Allied Irish Banks Plc/Everyday Finance DAC v James Flynn
| Jurisdiction | Ireland |
| Judge | Ms. Justice Costello |
| Judgment Date | 14 March 2022 |
| Neutral Citation | [2022] IECA 60 |
| Docket Number | Court of Appeal Record Number: 2021/70 |
| Year | 2022 |
| Court | Court of Appeal (Ireland) |
In the Matter of a Bankruptcy Petition
and
[2022] IECA 60
Costello J.
Haughton J.
Murray J.
Court of Appeal Record Number: 2021/70
High Court Record Number: Bankruptcy 3872P
THE COURT OF APPEAL
Bankruptcy – Petitioning creditor – O. 17, r. 4 of the Rules of the Superior Courts – Appellant appealing against an order that the bankruptcy petition issued by Allied Irish Banks plc be carried on between Everyday Finance DAC as petitioning creditor and the appellant – Whether the trial judge erred in permitting O. 17, r. 4 of the Rules of the Superior Courts to be used as a mechanism to substitute a petitioner in a bankruptcy application
Facts: The High Court (Pilkington J) ordered that the bankruptcy petition issued by Allied Irish Banks plc (AIB) be carried on between Everyday Finance DAC (Everyday) as petitioning creditor and the appellant, Mr Flynn, pursuant to O. 17, r. 4 of the Rules of the Superior Courts. The appellant appealed to the Court of Appeal. The notice of appeal filed by the appellant set out nine grounds where he contended the trial judge erred: (a) in permitting O. 17, r. 4 to be used as a mechanism to substitute a petitioner in a bankruptcy application; (b) in investigating the merits of the application rather than refusing it where an issue arose for trial and in thereby permitting Everyday to circumvent the “an issue would arise for trial” standard as set out in s. 8(6)(b) of the Bankruptcy Act 1988; (c) in applying a test of “sufficient prima facie evidence” which is incompatible with s. 8(6)(b) and the penal nature of bankruptcy; (d) in permitting Everyday to prosecute a bankruptcy petition against the appellant, notwithstanding the fact that the appellant had committed no act of bankruptcy in respect of Everyday;(e) in permitting Everyday to prosecute a bankruptcy petition against the appellant on foot of a summons and petition issued by a different company; (f) in accepting that there had been a valid transfer from AIB to Everyday notwithstanding the absence of sufficient proof of this; (g) in granting the order notwithstanding the failure of Everyday to obtain leave of the High Court to issue execution as against the appellant; (h) in granting the order notwithstanding the failure of Everyday to comply with s. 11(2) of the 1988 Act; (i) in granting the order notwithstanding the failure of Everyday to comply with the Rules of the Superior Courts and in particular Order 76 Rule 19(1)(c) and (g), Rule 19(4), Rule 20(2), Rule 21, Rule 23 and Rule 28.
Held by Costello J that Order 17, rule 4 applies to bankruptcy proceedings. She held that Everyday was entitled to apply to be substituted as petitioning creditor in place of AIB under the rule. She noted that, in the personal insolvency arrangement (PIA) application, the appellant acknowledged that Everyday was the assignee of the debt at issue in the proceedings and that it was the successor to AIB. She noted that the High Court found as a fact that Everyday was the successor to AIB and that it was a creditor of the appellant in the sum of €2,603,054.84. She held that the appellant was required to act with good faith in the conduct of the PIA process; he may not resile from his acknowledgment that Everyday is the successor in title to AIB and the assignee of the debt in the bankruptcy proceedings. She held that there was prima facie evidence that the assignment of debt effected a change of interest within the meaning of the rule. She held that whether Everyday may, as a matter of law, take over the undertakings given by AIB as petitioning creditor or adopt the valuation of the security given by AIB is not an issue which falls for consideration on an application for substitution; the matters raised were issues for the hearing of the petition by the High Court.
Costello J refused the appeal and affirmed the decision of the High Court. She proposed that the respondent be entitled to its costs of the appeal.
Appeal refused.
JUDGMENT of Ms. Justice Costello delivered on the 14th day of March 2022
The issue in this appeal is a net one: whether the High Court (Pilkington J.) was correct to order that the bankruptcy petition issued by AIB plc (“AIB”) be carried on between Everyday Finance DAC (“Everyday”) as petitioning creditor and James Flynn (“the appellant”) pursuant to O. 17, r. 4 of the Rules of the Superior Courts.
