Flynn (A Debtor) Personal Insolvency Acts

• Jurisdiction: Ireland
• Judge: Mr. Justice Denis McDonald
• Judgment Date: 11 November 2019
• Neutral Citation: [2019] IEHC 752
• Court: High Court
• Docket Number: [H:IS:HC: 2018: 00020]
• Date: 11 November 2019

IN THE MATTER OF THE PERSONAL INSOLVENCY ACTS 2012-2015

AND IN THE MATTER OF JAMES FLYNN (A DEBTOR)

[2019] IEHC 752

Denis McDonald

[H:IS:HC: 2018: 00020]

THE HIGH COURT

Preliminary issue – Personal insolvency – Unsecured creditors – Personal insolvency practitioner bringing an application under s. 115A of the Personal Insolvency Act 2012 – Whether one creditor could be considered to be in a separate class to the other unsecured creditors of the debtor

Facts: A preliminary issue arose in the context of an application by Mr McDarby, personal insolvency practitioner, pursuant to s. 115 (A) of the Personal Insolvency Act 2012 as amended by the Personal Insolvency (Amendment) Act 2015. The practitioner proposed a personal insolvency arrangement on behalf of the debtor, Mr Flynn. The proposal for the arrangement was, however, not supported by a majority of the creditors of Mr Flynn. In those circumstances, the practitioner brought an application under s. 115A which permits the High Court (subject to satisfaction of a significant number of conditions) to confirm the coming into effect of such a proposed arrangement notwithstanding that it has not been supported by the requisite majority of a debtor’s creditors. One of the conditions which must be satisfied for this purpose is set out in s. 115A (9) (g) namely 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. In this case, the practitioner contended that this condition was satisfied in circumstances where one creditor, Carley & Connellan Solicitors, voted in favour of the proposed arrangement. The practitioner contended that Carley & Connellan constitute a separate class for the purposes of s. 115A (9) (g). This was disputed by the objecting creditor namely Everyday Finance DAC. Everyday advanced the simple proposition that the firm of Carley & Connellan was one of a number of unsecured creditors of Mr Flynn and that the firm could not be treated as a separate class. According to Everyday, the firm should be treated as falling within the general pool of the unsecured creditors of Mr Flynn. This was the issue that required determination on a preliminary basis.

Held by McDonald J that, in this case, Carley & Connellan, solicitors, could not be considered to be in a separate class to the other unsecured creditors of Mr Flynn. In those circumstances, MacDonald J held that the condition set out in s. 115A (9) (g) of the 2012 Act could not be satisfied in this case. MacDonald J held that, as a consequence, the application made by the practitioner under s. 115A (9) must fail.

McDonald J proposed to make an order dismissing the application on that basis.

Application dismissed.

JUDGMENT of Mr. Justice Denis McDonald delivered on 11 November, 2019

The issue before the court

1 This judgment addresses a preliminary issue which has arisen in the context of an application by Eugene McDarby, personal insolvency practitioner (“the practitioner”) pursuant to s. 115 (A) of the Personal Insolvency Act, 2012 (“the 2012 Act”) as amended by the Personal Insolvency (Amendment) Act, 2015 (“the 2015 Act”). The practitioner has proposed a personal insolvency arrangement on behalf of the above named debtor, Mr. James Flynn. The proposal for the arrangement was, however, not supported by a majority of the creditors of Mr. Flynn. In those circumstances, the practitioner has brought an application under s. 115A which permits the court (subject to satisfaction of a significant number of conditions) to confirm the coming into effect of such a proposed arrangement notwithstanding that it has not been supported by the requisite majority of a debtor's creditors. One of the conditions which must be satisfied for this purpose is set out in s. 115A (9) (g) namely 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. In this case, the practitioner contends that this condition is satisfied in circumstances where one creditor, Carley & Connellan Solicitors, voted in favour of the proposed arrangement. The practitioner contends that Carley & Connellan constitute a separate class for the purposes of s. 115A (9) (g). This is disputed by the objecting creditor namely Everyday Finance DAC (“Everyday”). Everyday advances the simple proposition that the firm of Carley & Connellan is one of a number of unsecured creditors of Mr. Flynn and that the firm cannot be treated as a separate class. According to Everyday, the firm should be treated as falling within the general pool of the unsecured creditors of Mr. Flynn. This is the issue that requires to be determined on a preliminary basis. If the practitioner fails on this issue, the requirements of s. 115A (9) (g) will not be satisfied and the entire application under s. 115A will fail without having to consider any of the other issues which would otherwise require to be addressed.

