McCarthy v Personal Insolvency Act 2012–2015; McCarthy v Personal Insolvency Act 2012–2015

JudgeJustice Alexander Owens
Judgment Date25 May 2023
Neutral Citation[2023] IEHC 346
CourtHigh Court
Docket Number[2022/CA 175]
In the Matter of Part 3, Chapter 4 of the Personal Insolvency Acts 2012 to 2015


In the Matter of Nuala McCarthy of Slaney ASH, Badger's Hill Polehore, Barntown, County Wexford


In the Matter of Edward McCarthy of Slaney ASH, Badger's Hill Polehore, Barntown, County Wexford (“The Debtors”)


In the Matter of An Application Pursuant to Section 115A (9) of the Personal Insolvency Act 2012 to 2015

[2023] IEHC 346

[2022/CA 175]

[2022/CA 177]



JUDGMENT of The Hon. Justice Alexander Owens delivered on the 25 th day of May 2023.


The first issue in these appeals is whether the debtors have proved on the balance of probability that they are “reasonably likely” to be able to comply with the terms of proposed Personal Insolvency Arrangements, as required by s.115A(9)(c) of the Personal Insolvency Act 2012 (the 2012 Act).


The second issue is whether the proposed Arrangements have been formulated in compliance with s.104(2) of the 2012 Act, as required by s.115A(9)(a) of that Act. An issue arises as to whether the debtors have demonstrated that “the costs of enabling the debtor to continue to reside in the debtor's principal private residence are not disproportionately large”: see s.115A(9)(d) of the 2012 Act.


Section 115A(9)(a) and (c) of the 2012 Act state as follows: “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, …(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…”


The third issue is whether the debtors should trade down and use the surplus generated by a sale of their house and an incentive payment of €15,000 to buy a new house. This is allied to the second issue.


The fourth issue is whether the proposed Arrangements comply with a mandatory requirement in s.99(2)(e) of the 2012 Act which precludes inclusion in any Arrangement of a term 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.”


The evidence establishes that the proposed Personal Insolvency Arrangements meet the criteria specified in s.115A(9) of the 2012 Act and other relevant statutory requirements.


This Court has not been given any detail of the current loan balance. The debtors may need to make a payment to reduce that balance to the amount specified in their proposed Arrangements.


These appeals will be listed for mention to the next Monday personal insolvency list on 12 June 2023 for formal orders.


The debtors are Edward McCarthy and his wife Nuala McCarthy. They live some 6 km outside Wexford, near the Slaney River. They own a bungalow which they built when they came back to Ireland from the UK some years ago. Nuala McCarthy is in poor health and this house has been modified to accommodate her disability.


Their house is mortgaged to Ulster Bank DAC (the bank). It was valued at €350,000 in July 2020. The total due on the mortgage in July 2020 was €42,784 for principal and interest. This included over €11,000 in arrears.


The borrowers got into difficulties in paying their mortgage loans. Their insolvency arises from lack of capacity to service their home loans because of ill health. The bank wants them to trade down and pay off these liabilities. They have no unsecured creditors. A comparison between the outcome under the proposed Arrangements and the outcome if the borrowers went into bankruptcy is not relevant. The bank would stand outside any bankruptcy and rely on its security. The bank has not sought to argue that the debtors cannot come within s.115A(9)(b)(i) of the 2012 Act.


The proposed Personal Insolvency Arrangements were submitted to the bank in July 2020. They were rejected. In short, these proposals envisage that arrears on the mortgage loans be capitalised to principal giving a sum of €42,782.46 which will be paid off by 156 monthly instalments (13 years) using Irish and UK pensions income totalling €2085.25 monthly as of July 2020. The State elements of these pensions are likely to be adjusted to give some cover for inflationary pressures.


These matters first came before the Circuit Court on 24 August 2020. The debtors applied to the Circuit Court to approve these proposals under s.115A of the 2012 Act. The Circuit Court orders were made on 21 July 2022. This Court heard appeals from the Circuit Court decisions on 16 January 2023.


