Court refuses to overturn Bank's objection to Personal Insolvency Arrangement
Court refuses to overturn Bank’s objection to Personal Insolvency Arrangement
In the case of In Re Dunne (A Debtor)  IEHC 59, High Court, Baker J, 6 February 2017 the High Court refused an application by debtors under Section 115A of the Personal Insolvency Acts 2012 to 2015 to overturn a secured creditor's (PTSB) objection to a Personal Insolvency Arrangement (PIA). The debtors had appealed from a Circuit Court decision upholding PTSB's objection.
An agreement was reached between the debtor and PTSB which involved a split mortgage with a warehousing of part of the debt with no interest until the end of the mortgage period. However, the debtors found that the agreed repayment schedule would leave them unable to service their unsecured debt. Accordingly, a PIA was proposed which included a statement that the warehoused part of the mortgage would only become serviceable if the debtors' income was more than 10% greater than the Insolvency Service of Ireland's (ISI) guidelines on reasonable living expenses at that time. PTSB argued that this term unjustly and unfairly prejudiced its position, and was disproportionate.
PTSB argued that the PIP, in seeking to achieve the continuing solvency of a debtor after the completion of a PIA had misunderstood his role. PTSB also argued that the proposed term was uncertain, would involve the court engaging impermissibly in matters of policy, and was inappropriate, inequitable and not necessary to achieve the purpose of the Acts.
The Court noted that it had no power to amend a PIA. The Court agreed that the legislation could not be read as offering protection for a debtor outside the term of the PIA. In taking this view, the Court held that it could be assisted in the interpretation of the personal insolvency legislation by a consideration of broadly similar provisions either in the Bankruptcy Act 1988 or the Companies Act 2014. It noted that examinership cases are predicated on a proposal, in respect of which there is a reasonable belief that it will enable the company to survive as a going concern, but that there is no requirement that it guarantee the company's survival, or ensure its continued survival. The Court also accepted PTSB's argument that the ISI guidelines on reasonable living expenses were not a statutory code and might be replaced in the future by other guidelines. The Court considered that it was not appropriate to approve a term which was likely to give rise to difficulties in interpretation in the future and it should be cautious in extending the reach of the guidelines beyond the purpose for which they were promulgated.
The Court noted that in considering whether to approve a PIA it must have regard to the comparison between the likely result of a bankruptcy, and whether this would result in a better return for creditors. Again it looked to the approach of the courts in an examinership context. The Court was of the view that, on the facts, PTSB was likely to fare better in bankruptcy than it might in the context of the proposal. Accordingly, the Court considered that the disputed clause improperly discriminated against the secured creditor and created an unfair prejudice in regard to its future approach to the warehoused element of the mortgage.
The PIP expressed a concern that if did 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. However the Court rejected this contention noting that it would be difficult to envisage circumstances in which personal liability might arise should the PIP engage his role with independence and professional competence. The Court did not consider that the protection of the PIP from future action was a matter that was relevant to its consideration of the fairness of the PIA.
Finally the Court considered the debtor's argument that enabling 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. The Court was of the view that the legislation does not envisage a court approving a PIA it considers to be unfairly prejudicial to a creditor and while the court may exercise its jurisdiction in aid of a continuance in occupation by a debtor of their home, it could only do so if satisfied that the statutory tests were met.
Accordingly the Court upheld the objection of PTSB and dismissed the appeal.