PIA Terms
Matthews (A Debtor) Insolvency Act
[2019] IEHC 750 (11 November 2019)
JUDGMENT of Mr. Justice Denis McDonald delivered on 11 November, 20191. This is an appeal from an order of the Circuit Court made on 11th January, 2019 refusingan application made by Cormac Mohan, personal insolvency practitioner (“thepractitioner”) on behalf of the above named debtor Mr. Patrick Matthews for an orderpursuant to s. 115A of the Personal Insolvency Acts, 2012 (“the 2012 Act”) as amendedby the Personal Insolvency (Amendment) Act, 2015 (“the 2015 Act”) approving aproposed personal insolvency arrangement on behalf of Mr. Matthews. The applicationbefore the learned Circuit Court judge and the appeal to this Court were both opposed byan objecting creditor namely Mars Capital Ireland No. 2 DAC (“Mars Ireland”).2. While a number of issues were debated in the course of the hearing of the appeal, theprincipal issue which falls for consideration in this case relates to the way in which theproposed arrangement deals with a property of Mr. Matthews owned by him jointly withhis ex-wife which is subject to a mortgage in favour of Mars Ireland.Relevant facts3. Mr. Matthews is a self-employed builder. He currently resides in a three bedroomeddetached property in County Louth (which I shall refer to as his family home). Thepractitioner contends that, for the purposes of s. 115A, the family home constitutes theprincipal private residence of Mr. Matthews. He has two dependent children and heshares custody of those children with his ex-wife who lives (as described further below) inBalbriggan. Before building his family home, he previously resided at a property he ownsat Riverbanks Drogheda (which I shall refer to as the Drogheda property). According toan affidavit sworn by Mr. Matthews in the course of the proceedings before the CircuitCourt, the Drogheda property is no longer appropriate as a family home in circumstanceswhere it is well out of town and inaccessible for young children. Mr. Matthews explainsthat it is a duplex property which has approximately thirteen large concrete steps leadingto the front door of the property. He says that his younger son is autistic and that, as aconsequence, he has severe difficulties in trying to balance himself. Mr. Matthews isconcerned that his younger son would find it difficult to cope with the flight of steps.Along with his former wife, Mr. Matthews also owns a third property at Balbriggan CountyDublin (which I will refer to as “the Balbriggan property”). The former wife of Mr.Matthews lives at the Balbriggan property together with her two children (when notresiding with Mr. Matthews).4. The family home of Mr. Matthews is subject to a mortgage in favour of Mars Ireland. Theamount due on foot of that mortgage is €639,462.70. The current market value of thefamily home is €220,000.00. On 10th April, 2017, Mars Ireland obtained an order forpossession of the family home. However, possession has not yet been recovered.Page 2 ⇓5. The Drogheda property is subject to a security in favour of Ulster Bank Ireland Plc (“UlsterBank”). The amount owed on foot of that security is the sum of €162,527.27. The valueof the Drogheda property is €175,000. The amount due by Mr. Matthews to Ulster Bankis €162,527.27.6. In the case of the Balbriggan property, it is subject to a mortgage in favour of MarsIreland. As noted above, it is valued at €230,000. The loan in respect of that property isnot in arrears. The amount due on foot of that loan is €181,146. The loan is currentlysubject to an interest only arrangement and, according to the material before the court, isbeing serviced by payments made by the former wife of Mr. Matthews.7. There is also a debt due to Bank of Ireland which is secured by a judgment mortgage overMr. Matthews’ family home. The amount due to Bank of Ireland is €90,732.01. There isalso a debt of €11,844.25 due to a management company in respect of management feesand service charges in respect of the Drogheda property.8. The key features of the proposed arrangement are as follows:-(a) The principal sum due on foot of the mortgage in favour of Mars Ireland securedover the family home is to be reduced to market value namely €220,000. Thebalance of the sum due on foot of that mortgage is to be treated as an unsecureddebt and a dividend paid to Mars Ireland accordingly.(b) The reduced principal sum due to Mars Ireland is to be repaid over an extendedterm of 21 years at a five year fixed rate of 2.99% for years 2-6 of thearrangement after which the rate applicable will be the market standard variablehome loan rate. There will, however, be a moratorium on mortgage repaymentsfor the first twelve months of the arrangement when an interest rate of 0% will alsoapply.(c) Mr. Matthews will sell the Drogheda property within six months of confirmation ofthe arrangement. If it is unsold after a period of six months, it will be surrenderedto Ulster Bank;(d) The debt due to Bank of Ireland will be treated as an unsecured debt in thearrangement and the dividend paid to Bank of Ireland on that basis;(e) The debt due to the management company is an excludable debt within themeaning of the 2012-2015 Act. It will be paid from the proceeds of sale of theDrogheda property;(f) In the case of the Balbriggan property, Mr. Matthews is to transfer his beneficialinterest in that property to his ex-wife who is a joint borrower. According to theproposed arrangement in this case, she is not willing to sell the property and thepractitioner believes that to force a sale “could be a drawn out process resulting inlegal costs and no material benefit to Mr. Matthews creditors”.Page 3 ⇓The objection of Mars Ireland9. Mars Ireland advances a number of grounds of objection as follows:-(a) Mars Ireland contends that the proposed treatment of the secured debt owed to itby Mr. Matthews in respect of the Balbriggan property is contrary to the provisionsof s. 103 (2) of the 2012 Act. That subsection prohibits the reduction of theprincipal sum due in respect of a secured debt to less than the value of the securityin cases where the relevant security is not to be sold but instead is to be retained.(b) Mars Ireland also submits that the arrangement is unfairly prejudicial to it contraryto the provisions of s. 115A (9) (f) of the 2012 Act. In this context, Mars Irelanddraws attention to the effect of the arrangement insofar as the Balbriggan propertyis concerned. While the loan in respect of that property is not currently in arrears,Mars Ireland submits that it cannot be compelled to accept what is, in effect, a 50%reduction in the parties liable to it on foot of the Balbriggan facility. In addition, itis contended that the restructure of the loan in relation to the family home is unfairto Mars Ireland as a consequence of the moratorium on payments for one yearwhile at the same time no interest is to accrue on the relevant loan. It iscontended that this is particularly unfair in circumstances where, at the same time,it is proposed to write down the principal sum due in respect of that loan to themarket value of the family home namely €220,000. Mars Ireland also complainsthat the interest rate will be reduced from the present variable rate of 4.7% to just2.99% for five years following the expiration of the moratorium period. Accordingto para. 27 of the affidavit of Joe Carter sworn on behalf of Mars Ireland in thecourse of the Circuit Court proceedings, the reduced rate of interest for this periodis “commercially unviable and would certainly prove loss making to the Creditor andit is not one which is fair when one considers the uncertainty of the market goingforward….”(c) Mars Ireland contends that no class of creditor has approved the proposedarrangements as required by s. 115A (9) (g). Mars Ireland contests the suggestionmade by the practitioner in his certificate as to the result of the vote taken at thecreditors’ meeting that Ulster Bank and Bank of Ireland (who both voted in favourof the arrangement) should be regarded as separate classes of creditor for thispurpose.(d) It is also alleged by Mars Ireland that, contrary to the requirements of s. 115A (9)(d) of the 2012 Act, the costs of enabling Mr. Matthews to continue to reside in thefamily home are disproportionately large given his circumstances and thealternative accommodation options open to him including the option of retaining theDrogheda property in place of the family home.(e) Mars Ireland also makes the case that the arrangement is contrary to theprovisions of the 2012-2015 Acts in circumstances where the arrangement willrequire Mr. Matthews to live below the minimum reasonable living expensesprescribed by the guidelines issued by the Insolvency Service (“the ISI”).Page 4 ⇓(f) It is also suggested by Mars Ireland that Mr. Matthews failed to cooperate with it fora period of six months prior to the Protective Certificate and that his repaymenthistory within a two year period prior to the issue of that certificate was so poorthat it does not display a capacity to comply with the terms of the proposedarrangement.(g) Mars Ireland also draws attention to the submission made by it to the practitionerwhich envisaged the retention of a principal residence. Mars Ireland submits thatits proposal in this regard ought to have been considered by the practitioner.10. Of the objections listed in para. 9 above, the question which occupied most time at thehearing was that related to s. 103 (2) of the 2012 Act. I will therefore address thatquestion first. To the extent that it is necessary to do so, I will then address any of theremaining issues to the extent that they require to be determined.Section 103 (2) of the 2012 Act11. Section 103 of the 2012 Act sets out a number of protections available for securedcreditors in personal insolvency arrangements. Section 103 (1) deals with circumstanceswhere an arrangement proposes the sale or disposal of property which is subject to asecurity in favour of a secured creditor. It requires that, in such cases, the arrangementmust include a term providing for the payment to the secured creditor of an amountwhich is at least equal to the value of the security (determined in accordance with s. 105)or the amount of the debt (whichever is the lesser).12. Section 103 (2) deals with circumstances where, under a proposed arrangement, there isnot to be any sale or disposal of a secured asset. Section 103 (2) is in the followingterms:-“(2) A Personal Insolvency Arrangement which includes terms providing for—(a) retention by a secured creditor of the security held by that secured creditor, and(b) a reduction of the principal sum due in respect of the secured debt due to thatsecured creditor to a specified amount,shall not, unless the relevant secured creditor agrees otherwise, specify the amount ofthe reduced principal sum referred to in paragraph (b) at an amount less than thevalue of the security determined in accordance with section 105.”13. In order to properly understand s. 103 (2) it is necessary to have regard to a number ofdefinitions within s. 2 of the 2012 Act. In particular, it is necessary to have regard to thedefinitions of “secured creditor” and “secured debt”. In the case of “secured creditor”,that term is defined in s. 2 (1) of the 2012 Act as follows:-“’secured creditor’, in relation to a debt, means a creditor of the debtor who holds, inrespect of his or her debt, security … in or over property of the debtor”. (emphasisadded)Page 5 ⇓14. It seems to me to be very clear from this definition that, when the 2012 Act speaks of a“secured creditor”, it is specifically referring to such a creditor of the debtor. That seemsto me to follow from the very plain words of the definition and in particular from thewords which I have highlighted in the definition set out in para. 13 above. Thus, when s.103 (2) refers to a “secured creditor”, it is referring to a creditor of the debtor (in thiscase Mr. Matthews). In turn, this has implications for the language used in para. (b) of s.103 (2) which refers to “a reduction of the principal sum due in respect of the secureddebt due to that secured creditor to a specified amount”. In my view, that paragraph isclearly referring to a reduction in the principal sum due in respect of a secured debt of thedebtor (in this case Mr. Matthews) due to the secured creditor (in this case Mars Ireland).15. For completeness, the definition of “secured debt” in s. 2 (1) should also be noted.There, a secured debt is defined as meaning: -“a debt the payment for which is secured by security in or over any asset or property ofany kind”16. There is nothing in the definition of “secured debt” which would cause me to form anydifferent view as to the meaning and effect of s. 103 (2) (b) to that set out in para. 14above. Having regard to the definition of “secured creditor”, it seems to me that thereference in s. 103 (2) to a secured creditor must be a secured creditor of the debtor (inthis case Mr. Matthews). In the case of the Balbriggan property, the debt currently owedby Mr. Matthews (along with his former wife) to Mars Ireland is a secured debt. MarsIreland is a secured creditor of Mr. Matthews in respect of that debt. Against thatbackdrop, the question which falls to be determined is whether it can be said that theproposed arrangement in this case contravenes s. 103 (2).17. As noted above, the proposed arrangement in this case provides that Mr. Matthewsagrees to transfer his beneficial interest in the Balbriggan property to his former wife.The practitioner said on p. 12 of the proposed arrangement that Mr. Matthews’ formerwife is not willing to sell the property and “I feel that to force this sale could be a drawnout process resulting in legal costs and no material benefit to Mr. Matthews’ creditors”.Mars Ireland contends that, in effect, this involves the writing down of the debt owed byMr. Matthews to Mars Capital on the security of the Balbriggan property to zero. In thewritten submissions delivered on behalf of the practitioner, it is expressly stated that theliability of Mr. Matthews to Mars Capital secured on the Balbriggan property will beextinguished and that he will surrender his interest in the Balbriggan property to hisformer wife. Nonetheless, an attempt is made in the submissions to distinguish the“liability” of Mr. Matthews to Mars Ireland from a “debt” due to Mars Capital. However, Ido not understand how “liability” and “debt” can be distinguished in the mannersuggested. In essence, a liability to make a payment to a creditor constitutes a debt. Inthe absence of some bar to recovery of a debt, there cannot be a “debt” without acorresponding liability to make a payment to the extent of the debt.18. The case is also made in the written submissions delivered on behalf of the practitionerthat the proposal in relation to the Balbriggan property makes practical, logical andPage 6 ⇓commercial sense. It was also submitted on behalf of the practitioner that the loan inrespect of the Balbriggan property is not in arrears. All payments that are contractuallydue are being met in full and on time. The practitioner also draws attention to the factthat the value of the Balbriggan property at €230,000 is more than the extent of theliability (namely €181,146). The practitioner uges that Mars Ireland is not at risk inrespect of the property or the loan in those circumstances. The practitioner also contendsthat the outcome for Mars Ireland would be no different in the event that Mr. Matthewswas adjudicated a bankrupt. The existence of these factors assists in explaining how thepractitioner came to make the proposal contained in the proposed arrangement in relationto the Balbriggan property. However, while I can see that these considerations, at apragmatic level, support the position of the practitioner, the issue which falls to bedetermined here is purely a legal one and, in particular, a question of statutoryconstruction. It involves a consideration of the proper interpretation of s. 103 of the 2012Act. If the proposed arrangement is not in compliance with s. 103, the pragmaticconsiderations highlighted by the practitioner cannot cure the non-compliance. The courthas no power to extend the terms of the statutory scheme to supplement what theOireachtas, in the exercise of its legislative function, has chosen to enact.19. It is therefore necessary to consider the substance of what is provided for in s. 103 (2).As outlined above, that sub-s. applies where a personal insolvency arrangementenvisages two matters namely:-(a) The retention by the secured creditor of the security held by it; and(b) A reduction of the principal sum due in respect of the secured debt.20. In the written submissions delivered on behalf of the practitioner, the case is made thatthe debt “is not being reduced” and that the asset “is not being retained”. In thosecircumstances, it is submitted that s. 103 (2) is not “invoked whatsoever”. However, itseems to me that there are a number of other aspects of the case made in the writtensubmissions which are difficult to reconcile with the fundamental submission that s. 103(2) is not engaged:(a) At para. 7 (8) it is submitted that:“The reality of being in a positon to proceed to enforce a loan/securityagainst one borrower is easier than as against two separated borrowers”;This seems to me to clearly acknowledge that the debt due by Mr. Matthews is to beextinguished under the proposed arrangement.(b) At para. 7 (9) it is submitted that:“Whilst the recourse is limited to one borrower under the PIA, the Debtor hasno means to repay any further monies”;Again this seems to me to acknowledge that the debt due by Mr. Matthews is to beextinguished.Page 7 ⇓(c) This conclusion is reinforced by what is said in para. 7 (11) where it is submittedthat the recourse to Mr. Matthews “would be extinguished in bankruptcy in theexact same manner of (sic) the PIA”;(d) In para. 8 of the submissions, an argument is made that the arrangement proposesthat the liability of Mr. Matthews: “to [Mars Ireland] secured on the Balbrigganproperty be extinguished and that he surrendered his interest in the Balbriggan[property] … to his former wife.The case is made that “crucially” the word “liability” is used rather than theword “debt”. However, for the reasons discussed in para. 17 above, I fail tosee how there can be said to be any proper basis to distinguish debt fromliability in this way.(e) In para. 15, it is contended that the arrangement “expressly does not pay adividend to [Mars Ireland] in relation to the Balbriggan debt, if the debt was beingreduced… then there would be a dividend due and payable in relation to same”.However, again, this demonstrates very clearly that the proposed arrangementenvisages that no payment whatever will be made to Mars Ireland by Mr. Matthewsin respect of the Balbriggan property debt. I cannot see how this point assists thecase which the practitioner seeks to make; and(f) At para. 15 of the submission, it is argued on behalf of the practitioner that MarsIreland: “retains full recourse for the debt for the co-borrower and to the security.The debt remains fully unaffected and it is not reduced”. Again, this seems to meto demonstrate that the intended effect of the proposed arrangement is that thedebt due by Mr. Matthews to Mars Ireland will be extinguished.21. Moreover, it is clear from a consideration of the terms of the proposed arrangement inthis case, that nothing will be paid to Mars Ireland in respect of the debt owed by Mr.Matthews to it and secured on the Balbriggan property. Appendix 1 to the proposedarrangement shows the amount due in respect of the Balbriggan property at€181,146.00. Thereafter, on p. 4 of the same appendix, it is stated that Mr. Matthewswill “surrender his interest in the property to the joint owner who is his ex-wife as she isnot willing to sell it…”. Crucially, the repayment schedule on p. 5 of Appendix 1 shows nopayment being made to Mars Ireland in respect of the Balbriggan property. Therepayment schedule shows payments being made to Mars Ireland in respect of themortgage over the family home, and a dividend being paid to Mars Ireland in respect ofthe “negative equity write down” on the family home together with payments being madeto Ulster Bank and Bank of Ireland by way of dividend. No payment whatever is to bemade to Mars Ireland in respect of the Balbriggan property.22. It is therefore clear that the arrangement envisages that, if confirmed, Mars Ireland willbe entitled to look solely to the former wife of Mr. Matthews for repayment of the debtdue in respect of that property. It may seem incongruous that the joint and several debtowed by Mr. Matthews to Mars Ireland can be reduced to nil while at the same time hisPage 8 ⇓co-debtor can remain fully liable in respect of the same debt. However, that is the effectof s. 116(6) of the 2012 Act. That was the view taken by Baker J. in Re J.D. [2017] IEHC 119.I reached a similar view in Lisa Parkin [2019] IEHC 56. It is therefore clear that therights of Mars Ireland to pursue the joint borrower (namely Mr. Matthews’ former wife) inrespect of the joint and several debt owed in respect of the Balbriggan property could notbe affected by the proposed arrangements. However, as outlined above, Mars Irelandcomplains that the arrangement envisages that, if confirmed, Mars Ireland will be forcedto look solely to Mr. Matthews’ former wife for repayment of the debt in the future andthat the arrangement clearly envisages the extinguishment of the debt due by Mr.Matthews.23. In substance, a proposal that, in the future, Mars Ireland will look solely to the formerwife of Mr. Matthews for repayment of the debt amounts, in my view, to the reduction ofMr. Matthews’ debt to Mars Ireland to nil. That conclusion is borne out by the terms ofthe written submissions delivered on behalf of the practitioner (in particular from paras. 7(9), 7 (11), 8 and 15 all as quoted above). While I can see that there are obviouspragmatic reasons for the approach taken by the practitioner, I fail to see how theapproach can be said to be consistent with s. 103 (2). In circumstances where thearrangement envisages that, going forward, Mr. Matthews’ former wife will be solely liablein respect of the Balbriggan mortgage, the arrangement clearly involves a reduction in theprincipal sum due by Mr. Matthews to Mars Ireland in respect of that mortgage to zero.That seems to me to necessarily follow from the fact that his liability, under the proposedarrangement, in respect of that debt is to be wholly extinguished. It is a fallacy tosuggest that, under the proposed arrangement, the debt due by Mr. Matthews still exists.What once was a joint and several debt owed by Mr. Matthews and his former wife would,under the proposed arrangement, become a sole debt due by his former wife.Accordingly, it must follow that the provisions of s. 103 (2) (b) are not satisfied in thiscase. The principal sum due by Mr. Matthews to Mars Ireland in respect of the Balbrigganmortgage is being reduced to zero which is plainly less than the market value of theBalbriggan property.24. Likewise, it is also a fallacy to suggest that the security is not being retained. The powersof a practitioner to deal with secured property are carefully circumscribed by theprovisions of s. 103 of the 2012 Act. This is unsurprising given the extent to which the2012-2015 Acts have the capacity to interfere with the property rights of securedcreditors. While the marginal note next to s. 103 (1) of the 2012 Act is not admissible asan aid to the construction of the 2012 Act, there is no need to have regard to themarginal note to understand that s. 103 has been enacted for the protection of securedcreditors. Section 103 essentially provides a practitioner with two modes of addressingsecured property. Under s. 103 (1), an arrangement can provide for the disposal of suchproperty (subject to the protections laid down in that subsection). Section 103 (2)provides for circumstances where the secured property is not to be sold. In suchcircumstances, the protections built into that subsection must be complied with. Informulating proposals for an arrangement, a practitioner is not given any other options.Section 100 (2) (f) makes clear that when dealing with secured debts, the arrangement isPage 9 ⇓subject to each of ss. 102-105. Thus, the provisions of s. 103 cannot be avoided. Itfollows, in the present case, that when the arrangement purports to provide for thetransfer of Mr. Matthews’ interest to his former wife, any such transfer is subject to thepre-existing mortgage in favour of Mars Ireland. In the absence of some statutory powerentitling a practitioner to formulate proposals for an arrangement providing for therelease of that mortgage, the mortgage remains in place. It is therefore “retained” withinthe meaning of s. 103 (2). The subsection therefore applies. It follows that thearrangement here contravenes the subsection insofar as it provides for the reduction ofMr. Matthews’ liability to Mars Ireland in respect of the Balbriggan mortgage to nil.Other matters25. In light of the conclusion which I have reached in relation to s. 103 (2), I do not proposeto address, in any level of detail, the remaining issues that were debated during thecourse of the hearing of the appeal. I will do no more than make a number of briefobservations as set out further below.The suitability of the family home26. It is contended in the affidavit of Mr. Carter sworn on behalf of Mars Ireland that thefamily home of Mr. Matthews is a substantial four bedroomed property where Mr.Matthews resides alone save when caring for his two children. Mr. Carter also drawsattention to the fact that the family home is stated to be “unfinished”. Mr. Matthews hasresponded on affidavit and explained why he believes that this property is the mostsuitable property to be used as his family home. In particular, he has explained that,contrary to what is stated by Mr. Carter, the property is a three bedroomed property.Furthermore, he has explained that his younger child has been diagnosed with autism andthat he would find it very difficult to cope with a change of family home. Mr. Matthewshas also explained that the Drogheda property is not suitable for his younger son giventhe fact that it is situated outside the town and has thirteen large concrete steps to thefront door. Mr. Matthews says that this would create difficulties for his younger son whofinds it very difficult to balance himself.27. In my view, it would be important in cases of this kind where an issue is raised about thesuitability of a particular property that appropriate evidence is placed before the court toexplain and, where possible, justify the retention of that property. Here, there were twoproperties which potentially could be used as a family home namely the home describedin para. 3 above and the Drogheda property. Mr. Matthews has provided evidence which,on its face, would appear to be capable of justifying the retention of the family home.However, in my view, if this issue remained alive, it would be advisable for thepractitioner to ensure that more comprehensive evidence should be placed before thecourt in relation to the medical condition of the younger son. I wish to make it very clearthat any concerns about the confidentiality of that information could be appropriatelyaddressed. Thus, any medical evidence could be provided in the form of a sealed upconfidential exhibit which would be seen only by the court and by the objecting creditorand would not be read in open court.The allegation of unfair prejudice to the objecting creditorPage 10 ⇓28. In his affidavit, Mr. Carter raises a number of concerns in relation to the manner in whichthe debt due to Mars Ireland in respect of the family home of Mr. Matthews is addressedunder the proposed arrangements. As noted in para. 9 (b) above, Mars Ireland submitsthat the arrangement is unfairly prejudicial to it in circumstances where the arrangementenvisages that it would be compelled to accept what is, in effect, a 50% reduction in theparties liable to it on foot of the Balbriggan facility. Having regard to the analysis set outin paras. 17-23 above, I believe there is significant force in the submission that theextinguishment of the debt due by Mr. Matthews to Mars Ireland does give rise to unfairprejudice. In light of the view which I have formed in relation to s. 103 (2), however, Ido not believe that it would be appropriate to make any finding to that effect. I shouldalso make clear that, before any finding could be reached, it would be necessary toconsider the position in the event of the bankruptcy of Mr. Matthew. In this context, itwas strongly urged by counsel for the practitioner that, in a bankruptcy, Mr. Matthewswould effectively lose the interest he has in the Balbriggan property.29. It is also suggested, in para. 27 of Mr. Carter’s affidavit, that the rate of interestproposed is “commercially unviable and would certainly prove loss making…”. In myview, the evidence which has been presented on behalf of Mars Ireland in this regard isnot sufficiently detailed or comprehensive to enable a court to form the view that thearrangements proposed will cause significant loss to Mars Ireland. In my view, muchmore comprehensive evidence would be required in order to demonstrate the extent ofthe loss which Mars Ireland suggests it would suffer under the proposed arrangements.The suggestion that, under the arrangement, Mr. Matthews will be required to livebelow the reasonable living expenses suggested in the ISI guidelines.30. This is an issue which I have previously addressed in my judgement in Tadhg Hurley[2019] IEHC 523 and I therefore do not propose to say anything further about the issuehere. It is unnecessary to do so in circumstances where I have already decided thisappeal against the practitioner on the basis of s. 103 (2) of the 2012 Act.The conduct of Mr. Matthews in the period prior to the issue of the protectivecertificate31. There is a significant dispute, on the affidavits, as between what is said by Mr. Carter, onthe one hand, and by Mr. Matthews on the other. In these circumstances, and in light ofthe fact that I have already decided this case against the practitioner on the basis of s.103 (2) of the 2012 Act, I do not believe that it would be appropriate for me to sayanything further about the conduct of Mr. Matthews in the period prior to the grant of theprotective certificate.Classes of creditor32. In my view, contrary to the case made by Mars Ireland, Ulster Bank and Bank of Ireland(both of whom voted in favour of the arrangement) should be regarded as a separateclass of creditor to Mars Ireland itself. In this context, Mars Ireland holds security overthe family home of Mr. Matthews which, on the basis of the evidence before the court,constitutes his principal private residence. In light of the provisions of s. 99(2) (h) and s.104(1) of the 2012 Act (both of which make clear that, save in exceptional circumstances,a personal insolvency arrangement should seek to preserve the ability of a debtor toPage 11 ⇓remain in his or her principal private residence) the rights of the holder of security oversuch a property are capable of being affected in a uniquely different way to the holders ofsecurity over other property of a debtor. As the decision of Baker J. in Sabrina Douglas[2017] IEHC 785 makes clear, the unique way in which the holder of security over aprincipal private residence is affected by the provisions of 2012 – 2015 Acts has theconsequence that such a creditor should be considered to fall into a different class toother creditors of a debtor.Conclusion33. In light of the view which I have formed in relation to s. 103 (2) of the 2012 Act, it isclear that I must dismiss this appeal. In my view, the arrangement proposed by thepractitioner in this case is not consistent with s. 103 (2) of the 2012 Act and therefore isnot capable of being confirmed by the court.
Result: The appeal against the refusal by the Circuit Court of the application under S115A of the Personal Insolvency Act 2012 has been dismissed and the order of the Circuit Court has been affirmed.’
In the matter of Michael Hickey
[2017] IEHC 20 (18 January 2017)
Judgment by:
Baker J.
JUDGMENT of Ms. Justice Baker delivered on the 18th day of January, 2017.
1. One matter falls for determination in this judgment, the question of the time limit for the bringing of an application pursuant to s. 115A(9) of the Personal Insolvency Acts 2012 – 2015 (“the Acts”).
2. Section 115A, inserted by the amending legislation of 2015, provides for a court review and approval of the coming into effect of a proposed Personal Insolvency Arrangement (“PIA”) rejected by creditors in certain circumstances, with a view to enabling the debtor not to dispose of an interest in, or cease to occupy, all or part of his or her principal private residence.
3. Michael Hickey (“the debtor”) made a proposal for a PIA under the Acts and a meeting of creditors was held in accordance with the provisions of the Act on 9th September, 2016. He did not obtain the requisite support for the approval of the PIA, albeit Permanent TSB, the mortgagee which held security over his principal private residence, voted for the arrangement. The debtor then sought to invoke the provisions of s. 115A(9) and the sole question for determination in this case is whether the debtor was in time in lodging the application. An objection by KBC was lodged in respect of the application pursuant to s. 115A (3) of the Act on 5th October, 2016 and the question of time was raised as a procedural objection.
4. Certain other matters were raised by way of objection, but it has been agreed that I would determine the procedural objection by way of a preliminary issue.
5. Section 115A(2) of the Act makes provision for the time limit for the bringing of an application to the Court under s. 115A(9):
“(2) An application under this section shall be made not later than 14 days after the creditors’ meeting referred to in subsection (16) (a) or, as the case may be, receipt by the personal insolvency practitioner of the notice of the creditor concerned under section 111A (6) (inserted by section 17 of the Personal Insolvency (Amendment) Act 2015), shall be on notice to the Insolvency Service, each creditor concerned and the debtor. …”
Section 111A does not apply as that section relates only to the approval of a proposed PIA when there is only one creditor.
6. Order 76(A) of the Rules of the Superior Courts provides that an application under s. 115A (9) shall be brought by notice of motion. The motion dated 1st September, 2016 was lodged by e-mail on Friday, 23rd September, 2016, and stamped and lodged in the Central Office of the High Court on 28th September, 2016. For the purposes of the issue to be determined in this application no argument is made that the lodging of the notice of motion by e-mail is sufficient lodgement by “electronic means” in accordance with O. 76(a), r. 4, and it is accepted that neither the personal insolvency practitioner (“PIP”) or the solicitor instructed to act in the prosecution of the application is an authorised “electronic user” within the meaning of r. 4(1) of that Order. I do not therefore intend addressing that issue further.
7. The meeting of creditors was held on 9th September, 2016 and if that day is to be included in the 14 day period prescribed by s. 115A(2) the time limit expired on 22nd September, 2016, a Thursday. If the day of the creditors’ meeting is not to be reckoned time expired on 23rd September, 2016, a Friday.
Section 18(h) of the Interpretation Act 2005 (“The Act of 2005”)
8. Section 18(h) of the Act of 2005 provides as follows:—
“(h) Periods of time. Where a period of time is expressed to begin on or be reckoned from a particular day, that day shall be deemed to be included in the period and, where a period of time is expressed to end on or be reckoned to a particular day, that day shall be deemed to be included in the period;”
9. That section is not materially different from s. 11 of the Interpretation Act, 1937, and the statutory provisions have been considered in a number of cases to which I now turn.
10. In McGuinness v. Armstrong Patents Limited [1980] I.R. 289 McMahon J. was considering the meaning of the provisions of s. 11(2)(b) of the Statute of Limitations 1957 which provided the then relevant period for the bringing of an proceedings for damages for personal injuries. The statutory provision was expressed in the negative and provided that an action shall:—
“…not be brought after the expiration of three years from the date on which the cause of action accrued.”
11. The plenary summons would have been issued within time if the day on which the cause of action accrued was excluded from the computation of the three year period, but McMahon J. held that the date of accrual did come to be included within the statutory time limit in the light of the Act of 1937.
12. That judgment is not dispositive of the question before me as the word “after” appeared in the Statute of Limitations Act and is not a word used in s. 11(2) (b) of the Act of 1957 as indicating or defining a time period which rather is to be seen as identified by the word “from”.
13. The next case in sequence is the judgment of Ellis J. in The State (Hamad) v. North Eastern Health Board [1982] 1 JIC 2001 which called for the interpretation of a provision of the Health (Removal of Officers and Servants) Regulations, 1971 by which was provided for the consideration by the Chief Executive of representations made “before the expiration of seven days after the giving of such notice”.
14. Ellis J. distinguished the judgement of McMahon J. in McGuinness v. Armstrong Patents, and said that the period of time specified in the Interpretation Act is distinguishable in a statute where
“… the period of time is expressed to begin or be reckoned from particular day but is a period of time expressed to begin on or be reckoned from the happening of an event.”
15. Ellis J. considered that the provisions of s. 11(h) of the Act of 1937 offered no assistance to construe or reckon a period of time required to be reckoned from the happening of an event, and that the departure from the language of the Interpretation Act, 1937 was such “as to indicate an intention by the Legislature that the day in which the notice or proposal of intention to remove the Prosecutor was given or served was not deemed to be included in the 7 day period as expressed and defined” in the relevant section of the statutory regime with which he was dealing.
16. Counsel for the debtor relies on the distinction drawn by Ellis J. between the reckoning of time “from a particular day” or “from the happening of an event”.
17. Counsel for the objecting creditor argues that the distinction between “day” and “event” made by Ellis J. has not found support in later authorities, and that insofar as it might lead to a conclusion which differs from these later authorities it is not to be followed.
18. I turn now to consider those later authorities but note by way of a preliminary observation that the judgment of Ellis J. was not referred to in any of those later cases. Two judgments of Hedigan J. are of note. In the first of these, Golden v. Kerry Co. Co. [2011] IEHC 324 Hedigan J. was considering the provisions of s. 17(1) of the Planning and Development Regulations 2001, as amended, which provide for the publication and direction of notices “within the period of 2 weeks before the making of a planning application”. Hedigan J. was asked to consider whether the period of two weeks did include the date the notice was published and the date the application for planning permission was made and held that the date of the planning application was to be included in the calculation of the two week period, and came to that conclusion based on s. 18(h) of the Act of 2005. The statutory provision construed by Hedigan J. did not make any reference to “the date of the making of the application”, and contained the more general phrase “before the making of the application”, which would suggest that he did not consider that the event, the making of the application, could be seen as different from the date of that event.
19. Hedigan J. also gave judgment in Brown v. Kerry Co. Co. [209] IEHC 552, [2011] 3 IR 514. That case concerned the time limit provided by s. 261(a) of the Planning and Development Act 2000 by which a planning authority could impose conditions on the operation of quarry “not later than 2 years from the registration of a quarry” under the statutory scheme created by that Act.
20. Hedigan J. considered that the 2 year time limit prescribed by s. 261(6)(a) did include the date of the registration of the quarry and again drew from s. 18(h) of the Act of 2005 as an interpretative aid. Again no distinction was drawn between the registration of a quarry (an event) and the date of the registration of the quarry (a day or date).
21. That the interpretation of a time limit as mandated by s.18 (h) is in accordance with the plain use of language is evident from the decision of the Supreme Court in Sulaimon v. Minister for Justice Equality & Law Reform [2012] IESC 63. There the Supreme Court considered what it means to “reckon” a period of time from a particular day. In making the reckoning Hardiman J. calculated time by including in his calculation the date of birth of the infant who had sought an order that he was entitled to a certificate of Irish nationality. At p. 16 of the judgment Hardiman J. expressed the view that the statutory provisions coincide with the “ordinary method of reckoning periods of time to and from a particular date, or a date which is ascertainable”. Hardiman J. made no reference to the judgment of Ellis J. in The State (Hamad) v. North Eastern Health Board, but the judgment of the Supreme Court does not adopt an analysis which recognises a distinction between a date and an event, the premise on which the judgment of Ellis J. was grounded.
22. Hogan J. in Re Belohm & Anor. & the Companies (Amendment) Act 1990 [2013] IEHC 157 at para. 43 interpreted the provisions of s. 3(6) of the Act of 1990 by reference to the interpretative tool of s. 18(h) and held that time ran from the day a receiver was appointed to the company, and that that particular day was “included in the computation of the three day period” within which an application to appoint an examiner was to be made.
23. A recent consideration of the question of time is contained in the judgment of Keane J. in McMahon v. Larkin & Anor. [2016] IEHC 483 who held that the 12 month period prescribed under s.149 of the Companies Act, 1990 was to be reckoned to include the day on which the company was wound up.
