all of the circumstances of the case, the s. 115A relief should nevertheless be granted.
The payment record of the debtor
27. Bearing the considerations outlined in paras. 19-26 in mind, I now turn to address the evidence in this case. In her affidavit grounding the objections of the bank, Ms. Christine Mooney has exhibited the statement of account between the debtor and the bank for the period 1 January 2014 to 30 November 2017. It shows that the last payment made by the debtor was a payment of €4,000 made on 9 June 2016. The protective certificate issued on 14 July 2017. In para. 11 of her affidavit, Ms. Mooney highlights that during the 2016 period, the trading position of the debtor had improved. In the year to 31 December 2015, the debtor had made a net profit of €36,929 whereas in the following year, the net profit had increased to €40,953. The 2016 accounts also show that in that year, the debtor had drawings of €51,406.
28. In para. 6 of his affidavit sworn on 3 May 2018, the debtor responds as follows to para. 11 of Ms. Mooney’s affidavit: –
“I have not made payments in a while now as the company for which I was doing work took an extremely long time to make intermittent and sporadic payments. Eventually I could not afford to keep working for nothing so I broke away from them (sic) and started doing smaller jobs with better prospects of payment and I am now in a much better place to start making payments every month”.
29. The debtor also said in para. 11 of the same affidavit that his payments to the bank had “decreased” over the past three years as he ” . . got let down on a few jobs on final payments and could not recover a lot of money owed to me. I say any payments that I did receive had to go immediately paying contractors and suppliers”.
30. In my view, this response from the debtor is entirely inadequate. It does not address in any meaningful way the very particular concern expressed on behalf of the bank in para. 11 of Ms. Mooney’s affidavit. His explanation is wholly lacking in detail. In particular, he does not address the fact that his accounts show profit in the year to 31 December 2016 and significant drawings by him in that year. Yet, the only payment made to him in that year to the bank was a single payment of €4,000. This payment was made at a time when he was contractually required to make monthly payments to the bank in the sum of €2,696.00.
31. A further affidavit was sworn on behalf of the bank by Mr. Tom Walsh on 11 June 2018. Unsurprisingly, Mr. Walsh reiterated the point previously made by Ms. Mooney that the debtor’s payments to the bank had decreased while the trading accounts of the business show an increasing profit trend. This resulted in one further affidavit from the debtor sworn on 26 June 2018. In that affidavit, he explains that between July 2017 and March 2018 he was employed on a contracts basis by a civil engineering company and only received intermittent payments. In para. 12 he says: –
“In fact, payments were intermittent and since March 2018 when I stopped working with them an outstanding sum of €6,500.00 gross remains unpaid. I have pursued them on a weekly basis without success and at this stage may have to resort to legal action to secure payment.”
32. Again, I regret to say that the approach taken by the debtor in his second affidavit is completely lacking in detail. In my view, the debtor has failed to place any sufficient evidence before the court to explain why his payment record was so poor in the period prior to the grant of the protective certificate. I can well understand why, in the circumstances, the learned Circuit Court Judge was minded to refuse the application under s. 115A. To properly explain himself, the debtor should have provided a detailed account on affidavit to the court as to why, notwithstanding his increase in profits, he was unable to make payments to the bank during the period in question. The statement made by him in para. 12 of his second affidavit is very difficult to reconcile with his 2016 accounts. In my view, the failure of the debtor to properly explain himself weighs heavily against the grant of relief under s. 115A. However, as explained above, it does not provide an automatic basis on which the relief under s. 115A should be refused. As I have sought to explain, it must be considered in the round with all of the other evidence before the court. In particular, it seems to me that a number of factors must also be weighed in the balance in this case.
33. In the first place, it is clear from the second affidavit of the debtor that he has a number of building projects underway at the moment. His averments to that effect are corroborated by the material exhibited by him. This shows that the debtor has an ongoing income which, under the terms of the PIA, will be applied for the benefit of his creditors for the duration of the PIA. While I would not wish to suggest that this will always trump a poor payment record in the two year period prior to the issue of a protective certificate, it is nonetheless a factor that must also be weighed in the balance. In my view, the court must bear in mind the purpose of the 2012 Act (as amended in 2015). In this context, I agree with counsel for the practitioner that there is a parallel to be drawn between applications to confirm the coming into effect of a PIA and applications to confirm a scheme of arrangement in examinerships. If there are proposals for a PIA which will achieve the purpose of the 2012 – 2015 Acts, and will result in a better outcome for creditors than a bankruptcy, that is a factor that can be borne in mind even where there has been wrongdoing on the part of the debtor.
34. In this context, the observations of Clarke J. (as he then was) in Re: Traffic Group [2008] 3 IR 253 at p. 261 are apposite: –
“It seems to me, therefore, that a court should lean in favour of approving a scheme where the enterprise . . .and the jobs . . . are likely to be saved. That is not to say that the court should disregard any lack of candour or other wrongful actions. It does, however, seem to me that the court’s approach to such matters should take into account the following.
Firstly, it needs to be recognised that there may be cases where the wrongful actions of those involved in promoting the examinership are so serious that the court is left with no option but, on that ground alone, to decline to confirm a scheme which would otherwise be in order. It is necessary . . . to discourage highly wrongful behaviour.”
Clarke J. went on to say that the need to discourage highly wrongful behaviour must be balanced against the desirability of saving an enterprise rather than see it forced into liquidation. While the parallel is not a perfect one, the approach taken by Clarke J. in that case is nonetheless relevant here because it shows that improper conduct on the part of a party proposing an arrangement is not always fatal.
35. The second factor that I must bear in mind is that there is nothing in the correspondence between the bank and the practitioner which expresses any concern on the part of the bank in relation to the non-payment history prior to the grant of the protective certificate (or indeed in relation to the period after the grant of the certificate). While a significant body of correspondence is exhibited at CM 2 to the affidavit of Ms. Mooney sworn on 11 December 2017, it is striking that nowhere in this correspondence is any concern expressed on behalf of the bank in relation to the debtor’s payment record. If the bank was seriously exercised about the payment record of the debtor prior to the grant of the protective certificate, one would expect that this would be evidenced in contemporaneous material.
36. The third factor that I bear in mind is that, in this case, the bank, while voting against the proposed PIA, made a counterproposal. This is evident from the email from the bank to the practitioner of 11 September 2017 in which the bank proposed a different form of restructuring of the loan facility. This shows very clearly that, notwithstanding the previous payment record of the debtor, the bank considers that an arrangement with the debtor is feasible.
37. I must also bear in mind the position of the other creditors of the debtor. It is clear from Appendix 5 to the proposed PIA that, in the event of a bankruptcy, the unsecured creditors will receive no dividend at all. In contrast, if the PIA in this case is confirmed, the preferential debt of the Revenue Commissioners will be paid in full and the unsecured creditors will receive a very small dividend. While that dividend is tiny, it has the potential to improve in the event that the income of the debtor improves. As noted above, Clause 12 of Part V of the proposed PIA requires the debtor to account for any net increase in his income over the amount specified in Part IV and this will be to the advantage of the unsecured creditors.
38. The remaining factor which I must weigh in the balance is the fact that the Revenue Commissioners here have supported the PIA. This suggests that the Revenue Commissioners are not concerned with the past payment performance of the debtor and that they have confidence that the debtor will be in a position to meet his obligations under the PIA going forward. Given the rigorous approach usually taken by the Revenue Commissioners, this is a sign of confidence in the debtor which I believe should also be taken into consideration.
39. In my view, when all of the above factors are taken into account, the balance shifts in favour of the debtor notwithstanding his failure to explain his poor payment record (in respect of his indebtedness to the bank) in the two year period prior to the grant of the protective certificate. However, before reaching any final conclusion it is necessary to consider the remaining concerns highlighted by the bank in the course of the hearing before me.
