Part 3, Chapter 4 of the Personal Insolvency Acts 2012–2015

• Jurisdiction: Ireland
• Judge: Mr. Justice Mark Sanfey
• Judgment Date: 29 April 2021
• Neutral Citation: [2021] IEHC 297
• Docket Number: [Record No. 2019/529 CA]
• Court: High Court
• Date: 29 April 2021

In the Matter of Part 3, Chapter 4 of the Personal Insolvency Acts 2012–2015

And in the Matter of Ann Fennell of 44 Lyradene Avenue, Woodview Park, Limerick (A Debtor)

And in the Matter of an Application Pursuant to Section 115A(9) of the Personal Insolvency Acts 2012–2015

[2021] IEHC 297

[Record No. 2019/529 CA]

THE HIGH COURT

CIRCUIT APPEAL

Personal insolvency arrangement – Sustainability – Personal Insolvency Acts 2012-2015 s. 115A(9) – Debtor appealing from the judgment refusing the debtor’s application pursuant to s. 115A(9) of the Personal Insolvency Acts 2012-2015 – Whether the debtor was reasonably likely to be able to comply with the terms of the proposed arrangement

Facts: The debtor, Ms Fennell, appealed to the High Court from the judgment of the Circuit (Personal Insolvency) Court of 17th December, 2019 refusing the debtor’s application pursuant to s. 115A(9) of the Personal Insolvency Acts 2012-2015. The appeal was opposed by the debtor’s sole creditor, Ulster Bank Ireland DAC. Mr Lenihan, the Personal Insolvency Practitioner appointed by the debtor, in his written submissions, addressed the application under the following headings: (1) the legality of the term extension; (2) the affordability/sustainability of the term extension; (3) the costs of enabling the debtor to remain in the principal private residence; (4) prejudice and unfair prejudice; and (5) the counterproposal of the creditor.

Held by Sanfey J that the debtor was not reasonably likely to be able to comply with the terms of the proposed arrangement. In particular, it was Sanfey J’s view that, where the restructured term over which payments are to be made is of such duration that the court, having regard to the age and circumstances of the debtor, is not satisfied that the debtor is reasonably likely to be able to comply with the terms of the proposed arrangement, the court cannot entertain an application pursuant to s. 115A(9) in respect of such arrangement. Neither was Sanfey J satisfied that the debtor had demonstrated that the repayments under the Personal Insolvency Arrangement were in any event affordable or sustainable.

Sanfey J held that the Personal Insolvency Practitioner’s application would be dismissed.

Application dismissed.

JUDGMENT of Mr. Justice Mark Sanfey delivered on the 29th day of April 2021.

Introduction

1 This matter concerns an appeal by Ann Fennell (‘the debtor’) from the judgment of the Circuit (Personal Insolvency) Court of 17th December, 2019 refusing the debtor's application pursuant to s.115A(9) of the Personal Insolvency Acts 2012–2015 (hereafter referred to collectively as ‘the Act’). The appeal is opposed by the debtor's sole creditor, Ulster Bank Ireland DAC (‘the bank’ or ‘the objecting creditor’).

2 By the time the appeal was heard by this Court, the debtor was 69 years of age. She owns a principal private residence (‘PPR’) in Woodview Park, Limerick. As we shall see, the debtor has substantial positive equity in the PPR. She has a number of children, but they are all of age and none of them is dependent.

3 A notice pursuant to s.111A of the Act was sent to the creditor by Maurice Lenihan, the Personal Insolvency Practitioner (‘PIP’) appointed by the debtor, on 31st May, 2019. By a notice of the same day, the objecting creditor indicated its opposition to the PIP's proposed Personal Insolvency Arrangement (‘PIA’). The PIP made a s.115A application on behalf of the debtor on 6th June, 2019, and after the dismissal of that application by the Circuit Court, the present application issued on 19th December, 2019.

4 At an early stage before this Court, the case was identified as one which might be suitable to be heard, not just to determine the issues in the present case, but to provide clarity on an issue which arises in a number of cases currently before the Circuit Court and this Court. The issue concerns arrangements which provide for an extension of the mortgage term to a point at which the debtor would either be certain or unlikely to be still alive, and whether such an arrangement is permissible under the Act.

5 The parties were given the opportunity to make detailed legal submissions, and the matter was listed for hearing on 16th November, 2020. However, the matter did not proceed on that date, as it was indicated by counsel for the debtor that it was hoped to procure an expert report for the debtor as to the implications of the arrangement for the bank, and in particular its provisioning obligations, in advance of the hearing. Professional bodies were approached by the PIP for advice and possible funding in this regard. Ultimately, the PIP accepted that he would not be in a position to proffer such a report without considerable expense and unacceptable delay, and agreed that the matter should be listed. The appeal was given a priority listing, and was heard by me on 16th March, 2021.