The facts may be briefly stated. On 20 April 2016, the appellant consented to judgment in favour of AIB in the sum of €2.5m. in the High Court. The judgment was obtained on foot of a personal guarantee of the liabilities of Fortberry Limited to the bank. The judgment was not satisfied and on 17 July 2017 a bankruptcy summons issued against the appellant upon the application of AIB. The bankruptcy summons was served on the appellant on 16 August 2017 and no sum was discharged within the 14 days allowed therein. The appellant did not challenge the validity of the bankruptcy summons. On 14 November 2017, AIB issued a petition seeking to adjudicate the appellant bankrupt. The act of bankruptcy relied upon was the failure to pay the sum claimed in the summons. On 8 March 2018, the appellant swore an affidavit in the bankruptcy proceedings stating that he proposed to seek a protective certificate (a “PC”) under the Personal Insolvency Acts 2012–2015 (“the Act of 2012”) and he exhibited his application for a PC. The application included a personal financial statement (a “PFS”) verified by a statutory declaration acknowledging the appellant's indebtedness to AIB in the sum of €2.5m. On the basis that the appellant was seeking, and subsequently obtained, a PC from the Circuit Court, he was granted several adjournments in the bankruptcy proceedings.
The appellant appointed a personal insolvency practitioner (“the practitioner”) to act on his behalf. Having obtained a PC from the Circuit Court, the practitioner proposed a personal insolvency arrangement (a “PIA”) on behalf of the appellant. The proposal for the arrangement was not supported by the majority of the creditors of the appellant. On the instructions of the appellant, the practitioner brought an application under s. 115A of the Act of 2012 asking the High Court to confirm the coming into effect of the proposed arrangement, notwithstanding that it had not been supported by the requisite majority of the appellant's creditors.
On 2 August 2018, AIB and Everyday entered into an Irish Law Deed of Conveyance and Assignment and an Irish Law Deed of Transfer whereby, according to AIB and Everyday, Everyday acquired all the interests of AIB in the loans the subject of the transfer, including all interests in the underlying security. They say this included, inter alia, the judgment debt owed by the appellant to AIB and the extant bankruptcy proceedings.
One of the matters of which a practitioner must satisfy the court on an application brought under s. 115A(9) of the Act of 2012 is that at least one class of creditors has accepted the proposed arrangement by a majority of over 50% of the value of the debts owed to that class. The case made by the practitioner on behalf of the appellant was that this condition had been satisfied in circumstances where one creditor of the appellant, Carley & Connellan Solicitors, voted in favour of the proposed arrangement. The practitioner contended that Carley & Connellan constituted a separate class for the purposes of s. 115A(9)(g). This was disputed by the objecting creditor, Everyday. Everyday acted as the legitimus contradictor to the application of the practitioner in the hearing before the High Court (McDonald J.) of the s. 115A application.
An affidavit was sworn by Mr. Darren Das on 27 February 2019, on behalf of Everyday, averring to the transfer of the loan and securities. He said:-
“I say and believe that by way of Irish Law Deed of Conveyance & Assignment and by way of Irish Law Deed of Transfer dated 2 August 2018 between the (sic) Allied Irish Banks, P.L.C.(hereinafter the “Original Lender”) and the Objecting Creditor, the Objecting Creditor acquired all interests of the Original Lender in the Loans, save the [appellant's credit card], the subject matter of the within application including all interests in the underlying security.”
The balance of his affidavit proceeded on the basis that Everyday was the successor in title to the debt owed by the appellant to AIB and which was acknowledged in his application for a PC and in the proposed arrangement presented by the practitioner to the creditors and to the court. Replying affidavits were sworn both by the practitioner and the appellant. Neither contested the validity of the assignment or disputed that Everyday was the successor in title to AIB and a creditor of the appellant in the sum of €2.5m. Neither sought further proof of the assignment and transfer. The practitioner acknowledged that a number of debts were sold and transferred during the PC period. The appellant referred to AIB as the “ objector's predecessor” in para. 14 of his affidavit and at para. 48 he said “ I say that the bank sold the company debt [of Fortberry limited] to Everyday Finance Limited”. At para. 60 he stated “ I say and believe that my arrangement is not unfairly prejudicial to the objector” and at para. 63 he said that there was no evidence “ that the objector would fare better in bankruptcy and achieve a greater euro return [than] (sic) has been provided.” The appellant did not deny that the proposed arrangement would require the objecting creditor, Everyday, to accept a write-off of the sum of €2,591,904.17, which...
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