The failure to make payments during the protection period
40. As counsel for the bank acknowledged in the course of his submissions, this point is linked to the debtor’s pre- certificate payment record discussed above. While s. 115A(10) is not concerned with payment history during the protection period, counsel for the bank submitted that a failure to make any payments during the protection period was relevant to the exercise of the discretion of the court under s. 115A. Counsel cited, in this context, to the decision of Baker J. in Michael Ennis [2017] IEHC 120 where Baker J. referred to the obligation imposed on a debtor by s. 118(1) of the 2012 Act to act in good faith. In that case, the debtor had made a unilateral decision to cease payments without consulting the practitioner or his legal team. Nonetheless, the debtor there swore an affidavit in which he contended that he had been making monthly payments since he engaged a practitioner. Having referred to the obligation of good faith imposed on debtors under s. 118, Baker J. continued as follows at paras. 50-54 of her judgment: –
“50. Such an obligation [of good faith] is also implicit in any application where a litigant engages the discretion of the court, and arises from the nature of the process which affords a debtor a chance of . . . resolution of debt by the forgiveness of significant debt due to secured or unsecured creditors, or the variation of the conditions of a loan.
51. Further, the court is required in the context of s. 115A to have regard to the relevant matters contained in s. 115, including ss. 115(9)(b) and (c), and to the grounds of challenge contained in section 120. These factors engage questions of the bona fides of the debtor. Indeed, the debtor himself recognises this and at para. 17 of his first affidavit . . . he expresses the proposition that he has been making monthly payments in excess of the payments proposed in the PIA since he met . . . the PIP, . . . . At the time that affidavit was sworn, [the debtor] had ceased making those payments . . .
52. Counsel for EBS suggests that the behaviour of the debtor is akin to ‘holding the process to ransom’, and while I do not propose to adopt that description, I am satisfied that the debtor has not engaged bona fide with the process, nor with the PIP engaged to act as financial intermediary in the process, nor with his legal team.
53. He has made it clear that the decision to cease payments was made unilaterally, and avers at para. 5 of his second affidavit that the payments were stopped without first consulting either the PIP or his legal team. Indeed, it seems that the debtor permitted his affidavit to be presented for the purposes of a notice of appeal . . . without informing his PIP or his legal advisors of that very significant discrepancy. His lack of candour is material and serious.
54. For those reasons, and in the exercise of my discretion, I propose making an order refusing the appeal and thereby upholding the objection of EBS.”
41. I do not believe that this passage from the judgment of Baker J. goes so far as to suggest that non-payment of liabilities during a protection period will be sufficient of itself to persuade a court to exercise its discretion against the grant of relief under s. 115A. On the contrary, it seems to me that Baker J. was very concerned about the lack of candour on the part of the debtor in that case. He had sworn an affidavit (which he relied upon for the purposes of an appeal) in which he contended that he was making payments on a monthly basis. That averment turned out to be untrue. That was a very obvious instance of lack of candour on the part of the debtor in that case and it is unsurprising in those circumstances that Baker J. should refuse relief. There do not appear to have been any countervailing circumstances in that case which would have caused the court to excuse the lack of candour on the part of the debtor there. Moreover, it is clear from the consideration of the judgment as a whole that, in that case, there were very significant doubts as to whether it was feasible for the debtor to retain the principal private residence. The residence was in a state of disrepair. It had been broken into. The water pump, oil burner and oil tank were stolen. There was no running water. There was a significant planning issue with the property and it was questionable whether the property was, in truth, habitable at all.
42. In my view, the position here is different. While I deprecate any failure by a debtor to make some attempt to deal with ongoing liabilities during the protection period, there is no lack of candour on the part of the debtor here in relation to his failure to make payments during the protection period. In para. 20 of his first affidavit, the debtor dealt with the position as follows: –
“In regard to [the bank] . . . , I say that for the reasons outlined above, I have not been in a position to make any payments to my mortgage for about the past eleven months. However, as things have now begun to improve following the change in my trading . . . , I am in a position to pay up to €1,500.00 per month (depending on receipts). In that regard I did go to AIB Bank in Ballsbridge in the first week of April with a view to setting up a standing order and I was advised that they would contact me about this. However, they have not done so. I previously had been dealing with Mr. Donal Daly of AIB Ballsbridge, and I did attempt to make contact with him in early April, but he is now retired. I met a lady who took all the relevant details and said it would be in contact with me, but to date I have not heard from them”.
43. In response, Mr. Walsh, in para. 8 of his affidavit said that there was no impediment to the debtor setting up a standing order or to lodge funds directly to his mortgage account. Nonetheless, he does not deny that the debtor approached the bank in April 2018. However, when the debtor came to reply to that affidavit, he appeared to set up an entirely different explanation for the non-payment of the mortgage during the protection period. In para. 9 of his second affidavit, he said: –
” . . . the payment to [the bank] has represented a bona fide attempt to show a willingness to continue to engage and to make payment. I say and I understand that any payment made during the Protective Certificate period, particularly to one creditor above others, could be deemed a preferential payment and could in fact be set aside. I say and believe that I am also concerned that the PIA specifies an amount to which my loan is to be restructured and a payment from the commencement of the PIA and in those circumstances I was unsure as to whether I ought to pay a sum towards a restructured mortgage that has not yet been restructured”.
44. It is very difficult to reconcile this explanation with the explanation previously given in the debtor’s first affidavit that he had sought to commence repayments in April 2018. The evidence of the debtor is therefore quite unsatisfactory in relation to this issue. However, I do not believe that I can go so far as to hold that it shows a lack of candour. Moreover, while I am very definitely of the view that a debtor should seek to address ongoing liabilities (to the extent that he or she lawfully can) during the currency of the protection period, there is no statutory requirement in the 2012 Act that a debtor must meet his or her liabilities during that period.
45. Moreover, in considering this ground of objection, I must again weigh in the balance the factors outlined above in connection with the pre-certificate payment record. When those factors are taken into account, I am of the view that the failure of the debtor to address his liabilities to the bank during the currency of the protection period, is not sufficient, of itself, to persuade me to exercise my discretion against the grant of relief under s. 115 A.
The liabilities of the debtor in the post – PIA period
46. There was a sharp difference of opinion between counsel for the practitioner on the one hand and counsel for the bank as to whether the court, on an application of this kind, should have regard to the affordability of payments by a debtor in the period subsequent to the expiry of the PIA. In this context, I should explain that the bank contends that the debtor should be able to afford more significant payments to the bank than are proposed under the PIA and that this is especially so once the 72 month period of the PIA has expired. In addition, the bank is concerned that the business prospects of the debtor could improve significantly over the next 72 months and the bank complains that there is no scope under the present proposals to increase the post-PIA payments to the bank in the event that there is a substantial improvement in the profitability of the debtor’s business. The matter is expressed in the following way in para. 26 of the affidavit of Ms. Mooney: –
“The . . . matter of greatest concern to the Bank in respect of the specific provisions of the [proposed PIA] is the fact that the [PIA] proposes to write off a significant portion of the Debtor to the Bank in circumstances where the financial position of the Debtor would appear to allow him to make greater repayments in respect of his home loan. The [PIA] proposes a monthly repayment of €1,126.86 . . .for the six – year period of the [PIA] and thereafter a payment of €1,334.18 until the end of the remaining 300 – month term of the mortgage. This is despite the fact that the Debtor clearly has a greater capacity to make repayments in respect of his home loan based on his current income”.
47. Counsel for the bank submitted that it was clear from the view taken by Baker J. in Laura Sweeney [2018] IEHC 456 at para. 56, that a court, on an application of this kind, was not concerned solely with the question of affordability to the debtor during the period of the PIA. In that judgment, Baker J. said: –
“A write down of a mortgage to market value is not mandated by the Act, and it may be possible in certain cases to split or warehouse part of a loan . . . The determination as to whether a mortgage debt is to be written down is to be made by reference to the affordability of payment. A draft PIA is in general more focused on ascertaining a capital figure, repayment of which is affordable by the debtor, rather than seeking to ensure that the debtor is no longer burdened with a mortgage far in excess of the value of the secured property”.