24. Herbert J. in Boyle v. Higgins [2013] IEHC 31 where he was considering the time limits under s. 150 of the Companies Act, 1990 which provided the time limit for the bringing of an application for a restriction under that Act not earlier than 3 months nor later than 5 months “after the date” on which a report to the ODCE had been delivered. He regarded the word “after” as different from the words denoting time in s. 18(h) of the Act of 2005, and held that when time was to run “after a particular date” no statutory interpretative tool was to be found in that subsection which provided such only when time was to be reckoned “from” a particular date. Herbert J. considered that the relevant rule was found at common law and he was therefore persuaded that the specified day was excluded from the reckoning of time.
25. Herbert J. relied on a judgment of the Court of Appeal for England and Wales in Zoan v. Rouamba 1 W.L.R. 1509 where the Court was dealing with an approach identified as long in existence in the common law, that while legislative provisions dealt with periods of time “beginning with” or “from” a specified day, that day was to be included, the common law held that where an act is to be done days months or years “from or after a specified date” that the period commenced on the day after such specified day. Chadwicke L.J. relied on the judgment of Lord Goddard in Stewart v. Chapman [1951] 2 K.B. 792 that “whatever the expression used” the date from which the period of time was to be reckoned was to be excluded and the criminal statute which required the service of a summons “within 14 days of the commission of the offence”.
26. The Court of Appeal for England and Wales considered that there was “a real difference between a direction that a period of time is to begin with a specified date and a direction that a period is to be reckoned from that date”.
27. The opposite proposition must be the case in Irish law as s. 18(h) is clear that a reckoning either beginning with or reckoned from a particular date was to include that day. The judgment of the court in Zoan v. Rouamba is not an authority by which I am persuaded. Accordingly, the judgment of Herbert J. does not offer any interpretative assistance in the present case, and I express no further view on it. However it is to be noted that Herbert J. did not base his reasoning on any distinction between an event and a date as was found to be relevant by Ellis J. in The State (Hamad) v. North Eastern Health Board.
Discussion
28. The purpose of the interpretative tool contained in s. 18 of the Interpretation Act, 2005 is to create uniformity and clarity in the interpretation of statutes. The long title suggests that its purpose was to guide in the “interpretation and application” of legislation and statutory instruments. Section 13 requires that the Act be “judicially noticed”. I consider that the Oireachtas intended that the interpretative tools relating to the construction of periods of time were intended to govern the interpretation of any and all statutory expressions that related to or provided for the calculation of time. It is not therefore the case that in order for s. 18(h) to govern the interpretation of a time phrase in an Act that the expression “begin on”, “be reckoned from” or “to end on”, “be reckoned to” be the only time clauses governed by the legislation. It would be unsatisfactory if a materially different consequence arose from the use of phrases other than those expressly identified in s. 18(h), and the Act would have failed to perform its objective of providing a sufficient degree of certainty and clarity in the interpretation of statutory provisions. It is of course central to the operation of a statutory time limit that the calculation of that time limit is clear and certain and I do not consider that the Oireachtas intended to limit the scope of time related prepositions to those expressly identified in s. 18(h). This means that prepositions such as “from”, “since”, “beginning on”, “before” etc. would all be read in a manner consistent with the interpretation created by the Act.
29. Fennelly J. recognised the importance of consistency in the interpretation of different time phrases within a particular statute in Walsh v. An Garda Síochána Complaints Board [2010] 1 I.R. 514 where at para. 16 he said “it makes no sense to interpret the two provisions so as to contradict each other.” He made this observation in the context of the question before him whether the Oireachtas intended to produce a different result in regard to two different time limits. Fennelly J. also describes s. 18(h) as a “considered legislative choice”, and also noted the approach in common parlance to the question of time limits and gave the example of an anniversary date as being one which is commonly considered to happen within the year or relevant time frame.
30. The debtor argues that the personal insolvency legislation identifies 17 different time limits in various subsections and that the only subsections that use the word “after” are s. 119A and 115A, all of the other time limits using an expression which counsel says is more readily consistent with the language of s. 18(h), the word “within”.
31. It is argued in those circumstances that this different use within the same statute was intentional and rational primarily because in practice a meeting of creditors will often be lengthy and finish well outside normal business hours. I do not consider that this approach is consisted with the decision of Fennelly J. in Walsh v. An Garda Síochána Complaints Board, which is authoritative on the matter.
32. It is argued also that to reckon the day of the meeting of creditors within the time limit in the Act would fail to recognise the practical factual context in which a meeting of creditors is conducted. I consider that this argument fails to have regard to the requirement of legal certainty in statutory time limits, the precise mischief which was intended to be dealt with by the Interpretation Act, 2005, and earlier enactments. It could not be said that the reckoning of a time period would depend on the time of day when an event happened or concluded.
Conclusion
33. I conclude that the debtor was out of time for the lodging of an application by way of appeal under s. 115A (9) of the Act of 2012. There was no argument advanced that I have a power to enlarge the time for the making of appeal and counsel for the debtor accepts that the law has been authoritatively decided by the Court of Appeal in Law Society of Ireland v. Tobin & Anor. [2016] IECA 26 and that as Finlay Geoghegan J. said giving the judgment of the Court in reference to statutory time limits:—
“Such statutory provisions are true limitation sections in that they expressly or clearly and unambiguously preclude the bringing of an action after the specified period.”
34. The statutory time limit is strict. I consider therefore that the application must fail.
Re: Callaghan, a debtor
[2017] IEHC 332 (22 May 2017)
JUDGMENT of Ms. Justice Baker delivered on the 22nd day of May, 2017.
1. This judgment is given in the appeal of KBC Bank Ireland plc (“KBC”), the objecting creditor, from an order of the specialist judge of the Circuit Court, Judge Mary O’Malley Costello, by which she confirmed the Personal Insolvency Arrangement (“PIA”) of the debtor under s. 115A(9) of the Personal Insolvency Acts 2012 – 2015 (“the Act”) and dismissed the objection of the objecting creditor. This judgment is also given in the appeal of an identical order made by the specialist judge in the interlocking application of Colm Callaghan, Record No. 2016 283 CA.
2. The primary ground of appeal is that the specialist judge of the Circuit Court erred in law and in fact in finding that the proposed PIA was not unfairly prejudicial to the interests of the objecting creditor, and that she erroneously came to the view that the proposed PIA enabled the creditor to recover the debts due to it to the extent that the means of the debtors reasonably permitted.
3. The appeal arises from a submission made by the objecting creditor under s. 98(1) and s. 102(1) of the Act by which the objecting creditor made an alternative proposal to deal with the mortgage debt on the principal private residence of the couple. Other less central grounds of appeal will appear in the course of this judgment.
4. One matter for determination is whether the Act permits the coming into force of a PIA which would involve deferring or “warehousing” the repayment of a portion of secured debt beyond the specified term of the Arrangement.
Relevant facts
5. The debtors are a married couple who reside with their three young children in a three bedroom semi-detached property in Drogheda held by them subject to a mortgage in favour of KBC, the term remaining whereof is 273 months. The secured amount was €285,647 at the date of the issue of the protective certificate on 20th April, 2016. The principal private residence of the couple has a value in accordance with s. 105 of the Act of €105,000.
6. The mortgage debt fell into arrears arising from the fact that both husband and wife were out of work. Mrs. Callaghan was unable to work due to ill health and only in recent months began to receive a weekly invalidity pension. Mr. Callaghan was out of work for approximately sixteen months, but has now obtained employment. In the period when both husband and wife were not working, the mortgage fell into significant arrears and the liabilities of the couple now far exceed their joint monthly incomes.
7. Interlocking PIAs were proposed by the Personal Insolvency Practitioner (“PIP”), Daragh Duffy, the material elements of which I now set out.
Proposed PIA
8. A six-year PIA is proposed. The estimated joint monthly income of the couple for the period of the PIA is €3,025, which after taking into account reasonable living expenses and other costs, leaves available during the currency of the PIA the sum of €474 per month to service mortgage repayments. The amount available will increase at the end of the PIA to €582 for the remainder of the mortgage term. It is proposed that for the period of the PIA the interest rate on the mortgage would be reduced to 2.5% and thereafter would revert to 4.5% for the balance of the term. The short term reduction in the interest rate is proposed in order to provide finance to deal with the unsecured liabilities and pay the fees of the PIP. The mortgage term is to be extended by six years until Mr. Callaghan is aged 70, to January, 2045. There was proposed a debt write-off, called a “negative equity write-off”, of €165,647 leaving a live mortgage balance of €120,000. The amount written down will rank as unsecured and will receive a dividend within the Arrangement. The provision to deal with unsecured creditors is not the focus of this appeal.
9. The statutory meeting of creditors was held on 17th June, 2016, and the PIA was rejected by the majority of creditors present. The secured creditor voted against the proposal.
The section 115A application
10. Following the result of the meeting of creditors, the debtors brought an application pursuant to s. 115A(9) of the Act in the Circuit Court for an order confirming the coming into operation of the PIA notwithstanding that it had been rejected at the meeting of creditors. The statement of grounds in statutory form prepared for the purposes of the s. 115A(9) application stated that the PIA provided a better return for creditors than in bankruptcy and had the consequence that the debtors retained ownership of their principal private residence with a sustainable mortgage.
11. KBC lodged a notice of objection in which it pleaded, in reliance on the statutory provisions, that the proposed PIA would not “enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit” (s. 115A(9)(b)(ii)), that the proposed arrangement was “not fair and equitable in relation to the interests of each class of creditors that has not approved the proposal and whose interests or claims would be impaired” (s. 115A(9)(e)), and was unfairly prejudicial to its interests (s. 115A(9)(f)).
12. A number of affidavits have been filed in the application. The grounding affidavit on behalf of KBC by Garret Gately was sworn on 19th August, 2016. The replying affidavits of each of the debtors were sworn on 20th October, 2016. A supplemental affidavit of Garret Gately was sworn on 7th November, 2016, and the affidavit of Daragh Duffy was sworn on 19th October, 2016. All of this evidence was before the Circuit Court.
A counterproposal or submission by a secured creditor
13. KBC argues that it made a submission for an alternative approach to the secured debt which would have enabled the debtors to continue to reside in their principal private residence, and would have resulted in a better return for KBC in the long term. That proposal was made pursuant to the statutory power contained in s. 98 of the Act by which a PIP is obliged to invite such submissions regarding the debts concerned and the manner in which the debts might be dealt with as part of a PIA. A PIP is obliged under s. 98(1)(b) to consider any submissions made by creditors.
14. Section 98 of the Act permits a secured creditor to make a proposal or a counterproposal for the treatment of its debt. No equivalent provision is found with regard to unsecured liabilities. A PIP is required to have regard to such preferences in formulating a proposal for a PIA. The requirement is not that the PIP should incorporate such express proposals, but s.102(2)(b) mandates that a PIIP have regard to such preferences to the extent that it is reasonable to so do:
(2) In formulating the proposal for a Personal Insolvency Arrangement the personal insolvency practitioner shall—
(a) have regard to subsection (3) and sections 103 to 105, and
(b) to the extent that he or she considers it reasonable to do so, have regard to the preference of the secured creditor furnished under subsection (1) as to the treatment of the security and the secured debt.
15. A PIP therefore may not without some reason ignore such proposals entirely.
16. A submission may form the basis of an assertion by a secured creditor that the proposal in a PIA amounts to an unfair prejudice, and s. 115A(10)(b)(i) requires the court to consider any submission made by a creditor under s. 98(1) or “any alternative option available to the creditor for the recovery of the debt concerned” (s.115A(10)(b)(ii)). Fairness to creditors therefore can be linked to the reasonableness of rejecting some or all of any counterproposals or submissions.
17. A PIP is required under s.102(2) to have regard to the preferred approach of a secured creditor, and s. 102(1) provides that a secured creditor who has been notified by a PIP of the issue of a protective certificate may “indicate a preference as to how, having regard to subsection (3) and subsections 103 to 105, that creditor wishes to have the security and secured debt treated under the Personal Insolvency Arrangement”.
18. The combined effect of the statutory provisions is that a secured creditor has a right to make submissions and the PIP is mandated to consider any such submissions in formulating a PIA. That this is so arises from the nature of the secured debt as a contractual right which is afforded special protection in the legislation by reason of the existence of security. The legislation envisages different treatment for secured and unsecured debts, an approach also found in the bankruptcy legislation and in corporate insolvency.
19. The affidavit of Garret Gately says that he first made a proposal for the alternative treatment of the mortgage debt in a phone call with the PIP on 13th June, 2016, which was rejected in an email later that day. Some dispute exists between the parties as to whether KBC had made its counterproposal on time, but this did not become an issue at the hearing. For the present, I will focus on the terms of the counterproposal and the specific objection by the PIP to the means by which part of the debt was proposed to be warehoused.
The proposal to warehouse
20. The alternative proposal made by KBC to deal with the secured debt was to write off part of the mortgage debt such that it was reduced to €270,000 (a write-down of approximately €15,000) and thereafter for the split of the secured debt into two moieties of €135,000 each. It was proposed that the term of the PIA would be twelve months and that during that twelve month period the active part of the mortgage would be paid at €350 per month, and thereafter for the balance of the existing term at standard variable interest rates. It was the proposal to deal with the inactive part that was rejected by the PIP and has been the focus of the hearing before me.
21. KBC proposed that the amount of €135,000 would be treated as inactive and would be placed in a “warehouse” account carrying 0% interest. The debtors would be given “lifetime tenure” in their principal private residence and the security would not be enforceable until after the survivor of them died. It was accepted in the course of the hearing before me that the KBC proposal would permit the debtors, if their means allowed, to repay some or all of the warehoused amount during their lives, whether during the period of the active mortgage, or thereafter. The particular advantage of the counterproposal identified by KBC was that the debtors would be permitted to occupy their principal private residence for their respective lives, that the mortgage payments in the meantime would be sustainable and affordable by them, but that KBC would still, in time, recover the balance of the loan amount.
22. The specialist judge of the Circuit Court rejected the objection of the secured creditor in an ex tempore judgment, and the only note I have of her reasoning is that she considered that the proposal of KBC was “kicking the can down the road”. It is not clear whether she regarded the proposal as impermissible or that she took the view that the PIA sufficiently dealt with the statutory provisions and did not require reformulation in the light of the contract proposal. I make no criticism of her for this, and the argument engaged in the appeal was longer and the debtors and KBC were each represented by senior and junior counsel.
Warehousing within the statutory scheme
23. The first question for determination is whether the legislation permits of the long term “warehousing” of part of a mortgage debt, or whether the legislative scheme envisages that any amount not immediately repayable would have to be either addressed or reintroduced before the end of an arrangement.
24. The term “warehouse” does not appear in the legislation, but is one familiar to insolvency practitioners, in debt settlement arrangements and in modern banking generally. Warehousing provides for the separation of some or all of a debt in an inactive account for an identified period or until the happening of a specific event. It involves an alteration of agreed contractual repayment terms and the deferral of a portion of a debt to be dealt with later, either on terms to be agreed at the expiry of the inactive term or at the time the deferral itself is agreed.
25. The debtors argue that the counterproposal of KBC involves a type of warehousing not contemplated or permissible in the statutory scheme, and contend that a proposal to warehouse a debt must bring the warehoused or inactive element into account in the currency of a PIA, and that the deferral proposed in the present case is impermissible as going far outside the six-year proposed term of the PIA. The creditor argues that the legislative provisions permit the deferral of a portion of a mortgage debt, as in the present case, until the expiration of the existing agreed mortgage term.
26. My first consideration therefore will be to examine the statutory provisions for the treatment of secured debt and to assess the argument of the debtor that only limited warehousing of secured debt is permissible. Before I deal with the statutory scheme I will briefly note the treatment of warehousing in guidelines issued to lenders by the Central Bank of Ireland on which the debtors place emphasis.
Warehousing generally
27. The debtors point to a number of observations made in the Central Bank Internal Guidelines on sustainable mortgage arrears of 24th September, 2013 and updated on 13th June, 2014 in support of an argument that the personal insolvency legislation does not permit of a deferral or warehousing of part of a mortgage debt outside the term of a PIA. The Central Bank has expressed concern that any splitting of a mortgage debt by which part of the debt is warehoused must not have the effect that a temporary arrangement will leave a mortgage debtor with an unsustainable mortgage once the original contractual repayments are resumed at the conclusion of a period of forbearance. The Central Bank envisages a sustainable split mortgage solution when there is a reasonable prospect of a borrower’s circumstances improving over a longer term. The preferred approach is to prevent short-term warehousing of a loan which might lead to circumstances that when the original contractual repayments are resumed, the mortgage once again becomes unsustainable.
28. Counsel points to a concern expressed in the Central Bank document that:
“Sustainability of a split mortgage will be assessed by the Central Bank, inter alia, with regard to the affordability of the unwarehoused debt payment schedule and to the treatment of the warehoused loan maturity.” (Central Bank Guidelines, p. 9)
29. The Bank has also required lenders:
“Lenders, therefore, need to be able to satisfy themselves – and demonstrate to the Central Bank – that any temporary term arrangement is part of the solution because the borrower would have a sufficiently improved capacity to service the debt at the end of the temporary arrangement.” (Central Bank Guidelines, p. 4)
30. A number of observations are to be made with regard to the Central Bank guidelines. It is obvious that the guidelines are to lenders not borrowers. The Central Bank’s approach requires lenders to engage with the borrowers to such an extent that the individual debt problem of the borrower is dealt with in a sustainable way, and regarded warehousing as a solution when there is a reasonable prospect that a debtor’s circumstances will improve. Sustainability in the medium and identifiable term was regarded by the Central Bank as desirable.
31. Further, the interplay between the Central Bank guidelines to lenders, or indeed the broad approach of the Central Bank or of government to the debt crisis and the specific and real problems caused by mortgage arrears, while it undoubtedly was one of the factors that led to the introduction of the Personal Insolvency Act in 2012, and the amendment by the insertion of s. 115A by the Act of 2015, is not one that may guide my reading of the Act. The starting point for the interpretation of legislation must be the words of the legislation or the purpose of a statute. I turn now to examine the statutory scheme for the making of a PIA.
Making proposal for a Personal Insolvency Arrangement
32. Section 99 of the Act sets out a list of mandatory requirements with regard to matters that must be dealt with in a PIA, and provisions which prohibit certain types of proposals. The maximum duration of a PIA is 72 months, with a provision for an extension of no more than 12 months in certain circumstances. Section 99(2)(e) requires that a PIA should contain proposals that are sustainable and capable of being met by a debtor:
“A Personal Insolvency Arrangement shall not contain any terms which would require the debtor to make payments of such an amount that the debtor would not have sufficient income to maintain a reasonable standard of living for the debtor and his or her dependants;”
33. Section 99(2)(h) provides part of a suite of measures designed to protect the continued ownership or occupation by the debtor of his or her principal private residence:
“A Personal Insolvency Arrangement shall not require that the debtor dispose of his or her interest in the debtor’s principal private residence or to cease to occupy such residence unless the provisions of section 104(3) apply.”
34. Section 115A(9) of the Act was inserted by the Personal Insolvency (Amendment) Act 2015 and created the power in the relevant court to confirm the coming into effect of a PIA notwithstanding that it had been rejected by the creditors at a creditors’ meeting at which a vote was taken on the arrangement.
35. The proposal by KBC that the debtors would have the right to continue to occupy their principal private residence for the respective lives of each of them does protect their continued occupation of the premises, and also indeed their continued ownership, albeit their ownership is proposed to be encumbered with a mortgage that is capable of surviving against their respective estates.
36. In Re J.D. (A Debtor) [2017] IEHC 119, I considered that the provisions of s. 99 did not of themselves envisage that a PIA was required to ensure the continued ownership of a principal private residence, and that the court was entitled to have regard to whether an arrangement could secure the continued occupancy by the debtor of such premises:
“Thus the court will engage its jurisdiction to enable a person to continue to occupy or not dispose of an interest in his or her family home, provided the costs of continued occupation are not excessive or disproportionate. I consider it relevant too, that s. 115A does not have as its focus the continued ownership by a debtor of his or her family home, but rather the continued occupation of that premises, and the section is concerned with enabling a debtor not to dispose of an interest in a property, rather than positively stated as enabling the debtor to continue to own the property. Thus, the perceived public interest in the continued occupation of a premises is not a focus on the acquisition of a capital asset, but rather the preservation of a right to live in a premises” (para. 34)
The statutory treatment of debt
37. Section 100 of the Act contains a list of possible types of provisions that may be incorporated into a proposal for a PIA to deal with payment to creditors, whether secured or unsecured. It is clear from the language of the section that the broad and general examples given in s. 100(2) are not exhaustive and must be treated as permissive:
“The terms of a proposal for a Personal Insolvency Arrangement may include any one or more of the following:
(a) a lump sum payment to creditors, whether provided from the debtor’s own resources or from the resources of other persons;
(b) a payment arrangement with creditors;
(c) an agreement by the debtor to transfer some or all of the debtor’s property to a person (who may be the personal insolvency practitioner) to hold the property in trust for the benefit of the creditors;
(d) a transfer of specified assets of the debtor to creditors generally or to a specified creditor;
(e) a sale of specified assets of the debtor by or under the supervision of the personal insolvency practitioner and the payment of the proceeds of such sale to creditors; or
(f) in respect of secured debts, subject to sections 102 to 105, an arrangement for the treatment of the security and the satisfaction or restructuring of the secured debt.”
38. A PIA, therefore, may include proposals for a “payment arrangement” for the treatment of security and the satisfaction or restructuring of secured debt.
39. There are no limitations in the statutory provisions as to the conditions that may be included in a restructure of a secured debt, and what is envisaged is any agreed alteration to the repayment terms, including, it seems to me, an arrangement by which the term of the mortgage may be extended for many years, including to a time after the death of the debtor. There is in my view nothing in ss. 99 or 100 of the Act which precludes the splitting of the mortgage debt and the warehousing of part of the debt.
Provisions specific to treatment of secured debt
40. Secured debts must be expressly dealt with under a proposed PIA and cannot be dealt with as part of the debts in general. Secured debt is given special statutory protection in a number of respects. Section 102 is of particular relevance and s. 102(6) makes provision for the type of terms which may be included in a PIA to deal with secured debts. It is convenient to set out the entire subsection:
“Without prejudice to the generality of section 100 or subsections (1) to (3) and subject to sections 103 to 105 , a Personal Insolvency Arrangement may include one or more of the following terms in relation to the secured debt:
( a) that the debtor pay interest and only part of the capital amount of the secured debt to the secured creditor for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
( b) that the debtor make interest-only payments on the secured debt for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
( c) that the period over which the secured debt was to be paid or the time or times at which the secured debt was to be repaid be extended by a specified period of time;
(d) that the secured debt payments due to be made by the debtor be deferred for a specified period of time which shall not exceed the duration of the Personal Insolvency Arrangement;
( e) that the basis on which the interest rate relating to the secured debt be changed to one that is fixed, variable or at a margin above or below a reference rate;
(f) that the principal sum due on the secured debt be reduced provided that the secured creditor be granted a share in the debtor’s equity in the property the subject of the security;
( g) that the principal sum due on the secured debt be reduced but subject to a condition that where the property the subject of the security is subsequently sold for an amount greater than the value attributed to that property for the purposes of the Personal Insolvency Arrangement, the secured creditor’s security will continue to cover such part of the difference between the attributed value and the amount for which the property is sold as is specified in the terms of the Personal Insolvency Arrangement;
( h) that arrears of payments existing at the inception of the Personal Insolvency Arrangement and payments falling due during a specified period thereafter be added to the principal amount due in respect of the secured debt; and
( i) that the principal sum due in respect of the secured debt be reduced to a specified amount.” (Emphasis added)
41. The list of nine options is expressly made without prejudice to the generality of s. 100 or ss. 102(1) to (3) and subject to ss. 103 to 105.
42. The debtors argue that as a result of s. 102(6)(d) repayment of a secured debt may not be deferred outside the period of the PIA, or as was put by the PIP in his email in response to the KBC proposal, “the proposed warehoused amount would have to be addressed within the arrangement”, or that forbearance of payment of interest and part only of the capital may not outlive the terms of the PIA.
43. The Act permits a broad number of solutions to the treatment of secured debt. If the principal sum due on the secured debt is to be reduced by a proposed PIA, s. 102(6)(g) provides for a claw back if the property is subsequently sold for an amount greater than the value attributed to it in the course of the process.
44. Section 102(11)(a) provides, without prejudice to s. 103, that where a proposed PIA includes terms providing for the reduction of a secured debt, the amount of the reduction is to be treated as an unsecured debt and is to rank equally and in place in equal proportion to other unsecured debt. This particular treatment of the proposed amount to be written off of €166,000 is expressly dealt with in the proposed PIA in the present case.
45. I agree with the argument of KBC that the list contained in s.102(6) is not intended to be exhaustive. The section is permissive and does not mandate the means by which a secured debt may be restructured, and neither s.100 nor s.102(6)(d) preclude a proposal by which a warehoused amount becomes payable after the expiration of the term of a PIA.
46. Further, the provisions of s. 100, especially ss. 100(2)(b) and s. 100(2)(f) permit in general an arrangement for the restructuring of debt, and s. 102(6) is expressly made without prejudice to the generality of that provision. Therefore, the fact that warehousing of the type and for the time proposed is not found in the list of options outlined in s. 102(6)(d) does not mean that the proposal is not permitted by statute.
47. A number of the provisions regarding the treatment of secured debt fortify me in this conclusion, as I outline.
48. Section 102(3) expressly permits the retention by the secured creditor of the security, or that the security be surrendered, and the means by which this may be achieved are not constrained by any statutory provision. Section 99(2)(c) provides that secured debt stands discharged only to the extent provided therein.
49. There is an express requirement in s. 103(2) that a reduction of a secured debt shall not be to an amount less than the value of the property in respect of the security is held.
50. A more concrete protection is afforded by s.103(3) by which the secured creditor is entitled to a claw back on a sale within 20 years, or at the end of the mortgage terms, whichever first occurs, should a sale or disposal achieve a higher figure than that in an agreed s.105 valuation:
“A Personal Insolvency Arangement which includes terms involving —
(a) retention by a secured creditor of the security held by that secured creditor, and
(b) a reduction of the principal sum due in respect of the secured debt due to that secured creditor to a specified amount,
shall, unless the relevant secured creditor agrees otherwise, also include terms providing that any such reduction of the principal sum is subject to the condition that, subject to subsections (4) to (13), where the property the subject of the security is sold or otherwise disposed of for an amount or at a value greater than the value attributed to the security in accordance with section 105, the debtor shall pay to the secured creditor an amount additional to the reduced principal sum calculated in accordance with subsection (4) or such greater amount as is provided for under the terms of the Personal Insolvency Arrangement.”
51. Section 103(11) stipulates the temporal limit to the claw back:
“The obligation to pay an additional amount arising by virtue of this section shall cease—
(a) on the expiry of the period of 20 years commencing on the date on which the Personal Insolvency Arrangement comes into effect, or
(b) on the day on which the debtor is scheduled or permitted to fully discharge the amount secured by the security (or such later date as may be specified for so doing in the Personal Insolvency Arrangement) and does so discharge his or her indebtedness,
whichever first occurs.
52. Protection of this nature over a long period affords a considerable degree of comfort to a secured creditor following the write down of its debt.
Conclusion on warehousing generally
53. I consider that the scheme of the personal insolvency legislation affords a very broad discretion in a PIP to formulate a proposal for a PIA as the financial circumstances of each debtor will be different, and the proposal for a PIA must respect and make provision for such difference and do so in the light of the express objective in the Act that insofar as this can be achieved in a manner that is not unfairly prejudicial to an impaired creditor, a debtor should continue to own or occupy his or her principal private residence.
54. Because of s. 115A, a PIA must deal with any debts secured on the principal private residence of a debtor, and such is required also by virtue of ss. 104 and 99(2)(h) of the Act. A proposal for the restructuring of a debt secured on a principal private residence may be made provided the security over that property is dealt with in such a way that ownership or occupation are protected insofar as this may fairly and reasonably be achieved. The counterproposal made by KBC may not be one that many lenders would be prepared to offer, as the prospect for the recovery of the warehoused amount is pushed far into the future, and the prospect of taking action on the security to a future unknown time, and reasonable banking practices or corporate requirements may not find such proposal attractive. It is not however in itself impermissible.
55. For these reasons I reject the argument of the debtors that the statutory scheme precludes a PIA that makes provision for warehousing part of a debt to be treated outside the period of the PIA. In an individual case, whether a proposal by a creditor for long-term warehousing is one that may reasonably be rejected without risk of being characterised as unfairly prejudicial will depend on all of the circumstances, including whether the proposal provides a better return for creditors than the proposed PIA, or on bankruptcy, and makes provision for the repayment of debt in the light of the means of a debtor.
56. I turn now to consider the circumstances of the present case and the counterproposals of KBC in the light of the statutory tests.
The statutory test:115A(9)
57. Section 115A(9) provides that a court may make an order confirming the coming into effect of a PIA notwithstanding that it had been rejected at a meeting of creditors, but only when it is satisfied that the criteria set out in the section have been met. Section 115A(9)(b) contains an imperative that the means of a debtor be fully brought to bear in a proposed PIA and the court is to be satisfied that:
“The court, following a hearing under this section, may make an order confirming the coming into effect of the proposed Personal Insolvency Arrangement only where it is satisfied that —
…
(b) having regard to all relevant matters, including the terms on which the proposed Arrangement is formulated, there is a reasonable prospect that confirmation of the proposed Arrangement will —
(i) enable the debtor to resolve his or her indebtedness without recourse to bankruptcy,
(ii) enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit, and
(iii) enable the debtor —
(I) not to dispose of an interest in, or
(II) not to cease to occupy,
all or a part of his or her principal private residence.” (Emphasis added)
58. Section 115A(9) is mandatory and the court may make an order only where it is satisfied that the criteria are met. No provision exists, such as is found in the examinership jurisdiction, by which the court may modify a PIA on an application before it, whether under s. 115A or otherwise.
59. Section 115A(9)(b)(ii) constrains a court by considerations of reasonableness, that there be a reasonable prospect that confirmation of a proposed PIA will enable the debtor to resolve his or her indebtedness, and enable the creditors to recover their debts to the extent that the means of the debtor “reasonably permit”. The inclusion of a requirement of reasonableness supports the argument that a margin of appreciation will be afforded to a PIP in formulating a PIA, that the court will not interfere unduly with a proposal even if another and possibly equally reasonable proposal could be formulated, and the objection of a creditor will not be upheld merely on account of the fact that it can offer an alternative proposal. Reasonableness is assessed in the context of the means of the debtor, the likely return to the creditor of a proposal, the likely return on bankruptcy as an alternative, and the reasonableness of the proposed scheme taken as a whole, and in the light of the objective of the legislation that a debtor be facilitated in a return to solvency.
A matter of proportionality
60. A creditor who makes an alternative proposal does not thereby displace a proposal made by a PIP. A creditor may not defeat an application by merely on account of an argument that a better outcome can be achieved by another means.
61. The requirement that the court approach the question by reference to principles of proportionality was identified by me in my judgment in Re Hill and Personal Insolvency Acts [2017] IEHC 18 at para. 37:
“The statutory factors relate to the proportionality of the arrangement, the likely differences between the PIA and an arrangement on bankruptcy, and whether the PIA is fair to all classes of creditors. While the intention of the Oireachtas was to offer a unique and special protection to the principal private residence, that protection did not enable the court to override the vote of a creditor holding security over such property merely on account of the fact that the property was a principal private residence, and other factors resonant of an attempt to achieve a degree of balance of each of them is found in the legislation.”
62. The provisions of s. 115A give the court a broad discretion to offer to a debtor a means by which he or she may continue to own or occupy his or her principal private residence. However, as I said in Re Hill and Personal Insolvency Acts, the mere fact that a property is a principal private residence of a debtor does not enable the court to approve a proposed PIA against the objections of a creditor holding security over that premises, and the court must engage all of the statutory factors which taken together must be seen as indices of how a court is to proportionately balance the respective rights of the parties.
63. Therefore it is not merely on account of the fact that an alternative arrangement is possible that a court will reject an application under s. 115A, or indeed that a court would refuse to approve a proposed PIA following a vote at a meeting of creditors. In balancing the respective rights of the parties, a court must look at any proposed PIA in the context of s. 115A, having regard not just to whether the statutory criteria are met regarding the protection of occupancy or ownership of the principal private residence, but also having regard to a reasonable, coherent and complete argument proposed by an objecting creditor which will achieve a result sufficiently protective of the interests of the debtor.
64. I also note that s. 115A(9)(b)(ii) does not require the court to weight the substance of a counterproposal made by an objecting creditor and the court may engage the exercise envisaged by the Act even in the absence of a counterproposal.
Unfair prejudice
65. An order may not be made if it results in unfair prejudice to a creditor, and while the legislation does not expressly stipulate that the terms of a PIA be fair to a debtor, the provisions of s. 115A by importing a test of reasonableness does require the court to look to questions of fairness or proportionality to all concerned parties. Further, because of s.102(2)(b), a PIP is required to have regard to a stated preference for the treatment of debt only to the extent that the PIP considers “reasonable”. Reasonableness and fairness are broadly equivalent for this purpose.
66. Of particular note in the present case is not merely that the split inactive element of the mortgage is to be warehoused interest-free for 23 years, but that the proposal by KBC is coupled with an offer that the couple may continue to occupy the premises for the balance of their respective lives. The expression used is that the debtors would be given “lifetime tenure” in the house. Because the proposal was never explored, it is not clear if what is intended is a right of residence, or some form of joint life estate. Whatever legal effects are to be contained in the proposal, the protection of the right to reside and occupy the house is sufficiently clear to deal to an extent with the imperative contained in section 115A. But this of itself does not deal fully with the circumstances of the debtors or fairness to the creditors as is required under the Act.
67. I examine now the elements of the proposed PIA which the creditor says are unfairly prejudicial.
The means of a debtor are not brought to account
68. A court must be satisfied taking all matters into account that the proposed PIA enables the creditors to recover the debts due to them to the extent of the means of the debtor. The “means” engaged are present income and capital assets and not the projected means at a time so far into the future that the test is based on hypotheses or conjecture. There may on the other hand be circumstances where future certain or ascertainable means are to be brought into account.
69. KBC argues that the PIA does not enable it to recover its debt to the extent that the means of the debtors reasonably permit. It is argued that a greater return will be achieved in a number of respects under its counterproposal by the long term bringing into account of the capital value of the residence: the write-down would be €15,000, far less that €166,000 proposed in the PIA, and KBC will continue to have the benefit of the warehoused debt, albeit its power to enforce that debt will be constrained by the right of occupancy.
70. The difference in the amount proposed to be written down between the counterproposal of KBC, which involves a write-down of €15,000 only, and that in the proposed PIA of €166,000 or thereabout, is argued to offer a much better return to that creditor, albeit the recovery of half of the debt is stayed without interest for a period of 23 years, and security stayed for the lifetime of the debtor. I am not satisfied that the objecting creditor has shown by evidence that the proposal offers it a better return, albeit superficially the counterproposal provides a greater monetary return than the immediate write-down of more than half of the secured debt. The inactive account that does not bear interest for 23 years, may produce a result, if there is significant inflation in some or all of the period, that the warehoused amount has no real value when payment fall due. I do not consider that a superficial comparison of the financial elements of the proposal is a correct approach, and I have no evidence that supports the argument beyond a mere arithmetic calculation.
71. The principal private residence of the debtor and his wife has on any reckoning a low value and the house is the smallest unit suitable for the reasonable needs of a family. Section 104(2)(d) is relevant, and the premises could not be described as disproportionately costly or unsuitable.
