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

• Jurisdiction: Ireland
• Judge: Mr. Justice Mark Sanfey
• Judgment Date: 23 March 2022
• Neutral Citation: [2022] IEHC 180
• Court: High Court
• Docket Number: [Record No. 2020 136 CA]

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

and

In the Matter of Lyle Chambers of Ardbraccan, Kilmessan, County Meath

and

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

[2022] IEHC 180

[Record No. 2020 136 CA]

THE HIGH COURT

Personal insolvency arrangement – Excludable debt – Personal Insolvency Acts 2012-2015 s. 115A(9) – Personal insolvency practitioner seeking to approve the coming into effect of the personal insolvency arrangement – Whether an excludable debt which is not a permitted debt can be included in a personal insolvency arrangement at all

Facts: The debtor, Mr Chambers, appealed to the High Court against the refusal of the Circuit Court on 30th July, 2020 of an application by the debtor’s personal insolvency practitioner, Mr Arthur (the PIP), pursuant to s. 115A(9) of the Personal Insolvency Acts 2012-2015 (the Act). In its notice of objection of 4th April, 2018, Bank of Ireland Mortgage Bank (the bank), to whom €656,661.78 was owed at the time of the protective certificate, objected to the coming into effect of the personal insolvency arrangement (PIA) on a number of grounds. The bank’s primary objection related to the inclusion in the PIA of an amount owed by the debtor to a local authority as an excludable and/or preferential debt; providing for payment of that debt in full; and treating the application as a single creditor case in circumstances where the debtor had in fact two creditors. The debt in question, owed to Meath County Council and approximately €3,900 as of July 2020, arose from an unpaid development levy. The court was informed that there was an agreement to pay this debt by way of monthly instalments of €100. The PIP argued that the debt was “an excludable debt” pursuant to the definition of that term in s. 2 of the Act, in that it was a “liability of the debtor arising out of any tax, duty, levy or other charge of a similar nature owed or payable to the State”. It was submitted that Meath County Council fell within the term “the State” as being an “emanation of the State”, and it was further argued that the debt was correctly treated as a “special status debt that of itself holds a form of security and forms a degree of preference”. In the course of preparing a reserved written judgment, Sanfey J formed the view that s. 92(7) of the Act, which was not canvassed by the parties in their submissions to the court during the hearing, could have an important and perhaps decisive influence on the court’s deliberations; that subsection states that “an excludable debt shall not be the subject of a Personal Insolvency Arrangement unless it is a permitted debt”. Pursuant to s. 92(8), a permitted debt is one which, in accordance with s. 92(1), is included in a proposal for a PIA in circumstances where the debtor has consented, or is deemed to have consented, to the inclusion of the debt. Sanfey J invited the parties to make supplemental submissions in relation to that potentially decisive point. The main concern was the treatment of excludable debts, particularly where, as in this case, the creditor in question “opts out” of the PIA. This decision was therefore of general importance in addressing how a PIP is to deal with an excludable debt which is not included in the PIA.

Held by Sanfey J that an excludable debt may not be “the subject of” a PIA unless it is a permitted debt; that is to say, it cannot be addressed by the arrangement, and may not, as in this case, be discharged in whole or in part as a special circumstances cost. Sanfey J held that a development levy owing to a local authority is not an excludable debt within the meaning of category (a) of that term as defined in s. 2 of the Act; the term “the State” does not include a local authority.

Sanfey J held that those conclusions meant that the court could not approve the coming into effect of the PIA, and the PIP’s application pursuant to s. 115A(9) must be refused.

Application refused.

JUDGMENT of Mr. Justice Mark Sanfey delivered on the 23 ^rd day of March 2022

Introduction

1 . This matter concerns an appeal by Lyle Chambers (‘the debtor’) against the refusal of the Circuit Court (Her Honour Judge O'Malley Costello) on 30 ^th July, 2020 of an application by the debtor's personal insolvency practitioner Colm Arthur (‘the PIP’) pursuant to s.115A (9) of the Personal Insolvency Acts 2012–2015 (collectively referred to herein as ‘the Act’).