48. In contrast, counsel for the practitioner sought to suggest that the focus on an application of this kind is on the question of affordability during the currency of the PIA. He relied in particular on the following observation of Baker J. in Clive Casey (Unreported, 29 May 29 May 2017) where she said at para. 29: –
“I also accept the argument of the debtors that it is not the intention of the Act that a debtor be confined to the basic reasonable living expenses set out by the Insolvency Service . . . for the rest of his or her life , and that the general scheme of the Act is that a debtor will in the currency of a PIA bring into account to the maximum extent possible his or her assets and income, and that on the performance of the obligations of the assets in the PIA the debtor will be relieved of identified debt. Such an approach to post – arrangement is familiar in the scheme of bankruptcy legislation” (emphasis added).
49. Counsel also submitted that, in a bankruptcy, once the bankruptcy period is over (at which point the bankrupt would be forgiven all of his or her debts) the bankrupt is free to carry on whatever business and make whatever profits he or she can and the pre-bankruptcy creditors have no recourse in those circumstances.
50. Counsel also relied on a number of observations of Baker J. in Paula Callaghan (Unreported 22 May 2017). In particular, he relied on the following observation at para 68 of her judgment where Baker J. said: –
“A court must be satisfied taking all matters into account that the proposed PIA enables the creditors to recover the debts due to them to the extent of the means of the debtor. The “means” engaged are present income and capital assets and not the projected means at a time so far into the future that the test is based on hypotheses or conjecture. There may on the other hand be circumstances where future certain or ascertainable means are to be brought into account”.
51. With regard to the last sentence in that extract, counsel suggested that one such circumstance would be where the debtor has a pension provision which will not become payable until retirement age. Counsel distinguished such an asset (which was relatively certain) from hypothetical receipts at some stage in the future which were entirely uncertain. Thus, in Paula Callaghan , the judge rejected a proposal to warehouse an amount for payment in the future in circumstances where there was no present expectation that the debtor would be in a position to pay the amount proposed to be warehoused. Baker J said at para. 72 of her judgment: –
“The Act requires a proposal to bring to reasonable account the means of a debtor. The proposal to warehouse an amount that at current figures is more than 125% of the value of the dwelling is not proportionate to, or reasonably derived from, the current income and capital assets, or any future ascertainable means. I am not satisfied that the PIA is unfairly prejudicial on account of failing to fully bring into account hypothetical or future means, for which there exists no present expectation”.
52. In my view, those extracts from the judgments of Baker J. show very clearly that there is no hard and fast rule in relation to how debt is to be treated after the expiry of a PIA. Everything will depend upon the circumstances of an individual case. That said, the court will not involve itself in speculation about what might potentially happen in the future. In my view, the principal concern of the court will inevitably be focused on what is to happen during the currency of the PIA. The approach to be taken by the court in relation to the PIA period will always be informed by what the court considers the means of the debtor will reasonably permit. This is clear from the provisions of s. 115A(9)(b)(ii). The approach to be taken is encapsulated in para. 59 of the judgment of Baker J. in Paula Callaghan where 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”.
53. On the other hand, as Baker J. said in re: Hill [2017] IEHC 18, the court must consider whether the PIA is fair to all classes of creditors. The court must take a balanced approach. In that case, she said at para. 37: –
“The statutory factors relate to the proportionality of the arrangement, the likely differences between the PIA and an arrangement on bankruptcy, and whether the PIA is fair to all classes of creditors. While the intention of the Oireachtas was to offer a unique and special protection to the principal private residence, that protection did not enable the court to override the vote of a creditor holding security over such property merely on account of the fact that the property was a principal private residence, and other factors resonant of an attempt to achieve a degree of balance of each of them is found in the legislation”.
54. On the evidence available to the court in this case, I am satisfied that the entire of the debtor’s means have been utilised for the purposes of the PIA. Appendix 4 to the proposed PIA demonstrates this very clearly. In particular, it shows the entire income over the six-year period of the proposed PIA being applied in discharge of set costs, mortgage payments, and additional expenses (made up of management fees and property tax). When all of these costs and expenses are set off against the net income per month, this will provide a net monthly contribution of €535 or €6,420 on an annual basis. In the first year, €5,051 of this figure will be used to discharge part of the fee due to the practitioner, leaving a balance of €1,369 available to be paid to the Revenue Commissioners. In years 2-4, the payment to the practitioner will reduce to €1,352 per annum, and the payment to the Revenue Commissioners will increase to €5,068. In years 5 and 6 the balance due in respect of practitioners fees will be paid together with the balance due in respect of the Revenue Commissioners and the dividends to the unsecured creditors will also be paid in these years.
55. While it is true that the debtor, in para. 20 of his first affidavit suggested that he would be in a position to pay up to €1,500 per month in respect of mortgage payments, it is clear from a consideration of Appendix 4 that this is not feasible. It is, of course, the case that the income of the debtor may increase over the duration of the PIA. However, as noted above, this will be to the benefit of all unsecured creditors (including the bank in respect of the unsecured element of its debt). I cannot see that there is any unfair prejudice to the bank in relation to the payments to be made to it during the currency of the PIA. I also bear in mind in this context that, in contradistinction to many other PIA proposals, the secured debt is not being written down to the current market value of the apartment. As noted above, the value of the apartment is €265,000. Under the proposed PIA, €290,000 will be treated as secured debt. Appendix 5 also shows that the outcome for the bank in a bankruptcy of the debtor is significantly worse than under the proposed PIA. In a bankruptcy, the bank would ultimately recover 49c in the euro. Under the PIA, its total recovery will be 60c in the euro which represents a 22% improvement over its position in a bankruptcy.
56. In light of the considerations outlined above, it is unsurprising that counsel for the bank, in his submissions to the court, concentrated on the period after the expiry of the PIA. He suggested that more significant payments could be afforded by the debtor than the monthly payment of €1,334.18 provided for under the terms of the proposed PIA. Counsel argued that the improved climate for the building trade meant that it was almost inevitable that the profits of the debtor would improve over time. He also drew attention to the fact that, following the conclusion of the PIA, the debtor will no longer have to make payments in respect of the arrears of management charges which had built up in respect of his apartment complex. In this context, it should be noted that under the heading of “Additional Expenses” identified in Appendix 4 to the PIA, there is a sum of €125 per month being paid in respect of arrears of management charges. This sum will be available to the debtor once the PIA has been successfully concluded.
57. Notwithstanding the very able and impressive arguments of counsel for the bank, I do not believe that there is any basis for the court to reach a conclusion, that the debtor will, on the expiry of the PIA, be able to afford more significant mortgage repayments than those provided for in Appendix 7 to the PIA (namely €1,334.18 per month for the remaining 300 months of the mortgage term. In this regard, I entirely accept the submission made by counsel for the practitioner that, following the successful completion of a PIA, a debtor should not be confined to the reasonable living expenses published by the Insolvency Service of Ireland (“ISI”).
58. A debtor who successfully completes a PIA must be given the opportunity to return to some semblance of normal life. It is normal to compare the outcome of a PIA against a bankruptcy. One must bear in mind that in the context of a bankruptcy, once the bankrupt emerges from the bankruptcy process, he or she will be entitled to the fruits of any money earned thereafter. In my view, that is a factor that must be borne in mind.
59. In addition, as the judgments of Baker J. make clear, the court cannot proceed on the basis of conjecture or hypothesis as to what might happen in the future. The court has to assess the position as of now. On the basis of the material before the court, there is nothing sufficiently concrete to suggest that the debtor will be in a position to readily afford more than the mortgage repayments post PIA which are currently envisaged in Appendix 7 to the PIA. This is not a case where the debtor has any pension provision. Nor is there any other event on the horizon which is likely to swell his assets. Furthermore, having regard to the age of the debtor, there is no foreseeable prospect that his living expenses are likely to fall in the years following the completion of the PIA. This is to be contrasted with cases where, for example, the debtor has a family that are likely to become financially independent in the years immediately after the completion of a PIA. In such cases, there may be scope to take the view that the debtor will be able to afford more in the way of repayments than that is currently envisaged here. I fully appreciate that, in this case, the debtor will no longer have to pay €125 per month in respect of the arrears of management charges. However, that is a benefit of a very modest scale. It is far from being a ” game-changer “. As I have already indicated, the debtor must be given some scope to escape from the narrow confines of the ISI concept of reasonable living expenses once the debtor has earned his ability to do so following the successful completion of a PIA.