72. The Act requires a proposal to bring to reasonable account the means of a debtor. The proposal to warehouse an amount that at current figures is more than 125% of the value of the dwelling is not proportionate to, or reasonably derived from, that current income and capital assets, or any future ascertainable means. I am not satisfied that the PIA is unfairly prejudicial on account of failing to fully bring into account hypothetical or future means, for which there exists no present expectation.
73. At current valuation, the value of the property is less than the amount proposed to be warehoused, but it is impossible at this juncture to know whether the property would increase in value or whether the debtors, on the death of the survivor of them, would have other assets which could meet any shortfall on the debt, should one exist.
74. Further, I do not consider it is appropriate to consider the question raised in the present case on the basis that the estate of the last surviving debtor is likely to be insolvent of the date of the death of the last surviving debtor, particularly having regard to the fact that the debtors of both are in their early forties, and because it is impossible at this juncture to predict how property prices will evolve in their respective lifetimes.
75. In these circumstances I consider that the PIP did not unreasonably fail to adopt the counterproposal, and in my view the means of the debtors have been reasonably and adequately brought to bear on the proposed PIA.
Provision for future solvency
76. KBC relies on my judgment in Re Dunne (A Debtor) [2017] IEHC 59, in which I held that the court was not concerned with the question of whether a PIA would guarantee the solvency of a debtor after the term of an arrangement came to an end. At para. 46, I said the following:
“The mortgage on the principal private residence of the debtor and the interlocking debtor will by agreement with PTSB outlive the PIA by more than 20 years, but that does not in my view mean that the court must be vigilant to ensure that the debtor is reasonably likely to be able to meet the obligations under the mortgage for the balance of the mortgage term. While the court is obliged to enquire as to whether it is reasonably likely that a debtor will meet the terms of the PIA, the court is not required to engage the broader question as to whether the debtor is reasonably likely to be able to perform the obligations as reformulated in the PIA with regard to the repayment of a secured debt over the length of the repayment term.”
77. The PIA in Re Dunne (A Debtor) included a provision for the splitting of a mortgage loan into active and warehoused elements, the warehoused account to be inactive until the expiration of the mortgage term and in regard to which the term of the PIA provided that “options would be explored regarding the payment of the warehoused amount, whether by way of refinancing, making a lump sum payment or sale”. (para. 13)
78. The PIA in that case did involve the splitting of the mortgage into active and inactive elements but both parties accepted that the proposed warehousing outside the term of the PIA was a permissible approach to the secured debt. However, the broad principle enunciated in that case, that the court is not obliged to look to the unknown future and whether a debtor is reasonably likely to be able to perform the obligations as reformulated in a PIA with regard to the payment of the secured debt over a long mortgage term, are relevant. The purpose of the legislation was to afford a breathing space in which a debtor may achieve a return to solvency, not to ensure that such solvency was guaranteed over the entire term of a mortgage, even if the length of that term was identifiable and agreed between borrower and lender.
79. However, the fact that a court will not require that a PIA would guarantee solvency into the future has the corollary that a court will equally not make assumptions regarding the likely financial or other circumstances of a debtor far into the future. In the present case whilst the counterproposal does make provision for the continued occupancy by the debtors of their principal private residence for their respective lives, it is predicated on assumptions and conjecture regarding the living arrangements of the debtors far into the unknown future to a time at the expiration of the mortgage term, when Mr. Callaghan will be 62 years of age and his wife close to that age.
80. In addition I am not satisfied that the reasonableness of the counterproposal is to be tested in the light of an assumption that the couple will wish to remain living in their present home for the rest of their lives, or even for the rest of their working lives. Many life events could mean that they will wish or need to live elsewhere.
81. It is crucial in this context that s. 90 precludes a debtor entering into more than one personal insolvency arrangement in his or her lifetime. This means that the legislation envisages an arrangement which will deal with all present insolvency of the debtors or at least the achieving of solvency within five years. While the counterproposal made by KBC may seem attractive and to some extent benevolent, it is capable of creating circumstances amounting to insolvency at the end of the mortgage term in approximately 23 years’ time. Because a PIA is a once in a lifetime solution it would be wrong to test the reasonableness of a proposal in the light of a preferred solution or counterproposal that could on its terms result in insolvency at a future date. The discussion above with regard to speculative proposals is also relevant in regard to this proposition. A warehousing solution should on present or known figures offer a solution to indebtedness that is likely to be achieved. Neither of the debtors has the benefit of a pension which might provide a lump sum on retirement to deal with the warehoused amount. The repayment of the inactive account therefore is not predicated on any anticipated ability to pay in the future, and is entirely on the hazard. This results in unfairness at a level which I consider material.
Conclusion
82. For all of these reasons, I do not consider that the proposed PIA unfairly prejudices the objecting creditor. The PIP correctly took the view that the counterproposal was not reasonable or fair to the debtors.
83. In those circumstances, I propose affirming the order of the Circuit Court under s.115A of the Act.
Re: Lisa Parkin
(a debtor) [2019] IEHC 56 (04 February 2019)
McDonald J.
Status:
Approved
[2019] IEHC 56
THE HIGH COURT
Circuit Appeal
JUDGMENT of Mr. Justice Denis McDonald delivered on 4 February, 2019
Introduction
1. Ms. Parkin, the debtor in this case, was born in 1972. She is married but separated from her husband, who is now living in the United Kingdom. She has one dependent child (a daughter) who is now fifteen. Her daughter is obviously very talented. The evidence before the court shows that she is an excellent student and is particularly proficient in Irish. She is expected to do sufficiently well in her Leaving Certificate examinations to qualify to study veterinary medicine at UCD.
2. Ms. Parkin and her daughter live in the family home on Ballyfermot Road, Dublin 10. They have lived there since September 2005 when it was acquired, with the benefit of a bank loan, in the names of Ms Parkin and her husband.
3. In circumstances described in more detail below, Ms. Parkin’s husband moved to the United Kingdom in 2015. According to the evidence of Ms. Parkin, he makes no contribution, financial or otherwise, to the household. He does not contribute to the mortgage repayments, nor does he make any payment in respect of child maintenance.
4. As noted above, the family home was acquired by Ms. Parkin and her partner in 2005 with the assistance of a loan (secured in the usual way by a mortgage) from Permanent TSB (PTSB). Ms. Parkin is described in the papers before the court as a finance manager employed by the HSE. Her net monthly income from her employment is €2,909.47.
5. Ms. Parkin fell into financial difficulty for the first time in 2007. She explains in her affidavit that her husband developed an addiction to gambling and borrowed €7,000 from “loan sharks” which he used to place bets. This debt was simply too much to repay on top of the ordinary expenses of the household and Ms. Parkin says that, as a consequence, she and her husband began to fall behind on various bills. In para. 8 of her affidavit sworn on 9 January 2017, she says: –
“The people who provided the loan were unsurprisingly persistent to be repaid and we were coming under pressure to pay off the debt in full. The harassment was becoming worse and I borrowed a sum of money from my sister . . . in order to discharge the debt. My husband’s departure did not negatively impact [my financial situation] . . . as he was not contributing”.
6. Ms. Parkin also explains that, notwithstanding the episode with the loan sharks, her partner’s gambling problem became worse. At that stage, she first fell into arrears with the mortgage repayments to PTSB. It is clear from the summary estimated statement of affairs at Appendix 1 to the proposed Personal Insolvency Arrangement (“PIA”) that, in addition to the home loan liabilities to PTSB and the liability to her sister, she also incurred borrowing costs in respect of a loan obtained from her staff credit union at the HSE (“the credit union”) and she ran up a significant bill on her PTSB credit card.
7. In the meantime, in common with many other properties, the value of Ms. Parkin’s home fell significantly. The current debt due to PTSB and secured on the home is in the order of €333,785 while the value of the home has dropped to €160,000. This value has been agreed between PTSB and Ms. Judy Mooney, the Personal Insolvency Practitioner (“the practitioner”) acting in this case on behalf of Ms. Parkin.
8. There is no dispute between the parties that, as of 1 January, 2015, Ms. Parkin was in arrears with her payments in respect of the PTSB home loan. Ms Parkin’s indebtedness on foot of the loan is therefore a relevant debt for the purposes of s 115A(18) of the Personal Insolvency Act 2012 (“the 2012 Act) such as to satisfy the gateway requirement of s. 115A. In the Circuit Court, Ms Parkin sought and obtained an order under s 115A(9) confirming the coming into effect of proposals for a Personal Insolvency Arrangement (“PIA”) notwithstanding that the proposals have been rejected by a majority (in value) of her creditors.
9. It should be noted, at this point, that the home loan (and the relevant mortgage in favour of PTSB) are in the joint names of Ms. Parkin and her husband. The family home (which is clearly a principal private residence for the purposes of the Personal Insolvency Acts 2012 – 2015) is also in joint names.
10. Ms. Parkin has not taken any steps against her husband to require him to make any contribution to the mortgage repayments or to the maintenance of their daughter. In para. 6 of her affidavit sworn on 9 January 2017, Ms. Parkin says that her partner: –
“. . . does not communicate with me and I do not know the address at which he currently resides nor do I have any forwarding address for him. I say that [he] has deliberately not provided me with any contact details lest he is pursued for child maintenance or other financial obligations. My daughter visits her grandmother in Yorkshire and has met her father there. . . .”
The application under the 2012-2015 Acts
11. Proceedings under the 2012 – 2015 Acts were commenced in the Circuit Court in 2016. In accordance with the requirements of the Acts, the practitioner formulated proposals for a PIA which were considered by Ms. Parkin’s creditors at a meeting of creditors held on 7 November, 2016. Under the proposals, the secured debt on foot of the mortgage granted to PTSB will be written down to €160,000 (which is the agreed market value of the principal private residence). The balance of €173,785.39 will be treated as unsecured debt and will share with the credit union a dividend of 8 cent in the euro. At the end of the PIA, the balance of the unsecured element of the debt will be written off.
12. The creditors’ meeting was attended by two creditors namely PTSB and the credit union. PTSB voted against the proposal. The credit union voted in favour. The total debt due to PTSB (including the sum of €9,948 due on foot of Ms. Parkin’s credit card and the sum of €20 due on foot of a personal loan) amounted to €343,753.00. In percentage terms this represents 98.9% of the total debt voted at the meeting. The amount due to the credit union is €3,752.43 which represents 1.1% of Ms. Parkin’s total indebtedness. Thereafter, an application was made to the Circuit Court by the practitioner under s. 115A(9) seeking an order confirming the coming into effect of the proposed PIA notwithstanding that it had been rejected in the manner outlined above. For the purposes of satisfying the requirements of s. 115A(9)(g), the practitioner argued that the credit union comprised a separate class of creditor from PTSB. For this purpose, s. 115A(17)(a)(i) enables a court to consider a single creditor as a separate class.
13. PTSB filed a Notice of Objection in the Circuit Court. In that Notice, PTSB raised a number of issues as follows: –
(a) It was contended that the credit union could not be said to constitute a separate class of creditor;
(b) It was contended that it was not appropriate for the court to approve the arrangement in circumstances where an alternative had been put forward by PTSB which, it was contended, was ” fairer and /or more appropriate (including to unsecured creditors by reason of providing a better return for them of 10.11% as opposed to 5.51%)”. At this point, I should record that on 3 and 7 November 2016, PTSB put forward an alternative proposal that would have split the mortgage debt into two parts namely (a) a live balance of €236,000 which would continue to accrue interest at 3.25% per annum and (b) the ” warehousing ” of the balance of €97,785 at zero interest ” with a 30% LTV write down upon maturity, if applicable “. The counterproposal also proposed an extension of the term to 312 months. At the end of that term, the warehoused balance would become due subject to the possibility of the partial LTV write-down mentioned above. In, the meantime, Ms Parkin would have a monthly mortgage bill in the order of €1,121.
(c) It was contended that the position adopted by the practitioner that the warehousing of a debt did not comply with the 2012 – 2015 Acts was an ” error of law “;
(d) It was argued that the PIA will not enable creditors (and in particular PTSB) to recover debts due to them to the extent that the means of the debtor reasonably permit. It was contended that this was a breach of s. 115A(9)(b)(ii).
(e) Reliance was also placed on s. 115A(9)(e) and (f) of the 2012 Act, (as amended). In support of this proposition, the notice stated that PTSB ” will rely, in particular, on the fact of the sizeable upfront write-down proposed in the PIA”.
(f) The fact that the debt was a joint debt with Ms. Parkin’s husband was also a ground of objection. It was submitted that, to grant the order sought, would be to reduce the debt in respect of which Ms. Parkin’s husband is jointly and severally liable and that this would breach s. 115A(9)(b)(ii) of the 2012 Act (as amended). In particular, it was argued that the terms of the proposed PIA did not address the joint borrowings in a manner that would preserve the rights of PTSB as against Ms. Parkin’s husband.
14. A hearing subsequently took place before Her Honour Judge Susan Ryan in the Circuit Court at which PTSB and the practitioner were represented by counsel. On 9 August 2017, the learned Circuit Court Judge delivered a written judgment in which she rejected the grounds of objection and expressed the view that the proposed PIA does not unfairly prejudice PTSB.
15. Since the decision of the learned Circuit Court Judge, Ms Parkin has complied with the terms of the PIA.
The appeal
16. PTSB has appealed the decision of the learned Circuit Court Judge. Since an appeal from the Circuit Court to the High Court is an appeal by way of rehearing, a full rehearing of the application took place before me on Monday 3 December, 2018 at which the practitioner was represented by junior counsel and PTSB was represented by both senior and junior counsel.
17. Very helpful written and oral submissions were made which have assisted in crystallising the issues that now fall for determination by me. PTSB drew attention to the far reaching nature of s. 115A and submitted (correctly in my view) that the onus of proof lies on the practitioner to demonstrate that all of the requirements of s. 115A have been satisfied. PTSB relies in this context on the observations of Baker J. in Laura Sweeney [2018] IEHC 456 at para. 60 where she emphasised that the court can only approve a PIA where all of the statutory tests are met. PTSB also relies on the observation of Baker J. in Siddhartha Varma [2017] IEHC 218 at para. 23 where Baker J. drew attention to the impact which relief under s. 115A can have on the contractual and property rights of a creditor.
18. PTSB also contends that the onus lies on the practitioner to justify why the counter-proposal made by it (summarised in para. 13(b) above) ought not to be adopted.
19. PTSB strongly urges that the means of Ms. Parkin permit a greater recovery for PTSB than is proposed under the PIA. In this context, PTSB complains that, even if the practitioner was justified in not accepting the PTSB counter-proposal, the PIA should nevertheless have provided for some level of warehousing under which more extensive payments could be made in the future.
20. Having regard to Ms Parkin’s means, PTSB also argues that the proposed write-down of the PTSB mortgage debt to the current market value of the principal private residence of Ms. Parkin is unnecessary and unjustified. PTSB submits that, in cases of this kind, it is incumbent on the practitioner to objectively justify a write-down of this nature.
21. In light of the manner in which the 2012-2015 Acts engage the constitutionally protected property rights of secured creditors, PTSB submits that, having regard to the approach taken in Heaney v. Ireland [1994] 3 I.R. 593, the court is required to consider, insofar as possible, whether there is an alternative proposal which is less intrusive to the rights of the creditor. In this context, PTSB argues that this requires that the practitioner must conduct a real and substantiated analysis as to what level of postponed or “warehoused” debt would be affordable.
22. PTSB also contends in this regard that the future pension entitlements of Ms. Parkin are relevant and must be taken in account.
23. PTSB complains that the PIA makes no provision for contributions from Mr. Parkin and PTSB argues that Ms Parkin should have made attempts to pursue Mr Parkin.
24. Furthermore, PTSB submits that the practitioner has failed to substantiate the claim that the credit union constitutes a separate class of creditors for the purposes of s. 115A.
The credit union as a separate class of creditor
25. It seems to me that, logically, I should deal with the last of those issues first. If no class of creditor has accepted the proposed arrangement by a majority of more than 50% of the value of the debts owed to that class, the court could not make an order confirming the coming into effect of the proposed PIA. Section 115A(9)(g) makes that clear.
26. In the papers before the Circuit Court the practitioner had contended that the credit union formed a separate class of creditor on the grounds that the credit union was: –
“… A mutual organisation owned by the members with profit being shared between the members and operating in the interests of those members. A mutual lender must be formed for one or more objects and that the members must have a “common bond”. A member must also have at least one fully paid-up share in the credit union. Further, the creditor is regulated under distinct regulatory frameworks and under law. In that regard, I consider the credit union to be in a separate class as their rights are so dissimilar that it would be impossible for them to consult together with any other creditor with a view to their common interest. …”.
27. PTSB, in its submissions, relied on the judgment of Baker J. in Sabrina Douglas [2017] IEHC 785 where Baker J, at paras. 37-38, held that a credit union could not be characterised as a separate class of creditors ” merely on account of the rules governing membership of the society “. Baker J. explained that the rules of a credit union, while relevant to the nature or legal status of such an entity, do not provide any support for treating a credit union as a separate class. Baker J. emphasised that what s. 115A is concerned with is the nature or claim of a creditor as against the debtor.
28. In Sabrina Douglas , Baker J. followed the same approach that is traditionally taken in the context of the constitution of classes for the purposes of voting on a scheme of arrangement under the Companies Act. In particular, Baker J. followed the approach taken by Laffoy J. in Re: Millstream Recycling [2010] 4 IR 253 where Laffoy J. applied the classic test laid down in Sovereign Life Assurance Company v. Dodd [1892] 2 Q.B. 573 where Bowen L.J. said:
“It seems plain that we must give such a meaning to the term “class” as will prevent [the statutory provision] being so worked as to result in confiscation and injustice, and that it must be confined 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”.
29. In the Circuit Court, the learned Circuit Court Judge did not accept the basis for the characterisation of the credit union as a separate class which had been suggested by the practitioner (as outlined in para. 26 above). Nevertheless, she took the view that, given the composition of the liabilities due and owing to PTSB (which involve both secured and unsecured elements), it could not be said that the credit union and the PTSB shared a common interest. In contrast, the debt due to the credit union was entirely unsecured. For that reason, Judge Ryan held that the credit union constituted a separate class.
30. In my view, the approach taken by the learned Circuit Court Judge was entirely correct. There were only two creditors who participated in the meeting – namely the credit union and PTSB. The credit union was solely an unsecured creditor. However, PTSB was both an unsecured creditor (in respect of the credit card and loan accounts) and a secured creditor in respect of the mortgage account. The fact that PTSB held a mortgage over the family home in respect of the bulk of the debt due to it shows very clearly that its rights were markedly different to those of the credit union. Because such a significant element of the debts due to PTSB were secured by the mortgage, PTSB’s interest was in securing an outcome that best preserved its rights under the mortgage. In contrast, the credit union was solely concerned as an unsecured creditor. Its interests were in securing an outcome which maximised the return to unsecured creditors. In these circumstances, it seems to me that the rights and interests of PTSB and the credit union were so dissimilar as to make it impossible for them to consult together with a view to their common interest. In short, they had no common interest.
31. In the course of argument, it was suggested by counsel for PTSB that, in circumstances where the practitioner had relied solely on the credit union’s mutual status in his statement given under s. 115A(2)(a)(ii), he could not now seek to put forward a different basis for his contention that the credit union should be treated as a separate class. I reject that argument. In my view, it is clear from s. 115A(17) that it is for the court to form a view as to whether any individual creditor or group of creditors should be treated as a class of creditor for the purposes of s. 115A. The role of the court in relation to this issue is not circumscribed by the approach taken by the practitioner. The court is free to reach its own view.
32. For the reasons discussed in para. 30 above, I hold that the credit union is to be treated as a separate class for the purposes of s. 115A. I appreciate that, on an overall basis, the debt due to the credit union represents no more than 1.1% of Ms Parkin’s indebtedness. I must, of course, bear in mind s. 115A(17)(b)(ii) which requires the court to have regard (inter alia) to the proportion of the debtor’s debts due to the creditor forming a separate class. Nonetheless, in the context of Ms Parkin’s means, a debt of €3,816 is not insubstantial. It represents more than one month’s income after tax. The credit union is also the only totally unsecured creditor to vote and, in those circumstances, its voice is important. Accordingly, I am of the view that it is appropriate that it should be regarded as a separate class.
33. In light of the findings made in paras. 30 and 32 above and in circumstances where the credit union has voted in favour of the proposed PIA, I find that the provisions of s. 115A(9)(g) have been compiled with in this case.
Warehousing
34. At the time the proposals for the PIA were formulated by the practitioner in this case, it was understood by the practitioner that warehousing of debt was not permitted under the 2012-2015 Acts. However, this view was rejected by the learned Circuit Court Judge who referred in her judgment to the decision of Baker J. in Paula O’Callaghan [2018] 1 IR 335 where Baker J. dismissed an argument that the statutory scheme of the 2012-2015 Acts precluded warehousing as an element of proposals for a PIA. For this purpose, Baker J considered the different ways in which s 102 of the 2012 Act envisages that a PIA can address secured debt. At para. 45 of her judgment in Paula O’Callaghan Baker J. said:
“I agree with the argument of KBC that the list contained in s. 102(6) is not intended to be exhaustive. The section is permissive and does not mandate the means by which a secured debt may be restructured, and neither s. 100 nor s. 102(6)(d) preclude a proposal by which a warehoused amount becomes payable after the expiration of the term of a PIA.”
35. During the course of the hearing before me, it was argued on behalf of the practitioner that Baker J. had subsequently taken a different approach in Jacqueline Hayes [2017] IEHC 657. In particular, it was submitted that, in para. 46 of her judgment in Jacqueline Hayes, Baker J. had stressed the difference in language between s. 102(6)(d) of the 2012 Act on the one hand and the provisions of s. 102(6)(e) on the other. In the case of the latter, no temporal limitation is placed on a proposal to fix an interest rate under a PIA. In the same paragraph, Baker J. stressed that this is quite different to s. 102(6)(d) (dealing with a deferral of secured debt payments). Section 102(6)(d) imposes a temporal limitation on proposals to defer payment of secured debt. In particular, it provides that any such deferral is not to ” exceed the duration of Personal Insolvency Arrangement” . Counsel argued that, since warehousing involves deferral of part of a debt, s 102(6)(d) must therefore mean that warehousing is not permissible in the context of a PIA. Counsel argued that the fact that Baker J had adverted, in Jacqueline Hayes , to the provisions of s. 106(2)(d), must mean that she was adopting a different view to that previously taken by her of the same subsection in Paula Callaghan .
36. Notwithstanding the very able arguments of counsel for the practitioner, I do not believe that I can construe what was said by Baker J. in her judgement in Jacqueline Hayes as overruling or departing from the ratio of her previous decision in Paula Callaghan . If Baker J. had intended to overrule her previous decision in Paula Callaghan , I believe she would have made that clear in her judgment in Jacqueline Hayes . It is noteworthy that in her judgment in Jacqueline Hayes , she expressly refers to her previous decision in Paula Callaghan and does not call it into question in any way. Furthermore, Baker J, in Laura Sweeney [2018] IEHC 456, having cited her decision in Paula Callaghan , reiterated in para. 56 of her judgment that it may be appropriate in certain cases to split or warehouse part of a debt. In these circumstances, I believe that I must treat the decision of Baker J. in Paula Callaghan as authority for the proposition that proposals for a PIA which include a proposal to warehouse part of a mortgage debt are not per se contrary to the provisions of the 2012 – 2015 Acts. Given that the decision of Baker J. in Paula Callaghan is a relatively recent decision by a judge with unparalleled experience and expertise in personal insolvency matters, I do not believe that it would be appropriate for me to do anything other than to follow that decision. The decision of Clarke J (as he then was) in Worldport Ireland Ltd. (in liquidation) [2005] IEHC 189 makes this very clear. In that case, Clarke J. said at pp 7 – 8: –
“I have come to the view that it would not be appropriate . . . for me to revisit the issue so recently decided by Kearns J. . . . It is well established that, as a matter of judicial comity, a judge of first instance ought usually follow the decision of another judge of the same court unless there are substantial reasons for believing that the initial judgment was wrong. . . . Amongst the circumstances where it may be appropriate for a court to come to a different view would be where it was clear that the initial decision was not based upon a review of significant relevant authority, where there is a clear error in the judgment, or where the judgment sought to be revisited was delivered a sufficiently lengthy period in the past so that the jurisprudence of the court in the relevant area might be said to have advanced in the intervening period In the absence of such . . . circumstances it seems to me that the virtue of consistency requires that a judge of this court should not seek to second guess a recent determination of the court which was clearly arrived at after a thorough review of all of the relevant authorities . . .”
37. In the course of the hearing before me, counsel for the practitioner did not identify that any of the additional circumstances discussed by Clarke J. in Worldport could be said to apply here. Accordingly, it would be quite wrong for me to revisit the approach taken by Baker J. in Paula Callaghan . Unless and until a different decision is given by the Court of Appeal or the Supreme Court, I believe that I should follow and apply the law in relation to warehousing as explained by Baker J. in Paula Callaghan and reiterated in Laura Sweeney .
38. I must therefore find that, there is no reason in principle why proposals for a PIA might not include a proposal for warehousing of part of a secured debt.
39. That is not to say that warehousing will be appropriate in any particular case. On the contrary, the decision in Paula Callaghan illustrates that, while warehousing is permissible in principle, it may not work in practice. The decision in Paula Callaghan demonstrates this very well. In that case, the secured indebtedness amounted to €285,647. The value of the principal private residence was agreed under s. 105 at €105,000. In the proposals for a PIA, it was proposed that there should be a debt write-off of €165,647 leaving a live mortgage balance of €120,000. KBC Bank had made a counterproposal to write off €15,000 and then to split the remaining mortgage debt of €270,000 into two moieties of €135,000 each. The first moiety was to be paid by instalments in the traditional way. KBC proposed that the second moiety would carry interest at 0%; that the security would not be enforceable until after the debtors had died which meant that the debtors would be permitted to occupy their principal private residence for the rest of their lives. I agree with the submission made by counsel for the practitioner in this case, that the warehousing proposal in Paula Callaghan was significantly more beneficial to the debtors there than the proposal made by PTSB here. Nonetheless, Baker J. refused to accept that the counterproposal was appropriate. At paras. 79-81 of her judgment, she said: –
“[79] However, the fact that a court will not require that a PIA would guarantee solvency into the future has the corollary that a court will equally not make assumptions regarding the likely financial or other circumstances of a debtor far into the future. In the present case whilst the counterproposal does make provision for the continued occupancy by the debtors of their principal private residence for their respective lives, it is predicated on assumptions and conjecture regarding the living arrangements of the debtors far into the unknown future to a time at the expiration of the mortgage term, when Mr. Callaghan will be 62 years of age and his wife close to that age.
[80] In addition I am not satisfied that the reasonableness of the counterproposal is to be tested in the light of an assumption that the couple will wish to remain living in their present home for the rest of their lives, or even for the rest of their working lives. Many life events could mean that they will wish or need to live elsewhere.
[81] It is crucial in this context that s. 90 of the 2012 Act precludes a debtor entering into more than one personal insolvency arrangement in his or her lifetime. This means that the legislation envisages an arrangement which will deal with all present insolvency of the debtors or at least the achieving of solvency within five years. While the counterproposal made by KBC may seem attractive and to some extent benevolent, it is capable of creating circumstances amounting to insolvency at the end of the mortgage term in approximately 23 years’ time. Because a PIA is a once in a lifetime solution it would be wrong to test the reasonableness of a proposal in the light of a preferred solution or counterproposal that could on its terms result in insolvency at a future date. The discussion above with regard to speculative proposals is also relevant in regard to this proposition. A warehousing solution should on present or known figures offer a solution to indebtedness that is likely to be achieved. Neither of the debtors has the benefit of a pension which might provide a lump sum on retirement to deal with the warehoused amount. The repayment of the inactive [moiety] therefore is not predicated on any anticipated ability to pay in the future, and is entirely on the hazard. This results in unfairness [to the debtor] at a level which I consider material.”
40. Counsel for the practitioner in this case relied very strongly on these observations by Baker J. He submitted that the PTSB counterproposal here is essentially predicated on a future sale at a time when Ms Parkin will be at an advanced age. This is because the warehoused amount of €97,785.00 will become due upon maturity (following the expiry of the proposed extension of the term of the PTSB mortgage loan to 312 months). While there is the possibility of a 30% loan-to-value write-down, this is not guaranteed. Thus, unless Ms. Parkin is in a position to pay €97,785.00 on maturity, she will be left with no alternative but to sell her home. By that stage, Ms. Parkin will be 71 years of age. While it is likely that her retirement age will be 68, and while it appears that she will be entitled to payment of a pension, counsel for the practitioner urged that the observations of Baker J. in Paula Callaghan (quoted in para. 39 above) apply with even greater force here given that the KBC proposal in that case at least gave the debtors security of tenure in their home for their lifetime. In contrast, in the present case, counsel submitted that Ms. Parkin would be facing a very significant liability in her old age, and would very likely have to sell her home in order to meet the liability that would crystallise at age 71. Counsel also submitted that the warehousing of part of the debt would effectively mean that Ms. Parkin would remain insolvent even after the termination of a PIA. In this regard, he drew attention to the observation of Baker J. in Laura Sweeney , where she said at para. 46: –
“. . . .it must be recalled that a person may avail of a PIA only once in a lifetime, and that must mean that the court ought not to make an order which, on known figures, is likely to lead to insolvency at an identifiable time in the future, even if that time is far into the future”.
41. On the other hand, counsel for PTSB stressed that the observations of Baker J in Paula Callaghan suggest that she had in mind that a different conclusion might have been open, in that case, had the debtors there had the benefit of a pension arrangement which would have given rise to a lump sum payment on reaching retirement age. This is an issue that I consider further below when I address the arguments of the parties in relation to Ms Parkin’s pension entitlements.
42. In light of the approach taken, on the facts, in Paula Callaghan , it is understandable that warehousing does not regularly feature in proposals for PIAs. The observations of Baker J. in that case (as quoted above) make very clear that even a relatively benign warehousing proposal may encounter difficulty for the reasons explained by Baker J. – namely that it is capable of creating circumstances amounting to insolvency at the end of the mortgage term. In this context, it is important to bear in mind that, between now and the end of the mortgage term, Ms Parkin will continue to have to incur the ordinary expenses of life. For example, money will inevitably be required from time to time for expenses such as medical and dental treatment and for the upkeep and maintenance of the family home; and relatively large sums may need to be spent when the roof springs a leak or the windows need to be replaced or the central heating irretrievably breaks down.
43. That is not to say that there may not be cases where warehousing may be appropriate on the facts. It will always depend on the particular facts of an individual case. In order to properly evaluate its potential applicability here it is necessary to consider the evidence in more detail and to address the underlying issue of affordability. I will therefore return to the issue in the concluding section of this judgment.
Affordability
44. In the course of the hearing before me, it was strongly urged by counsel for PTSB that, even if the practitioner was not obliged to incorporate the PTSB warehousing proposal into the terms of the PIA, the practitioner had an obligation to consider what was affordable for Ms. Parkin. PTSB makes the case that the means of Ms. Parkin permitted a greater recovery for PTSB than is proposed under the PIA. PTSB contended that the approach taken by the practitioner was highly conservative, and that the practitioner has wholly failed to justify why, under the proposals made by her, the mortgage debt is written down to market value notwithstanding the level of Ms Parkin’s income. PTSB lays emphasis on the observation made by Baker J. in Laura Sweeney at para. 56 where she said: –
“The determination as to whether a mortgage debt is to be written down is to be made by reference to the affordability of payment”
That observation must be seen in the context of s. 115A(9)(b)(ii) of the 2012 Act which makes it clear that the court must be satisfied that there is a reasonable prospect that confirmation of the proposed PIA will enable the creditors of the debtor to ” recover the debts due to them to the extent that the means of the debtor reasonably permit .”(emphasis added).
PTSB complains that, in circumstances where the practitioner proposes the maximum possible write-down, (i.e. a write-down to market value), the practitioner ought to be required to satisfy the court as to why a permanent write-down of debt should take place rather than a postponement of some of the debt pending a further payment in the future (i.e. warehousing). PTSB further submits that, in the present case, the evidence suggests the availability of additional and ascertainable income which has not been properly addressed by the practitioner. In addition, PTSB contended, in the course of the hearing before me, that the practitioner has failed to explain the rationale for the write-down of the mortgage debt to market value. PTSB highlights what it characterises as a bald averment made by the practitioner at para. 9 of her affidavit sworn on 18 May 2017 where she says: –
“I say and believe that the write-down is based on the current affordability of the Debtor in a fair and equitable treatment between the Creditors including both secured and unsecured Creditors in the personal insolvency arrangement proposal. Indeed, it is the case that there are few certainties in personal insolvency and bankruptcy and rather there be (sic) an arbitrary write-down wherein I would pick a figure I have grounded the restructure (and write-down) on the certainties of the PIA, being the agreed s. 105 valuation and the proven and accepted income and expenditure, and thus the agreed capacity”.
45. PTSB says that this passage is not easy to understand but that what it appears to suggest is that the write-down amount here was selected on the sole basis that the relevant figure was said to be one of the ” certainties of the PIA ” namely the agreed valuation under s. 105 (which represents the maximum permissible write-down under s.103). According to PTSB, it is familiar with similar averments by practitioners which invariably state that a write-down, often to current market value, has been determined on the basis of ” affordability ” with no other supporting detail being provided whatsoever. PTSB seeks to make the case that such ” bland averments ” are entirely inappropriate. As noted above, PTSB suggest that this issue has to be viewed against the background where, as Clarke J. acknowledged in Re: McInerney Homes [2011] IEHC 4 at para 3.10 that: –
“. . . in assessing whether a scheme is fair or “unfairly prejudicial” the court must have regard to the secured status of . . . [secured] creditors and the fact that that enhanced status places those creditors in an advantageous position in any alternative scenario such as liquidation or receivership”.
46. PTSB also anchors its argument by reference to the manner in which s. 115A impinges on its constitutionally protected property rights. PTSB relies on the well-known passage in Heaney v. Ireland [1994] 3 IR 593 at p. 607 where Costello J. (as he then was) said: –
” . . .The objective of the impugned provision must be of sufficient importance to warrant overriding a constitutionally protected right. It must relate to concerns pressing and substantial in a free and democratic society. The means chosen must pass a proportionality test. They must: —
(a) be rationally connected to the objective and not be arbitrary, unfair or based on irrational considerations;
(b) impair the right as little as possible, and
(c) be such that their effects on rights are proportional to the objective . . .”
47. Against a background where (as the judgments of Baker J. in a number of cases make clear) s. 115A adversely affects the constitutionally protected property rights of secured creditors, PTSB submits that its rights should be impaired to the smallest extent possible by any proposed PIA. Thus, PTSB argues that the court should very carefully scrutinise the evidence as to affordability particularly in circumstances where the practitioner proposes to reduce the mortgage debt to the maximum extent permitted under s. 103 – namely to the agreed market value of the underlying security.
48. In order to address the case made by PTSB in relation to affordability, it is necessary to consider the evidence before the court in relation to this issue. As noted above, the affidavit evidence filed by the practitioner has been heavily criticised by PTSB. In addition to the principled criticisms outlined above, PTSB also makes a number of specific criticisms about (a) the failure of the proposals to take account of the full extent of the income which will be available to Ms Parkin after the PIA comes to an end; (b) the failure of the proposals to address the likely pension entitlements of Ms. Parkin; (c) the likelihood that her salary will increase over time; (d) the fact that Ms. Parkin’s daughter will not be a dependent once she obtains her primary university degree; and (e) the manner in which the PIA makes no provision for any contributions at all from Mr. Parkin, the estranged husband of Ms. Parkin.
