Nuzum (A Debtor) v Personal Insolvency Acts 2012-2015

• Jurisdiction: Ireland
• Judge: Mr. Justice Denis McDonald
• Judgment Date: 30 March 2020
• Neutral Citation: [2020] IEHC 164
• Date: 30 March 2020
• Court: High Court
• Docket Number: [2019 No. 369 C.A.]

DUBLIN CIRCUIT

COUNTY OF DUBLIN

IN THE MATTER OF THE PERSONAL INSOLVENCY ACTS, 2012-2015

AND IN THE MATTER OF ALLEN NUZUM (A DEBTOR)

AND IN MATTER OF ELIZABETH NUZUM (A DEBTOR)

[2020] IEHC 164

Denis McDonald J.

[2019 No. 369 C.A.]

[2019 No. 370 C.A.]

THE HIGH COURT

CIRCUIT APPEAL

Personal insolvency arrangement – Personal Insolvency Act 2012 s. 115A – Costs – Personal insolvency practitioner seeking order confirming coming into effect of proposed personal insolvency arrangements – Whether the requirements of s. 115A of the Personal Insolvency Act 2012 had been satisfied

Facts: The debtors, Mr and Ms Nuzum, had no debts other than their debt to the objecting creditor, Promontoria (Aran) Ltd (Promontoria), which was secured on their family home. Their family home was worth significantly more than the debt due to Promontoria. In circumstances where Promontoria was the only creditor of Mr and Ms Nuzum, the personal insolvency arrangement proposed in both cases fell to be considered by Promontoria alone in accordance with the provisions of s. 111A of the Personal Insolvency Act 2012. Promontoria rejected the arrangements and contended that, on the facts, Mr and Ms Nuzum were not insolvent. Nonetheless, in each case, Mr McDarby, the personal insolvency practitioner acting on behalf of the debtors (the practitioner) brought an application before the Circuit Court seeking an order under s. 115A of the 2012 Act confirming the coming into effect of the proposed arrangements. Those applications were dismissed by the Circuit Court judge on 23rd July, 2019. Thereafter, the practitioner appealed that decision to the High Court. The hearing of the appeals took place on 16th January 2020 and written submissions were subsequently made available to the court on 31st January. The appeals were opposed by Promontoria.

Held by McDonald J that the requirements of s. 115A (9) (a), s. 115A (9) (b) (i), s. 115A (9) (c), s. 115A (9) (d) and s. 115A (9) (f) had not been satisfied in this case. In the circumstances, McDonald J held that it was unnecessary to consider the remaining requirements of s. 115A. In McDonald J’s view, the applications under s. 115A could not succeed.

McDonald J held that he would dismiss the appeals and affirm the orders previously made by the Circuit Court judge.

Appeals dismissed.

JUDGMENT of Mr. Justice Denis McDonald delivered on 30 March, 2020

Introduction

1 The facts underling the appeals in the above interlocking cases are unusual. First, the family home of the debtors, Mr. Allen Nuzum and Ms. Elizabeth Nuzum (who are a married couple) is worth significantly more than the debt due to the objecting creditor, Promontoria (Aran) Ltd ( “Promontoria“). Secondly, Mr. Nuzum and Ms. Nuzum have no debts other than their debt to Promontoria (which is secured on their family home).

2 In circumstances where Promontoria is the only creditor of Mr. Nuzum and Ms. Nuzum, the personal insolvency arrangement proposed in both cases fell to be considered by Promontoria alone in accordance with the provisions of s. 111A of the Personal Insolvency Act, 2012 ( “the 2012 Act”). Promontoria rejected the arrangements and has contended that, on the facts, Mr. Nuzum and Ms. Nuzum are not insolvent. Nonetheless, in each case, Mr. Eugene McDarby, the personal insolvency practitioner acting on behalf of the debtors (“the practitioner”) brought an application before the Circuit Court seeking an order under s. 115A of the 2012 Act confirming the coming into effect of the proposed arrangements. Those applications were dismissed by the learned Circuit Court judge on 23rd July, 2019. Thereafter, the practitioner appealed that decision to this court. The hearing of the appeals took place on 16 January 2020 and written submissions were subsequently made available to the court on 31 January.

3 The appeals are opposed by Promontoria. In the first place, as noted above, Promontoria contends that the debtors are not insolvent. In that context, Promontoria points to the fact that Mr Nuzum and Ms Nuzum have clearly been able to pay their day to day debts as they fall due. The absence of other creditors demonstrates this. In so far as the debt to Promontoria is concerned, it argues that a sale of the principal residence will generate ample funds to repay the debt of Mr. and Ms. Nuzum to Promontoria and to acquire new accommodation. In such circumstances, Promontoria contends that it cannot be said that Mr. Nuzum and Ms. Nuzum are insolvent.