60. In all of the circumstances, I am of the view that there is no sufficient basis, on the evidence available in this case, to suggest that the rate of payment to be made to the bank in respect of the mortgage, following completion of the PIA in this case, gives rise to unfairness to the bank or to some disproportionate benefit to the debtor. In my view, the proposed PIA in this case is fair to all of the creditors of the debtor (including the bank). Insofar as the bank is concerned, there is a significant benefit to it under the proposed PIA in circumstances where the secured debt is not written down to the value of the apartment and where, as Appendix 5 makes very clear, it will fare much better under this PIA than it would in a bankruptcy.
Conclusion
61. On the basis of all of the evidence before the court I respectfully take a different view to that taken by the learned Circuit Court Judge. In particular, I am persuaded by the evidence and the submissions that have been made to me that this is an appropriate case in which to grant the relief claimed under s. 115A(9) of the 2012 Act (as amended). In reaching this conclusion, I have, of course, had regard for the matters set out in s. 115A(10). I have also satisfied myself as to each of the matters set out in s. 115A(8) and s. 115A (9).
62. Therefore, I will make an order setting aside the order made by the learned Circuit Court Judge on the 24th of July, 2018 and, instead, I will confirm the coming into effect of the proposals for the PIA in this case in accordance with their terms.
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.
Re: Ahmed Ali
(a debtor)
[2019] IEHC 138 (04 March 2019)
High Court
Judgment by:
McDonald J.
Status:
Approved
[2019] IEHC 138
THE HIGH COURT
CIRCUIT APPEAL
[2018 No. 436 CA]
IN THE MATTER OF THE PERSONAL INSOLVENCY ACTS, 2012 TO 2015
AND IN THE MATTER OF AHMED ALI (A DEBTOR)
AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 115A(9) OF THE PERSONAL INSOLVENCY ACT, 2012 (AS AMENDED)
JUDGMENT of Mr. Justice Denis McDonald delivered on 4 March, 2019
1. This is an appeal by a Personal Insolvency Practitioner, James Greene, (“the practitioner”) on behalf of a debtor, Mr. Ahmed Ali, from a decision of the Circuit Court of 30th October, 2018, refusing the practitioner’s application under s. 115A(9) to approve the coming into effect of proposals for a Personal Insolvency Arrangement (” PIA “). The hearing of the appeal took place on Monday, 11th February, 2019, during which I heard submissions from counsel for the practitioner and also counsel for an objecting creditor, namely Bank of Ireland Mortgage Bank (” the bank “) which holds security in the form of a mortgage over the home of Mr. Ali in Castlemartyr, Co. Cork.
2. In the course of the hearing on 11th February, 2019, the submissions of counsel, on both sides, focused primarily on the issues raised by the bank in its notice of objection dated 11th September, 2017. I address these issues, in turn, below.
Is there is a “relevant debt” within the meaning of section 115A(18)?
3. Provided certain conditions are met, s. 115A provides a mechanism whereby a practitioner can seek to persuade the court to approve the coming into effect of proposals for a PIA notwithstanding that the proposals have been rejected by a majority of the creditors of a debtor. One of the conditions which must be satisfied in order to trigger the jurisdiction of the court under s. 115A, is that the debts covered by the proposed PIA must include a “relevant debt” . For this purpose, s. 115A(18) defines a relevant debt as follows:-
“(18) In this section—
‘relevant debt’ means a debt—
(a) the payment for which is secured by security in or over the debtor’s principal private residence, and
(b) in respect of which—
(i) the debtor, on 1 January 2015, was in arrears with his or her payments, or
(ii) the debtor, having been, before 1 January 2015, in arrears with his or her payments, has entered into an alternative repayment arrangement with the secured creditor concerned.”
4. The bank takes a preliminary objection in this case on the basis that (so it submits) there cannot be a “relevant debt” in circumstances where Mr. Ali was not residing in the principal private residence on 1st January, 2015. In this context, it is clear from the affidavit evidence before the court that Mr. Ali had previously lived in the property from 2004 to 2011 with his then wife. However, his marriage broke down and, at some stage in 2011, he moved out of the home. He subsequently lived in rented accommodation from 2011 until June 2015.
5. It appears from the materials before the court that Mr. Ali sought to remove his name from the mortgage at the time of the breakdown of his marriage but the bank refused to do this. At that time, Mr. Ali says that he was in a low paid job and was not in a position to contribute anything towards the repayment of the mortgage debt. In 2014, his estranged wife (who was also in financial difficulty) decided to move out of the home. She was later adjudicated a bankrupt (on her own application). The property, therefore, appears to have been empty for a time between 2014 and June 2015. According to the PIA, Mr. Ali decided to move back into the property at that time in circumstances where he realised he had a personal liability on foot of the mortgage loan and he has since paid a sum of €700 per month to the bank.
6. On the basis of this evidence, the bank submits that the requirements of s. 115A(18) are not satisfied; it submits that it follows that Mr. Ali does not have a “relevant debt” and, accordingly, the application under s. 115A (according to the bank) must fail in limine .
7. While I understand why the bank should make this submission, it is noteworthy that there is nothing in the language of the definition of “relevant debt” which expressly requires that the debtor should reside in the principal private residence as of 1 January, 2015. What is required is that the mortgage loan should be in arrears as of that date. However, there is no express requirement that the debtor should reside in the principal private residence as of that date.
8. There are two aspects to the definition of “relevant debt” in s. 115A, namely:-
(a) the requirement that there should be a debt secured over the principal private residence; and
(b) that the debt was in arrears as of 1 January, 2015, or had been in arrears prior to that date and the debtor had entered into an alternative repayment arrangement with the secured creditor concerned.
9. It is obviously a critical component of the definition of “relevant debt” that there should be arrears as of 1 January, 2015, or arrears before that date. Notably, s. 115A(18) does not go so far as to require that the debtor must reside in the property as of that date. For the subsection to operate, there must be a mortgage over the principal private residence of the debtor prior to 1 January, 2015. There must also be a ” principal private residence” . That term is defined in s. 2 of the 2012 Act as meaning (insofar as relevant): “a dwelling in which the debtor ordinarily resides .” Importantly, there is nothing in the definition of ” principal private residence ” in s. 2 to require that the debtor must reside in the dwelling as of any particular date.
10. It is clear that Mr. Ali did not ordinarily reside in the property in issue here as of 1 January, 2015. However, there is no doubt (on the basis of the evidence before the court) that as of the date of commencement of the proceedings under the 2012-2015 Acts in 2017, he was ordinarily resident in the property.
11. Thus, for the purposes of these proceedings, the property is Mr. Ali’s principal private residence within the meaning of s. 2. Furthermore, there is a debt secured over that property in favour of the bank. That debt was in arrears as of 1 January, 2015. In these circumstances, each of the express requirements set out in the definition of “relevant debt” are satisfied. There is accordingly a “relevant debt” within the meaning of s. 115A(18).
12. Had it been the intention of the Oireachtas to require that the debtor should actually reside in the principal private residence as of 1 January, 2015, it would have been a very simple matter for that requirement to be spelt out in section 115A(18). No such provision was made. I can see no basis on which such a requirement can be read into s. 115A(18). In fact, no argument was addressed to me at the hearing that would provide any proper basis for the court to conclude that it is implicit in the definition of “relevant debt” , that the debtor should be resident in the relevant property as of 1 January, 2015.