The evidence before the court
49. In light of these criticisms, it is necessary to carefully analyse the evidence before the court. While significant criticism has been made by PTSB of the affidavit evidence of the practitioner there is a significant level of detail relating to the means of the debtor contained in the proposals for the PIA and the accompanying appendices. Appendix 2 to the proposed PIA shows that, for the proposed six-year duration of the PIA, the entire of the net employment income of Ms. Parkin will be utilised. Her net income per month is €2,909.47. Out of this, the reasonable living expenses of Ms Parkin and her daughter will be met, €924.06 will be paid in respect of mortgage repayments to PTSB, €53.33 will be paid in years 1-5 in relation to Irish Language courses for Ms. Parkin’s daughter (i.e. while she remains at secondary school), €26.25 will be paid in respect of local property tax each month and from year 6 onwards (until the daughter secures her degree in veterinary medicine) a sum of €549.91 per month will arise in respect of third level education costs. This figure of €549.91 is based upon the amount allowed by the official assignee in a bankruptcy for a child in third level education. Appendix 4 shows that the remaining balance will be applied in discharge of the fees of the practitioner over the six-year term of the PIA.
50. It is true that the terms of the proposed PIA might suggest that the employment income of Ms. Parkin will remain static at €2,909.47 net per month. Given Ms Parkin’s employment with the HSE, this seems to me to be inherently unlikely. However, para. 10 of Part IV of the PIA makes clear that in the event that Ms. Parkin receives additional income in excess of the amount listed in Appendix 2, she will be required to contribute additional income in accordance with Clause 12 of the standard terms of the PIA. Similarly, if the debtor becomes entitled to a windfall at any time during the lifetime of the PIA, this will be dealt with in accordance with Clause 11 of the standard terms and Ms. Parkin will be required to introduce an amount not less than 50% of the net proceeds of any inheritance received during the term of the PIA. Thus, in the event that Ms. Parkin is entitled to increases in her employment income (whether by way of incremental increases in salary or increases awarded under public pay guidelines) which exceeds €100 per month, Ms. Parkin will be required to account to the practitioner for such payments and the creditors of Ms. Parkin (including PTSB) will benefit in accordance with paras. 11 and 12 of the standard terms.
51. Thus, insofar as PTSB complains about the lack of information in relation to likely salary increases available to Ms. Parkin, I do not believe that this is a significant concern. In making that observation, I stress that I do not wish in any way to suggest that it is appropriate for practitioners, in moving an application under s. 115A, to overlook expected salary increases. In my view, on an application of this kind, the proposals for the PIA should expressly address both known future salary increases and any likely increases. Furthermore, in any application to the court under s. 115A, I believe that the practitioner and the debtor should place full information before the court in relation to any entitlement to salary increases or pension entitlements (the latter issue is addressed in more detail below). It is plainly unsatisfactory that creditors or the court should be left in the dark in relation to such issues. The averment made by the practitioner in para. 18 of her affidavit sworn on 18 May 2017 is particularly unhelpful to the court in this context. There, the practitioner says: –
“I have discussed the Debtor’s income and any increments that may be applicable in the coming years. I say that I am informed that the debtor is not in a position to confirm what, if any increments she will receive in the coming years. It is also worth noting that public service pay has in fact reduced over the last number of years”.
52. In my view, this is patently unsatisfactory. It suggests that the issue was not adequately investigated by the practitioner. In my opinion, the practitioner should have set out exactly the debtor’s entitlements to any increases in salary over the next number of years and in particular over the six-year lifetime of the proposed PIA. It is impossible to accept that Ms. Parkin (as a finance manager with the HSE) would not be in a position to obtain details from her employer as to any increases that are due to be paid to her over the next number of years or any increases that are likely to be made.
53. Nonetheless, I do not believe that the failure to provide details of any increases in salary is, of itself, fatal to the present application. As a public servant, any increases to which Ms. Parkin may be entitled in the future are likely to be extremely modest and, therefore, I do not believe that they would make a substantial difference to the overall affordability of any PIA proposals. Moreover, as set out above, any such increases will have to be accounted for in accordance with the standard terms of the PIA and therefore PTSB will obtain the benefit of them by a proportionately larger payment of dividend in respect of the unsecured element of the debt for the duration of the PIA.
54. The next point made by PTSB is that, quite apart from any increases in salary which may accrue to Ms. Parkin, the information contained in the appendices to the proposed PIA shows very clearly (so it is argued) that Ms. Parkin will be able to afford more by way of payments in the future than is currently provided for under the proposed PIA. In the written submissions delivered on behalf of PTSB the case is made, by reference to appendix 2 to the PIA, that Ms. Parkin will have a ” surplus ” of €358.77 per month. PTSB says that this equates to a surplus of €4,305.24 per annum. If Ms. Parkin worked until age 66 this would generate an overall ” surplus ” of €60,273.36 (this is calculated by multiplying the annual ” surplus ” by the period of fourteen years that would elapse between the end of the PIA and Ms. Parkin’s 66th birthday in 2038).
55. PTSB says that if Ms. Parkin worked until she was 68 (which will occur in 2040) she will have accumulated a ” surplus ” of €68,883.84. On this basis, PTSB argues that it is clear that Ms. Parkin can afford significantly higher payments than the figure of €924.06 which will be the monthly sum payable under the mortgage under the terms of the proposed PIA.
56. As noted above, the argument made by PTSB in this context is predicated upon appendix 2 to the PIA which shows that in year 6 of the PIA and in the first year after the PIA, Ms. Parkin will have a monthly ” surplus ” of €358.77 after payment of the “set costs”, the mortgage repayment, the local property tax and college costs at €549.91. In reality, however, when one takes the fees of the practitioner into account together with the payment of the dividend to the unsecured creditors, the ” surplus ” will not arise in year 6 but will arise for the first time after the expiry of the 6-year period. It also has to be said that Ms Parkin would be doing very well if she can manage to keep her daughter’s monthly college costs to €549.91.
57. In response to this part of the PTSB case, counsel for the practitioner stressed that the ” set costs ” of €1,506.06 are based on the Insolvency Service of Ireland (” ISI “) reasonable living expenses. Counsel argued that a debtor who successfully completes a PIA has earned the right to return to some semblance of normal life and should not be confined to such living expenses once the PIA comes to an end.
58. However, PTSB submits that, in addition to the ” surplus ” of €358.77 per month, there would be a further ” surplus ” arising in the future in circumstances where the college costs allowed at €549.91 per month will not continue indefinitely. PTSB suggests that it is reasonable to take the view that they will not continue after Ms. Parkin’s daughter reaches the age of 23 years. If that figure per month is factored into the equation, PTSB suggests that this will increase the overall surplus available to Ms. Parkin at age 66 to €146,059.32 or, were she to work until aged 68, this will increase by a further €21,908.32 to €167,867.64. PTSB makes the case that this is considerably higher than the sum of €97,785 which PTSB proposed should be warehoused and PTSB submits that, accordingly, Ms Parkin could well afford to pay them the warehoused amount or a significant part of it.
59. At first sight, this submission by PTSB appears to have significant force particularly in relation to the period after Ms. Parkin’s daughter will be able to support herself. It is clear from the judgments of Baker J. that affordability is key in determining what is an appropriate write-down of secured debt. This was emphasised by her in Laura Sweeney at para. 56. If the PIA is approved, the result will be that, even if Ms. Parkin’s net salary were to be frozen at €2,909.47 for the rest of her life, only €924.06 of that sum would have to be paid in mortgage costs every month leaving Ms. Parkin with a figure of almost €2,000 per month available to meet her ordinary living expenses and to cover the occasional emergency expense that arises from time to time in everyone’s life. That might appear to be an overly generous margin but it has to be borne in mind that, out of that sum (or any enhanced sum in the event that Ms Parkin secures an increase in salary) her ordinary expenses of life will have to be discharged. The Guidelines issued by the ISI envisage that the reasonable living expenses of a single adult with a car will be €1,050.48 per month. That might appear to leave Ms Parkin with a very generous cushion even after her reasonable living expenses are taken into account. However, it must be borne in mind that those guidelines are intended to be applied for the duration of a bankruptcy, a PIA, or a debt settlement arrangement. They are not intended to be a measure of the expenses likely to be incurred over the course of a longer period and they are certainly not designed to apply for a lifetime. For example, they envisage an exceptionally modest sum of €0.97 per month for personal costs and an extremely modest sum of €31.34 per month for health. They are also based on very modest provision for contingencies and savings of no more than €43.38 per month. That figure for contingencies seems to me to be manifestly insufficient on a long term basis to deal with the costs every home owner incurs on a recurring basis in the upkeep and maintenance of property (even leaving aside the emergencies that occasionally arise requiring more substantial outlay such as roof repairs). Moreover, while the PTSB analysis has proceeded on the basis that Ms. Parkin’s daughter will no longer be dependent after age 23, experience shows that parents continue to have to support children after that age and this is particularly so in the years where a child is trying to establish a new career or where, as sometimes happens, a bright student will remain in university at post-graduate level for a number of years after obtaining a primary degree. In those circumstances, I believe that PTSB is taking an overly optimistic approach in suggesting that Ms Parkin will no longer have to support her daughter once she reaches 23.
60. In addition, counsel for the practitioner submitted that the very fact that PTSB was proposing to warehouse a part of the debt for a lengthy period shows very clearly that PTSB itself recognises that the debt is not affordable in the period between now and maturity of the loan. Counsel also argued strongly that one must always keep in mind the bankruptcy comparison. He acknowledged that the figures given in appendix 5 to the PIA are incorrect. However, he said that even when one takes account of the true comparison between the outcome in a bankruptcy as against the outcome under the proposed PIA, PTSB will fare significantly better under the PIA. In the case of a bankruptcy, the total assets available would be €144,000 (made up of the value of Ms Parkin’s home at €160,000 less 10% for realisation costs, 10% being the usual estimate allowed by the official assignee in bankruptcy). This would generate a dividend to the secured creditor of 43 cents in the euro. In contrast, under the terms of the PIA, the bank will recover not only the sum of €160,000 but also a further sum by way of dividend in respect of what would be treated as the unsecured element of its debts. It would also recover €14,483 in respect of the mortgage, €2 in respect of the very small loan account and €829 in respect of the credit card liabilities of Ms. Parkin. In that way, PTSB will recover a total of €175,314 which equates (on an overall basis) to a dividend of 52.5 cents. This dividend of 52.5 cents is on the basis that the total mortgage debt (€333,784) is used as the denominator rather than the entire PTSB debt of €343,785. In the context of the comparison with bankruptcy, it seems to me that, arguably, the mortgage debt is relevant as the denominator given that, in a bankruptcy, none of the unsecured debt would have any prospect of being paid. By my calculations, the relevant dividend would be 48 cents in the euro if one were simply to measure the secured indebtedness allowed under the PIA of €160,000 against the overall indebtedness to PTSB on foot of the mortgage account of €343,785. For the purposes of the bankruptcy comparison, however, it seems to me that the appropriate comparator is not 48 cents in the euro but 52.5 cent in the euro. This is almost 10 cents in the euro higher than the amount which PTSB would recover in the event of the bankruptcy of Ms. Parkin. In absolute terms, the most that PTSB would recover in a bankruptcy is €144,000 whereas, under the PIA, the bank will recover €175,314 in total. This means that the bank would recover €31,314 more under the proposed PIA than it would recover in a bankruptcy. This is a factor which must, in my view, also be borne in mind in considering the overall fairness of the proposals for a PIA here and in addressing the complaint made by PTSB in relation to the extent of the proposed write-down of the debt (which I address further in the concluding section of this judgment).
The position of Ms Parkin’s husband
61. The next point made by PTSB is that there is no evidence that Ms. Parkin has taken any steps to require her estranged husband to make payments towards the mortgage or towards the maintenance of their daughter. PTSB accepts that the fact that there are no interlocking proceedings involving Mr. Parkin is not, of itself, fatal to the application. PTSB has very properly accepted that, in JD [2017] IEHC 119, Baker J. held that a debtor is not precluded from seeking relief under s. 115A where he or she does not own the entire interest in the principal private residence or is not the sole mortgagor. Nonetheless, PTSB makes the case that there has been a failure on the part of Ms. Parkin to properly engage with Mr. Parkin such that the proposal amounts to unfair prejudice in all of the circumstances. PTSB distinguishes the present case from JD on the basis that, in that case, efforts had been made by the debtor to bring income or contribution on the part of her co-debtor into play. PTSB draws attention to what was said by Baker J. at para. 12 of her judgment in JD where she said:
“Ms. D. made application against her former husband, and a maintenance order in respect of the dependent children was made in the District Court … in the sum of €120 per fortnight, and in December, 2014 after he had ceased making payments she sought and obtained an attachment of earnings order in respect of the maintenance liability.”
62. In the same case Baker J., at para. 82, said that she could not ignore the fact that the debtor in that case had obtained an order for maintenance and an attachment of earnings order. Baker J. said that the debtor had taken “all rational steps to secure the payment of maintenance on an ongoing basis “.
63. However, in my view, it is essential to understand why it was that the issue of maintenance payments arose in JD . In that case (in common with some other cases which have recently been heard by me) a secured creditor argued that the fact that the debtor was partly dependent on maintenance payments in order to fulfil her obligations under the PIA, meant that the PIA was not sustainable. Thus, in para. 80 of her judgment in JD , Baker J. records that the secured creditor, in that case, argued that, because there was no certainty that the maintenance payments would be honoured by the debtor’s husband, there was insufficient evidence of the ability of the debtor to meet her obligations under the proposed PIA. In para. 81, Baker J. notes the point made by the creditor in that case that the debtor had previously fallen into arrears in her mortgage repayments after her former spouse ceased to pay maintenance and that there was a risk that this would happen again. It was in those circumstances that Baker J. made the observation (quoted above) in para. 82 of her judgment. Baker J was not laying down any general requirement that, in all cases involving an estranged spouse and co-debtor, the debtor is obliged to first make a claim against the co-debtor before seeking relief under the 2012 Act.
64. I do not see anything in JD to support the contention that a debtor in the position of Ms. Parkin must, if she is to seek approval of a proposed PIA, take steps against a co-debtor or seek to obtain maintenance payments for a child. Moreover, it is perfectly understandable why Ms. Parkin has not sought to pursue Mr. Parkin. It was his gambling debts that caused the insolvency of Ms. Parkin. His gambling addiction is such that he resorted to loan sharks which in turn led to the problems described by Ms Parkin in her affidavits (which I have sought to summarise in the introductory section of this judgment). He has now returned to the United Kingdom and, on the evidence available, there is nothing to suggest that he has reformed himself or that he would be a mark for a maintenance order.
65. In addition to raising the issue in relation to the non-pursuit of Mr. Parkin, PTSB has also suggested that the proposed PIA requires PTSB to ” upfront write off debt for a debtor not party to any proposed arrangement” to quote from the email from PTSB to the practitioner of 3 November 2016 (which in turn is quoted in para. 93 of the written submissions delivered on behalf of PTSB). It was not clear to me at the hearing on 3 December 2018 that PTSB was persisting with this aspect of its case. It was not pressed at the hearing. In any event counsel for the practitioner argued that there is nothing in the 2012 Act that will prevent PTSB from proceeding against Mr. Parkin, should they choose to do so. Counsel relied in this regard on s. 116 of the 2012 Act. S. 116 deals with the effect of a PIA once it has been registered in the register of PIAs maintained by the ISI. S. 116(2) makes clear that the PIA binds the debtor and also, ” in respect of every specified debt”, the creditor concerned. S. 2(1) of the 2012 Act explains what is meant by a ” specified debt “. There, it is defined in the following terms: –
“‘specified debt”, in relation to a protective certificate, means a debt that is specified in that protective certificate as being subject to that certificate;”
66. The only protective certificate that was issued in this case was the certificate issued in respect of Ms. Parkin. There was never any application made in relation to Mr. Parkin. In those circumstances, and having regard to the requirement to interpret the 2012 Act in a manner that is consistent with the Constitution, it seems to me to be clear that the effect of s. 116(2) of the 2012 Act is that the creditor (here PTSB) would only be bound by the terms of the PIA insofar as the indebtedness of Ms. Parkin is concerned. S. 116(2) would not appear to me to have any impact on the indebtedness owed by Mr. Parkin. Therefore, the PIA cannot have had the effect of reducing Mr. Parkin’s liability to the bank.
67. Furthermore, s. 116(6) makes very clear that the PIA will not in any way impede the ability of PTSB to pursue Mr. Parkin. In this context, I should explain that under s. 116(3), once a PIA is in effect, a creditor bound by it is prevented from taking any legal proceedings or enforcement steps against the debtor. Likewise, under s. 116(4) the creditor is prevented from taking bankruptcy proceedings against the debtor. However, s. 116(6) provides that neither subs. (3) nor (4) will operate in respect of a joint debtor. S. 116 (6) provides as follows: –
Nothing in subsections (3) and (4) shall operate to prevent a creditor taking the actions referred to in that subsection as respects a person who has jointly contracted with the debtor or is jointly liable with the debtor to the creditor and that other person may sue or be sued in respect of the contract without joining the debtor”.
68. In light of these statutory provisions, I can see no reason why PTSB would not be entitled to pursue a claim against Mr. Parkin, including a claim to enforce the mortgage against him. It may well transpire that if such steps are taken by PTSB, there will be an issue as to the extent of the beneficial interest of Mr. Parkin in the principal private residence. That is not an issue on which I can or should express any view at this stage. What is clear is that, even if an order is made affirming the order of the Circuit Court, PTSB will not be prevented from pursuing Mr Parkin in respect of his ongoing indebtedness to it and will not be prevented from taking enforcement proceedings in respect of any interest he may have in the family home. It will be a matter for the court in any such proceedings to determine what relief might appropriately be granted and I can neither prejudge nor predict the outcome of any such proceedings.
Ms Parkin’s pension entitlements
69. The next issue raised by PTSB relates to the pension entitlements of Ms. Parkin. PTSB makes the very valid point that it is improbable that Ms. Parkin, as an employee of the HSE does not have valuable pension entitlements. PTSB draws attention to the way in which the pay slips exhibited by Ms. Parkin to her affidavit (at Exhibit “LP 1”) include deductions for “Supern-1” which would appear to relate to superannuation. In addition, at p. 4 of the Prescribed Financial Statement (“PFS”) reference is made to deductions for “mandatory pension ” as well as income tax.
70. PTSB complains that in the Circuit Court, the learned Circuit Court Judge took the view that Ms. Parkins’ pension is: –
“For the purpose of providing her with an income on her retirement”.
71. PTSB submits that the Circuit Court was in error in taking that approach. In the first place, PTSB suggests that, taken to its extreme, any insolvent debtor could assert that any source of income is intended for one specific purpose only and so should not be taken into account. PTSB contends that insolvency: –
“..imposes particular responsibilities which cannot be skipped over in this manner”.
72. Secondly, PTSB suggests that, after retirement, it would appear that Ms. Parkin will have the benefit of both the old age pension and a separate pension associated with her HSE employment. PTSB submits that the regular old age pension adequately addresses the reasonable living expense of a single person.
73. Notwithstanding the provisions of s. 51 of the 2012 Act (dealt with in more detail below), PTSB argues that it is appropriate to have regard to pension entitlements particularly for the purposes of considering whether a debtor could afford to discharge a warehouse balance in the future. PTSB also observe that, in Paula Callaghan , Baker J. appears to have accepted the potential relevance, for warehousing purposes, of a pension payable in the future. As noted previously, at para. 81 of her judgment in that case, Baker J. said: –
“Neither of the debtors has the benefit of a pension which might provide a lump sum on retirement to deal with the warehoused amount. The repayment of the inactive account therefore is not predicated on any anticipated ability to pay in the future, and is entirely on the hazard.”
74. PTSB argue (again on the basis of what was said by Baker J. in para. 81 of her judgment in Paula Callaghan ) that a pension should not be regarded as some hypothetical source of income in the future. PTSB also strongly complains that neither Ms. Parkin nor the practitioner placed any details of Ms. Parkin’s pension entitlements before the court. PTSB argues that since Ms. Parkin has peculiar knowledge of her own pension rights, and PTSB has no such knowledge, it was incumbent on Ms. Parkin to place appropriate evidence before the court in relation to her pension entitlements.
75. In response, counsel for the practitioner strenuously argued that the approach proposed by PTSB is contrary to s. 51 of the 2012 Act. He also argued that s. 51 is consistent with the approach taken under the Bankruptcy Act 1988 where a pension will only be treated as an asset of a bankrupt if it falls into payment within a period of five years from the date of adjudication.
76. In these circumstances, it is necessary to consider the provisions of section 51. Insofar as relevant, s. 51(1) provides as follows:-
“(1) Subject to subsection (4), in relation to … Personal Insolvency Arrangements, where a debtor has an interest in or an entitlement under a relevant pension arrangement, such interest or entitlement of the debtor shall not be treated as an asset of the debtor unless subsection (2) applies.” (emphasis added)
77. S. 51 thus provides that, where a debtor has an interest in or an entitlement under a relevant pension arrangement, it is not to be treated as an asset of the debtor unless s. 51(2) applies (dealt with further below). This is stated to be the case “in relation to” a PIA. Those words “in relation to” appear, on their face, to be capable of wide application. That was the view of the Supreme Court in an arbitration context in Gulliver v Brady [2003] IESC 68. Murphy J took a similar view of the somewhat similar words ” in connection with” in the context of s. 60 of the Companies Act 1963 in Eccles Hall v Bank of Nova Scotia (High Court, unreported, 3 February, 1995).
78. “A relevant pension arrangement ” for this purpose is defined in s. 2(1) of the 2012 Act as including a range of pension entitlements such as retirement benefit schemes approved by the Revenue Commissioners, PRSA contracts, a qualifying overseas pension plan, a public service pension scheme, a statutory pension scheme other than a public service scheme and also such other pension arrangements as may be prescribed by the Minister for Justice and Equality in consultation with the Ministers for Finance, Social Protection and Public Expenditure and Reform.
79. It will be seen, therefore, that a pension scheme applicable to an employee of the HSE will readily fall within one or other of the schemes outlined in section 2(1). Section 51(1) will thus apply to Ms. Parkin’s pension entitlements.
80. It is next necessary to consider s. 51(2) which is in the following terms:-
“(2) Where this section applies and a debtor has an interest in or entitlement under a relevant pension arrangement which would, if the debtor performed an act or exercised an option, cause that debtor to receive from or at the request of the person administering that relevant pension arrangement—
(a) an income, or
(b) an amount of money other than income,
in accordance with the relevant provisions of the Taxes Consolidation Act 1997, that debtor shall be considered as being in receipt of such income or amount of money.”
81. It is clear that s. 51(2) applies where the debtor is entitled to some form of immediate access to a pension entitlement either upon exercising an option or taking some other step.
82. Section 51(2) must be read in conjunction with s. 51(3) which identifies the relevant time range during which s. 51(2) will apply. I do not believe that it is necessary to set out the text of that sub-section in full. In my view, the effect of s. 51(3) is that s. 51(2) will apply where the debtor:-
(a) is entitled to exercise an option or take some other step to obtain access to pension payments at the date of the making of the application for a protective certificate;
(b) the same applies where the entitlement arose before the date of that application; and
(c) section 51(2) will also apply where the entitlement arises within seven years and six months from the date of making an application for a protective certificate in relation to a PIA.
83. For completeness, it should be noted that under s. 51(4), there is, notwithstanding the provisions of s. 51(1)(3), an obligation on a debtor, when making an application for a protective certificate, to disclose in his or her Prescribed Financial Statement (“PFS”) any relevant pension arrangements.
84. The question which arises is whether, having regard to the provisions of s. 51, there is any scope to take the view that, when assessing the issue of affordability (and the related question of the extent of a write down of secured debt), regard can be had to future pension entitlements (i.e. entitlements that will arise more than seven years and six months from the date of application for the protective certificate). I have not been referred to any authority directly in point. As noted above, PTSB has referred to an observation by Baker J. in Paula Callaghan , but that observation does not address this specific issue. Moreover, the judgment in that case does not address the effect of s.51 of the 2012 Act. There was no need for Baker J to do so because, in that case, the debtors did not have an entitlement to a private or public service pension at any point.
85. There is also a brief reference to pension payments in my judgment in Richard Featherston [2018] IEHC 683. Ironically, in that case, counsel for the practitioner there suggested that one aspect of future means that might potentially be brought into account is where the debtor has a pension provision which will be payable at retirement age. In that case, as para. 51 of my judgment records, counsel distinguished such an asset (which was relatively certain) from hypothetical receipts at some stage in the future which were entirely uncertain. However, as in the case of Paula Callaghan , s. 51 was not addressed in the course of argument in that case and was not considered by me in my judgment.
86. In the written submissions delivered on behalf of PTSB, the case is made that s. 51 should be read as confined to the period of the PIA itself. PTSB submits that, for the purposes of assessing affordability, s. 51 was not intended to exclude pension payments payable in the future long after the PIA has come to an end. PTSB argues that s. 51 does not affect the issue as to whether discharging a warehouse balance in the future would be affordable. Its case is that a future pension pot is only excluded in relation to payments which are to be made during the course of the PIA. I have to say that, while this argument was advanced by PTSB, it was not supported by any detailed analysis of the Acts or of the provisions of s 51. Nor did it address how those provisions should be construed against the backdrop of the scheme of the Acts as a whole. It is crucially important to consider the Act as a whole. For example, it would be necessary to hear submissions in relation to the interplay between s. 51 on the one hand and s 121 on the other. Under s 121, the court is given power in certain circumstances, to reverse excessive payments made into a pension fund in the three year period prior to the grant of a protective certificate. At first sight, it is difficult to see why that provision would have been considered to be necessary if proposals for a PIA were required to take into account the value of future pension payments payable long after the term of the PIA.
87. PTSB also drew attention to the obligation under s. 51(4) requiring a debtor to disclose, in his or her PFS, any pension entitlements and argued that this must mean that there is no blanket prohibition on taking such entitlements into consideration on the issue of future affordability (i.e. after expiry of the PIA and after the expiry of the periods prescribed by s. 51(3)). At first blush, it may appear curious that such a provision should exist if pension entitlements payable outside the time periods prescribed by s 51(3) are not to be treated as assets of a debtor. Nonetheless, I do not believe that much reliance can be placed on s 51(4). On reflection, it is understandable that a debtor should be required to disclose pension arrangements in the PFS. This is important so that, for example, an assessment can be made as to whether the arrangements in question could be said to fall within the ambit of a ” relevant pension arrangement ” as defined. It is also important to bear in mind that not all pension arrangements are excluded by s 51(1). It is accordingly necessary that all pension arrangements should be disclosed so that appropriate enquiries can be made as to whether any of the provisions of s 51(2) could be said to apply.
88. Furthermore, although counsel for the practitioner at the hearing argued strongly that the language of s. 51(1) contained a clear prohibition on any attempt to treat a pension entitlement as an asset of a debtor (unless s 51(2) applied), there was no significant engagement with that argument on the part of PTSB. This causes me concern particularly in circumstances where, as noted above, the words ” in relation to ” as used in s. 51(1) are on their face of wide import. On their face, those words tend to suggest that, even in the context of the affordability requirement contained in s. 115A(9)(b)(ii), Ms Parkin’s future pension entitlements are not to be treated as her assets. After all, the question of affordability is an issue that must be considered in relation to a PIA.
89. On the basis of the limited arguments heard by me, I have come to the conclusion that the submissions of the practitioner are correct and that, on the basis of the language of s 51(1), a pension arrangement is excluded from the court’s consideration under s 115A unless s 51(2) applies. Given Ms Parkin’s age, there is no basis on which s 51(2) could be said to apply here. In my view, if a different view is to be taken, it would be necessary to have more extensive and detailed argument addressed to this issue than I have heard in this case. I wish to make it very clear that I do not rule out the prospect that the court could be persuaded to take a different view. There may well be cogent arguments that could be made. If no regard whatever can be had to pension entitlements payable in the future (i.e. outside the period prescribed by s. 51(3)), there could, conceivably, be grotesque consequences in a particular case. For example, it would mean that no regard could be had to a very large pension pot (for example, one predicted to reach, by retirement age, the maximum value permitted for tax purposes by Revenue).
90. The proper interpretation of s 51 is therefore a question of very significant importance that, in my view, calls for more comprehensive consideration and debate than I have heard in this case. All that I can say at this point is that I have not been persuaded on the basis of the arguments made by PTSB in this case that I am entitled to have regard, in assessing affordability, to Ms Parkin’s pension entitlements. On the face of it, s. 51(1) appears to me to have that effect.
The Constitutional dimension
91. As noted above, PTSB has emphasised the constitutional dimension. PTSB contends that the write-down of the secured debt to the current market value of the principal residence is draconian. As noted above, PTSB submits that, consistent with Heaney v. Ireland , the court must consider whether the write-down impairs the rights of PTSB as little as possible. It is also submitted that the court must consider whether an alternative exists which is less intrusive.
92. However, it is important to bear in mind that the proportionality test formulated by Costello J (as he then was) in Heaney arose in the context of a challenge to the constitutionality of a legislative provision. There is no such challenge here. I must also bear in mind that the Oireachtas in enacting the 2012 Act has expressly invoked the interests of the common good. This is clear from the long title to the 2012 Act and the express objectives set out in the recitals. The recitals make clear that the Oireachtas considers that it is in the interest of the common good that:
(a) the difficulties experienced by debtors as a consequence of insolvency should be ameliorated. It is clear from the recitals that the amelioration of such difficulties is regarded as being important for the purpose of minimising the adverse consequences of significant indebtedness for economic activity in the State.
(b) The needs of creditors to recover debts due to them by insolvent debtors is also recognised in the recitals to be in the interests of the common good. This is expressly stated to be subject to “the extent that the means of those debtors’ reasonably permits” which seems to me to show very clearly that the Oireachtas was attempting to balance potentially conflicting rights in a proportionate way.
(c) The recitals also acknowledge the necessity to enable insolvent debtors to resolve their indebtedness (including by obtaining a determination that they stand discharged from their debts in certain circumstances) in an orderly and rational manner without recourse to bankruptcy. Again, the objective of such measures is to facilitate the active participation of persons in economic activity in the State.
93. Insofar as s. 115A is concerned, it was inserted by the 2015 Act. The 2015 Act does not contain any long title. However, since it is inserting new provisions into the 2012 Act, it must follow that the Oireachtas, in enacting the 2015 Act, believed that it was still acting with a view to promoting the common good objectives expressly invoked in the 2012 Act. The underlying purpose of s. 115A was identified as follows by Baker J. in JD at para. 32:
“… the amending legislation by which was added s. 115A, affords the far-reaching power of the court to approve a PIA notwithstanding its rejection by creditors. The public interest is in is the maintenance of a debtor’s occupation and ownership of a principal private residence. That social and common good is concretely referable to the continued occupation by a debtor of a principal private residence, and the power contained in the section is limited by the fact that only those persons who had a relevant debt secured over his or her principal private residence which was in arrears as defined by s. 115A(18) on 1st January, 2015 could avail of this exceptional remedy. The statutory provision then must be seen as a limited protection of persons whose mortgage payments on their principal private residence fell into arrears at the height of the financial crash. Absent a ‘relevant debt’, a debtor may not seek to engage the jurisdiction of the court to overrule the result of a creditors’ meeting …”
94. In para. 34 of her judgment, Baker J. clarified that s. 115A does not have, as its focus, the continued ownership or a debtor of the family home, but is concerned with the continued occupation of the home. She also said in the same paragraph:
“… the section is concerned with enabling a debtor not to dispose of an interest in a property, rather than positively stated as enabling the debtor to continue to own the property. Thus, the perceived public interest in the continued occupation of a premises is not a focus on the acquisition of a capital asset, but rather the preservation of a right to live in a premises.”
95. Those observations of Baker J. have particular resonance in present circumstances where homelessness has become all too prevalent.
96. In circumstances where the Oireachtas, in enacting the 2012-2015 Acts, was acting in the interests of the common good, and in circumstances where the Oireachtas has also sought to balance the interests of the common good against the rights of creditors, I do not believe that it would be appropriate for the court (in the absence of a constitutional challenge to the provisions of the Acts) to add some new test to s. 115A which is not there already. In this context s. 115A already contains very significant statutory checks and balances to ensure that the interests of creditors are appropriately considered in any application under s. 115A. Thus, for example the court is required under s. 115A (9)(b) (ii) to be satisfied that there is a reasonable prospect that confirmation of the proposed PIA will ” enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit”. In addition, the court is not permitted to make an order under s. 115A unless it is satisfied (as required by s. 115A (9)(e)(f)) that the proposed PIA is fair and equitable in relation to each class of creditors that has rejected the proposals and the court must also be satisfied that the arrangement is not unfairly prejudicial to the interests of any interested party (which would, of course, include the creditors).
97. Furthermore, save in cases involving a single class of creditors, the court is required by s. 115A (9)(g) to be satisfied that at least one class of creditors has accepted the arrangement. This is a very important provision because it provides a measure of reassurance to the court that at least one class of creditors regarded the arrangement as commercially acceptable.
98. In addition, as Baker J. has already highlighted in JD , the section only applies to a very limited class of debtor – namely those debtors who were in arrears with payments on a home loan mortgage as of 1st January, 2015 (or who had been in arrears prior to that date but had entered into an alternative repayment arrangement with the secured creditor concerned). As Baker J. explained, this is clearly intended to cover debtors who fell into arrears at the height of the financial crash.
99. It therefore seems to me that, when considering an application under s. 115A, the court is confined to a consideration of the specific provisions of s. 115A which include, within them, a number of important safeguards for the protection of creditors including an overall requirement of fairness, a prohibition on unfair prejudice to any individual creditor, and also a requirement that the claims of creditors should be met to the extent that a debtor’s means permit. Of course, as the decisions of Baker J. make clear, the court must always bear in mind that s. 115A represents a significant intrusion into the property rights of creditors and that, in those circumstances, the court must be careful, on an application under s. 115A, to ensure that all of its provisions have been appropriately complied with. The court has no power to dis-apply any of the provisions of s. 115A.
Conclusions
100. I have already set out my conclusions in relation to a number of the issues which were debated in the course of the hearing, namely (a) the treatment of the credit union as a separate class of creditor; (b) the position of Mr Parkin as a joint and several debtor; (c) Ms Parkin’s pension entitlements; and (d) the Heaney v Ireland argument. I set out, below, my conclusions in relation to the balance of the issues that arise.
101. As noted above, PTSB makes complaint in relation to the extent of the write-down of the secured debt to the current market value of the principal private residence of the debtor and also strongly argues that Ms Parkin’s circumstances show that she can afford to pay more than the amounts contemplated under the proposed PIA. In addition, PTSB contends that warehousing is appropriate here given Ms Parkin’s expected future means especially after her daughter moves from college to employment.
Conclusion on warehousing
102. I deal, in more detail below, with the issues that arise in relation to the write-down of the secured debt. In so far as the warehousing issue is concerned, I have come to the conclusion that warehousing would not be appropriate in this case. I have formed that view for a number of reasons. In particular, I am concerned that the form of warehousing proposed by PTSB here envisages a very large debt crystallising at Ms Parkin’s retirement age. I believe that counsel for the practitioner is correct in his submission that, as in the Paula Callaghan case, this has the capacity to result in Ms Parkin’s insolvency as of the date of her retirement. That seems to me to undermine a very important goal of the 2012-2015 Acts namely the objective to resolve indebtedness and restore a debtor to solvency. It would also put Ms Parkin’s ability to remain in her home in serious jeopardy.
