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

CourtHigh Court
JudgeMr. Justice Mark Sanfey
Judgment Date02 November 2021
Neutral Citation[2021] IEHC 686
Docket Number[Record No. 2020/146 CA]
In the Matter of Part 3, Chapter 4 of the Personal Insolvency Acts 2012–2015
And in the Matter of Peter Anthony Gallagher of 11A Meadowbrook, Tubbercurry, County Sligo
And in the Matter of an Application Pursuant to Section 115A (9) of the Personal Insolvency Acts 2012–2015

[2021] IEHC 686

[Record No. 2020/146 CA]


JUDGMENT of Mr. Justice Mark Sanfey delivered on the 2nd day of November, 2021.


This matter concerns an appeal by the personal insolvency practitioner Judy Mooney of McCambridge Duffy (‘the PIP’) from the judgment of the Circuit (Personal Insolvency) Court (Her Honour Judge Mary Enright) of 13th August, 2020, in which that court refused an application on behalf of Peter Anthony Gallagher (‘the debtor’) pursuant to s.115A of the Personal Insolvency Acts 2012–2015 (hereafter referred to collectively as ‘the Act’). The objecting creditor which opposes the appeal is Bank of Ireland Mortgage Bank (‘the bank’ or ‘the objecting creditor’).


When the appeal came before this Court for hearing, it had been flagged by counsel on both sides as being a relatively straightforward appeal, primarily concerning issues of the affordability and sustainability of the personal insolvency arrangement (‘PIA’), and which did not involve complicated questions of law or require written submissions. However, during the hearing counsel for the bank, in the context of submissions on the issues of sustainability, made detailed and trenchant criticisms of the figures set out in the PIA, and particularly those relating to the debtor's income, submitting that the court could have no confidence that the debtor had sufficient income to perform the terms of the PIA. In this regard, counsel made reference to discrepancies in the documentation advanced on behalf of the debtor, and was severely critical of the way in which the PIP had purported to satisfy herself that the debtor's income figure was correct.


Counsel for the PIP took exception to these submissions, saying that the particular and focused points now made by the bank had never before been raised. It was submitted that the bank had accepted the income figures proffered in the PIA and had not raised any point about income during the consultation process between the PIP and the bank pursuant to s.98 and s.102 of the Act. It was suggested, that while there had been substantial issues before the Circuit Court about the debtor's payment history, and the need to substantiate proposed financial assistance from siblings, the composition of the income figure had not been a substantial issue. Counsel did not seek an adjournment, but replied in detail to the bank's submissions, defending the conduct of the process by the PIP in his reply.


In order to understand the context of the submissions, it is necessary to look in some detail, not just at the PIA itself, but also the prescribed financial statement (‘PFS’) which was sent to creditors by the PIP prior to the formulation of the PIA, and various other items of documentation offered by the debtor as corroboration of his financial position.


This matter is of some antiquity. The protective certificate (‘PC’) was issued on 16th November, 2017. The PIA was put before the creditors at a meeting on 22nd February, 2018. Two minor creditors voted in favour of the arrangement. The bank, representing 95.03% of creditors present and voting, voted against the arrangement.


The debtor is 59 years of age. He is single, has no dependants and lives in Tubbercurry, Co. Sligo. He is a panel beater by profession, and operates his own business in Ballymote, Co. Sligo. His principal private residence (‘PPR’) has a current market value of €85,000. As of the date of the PIA, the mortgage balance on the PPR was €159,955 owed to the objecting creditor, leaving a deficit of €74,955.


The PIA states that the debtor has a net total income of €1,861. It proposes an extension of the existing mortgage term from 168 months to 180 months. The mortgage will be written down to the current market value of €85,000 with the remaining balance to be written off. The duration of the arrangement will be twelve months, with the monthly repayment reduced to €518, which includes a fixed rate of interest of 1.5%; after the arrangement, payment is on the basis of the ECB tracker rate plus 1.25%. The arrangement does not anticipate much or any difference in the monthly repayment after the arrangement has been completed.