13. In the circumstances described above, I have come to the conclusion that the requirements of s. 115(18) have been satisfied and that there is, accordingly, in this case, a “relevant debt” for the purposes of section 115A.
Section 115A(8)(a)(i) of the 2012 Act (as amended)
14. The next issue that was debated in the course of the hearing related to the requirement set out in s. 115A(8)(a)(i) of the 2012 Act (as amended) under which the court is required to be satisfied that the eligibility criteria specified in s. 91 of the 2012 Act have been satisfied. The bank contends that one of those criteria has not been met in this case in that there was no evidence placed before the Circuit Court that Mr. Ali had made the declaration in writing required by s. 91(1)(g) that he had cooperated for a period of, at least, six months with the bank with regard to the principal private residence ” in accordance with any process relating to mortgage arrears operated by the secured creditors concerned which has been approved or required by the Central Bank…”.
15. There is no doubt that there was no such declaration placed in evidence before the Circuit Court. Nor was any evidence placed before the Circuit Court of any confirmation in writing from the practitioner under s. 91(2) which would have overridden the s. 91(1)(g) requirement. If the practitioner had a basis for doing so, the practitioner could have provided a written confirmation that it is his belief that, if Mr. Ali had entered into a process of the kind contemplated by s. 91(1)(g), it is unlikely that Mr Ali would have become solvent within a period of five years from the date of such confirmation. Section 91(2) provides that, where such a confirmation is given, the criterion specified in s. 91(1)(g) shall not apply.
16. In the affidavit of Patrick Baxter sworn on behalf of the bank on 16 May, 2018, in support of its notice of objection, Mr. Baxter drew attention to the failure of the practitioner to exhibit any evidence of the declaration required by s. 91(1)(g). Furthermore, in the course of the submissions on 11th February, 2019, counsel for the bank highlighted the absence of any confirmation under s. 91(2) from the practitioner. It was, therefore, submitted on behalf of the bank that there was a fatal flaw in the present application in so far as there was no evidence before the court to show that either s. 91(1)(g) or s.91(2) had been satisfied.
17. It should be noted that, subsequent to the service of Mr. Baxter’s affidavit on behalf of the bank, no further affidavit was sworn by the practitioner in the course of the Circuit Court proceedings. There was a replying affidavit sworn by Mr. Ali on 18th July, 2018, which did not exhibit the declaration required by section 91(1)(g). Nor did it exhibit any s. 91(2) confirmation from the practitioner. However, in para. 12 of his affidavit, Mr. Ali deposed as follows:-
“I say in particular response to paragraph 35 of the Objector’s affidavit that I cooperated with the Objecting Creditor for significant periods of time since my mortgage loan went into arrears. I say and believe that this is indeed evidenced by the averment made by the Objecting Creditor and that they say that my loan account went into arrears in 2009. However, I was not removed from the MARP process until July 2015.”
18. The averment made by Mr. Ali in para.12 in his affidavit must be read in light of the provisions of the Central Bank Code of Conduct on Mortgage Arrears 2013 (which is the relevant code governing cooperation between a borrower and a lender). In the course of the hearing, my attention was drawn to the definition of “not co-operating” in the Code. That definition makes clear that a borrower will not be regarded as not cooperating until a warning letter has been issued to the borrower in accordance with para. 28 of the Code. Paragraph 28 provides that, prior to classifying a borrower as not cooperating, a lender must write to the borrower and inform the borrower that, unless specific actions are taken within 20 business days, the borrower will be classified as not cooperating. It was submitted that, since the bank did not remove Mr. Ali from the Mortgage Arrears Resolution Process (“MARP”) until July 2015 (notwithstanding that the appellant had gone into arrears in 2009), Mr. Ali must be deemed to have been cooperating until July, 2015. In this context, it should be noted that, although a further affidavit was delivered on behalf of the bank, no response was made by the bank to para. 12 of Mr. Ali’s affidavit.
19. During the course of the hearing before me, I was provided with a copy of a declaration dated 15th May, 2017 made by Mr. Ali for the purposes of s. 91(1)(g) of the 2012 Act. No explanation was provided on affidavit or otherwise as to why this declaration was not made available in advance of or during the course of the Circuit Court hearing.
20. I am very conscious of the provisions of s. 37 of the Courts of Justice Act, 1936 (“the 1936 Act”) which provides that, in the case of an appeal from the Circuit Court in a civil case heard without oral evidence, the appeal is to proceed by way of re-hearing on the basis of the evidence that was before the Circuit Court. Special leave of the judge hearing the appeal is required if additional evidence is to be received for the purposes of the appeal.
21. On the other hand, I am also conscious that the declaration which has now been furnished to the court at the appeal stage provides prima facie proof of compliance with s. 91(1)(g). I must bear in mind that this declaration is consistent with evidence that was properly before the Circuit Court – namely para. 12 of Mr. Ali’s affidavit. It is also consistent with para. 12(a) of the Circuit Court notice of motion under s 115A(9) in which the practitioner expressed the opinion that the debtor satisfied the eligibility criteria specified in s. 91.
22. Furthermore, the declaration in question is an item of proof. In my view, it is not in the same category as affidavit evidence as to some factual matter in dispute between the parties. While I fully appreciate that the bank very strongly rejects the suggestion that there was any cooperation by Mr. Ali, the requirements of s. 91(1)(g) are nonetheless met if the necessary declaration is given by the debtor. The provision of such a declaration is therefore in a different category to the type of additional evidence which is usually the subject of an application for special leave. The issues that arise in the context of the latter category of evidence were addressed by O’Donnell J. in the Supreme Court in Emerald Meats Ltd. v. Minister for Agriculture [2012] IESC 48 where he said, at para. 36:
“The rules on the admission of fresh evidence on an appeal are quite strict. This is as it should be. There are very few cases in which the losing side does not regret that different witnesses were called, evidence given or points made either in cross-examination or in submission. But a trial is not a laboratory experiment where one element can be substituted and all other elements maintained and a different outcome obtained. It is important that parties are aware of the finality of litigation, and bring forward their best case for adjudication. Cases develop organically and unpredictably. One of the benefits which litigation brings at some cost is certainty. A party may reasonably dispute the merits of a conclusion, but cannot doubt that it is a conclusion. The court must make its decision on the evidence and case advanced on the day, or in this case, over the 17 days. It is partly for this reason that the rules and practice of the courts go to such elaborate lengths to attempt to ensure that both sides are fairly apprised of what is in dispute and have an adequate opportunity to prepare for the litigation. It is also why appellate courts have developed rigorous tests on applications to admit fresh evidence. There are few cases which in hindsight could not be rerun with different witnesses, evidence, arguments, or advocates, but to consider that such a course is in the interests of justice is to engage in the delusion that endless litigation is a desirable rather than a tormented state.”
23. What O’Donnell J. had in mind in Emerald Meats was factual or documentary evidence which should have been addressed at the first instance hearing. If appellate courts too readily admitted fresh evidence on appeal, it would allow litigants to re-run cases on the basis of new evidence which would place respondents to such appeals at a significant disadvantage since they would then have to address this new evidence and effectively meet a new case – a case which should have been explored at the original hearing. The underlying rationale is not unlike the basis of the Rule in Henderson v Henderson (1843) 3 Hare 100.
24. In my view, there is a qualitative difference between evidence of the kind discussed in Emerald Meats and the provision of a simple proof such as a s. 91(1)(g) declaration. The provision of such a declaration does not create the same level of difficulty for a party in the position of the bank as would be the case if the bank, on appeal, was faced with new factual or documentary evidence. In particular, it does not expose the bank to the mischief of having to interrogate and address a new factual scenario – potentially requiring the bank to seek out new documents or even new witnesses. Furthermore, once that declaration is provided, the requirements of s. 91(1)(g) are met even where the bank may strongly contest the basis for the declaration. The fact is that, even where the underlying basis of the declaration is contested, s. 91(1)(g) will still be satisfied once the declaration has been provided. Any dispute between the bank in relation to the previous payment history or cooperation of the debtor is likely to fall to be considered under a separate provision namely s. 115A(10) of the 2012 Act or possibly in the context of the sustainability of the proposed PIA.