103. I am, of course, mindful of all of the submissions which have been made in relation to Ms Parkin’s means (which I accept are relevant in a warehousing context). However, for reasons which I address further below, I am concerned that, in the course of the proceedings in the Circuit Court, neither the practitioner nor Ms Parkin had adequate notice of the extent of the case now made by PTSB in relation to the issue of Ms Parkin’s means.
104. I have also come to the conclusion that PTSB, in the detailed calculations set out in its written submissions in this court, has failed to take account of the fact that the “surplus” (which it is suggested is likely to arise in the future) is based on the assumption that everything above the ISI reasonable living expenses can be treated as surplus to Ms Parkin’s needs. In my view, it is a fallacy to suggest that the ISI reasonable living expenses can be treated as a reliable indicator of the expenses that an adult is likely to incur over the course of a lifetime. As explained in para. 59 above, those guidelines are designed to address the position of a debtor over the course of a limited time period. They do not address the more extensive lifetime expenses that arise over longer periods in the life of an adult. Thus, the approach advocated by PTSB fails to take account of expense items such as the examples cited in paras. 42 and 59 above.
105. Nor does the approach suggested by PTSB pay sufficient attention to the uncertainties that inevitably arise when seeking to predict what may happen in the future. As Baker J emphasised in Paula Callaghan , a warehousing solution would only be appropriate where the court can be satisfied that there is sound evidence available that it is likely to be achieved.
106. I have therefore come to the conclusion that, in this particular case, warehousing would not be appropriate. I have also come to the conclusion that, in the circumstances, the practitioner was justified in ruling out a warehousing proposal (even though the practitioner was mistaken in thinking that any form of warehousing was impermissible under the Acts).
The proposed write down
107. In the context of the write-down, PTSB makes the point that, in common with many other cases, too little detail is provided by the practitioner regarding Ms Parkin’s future means and expenditure. I share that concern. Based on my experience to date in dealing with these case, I am of the view that, too often, much of the affidavit evidence is in standard form and does not concentrate (as it should) on the individual circumstances of the debtor. PTSB refers in this context to para. 9 of the practitioner’s affidavit sworn on 18th May, 2017 which I have quoted in para. 44 above.
108. I agree with the observation made in para. 49 of PTSB’s written submissions where they say that this passage is not easy to understand. If anything, that observation is an understatement. With due respect to the practitioner, para. 9 is entirely lacking in clarity. Regrettably, it is in similar form to averments which I have seen in several other cases. It appears to proceed on the basis that any write down to a figure greater than market value is, in some unspecified way, arbitrary or uncertain. In my view, that is based on a mistaken understanding of the legal position. As Baker J explained in Laura Sweeney , at para. 54, the appropriate capital mortgage figure is to be assessed in the light of the repayment capacity of the debtor. In the same case, at para. 56, Baker J made clear that a write-down of a mortgage debt to market value is not mandated by the Acts and that the extent of any write-down is to be measured by reference to the affordability of payment. There is nothing arbitrary or uncertain involved in working out, by reference to a debtor’s net income and recurring and expected expenses (including an appropriate allowance for contingencies), the level of monthly mortgage payment which that debtor can reasonably afford. Once that figure is identified, it should be a relatively straightforward exercise to assess the capital sum which can be paid over the term of the mortgage and this, in turn, will provide a reliable basis on which to calculate the extent of any write-down. Thus, in the present case, Ms Parkin’s net monthly income provided the base line against which the relevant calculation can be made.
109. I also 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. It provides that, where a proposed PIA envisages the retention by a secured creditor of security and also a reduction in the principal sum due in respect of the secured debt, then, in the absence of agreement on the part of the secured creditor, the principal sum cannot be reduced below the value of the security determined in accordance with s. 105. That is an extremely important protection for secured creditors and is undoubtedly informed by respect for the property rights of such creditors.
110. Nor is s.102(2) intended to be a ceiling. As the judgments of Baker J make clear, the extent of any write down of secured debt is related to affordability. If one can predict that, on the conclusion of a PIA, the debtor will have sufficient means to continue to make significant mortgage repayments to a level beyond the current value of the secured property, it is difficult to see that it could be appropriate to write down the quantum of the secured debt to the current value of the property. It is important that practitioners should not use the s. 105 value as some unofficial rule of thumb that can be applied in all cases without a proper analysis of a debtor’s means.
111. Counsel for the practitioner rejected the suggestion that the proposed write-down was the most draconian outcome for PTSB here. He emphasised that, as Appendix 6 to the proposal clearly shows, bankruptcy would represent a worse outcome. In a bankruptcy, the costs of the forced sale would reduce the net receipts from the secured property to €144,000. He also said that, in reality, PTSB is no more than an unsecured creditor in relation to the balance over and above the current market value. This is for the very simple reason that if there was a forced sale of the property now, the most that PTSB could in fact recover is the market value (less the costs of sale). Even if there was no bankruptcy and PTSB were to take proceedings to enforce its mortgage over the property, it would ultimately receive less than market value given the costs of such proceedings and the costs of sale.
112. Counsel for the practitioner also stressed that, under Clause 37 of the PIA, PTSB will remain protected in the event of a sale of the home in the future at a value greater than €160,000. Clause 37 essentially provides that a secured creditor is entitled to a clawback in the event that the secured property is sold within twenty years from the date the PIA comes into effect for an amount greater than the reduced principal sum (written down pursuant to the PIA). The secured creditor will get the benefit of an increase in value notwithstanding that, in the meantime, the secured debt has been written down to the market value of the property at the time of the PIA.
113. In my view, the arguments that have been made by the practitioner are more relevant to the issue of fairness and unfair prejudice than to the issue of the write down. On the other hand, as explained in paras. 103-104 above, the arguments that have been advanced on behalf of PTSB are based on the mistaken premise that Ms Parkin will have substantial surplus income after her daughter finishes college. PTSB has failed to appreciate that the ISI reasonable living expenses are not an appropriate measure of living costs on a long term basis. PTSB also failed to appreciate that recurring expenses must also include an allowance for contingencies. I accept that it may not be possible to scientifically assess what should be allowed for contingencies. On the other hand, saving or setting aside an amount on a monthly basis to provide for larger expense items that may arise in the future is a normal feature of life and I do not believe that it should give rise to any significant difficulty, in practice, in estimating what would be reasonable. What is clear is that the figure for savings and contingencies measured by the ISI would not be appropriate on a long term basis.
114. I recognise and fully understand that PTSB feels aggrieved that the affidavits filed on behalf of the practitioner and Ms Parkin in the course of the Circuit Court proceedings could have provided more detail about Ms Parkin’s likely income and expenditure in the future. Nonetheless, I have come to the conclusion, with some hesitation, that there is just about enough evidence available in the terms of the PIA itself to allow the court to extrapolate that Ms Parkin is unlikely to be in a position to afford a larger monthly mortgage payment and to accordingly conclude that the proposed write-down is not excessive.
115. In expressing this view, I wish to make it very clear that, in future cases, it will be important that practitioners should not rely on general or template averments and should instead provide clear evidence as to how the write-down has been calculated. That is likely to require a practitioner to carry out an exercise of the kind suggested in para. 108 above.
116. In arriving at my conclusion on this issue, I am also concerned that the practitioner and Ms Parkin may not have properly understood, in advance of the hearing in the Circuit Court, the extent to which PTSB was exercised about the nature of the evidence as to her means. Certainly, the foundation for the argument made on behalf of PTSB at the hearing before me was not comprehensively laid down in the materials which PTSB put in evidence in the Circuit Court.
117. In this context, while I am very definitely of the view that the practitioner, in a case of this kind, has the obligation to demonstrate that a proposed write-down of secured debt is objectively justifiable, I have come to the conclusion that it would be inappropriate to hold that the practitioner has failed to discharge that obligation in this case.
118. It seems to me that, in the notice of objection filed on behalf of PTSB in the Circuit Court on 9th December, 2016, the focus of the objections related, not to the write-down of the debt, but to the alleged failure to address the warehousing proposal made by PTSB. This is clear from a consideration of paragraphs 3 and 4 of the notice of objection. This is reinforced by a consideration of the grounding affidavit of Terence Smith. The warehousing proposal made by PTSB is the subject of paragraphs 12-18 of that affidavit (which is the longest individual section of the affidavit).
119. It is true that, in paragraph 6 of the notice of objection, the write-down of the debt is signalled as an issue in the context of the fairness of the proposed PIA. However, the issue is not addressed in Mr Smith’s affidavit in the way in which the issue has been canvassed in this court. There are 25 paragraphs in that affidavit. As noted above, paras. 12-18 deal with warehousing. Paras. 7-9 deal with the creditor class issue; paras. 5-6 deal with the timing of PTSB’s notice of objection; and paras. 19-10 dealt with Ms Parkin’s employment. The write-down was addressed in paras. 10-11 but, as explained in paras. 121-122 below, the objection was focused on a contention that the market value was out of date, not on a failure to show that Ms Parkin did not have the means to afford any lesser write-down.
120. Paragraph 7 of the notice of objection (which also addresses the question of means) concentrates on the joint borrowings issue and does not contain any hint of the argument now so strongly and comprehensively made in this court in relation to the alleged failure of the practitioner to address, in a meaningful way, Ms Parkins means in the period after the termination of the PIA.
121. In the affidavit of Terence Smith, sworn subsequently in March 2017, the write down is dealt with in two paragraphs (namely paragraphs 10-11). Crucially, the objection is framed in the following terms in paragraph 11: –
“While it is not apparent that any evident justification has been furnished for a write-down in this quantum, the reason for choosing the figure would appear that the PIP proposed that the mortgage be written down to the current negative equity value of €160,000. The valuation of the security was agreed with the objecting creditor. Given recent developments in the property market in Dublin, it is likely that this sum is very conservative and a valuation undertaken today, would probably exceed this sum. Furthermore, the Rejected Arrangement envisages this upfront write-down, unfairly prejudices the Objecting Creditor and is unfair and inequitable, in circumstances where the write-down contained therein, would now have the effect that the live balance leftover is likely to be less than the current market value for the property, given the recent uplift in values. This would be particularly unfairly prejudicial to the Objecting Creditor and I am advised that this provision may be contrary to the legislation, in particular Section 103 of the Act”.
122. It will be observed that para. 11 is focused not on a principled objection to the write-down or on a failure of the practitioner to justify the write-down, but instead is focused on a contention that property prices have risen since the valuation of the security was agreed between the practitioner and PTSB. In my view, that does not signal in any way the contentions now made by PTSB in the course of the hearing before me. In fact, when one reads paragraphs 10-11 in conjunction with paragraph 12 and the following paragraphs of the affidavit, it would appear that PTSB was linking the argument in relation to the write-down with the case it made that warehousing was the appropriate course to take.
123. My concern is that, when the notice of objection is read with the affidavit of Terence Smith, the practitioner in the course of the Circuit Court proceedings would have had no proper understanding of the nature of the case that PTSB subsequently made. Had such a case been signalled appropriately in the notice of objection and grounding affidavit of Mr. Smith, the practitioner would then have been in a position to place more extensive evidence before the Circuit Court to demonstrate more clearly that the write-down of the secured debt to current market value was appropriate in Ms Parkin’s circumstances. On the basis of Mr. Smith’s affidavit, the practitioner would have been led to believe that the focus of the objection in relation to the write-down was the unsubstantiated suggestion made in paragraph 11 of Mr. Smith’s affidavit that recent developments in the property market in Dublin meant that it was likely that the valuation of €160,000 represented an undervalue as of March, 2017. Given the very general and unsubstantiated way in which this was put forward by PTSB (without any reference to the specific market in the Ballyfermot area), it is unsurprising that the practitioner did not respond to it in detail. More importantly, the practitioner is likely to have been lulled into thinking that PTSB’s concern in relation to the alleged rise in property values was the basis for its objection to the write-down.
124. The affidavit evidence provided by PTSB also fell short of making the case (now made so strongly in the course of the submissions before me) that the practitioner was relying on wholly unsupported and general averments of a template nature. Had such a case been signalled by PTSB in its notice of objection and affidavit evidence, the practitioner would have had an opportunity to deal with that case in the course of the Circuit Court hearing and to place appropriate evidence before the Circuit Court in response.
125. In making these observations, I do not wish, in any way, to suggest that the onus of proof lies on PTSB. For the reasons already addressed above, I am of the view that the onus lies on the practitioner in an application of this kind to satisfy the Court that all of the requirements of Section 115A have been met (including the requirement that the Court must be satisfied that the terms of the PIA are not unfairly prejudicial to the interest of any interested party and that the proposed arrangement is fair and equitable to each class of creditor). My concern is with basic procedural fairness. The 2012 Act envisages that an objecting creditor will lodge a notice of objection. This is made clear by Sections 112(3) and 115A(3) of the Act. In my view, the submissions which PTSB have addressed to me in relation to the obligation of the practitioner to make out his case are also relevant to a notice of objection on the part of an objecting creditor. To my mind, the objecting creditor must set out its objection with clarity so that it can be appropriately addressed by the practitioner (or the debtor as the case may be) in advance of the first instance hearing. It is unsatisfactory that arguments are subsequently made which have not been appropriately and fully signalled in advance so that all sides will be in a position to place appropriate evidence before the Court to address the issues in an informed way.
126. In the circumstances outlined above, I have come to the conclusion, on the issue of the write-down of the debt and the related issue of the extent of Ms Parkin’s means, that it would not be appropriate in this case to hold that there is insufficient evidence before the court to justify the write-down proposed. As explained in para. 114 above. I believe that there is just about enough evidence available to the court to permit me to reach the view that the write-down is not excessive in Ms. Parkin’s particular circumstances.
Fairness and unfair prejudice
127. In circumstances where (a) the outcome for PTSB, as a secured creditor, is significantly better under the proposed PIA than in a bankruptcy; (b) PTSB will have the protection of clause 37 (in the event that the home is sold at a value that exceeds the agreed market value); and (c) PTSB will remain free to take action against Mr Parkin, I am satisfied that the proposed PIA will not be unfairly prejudicial to PTSB. I am also satisfied that the proposed PIA is fair and equitable in relation to each class of creditor.
Decision
128. I do not propose here to separately enumerate each of the other requirements of s 115A. I confirm that, having considered all of the material before me, I have reached the conclusion that all of the requirements of s. 115A have been satisfied. I will accordingly dismiss the appeal of PTSB and affirm the order of the learned Circuit Court Judge. I will hear the parties in due course as to any consequential orders that may be required.
Meeley a debtor;
Re. Taaffe a debtor;
Re. Foye a debtor
2018] IEHC 38 (05 February 2018)
JUDGMENT of Ms. Justice Baker delivered on the 5th day of February, 2018.
1. This judgment concerns the interpretation and application of the statutory procedural requirements for the determination by a court of an application for review under s. 115A of the Personal Insolvency Acts 2012 to 2015 (“the Act”).
2. Five applications under s. 115A were heard together and similar, albeit precisely not the same, questions arise for consideration.
3. The applications heard over three days concluding on 22nd December, 2017 were dealt with by way of the determination of the preliminary issue whether the applications were properly constituted in the light of the procedural requirements of the legislation. Counsel, including senior counsel, appeared for each of the debtors, and the relevant creditors. The Insolvency Service of Ireland (“the ISI”) by reason of its statutory functions under the Act made submissions though counsel James Doherty SC as amicus curiae following directions given by me on 10th November, 2017.
4. The matter is of some importance and I am advised that some 400 applications under s. 115A are for practical purposes suspended pending clarification of the questions raised herein.
5. The question for determination is whether in the light of the statutory provisions and the central and substantive statutory role of a Personal Insolvency Practitioner (“PIP”) in the review by the court of a proposed PIA under s. 115A, there exists a residual right in the debtor to directly engage in the process.
Relevant legislative provisions
6. Section 115A(1) provides jurisdiction to the relevant court following a review under s. 115A(9) to confirm the coming into operation of a proposed personal insolvency arrangement (“PIA”) notwithstanding that it was rejected at a statutory meeting of creditors. The power is far reaching and the effect of an order is to alter the contractual arrangements in a manner that binds all relevant creditors. The primary purpose of the section is to approve a PIA where the arrangement will permit a debtor to continue to own or occupy his or her principal private residence.
7. The section was not contained in the original Act of 2012 and was added by the amending legislation of 2015 which came into force on 20th November, 2015, by the commencement of s. 21 of the Personal Insolvency (Amendment) Act 2015.
8. Section 115A(1) set out the circumstances in which application may be made:-
“115A. (1) Where—
(a) a proposal for a Personal Insolvency Arrangement is not approved in accordance with this Chapter, and
(b) the debts that would be covered by the proposed Personal Insolvency Arrangement include a relevant debt,
the personal insolvency practitioner may, where he or she considers that there are reasonable grounds for the making of such an application and if the debtor so instructs him or her in writing, make an application on behalf of the debtor to the appropriate court for an order under subsection (9).” (Emphasis added)
9. I have emphasised phrases in 115A(1)(c) as these were the focus of my judgment delivered on 5th October, 2017 in Re Darren Reilly & the Personal Insolvency Acts 2012 to 2015 [2017] IEHC 558, and the application and import of that judgment were the starting point of argument in the present applications.
The judgment in Re Darren Reilly
10. The material facts briefly were as follows: The specialist judge in the Circuit Court refused to make an order under s. 115A(9) and his judgment was appealed to the High Court on Circuit by a notice of appeal which expressly identified the debtor as the appellant and which was signed by his solicitor. The PIP was not a moving party or a notice party. The objecting bank argued that the appeal to the High Court on Circuit was wrongly constituted in that it was made by the debtor and not the PIP. The preliminary objection raised by the bank at the hearing of the appeal to the High Court was found to be correct, the appeal of the debtor was not properly constituted and was dismissed. In the course of the judgment it was noted that the legislation was silent on the mode of appeal, but having regard to the scheme of the Act and the nature of the jurisdiction of the High Court sitting as an appellate court in a statutory appeal under the Courts of Justice Act 1936, an appeal from the Circuit Court is required to be made by the PIP.
11. The judgment in Re Darren Reilly is authority for a narrow proposition, that the involvement of the PIP in the process is mandatory, and that a debtor does not have an independent or free standing right to appeal a decision of the Circuit Court under s. 115A.
12. The present applications commenced in the High Court, the court with jurisdiction under the Act when the secured liabilities of a debtor exceed the statutory monetary threshold of 2.5 million euro. None of the parties to the present applications argue that the decision in Re Darren Reilly is wrong in law. It must follow accordingly that a debtor has no free standing right to bring application under s. 115A without the engagement of the PIP.
13. The judgment in Re Darren Reilly is not authority regarding the more complex question at play in the present applications, whether the voice of the PIP is the sole voice to be heard on behalf of a debtor in the statutory review.
14. Before I consider the arguments and statutory provisions I will set out the material facts giving rise to the objections by the creditors that the present applications are not properly constituted.
The applications under consideration: interlocking applications of Meeley
15. Niamh Meeley made a proposal for a PIA which was rejected at a meeting of creditors on 9th March, 2017. A notice of motion under s.115A issued which in its operative part states the following:-
“TAKE NOTICE that on the 24th day of April 2017 at 11:30 in the forenoon or the first available opportunity thereafter, solicitor/counsel on behalf of the Debtor, will apply to this Honourable Court sitting at The Four Courts, Inns Quay, Dublin 7 for the following Order or Orders
1. An Order pursuant to the provisions of section 115A(9) of the Personal Insolvency Acts 2012 to 2015.” (Emphasis added)
16. The motion is signed by McCambridge Duffy, insolvency practitioners, and the necessary statutory proofs including the affidavit of the PIP Mr. James Green are appended to the motion. Messrs. Anthony Joyce & Co. Solicitors are identified on the motion paper as acting on behalf of the debtor. The motion shows service on the relevant creditors and on the ISI.
17. Ronan Meeley, her husband and an interlocking debtor, filed a motion in identical terms.
18. A notice of objection was lodged by each of KBC Bank Ireland plc (Mr. Ó hUiginn BL) and Ulster Bank Ireland DAC (Mr. Kieran BL) objecting to the coming into effect of the PIA on several grounds, including the procedural ground that the applications were not properly constituted.
19. Mr. Hayden SC and Mr. Farry BL appeared at the hearing on behalf of the debtors.
Interlocking applications of Foye
20. Christine Foye made a proposal for a PIA which was not approved at a meeting of creditors held on 8th September, 2017. A notice of motion was issued which in its operative part states the following:-
“TAKE NOTICE that on Monday the 16th day of October 2017, at 11:30 in the forenoon or at the first available opportunity thereafter, Eugene McDarby of UHY Personal & Corporate Insolvency Solutions Limited Personal Insolvency Practitioner on behalf of the Debtor, and/or the Debtor, will apply to this Honourable Court sitting at The Four Courts, Inns Quay, Dublin 7, for the following Order or Orders on behalf of the Debtor;
1. An Order pursuant to the provisions of section 115A(9) of the Personal Insolvency Acts 2012 to 2015;
2. Such further or other Orders…” (Emphasis added)
21. The motion is signed by the PIP and shows service on the relevant creditors and on the ISI, and identifies the statutory proofs.
22. John Foye, her husband, and an interlocking debtor, filed a motion in identical terms.
23. Bank of Ireland Mortgage Bank and the Governor and Company of the Bank of Ireland (Mr. Dunleavy SC and Ms. Donovan BL) filed notices of objection objecting to the coming into effect of the PIA on several grounds, including the procedural ground made in Meeley. KBC Bank Ireland plc objected in similar terms (Mr. Ó hUiginn BL).
24. Mr. O’Donnell SC and Mr. Farry BL appeared for the debtors.
Application of Donal Taaffe
25. Donal Taaffe made a proposal for a PIA which was not approved at a meeting of creditors held on 17th May, 2017. A notice of motion was issued which in its operative part states the following:-
“TAKE NOTICE that on the 26th June 2017 at 11.30 in the forenoon or at the first available opportunity thereafter, solicitor/counsel on behalf of the Debtor, will apply to this Honourable Court for the following Order or Orders:
1. An Order pursuant to the provisions of section 115A(9) of the Personal Insolvency Acts 2012 to 2015.” (Emphasis added)
26. The motion is signed by Ronan Duffy of Messrs. McCambridge Duffy, insolvency practitioners, and shows service on the relevant creditors and on the ISI, and identifies the statutory proofs.
27. The Governor and Company of the Bank of Ireland (Mr. Dunleavy SC and Ms. Donovan BL) filed a notice of objection objecting to the coming into effect of the PIA on several grounds, including the procedural ground made in Meeley. Objection was also lodged by Pentire Property DAC (Mr. Ó hUiginn BL).
28. Mr. Farry BL appeared at the hearing on behalf of the debtors.
29. It is the preliminary procedural objections that are the subject of this judgment.
Concerns regarding the risk of a costs order against a PIP: Backdrop to the issue
30. The role of the PIP in the statutory scheme was considered at some length in Re Nugent & Personal Insolvency Acts [2016] IEHC 127 and the costs ruling at [2016] IEHC 309, and in Re Darren Reilly. The immediate issue which seems to have given rise, at least to some extent, to the present applications, was described by the ISI in its written legal submissions in the following terms: The ISI is aware that many PIPs remain reluctant to commence applications under s. 115A because they are fearful of an adverse costs order being made against them personally if the application is unsuccessful. This factor was noted in the judgment in Re Darren Reilly and while some general propositions were there stated regarding the issue of costs and in Re Nugent, the ISI has argued that I ought to take the opportunity in the present cases to give further guidance.
31. I will return to the question of costs below, but for the present note that the ISI has expressed concern that in some applications under s. 115A solicitors acting for an objecting creditor or creditors have in correspondence to a PIP indicated that an application may or will be made for an order for costs against the PIP personally if an application under s. 115A is unsuccessful, or proceeds in a particular manner. The ISI argues that such approach to the question of costs will discourage an individual PIP from bringing an application under s. 115A and that such an approach would have a “chilling effect” on such applications, language used by Cregan J. in Coyle v. O’Nolan & Ors. [2015] IEHC 113, where he was dealing with an application for costs against a liquidator following an unsuccessful application for an order restricting a director.
32. The ISI argues that such a “chilling effect” could have a serious impact on the operation of the Act and in particular on s. 115A.
The Abhaile Legal Aid Scheme
33. In 2016 the Oireachtas introduced a scheme by which an insolvent person who proposed to make an application under s. 115A of the Act was given the benefit of legal aid including a legal aid certificate to instruct solicitor and counsel to appear at the hearing of the application for review.
34. The Civil Legal Aid Regulations were amended by Statutory Instrument No. 272 of 2016 to provide legal aid to an applicant debtor for an application under s. 115A(9) of the Act. The Regulations came into operation on 23rd May, 2016, and the scheme for the provision of legal aid was commenced by the Legal Aid Board on 22nd July, 2016.
35. The Abhaile Scheme did not envisage that the PIP, himself or herself a professional person, could be an applicant for a legal aid certificate, and the Scheme identifies the insolvent person as the person entitled to apply for a legal aid certificate. However, the Scheme does require that the application for a certificate is to be completed by the debtor and by the PIP and the PIP is to certify for the purposes of the application that the debtor has “grounds” to make the application.
36. All the parties accept that the Scheme providing for legal aid may not be relied on for the purposes of the construction of the Act, but the Scheme must be viewed as a legislative response to the fact that a court review may require legal assistance and representation, and I return later to this point.
The statutory role of the PIP
37. The purpose of the Act is to facilitate the orderly resolution of debt without recourse to bankruptcy. There is expressly identified in the long title to the Act of 2012 the public interest and the common good in the “the rational resolution” by a debtor of his or her debts with a view to that debtor continuing to engage in the economic activity of the State: see for example JD & Personal Insolvency Acts [2017] IEHC 119.
38. The legislation facilitates an independent process by which debt may be resolved and the role of the PIP is to act as an independent intermediary. This was described in Re Nugent at para. 31 as follows:-
“A Personal Insolvency Practitioner is in a unique role, not equivalent to the role of an examiner or a liquidator appointed by the court under the Companies Acts, although some similarities can be noted. The PIP is required to be interposed between the Insolvency Service of Ireland and the debtor. A debtor may not engage with the process envisaged by the Act, whether to seek a personal insolvency arrangement, or a debt settlement arrangement without employing a PIP. The PIP takes a role between the administrative functions of the Insolvency Service of Ireland and the creditors. The PIP is required for example to consider whether a debtor may avail of the options available under the personal insolvency legislation as an alternative to bankruptcy. The PIP is required to undergo an examination and to apply for registration as a PIP before he or she can operate within the State. Further, by S. 14 of the Bankruptcy Act 1988, a court shall, before making an order of adjudication, consider whether the debtor’s inability to meet his engagement could be more appropriately dealt with by a personal insolvency arrangement or a debt settlement arrangement, and the court hearing a petition in bankruptcy must be satisfied that this option has been explored by a PIP who has considered the alternatives and whose professional view is a factor taken into account by the bankruptcy court. All interactions that the debtor has with the Insolvency Service of Ireland, on the one hand, and the court, on the other hand are through the PIP, and this puts the PIP in a unique position of responsibility to the Insolvency Service of Ireland, the court, the creditors and of course to the debtor.”
39. The PIP is not to be seen as the agent of the debtor, as s. 98 of the Act requires the PIP to engage in his professional capacity with both creditor and debtor and seek if possible to achieve a solution which is satisfactory to both. By reason of s. 102 there is to be furnished to the PIP an indication by the creditor or creditors of their:-
“…preference, as to how, having regard to subsection (3) and sections 103 to 105, that creditor wishes to have the security and secured debt treated under the Personal Insolvency Arrangement.”
40. The PIP calls a meeting of creditors to consider a proposed PIA, and may if he or she believes that to do so is in the interest of achieving the approval of the creditors at the meeting, adjourn the meeting and prepare an amended proposal: s. 109(4).
41. The PIP is a statutory officer with a practical function of facilitating the process, and will seek to achieve a result that is acceptable to both creditor and debtor, and brings into account the interests of both insofar as this may be achieved.
42. As was said in Re Darren Reilly at para. 56, a PIP:-
“… cannot be said to act merely on instructions, but is required at all times to seek to achieve the resolution of debt, to do so in the exercise of professional judgement, and to engage his or her knowledge or experience in financial matters to fashion a remedy which is satisfactory to all parties concerned. The PIP is an intermediary therefore in a true sense, and neither the creditor nor the debtor can be said to be his or her client.”
43. The role of the PIP in the making of an application under s. 115A is one of “substance and responsibility” (para. 57) and not merely procedural or administrative in nature. The reason for this was explained in Re Darren Reilly, and previously in Re Nugent, that the Oireachtas intended to put an independent person with financial knowledge and expertise at the centre of the process, and to thereby ensure that the financial difficulties of an insolvent debtor and the interest of relevant creditors are fully brought to bear in the process. The PIP also acts as a filter to ensure that a PIA is sustainable, brings the means of a debtor fully into account, and deals with all relevant debts in a coherent and fair manner, and acts as a professional exercising independent judgment in regard to the financial aspects of the PIA, and in the case where a proposed PIA is rejected at the statutory meeting of creditors, ensures that the statutory requirements under s. 115A are met.
The course of the s. 115A application
44. The application under s. 115A is for a review by the relevant court following the rejection of a proposed PIA at a statutory meeting of creditors, and is commenced under the procedure envisaged in s. 115A(2). This requires service of notice by the PIP, no later than 14 days after the creditors’ meeting on the ISI, on each creditor concerned and on the debtor. Certain statutory proofs are to accompany the notice: the PIP is to prepare a statement of grounds, annex a certificate of the result of the vote at the meeting, furnish the report referred to in s. 107(1)(d), annex a copy of the proposed PIA, and contain a statement by the PIP to the effect that he or she is of the opinion that the eligibility criteria are met.
45. The PIP must for the purpose of s. 115A(2)(a)(ii) identify the classes who, having voted in favour of the proposal, are in his or her opinion to be treated as distinct classes for the purpose of the application, and these are not always required to be the same classes as the voting classes. The PIP must give reasons for the proposed classes, and the determination of the relevant classes is a matter reserved to the court: Re Douglas (a debtor) [2017] IEHC 785.
46. The PIP must expressly confirm that there are “reasonable grounds for the making of” an application: s. 115A(1), and must assemble and serve the statement of grounds and the accompanying documents.
47. The initiating notice is to be accompanied by a notice to the creditors for the purpose of s. 115A(3) inviting them to submit a notice indicating whether or not the application is to be opposed and the reasons therefor.
48. A creditor who chooses to object lodges a formal notice of objection pursuant to s. 115A(4) and this is to be served on the ISI, the PIP and each creditor concerned. Service on the debtor is not required.
49. The Act then provides for a mandatory hearing of the review and for service of notice of the hearing:-
“(6) The appropriate court, for the purpose of an application under this section, shall hold a hearing, which hearing shall be on notice to the Insolvency Service, the personal insolvency practitioner and each creditor concerned.”
50. There is no requirement that the hearing be “on notice” to the debtor.
51. Some emphasis was placed by the objecting creditors on the fact that service on the debtor is not required under subsections (4) or (6), and it was argued that the omission of the requirement of service on the debtor indicates an intention on the part of the legislature that the voice of the debtor is to be heard only through the PIP. I do not consider the service requirements in s. 115A(4) and (6) in themselves indicate such an intention or exclusion, as the obligation to meet the procedures and certify the statutory proofs is vested in the PIP expressly “on behalf of” the debtor. It is at the point of the hearing of the application that the question arises whether it is permissible that a different or other voice be heard.
Role of the court: a hearing is mandatory
52. When it comes to consider the application for review, the relevant court must “for the purpose of an application” under the section hold a hearing and the hearing is to be conducted “with all due expedition”: s. 115A(7). The court’s power to make relevant orders under the section arises under subsection (9) after such a hearing.
53. The matters of which the court must be satisfied are set out in s. 115A(8) and (9). Section 115A(8) requires the court to be satisfied with regard to the procedural requirements of the Act:-
“(8) The court shall consider whether to make an order under subsection (9) only where—
(a) it is satisfied that—
(i) the eligibility criteria specified in section 91 have been satisfied,
(ii) the mandatory requirements referred to in section 99 have been complied with, and
(iii) the proposed Arrangement does not contain any terms that would release the debtor from an excluded debt or an excludable debt (other than a permitted debt) or otherwise affect such a debt,
and
(b) it considers that, having regard to the information before it, including information contained in a notice under subsection (3), no ground specified in section 120 applies in relation to the debtor or the proposed Arrangement.”
54. Section 115A(9) requires the court to consider the merits of the application and to have regard to all relevant matters. The court must take a view on those facts, whether the proposed PIA is reasonably likely to enable a return to solvency, and enable the retention of the principal private residence of the debtor, is fair and equitable in relation to each class of creditor who voted against the proposal, and is not unfairly prejudicial to the interests of any interested party:-
“(9) The court, following a hearing under this section, may make an order confirming the coming into effect of the proposed Personal Insolvency Arrangement only where it is satisfied that—
(a) the terms of the proposed Arrangement have been formulated in compliance with section 104,
(b) having regard to all relevant matters, including the terms on which the proposed Arrangement is formulated, there is a reasonable prospect that confirmation of the proposed Arrangement will—
(i) enable the debtor to resolve his or her indebtedness without recourse to bankruptcy,
(ii) enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit, and
(iii) enable the debtor—
(I) not to dispose of an interest in, or
(II) not to cease to occupy,
all or a part of his or her principal private residence,
(c) 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,
(d) where applicable, having regard to the matters referred to in section 104(2), the costs of enabling the debtor to continue to reside in the debtor’s principal private residence are not disproportionately large,
(e) the proposed 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 its coming into effect,
(f) the proposed Arrangement is not unfairly prejudicial to the interests of any interested party, and
(g) other than where the proposal is one to which section 111A applies, at least one class of creditors has accepted the proposed Arrangement, by a majority of over 50 per cent of the value of the debts owed to the class.”
55. The power of the court is discretionary and the test is flexible and broad. In that regard the nature of the broadly similar exercise of the court in a confirmation hearing in an examinership was described by O’Donnell J. in McInerney Homes Limited & Ors. & Companies (Amendment) Act 1990 [2011] IESC 31 at para. 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 fact that any proposed scheme must receive the approval of the Court means that there will be a hearing. The Act of 1990 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.”
56. The personal insolvency legislation gives the court a power with a similar degree of flexibility and discretion.
57. The legislation is silent as to how the application before the court under s. 115A is to be heard. Statutory Instrument No. 507 of 2015 inserted O. 76A, r. 21A into the Rules of the Superior Courts to regulate applications to the High Court. An application by a PIP on behalf of the debtor is required to “be commenced by notice of motion” in the statutory form and signed by the PIP. Rule 21A(3) provides for the entry of the notice of motion and objections thereto for “initial consideration by the Court” no later than 21 days after the date of issue of the notice of motion. Rule 21A(5) provides that the court shall give directions and make orders for the determination for any objections, but is silent as to the mode by which the application be heard.
58. Order 76A, rule 21A(5) of the Rules of the Superior Courts provides that:-
“On the date first fixed for a hearing for the purposes of s 115A(9) of the Act (or on any adjournment from such date), the Court shall (if it does not hear and determine any objections on that date) give directions and make orders for the determination of any objections in accordance with rule 5.”
59. How the review is to be heard will depend on whether there is objection, and the extent and nature of the objections. In practice all applications under s. 115A are determined on affidavit, and usually, if not invariably, the affidavit of the debtor is tendered in evidence. I am advised that in some applications in the Circuit Court, cross examination of the deponent of an affidavit has been permitted.
60. In some of the more contentious cases in the High Court there has been a robust exchange of affidavits and legal submissions before the case is heard. Counsel, often senior counsel, appear for the objecting creditor or creditors and for the debtor, and the hearings have been long and fully argued.
