Personal Insolvency Acts 2012-2015 v McNamara (A Debtor)
| Jurisdiction | Ireland |
| Judge | Mr. Justice Denis McDonald |
| Judgment Date | 02 March 2020 |
| Neutral Citation | [2020] IEHC 103 |
| Docket Number | Record No. H:IS:HC:2016:000039 |
| Court | High Court |
| Date | 02 March 2020 |
IN THE MATTER OF THE PERSONAL INSOLVENCY ACTS, 2012-2015 AND IN THE MATTER OF FRANK MCNAMARA (A DEBTOR)
[2020] IEHC 103
Denis McDonald J.
Record No. H:IS:HC:2016:000039
THE HIGH COURT
Proposed arrangement – Recovery of debts – Unfair prejudice – Debtor seeking confirmation of proposed arrangement – Whether proposed arrangements unfairly prejudice interests of secured creditor
Facts: The High Court (McDonald J), in a judgment delivered on 20th August, 2019 in these proceedings and in interconnected proceedings involving the wife of the debtor, Mr McNamara, set out its conclusions in relation to the bulk of the issues which arose for consideration in these cases. However, McDonald J was unable to reach a final determination in relation to three grounds of objection which had been raised by Tanager DAC, a secured creditor, holding a mortgage over the family home of Mr and Ms McNamara. The grounds of objection in question were: (a) that the proposed arrangements unfairly prejudice the interests of Tanager and are inequitable; (b) that there is no reasonable prospect that confirmation of the arrangements will enable Tanager to recover the debts due to it to the extent that the means of Mr and Ms McNamara reasonably permit; and (c) that the requirements of s. 91 (1) (e) of the Personal Insolvency Act 2012 (dealing with the making of a complete and accurate prescribed financial statement by a debtor) have not been satisfied. In support of each of these grounds of objection, Tanager drew attention to the discrepancies between (a) what was stated in a Standard Financial Statement (SFS) completed by Mr McNamara in January 2016 at the request of Tanager and (b) the information provided in his Prescribed Financial Statement (PFS) completed in October 2016 in support of his application for a protective certificate under the 2012 Act. McDonald J adjourned the matter to allow Mr McNamara to furnish a further affidavit explaining the discrepancy between the SFS on the one hand and the PFS on the other.
Held by McDonald J that the discrepancies had been appropriately explained. Although the approach taken by Mr McNamara and more particularly by Mr Green, the personal insolvency practitioner in this case, in their affidavits sworn in advance of the hearing in May 2019 was unsatisfactory, McDonald J concluded that this should not result in the dismissal of the application under s. 115A. With regard to the three grounds of objection, it seemed to McDonald J that: (a) the approach taken by Mr McNamara in his PFS in relation to the value of his inheritance (other than in respect of the rent) was, in fact, correct; (b) with regard to the allegation that the arrangements will not enable Tanager to recover the debts due to it to the extent that the means of Mr McNamara reasonably permit, contrary to the contention made by Ms O’Brien in her affidavit sworn on behalf of Tanager, the assets of Mr McNamara and Ms McNamara had been brought to bear for the benefit of their creditors under the proposed arrangement; and (c) the proposed arrangements do not unfairly prejudice the interests of Tanager.
McDonald J held that, subject to confirmation that the estate of the late Mr McNamara senior would be administered and the assets realised within a relatively short period, he would confirm the coming into effect of the proposed arrangement both in this case and in the interlocking proceedings involving Ms McNamara.
Proposed arrangement confirmed subject to confirmation that the estate of the debtor's father would be realised promptly.