2 For completeness, it should be noted that a single creditor is capable of constituting a class of creditor for the purposes of s. 115A (9) (g). This is made clear in s. 115A (17) under which the court may consider (subject to certain conditions) that one creditor constitutes a separate class. It is unnecessary for present purposes to analyse the provisions of s. 115A (17). The issue which arises is focussed solely on the question whether Carley & Connellan can be differentiated from the other unsecured creditors of Mr. Flynn so as to validly constitute a separate class of creditors for the purposes of s. 115A (9) (g).

Relevant facts

3 Mr. Flynn has debts of €5,404,102.21. Of this, €265,906.71 is owed to EBS DAC, a secured creditor. The balance of Mr. Flynn's indebtedness (in the sum of €5,184,102.21) is comprised of unsecured debt owed to the following:-

(a) €2,603,054.84 is owed to Everyday as successor in title to Allied Irish Banks Plc (“ AIB“);

(b) €1,656,143.59 is owed to Promontoria Aran Ltd;

(c) €564,157.78 is owed to Havbell DAC;

(d) €360,745.00 is owed to Carley & Connellan Solicitors.

4 With the exception of Carley & Connellan, each of the unsecured creditors identified in para 3 above voted to reject the proposed arrangements. Carley & Connellan voted in favour. The debt owed by Mr. Flynn to Carley & Connellan represents 6.96% of his unsecured indebtedness or 6.62% of his overall indebtedness.

5 In the notice of motion issued pursuant to s. 115A (9) of the 2012 Act, the practitioner described Carley & Connellan as the “ Professional Services Class of Creditors”. He set out his grounds for doing so in the following terms:-

“The grounds for defining the ‘Professional Services Class of Creditors’ as same is due to their position as a professional service provider previously retained by the Debtor with a fixed sum invoice due and owing. In that regard, I consider the professional services creditor to be in a separate class as their interests are so dissimilar that it would be impossible for them to consult together with any other creditor with a view to their common interest….”

6 At the hearing which took place in July, 2019, a number of additional arguments were made seeking to justify the treatment of Carley & Connellan as a separate class of creditor. It was contended that Carley & Connellan should be differentiated from the other unsecured creditors in circumstances where, as a firm of solicitors, they would be entitled to exercise a lien over deeds and documents held by them on behalf of Mr. Flynn. It was also suggested that, in contra-distinction to the other unsecured creditors, Carley & Connellan provided services to Mr. Flynn whereas all of the other unsecured creditors had advanced moneys to him or to a company in respect of which he stood as guarantor. It was further submitted that there was a distinction to be made between Carley & Connellan, on the one hand, and Everyday, on the other, in circumstances where Everyday held security over property of a company controlled by Mr. Flynn (as described in more detail below). Finally, it was argued that the unsecured creditors other than Carley & Connellan shared an animus against Mr. Flynn (which was absent in the case of Carley & Connellan).

7 In support of these contentions, reliance was placed by counsel for the practitioner on the affidavit of Mr. Flynn sworn on 3rd July, 2019. In that affidavit, Mr. Flynn set out some of the background to his long running dispute with AIB (the predecessor in title to Everyday). At para. 6 of his affidavit he explained that the debt due to Carley & Connellan arose in respect of legal fees accrued during litigation that took place with AIB. Mr. Flynn explained:-

“I say that this was not and is not a commercial loan and there were no agreed repayment terms, but rather a fixed invoice. I say that the firm is not a commercial lender and they provided work and services for the debt. I say that they retain security in that they have a lien over my file”.

8 In the same affidavit, Mr. Flynn explained that his financial difficulties arose on foot of a guarantee given by him in respect of a company called Fortberry Ltd (“ Fortberry“) and, as a consequence, so he says, of the wrongful conduct of AIB. For the purposes of this judgment, it is unnecessary to set out the nature of the allegations that are made by Mr. Flynn in relation to AIB's conduct. In para. 27 of his affidavit, Mr. Flynn refers to proceedings that were commenced by AIB against Fortberry and him. In para. 28 he explains that, in April 2016, both he and Fortberry consented to judgment being entered in favour of AIB. The judgment against Fortberry was in the sum of €5,182,308.06. The judgment against Mr. Flynn was in the sum of €2.5 million on foot of the guarantee that he had given in relation to the indebtedness of Fortberry. A stay was granted on the judgment until...