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

• Jurisdiction: Ireland
• Judge: Mr. Justice Mark Sanfey
• Judgment Date: 27 August 2021
• Neutral Citation: [2021] IEHC 568
• Docket Number: [2019 555 CA]
• Court: High Court

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

and

In the Matter of Karen Fitzpatrick of Drumalee, Belturbet, County Cavan (‘A Debtor’)

and

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

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

and

In the Matter of Niall McKiernan of Drumalee, Belturbet, County Cavan (‘A Debtor’)

and

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

[2021] IEHC 568

[2019 555 CA]

[2019 557 CA]

THE HIGH COURT

CIRCUIT APPEAL

Personal insolvency arrangement – Debts – Unfair prejudice – Objecting creditor seeking to appeal the judgment and orders of the Circuit Court which confirmed the coming into effect of the personal insolvency arrangements in respect of the debtors – Whether the terms of the personal insolvency arrangements were unfairly prejudicial to the objecting creditor

Facts: EBS DAC (the objecting creditor/the bank) applied to the High Court to appeal the judgment and orders of the Circuit Court of 19th December, 2019 which confirmed the coming into effect of the personal insolvency arrangements (PIAs) in respect of Ms Fitzpatrick and Mr McKiernan (the debtors). The applications raised issues as to whether the PIAs, in accordance with s. 115A(9)(b)(ii) of the Personal Insolvency Acts 2012-2015 (the Act), enabled the creditors to recover the debts due to them to the extent that the means of the debtors reasonably permit, or whether, as the objecting creditor alleged, the terms of the PIAs were unfairly prejudicial to it as a creditor. A further issue was whether or not the provisions of s. 51 of the Act require pension assets which were likely to accrue to the debtors in the future to be taken into account in assessing the resources available to creditors to discharge their liabilities.

Held by Sanfey J that while the debtors may technically be regarded as “insolvent” for the purposes of s. 91(1)(d) of the Act, in that there were some minor creditors disclosed in the prescribed financial statement (PFS) of each of the debtors, none of which appeared to be exerting pressure for payment, the debtors could not be considered insolvent by virtue of the bank debt. Sanfey J held that the restructured 2014 loan was affordable, and on the evidence before him, was likely to remain so. To the extent that the debtors anticipated being unable to discharge the warehoused amount in 2014, it seemed to Sanfey J that the PIAs were premature, and in any event unfairly prejudicial to the interests of the objecting creditor. Sanfey J noted that counsel for the bank urged the court that the debtors had a ready means of raising funds to discharge the warehoused amount, in that they could sell some or all of the 25 acres of land which surround the principal private residence (PPR), and that the land on the other side of the public roadway in particular could be sold without impinging on the amenity of the PPR and the land immediately adjacent to it. Sanfey J held that any sale of portion of the land would necessitate the release of the bank’s security in relation to that portion, and any such sale would have to be the subject of negotiation between the debtors and the bank. However, Sanfey J found that no reason was advanced to him on behalf of the debtors as to why at least some of the lands surrounding the PPR could not be sold, and the proceeds used to ease their burden of indebtedness.

Sanfey J held that there would be an order in respect of each debtor allowing the bank’s appeal and the matter would be listed for mention in the next personal insolvency list, so that the parties may consider this judgment and make any submissions they wish in relation to the orders to be made.

Appeal allowed.

JUDGMENT of Mr. Justice Mark Sanfey delivered on the 27th day of August 2021.

Introduction

1 This judgment concerns applications by EBS DAC (‘the objecting creditor” or ‘the bank’) to this Court to appeal the judgment and orders of the Circuit Court of 19th December, 2019 in each of the cases in the title above, which confirmed the coming into effect of the personal insolvency arrangement (‘PIA’) in each case in respect of Karen Fitzpatrick and Niall McKiernan (‘the debtors’).

2 The applications raise important issues as to whether the PIAs, in accordance with s.115A(9)(b)(ii), enable the creditors to recover the debts due to them to the extent that the means of the debtors reasonably permit, or whether, as the objecting creditor alleges, the terms of the PIAs are unfairly prejudicial to it as a creditor. A further issue is whether or not the provisions of s.51 of the Personal Insolvency Acts 2012–2015 (referred to hereafter collectively as ‘the Act’) require pension assets which are likely to accrue to the debtors in the future to be taken into account in assessing the resources available to creditors to discharge their liabilities.