25. In these very particular circumstances, I do not believe that it would be appropriate to take the approach traditionally followed under s. 37 of the 1936 Act. In my view, for the reasons discussed above, different considerations apply in the context of an item of proof of this nature. I am satisfied that, in the interests of justice, it is appropriate to admit the s. 91(1)(g) declaration into evidence for the purposes of this appeal. I have already explained why I do not believe that the admission of the declaration does not give rise to prejudice to the bank in the sense explained in Emerald Meats . It follows that, for the purposes of this appeal, there is no longer any issue as to non-compliance with s. 91(1)(g). Nonetheless, the failure to put that declaration before the Circuit Court may potentially have costs consequences and I will, in due course, give the parties an opportunity to address me on any possible costs consequences that flow from that failure.
The requirements of s. 115A(9)(g)
26. Under s. 115A(9)(g), at least one class of creditors must have accepted the proposed PIA by a majority of over 50% of the value of the debts owed to that class. In this context, the practitioner, in para. 13 of his affidavit sworn on 1st September, 2017, said that the ” excludable creditor class of creditors ” have voted in favour of the proposed PIA. For this purpose, the ” excludable creditor class ” has been recognised in a previous judgment of Baker J. as constituting a separate class of creditors for the purposes of section 115A(9)(g). However, a further point was made by counsel for the bank, in the course of the appeal, that the votes of the Revenue Commissioners should be disregarded for this purpose in circumstances where the preferential debt due to the Revenue Commissioners will be paid off in full under the PIA and the remaining debt (in respect of local property tax) will be paid in full also.
27. In addition, it was submitted on behalf of the bank that the amount owed to the Revenue Commissioners is so small that it would be disproportionate to treat the Revenue Commissioners as a separate class of creditor. In this context, reliance was placed on s. 115A(17)(b) of the 2012 Act (as amended) which provides as follows:
“In deciding … whether to consider a creditor or creditors to be a class of creditor, the court shall have regard to the circumstances of the case, including, … –
(i) the overall number and composition of the creditors who voted at the creditors’ meeting, and
(ii) the proportion of the debtor’s debts due to the creditors participating and voting at the creditors’ meeting that is represented by the creditor or creditors concerned.”
28. As noted above, there are a number of points made by counsel on behalf of the bank in relation to section 115A(17). In the first place, counsel submits that there is no basis to include the preferential debt due to Revenue within the value of the debt attributable to the Revenue Commissioners. At this point, I should explain that, of the total debt due to the Revenue Commissioners by Mr. Ali of €2,496.00, €1,319 relates to income tax and is preferential while the balance (namely €1,177) relates to Local Property Tax (LPT).
29. Counsel for the bank drew attention to the provisions of s. 101(1) of the 2012 Act which applies s. 81 of the Bankruptcy Act 1988 (the 1988 Act) to preferential debts in a PIA. Counsel submitted that, when one looks at the provisions of s. 81(8) of the 1988 Act, the vote of the Revenue Commissioners in relation to its preferential debt should not have been counted
30. Counsel emphasised that, under s.81(8) of the 1988 Act, any creditor, entitled to be treated as a preferential creditor, will lose that status if the creditor votes in favour or against an arrangement proposed by an ” arranging debtor “. As I understand the submission, it proceeded on the basis that the Revenue Commissioners were afforded a preferential status in the proposed PIA and therefore their vote should not have been counted in relation to the preferential element of the Revenue claim. In this connection, it is clear from Appendix 2 to the proposed PIA that the Revenue Commissioners have opted into the proposed arrangement claiming the amount of €1,318.85 in respect of income tax due for 2016 as a preferential debt. Note 8 to Appendix 2 states that Mr. Ali proposes to address this liability in full by making 24 monthly payments of €54.95.
31. Counsel for the practitioner did not contest this submission and I believe that he was right to take that course. If the Revenue Commissioners are being paid in full in respect of a preferential debt and if they have opted into the proposed arrangement on that basis, it would be wrong to count the value of the preferential claim in the overall value of the Revenue debt. This means that the only debt that would be capable of being taken into account (in terms of the votes of creditors) is the debt in respect of LPT in the sum of €1,177. This represents less than one percent of the overall indebtedness of Mr. Ali to his creditors.
32. Counsel for the bank made two submissions in relation to the LPT debt. She argued that since it was to be paid in full in the same way as the preferential debt, it should be treated in the same way. Notwithstanding the logic of this argument, I do not believe that the submission is well founded. The reason why LPT is ordinarily paid in full under the terms of a PIA is that there are significant consequences for a taxpayer if LPT is not paid. These include the withholding of any refund of other tax that might become due to a taxpayer, the withholding of a tax clearance certificate, the imposition of an LPT surcharge, the imposition of interest at 8% per annum and the imposition of additional penalties. Thus, LPT is paid in full to avoid these serious practical consequences for a debtor; it is not paid in full because it has a preferential status.
33. During the course of the hearing, there was no suggestion made that the unpaid LPT in this case was entitled to be treated as a preferential debt within the meaning of s. 81(1) of the 1988 Act. As a consequence, I can see no basis on which s.81(8) would apply in relation to the LPT debt of €1,177. Subsection (8) only applies in respect of a debt that is entitled to preferential status. I therefore do not believe that the debt in respect of LPT should not be counted.
34. However, Counsel for the bank also argued that the debt due in relation to LPT is so small and insignificant, relative to the overall indebtedness of Mr. Ali, as to engage, in a very compelling way, the provisions of section 115A(17)(b)(ii). In this context, the court is required under s. 115A(17)(b), in assessing the existence of a separate class of creditor, to have regard to all the circumstances of the case including the proportion of the debts of the debtor due to the creditor or creditors who are suggested to comprise a separate class. Given that the debt due to the Revenue Commissioners in respect of LPT is less than one percent, it is suggested that the court should not treat the Revenue Commissioners as a separate class.
35. In my view, there is significant force in the argument made by the bank. In many cases, it might well be appropriate to take the view that a creditor holding less than one percent of the debt should not be regarded as constituting a separate class for the purposes of section 115A(17). However, in this case, notwithstanding the relatively insubstantial amount due (in absolute terms) to the Revenue Commissioners, I do not believe that it would be appropriate to refuse to treat the Revenue Commissioners as a separate class. In this context, it is to be noted that, although s. 115A(17)(b)(ii) requires the court to have regard to the proportionate size of the debt due to the Revenue Commissioners, the subsection does not rule out the possibility that the court may still conclude that a creditor in their position should be treated as a separate class notwithstanding that the amount due may be only a very small fraction of the overall indebtedness. In my view, the court remains free to do so, if, notwithstanding the proportionate size of the creditor concerned, the court is nonetheless of the view that there is a proper basis to treat that creditor as a separate class.
36. In my view, there is a proper basis, here, to treat the Revenue Commissioners as a separate class. In the first place, I bear in mind that there are only two creditors in this case namely the bank and the Revenue Commissioners. In such circumstances, it seems to me that the voice of the Revenue Commissioners is important. I am also conscious that the Revenue Commissioners have long experience of assessing schemes of arrangement (both at a corporate and an individual level). There can be no doubt that one of the purposes of requiring that at least one class of creditor should have approved of a proposed PIA is to give a measure of assurance to a court that the terms of the arrangement are commercially acceptable. The Revenue Commissioners have unparalleled experience of making such assessments.
37. It might be suggested that, in this case, the Revenue Commissioners were hardly likely to vote against an arrangement under which they are ultimately to be paid in full. However, this ignores the fact that the Revenue Commissioners will not be paid interest or penalties and furthermore that the payment to be made to them will be made over a period of time by monthly instalments. It could not plausibly be suggested in those circumstances that the Revenue Commissioners are unaffected by the terms of the terms of the proposed PIA. In all of these circumstances, it seems to me that, notwithstanding the relatively small sum due to the Revenue Commissioners, it is appropriate to treat the Revenue Commissioners as a separate class for the purposes of section 115A.