In a judgment delivered by me on 20th August, 2019 in these proceedings and in interconnected proceedings involving Mr. McNamara's wife, I set out my conclusions in relation to the bulk of the issues which arise for consideration in these cases. However, I was unable to reach a final determination in relation to three grounds of objection which had been raised by Tanager DAC ( “Tanager”) a secured creditor, holding a mortgage over the family home of Mr. and Ms. McNamara (which is also their principal private residence within the meaning of s. 2 of the Personal Insolvency Act, 2012). The grounds of objection in question were:-
(a) That the proposed arrangements unfairly prejudice the interests of Tanager and are inequitable;
(b) That there is no reasonable prospect that confirmation of the arrangements will enable Tanager to recover the debts due to it to the extent that the means of Mr. McNamara and Ms. McNamara reasonably permit;
(c) That the requirements of s.91 (1) (e) of the 2012 Act (dealing with the making of a complete and accurate prescribed financial statement by a debtor) have not been satisfied;
As noted in para. 87 of my judgment of August 2019, there is a common thread underpinning each of these grounds of objection. In support of each of these grounds of objection, Tanager drew attention to the discrepancies between (a) what was stated in a Standard Financial Statement (“ SFS“) completed by Mr. McNamara in January 2016 at the request of Tanager and (b) the information provided in his Prescribed Financial Statement (“ PFS“) completed in October 2016 in support of his application for a protective certificate under the 2012 Act. In the SFS completed in January 2016, it was stated that Mr. McNamara had a half share in his parents' house along with his sister. Opposite that entry a “current value” of €500,000 was given. In addition, the SFS showed a monthly rental income of €800 which represented Mr. McNamara's share of the rent in respect of his parents' home. However, when he came to make a PFS for the purposes of seeking relief under the 2012-2015 Acts, he placed a value of €182,500 on his interest in his parents' home (although this was stated to be an approximate value). In addition, on p. 4 of the PFS (dealing with income) it was stated that Mr. McNamara had no income from rent.
The inconsistencies between the SFS and the PFS fed into each of the three grounds of objection mentioned in para. 1 above. In the first place, Tanager argued that the SFS demonstrated that there were assets available to Mr. McNamara that were more extensive than the assets which he had disclosed in his PFS and that this meant that the full means of Mr. McNamara to discharge the debts owed by him to creditors are not brought to bear under the proposed arrangement. Counsel for Tanager submitted that this gave rise to obvious unfairness to Tanager against a backdrop where Tanager would suffer such a substantial write-down of the debt due to it under the proposed arrangement. If Tanager was correct on either of these points, the arrangement could not be confirmed by the court. Under s. 115A (9) (f), the court must be satisfied that the arrangement is not unfairly prejudicial to the interests of a party such as Tanager. Secondly, under s. 115A (9) (¡i), the court must be satisfied that the arrangement will enable the creditors to recover the debts due to them to the extent that the means of the debtor permits. Thirdly, under s.115A (8) (a) (i), the court must be satisfied that the requirements of s. 91 have been complied with. Under s. 91 (1) (e) there is a requirement that a debtor must make a complete and accurate PFS. In light of the apparent discrepancies between the SFS and the PFS, Tanager argued that this statutory requirement had not been satisfied in this case.
As a consequence of the discrepancy between the information contained in the SFS and the PFS (insofar as the value of the inheritance and insofar as the rental income were both concerned), I formed the view (as set out in my August 2019 judgment) that Mr. McNamara was under an obligation to explain himself. On the face of it, the discrepancy raised an issue as to whether the full means of Mr. McNamara and Ms. McNamara had been brought to bear for the benefit of their creditors under the proposed arrangement. I also expressed the view in para. 94 of my judgment that it is vitally important, in proceedings under the 2012-2015 Acts, that debtors proposing to seek relief under the Acts should comprehensively and accurately disclose all of their assets and liabilities in their PFS. That is a crucial statutory requirement and it is fair to say that the proper functioning of the system depends on full disclosure being made.
In those circumstances, I adjourned the matter to allow Mr. McNamara to furnish a further affidavit explaining the discrepancy between the SFS on the one hand and the PFS on the other.
On 23rd September, 2019 Mr. McNamara swore a further affidavit. In that affidavit he exhibited, for the first time, his late father's will, the grant of probate issued to his sister on 23rd August, 2017 and the Inland Revenue affidavit sworn by his sister in support of the application for the grant of probate and also disclosing the assets of the deceased. Insofar as the value of his own inheritance is concerned, he explained that, in the SFS, he had mistakenly shown the full value of the property as distinct from his half share under his father's will. He also explained that he did not deduct legal or other expenses in relation to the realisation of the property. He also did not take account of the specific legacies made by his late father in his will which take priority over the residuary gift to himself and his sister.
When it came to making the PFS, Mr. McNamara relied on a valuation made by Gavigan Auctioneers and Valuers which apparently placed a value of €700,000 on the property of his late father. From that sum, a deduction of €35,000 was made to reflect an estimate of sales costs and legal costs at 5%. In addition, the specific legacies under the will (which included not only bequests to the grandchildren of Mr. McNamara's father but also two gifts to charity) had to be taken into account. These...
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