In relation to the debtor's income, Appendix II of the PIA sets out the net income from the debtor's employment as €1,761. The figure of €1,861 is achieved by the addition of “family assistance” of €100 per month. Subsequent affidavits in the proceedings suggest that the debtor's brother is prepared to commit to contributing this €100 monthly to the debtor's expenses from his own resources. After deduction of set costs of €1,050, the mortgage repayment of €518 and additional expenditure items of €291, the debtor will, on implementation of the PIA, be left with a monthly surplus of €2. On these figures, the debtor would be living on the “reasonable living expenses” (‘RLEs’) recognised by the Insolvency Service of Ireland (‘ISI’) for years to come.


In addition to the restructure, the debtor offers a lump sum of €10,000 in full and final settlement of his unsecured liabilities. This sum, which subsequent affidavits suggest is to be provided by the debtor's sister, will represent a payment of six cent in the Euro to the unsecured creditors.


The PIA contains a comparison of the PIA with the estimated outcome in bankruptcy. This comparison suggests that the sale of the debtor's main asset – his PPR – would yield a dividend to the bank as the secured creditor of forty-nine cent in the Euro, as opposed to the fifty-four cent in the Euro represented by the current market value. Bankruptcy costs would be likely to swallow up the proceeds of the sale of the debtor's business premises, which is valued at €10,000. As we have seen, there is a dividend of six cent in the Euro for unsecured creditors, whereas no dividend for unsecured creditors is likely in a bankruptcy. The bankruptcy comparison therefore suggests that the PIA will yield a better outcome for the bank than if the debtor were adjudicated bankrupt.

The proceedings

The PIP applied by notice of motion of 27th February, 2018 for an order pursuant to s.115A (9) of the Act confirming the coming into effect of the PIA, notwithstanding its rejection by the creditors. A notice of objection was filed by the objecting creditor on 16th March, 2018. The notice included grounds expressed in general terms relating to the affordability and sustainability of the PIA, claiming that the bank was unfairly prejudiced by its provisions. Specific complaint was made that the conduct of the debtor in the two years prior to the issue of the PC, which is required to be considered by the court under s.115A (10), did not support the granting of the reliefs sought.


The bank's objections were explored in the affidavit of 30th July, 2018 of Sandra Harrison, a case manager in the bank's personal insolvency unit. The affidavit concentrated on two matters: firstly, complaint was made that no evidence had been supplied by the PIP to corroborate the assertion that the debtor's sister and brother would make the contributions of €10,000 and €100 per month respectively. Secondly, the payment history of the debtor was severely criticised. It was stated that no payment whatsoever had been made by the debtor to his mortgage loan account in the seventeen-month period from December 2015 to May 2017. A payment of €400 per month had been made since May 2017, with the exception of two months in that period where no payment was made.


There then followed replying affidavits from the PIP of 10th December, 2018, and the debtor of 7th January, 2019. It is notable that the PIP criticised the approach of the bank to the matter: she said that the grounds of objection “were not raised in advance of the issuance of the PIA proposal when I would have had an opportunity to deal with same and potentially avoid the need for the herein application. In that regard, there was no proper engagement during the Section 98, Section 102 process, or during the leadup to the issuance of the PIA proposal” [para. 8]. It was said that no proof or documentation had been sought by the bank, nor had any questions been raised, in relation to the debtor's income during this period.


In response to a criticism in Ms. Harrison's affidavit that the PIP had “…failed to provide this Honourable Court or the Bank with any satisfactory evidence of the Debtor's self-employed income…” [para. 17], the PIP, having referred to the lack of inquiry on the part of the bank at any stage of the process up to the holding of the creditor's meeting, averred as follows:-

“15 …[N]onetheless I satisfied myself in relation to the Debtor's income. I say I am satisfied the Debtor's income is sustainable in circumstances where I say and believe that the Debtor's accounts have been assessed by me, verified and substantiated to my satisfaction and indeed to the satisfaction of the creditor prior to the making of the proposal. It therefore leads to a situation that the current income, current expenditure, current affordability and expected and projected affordability moving forward has been assessed and verified.”


The PIP went on to describe in very general terms the steps she takes to ensure that the debtor's income is reliable and the PIA itself viable. She went on to point out that, as the debtor would be in receipt of an old age pension from age 66, his ability to service the loan from that age onwards would be greatly enhanced. The PIP then set out her views at some length as to why “the payment history of a debtor is not fully indicative of their financial position nor is it...

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