The Sustainability of the Proposed PIA
38. It is a requirement of s.115A(9)(b)(i) that the court should be satisfied that there is a reasonable prospect that confirmation of the proposed PIA will enable the debtor to resolve his indebtedness without recourse to bankruptcy. It is also a requirement of s.115A(9)(c) that the court should be satisfied ” having regard to all relevant matters, including the financial circumstances of the debtor and the matters referred to in subsection (10(a)), the debtor is reasonably likely to be able to comply with the terms of the proposed Arrangement”.
39. The bank argues that, in this case, the evidence is insufficient to satisfy the court that Mr. Ali will be able to afford the payments required under the proposed PIA. At this point, I should explain that, under the proposed PIA, two mortgage loans are to be merged into one account. The merged mortgage balance of €283,665.00 is to be written down to €220,000.00 with the balance of €63,665.00 treated as an unsecured debt (in respect of which the bank will receive a total dividend of €6,724.00 over the lifetime of a 24 month PIA). For the duration of the proposed PIA, the restructured balance of €220,000.00 is to be repaid on an interest only basis at a rate of 1.25% in the approximate sum of €229.00 per month. Thereafter the restructured balance is to be repaid on a capital and interest basis at a tracker interest rate based on the ECB rate plus a margin of 1.00%. This will result in monthly repayments estimated to be of the order of €678.00. The term of the mortgage is to be extended to 396 months (i.e. 33 years) by which stage Mr. Ali will be 70 years of age.
40. Prior to the commencement of these proceedings under the 2012-2015 Acts, Mr. Ali was in low paid employment. He is now self-employed. He runs a car valeting business. His current net monthly income from self-employment is €1,548.00. Under the proposed PIA, Mr. Ali will pay the sum of €104.00 each month to the Revenue in respect of the Revenue debts and €200 per month in respect of child maintenance leaving a balance of €1,244.00 per month to fund his living expenses and the mortgage and other debt repayments. Mr. Ali’s reasonable living expenses are stated to be €842 per month. When these living expenses are taken into account, this leaves Mr. Ali with a sum of €402 per month to fund the proposed mortgage repayments in the sum of €229.00 per month and payments to unsecured creditors in the sum of €547.00 (which together equate to €776.00). This would leave a monthly deficit of €374.00. According to the terms of the PIA, this is to be made up by a ” contribution from girlfriend (rent)” in the sum of €400 per month.
41. After the period of the PIA, it is proposed that Mr. Ali will pay the sum of €26 per month in respect of LPT, €200 in respect of child maintenance and €678.00 per month in respect of the mortgage loan making a total of €904.00 per month. This would leave Mr. Ali with the sum of €644.00 per month to fund his living expenses. These expenses are again stated to be in the sum of €842 per month. When those living expenses are taken into account, this would leave Mr. Ali with a monthly deficit of €198. Again, it is proposed, that this deficit will be made up by the monthly contribution of €400 from Mr. Ali’s girlfriend.
42. In the affidavit sworn by Mr. Baxter on behalf of the bank, it is contended that the proposed PIA is therefore entirely dependent on ” an unnamed girlfriend of the Debtor – who is not a party to the Arrangement and has no liability to the Bank – paying fifty percent of the Debtor’s household living expenses and contributing a further €400.00 per month to the Arrangement “. Mr. Baxter also complains that the bank had not been provided with any evidence of the ability of Mr. Ali’s girlfriend to contribute €400 per month together with fifty percent of Mr. Ali’s household living expenses. In this context, I should explain that the living expenses of €842 per month are based on a two adult household with the remaining fifty percent being paid by Mr. Ali’s partner.
43. The bank also draws attention to the proposed extension of the term of the mortgage until Mr. Ali reaches 70 years of age. In para. 47 of his affidavit, Mr. Baxter complains that the practitioner has provided no evidence of Mr. Ali’s ability to maintain the mortgage loan repayments after the age of retirement. In para. 48 of his affidavit, Mr. Baxter also suggests that there could well be an increase in ECB interest rates in the future which would have significant implications for Mr. Ali’s ability to afford repayments.
44. In response to Mr. Baxter’s affidavit, Mr. Ali swore an affidavit on 18th July, 2018. In that affidavit, he exhibited a letter from his partner which was witnessed by a solicitor in the well known firm of Cantillons Solicitors of Cork who are her employers. In that letter, the partner explained that she is employed as a legal executive in Cantillons. She earns €43,000 per annum and that she has surplus income (following the payment of her own liabilities) of approximately €2,000 per month. She also says that she has savings in the sum of €5,000. The letter continued as follows:-
“As matters currently stand, you receive €400 per month by way of assistance from me…As confirmed, I pay the sum of €400 to you each month. I can, and will, continue to make this money available to you if your PIA is approved. This money will not be available in a bankruptcy scenario, if your PIA is not approved, or if your home is repossessed.
As you are also aware, I have a personal interest in the retention of your family home due to my long term relationship to you (sic) and I reside in the property as my principal private residence.
There appears to be a query raised in the relation to the sustainability of your mortgage payments, and the retention of your family home. I understand that you are repaying your debt to your family home creditors.
It is hereby confirmed that the €400 is guaranteed for six years. For clarity, the said sum of €400 is guaranteed and it is undertaken that same will be paid to you in the event that your PIA is approved.
If there is a requirement for further financial assistance, I will be in a position to contribute up to €500 per month to ensure the mortgage is paid in full. As can be seen from my employment and income position this is sustainable. I do not have any other financial commitments that impinge on my ability to provide this assistance. I do not foresee that I will have further future commitments that would cause this money be any issue.
I hereby provide this letter as an irrevocable undertaking to you personally to provide such financial assistance as may be required and sought of me.”
45. A replying affidavit was sworn on behalf of the bank by Ms. Sandra Harrison on 2nd August, 2018. In that affidavit, Ms. Harrison expressed a number of concerns about the letter from Mr. Ali’s partner. These concerns were also reiterated by counsel on behalf of the bank in the course of the hearing before me. In particular, it was submitted that the letter from Mr. Ali’s partner provides no detail of her financial situation other than what is characterised as a ” vague statement ” that she earns €43,000 per annum and has surplus income in the sum of €2,000 per month. Ms. Harrison says that there has been a failure to provide any basic financial documents such as pay slips, a P60 form, credit card statements or statements of current loan or saving accounts. While I appreciate that it would be preferable that documents of that kind should be exhibited. I believe that it is important that the letter from Mr. Ali’s partner is witnessed by a solicitor in the firm of Cantillons (who are her employers). I, therefore, do not believe that there is any reason to suppose that the information contained in the letter is incorrect. I fully appreciate that the letter only provides an irrevocable commitment to pay Mr. Ali for a period of six years and is conditional on the approval of the PIA. However, I believe that the letter provides a very significant measure of reassurance that Mr. Ali will be in a position to afford to make the payments provided for under the proposed PIA. Even in the event that the relationship between Mr. Ali and his partner were to break down in the future, it is highly improbable that Mr. Ali would not be in a position to rent out one of his bedrooms. I note that Mr. Ali’s home is in Castlemartyr which is within commuting distance to Cork and to the significant industrial developments in Little Island and elsewhere in Cork Harbour. In those circumstances, it seems to me that Mr. Ali will have an ability in the future to tap into an additional source of income in the event that his relationship with his current partner were to come to an end. Ironically, it has been my experience in dealing with cases of this kind that secured creditors frequently complain that more extensive payments could be made by debtors by renting out rooms in their homes.