Background

3 The debtors are a married couple, who reside at Drumalee, Belturbet, Co. Cavan. Ms. Fitzpatrick is described in her PIA as a “head teacher” in Cavan and Monaghan ETB. Mr. McKiernan is a garda sergeant. In his affidavit of 29th January, 2019 on behalf of both debtors, Mr. McKiernan refers to the principal private residence (‘PPR’) as having a value of €320,000, whereas the active loan balance owing to the bank consists of a live balance of €386,376 and a “warehoused” amount of €97,979. The debtors also own a property at 4 Church Hill, Clones, Co. Monaghan which was purchased as a buy-to-let investment. This property was acquired by a loan from the bank of €137,000 to Ms. Fitzpatrick. The property is unoccupied, and is deeply in negative equity. The evidence of the bank is that no payments have been made on foot of the loan to Ms. Fitzpatrick in respect of the Clones property since October 2014.

4 The debtors accepted a home loan in the amount of €530,000 on 24th April, 2006 to construct the property at Drumalee. Various top-up loans were made to the debtors by the bank in the sum of €260,000 to allow them to complete the construction of the PPR. The debtors fell into arrears in 2011, and entered a mortgage arrears resolution process (‘MARP’) with the bank in May 2012. In 2014, the debtors and the bank agreed a restructure of the various loans (‘the 2014 restructured loan’) by which the debtors obtained a write-off of €286,000. In addition, a sum of €82,368.08 was warehoused for a period of 329 months, i.e. payment of this sum, to which interest would not be applied, would be deferred until the end of the mortgage term. It appears that this sum was subsequently revised to €97,979.07, the amount for which the bank proved for the purposes of the PIA. The live balance of the restructured loan, according to the facility letter of 3rd September, 2014, was to be €411,840.38, to which an interest rate of 4.58% would be applied over the restructured period of 329 months. The parties accept that the 2014 restructured home loan required payments to be made monthly of €1,995 per month, although the facility letter refers to a higher figure of €2,200.13. The bank accepts that the debtors have discharged these monthly payments in full since the restructured home loan was agreed.

5 However, the debtors now contend that the warehoused element “…will lead to an insolvent position between now and the end of the loan, and a homeless situation at the end of the loan…” [affidavit Niall McKiernan of 29th January, 2019, para. 24]. It is suggested by the debtors that they are “wholly insolvent” on a balance sheet basis, and insolvent on a cash flow basis in that they will be unable to meet the warehoused amount when it falls due.

The PIAs

6 The debtors consulted Mr. John Donnan of Kirk & Associates (‘the PIP’), who formulated the debtors' PIAs after conducting a s.98 process with the creditors. The meeting of creditors was held on 25th January, 2018. The arrangement was rejected by the creditors – effectively, by the bank, as the only other creditor of the debtors present and voting was an unsecured creditor, ADL Tile & Stone Limited, which voted in favour of the arrangement. The bank subsequently in its submissions took issue with this creditor being relied upon by the debtors to constitute a class of creditors (‘regular unsecured class of creditors’) for the purpose of s.115A(17), on the basis that this creditor was in fact a “connected person” for the purpose of s.108(5), and thus prohibited from voting in favour of the PIA. However, no evidence was proffered in this regard, nor was this objection raised in the notices of objection filed on 7th February, 2018. As the matter was not pressed by the objecting creditor at the hearing before me, I do not propose to consider it further.

7 As of January 2018, Ms. Fitzpatrick and Mr. McKiernan were each 43 years of age. They had three children aged three, five and eight. The PPR was stated in the PIA to be valued by the bank at €320,000. The debtors proposed that the mortgage balance be reduced to this figure and discharged over 289 months, or approximately 25 years, at existing mortgage rates. The estimated monthly mortgage payment under the PIA was stated to be €1,784.99, a reduction from the existing repayment of approximately €1,990 per month. The buy-to-let property in Clones, valued at €30,000 by the bank, would be sold with the proceeds going to the bank, and the residual balance on the loan in respect of this property treated as an unsecured debt. There would be a lump sum contribution of €40,000 from a relative of the debtors to provide for the PIP's fees and a dividend for the unsecured creditors. As Ms. Fitzpatrick's salary was higher than that of Mr. McKiernan, she would bear 60% of the reasonable living expenses (‘RLEs’), with Mr. McKiernan bearing 40%. The duration of the PIA would be six months,...