4 In addition, Promontoria argues, on a number of grounds, that the proposed arrangement is, in any event, unfairly prejudicial to it. In this context, among the grounds advanced by Promontoria, is an argument that the costs of enabling the debtors to continue to reside in their family home are disproportionately large.

Relevant facts

5 Mr. Nuzum and Ms. Nuzum were both born in April 1971. They have four dependent children. At the time of preparation of the proposed arrangements in 2018 the children were aged 12, 11, 10 and 5 respectively. The family lives in a substantial five bedroomed home on the outskirts of Dublin. It is a detached property. On the basis of the evidence before the court, it is situated in a “gated community” comprising 25 detached homes in total. The valuation of the property has been agreed at €1 million.

6 The amount owed to Promontoria, secured by a mortgage over the property, is €710,625.96. As a consequence, the debtors have an equity of the order of €289,374.04 in the property. According to the affidavit sworn by Ms. Nuzum on 28th June, 2019, the family requires a five-bedroom property and would not be able to find such a property for €290,000.00. In para. 9 of her affidavit Ms. Nuzum says: -

“9 I considered and discussed trading down, social housing, mortgage to rent, and rental accommodation with my PIP however none of these options were appropriate (or indeed as beneficial for both myself and the Objecting Creditor as the PIA) due to the equity left over will not accommodate my young family of four children and au pair. I say the au pair is required to allow me go to work and enable me to discharge my debts. The au pair's services will not be required as the children grow older. I also have family in the immediate area and routine has been set for my children. I say I went of (sic) the DAFT website and could not find a five-bedroom house for €290,000.00. I say that with such equity left over, I would not be eligible for social housing or the mortgage to rent scheme”.

7 As noted above, Mr. Nuzum and Ms. Nuzum have no unsecured creditors. Their only creditor is Promontoria. Their indebtedness to Promontoria arises on foot of a loan advanced by Ulster Bank Ireland Ltd ( “UBIL”). Promontoria is now the successor in title to UBIL. Promontoria contends that the loan in question (although advanced in 2009) was never intended to be anything more than a bridging facility which would be repayable in full within a period of four months.

8 Under the relevant loan agreement between UBIL and Mr. and Ms. Nuzum, UBIL agreed to advance €616,100 for a term of four months from drawdown. According to the agreement (which was incorporated in a facility letter issued by UBIL dated 8th September, 2009 and signed by Mr. and Ms. Nuzum on 18th September, 2009) the purpose of the loan is stated to be as follows: -

“Renewal of existing bridging loan facility originally provided as follows: -

€1,160,000 …to assist with the purchase of [the principal private residence] and fund stamp duty payable in respect of this purchase.

€183,000 …to refinance Irish Permanent Building Society relating to [a different property]

€10,000 to allow roll-up of arrangement fee”.

9 The agreement also stated that the loan was “repayable on demand and in the absence of demand the Bank has agreed that a moratorium on repayment of capital will apply for a further four-months and interest is payable monthly during this time. Based on the prevailing interest rates the monthly instalment will equate to €1,796.96….”

10 The loan agreement also envisaged that, in addition to payment of monthly interest mentioned in para. 9 above, a lump sum payment of €80,000 would be made on 31st December, 2009 from the sale of a horse and a sum of €50,000 was to be paid from the sale of a further horse “due prior to 31/03/2010” (which, it should be noted, is beyond the four-month period for which the loan was stated to be given).

11 In the event that the lump sum reductions mentioned in para. 10 above were not applied against the loan within the time scales specified in the loan agreement, the agreement provided that the margin applicable to the loan would increase by a further 1%.

12 The loan agreement also contained the following provision: -

“Based on the planned reductions outlined above …there will be a residual balance of approximately € 4S6,100 and the borrower is to arrange repayment of this through asset disposal, restructure on a home loan basis and/or refinance of the facility”.

13 The loan agreement further stated that, by extending the facility up to 31st December, 2009, UBIL was not “committing to financing the residual debt on a long term basis….”.

14 Notwithstanding these provisions of the loan agreement, there is no evidence that UBIL made demand for payment of the residual balance at the end of the four-month period for which the loan was stated to be given. It appears from the papers before the court that monthly payments were made by Mr. Nuzum and Ms. Nuzum to UBIL but there is no direct evidence before the court explaining how a facility which was repayable on 31st December, 2009 was left in place thereafter. In her affidavit, Ms. Nuzum exhibits a statement of account dated 29th December, 2017 for the 2017 calendar year. This shows that interest was debited quarterly during that period. In addition, during that period, Mr. Nuzum and Ms....