6 A detailed notice of objection of 20th June, 2019 was delivered by the objecting creditor. While I will deal with the objections and submissions of the objecting creditor in more detail below, it is appropriate to note that, among the grounds of objection was the complaint that the debtor, under the PIA, would be “…required to maintain mortgage payments until she is 98 years of age, which is plainly unsustainable…” [para. 2], and that the objecting creditor had:

“…made a proposal to the Personal Insolvency Practitioner in accordance with sections 98 and 102 of the Act whereby the Debtor was given the option to consider a trade down or incentivised assisted surrender of the Property whereby the Debtor would be given €15,000 by the Objecting Creditor in return for an assisted voluntary surrender of the secured property. The said proposal was unreasonably rejected” [Paragraph 7].

The PIA

7 Notwithstanding that the debtor has substantial equity in the PPR, the PIA proposes a very substantial term extension to achieve a level of affordability which will enable her to deal with her indebtedness. The main features of the PIA as set out at Part IV of the PIA are as follows:-

• • The agreed valuation of the PPR is €180,000;

• • the debt of the bank, which is the sole creditor, is €72,593.48. This debt is secured on the PPR;

• • the debtor therefore has equity in the PPR of €107,406.52;

• • arrears are to be capitalised on the coming into effect of the PIA;

• • the term of the mortgage is to be restructured to 348 months from the coming into effect of the PIA, 372 months in all;

• • interest only payments of €57.47 will be made on the coming into effect of the PIA for the 24-month term of the PIA itself, based on a mortgage loan balance of €72,593.48 and tracker variable interest rate of 0.95%;

• • capital and interest payments of €238.74 from month 25 to month 372 will be made on the same loan balance, and on the basis of the same tracker variable interest rate;

• • the PIA does not provide for a write-down of the mortgage loan balances, and the repayments may vary based on any movements or changes in the ECB rate on which the tracker rate is based;

• • “…2.3.1.9 Should the debtor not survive until the end of the restructured mortgage term, her estate will repay the remaining balance owing on the secured debts to Ulster Bank from the sale of the home, Ulster Bank DAC's security…”.

8 The projected PIP fees in the PIA are €3,250.37 plus VAT, with projected costs of €500 plus VAT. These fees and outlays are payable to the PIP from the monthly contribution of the debtor under the PIA in priority to the amounts payable from time to time to the creditors. However, the PIP's written submissions state – commendably – that he has “undertaken to waive his fee in its entirety”.

9 In Part III of the PIA, it is stated that “…[t]he debtor is seeking to restructure the mortgage loan in a manner which reflects her means. In devising this proposal the PIP has assessed her means and debt serving capacity based on the assessable social housing rent that would apply in the event that she sought and was granted social housing…[s]he is making this PIA proposal with the view to ensuring that her secured creditor is treated fairly and equitably, while protecting reasonable living expenses and retaining her principal private residence”. [Para. 2 of Part III].

10 The PIA states that the PIP “…has considered mortgage to rent (‘MTR’) as a solution to enable the debtor to remain in her home. While she meets most of the eligibility criteria with regard to property valuation and means, the level of equity in the home would deem her ineligible to make an application” [Part III, Clause 2]. The PIP also provides a calculation of what the debtor's social housing rent would be. He estimates this at €241.19 per month, which is more than the monthly repayment suggested under the PIA. The PIP states that he has “…considered the payment history of the debtor. The debtor has made consistent payments of €245.00 per month on the loan and is satisfied that the restructured loan repayment is affordable and sustainable for her” [Part III, para. 3.6].

11 At para. 3.3(e) of Part III of the PIA, the PIP in summarising the “advantages of the proposed Arrangement”, states as follows:-

“(e) Should the debtor not survive until the end of the restructured mortgage term, her estate will repay the remaining balance owing on the secured debt to Ulster Bank from the sale of the home, Ulster Bank's security.”

12 Significantly, in summarising the main features of the PIA in the summary at Part I, the PIP states that “…it is acknowledged that the term extension is to a time most likely beyond the life expectancy of the debtor…” The summary goes on to state that “…in the event that this PIA is approved the debtor will have secured continued occupation of her family loan [sic] and make a mortgage payment in line with the social housing rent payment which would apply in the event that she was...