A court must determine applications under the 2012 Act by reference to circumstances proved to exist at the date of hearing. Changes in circumstances of a debtor may occur in the period between the date when a Personal Insolvency Arrangement is formulated and date when it is considered by a court. Interest rates may change. Changes in the cost of living may affect calculation of current and projected reasonable living expenses.


Any appeal to the High Court from the Circuit Court is by way of rehearing. Admission of evidence which was not given or received in the Circuit Court may be allowed by special leave of the judge hearing the appeal: see s.37(2) of the Courts of Justice Act 1936. In general, it will be appropriate for parties to this type of appeal to apply to file and deliver affidavit evidence on the updated financial situation prior to the hearing of any appeal.


To give an example from the facts of these applications, the proposal formulated in July 2020 was that arrears be added to principal and interest owed to the bank. A starting balance of €42,782.46 is quoted in the “Summary of the PIAs”. The Arrangements proposed that this be repaid with interest at the stipulated rate over 13 years by monthly instalments with a 12-month interest roll up to enable the debtors discharge €2,414.08 fees and costs. These monthly instalments could vary to reflect changes in the interest rate governing the loan. If the arrangement had been put in place in using interest rates applicable in July 2020 and by reference to the balance quoted at that time, the first monthly payment would have been €364.77.


The debtors have been making monthly payments of €341.00 towards their mortgage since their protective certificate in 2020. It is unclear whether these payments have been sufficient to keep the outstanding balance of their mortgage at €42,782.46. These payments are based on an amortization calculation from March 2020 set out in the report of the personal insolvency practitioner under s.107(1)(d) of the 2012 Act. This provides the figure of €42,782.46 and the then applicable interest rate of 3.00%. The monthly payment was specified to be €331.53.


A proposal can be approved based on application of any new interest rate because the Arrangements were framed on the basis that the start date is not set in stone, and it might be anticipated that interest rates may change before they became effective. However, it is necessary that a Court be provided with accurate figures for amount of outstanding principal and interest now. The Court also needs a figure for the monthly payment necessary to discharge €42,782 or any lesser sum now outstanding on the mortgage over 13 years at the current interest rate.


An immediate payment from the debtors may be needed to get outstanding the balance on the account down to €42,782, which is the starting point for repayment over the adjusted term.


Other changes of circumstances between the time of formulation of the proposal and the date when the proposal is considered may become relevant. The fortunes of debtors may improve or decline due to the occurrence of events which have not been foreseen. Effects of inflation and other factors which were not at play at the time when a proposal for a Personal Insolvency Arrangement was formulated may affect the view taken by the Circuit Court or of the High Court dealing with an appeal. The value of assets can change.


If changes of circumstances since the formulation of a proposal are relevant, the parties should deliver affidavits setting out these new facts and if there is an appeal, they should seek leave to admit such evidence. Debtors should bear in mind that they must satisfy a court either at first instance or on appeal that any proposed Arrangement continues to meet the statutory criteria and that it should be approved.


In these applications the bank refers to changes in guidance given by the Insolvency Service of Ireland in November 2022 on what constitutes a reasonable standard of living and reasonable living expenses. This guidance is mandated by s.23 of the 2012 Act. By s.99(2)(e) of the Act “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.” Section 99(1) and (2) of the Act describes the provisions set out in s.99(2) as “mandatory requirements.” These requirements apply to all Arrangements, including Arrangements under s.115A of the 2012 Act.


By s.99(3) of the Act: “The Insolvency Service may publish a Code of Practice providing guidance on any of the matters set out in subsection (2).” By s.99(4) “For the purposes of subsection 2(e), and without prejudice to subsection (3), in determining whether a debtor would have sufficient income to maintain a reasonable standard of living for the debtor and his or her dependants under the Personal Insolvency Arrangement, regard shall be had to...

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