46. In Mr. Ali’s case, it is clear that he has shared his home with a partner who, in turn, shares the burden of household living expenses and who, in addition, pays the sum of €400 per month. On the basis of the evidence before the court, I am satisfied that there is a reasonable prospect that confirmation of the proposed PIA will enable Mr. Ali to resolve his indebtedness without recourse to bankruptcy and I am also satisfied that he is reasonably likely to be able to comply with the terms of the proposed PIA. In those circumstances, it seems to me that the statutory tests set out in s. 115A(9)(b)(i) and (c) are met in this case.
47. A further point arises in relation to the potential for ECB rates to increase in the future. While there appears to be no immediate prospect that this will occur, it is something that obviously may happen in the future. However, it is clear from the letter from Mr Ali’s partner, that, if required, his partner is prepared to commit more than €400 per month and that she has the capacity to do so. In addition, in circumstances where Mr. Ali is self-employed, he may be able to work longer hours to ensure that he will be in a position to meet those payments.
48. The bank has also expressed concern that the PIA envisages that it will continue until Mr Ali is 70 years of age. The bank submitted that a serious question mark hangs over any PIA that extends beyond the normal age of retirement. However, again, because Mr Ali is self-employed, this is not a major factor. The evidence on affidavit is that he intends to work until he is 70. Because he is self-employed, he has the ability to do so. This is not unusual. Experience teaches us that many self-employed people work beyond 65. This is not uncommon, for example, in the case of general practitioners and barristers. It is also likely to become less unusual in the case of many employed persons such as civil servants who, since January of this year, have the option of working until they reach 70 years of age. This is also currently the retirement age for judges. Retirement at age 65 or 66 is no longer a given. Accordingly, I do not share the bank’s concern in relation to a self-employed person such as Mr Ali.
Unfair Prejudice
49. There was no dispute between the parties that the bank will fare better under the proposed PIA than in a bankruptcy of Mr. Ali. Under the proposed PIA, the bank will receive payment of €220,000 over the course of the extended lifetime of the mortgage together with a further dividend of €674.00 during the two year lifetime of the PIA. The current market value of Mr. Ali’s home is €160,000. If one allows 10% to cover the cost of sale in the event of a bankruptcy, this would leave the bank in a position where it would recover no more than €144,000. Nonetheless, the bank contends that it will be unfairly prejudiced by the proposed PIA in circumstances where the remaining mortgagor, Ms. Andrea Ali (Mr. Ali’s estranged wife) was adjudicated a bankrupt on 18 May, 2015, and subsequently discharged from bankruptcy on 29 July, 2016. In the course of her bankruptcy, the bank notified the Official Assignee that it wished to value its security and prove in the bankruptcy for a dividend for the remaining balance. No dividend was, in fact, paid. In para. 53 of his affidavit sworn on behalf of the bank, Mr. Baxter says that Ms. Andrea Ali, being a discharged bankrupt has no longer any liability to the bank on foot of the loan agreements. In those circumstances, the bank’s only possible remedy against her is to rely on its security. The bank had issued a Civil Bill seeking possession of the property in December 2014. The Civil Bill has been adjourned pending the outcome of the proceedings under the 2012 – 2015 Acts. In these circumstances, Mr. Baxter suggests that the bank would be “greatly prejudiced by being precluded from having recourse to its security in the event that this Honourable Court sanctions the proposed Arrangement”.
50. The circumstances described above are very unusual. Ordinarily, as I sought to explain in Lisa Parkin [2019] IEHC 56, at paras. 66-68, the bank would not be prevented, by the existence of a PIA in respect of one joint and several debtor, from pursuing another joint and several debtor who is not a party to the same or an interlocking PIA. But, in this case, it is clear that, if the PIA proposal is approved, the bank will no longer be able to take possession of the Castlemartyr property notwithstanding the order for possession already obtained against Mrs Ali. In the course of the hearing, I suggested to counsel that although the bank could clearly no longer seek possession of the property (in the event that the proposed PIA is approved by the court) it might be possible for the bank to pursue its claim as against Mrs. Ali by seeking a sale of the property in lieu of partition. As the decision of the Supreme Court in Irwin v. Deasy [2011] 2 IR 752 at p. 778, shows, a mortgagee (other than a judgment mortgagee) is entitled to pursue the remedy of partition. However, on further reflection, it seems to me to be unlikely that the bank could realistically pursue an action for sale in lieu of partitions. I note from para. 52 of Mr. Baxter’s affidavit, that the bank valued its security for the purposes of the bankruptcy of Mrs. Ali at €192,200. Given that the bank will recover more than that sum under the PIA, it is difficult to see that the bank would be in a position to pursue an action for sale in lieu of partition. However, I make no finding to that effect. It will be for the bank to decide what remedy it may have in relation to the indebtedness of Mrs. Ali to it and I would not wish to prejudge in any way the outcome of any proceedings that the bank might be advised to take.
51. For the purposes of these proceedings under the 2012-2015 Acts, I have come to the conclusion that the bank is not unfairly prejudiced by the proposed arrangement. In the first place, as noted above, the bank will recover more, under the PIA, than it would in the event of the bankruptcy of Mr. Ali. Furthermore, if one looks at the value which the bank placed on its security in the bankruptcy of Mrs. Ali, the bank will also recover more under the proposed PIA than it would recover if it were to proceed with possession proceedings against the property (having valued its security at €192,200).
Section 115A(10)
52. As noted in para. 8 of the notice of objection filed on behalf of the bank, the conduct of Mr. Ali in the two years prior to the issue of the Protective Certificate in this case is a matter that I am required to consider under the provisions of section 115A(10)(a)(i). In response to this element of the objections raised by the bank, Mr. Ali in his affidavit has said that he was making payments in the sum of €700 per month towards his mortgage debt in the period from July 2015 to February 2018. He exhibited a statement of account showing that a figure of €650 was paid monthly during this period. Although Ms. Harrison, in her affidavit sworn on behalf of the bank on 2nd August, 2018, contended that Mr. Ali was not correct in suggesting that €700 per month was paid, it was confirmed in the course of the hearing on 11th February, 2019, that in fact the correct figure paid by Mr. Ali in the period in question was €700 per month. In addition to paying €650 per month in respect of account No. 31857103, Mr. Ali also paid a sum of €50 per month into the second mortgage account. Thus, the total paid was €700. In these circumstances, it seems to me that no issue arises under section 115A(10).
Criticism of the affidavit evidence
53. I note that, in Ms Harrison’s affidavit, very strong criticism is made of some of the averments made by Mr. Ali in his affidavit. Ms Harrison goes so far as to suggest that Mr Ali has been untruthful on affidavit in so far as he suggested in para. 6 that the Castlemartyr property was his principal private residence on 1 January, 2015. I can understand why Ms Harison should be critical of that averment. However, I believe that, when the affidavit is read as a whole, it is clear that Mr Ali is not making the case that he was living in the property on that date.
54. Furthermore, Ms Harrison is not in a position to throw stones. Her own affidavit suggests at paras. 6, 7 and 12 that she was the deponent of the first affidavit sworn on behalf of the bank when this is plainly not the case. It appears to be clear that Ms Harrison did not properly read through the affidavit she swore on 2 August, 2018. She also contends in para. 22 that, contrary to what he had said in his own affidavit, Mr Ali was not paying €700 per month. At the hearing on 19 February, this was, very properly, confirmed to be an erroneous averment on her part.
Conclusion
55. In light of the considerations outlined above, I have respectfully come to a different conclusion to that adopted by the learned Circuit Court judge. I should make clear that the learned Circuit Court judge could not have decided the case in any other way given that the s. 91(g) declaration was not before her.
56. Although I have not listed them all here, I confirm that I am satisfied that all of the requirements of s. 115A are satisfied in this case and that it is appropriate, in all the circumstances, to approve the coming into effect of the proposals for a PIA.
57. I will therefore allow the appeal, set aside the order made by the learned Circuit Court judge, and in lieu thereof, I will make an order under s. 115A(9) confirming the coming into effect of the proposals. I will hear the parties in due course in relation to costs.