61. On the other end of the spectrum there have been applications for a determination under s. 115A(9) where, no objection having been made, the matter proceeds on a consideration of the statutory proofs and the analysis by the trial judge of the PIA, and depending on the nature of the PIA, the relevant comparison with the outcome in bankruptcy, the means by which the PIA deals with reasonable living expenses and identifies that an arrangement is sustainable, and the means by which creditors of different classes are to be treated. In those cases the applications are relatively straightforward, although they have invariably been made by counsel.
62. In the first application under the Act for an order under s. 115A, the written ex tempore ruling of the court was published on the Courts Service website, not because the matter was contentious but because it was the first application under the section: Re O’Connor & Personal Insolvency Act 2012 [2016] IEHC 317. A reading of that ruling shows that the review was not engaged merely by reference to the statutory proofs, or the stated opinion of the PIP, and regard was had as to whether the proposed PIA was fair to all creditors, to questions of proportionality and whether there was a reasonable prospect that the PIA would enable the debtor to resolve his indebtedness without recourse to bankruptcy.
63. The court engaging the review must be satisfied of the matters set out in s.115A(9), and the opinion of the PIP regarding the classification of the classes of creditors, and the reasonableness of the application are not determinative.
64. Thus, whilst the role of the PIP requires consideration of the reasonableness of the application before it is lodged, I consider that the Act does not envisage that the PIP bears the sole responsibility of answering the objections or argument of a creditor. The court engaged in a review under s. 115A is to balance the interests of creditor and debtor and the court is not confined to the evidence that the PIP so considers.
65. While the rules of court may not be used as in interpretative tool to construe a legislative provision (Spillane v. Dorgan [2016] IECA 84), the Rules make it clear that the mode of trial is a matter for the trial judge as to how the case is to be heard.
66. This is in accordance with the general principle that the court may regulate its own process: PJ Carroll & Co. Limited v. Minister for Health and Children [2005] 3 IR 457.
67. I do not accept the argument of counsel for Pentire Property DAC that in regulating the hearing of the review the court is impermissibly engaging the process of statutory interpretation by the exercise of its inherent jurisdiction. The determination of the mode of the hearing of the review is quintessentially a matter for the court except where a statute clearly mandates a mode of trial or hearing. The Act of 2015 does not contain an express exclusion, and the court may therefore determine the mode of hearing. This is a matter of particular importance when the exercise engages discretionary factors.
68. Before dealing more fully with this argument I turn to consider the argument that once the formal proofs required in s. 115A and O. 76A, r. 21A have been met by a PIP the “jurisdictional threshold” for a hearing under subsection (7) of s. 115A is established in that the application has been “made”. This involves a consideration of what it means to “make” an application.
The “making” of the application
69. The ISI and counsel on behalf of the debtors, albeit with different emphasis, argue that in each case the PIP has “made” the application in conformity with the legislative requirement in s. 115A(1), and that thereafter the hearing is to be convened at which the voice of the debtor may be heard other than through the PIP.
70. Much argument in the course of the three days hearing related to the meaning of the expression “make an application”. Counsel for the ISI argues that the phrase must be seen as identifying two stages in an application under s. 115A, viz. the making of an application and a hearing, as a hearing is expressly contemplated in s. 115A(7) and (9). As a starting point, I consider that the section does in its plain words envisage two stages, the making of the application, and thereafter the mandatory hearing “for the purpose of an application”. The plain words suggest that the application is made and thereafter determined.
71. But who “makes” the application? It is argued that an application is “made” when the procedural proofs of the section are met, and reliance is placed by way analogy on three recent authoritative judgments which I will briefly consider.
72. In K.S.K. Enterprises Limited. v. An Bord Pleanála [1994] 2 I.R. 128, the Supreme Court considered whether an application by way of judicial review of a decision of An Bord Pleanála was made within time. The relevant provisions of s. 82 of the Local Government (Planning and Development) Act 1963 (as amended) and s. 19(3) of the Local Government (Planning and Development) Act 1992 required that application “be made within a period of two months”. The Supreme Court determined that the application was made when the notice of motion was filed in the Central Office of the High Court and served on all necessary parties. The court however, expressly made that determination in the context of the legislative provisions and objectives, and rejected the argument that the making an application could be “constituted by the mere filing of a notice of motion in the court offices” (p. 135).
73. In DPP v. England [2011] IESC 16, on a case stated from the High Court relating to the time limits for the service of an application for an order permitting the continued detention of cash seized under s. 38 of the Criminal Justice Act 1994. Application for forfeiture was required to be “made” while the cash was detained under that section. The question for the Supreme Court on the case stated was whether the issuance of the notice of motion was the “making” of an application. The counter argument was that as the notice of motion stated that counsel would apply for an order and that the application would not be “made” until the application was actually moved in the court. Hardiman J. considered that the nature of the document made it difficult to regard the issuance of the document or even the service as the “making” of an application, and noted that the document “in its own terms” did not purport to be anything other than a notice of an intention to make an application. Hardiman J. considered the provisions of O. 163 of the Rules of the Superior Courts, rule 2 thereof provided for application to the made by originating motion ex parte for an order under s. 2(1) of the Proceeds of Crime Act 1996. Hardiman J. having referred to K.S.K. Enterprises considered it not to be wholly analogous and not dispositive, and came to the conclusion that the application was not made by the service of notice indicating an intention that application was to be made.
74. That matter came again for consideration before the Supreme Court in Reilly v. DPP & Ors. [2016] IESC 59, where Dunne J. made a distinction between a notice ex parte which she accepted could not be made until it was moved in court, and a notice of motion, where the application would be “made” by the service of a motion on the parties concerned. At para. 17 she said that following:-
“In those circumstances I am satisfied that the application is made pursuant to s. 39(1) once the motion has been issued and served on the parties requiring to be notified within the relevant time period. I do not accept the contention that in order for the application to be made it is necessary that an application be made in open court as suggested. As the learned trial judge succinctly stated: ‘Such an assessment of a time limit would be imprecise and subject to the vicissitudes and vagaries of Court calendars and work loads and cannot have been intended by s. 39(1).’ (at para. 22) The crucial point is that the notice of motion must be issued and served on those entitled to notice within the relevant two year period.”
75. Dunne J. did not depart from the analysis of Hardiman J. in DPP v. England but noted that O’Malley J. had come to the same conclusion in DPP v. Gerard Alphonsus Humphreys & Ors. [2014] IEHC 539, having considered DPP v. England.
76. These judgments all concerned a particular statutory context and the question before the court was whether the application was made in time. The general proposition that can be distilled is that an application is made when it is commenced by motion on notice and served on the relevant persons concerned. These, albeit authoritative and recent, decisions could not in my view be dispositive of the question at issue in the present case having regard to the statutory contexts in which they were given. However, they are useful starting points and reference, and do suggest that the “making” of an application may constitute the lodging or service of the initiating pleading, and that the hearing may be differently characterised.
77. In my view the plain words of s. 115A(1) allied to the express words of s. 115A(7), mean that the hearing “for the purpose of an application” may be seen as a different stage of the process of review. However, that does not answer the argument of the creditors that the statutorily identified stages in the process do not envisage one person lodging or meeting the formal proofs of an application, and thereafter a different person conducting the hearing.
78. Counsel for Bank of Ireland argues that the scheme of the Act and in particular certain legislative provisions support the argument that only the PIP may be heard by the court in the application under s. 115A(9), and that no residual role is left for the debtor in the application. It is argued that a “single voice” articulates the claim and that the statutory procedures, and in particular the provisions of subsections (4) and (6), leave no role for the voice of the debtor and that this is supported by the observation in para. 42 of Re Darren Reilly that “a debtor is not an appropriate applicant”.
79. Certain sections of the Act do appear at first glance to bear this out: s. 115A(2) requires that notice of the application is given to the debtor which would not be necessary or appropriate if the debtor was himself or herself a competent applicant. Section 115A(6) uses the same language and mandates notice on a number of parties but not on the debtor. Section 115A(4) requires a debtor to serve a notice of objection on the PIP and other relevant parties but again not on the debtor.
80. But to more fully understand the nature of the court review, the interest of the debtor in the subject matter of the review must be considered.
The question of “standing”
81. The application in Re Darren Reilly involved a consideration of what was described at paras. 31 to 34 as “a question of standing”. It is clear that if a PIA is approved at a meeting of creditors and subsequently affirmed by the court, or if on review by the court, the PIA comes into force notwithstanding the rejection at a meeting of creditors, the parties bound by its terms are the debtor and, in respect of any specified debt, the creditor concerned. The PIP does not drop out of the picture as he or she continues to have a supervisory and notification requirement, but the benefit of the PIA is enjoyed by the debtor and the creditor and not by the PIP.
82. At para. 32 the necessary statutory engagement by the PIP in the making of an application under s. 115A was described as a matter “of procedural but not substantive standing”. That particular expression was the focus of argument in the course of the hearing in the present applications. Before dealing more fully with those arguments I should take the opportunity to clarify what the distinction means.
83. Standing is normally linked to or derived from the fact that a person bringing an application or seeking to oppose an application has a direct interest in the outcome, and must therefore be understood to have a right to engage in that litigation. Standing in that sense is a matter of substance, linked to the substance of the suit and whether a person can be said to have a real and substantial interest in the outcome.
84. Procedural standing is sometimes found as a result of statutory intervention, or because a litigant may otherwise lack capacity. In the case of corporate or personal insolvency under the Act the relevant statutory schemes vest standing in a liquidator, examiner or PIP.
85. The decision in Re Darren Reilly does not conclude that a different person may have substantive standing and procedural standing, or as was argued by the debtors, that the Act envisages application being made by the debtor because the debtor has a substantive or real interest in the outcome.
86. However, it cannot be denied that notwithstanding the necessity that the PIP be engaged at all stages of the process, once the application under s. 115A is lodged the dispute is between the debtor and the objecting creditor. From the point of view of the substance of the litigation it is the debtor and the creditor who have the substantial interest in the outcome, and while the legislation does not envisage that any part of the process could be engaged without the involvement of the PIP, the process envisages the court approving the coming into effect of a PIA which thereafter binds both parties and in which the PIP has no personal interest.
87. The Supreme Court in Chambers v. An Bord Pleanála [1992] 1 I.R. 134 said that as the plaintiffs are “aggrieved persons” they have locus standi:-
“The plaintiffs are aggrieved persons; by definition, they have locus standi; no question arises of being granted locus standi. It may be denied in pleading and the issue raised but, initially, it is entirely a matter of objective assessment.” (At p. 142)
88. A debtor has standing in that sense and a vital interest in the outcome of the court review under s. 115A. Whether this may be regarded as giving a debtor the right to be heard in the application is central to the question of whether and how the debtor may be heard.
89. The debtors argue that once the procedural requirements have been met the debtor may engage with the process and make submission to the court. The debtor argues that the PIP has had the necessary “active and substantive engagement” described as an essential gateway requirement in para. 67 of Re Darren Reilly.
90. None of the creditors made the argument that the PIP may not be legally represented. But it is argued that as the legislation expressly indentifies that the PIP makes the application “on behalf of the debtor”, that the legislation intended to remove the right of the debtor to be otherwise represented.
91. I turn now in that context to examine that expression in the section.
What do the words “on behalf of” in the statute mean?
92. As a matter of general statutory interpretation, a court must assume that when words are used in a statute that the Oireachtas intended that effect be given to all of the words used, or as put by the Supreme Court in Goulding Chemicals Limited v. Bolger [1977] I.R. 211:-
“It is to be presumed that words are not used in a statute without a meaning and, accordingly, effect must be given, if possible, to all the words used, for, as has been said, ‘the legislature is deemed not to waste its words or to say anything in vain’ – per Lord Sumner in Quebec Railway, Light, Heat & Power Co. v. Vandry [1920] AC 662, 676.” (At pp. 226 to 227)
93. The Act provides that a PIP may make application “on behalf of” a debtor. The PIP acts in a representative capacity in making an application under s. 115A. The Oireachtas must be taken to envisage precisely the fact on which the debtors rely, namely that the outcome of the application is one in which the debtor has an interest or substantive interest in the litigation. At para. 25 of my judgment in Re Darren Reilly, I said the following:-
“I agree with the Debtor that the benefit of the application enures to a debtor. I disagree however with the characterisation for which counsel for the Debtor contends, that the role of the PIP is merely procedural. While it is the case that the PIP may not construct a PIA without instructions, and more specifically that the PIA which is proposed must be pursuant to s. 99(1) and ‘agreed to by the debtor’, the process may not be concluded without a meeting of creditors which must be arranged by the PIP, and s. 115A expressly provides that the PIP lodges application for review. It should also be noted that under s. 115A(2) the PIP must serve notice on the debtor of the lodging of an application under the section, and the procedural requirements of s. 115A(4)(iii), and s. 115A(6)(iv) are that the objecting creditor is to give notice to the PIP, and make no provision for the giving of notice to a debtor of an objection.”
94. No party argues that that conclusion is incorrect. However, counsel for Mr. and Mrs. Meeley argue that a PIP who is usually an accountant or a qualified financial advisor does not have a right of audience before the court under s. 17 of the Courts Act 1971. Section 17 of the Courts Acts 1971 provides:-
“A solicitor who is acting for a party in an action, suit, matter or criminal proceedings in any court and a solicitor qualified to practise (within the meaning of the Solicitors Act, 1954) who is acting as his assistant shall have a right of audience in that court.”
95. That section does no more than give a solicitor a right of audience in the superior courts. It does not exclude the PIP, who seems at least prima facie to be vested with the power to address the course in his or her own right on behalf of a debtor.
96. I accept also the argument of counsel for the creditors, that the Act does give the PIP a right of audience before the court in his or her representative capacity. The PIP is regulated by the ISI and not, unless the PIP is incidentally also a solicitor, by the Law Society of Ireland. The Act does not on its face give the PIP the power to independently instruct counsel, although a solicitor may be instructed who may, in turn, instruct counsel. The ability to engage counsel is a matter that goes to the very nature of the court process.
97. A PIP who is also qualified as a solicitor may address the court in his or her capacity as solicitor and may instruct counsel, but having regard to the fact that a PIP is an intermediary and “neither the creditor nor the debtor can be said be his or her client” (Re Darren Reilly at para. 56) the role of the solicitor PIP is as yet untested. Solicitors and/or counsel appear on the instructions of a client. Thus the question remains as to whether a PIP may “move” an application in the legal sense and argue it before the court.
98. The Act must be interpreted in such a way as to achieve a rational result and the purpose of the Act must always inform that interpretation. In Boyne v. Dublin Bus/Bus átha Cliath (No. 2) [2008] 1 IR 92, Gilligan J. noted that the court should have regard to the purpose of an enactment:-
“Indeed, in any question of statutory interpretation the court is bound to have in mind the purpose of a statutory rule or the mischief at which it is directed, so far as such purpose or mischief can be ascertained. That is not to say, of course, that the court can simply give effect to that purpose, but where the court has to make a judgment about the proper meaning of a statute it is likely to want to consider whether it can by the process of interpretation give effect to its purpose or the mischief to which the statute is directed.”
99. In Lawlor v. Flood [1999] IEHC 10, Kearns J. expressly adopted a view that it is to be assumed that the Oireachtas intended an interpretation to have logic and reason, an expression also used in KSK Enterprises Limited v. An Bord Pleanála. In Lawlor v. Flood, Kearns J. quoted Bennion on Statutory Interpretation, 3rd Ed., (1997) at p. 427 as follows:-
“It is a rule of law … that when considering in relation to the facts of the instant case, which of the opposing constructions of the enactment would give effect to the legislative intention, the Court should presume that the legislature intended common sense to be used in construing the enactment.”
100. A debtor does not lose legal capacity merely by engaging with the Act, or immediately upon obtaining a protective certificate under s. 95(2)(a). An infant plaintiff has no legal capacity and a next friend will act on behalf of the infant in proceedings both brought by or against that infant. Therefore, no comparison with the bankruptcy legislation, that regulating corporate insolvency, or with the representative capacity of a next friend acting on behalf of an infant is apposite with regard to the question of whether the insolvent debtor may be heard at a court review, and whether the reference to the PIP acting “on behalf of” the debtor excludes the debtor from direct participation.
101. To that extent the PIP may not be usefully compared either with the liquidator of a company or the official assignee in bankruptcy where there is an express statutory loss of capacity. The Act does not deprive a debtor of his legal capacity, and indeed it could be said that the purpose of the Act was to avoid a debtor becoming bankrupt, and thus to avoid circumstances where the debtor’s legal capacity was lost.
102. A further practical matter must be examined. There is no provision in the Act which recognises the right of a PIP to be indemnified for any legal costs incurred by him or her in the making of an application under s. 115A, even where such costs are incurred in the performance of his or her legitimate legal duties arising in connection with the application.
No provision for costs in s. 115A
103. While the Act of 2012 makes specific provision for the costs of a PIP in the insolvency process and these costs are expressly to be brought into account in assessing the outgoings of a debtor by reason of s. 99(2)(f)(i), no provision is made in the amending legislation of 2015 to deal with the costs of a PIP of bringing an application under s. 115A which of its nature requires application to the court: Re Darren Reilly, at para. 68.
104. While the legislation does take and adapt concepts from bankruptcy and examinership law, the personal insolvency legislation creates a distinct legal process which provides for separate machinery different from that in bankruptcy and examinership. The position of a PIP is unique. A PIP is different from an examiner appointed under Part 10 of the Companies Act 2014 where the costs and expenses of an examiner carry priority even when an examinership process fails and the company in examinership is placed into liquidation.
105. A trustee, or a personal representative of a deceased person, is entitled to be indemnified out of trust or estate funds in respect of any costs and expenses incurred in the management of the trust or estate, or in litigation commenced against or by the trustee or personal representative in a representative capacity.
106. The principle is explained in Daniell’s Chancery Practice, 7th Ed., (1901) at p. 987 that:-
“As a general rule, wherever an estate or fund is administered by the Court, the costs of all necessary and proper parties to the proceedings are a first charge upon it and must be defrayed thereout before the claims of the persons beneficially entitled thereto are satisfied.”
107. The analogy is not useful as the estate of an insolvent debtor could not be said to be available to meet the costs of the PIP.
108. The rule in liquidation that in general a liquidator is entitled to be indemnified out of the assets of the company is of some antiquity. In Re London Metallurgical Company [1895] 1 Ch 758 Vaughan-Williams J. said that the costs of litigants who successfully bring proceedings against a liquidator:-
“…are to be paid out of the assets of the company. That is the general rule, though under exceptional circumstances an order may be made going beyond that and giving them the right to be paid by the liquidator personally.” (At p. 763)
109. A PIP engages a statutory role but is not entitled by statute to such indemnity. Any agreement that the costs or expenses would be paid by the insolvent debtor is worthless, and not easily consistent with the scheme of the Act which requires that the means of a debtor be fully brought to bear in the repayment of debts.
110. Thus the position of a PIP is more stark than that of a liquidator or trustee because a PIP does not take possession of the estate of an insolvent debtor and may not seek an indemnity from any assets of the insolvent debtor to meet costs. Further, the application under s. 115A does not permit the court on review to modify the proposed PIA, even for the purpose of providing for the costs of a PIP of bringing the application. There are accordingly no statutory means by which the court may award the PIP costs out of the estate of the insolvent debtor.
111. There is no provision in the legislation for the discharge of the fees of solicitor, counsel or indeed of the PIP under s. 115A. It would be absurd if the PIP were to be personally responsible for those costs or that they be treated as liabilities of the insolvent debtor to be dealt with outside the process. The result would leave the debtor with a debt for which no provision is made and which may be sufficient to render the PIA unsustainable or lead to insolvency and thereby frustrate the entire aim of the insolvency process.
112. It also must be relevant that express provision was made for the costs of the PIP in other stages of the statutory process, including the costs of post-PIA supervision. The absence of such suggests the Oireachtas did not intend the PIP to incur the legal costs of the hearing of the review. The express vesting in the court by s. 115(14) of power to award costs of the application does not clarify the matter. Further, if costs are only in exceptional circumstances to be awarded against a PIP, the same principle might inform the approach to an application by a PIP for an order for the costs of a successful review against a creditor. This point is considered further below.
Conclusion on the nature of the hearing
113. For all of these reasons, I consider that the Act envisages that an application having been made and a hearing then having been convened, the hearing is to be conducted according to the directions of court. I accept in a broad way the argument of ISI that on a plain reading of s. 115A the Oireachtas envisaged a two stage process.
114. I consider that the answer to the general proposition raised in the present cases is that as the Oireachtas vested in the relevant court a wide power to engage in a review of a proposed PIA it must be intended that the court would have a wide discretion to give directions with regard to the hearing of the application under s. 115A(9), and that it could give directions for the hearing of argument and evidence on behalf of the debtor who has a vital interest in the result.
115. Further, I do not consider that the Oireachtas envisaged that a non-legally qualified intermediary would be the sole person entitled to argue the merits and legal principles arising in an application under s. 115A(9) of the Act. Such a conclusion fails to have regard to the role of the PIP in the process leading up to the formulation of a PIA. The PIP has not been, in that process, the agent of either the debtor or the creditor, and neither is his client. He or she is an intermediary interposed to bring financial knowledge and analysis to the process of orderly debt resolution.
116. The PIP has the statutory function of assembling the proofs for the purposes of s. 115A and of certifying certain essential matters, including the reasonableness of the application. But the court is not confined in the exercise of its statutory discretionary function to the evidence or views of the PIP. The PIP does not on account of lodging the application cease to be an intermediary, or take on the role of acting for one party to the hearing.
117. Even if the PIP does instruct a solicitor who in turn instructs counsel, the role engaged by the PIP up to the point of the hearing of the review is not easily reconciled with the role envisaged by the creditors, a new role of advancing the arguments in support of the exercise of the discretionary power under s. 115A(9) when a court comes to review the PIA and consider the objections.
118. A court must have sufficient assistance in its assessment of the law and facts to arrive at a correct decision. What falls to be addressed in the hearing of an application under s. 115A is the fairness, sustainability and proportionality of the proposed PIA, and I use these words as shorthand for the various statutory indices by which the Act characterises the discretionary role of the court. In the performance of that role a court must have available to it the arguments concerning the legal principles and the merits of the proposed PIA to a sufficient degree to fully and fairly engage its role.
119. It could not be regarded as in accordance with basic fairness that argument could be heard only from or on behalf of the objecting creditors, when the debtor has a vital interest in the outcome and as the contractual relationships capable of being impeded are those of the creditor and debtor.
120. The principles of equality of arms and basic principles of fairness support a conclusion that a debtor who has a vital interest in the outcome should be entitled to be heard. This is in line with the requirement long recognised by the courts that a statute be interpreted and applied in a manner that is consistent with the constitutional requirement of fairness of process, East Donegal Co-Operative Society Livestock Mark Limited v. Attorney General [1970] I.R. 317, and the European Convention on Human Rights Act 2003.
121. A simple literal approach to an interpretation of s. 115A(1) might at first glance suggest that only the PIP may bring, move and conduct the application before the court, but I consider that that would give rise to an absurd result.
122. The decision in Re Darren Reilly dealt with the means by which an appeal is to be instituted, and ipso facto the decision means that the PIP must be involved in making an application for review. It is not authority for the proposition that the debtor has no right to be heard nor can it lead to the conclusion that if an application is properly “brought” or “instituted” or “commenced” by a PIP (all words used in para. 42 of the judgment) the debtor may not be heard through counsel and solicitor if this is necessary, or regarded as appropriate, having regard to the circumstances of the case and the likely arguments to be advanced. It is in my view a matter for the court to determine in the individual case.
123. The PIP is a statutory construct and is a representative with financial expertise and skills. He has been designated as an essential element in the process, presumably as the Oireachtas envisaged that the formulation of a PIA and the engagement with creditors was required to be done by an independent person with financial knowledge and expertise who would understand and interpret the financial circumstances of a debtor with sufficient skills and understanding to formulate a PIA which may be acceptable to creditors. The Act recognises the essential requirement that a financial expert be interposed in the process, and that a debtor may not without such expertise seek to engage with the process, obtain the benefit of a protective certificate, or seek to formulate a PIA without such representation.
124. I do not accept the argument of counsel for the debtors that the professional and financial knowledge of the PIP is no longer required once the motion has been lodged, as even at a basic level, the certificate of reasonableness lodged by the PIP and his or her grounding affidavit may come to be interrogated by the court, as indeed may be correctness of the proposed classes of creditors. But the role of the PIP as intermediary does not readily permit that he or she would argue the interest of the debtor at the hearing of the review under s. 115A(9) where the legal and factual matters engaged in the discretionary judgment of a court, and the objections of a creditor or creditors are to be considered. The PIP has not become the voice of the debtor at the review.
125. Therefore, I do not accept the argument of the creditors that the voice of the debtor is intended to be silenced and that the PIP is the only voice to be heard in the articulation of the arguments or interests of the debtor in the review.
126. Further, and apart entirely from the argument derived from the role the PIP engages in the process leading up to the formulation of a PIA, I consider that as a debtor has an interest to protect and as the Oireachtas has not expressly identified that the debtor may not be heard on the application, counsel for the ISI is correct and the voice of the debtor is not intended to be silenced. That voice may be heard only if the application is properly before the court.
127. Accordingly, I reject the argument of counsel for the objecting creditors, and in particular those advanced by counsel for Bank of Ireland that the consequence of the interpretation advanced by the ISI would lead to litigation chaos. Chaos is avoided by the fact that the threshold proofs must be met before an application may be heard and these of their nature require the express and focused engagement by a financial expect with the terms of the proposed PIA and whether it is reasonable to seek that the court would engage its jurisdiction to approve the coming into force of a PIA notwithstanding that it was rejected at a meeting of creditors. The PIP performs a role of filtering unmeritorious applications, and assembling the proofs. Chaos is also avoided by the expressed vesting in the court of the power by the Rules to make directions for the hearing of the application, and the general power to manage its own process.
128. For these reasons and taking all of the statutory provisions in s. 115A into account, I consider that the Act does not envisage that the PIP is the sole voice to be heard at the court review.
129. How that voice is to be heard is a matter for the court in the exercise of its jurisdiction to manage the process and the conduct of an application before it.
The 2nd question: The form of the motion
130. The preliminary issue before the court is whether the notice of motion in each case is properly constituted where the applications on their face identify that application will be made by solicitor or counsel on behalf of the debtor, and where the motion paper does not identify that the application will be made by the PIP in what the creditors argue is the only manner proscribed by s. 115A of the Act.
131. To some extent the issue in the present applications concerns the form of the motion and whether the operative part of a motion may use language that states:-
(a) The application is made by the PIP; or
(b) The application is made by the PIP on behalf of the debtor; or
(c) The application is made by solicitor/counsel on behalf of the debtor; or
(d) The application is made by solicitor/counsel on behalf of the PIP on behalf of the debtor.
132. It is argued on behalf of the debtors that the proofs or gateway requirements contained in s. 115A have been met in the following way:-
(a) The PIP has performed his statutory function and certified that the reasonable grounds exist for the making of the application;
(b) He or she has provided his written consent insofar as it is necessary that the application be continued;
(c) The PIP has signed the notice of motion and the statement of grounds;
(d) The PIP has sworn an affidavit grounding the application;
(e) The PIP has confirmed that he or she is of the belief that there are reasonable grounds for the making of the application.
133. The statutory form provides for the operative part of the motion to read as follows:-
“TAKE NOTICE that on … xxx personal insolvency practitioner, will apply to this Honourable Court …”
134. The affidavit of Mark Foster, solicitor, sworn on behalf of the Governor and Company of the Bank of Ireland in response, in particular, to the submissions made by ISI gives by way of example illustrations of the evolution of crafting of the initiating motion under s. 115A to take account of the new Legal Aid Scheme and the judgment in Re Darren Reilly. The examples given by way of illustration are Circuit Court cases in which the following variety of drafts is found:-
(a) Application to be made by “solicitor/counsel on behalf of the Personal Insolvency Practitioner of the debtor” (16th March, 2016);
(b) Application to be made by “solicitor/counsel on behalf of the Personal Insolvency Practitioner on behalf of the debtor” (14th June, 2016);
(c) Application to be made by “solicitor/counsel on behalf of the Personal Insolvency Practitioner on behalf of the debtor” (21st July, 2016), after the commencement of the Legal Aid Scheme;
(d) Application to be made by the “Personal Insolvency Practitioner on behalf of the debtor and/or the debtor” (28th July, 2017), after the commencement of the Legal Aid Scheme; and
(e) Application to be made by “Personal Insolvency Practitioner on behalf of the debtor” (after judgment was delivered in Re Darren Reilly on 5th October, 2017).
135. I am of the view that an initiating motion must sufficiently identify that the application is that of the PIP, and as it is self evident that the PIP does so on behalf of the debtor, that phrase is unnecessary, albeit to use it could not be said to be incorrect. A motion is not to be dismissed on account of the superfluous or unnecessary words.
136. An application which describes the applicant as being the “PIP and/or the debtor” is more troublesome in that it lacks clarity. I accept the argument of counsel for the creditors, and especially counsel who argued the matter on behalf of Bank of Ireland, that a creditor receiving an application under s. 115A is entitled to know when the gateway or threshold requirements of the Act are met, viz. whether the application is “brought by” the PIP. Thus a notice that says the application is brought in addition or in the alternative by the debtor is unsatisfactory in that it is not possible from the face of the motion paper to assess whether the threshold requirements are met.
137. I do not propose or suggest that there is only one form which may accurately initiate the application. The form in the Rules is suitable, but as with any statutory form, it may be varied. A suitable or desirable variation would be the addition of a further operative part by which notice is given that application would be made for directions from the court that the debtor be heard, whether through counsel or solicitor or both.
138. The letter accompanying the motion may in the alternative give an indication that it is intended to seek directions from the court as to the hearing of counsel or solicitor on behalf of the debtor.
139. There is in my mind no reason why a solicitor who represents the debtor is not competent to serve the motion papers and annexed statutory proofs. The effecting of service is a matter within the competence of a solicitor, and no party argues that service could be deemed to be part of the making of the application.
140. It is both difficult and imprudent at this juncture to give more than general guidance on the form of originating motion by which an application may be commenced, save to say that the form in the Rules is capable of being modified, or even if the motion in the exact form provided in the Rules is used, a creditor can be in no doubt that the PIP appears on behalf of the debtor and that the PIP does so in a professional capacity, and not otherwise.
141. I turn now in the light of these general observations to examine the motion papers in the present applications.
The form of present motions
142. In the case of the applications of Mr. and Mrs. Meeley, the motion was signed by the PIP although the operative part of the motion did not identify the PIP as being the applicant. The PIP did have a substantial input into the motion, and did give the necessary certifications. The motion contains an error in that it fails to identify that the PIP makes the application.
143. I am satisfied in the Taaffe application that notwithstanding that the motion is signed by the PIP the motion paper is procedurally incorrect, for the same reason.
144. In the case of the applications by Mr. and Mrs. Foye, the application contains superfluous words insofar as the motion paper states that Mr. MacDarby makes application “on behalf of the debtor”. The motion could not on that account be held to be improperly constituted. It is clear to the creditor receiving such a motion that the debtor proposes or at least reserves the right to make application. The application is not improperly constituted.
The questions of liability for costs of an application under s. 115A
145. I accept that the form of the motions by which the present applications were commenced reflect concern on the part of the PIP in each case or perhaps the lawyers for the debtor that the bringing of the application under s. 115A might expose a PIP to a costs order.
146. I also note that the grounding affidavits of the PIPs identify that they are “not a party” to the proceedings. This I take to be a direct reference the comments in Re Darren Reilly, that a PIP is not a party to the litigation in the sense that the PIP has no personal interest in the outcome.
147. Counsel for Bank of Ireland makes the argument that the approach taken by the insolvency practitioners in the present cases amounts to a stepping away by them from their statutory role and that it is this, rather then any objection by the Bank, that might be said to have a “chilling effect” on the prosecution of applications under the section.
148. That question whether costs could be awarded against a PIP was already considered in Re Nugent and Re Darren Reilly, but I have been invited in the current cases by the ISI in particular to give some further guidance as to the proper approach of the court to costs in such matters. I propose doing so below, albeit in a cautious manner having regard to the fact that it is not possible now to predict the classes of factual circumstances that might give rise to a consideration of costs.
149. A great deal of comfort was given with regard to the risk that a PIP takes regarding a possible costs order in the judgment in Re Nugent and Re Darren Reilly. In essence the principle must be that costs would be granted against a PIP in exceptional circumstances or where the PIP acted in bad faith.
150. The application under s. 115A could not properly be regarded as inter partes litigation in the true sense. That was the approach taken by the Supreme Court to the role of an examiner at a confirmation hearing in Re McInerney Homes Ltd & Ors and the Companies Amendment Act, 1990 [2011] IESC 31 where the court said the following at para. 32:-
“The issue is not only an adversarial one: the Court is conducting a process in the public interest and will, for example, have regard to the interests of parties such as employees who may not be represented before it. It should be noted however that the argument advanced by the companies, if correct, would give rise to some anomalies. If a creditor lacked the means to formally object, then on the companies’ argument, the examiner would still have to bear the burden of satisfying the Court that the proposal was not unfairly prejudicial to such a creditor. On the other hand if the creditor felt so strongly that he or she did formally object, but lacked the resources to do so effectively, then the logic of the companies’ arguments would be that the onus would nevertheless have shifted to him or her and the Court should proceed to approve the scheme on the basis that the objector had failed to discharge the onus of proof of unfairness.”
151. Having regard to the particular and express public interest that is performed by a PIP in the insolvency process, and the fact that the PIP has no economic or personal interest in the outcome of an application, save for any fees which might come to accrue under a PIA which might come into effect following a making of a order of court, I consider that a costs order would not be made, unless it can be shown that a PIP acted without bona fides or dishonestly, or “acted with any impropriety”, the language of the Supreme Court in McIllwraith v. His Honour Judge Fawsitt [1990] 1 I.R. 343 where the question concerned the award of costs against Circuit Court judge in judicial review.
152. The correspondence from creditors which threatens that an application for costs against a PIP would be made in a routine or ordinary case which is lost is not appropriate, and is not a practice which a court would condone. The circumstances in which a costs order against a PIP would be made would be exceptional, probably more correctly, truly exceptional.
153. The question may come to be more fully argued in a suitable case in the light of the views expressed in the present judgment regarding the role of the PIP in the s. 115A review.
Decision
154. I will hear counsel as to how the matters are to proceed. It was agreed that judgment would be delivered on the preliminary general objections by the creditors, and that any question of substitution or amendment to the notice of motion would await this ruling. I am not satisfied that the procedural incorrectness is such as justifies the striking out of the proceedings without further argument or application.
Re: McNamara & The Personal Insolvency Acts 2012- 2015
[2018] IEHC 730 (17 December 2018)
JUDGMENT of Mr. Justice Denis McDonald delivered on 17 December, 2018.
The application before the court
1. This judgment deals solely with the relief sought in the notice of motion dated 1st June, 2018 brought by James Green, Personal Insolvency Practitioner (“the Practitioner”) on behalf of the above named debtor in which the Practitioner seeks to amend the wording of the notice of motion previously filed in these proceedings on 2 February, 2017, which had sought an order pursuant to s. 115A(9) of the Personal Insolvency Act 2012 (“the 2012 Act”) as amended by the Personal Insolvency (Amendment) Act 2015 (“the 2015 Act”). Under s. 115A(9) of the 2012 Act (as amended) an order can be sought from the court (subject to compliance with a significant number of conditions) confirming the coming into force of a proposed Personal Insolvency Arrangement (“PIA”) notwithstanding that the proposals have been rejected by the creditors of the debtor.