2 . In its notice of objection of 4 ^th April, 2018, Bank of Ireland Mortgage Bank (‘the Bank’ or ‘the objecting creditor’), to whom €656,661.78 was owed at the time of the protective certificate, objected to the coming into effect of the personal insolvency arrangement (‘PIA’) on a number of grounds. The bank's primary objection related to the inclusion in the PIA of an amount owed by the debtor to a local authority as an excludable and/or preferential debt; providing for payment of that debt in full; and treating the application as a single creditor case in circumstances where the debtor had in fact two creditors. While other issues were raised by the bank, the focus of the submissions at the hearing before this Court was on the treatment by the PIP of this particular debt.

3 . The debt in question – owed to Meath County Council and approximately €3,900 as of July 2020 – arose from an unpaid development levy. The court was informed that there was an agreement to pay this debt by way of monthly instalments of €100. The PIP argued that the debt was “an excludable debt” pursuant to the definition of that term in s.2 of the Act, in that it was a “liability of the debtor arising out of any tax, duty, levy or other charge of a similar nature owed or payable to the State…”. It was submitted that Meath County Council fell within the term “the State” as being an “emanation of the State”, and it was further argued that the debt was correctly treated as a “special status debt that of itself holds a form of security and forms a degree of preference…” [written submissions, para. 4].

4 . In the course of preparing a reserved written judgment, I formed the view that s.92(7) of the Act, which was not canvassed by the parties in their submissions to the court during the hearing, could have an important and perhaps decisive influence on the court's deliberations. That subsection states simply that “…an excludable debt shall not be the subject of a Personal Insolvency Arrangement unless it is a permitted debt”. Pursuant to s.92(8), a permitted debt is one which, in accordance with s.92(1), is included in a proposal for a PIA in circumstances where the debtor has consented, or is deemed to have consented, to the inclusion of the debt.

5 . I invited the parties to make supplemental submissions in relation to this potentially decisive point. The parties took up this invitation, proffering lengthy written submissions which skilfully and comprehensively addressed the issue.

6 . This judgment, then, addresses original issues in the hearing, and the issues canvassed in the supplemental submissions. The main concern is the treatment of excludable debts, particularly where, as in the present case, the creditor in question “opts out” of the PIA. This decision is therefore of general importance in addressing how a PIP is to deal with an excludable debt which is not included in the PIA.

Background

7 . The debtor is a farm operative from Ardbraccan, Kilmessan, Co. Meath. He is married with two children. As of the date of the PIA – 12 ^th March, 2018 – the plaintiff had two creditors. The bank was owed €656.661.78, which included mortgage loan debt of €533,533.21 which was secured on the debtor's principal private residence (‘PPR’), the market value of which was agreed by the parties pursuant to s.105 of the Act to be €296,750. Meath County Council was described in the PIA as a “non-specified debt creditor”, and was stated to be owed €7,200 in respect of an “unpaid development levy”.

8 . The PIA proposed a twelve month “mortgage moratorium”, which would be used to pay Meath County Council (‘the Council’) €7,197.34 in respect of the development levy, and to pay PIP fees of €5,103.22. The Council was expressed to have “opted out of the PIA as their debt must be addressed prior to any sale of the family home. However, to return the debtor to solvency, without recourse to selling the family home, would necessitate repaying this debt in full…” [Page 6 PIA].

9 . The debtor's wife worked part-time and it was assumed that she would contribute to reasonable living expenses (‘RLEs’) on a pro-rata basis, with the debtor assuming responsibility for 71.01% of the RLEs. All debt above current market value was to be treated as unsecured debt and written off, save for a dividend of 0.3% payable to the bank, a total sum of €789.48, with a restructured term of 409 months, or 34 years. The debtor was 33 years of age at the date of the proposal. The debtor would pay a fixed interest rate of 2% for the term of the mortgage. The proposed monthly payment for the term would be €1,042.67.

10 . The PIP certified pursuant to s.115A(2)(d) of the Act that s.111A of the Act applied to the proposal and that he had been notified on 14 ^th March, 2018 by “the creditor concerned” – the bank – that it did not approve of the proposal. By invoking the s.111A procedure, the PIP was making it clear that the debtor's only other creditor, the Council, was not participating in the PIA and had “opted out”. The bank took the view that the use of this procedure constituted a serious error “…in circumstances where the proposed Arrangement provides for payments to more than one creditor, in breach of section 106 of the Acts…” [para. 21, affidavit of Frank McNelis, 21 ^st August, 2018].

11 . The PIP applied to the Circuit Court for an order pursuant to s.115A (9). A long and detailed notice of objection...