2. The notice of motion seeking relief under s. 115A(9) (“the originating notice of motion”) indicated, in its opening words that the application would be moved by: ” solicitors/counsel on behalf of the Debtor” (emphasis added). Although the notice of motion was signed by the Practitioner, the opening words clearly suggested that the application was made on behalf of the debtor himself.
3. As a consequence of two decisions of Baker J. (addressed in more detail below) both of which were delivered after the originating notice of motion had been issued, it was clarified that, under the 2012 Acts (as amended), the only party who can make an application under s. 115A is a Personal Insolvency Practitioner. In those circumstances, the Practitioner here has brought the present application seeking to amend the originating notice of motion so as to make clear, in its opening words, that the application is brought by the Practitioner on behalf of the debtor. That application is strenuously opposed by the Objecting Creditor, Tanager DAC (“Tanager”) albeit that no such objection was identified at any point in its notice of objection dated 10th February, 2017 or in the affidavit of Angela O’Brien sworn on its behalf on 11th May, 2017.
4. Before dealing with the issues which arise on the present motion, it is necessary, in the first instance, to consider the two judgments of Baker J. which were delivered subsequent to the filing and service of the originating notice of motion.
The judgments of Baker J.
5. On 5th October, 2017, Baker J. gave judgment in Darren Reilly [2017] IEHC 558 in which she carefully considered the provisions of s. 115A in the context of an appeal from the Circuit Court. The appeal in that case had been brought in the name of the debtor rather than in the name of the practitioner. In para. 26 of her judgment Baker J. identified the question which arose for consideration in that case namely – whether a debtor (as opposed to a practitioner) has an independent and free-standing right to appeal a refusal by the Circuit Court under s. 115A to approve the coming into effect of a PIA. Baker J. answered that question in para. 67 of her judgment in the following terms:-
“An application under s. 115A may be instituted only by a PIP, and a debtor has no statutory standing to initiate the application without the active and substantive engagement of the PIP with the process.”
6. Earlier, in para. 56 of her judgment, Baker J. had summarised the role of the practitioner on an application under s. 115A in the following way:-
“The fact that a PIP performs a role of responsibility and substance, and is required for the purposes of bringing an application under s. 115A to exercise professional judgement, provides to a large extent the backdrop to the procedural requirements… In bringing a professionally qualified person into the heart of the process, the Oireachtas sought to achieve the orderly processing and formulation of a PIA and of an application by way of review to a relevant court. The process is envisaged as being for the benefit of the debtor, but is not one driven by the debtor, nor can he or she engage the process without an intermediary who cannot be said to act merely on instructions, but is required at all times to seek to achieve the resolution of debt, to do so in the exercise of professional judgement, and to engage his or her knowledge or experience in financial matters to fashion a remedy which is satisfactory to all parties concerned. The PIP is an intermediary therefore in a true sense, and neither the creditor nor the debtor can be said to be his or her client.”
7. Subsequently, in Niamh Meeley [2018] IEHC 38 Baker J. had to consider a similar question in the context of an originating application in the High Court for relief under s. 115A (i.e. similar to the originating notice of motion in this case). In para. 11 of her judgment in Niamh Meeley , Baker J. summarised her previous decision in Darren Reilly as:-
“…authority for a narrow proposition, that the involvement of the PIP in the process is mandatory, and that a debtor does not have an independent or free standing right to appeal a decision of the Circuit Court under s. 115A.”
8. In para. 135 of her judgment in Niamh Meeley , Baker J. expressed the view (consistent with her decision Darren Reilly ), that an originating motion must sufficiently identify:-
“…that the application is that of the PIP, and as it is self evident that the PIP does so on behalf of the debtor, that phrase is unnecessary, albeit to use it could not be said to be incorrect. A motion is not to be dismissed on account of superfluous or unnecessary words.”
9. In Niamh Meeley , the notice of motion did not identify that the practitioner was the applicant. In para. 142 of her judgment Baker J. categorised this as ” an error in that it fails to identify that the PIP makes the application.”
10. In the concluding paragraph of her judgment (para. 154), Baker J. noted that it had previously been agreed that any question of substitution or amendment of the notice of motion would await her ruling. She added:-
“I am not satisfied that the procedural incorrectness is such as justifies the striking out of the proceedings without further argument or application.”
11. The parties before me were agreed that subsequent to the decisions in Darren Reilly and Niamh Meeley the applications in both of those cases were subsequently amended without opposition from the objecting creditors. Thereafter, the court, in each case, proceeded to deal with the s. 115A applications on their respective merits. It was therefore unnecessary for the court in those cases, to deal with whether it was legally possible to amend the originating notice of motion in order to comply with the judgments in Darren Reilly and Niamh Meeley .
The arguments of the parties in this case
12. There was a fundamental disagreement between the parties as to the governing rule or other jurisdiction for an application of this kind. It was argued by counsel for the Practitioner, Mr. Declan McGrath SC, that an application of this kind falls within (a) O. 28, r. 12 (RSC); (b) s. 115A(14) of the 2012 Act (as amended); (c) O.28, r.1; or alternatively under the inherent jurisdiction of the court.
13. It should be noted, at this point, that in the notice of motion seeking liberty to make the proposed amendment, a number of bases had been relied upon including O. 63, r. 1(15) and O. 124. In the course of the hearing, no argument was ultimately made in reliance on O. 63, r. 1(15). Some reliance was sought to be placed on O. 124 but, in my view, O. 124 is clearly not capable of being relied upon here. As counsel for Tanager, Mr. Bernard Dunleavy SC, made clear, O. 124 is concerned with noncompliance with the Rules. It is not relevant to a failure to comply with a statutory requirement. It is relevant to the submission made on behalf of Tanager that the provisions of O. 75A were not complied with. However, the issue here is the non-compliance with the provision of s. 115A. The complaint by Tanager that there has been a failure to comply with O. 75A is, in my view, a side-issue which does not require consideration here. Any failure to comply with the Rules can be readily overcome.
14. In contrast to the position taken by the Practitioner, the case made on behalf of Tanager was that the present application is, in substance, an application to substitute a new party – namely an application to substitute the Practitioner for the debtor. In the written submissions delivered on behalf of Tanager, it was argued that the only application which might be capable of curing the error would be an order substituting the Practitioner as applicant in lieu of the debtor.
15. In the submissions made on behalf of Tanager, there was a focus on two rules in particular, namely:
(a) O. 15, r. 2. Under that rule, where an action has been commenced in the name of the wrong person as ” plaintiff ” the court may ” if satisfied that it has been so commenced through a bona fide mistake, and that is necessary for the determination of the real matter in dispute so to do, order any other person to be substituted…as plaintiff upon such terms as may be just “;
(b) O. 15, r. 13. Under that rule, the court is given a power at any stage of the proceedings to order the names of any parties improperly joined to be struck out and to order that the names of any parties who ought to have been joined should be added.
16. In reliance on the decision of Kearns P. in Sa ndy Lane Hotel Ltd. v. Times Newspapers Ltd . [2014] 3 I.R. 369, Tanager submitted that, in circumstances where there was no evidence that a bona fide mistake had been made in naming the debtor as applicant in the originating notice of motion, the only potential order which the court could consider making is one pursuant to O. 15, r. 13. The significance of this argument is that, if Tanager is correct, there would be serious implications for the debtor in terms of compliance with the time limit laid down in s. 115A(2) of the 2012 Act. Under that subsection, an application under s. 115A must be made within 14 days after the creditors’ meeting. There is no power to extend that time limit.
17. The effect of O. 15, r. 13 was explained by Kearns P. in the Sandy Lane case at p. 381. He explained that where the court makes an order pursuant to O. 15, r. 13 the proceedings are then deemed to have commenced only on the date of the making of the order adding the new party. Thus, if O. 15, r. 13 applies in the present case, it would appear to follow that the originating notice of motion (when amended) would only be deemed to have been brought at the time of any order made under that rule. It would be inevitable, in such circumstances, that the application under s.115A could not comply with the fourteen day time limit prescribed by statute.
18. In the submissions on behalf of Tanager, reliance was also placed upon the decision of Hunt J. in the High Court and the decision of Costello J. in the Court of Appeal in Tucon Process Installations Ltd. ( In Voluntary Liquidation) v. Bank of Ireland [2015] IEHC 312 [2016] IECA 211. In that case, proceedings under s. 139 of the Companies Act 1990 and s. 280 of the Companies Act 1963 were brought in the name of a company in voluntary liquidation. The proceedings were dismissed in circumstances where they ought have been commenced in the name of the liquidator who, under those statutory provisions, was the proper party to take such proceedings. Tanager argued that a similar approach should be taken here. However, I am aware that, in Tucon , the liquidator expressly refrained from making any application to amend the application. In fact, Hunt J. in the course of the High Court hearing in that case adjourned the hearing expressly for the purpose of giving the liquidator an opportunity to consider his position and in particular to consider whether he would make an application to amend the originating notice of motion in that case so as to name himself as applicant rather than the company in voluntary liquidation. The liquidator did not avail of that opportunity. Thus, Tucon provides no guidance as to what criteria would have been applied by the High Court (or the Court of Appeal) in the event that such an application had been made by the liquidator.
19. Counsel for Tanager submitted that the issue here is one of standing. The court is not faced with a mere typographical error. Absent an application to amend, counsel argued that the court would be compelled to find that the notice of motion does not comply with the 2012 Act such that the application would have to be struck out. Counsel submitted that the lack of standing is apparent on the face of the originating notice of motion. In these circumstances, counsel argued that the court is entitled to ask itself what is the reason for the failure of the Practitioner to properly formulate the applications. It was submitted that there is no evidence at all before the court that there was a mistake. In fact, counsel argued that the evidence was to the contrary.
20. Counsel for Tanager argued that, at the very least, what the court requires is an explanation. He contrasted the evidence before the court in this case with the affidavit evidence before the court in Cavan Crystal Glass Ltd . [1998] 3 IR 570 (a case on which the Practitioner relies and which is addressed in more detail below).
21. The submissions on behalf of Tanager also sought to distinguish the case law (again addressed in more detail below) on which the Practitioner relied where the court had been prepared to make orders under O. 28, r. 12 or O. 28, r. 1.
22. With regard to the attempt by the Practitioner to rely on the inherent jurisdiction of the court, the case made by Tanager was that the inherent jurisdiction is not available in circumstances where the rules already govern a situation of this kind. In addition, it was argued that it could not have been within the contemplation of the legislature that the inherent jurisdiction of the court be invoked by parties in proceedings under the 2012-2015 Acts. Attention was drawn to the fact that, under the Acts, the vast majority of proceedings are taken in the Circuit Court which (so it was argued) could not be said to have any inherent jurisdiction. It was argued that the legislature could not have contemplated that a different regime would apply in the High Court than in the Circuit Court.
Discussion and analysis
23. I believe that I should commence my consideration of the issues by first addressing the four bases on which the Practitioner has sought to move this application. If I come to the conclusion that the Practitioner is entitled to rely on one or more of these bases, it will be unnecessary to consider the remaining issues that were debated in the course of the hearing before me. I will therefore address, in turn, each of the four bases identified in para. 12 above.
Order 28, rule 12
24. Order 28, rule 12 is, as counsel for the Practitioner observed, in very broad terms. It provides as follows:-
“The Court may at any time, and on such terms as to costs or otherwise as the Court may think just, amend any defect or error in any proceedings, and all necessary amendments shall be made for the purpose of determining the real question or issue raised by or depending on the proceedings.”
25. On the face of it, O. 28, r. 12:-
(a) applies to any defect or error in any proceedings;
(b) permits the court to make any necessary amendments in respect of such an error or defect for the purpose of determining the real question or issue raised by or depending on the proceedings.
26. The provisions of O. 28, r. 12 were applied Kelly J. (as he then was) in Cavan Crystal Glass Ltd. [1998] 3 IR 570. In that case, a petition to appoint an examiner was presented to the court on 27th February, 1998. At that time, the applicable statutory regime was contained in the Companies (Amendment) Act 1990 (“the 1990 Act”). Under s. 3(6) of the 1990 Act, a company had a time period of no more than fourteen days in which to present a petition of that kind after the date of appointment of a receiver. On the day immediately prior to the presentation of the petition, a receiver had been appointed to the company by Ulster Bank Limited. The petition was presented by two directors of the company namely Mr. Neil MacKay and John Maher. Paragraph 4 of the petition stated that these were the only directors of the company. In this context, it is important to note that, under s. 3(1) of the 1990 Act, a petition could be presented by all of the directors of the company or by a shareholder who holds at least 10% of the shares in the company.
27. In the course of the hearing before Kelly J. it emerged that the petitioners were not the only directors of the company. On that basis, it was claimed by the receiver and by the bank that the petition had not been brought at the suit of all of the directors of the company. This objection was upheld by the court. However, an application was made to amend the petition to name Mr. MacKay as the sole petitioner on the basis of his status as a shareholder holding not less than one tenth of the paid up capital. Objection was taken to any amendment of the petition. It was submitted by the banks and the receiver that, even if the court were to amend the petition in the manner sought, it could be of no assistance to the company because any such amendment could not override the statutory provisions contained in s. 3(6) of the 1990 Act. It was also contended that there was no power under the rules which permitted an amendment of the type sought. In response, Mr. MacKay sought to rely on O. 15, r. 2, O. 28, r. 1 and O. 28, r. 12. He also placed reliance upon the provisions of s. 3(7) of the 1990 Act. I deal with the provisions of s. 3(7) below. Section 3(7) is relevant to one of the alternative bases on which the present application is moved namely s 115A(14)..
28. Kelly J. decided the application under O. 28, r. 12 and s. 3(7) of the 1990 Act. At pp. 581-582 he said:-
“Whatever may be the merits of the arguments of… the bank as to the inapplicability of O. 15, r. 2 and O. 28, r. 1…, I am quite satisfied that the petitioners are entitled to rely both upon the provisions of O. 28, r. 12 and s. 3(7) … There is no evidence to controvert the assertion made by Mr. MacKay to the effect that the failure to present this petition as a shareholder holding in excess of 10% of the capital of the Company was a bona fide one. It is clear that this petition had to be prepared and presented as a matter of considerable urgency. I accept that the error made was a genuine one. In such circumstances it would be strange indeed if the court did not have the power to put right such an error. I am of the view that it does have such power under the provisions of O. 28, r. 12 and under s. 3(7)…
Needless to say, the court must always be astute to ensure that its process is not abused. This is particularly so in petitions presented under the Act. The mere presentation of a petition… provides statutory protection to the company… Given that such protection brings about a drastic abridgement to the rights of creditors, the court must make certain that this procedure is not abused… Great care should therefore be given to the presentation of petitions under the Act. In the present case, however, I am satisfied that a genuine mistake was made and I therefore propose to allow the amendment sought.
This amendment does not involve the substitution of new petitioners for the existing one. It involves the striking out of Mr. Maher as petitioner and an alteration of the status in which Mr. MacKay petitions the court. It must be borne in mind that Mr. MacKay would have been entitled to petition as a shareholder of in excess of 10% of the share capital of the company at all times. By allowing the amendment I am merely changing the description which is applicable to him as petitioner.”
29. In the course of his submission, Mr. Dunleavy on behalf of Tanager, argued that the decision in Cavan Crystal is of no assistance to the Practitioner here for two reasons:-
(a) In the first place, there was evidence of a bona fide mistake in that case which was fully explained in the evidence before Kelly J. Counsel submitted that there was no evidence of any such mistake here and, furthermore no sufficient explanation for the error has been provided;
(b) secondly, counsel placed significant emphasis upon the observation by Kelly J. in Cavan Crystal at p. 582 that the amendment sought there did not involve the substitution of a new petitioner for the existing one. The same party continued as petitioner, the only amendment was to delete the name of one petitioner, delete the reference to directors, and insert a new description of Mr. MacKay as a shareholder. Counsel submitted that, in contrast, in the present case, the application, of necessity, involves the substitution of one party for another namely the substitution of the Practitioner for the debtor. It was argued that the only way in which such an application could be moved is under O. 15.
30. For his part, Mr. McGrath, on behalf of the Practitioner, argued that, in contrast to O. 15, r. 2 (which is predicated upon a bona fide mistake having been made) O. 28, r. 12 contains no equivalent requirement. All that has to be established is a defect or error. He argued that there was clearly an error here insofar as the notice of motion records the debtor as the applicant. Mr. McGrath stressed that this is how it had been characterised by Baker J. in Niamh Meeley at para. 142 where she said:-
“In the case of …Mr. and Mrs. Meeley, the motion was signed by the PIP although the operative part of the motion did not identify the PIP as being the applicant. The PIP did have a substantial input into the motion, and did give the necessary certifications . The motion contains an error in that it fails to identify that the PIP makes the application.” (emphasis added).
31. Mr. McGrath also argued that this ” error ” arose against a backdrop where, prior to the decisions of Baker J. in Darren Reilly and Niamh Meeley , there was significant uncertainty among practitioners and lawyers as to who should be named as applicant in originating motions brought pursuant to s. 115A and O. 75A.
32. Counsel stressed that, as a matter of fact, the application here, although naming the debtor as applicant, was made by the Practitioner. The debtor had no hand, act or part in the preparation of the application. There was therefore a clear parallel between the present case and the situation which confronted the court in the Cavan Crystal case.
33. While Kelly J. in Cavan Crystal placed some emphasis on the explanation that was provided in that case, counsel argued that there was nothing in O. 28, r. 12 which required an explanation to be given and that, in any event, the uncertainty described above provided an explanation. At this point, it should be noted that counsel for Tanager rejected the suggestion that there was any uncertainty and he drew attention to the way in which Baker J. had referred, in para. 134 of her judgment in Niamh Meeley , to a variety of formulae which had been current prior to her decision in Darren Reilly .
34. I have given careful consideration to the arguments on both sides in this case. I have also carefully considered the evidence and the terms of the originating notice of motion.
35. In my view, the terms of the originating notice of motion are important. Although the motion recites that the application is to be made by solicitors/counsel on behalf of the debtor, there are a number of other features of the motion which make it very clear that the Practitioner was the party who was actually involved not only in the manner of its preparation and presentation but also in a substantive way. These include:-
(a) The motion is signed not by the debtor but by Mr. Green, the Practitioner.
(b) The motion is accompanied by the written instruction of the debtor dated September 2017 which concludes as follows in language which clearly indicates that the debtor was instructing the practitioner to make the application :-
“Having considered the information and advice you have given me, please accept this letter as my formal instruction to you to commence the process of appealing my vetoed PIA to the relevant Court on my behalf.”
(c) The notice of motion is itself addressed not only to the Insolvency Service and the creditors but also to the debtor himself. This would make no sense if, in substance, the debtor was the moving party.
(d) Paragraph 7 of the notice of motion sets out that the Practitioner considers that there are reasonable grounds for the making of the application and he sets out each of these grounds. References to the debtor throughout this paragraph are all in the third person.
(e) Consistent with sub-para (b) above, paragraph 9 of the notice of motion expressly states that:-
“the debtor has instructed me in writing to make this application on their (sic)behalf, a copy of which instruction is appended to this notice of motion”;
(f) paragraph 10 of the notice of motion states that, submitted with the application is ” my report ” (i.e. the report of the Practitioner) under s. 107(1)(d).
(g) Paragraph 12 of the notice of motion sets out the opinion of the Practitioner (it opens it with the words ” I am of the opinion that …”) that the debtor satisfies the eligibility criteria for the proposal of a PIA specified in s. 91 of the 2012 Act, the proposed PIA complies with the mandatory requirements set out in s. 99(2) and the proposed PIA does not contain any terms that would release the debtor from an excluded debt or an excludable debt (other than a permitted debt).
36. Thus, although the opening words of the notice of motion refer to the debtor as applicant, the substance of the motion very clearly proceeds on the basis that the Practitioner is fully participating in the motion and is, in effect, dominus litis. In substance and in fact, each of the matters that are required to be dealt with under s. 115A and under O. 76A, r. 21A were appropriately addressed in the originating notice of motion. Thus, for example:-
(a) The notice of motion appended the instruction given by the debtor to the Practitioner to make the application as required by s. 115A(1) and r. 21A(1)(d).
(b) It also contained a statement of the grounds of the application as required by s. 115A (2)(a) and r. 21A(1)(b).
(c) Paragraph 6 of the notice of motion identified three classes of creditors ” defined ” by the Practitioner for the purposes of demonstrating that a number of classes of creditors voted in favour of the proposal. While the word ” defined ” was used rather than the precise language of s. 115A(2)(a)(ii), it seems to me that, in substance, para. 6 complied with the requirements of that provision and with r. 21A(1).
(d) Furthermore, as noted above, para. 7 expressly set out what the Practitioner considered were the reasonable grounds for making the application. This complied with the obligation contained in s. 115A(2)(a) and with the specific requirements of Form No. 58 prescribed by r. 21A(1).
(e) Paragraph 10 of the notice of motion appended the Practitioner’s report which is described in the notice of motion as ” my report “. This complied with the requirements of s. 107(1)(d) of the 2012 Act which requires that such a report should be prepared by the Practitioner;
(f) paragraph 11 of the notice of motion noted that the certificate of the Practitioner as to the result of the vote taken at the creditors meeting accompanied the application. This complied with the requirements of s. 115A(2)(d) and r. 21A(1)(e);
(g) as noted above, para. 12 of the notice of motion stated the opinion of the Practitioner that certain provisions of the 2012 Act had been complied with. This complied with the requirements set out in s. 115A(1)(e) of the 2012 Act and r. 21A(c).
37. In my view, the material identified in paras. 35-36 above is very relevant in the context of the language of O. 28, r. 12 which empowers the court to make all necessary amendments ” for the purpose of determining the real question or issue raised by or depending on the proceedings “. When one considers that the motion here addresses all of the proofs that a practitioner must place before the court for the purposes of an application under s. 115A, it can readily be seen that the real question or issue raised by the originating notice of motion is whether, on the basis of the material placed before the court by the practitioner, the s. 115A application should either be granted or refused on the merits. All the necessary proofs for that purpose are before the court (albeit that those proofs have yet to be assessed by the court). There is, however, a defect in the application in that the wrong party has been named as applicant in the opening words of the notice of motion even though the notice is signed not by that person (namely the debtor) but by the practitioner. In this context, I must bear in mind that O. 28, r. 12 expressly envisages that defects in proceedings can be cured under that rule. By its own terms, the rule is not confined to mistakes per se.
38. It has been suggested by Tanager in this case that, there was an obligation on the Practitioner to explain why the debtor was originally named as applicant. It was also suggested that, it is clear from the affidavit sworn by the Practitioner in support of the originating notice of motion that the decision to name the debtor was deliberate and that it did not arise out of any slip or error. In this context, reliance was placed on the averment made by the Practitioner in para. 5 of his affidavit grounding the s. 115A application sworn on 17th February, 2017, where he said:-
“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. Indeed, in that regard, I owe my duties to this Honourable Court, the creditors and the Debtor . I say and believe that it is prescribed under the Acts that I instigate the herein appeal on behalf of the Debtor however it should be noted that I am not a party to these proceedings and as such, for the most part, this Affidavit is sworn to be of assistance to this Honourable Court.” (emphasis added).
39. In my view, this averment on the Practitioner is very plainly based on a misconception as to the true legal position. However, at the time this averment was made, the Practitioner did not have the benefit of the judgments of Baker J. in Darren Reilly and Niamh Meeley and he was setting out the position as he considered it to be. Nonetheless, in substance, what he said in para. 5 of his affidavit is not entirely mistaken in that the Practitioner acknowledges in that paragraph that it was he rather than the debtor who instigated the s. 115A application. Furthermore, as noted above, when one considers the application as set out in the originating notice of motion, it is clear that it contains all of the elements that an application under s. 115A should address.
40. In his subsequent affidavit sworn on 2nd July, 2018 in support of the application to amend the originating notice of motion, the practitioner further explained the position. In that affidavit he drew attention to the work which had been undertaken by him while acting as practitioner in this case. It is quite clear that all of the steps which the practitioner is required to take under the 2012-2015 Acts were undertaken by him and not by the debtor. He also confirms, in para. 21 of his affidavit, that he had been instructed by the debtor in writing to make the application under s. 115A. In para. 22 of this affidavit, he says that it was he who formulated the notice of motion, drafted the statement of grounds, defined the class of creditor, issued the voting certificate and (as noted above) signed the notice of motion. He also confirms in the same paragraph that it was he who arranged for the originating notice of motion to be issued.
41. In para. 23 of his affidavit he says:-
” I say that the Debtor had no hand, act or part in the making, lodgement or issuance of the…application, (once they provided me with a written instruction to do so on their behalf). I say that it is therefore clear, as it is clear since the date in 2016 when I was appointed on behalf of the Debtor that I have taken all steps in the Personal Insolvency process, (from issuance of the PC and the issuance of the PIA proposal), and that I have made… the application on behalf of the Debtor.”
42. In para. 25 of his affidavit, the practitioner provides the following explanation for the fact that the debtor was named as applicant on the first page of the originating notice of motion:-
“I say that in the issuance of the Notice of Motion, and in light of the Legal Aid Scheme, I sought to make it clear on the face of the Notice of Motion that solicitor/counsel would appear in court to argue the case. I say that I am an Insolvency Practitioner and I do not have the skills, training or qualifications to personally run or argue a legal case (against solicitor and counsel (and often senior counsel) for the creditor and hence the wording of the motion.”
43. The practitioner exhibits the terms of the relevant Legal Aid Scheme (known as ” the Abhaile Scheme “) issued by the Legal Aid Board on 10 May, 2016. It is clear from the terms of that scheme that it is the debtor to whom the legal aid is advanced to bring an application under s. 115A. Page 3 of the Scheme document says:-
“the following are the criteria for the…PIA Review Legal Aid Service… element of the Scheme:
• The person is insolvent…, and
• The person has made a proposal for a… PIA which has not been approved by their creditor (s)
• The debts that would be covered by the proposed [PIA] include a debt secured on the person’s principal private residence…and
• The person’s Personal Insolvency Practitioner considers that there are reasonable grounds for the making of an application to the Circuit Court or High Court (as appropriate) for an application under s. 115A…”
44. It is quite clear from the terms of the Abhaile Scheme that it is the debtor who is legally aided rather than the practitioner. While this is not expressly stated in the affidavits sworn by the Practitioner on 2nd July, 2018, it would be understandable, in light of the terms of the Abhaile Scheme that it might have been thought necessary to name the debtor as applicant in circumstances where it is the debtor who is legally aided.
45. Whether or not the Abhaile Scheme was the reason why the debtor was named as applicant on p. 1 of the originating notice of motion here, I am of the view that there was a ” defect or error ” within the meaning of O. 28, r. 12 in the originating notice of motion in this case insofar as the debtor was named as applicant on p. 1 of the notice. I am also of the view that it is understandable that this error occurred in circumstances where the practitioner was not legally qualified. It was he who signed the notice of motion rather than any solicitor. While Form 58 (prescribed by O. 76A, r. 21A) envisaged that the practitioner would be named as applicant, a non-legally qualified person (such as the practitioner here) would not necessarily understand the significance of the need to comply with the requirements of the rule. Likewise, a non-legally qualified person would not have the expertise to comprehensively understand all of the facets of the 2012 Act (as amended). Furthermore, the very fact that, prior to the decisions in Darren Reilly and Niamh Meeley there were a variety of approaches in use (in relation to the naming of applicants), shows that there was significant uncertainty among practitioners as to how the motions should be formulated. It appears from para. 134 of the judgment in Niamh Meeley that the terms of the Abhaile Scheme formed at least part of the explanation for the approach which had been taken in some of these motions.
46. I also understand that the hearings in both Darren Reilly and Niamh Meeley before Baker J. were extensive in nature and involved not only submissions from a number of participants in the insolvency process but also submissions from counsel retained on behalf of the Insolvency Service of Ireland (ISI). This illustrates the extent to which there were clearly arguments which could be made both for and against the proposition that the debtor could properly be named as applicant.
47. Against that background, I accept the explanation that is given by the practitioner in this case in para. 25 of his affidavit sworn on 2nd July, 2018. I can well understand why, in the circumstances described above, an insolvency practitioner would not have appreciated that it was essential that the practitioner should be named as applicant rather than the debtor.
48. In this context, I am conscious that counsel for the practitioner has urged that, in an application under O. 28, r. 12, there is no requirement that an explanation should be provided to the court in respect of the defect or error in issue. However, while there is no such express requirement contained in O. 28, r. 12 it seems to me that, in any application of this kind, the court is exercising a discretion. In order to persuade a court to exercise its discretion in favour of the applicant, it seems to me that affidavit evidence explaining how the error or defect arose is something that the court would almost invariably require.
49. There are two aspects to O. 28, r. 12. The first is that there is a defect or error in the proceedings. The second is that the defect or error has in some way prevented the real question or issue raised by the proceedings being determined. In my view, both of those aspects are present here. In the first place, there is an obvious defect or error in the originating notice of motion. Secondly, the real question raised by the originating notice of motion is apparent on the face of the motion. As discussed above, the notice of motion deals with everything that one would expect a practitioner to address in an application properly brought under s. 115A. The only ” fly in the ointment ” is that the name of the debtor is given as the applicant in the opening paragraph of the notice of motion. This seems to me to be an obvious error or defect and one which it is entirely appropriate to cure in order to permit the real question at issue to be determined on the merits.
50. In my view, the correction of this defect or error in the notice of motion is not, in substance, the substitution of a new party. On the contrary, it is clear from the terms of the originating notice of motion that the practitioner is, in truth, a party to the motion. He has signed the motion. He has provided all of the detail contained in the motion. Moreover, there is a written instruction from the debtor to the practitioner to make the application.
51. In all of these circumstances, I am of opinion that O. 28, r. 12 gives power to the court to make an order amending a motion by adding the words ” acting for James Green, Personal Insolvency Practitioner of McCambridge Duffy ” after the words ” solicitor/counsel ” in line 2 of the notice of motion such that it will now read:-
“TAKE NOTICE that on the 13th day of February 2017 at 11.30 in the forenoon or the first available opportunity thereafter, solicitor/counsel acting on behalf of James Green, Personal Insolvency Practitioner of McCambridge Duffy on behalf of the Debtor, will apply to this Honourable Court sitting at the Four Court Inns Quay Dublin 7 for the following Order or Orders…”
The remaining grounds on which the Practitioner relied
52. In light of the view which I have expressed above, it is strictly unnecessary to deal with the remaining grounds on which the practitioner sought to rely. Nonetheless lest I am wrong in the conclusion which I have reached above and in deference to the arguments which were addressed to me in the course of the hearing on 19th November, 2018, I now briefly consider the remaining grounds on which counsel for the practitioner sought to rely.
Section 115A(14)
53. As noted above, in the course of the hearing, counsel for the practitioner drew attention to the striking parallel between the language of s. 115A(14) of the 2012 Act (as amended) and the language contained in s.3(7) of the Companies (Amendment) Act, 1990 on which Kelly J. relied in the Cavan Crystal case. In the case of s. 3(7), it gave the court the power, on the hearing of a petition under s. 3 of the 1990 Act, to: ” dismiss it, or adjourn the hearing, … or make any interim order, or any other order as it thinks fit “. Under s.115A(14) the court is given power to make such order as it deems appropriate on an application under s.115A. While the language is not identical to s.3(7) of the 1990 Act, it is very clearly to the same effect. Given the approach taken by Kelly J. in the Cavan Crystal case, it seems to me that s.115A(14) provides an alternative basis on which the order directed in para. 51 above could be made. Taking into account all of the factors discussed in paras. 38 to 50 above, it seems to me that it is entirely appropriate (to use the language of s.115A(14)) to make that order. In those circumstances, I believe that s.115A(14) provides an additional basis on which to make the order sought.
Order 28 Rule 1
54. Order 28 r.1 provides as follows:
“The Court may, at any stage of the proceedings, allow either party to alter or amend his indorsement or pleadings in such manner and on such terms as may be just, and all such amendments shall be made as may be necessary for the purpose of determining the real questions in controversy between the parties.”
55. It was argued by Tanager at the hearing that O.28 r.1 has no application in circumstances where the document containing the error is a notice of motion. However, this ignores the non-exhaustive definition given to “pleading” in O.125 r.1 as including an ” originating summons, a statement of claim, defence, counter-claim, reply, petition or answer “. It seems to me that a notice of motion under O.76A r.21A is very clearly a “pleading” within the meaning of O.28.1. Rule 21A clearly requires that very specific particulars should be given including the grounds for the making of the application. It is not simply a notice of motion that seeks relief. It is a notice of motion which seeks relief based on grounds which are stated in the body of the notice. This seems to me to be in the same genus as an originating summons or a statement of claim or a counter-claim. It therefore seems to me to fall within the ambit of a “pleading”.
56. The relevant principles applicable to applications under O.28 r.1 have been considered in a number of cases all of which show that the court takes a generous approach which is designed to ensure that the real issues in controversy are determined. Generally, an amendment will be allowed unless to do so would cause injustice (as explained further below) to the opposing party. Thus, for example, in Croke v. Waterford Crystal Ltd [2005] 2 IR 383 at p.401, Geoghegan J. described the basic purpose of O.28 r.1 as a “liberal rule”.
57. Similarly, in DPP v. Corbett [1992] ILRM 674 at p. 678 Lynch J. said, with reference to a similar power of amendment in the District Court Rules:
“‘The day is long past when justice could be defeated by mere technicalities which did not materially prejudice the other party. While courts have a discretion as to amendment that discretion must be exercised judicially and where an amendment can be made without prejudice to the other party and thus enable the real issues to be tried the amendment should be made. If there might be prejudice which could be overcome by an adjournment, then the amendment should be made and an adjournment also granted to overcome the possible prejudice and if the amendment might put the other party to extra expense that can be regulated by a suitable order as to costs or by the imposition of a condition that the amending party shall indemnify the other party against such expenses.’
58. A useful illustration of the approach taken under O.28 r.1 is to be found in the decision of the Supreme Court in Aer Rianta International v. Walsh Western International [1997] 2 ILRM 45. In that case, an application was made for leave to amend a defence in proceedings relating to the carriage of goods. The plaintiff had sued the defendant in relation to a loss sustained by it as a consequence of the theft of its goods from a warehouse after they had been entrusted to the defendant. In the original defence delivered in 1995 the defendant had expressly acknowledged the contractual relationship between the parties. However, subsequently, in September 1996 an application was brought under O.28 r.1 seeking liberty to amend the defence to replace the admission of a contractual relationship with an express denial of the existence of such a relationship and with the addition of a new plea that contended that any contractual relationship that may have existed was not with the defendant but with a Dutch company. The amendment, if allowed, had potentially very serious consequences for the claim of the plaintiff in circumstances where the claim against the Dutch company might well have been barred by the time limitation provisions of the CMR. Nonetheless, the Supreme Court permitted the amendments notwithstanding that fact and also notwithstanding that the amendment was likely to lead to a postponement of the trial.
59. In the course of his judgment in that case, Murphy J. adopted the following statement of principle applicable to O.28 r.1 contained in the judgment of Bowen LJ. in Crooper v. Smith (1884) 26 Ch D 700 at pp 710-711 where the latter said:
“…it is a well-established principle that the object of Courts is to decide the rights of the parties, and not to punish them for mistakes they make in the conduct of their cases by deciding otherwise than in accordance with their rights. …I know of no kind of error or mistake which, if not fraudulent or intended to overreach, the Court ought not to correct, if it can be done without injustice to the other party. Courts do not exist for the sake of discipline, but for the sake of deciding maters in controversy, and I do not regard such amendment as a matter of favour or of grace…it seems to me that as soon as it appears that the way in which a party has framed his case will not lead to a decision on the real matter in controversy, it is as much a matter of right on his part to have it corrected, if it can be done without injustice, as anything else in the case is a matter of right.”
60. In my view, those words ” as soon as it appears that the way in which a party has framed his case will not lead to a decision on the real matter in controversy ” are particularly apposite here. It is clear from the terms of the originating notice of motion (taken as a whole) and from the affidavit evidence before the court that the party who framed the notice of motion in this case and settled every facet of it was the practitioner and not the debtor.
61. Furthermore, it appears to me to be clear that the amendment sought will not cause injustice in the sense understood in the case law. In this context, Murphy J. in the Aer Rianta case explained the type of injustice that would have to arise to persuade a court not to grant an amendment of this kind. At p. 51 he expressly adopted what was said by Lord Keith of Kinkel in Kettelman v. Hansel Properties Ltd [1987] AC 189 at p. 203:
“The sort of injury which is here in contemplation is something which places the other party in a worse position from the point of view of presentation of his case than he would have been in if his opponent had pleaded the subject-matter of the proposed amendment at the proper time. If he would suffer no prejudice from that point of view, then an award of costs is sufficient to prevent him from suffering injury and the amendment should be allowed.
It is not a relevant type of prejudice that allowance of the amendment will or may deprive him of a success which he would achieve if the amendment were not to be allowed” (emphasis added by Murphy J).
62. No prejudice in relation to case presentation has been alleged by Tanager here. In this context, I agree with counsel for the Practitioner that ” presentation ” in this context embraces issues such as the non-availability of documents or the non-availability of a witness. If a witness relevant to a proposed amendment had died in the intervening period between the date of delivery of the original pleading and the date of the proposed amendment, that would be a classic example of presentation prejudice. Likewise, if a party had, in reliance on the nature of the existing claim, destroyed documents which, although relevant to the proposed amended claim (but not to the claim as originally formulated), are no longer available at the time an application is made to amend, that might constitute presentation prejudice of the kind which Murphy J. had in mind. No such prejudice has been asserted here.
63. In all of the circumstances outlined in paras 54 to 62 above, it seems to me that the order proposed in para. 51 above can also quite properly be made under O.28 r.1.
The inherent jurisdiction of the court
64. It was also suggested that the amendment might be allowed under the inherent jurisdiction of the court. This was not pressed very strongly at the hearing before me. In my view, it is questionable whether it could be said that there is any basis on which to exercise any inherent jurisdiction of the court in circumstances where there is already ample provision made in the Rules prescribing the circumstances in which amendments may be allowed by the court. In Lopes v. Minister for Justice and Equality [2014] 2 IR 301 the Supreme Court made it clear that the inherent jurisdiction of the court cannot be used as a means of getting around legitimate provisions of procedural law. In Lopes , Clarke J. (as he then was) said at pp. 307-308:
“It is important to emphasise that the inherent jurisdiction of the court should not be used as a substitute for, or means of getting round, legitimate provisions of procedural law. That constitutionally established courts have an inherent jurisdiction cannot be disputed. That the way in which the ordinary jurisdiction of those courts is to be exercised is by means of established procedural law including the rules of the relevant court is also clear. The purpose of any asserted inherent jurisdiction must, therefore, necessarily, involve a situation where the court enjoys that inherent jurisdiction to supplement procedural law in cases not covered, or adequately covered, by procedural law itself. An inherent jurisdiction should not be invoked where there is a satisfactory and existing regime available for dealing with the issue under procedural law, for to do so would set procedural law at nought.”
65. In light of the observations of Clarke J. in Lopes , and in light of the fact that I have come to the view that O.28 r.12 and O.28 r.1 and also s. 115A(14) permit the proposed amendment, I do not believe that it would be appropriate to consider whether there might also exist an inherent jurisdiction to do so. In my view, the ability of the court to permit the amendment is already adequately covered under the rules and the statutory provisions and therefore it is unnecessary (and most probably inappropriate) for the court to consider whether the parallel jurisdiction exists under the inherent jurisdiction of the court.
Conclusion
66. In light of the views which I have reached in relation to O.28 and in relation to s.115A(14) I do not believe that it is necessary to consider O.15.
67. For all the reasons discussed above, it seems to me that the amendment proposed in this case should be allowed. I propose to make an order in the terms of para. 51 above. I make that order under O.28 r.1, O.28 r.12 and s. 115A(14) of the 2012 Act (as amended).
68. I will hear the parties as to whether any consequential orders are required.
69. I have not dealt here with the identical application which is made in the interlocking proceedings involving the debtor’s spouse. However, given that the circumstances are identical in both cases, it must follow that a similar order should be made in her case also.
Re Dunne
[2017] IEHC 59
JUDGMENT of Ms. Justice Baker delivered on the 6th day of February, 2017.
1. Mitchell O’Brien, the personal insolvency practitioner (“PIP”) appointed to act as an independent intermediary in the process, made a proposal for a Personal Insolvency Arrangement (“PIA”) under the Personal Insolvency Acts 2012 to 2015 (“the Acts”) pursuant to his statutory function. Permanent TSB Plc (“PTSB”), a lender which holds security on the principal private residence of the debtor, voted against the PIA at the statutory meeting of creditors held on 5th February, 2016. The regular unsecured class of creditors supported the PIA.
2. An application to the Circuit Court under s.115A of the Acts was lodged by the PIP on 6th February, 2016. This judgment is given in an appeal from the order of Her Honour Judge Mary Enright in the Circuit Court made on 19th October, 2016 by which the application of the debtor was refused and the objection of PTSB upheld.
3. The PIA of the interlocking debtor, Ms Cathy Dunne, was also rejected at the meeting of creditors and her application under s. 115A was also refused by the Circuit Court. Her appeal, record no. C:IS:SEWD:2015:001544, was listed to be determined by me in conjunction with the present application, and as the legal and factual issues are materially identical, this judgment is intended to dispose of both appeals.
4. Section 115A was inserted by s. 21 of the Personal Insolvency (Amendment) Act 2015 and gives the relevant court power to make an order confirming the coming into effect of a proposed PIA notwithstanding its rejection at a meeting of creditors, when it is satisfied that the jurisdictional tests set out in s. 115A(9) and (10) have been met, and there is a reasonable prospect that the PIA will enable the debtor not to dispose of an interest in or cease to occupy all or part of his or her principal private residence. The Acts have been considered by me in my judgment in Hill and Personal Insolvency Acts [2017] IEHC 18.
5. The relevant considerations which bear on the present appeal may be stated as involving two questions: whether the PIA does, as is contended by PTSB, unfairly prejudice its interests; and whether the means of the debtor have been appropriately brought to bear on the proposals for repayment of the secured debt as envisaged by the Acts.
6. PTSB calls in aid three of the statutory criteria identified as bearing on the jurisdiction of the Court under s. 115A(9) as follows.
7. First, it argues that the proposed PIA does not satisfy the requirement in s. 115A(9)(b)(ii) in that it does not:
“enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit”.
8. Second, it argues that the proposed PIA is not in compliance with s. 115A(9)(e) in that it is not:
“… 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.”
9. Third, it argues that the proposed PIA does not meet the requirement in s. 115A(9)(f) that it be:
“… not unfairly prejudicial to the interests of any interested party.”
10. It is accepted that the debts that are proposed to be dealt with by the PIA include “relevant debt” within the meaning of s. 115A(18) of the Acts.
The relevant provisions of the PIA: the split mortgage.
11. The PIA proposes the retention by the debtor and his wife of their principal private residence and the restructuring of the loan secured on that premises. Briefly the financial arrangement proposed is as follows.
12. The principal private residence of Mr. Dunne and his wife is secured for the repayment of a debt of €384,381.26 (rounded up to €385,000 for certain calculations). Prior to the creditors’ meeting, and following an engagement between the debtor and his spouse with PTSB, an agreement was reached as evidenced in a letter dated 7th January, 2015 by which the mortgage debt was to be “split” into two accounts, one account described as the “Main Mortgage Account”, and a second account, the “Warehouse Account”. The agreement to split the mortgage by warehousing the balance of the debt required the mortgagors to pay full capital and interest on the main mortgage account, and provided that they did not have any obligation to pay the warehoused balance until the end of the mortgage term unless their repayment capacity improved, and subject to review.
13. The warehoused amount was agreed to bear interest at 0%, and it was agreed that at the end of the remaining term of the main mortgage, agreed to be 348 months (29 years) options would be explored regarding the repayment of the warehoused amount, whether by way of refinancing, making a lump sum payment or sale. The letter of 7th January, 2015 from PTSB indicated that when consideration came to be had in regard to the warehoused amount that it would “endeavour to work closely” with the debtors and take into account their financial circumstances at the relevant time.
14. Both the main mortgage and the warehoused mortgage were to remain secured against the principal private residence of the debtor and his wife.
15. PTSB reserved onto itself a right to “review” the financial situation of the mortgagors during the currency of the main mortgage, and they were required to advise if their repayment capacity “materially changed”, whether by the improvement or disimprovement of their financial circumstances. It was expressly said that if the repayment capacity of the mortgagors should improve, that on review PTSB could transfer funds from the warehoused account to the main mortgage account. It is a proposed limitation on this capacity to review that forms the basis of the approach of the PIP and the rejection by PTSB of the PIA.
16. The principal private residence of the debtor and his wife has an agreed market value of €230,000, calculated in accordance with the provisions of s. 105 of the Acts. The main mortgage debt is €141,000, and the warehoused element is €244,000. The proposed monthly repayment on the main account is €527.31.
17. The mortgage restructure which provided for a split mortgage was agreed between the debtors and PTSB before the personal insolvency process started and evolved from engagement under MARP. The debtors however found that the agreed repayment schedule had left them unable to service their unsecured debt, and pressure from their unsecured creditors led to engagement with the Insolvency Service of Ireland (“ISI”). A protective certificate issued on 30th November, 2015 under s. 95(2)(a) of the Acts. During the currency of the protective certificate PTSB made a submission under s. 98(1) and proposed that the split mortgage arrangement would form part of any PIA to be put to creditors. Accordingly, the split mortgage proposal was included in Part IV, Clause 2 of the standard form for a PIA under the heading “Treatment of Secured Debt”.
The proposed term to govern the review
18. The statutory function of a PIP involves a consideration of the financial sustainability of a PIA. It is accepted by both parties that a debtor may seek the benefit of the Acts and achieve a resolution of debt by means of a PIA once only in a lifetime. The PIP has proposed the restriction on review of the warehoused element of the split mortgage, as he avers on affidavit that he is fearful that a review may lead to revised repayment terms that the debtors could not meet.
19. In that circumstance the PIP proposed the inclusion in the review provisions in the split mortgage agreement with PTSB a term which was the main focus of the objection by PTSB to the application before the Circuit Court and before me on appeal.
20. That term reads as follows:
“Any review of the debtor’s income and expenditure by PTSB that may occur after six years from the coming into force of this PIA to assess the debtor’s capacity to address some or all of the warehoused element of their PPR mortgage will respect the debtor’s RLEs as per the then current ISI RLE Guidelines, and will not result in any amount of the warehoused amount becoming serviceable by the debtors unless their income is >10% in excess of the ISI RLEs at that point in time.”
21. The reference to the ISI RLE guidelines is to the guidelines in respect of reasonable living expenses published by the ISI under s. 23 of the Acts.
22. The PIP states his view that only if such a term is included in the PIA will he be able to certify that the terms of the PIA are sustainable and will achieve a return to solvency and the continuing solvency of the debtor. In his affidavit at para. 15 he states the following:
“The term included and detailed above, means, in simple terms, that when an inevitable review of the warehoused portion of the Debtor’s mortgage takes place (post PIA) that the Objector could not force the Debtor to live on less than RLE plus 10 % and/or create a situation where the Objector could choose a reviewed monthly amount that would be unsustainable and/or indeed be unaffordable, which will create a situation where the mortgage would be deemed unsustainable by the Objector and thus create an act of default”.
23. PTSB objects to the inclusion of the proposed term, and argues that it unjustly and unfairly prejudices its position, and is disproportionate.
24. The Acts envisage some reasonable balance between the parties and in that context the PIP, at para. 18 of his affidavit, explains that he included the term to deal with reviews,
“so that I could stand over the sustainability of the mortgage and the Debtor’s continuing solvency post completion [of the PIA]”.
25. The debtor himself in correspondence with the PIP has also referred to his desire that the PIA would ensure the “continued occupation” by himself and his family of their home.
26. The PIP argues that were a review of the warehoused mortgage to take place on the completion of the PIA, and were the review not to be predicated on a restriction of the type suggested, that there is no present certainty that the debtor and his family could continue to occupy their principal private residence.
The arguments of the secured creditor
27. PTSB argues that the PIP in seeking to achieve the continuing solvency of a debtor after the completion of a PIA has misunderstood his statutory role. It argues that while the return to solvency is a goal recognised in the legislation there is nothing in the scheme of the Acts which requires that a PIA would ensure the continuing solvency of a debtor, or ensure the continued occupation of a principal private residence by a debtor for the balance of the mortgage term, and outside the term of the PIA, including in cases such as the present case, the ability of the debtor to perform any obligations that might from an agreement for a split mortgage.
28. PTSB also argues that the proposed term is uncertain, would involve the court engaging impermissibly in matters of policy, and is inappropriate, inequitable and not necessary to achieve the purpose of the Acts.
29. Following an exchange of correspondence PTSB engaged with the PIP with a view to reaching a compromise on a relevant protective condition and proposed the following formula:
“Terms and conditions of restructure currently in place are to continue to apply to the debtor’s PPR mortgage. Permanent TSB to commit to writing down the warehouse to 30% of the value of the property on expiry of the mortgage term, i.e. PTSB will perform a valuation on expiry of the mortgage term and the warehouse will be written down to 30% of that value.”
30. PTSB presents this proposition to the court by way of illustration of the reasonableness and proportionality of its approach.
31. This varied term was not acceptable to the debtor.
The approval of a PIA by the court
32. Section 112 provides that, following the approval of a proposal for a PIA, at a meeting of creditors called for that purpose, the PIP shall notify the ISI, and each creditor concerned, of the result of the vote taken at the meeting. Section 113 provides that the ISI shall notify the appropriate court and furnish to that court a copy of the notification and document received from the PIP. Provision is made for the making of an objection to the coming into effect of the PIA and for the hearing of an objection.
33. Section 115 provides that when no objection is lodged by a creditor, or any objection lodged is determined by the court as not being allowed, the court shall proceed to consider in accordance with that section whether to approve the coming into effect of the PIA.
34. It is accepted by both parties that the court has no power to amend a PIA.
35. A PIA comes into effect only after it has been registered on the Register of Personal Insolvency Arrangements following the approval by the court of the arrangement under s. 115.
36. The effect of the approval by the Court of a PIA is that all creditors, including a secured creditor, will be bound by the arrangement.
37. The maximum duration of a PIA under the Acts is 72 months (6 years), but s. 99(2)(b) provides for extension for a further period of not more than 12 months in circumstances that may be specified in the terms of a PIA. On the completion of the performance by the debtor of his or her obligations contained in a PIA the debtor shall stand discharged from secured and unsecured debts covered by a PIA except to the extent provided for under its terms.
38. A debtor is not eligible to make a proposal for a PIA unless there is “a reasonable prospect that the debtor entering into such arrangement would facilitate the debtor becoming solvent within a period of not more than five years”, s. 54(d). The PIP is required to complete a statement confirming that this mandatory requirement is met in respect of the debtor.
Return to solvency
39. Both parties accept that an overriding objective of the legislation is to give an insolvent debtor a breathing space in which proposals may be formulated and by which he or she may return to solvency. The debtor points to the Long Title of the Act of 2012 which identifies one objective of the Acts as being “to enable insolvent debtors to resolve their indebtedness…in an orderly and rational manner without recourse to bankruptcy and to thereby facilitate the active participation of such persons in economic activity in the State”. I addressed this question in my judgment in Nugent and Personal Insolvency Acts [2016] IEHC 127 at paras. 6 & 7 and concluded at para. 59 as follows:
“ … the purpose of the personal insolvency legislation is to avoid a debtor being made bankrupt, and that the personal insolvency regime offers a more benevolent means by which he or she can deal with indebtedness. This is envisaged by the Oireachtas as being in the common good.”
40. The central difference between the parties to the present application is whether on a true construction of the provisions of the legislation the obligations of the PIP extend to ensuring the continuing solvency of the debtor after the expiration of the PIA.
Continuing solvency?
41. Section 107(1)(d) provides that the report of the PIP prepared for the purposes of a meeting of creditors must set out terms:
“(i) describing the outcome for creditors, and having regard to the financial circumstances of the debtor whether or not the proposed Personal Insolvency Arrangement represents a fair outcome for the creditors, and indicating, where relevant, how the financial outcome for creditors (whether individually or as a member of a class of creditors) under the terms of the proposal is likely to be better than the estimated financial outcome for such creditors if the debtor were to be adjudicated a bankrupt (having regard to, amongst other things, the estimated costs of the bankruptcy process); and
(ii) indicating whether or not he or she considers that the debtor is reasonably likely to be able to comply with the terms of the proposed Personal Insolvency Arrangement.”
42. A similar provision exists in s. 115A(9)(c) which requires that the court be satisfied that the debtor is “reasonably likely to be able to comply with the terms of the proposed Arrangement”. The PIP argues that in the absence of a term limiting the scope of a review of the warehoused mortgage he cannot advise that the debtor is likely to be able to comply with his obligations under the PIA.
43. The PIA under consideration in the present appeal is an “accelerated arrangement” of six months duration which provides a payment to the unsecured creditors of a lump sum within that period of six months in full satisfaction of their claims. The only element of the arrangement that will last outside the six month period is the restructured payment arrangement in respect of the principal private residence of the debtor and his spouse.
44. While the PIA will expire in 6 years, its terms envisage the repayment of the main mortgage over a period of 29 years. The PIP argues that the test under s. 115A(9)(b)(ii) that the court be satisfied that the PIA will “enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit” involves the court looking to the reasonableness of the repayment proposal over the entire of the term of the mortgage and not merely for the duration of the PIA. As the court is also required to have regard to whether there is a “reasonable prospect” that confirmation of the proposed arrangement will enable the debtor to resolve his or her indebtedness without recourse to bankruptcy, the PIP argues that the court must examine all elements of the proposed mortgage restructuring that form part of the PIA including those that continue to subsist when the term of the PIA has expired.
45. I can find no support in the legislation for the broad proposition that a PIA should seek to ensure the continuing solvency of a debtor outside the period of a PIA. The legislation cannot in my view be read as offering an umbrella protection for a debtor outside the term of the PIA, which cannot, as a matter of law be more than six years, or at most seven years in the limited circumstances provided by the Acts.
46. The mortgage on the principal private residence of the debtor and the interlocking debtor will by agreement with PTSB outlive the PIA by more than 20 years, but that does not in my view mean that the court must be vigilant to ensure that the debtor is reasonably likely to be able to meet the obligations under the mortgage for the balance of the mortgage term. While the court is obliged to enquire as to whether it is reasonably likely that a debtor will meet the terms of the PIA, the court is not required to engage the broader question as to whether the debtor is reasonably likely to be able to perform the obligations as reformulated in the PIA with regard to the repayment of a secured debt over the length of the repayment term.
Other legislative schemes: examinership under the Companies Act, 2014
47. While in In Re O’Connor (a debtor) [2015] IEHC 320 I considered the interplay between the Companies Acts, the Bankruptcy Act and the Personal Insolvency Acts, and noted that there was “nothing in the legislation that links any of its provisions to the Companies Acts”, (para. 51), that observation was made in the context of an argument that the Companies Acts could not be called in aid to regulate the procedure at a meeting of creditors governed by the different statutory provisions in the personal insolvency legislation. That is not to say that the interpretation of the personal insolvency legislation cannot be assisted by a consideration of broadly similar provisions either in the Bankruptcy Act 1988 or the Companies Act 2014 and in that regard I noted in Hill and Personal Insolvency Acts that the personal insolvency legislation must be seen as arising in the context of insolvency legalisation generally, where identical or almost identical provisions are found. I noted at para. 23:
“The word “arrangement” is found in company and bankruptcy law, for example in the examinership process created by the Companies (Amendment) Act 1990, and such arrangements often have contractual effect only if approved by the court. Indeed the PIA under the Acts is an “arrangement”, and that word rather than “agreement” is used, presumably because the arrangement has force and can impact on the rights of parties only when approved by the creditors and by the court.”
48. I noted too, comparison with bankruptcy in the context of the achievement of fairness to all creditors 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”.
49. In In Re Tivway [2010] 3 IR 49 the Supreme Court was considering whether to approve a scheme of arrangement proposed by an examiner which involved the restructuring of three companies in a group, and the separation of two discrete business undertakings, one of which would be sold and where it was anticipated that the orderly realisation of the property, work in progress and inter company balances would take approximately ten years. The schemes were considered to be likely, over time, to achieve the protection of most of the jobs in the company, and to provide a return to creditors beyond what would be achieved in liquidation, tests required to be considered by the court. One secured creditor opposed the schemes and appealed the order of the High Court by which they were approved.
50. Denham J. considered that the application to approve the scheme of arrangement had to be considered in the context of the statutory power given to the court under s. 2 of the Act, as amended, which provided that a court should not make an order to appoint an examiner to a company “unless it is satisfied that there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern”. As she said at para. 48, “further steps in an examinership may be taken only upon such a statutory foundation”.
51. Murray J. in In Re Vantive Holdings [2009] IESC 68 referred to In Re Tivway and explained the purpose of examinership as “a process designed to facilitate the rescue or survival of companies in financial difficulties”.
52. In In Re Michael McLoughlin (Pharmacy) Limited [2011] IEHC 28, [2011] 2 IR 482 Clarke J. was hearing an application to confirm a revised scheme of arrangement in an examinership where two objections were raised. What was proposed was the establishment of a residual debt fund to deal with potential liabilities and a commitment on the part of the company to pursue claims against its directors. There was doubt as to how much would actually be recovered in the process, and Clarke J. noted that the basis of the objection by the Revenue Commissioners was the absence of any guaranteed payment of any sum due by the companies to Revenue.
53. Clarke J. noted the desirability that the initial phase of the scheme of arrangement be brought to an early close inter alia so that the company could “face into its post-examinership future without a large contingent debt hanging over its head”.
54. These authorities reflect the purpose of examinership as enabling an insolvent company to survive by rescue or restructure, but no echo of a broader aim of ensuring ongoing or continuing solvency or survival is found in the judgments.
55. I am persuaded by the approach of McCracken J. in Re Antigen Limited [2001] 4 I.R. 600 in which he refused to make an order modifying a scheme the effect of which was that if the company went into liquidation a creditor should be entitled to prove in the liquidation for pre-arrangement debt. The judgment of McCracken J. reflects the obvious commercial reality that a company may survive as a going concern for a period of time after a scheme of arrangement has been implemented, but still fail. McCracken J. was not prepared to make an order by which he restricted powers of a liquidator in a future liquidation. It is implicit in this approach that McCracken J. considered that a scheme of arrangement on examinership is predicated on a particular and objectively framed proposal in respect of which a reasonable belief exists that it will enable the company to survive as a going concern, but that there is no requirement that the scheme of arrangement guarantee that the company would so survive, or secure or ensure the continued survival of a company or its solvency irrespective of future contingencies.
Conclusion on approach to continuing solvency
56. I consider that the scheme of the personal insolvency legislation cannot be viewed as requiring that a PIA ensure the continuing solvency of a debtor post PIA. A PIA may fail and the legislation cannot protect against unpredicted events that give rise to the failure of a PIA in its currency, or thereafter.
57. The purpose of the legislation is to provide a means of orderly debt resolution, not to guarantee continued solvency outside its timeframe.
58. Further, the statutory provisions do not envisage protection of continued solvency as a correct approach. I turn now to consider the statutory criteria for approval of a PIA.
The statutory approach to mortgage debt on a principal private residence
59. Section 104 of the Acts requires a PIP to formulate a proposal for a PIA on terms that, as far as is reasonably practicable, mean the debtor will retain either ownership or the right to occupy his or her principal private residence. Section 104(2) provides as follows:
“(2) The matters referred to in subsection (1) are—
(a) the costs likely to be incurred by the debtor by remaining in occupation of his or her principal private residence (including rent, mortgage loan repayments, insurance payments, owners’ management company service charges and contributions, taxes or other charges relating to ownership or occupation of the property imposed by or under statute, and necessary maintenance in respect of the principal private residence),
(b) the debtor’s income and other financial circumstances as disclosed in the Prescribed Financial Statement,
(c) the ability of other persons residing with the debtor in the principal private residence to contribute to the costs referred to in subsection (2), and
(d) the reasonable living accommodation needs of the debtor and his or her dependants and having regard to those needs the cost of alternative accommodation (including the costs which would necessarily be incurred in obtaining such accommodation).”
60. The exercise required to be engaged by the PIP in formulating a PIA requires the examination of the costs inter alia of meeting a mortgage loan repayment and other charges and expenses relating to ownership or occupation of the property, and these are to be balanced against the income and other financial circumstances of the debtor, and the ability of any other person residing with the debtor to contribute to those costs. The legislation does not require a PIP to formulate a PIA on the basis that it will show that the debtor will be in a position to continue to meet mortgage payments, or other costs of remaining in his or her private residence, either for the balance of the mortgage term, or for the lifetime of the debtor, or for so long as the debtor wishes to continue to reside in that premises. The obligation of the PIP is to formulate a proposal that will, insofar as it is practicable, achieve the desired result, but not guarantee that result.
61. Any consideration of the PIA in the present case must take into account the fact that the PTSB and the mortgagors agreed a split mortgage arrangement by which more than half of the capital outstanding in the mortgage is to be warehoused for 29 years. The PIA envisages a review of the warehoused element after 6 years. What is sought to be achieved by the PIP by the insertion of the disputed clause is that the review would effectively be preordained, albeit the capacity to address the warehoused element of the mortgage would take account of as yet unascertained, but presumably hoped for, increase in the income of the mortgagors.
62. I consider the term to be impermissibly broad, and one not contemplated by the Acts. Further, other difficulties are apparent and I now turn to examine these.
Problems of construction
63. The disputed clause seeks to link any review to the ISI reasonable living expenses. PTSB makes the argument that the guidelines issued by the ISI with regard to reasonable living expenses are not a statutory code, and points to the disclaimer in the ISI Guidelines of April, 2013 and updated in July, 2016 at p. 2:
“These guidelines have been prepared and issued by the ISI for the purposes of sections 26, 65(4) and 99(4) of the Personal Insolvency Act 2012 and section 85D of the Bankruptcy Act 1988 (as inserted by section 157 of the Personal Insolvency Act 2012) and for no other purpose. The ISI does not authorise or take any responsibility for the use of these guidelines for any other purpose.”
64. Certain problems have been identified by PTSB with regard to the proposed terms of review, and I consider these objections to be correct for a number of reasons.
65. The term is vague in making reference to a baseline figure of 10 % “in excess of” the RLE guidelines issued by the ISI from time to time. The creditor correctly points to the fact that it may be the case that in six years there are no ISI published guidelines, and that it is not possible to predict whether in six years time another form of statutory code will be in place for the purposes of the resolution of personal debt, or the assessment of reasonable living expenses done by another method. I consider it is not appropriate for me to approve a term which is likely to give rise to difficulties in interpretation in the future.
66. I also accept the argument of PTSB that a court should be cautious in extending the reach of the guidelines beyond the purpose for which they were expressly promulgated.
67. As counsel points out, it may be the case that future Central Bank directions to mortgage providers impose a restriction on a review or alteration of the terms of repayment, but this cannot be presumed and it would not be desirable practice for a court to approve a term that is dependent on a structure the existence, nature or purpose of which is at future date unknown and unknowable.
68. Furthermore, I agree with the argument of PTSB that the proposed term envisages some degree of supervision or monitoring of the review, presumably either by the ISI or the court, the statutory context whereof is uncertain and at best hypothetical.
69. In Re Wogan’s (Drogheda) Limited (Unreported, High Court, Costello J., 9th May, 1992,) Costello J. was critical of a proposed agreement with investors as being “ambiguous and imprecise”.
70. I consider the disputed clause is unreasonable and unfairly prejudicial on account of its lack of precision and because it is based on hypotheses.
71. It must fail for that reason also.
The statutory test: the means of the debtor
72. Section 115A(9)(b)(ii) requires that the Court assess the “means” of the debtor and enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit.
73. PTSB argues that the proposed restriction on review of the warehoused debt envisages a review in the light of the income of the debtor at the date of review, and not of his means. While income is one element of a test of means, income does not always coincide with the means of a debtor. The legislation makes provision for the inclusion in a PIA of conditions dealing with windfall or inheritance, but these will not as a matter of plain language be regarded as income, but rather as capital or assets, and would come into the reckoning in an assessment of means. The proposed provision therefore it seems to me does not properly have regard to the statutory focus on the means of the debtor.
74. I consider that the creditor is correct in this objection. It is the means of the debtor that are to be regarded and any condition that confines a review of the warehoused mortgage to the relevant income of the debtor is not consistent with the statutory provisions and limits the scope of any review in a manner not contemplated by the Acts.
Is the proposed clause improperly discriminatory?
75. PTSB argues that the proposed clause is improperly discriminatory. It is not sought to vary the status of the secured debt, as secured, nor indeed is there any disproportionate disparity between the position proposed in relation to the secured creditor and the unsecured creditors. There is also no discrimination in the proposed treatment of a creditor or class of creditors in comparison to the proposal relating to other creditors.
76. The statutory provisions expressly provide for the approval of a scheme of arrangement which involves the reduction of a secured debt. That a PIA may involve the write down of secured debt is clear from s. 102(6)(j)(i) of the Acts by which there is provision that “the principal sum due in respect of the secured debt be reduced to a specified amount”.
77. But the reduction must be “fair and equitable in relation to each class of creditors that has not approved the proposal” and not “unfairly prejudicial” to the interests of any party. The scheme of the Acts involves the court engaging a consideration of a PIA as a whole. Thus I must engage with the question of whether the proposed PIA which includes a term limiting a review of the warehoused element of the split mortgage is unfairly prejudicial to PTSB.
78. A court in considering whether to approve a PIA, and indeed the PIP in putting together a PIA for presentation to creditors, must have regard to the comparison between the likely result of a bankruptcy, and whether this would result in a better return for creditors. Section 107(d)(i) of the Acts sets out the requirements of the report by the PIP as follows:
“(i) describing the outcome for creditors, and having regard to the financial circumstances of the debtor whether or not the proposed Personal Insolvency Arrangement represents a fair outcome for the creditors, and indicating, where relevant, how the financial outcome for creditors (whether individually or as a member of a class of creditors) under the terms of the proposal is likely to be better than the estimated financial outcome for such creditors if the debtor were to be adjudicated a bankrupt (having regard to, amongst other things, the estimated costs of the bankruptcy process);”
79. A court hearing an application for confirmation of a scheme of arrangement proposed in the examinership process is required to engage considerations of whether the proposals are fair and equitable in relation to any class of members or creditors who had not accepted the proposal, and that the proposals are not unfairly prejudicial to the interests of any interested party. The statutory tests are similar to those found in the personal insolvency legislation.
80. In In Re SIAC Construction Limited & Ors. [2014] IESC 25 Fennelly J. considered the question of unfair prejudice from the point of view of the objector and made a comparison between the likely results for the objector from an insolvent liquidation.
81. In my view, on the facts of the present case, PTSB is likely to fare better in bankruptcy than it might in the context of the very long proposal for the repayment of the mortgage on the principal private residence, and because the warehoused amount is almost twice the amount agreed to be the active mortgage in respect of which a monthly payment is to be made. The creditor is prepared to accept a revised mortgage repayment agreement, albeit the prospects of recovery of the entire sum secured are remote in temporal terms. It is discriminatory to require that there be imposed a further limitation on its recourse to the debtor.
82. I consider that the disputed clause improperly discriminates against the secured creditor and creates an unfair prejudice in regard to its future approach to the warehoused element of the mortgage.
Protection of the PIP
83. The PIP has averred on affidavit his concern that, should he not include a clause providing for a restriction on the right of review of the warehoused debt, he could find himself met with a claim in negligence.
84. In In Re Michael McLoughlin (Pharmacy) Limited & Anor. [2011] IEHC 28, [2011] 2 IR 482, Clarke J. considered a proposed clause providing for immunity from suit in favour of the examiner and held that the court had no competence to include such a clause. He said that as the primary duty of the examiner was to the court and to comply with his statutory obligation inter alia to formulate and bring forward proposals for a scheme of arrangement, there was nothing in the Companies Act 1990 which suggested that the Oireachtas considered that an examiner should be immune from suit for negligence. He did point out that the statutory function of an examiner might well determine the precise way in which a court would interpret the duty of care that an examiner might owe, and to whom it might be owed, and might provide an answer, or perhaps a complete answer, to a claim in negligence in the future. He concluded that he had no jurisdiction to approve the inclusion of such a clause.
85. I adopt that approach to the suggestion by the PIP that the disputed clause must be inserted in the PIA as he cannot otherwise safely and without fear of suit certify the sustainability of the PIA. The PIP engages in a role somewhat akin to that of a legal representative as an officer of the court, and he is an independent intermediary in the process who has regard to the respective interests of creditors and debtor. I considered this question in Nugent and Personal Insolvency Acts, where I said the following at para. 31:
“A Personal Insolvency Practitioner is in a unique role, not equivalent to the role of an examiner or a liquidator appointed by the court under the Companies Acts, although some similarities can be noted. The PIP is required to be interposed between the Insolvency Service of Ireland and the debtor.”
86. A PIP has the added protection of court approval of a PIA.
87. It is difficult to envisage circumstances in which personal liability might arise should the PIP engage his role with independence and professional competence. It is not the role of the court to protect him should he fail to achieve the standard required of his office.
88. I do not consider that the protection of the PIP from future suit is a matter that must engage my consideration of the fairness of the PIA, and I have no jurisdiction to approve a term in a PIA which has this purpose or effect.
Summary
89. In summary, I consider the objection of the creditor be upheld with regard to the proposed inclusion by the PIP of a term restrictive of review. The following elements of the objection are relevant:
a. The proposed PIA unfairly prejudices the objecting creditor in that it restricts its right to review in the context of the future means of the debtor, is vague and uncertain, and is an unnecessary and unjustifiable fetter upon the right of the secured creditor to renegotiate the repayment of the warehoused mortgage.
b. The proposed restrictive term is not one contemplated by the legislation, and not one that I am permitted to sanction.
c. The purpose of the Acts is to achieve a return to solvency by an insolvent debtor and not to guarantee or ensure his or her continuing solvency.
Further observations
90. Counsel for the debtor makes the argument that the particular focus of s. 115A which enables the court to approve a PIA, notwithstanding that it was rejected at a meeting of creditors if to do so would enable a debtor to continue to reside in or continue to own his or her principal private residence, should be regarded as a guiding principle in the interpretation of the section. I have already considered the overall purpose of the legislation in a number of judgments, most recently in my judgment in Hill and Personal Insolvency Acts.
91. The legislation does not envisage a court approving a PIA it considers to be unfairly prejudicial to a creditor, and the imperative to have regard to the statutory factors is not outweighed by the clear purpose of the legislation that regard be had to the desirability of permitting a debtor to continue to reside in his or her home. The mandatory statutory tests must be satisfied, and while the court may exercise its jurisdiction in aid of a continuance in occupation by a debtor of his or her home, the court may do so only if it is satisfied that the statutory tests are met.
92. I therefore dismiss the appeal from the order of the Circuit Court.