Promontoria Oyster DAC (the Objecting Creditor) v Fergus O'Connor (the Debtor)

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 30 November 2023
• Neutral Citation: [2023] IESC 31
• Court: Supreme Court
• Docket Number: Supreme Court Record No.: S:AP:IE:2022:000091 Circuit Court Record Number.: C:IS:SEWX:2019:02102

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

and

In the Matter of Fergus O'Connor of Ballygarron, Kilmuckridge, County Wexford (“The Debtor”)

and

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

[2023] IESC 31

Dunne J.

O'Malley J.

Baker J.

Woulfe J.

Murray J.

Supreme Court Record No.: S:AP:IE:2022:000091

High Court Record No.: 2022 No. 43 CA

Circuit Court Record Number.: C:IS:SEWX:2019:02102

AN CHÚIRT UACHTARACH

THE SUPREME COURT

Insolvency – Personal insolvency arrangement – Personal Insolvency Act 2012 s. 115A – Appellant appealing from the order of the High Court approving the coming into operation of a personal insolvency arrangement – Whether the High Court properly assessed the personal insolvency arrangement in the performance of its statutory role under s. 115A of the Personal Insolvency Act 2012

Facts: The appellant, Promontoria Oyster DAC, appealed to the Supreme Court from the order of the High Court (Owens J) on an appeal from the Circuit Court, approving the coming into operation of a Personal Insolvency Arrangement (PIA) pursuant to the powers contained in s. 115A of the Personal Insolvency Act 2012, as amended. The appellant’s grounds of appeal were as follows: (1) the High Court judge erred in law in construing and applying the concept of an "insolvent'' debtor, for the purposes of s. 91(1)(d) of the 2012 Act in an excessively broad and inflexible manner and was inconsistent with previous decisions of the High Court, by which he was bound, in particular the decision of Re Nuzum (A debtor) [2020] IEHC 164; (2) the High Court judge erred in law in determining that agricultural land was incapable, at the level of principle, of constituting one of the “readily realisable assets” of the debtor, Mr O’Connor; and (3) the High Court judge erred in law in failing to afford appropriate weight, or any weight, to the requirement that an asset must be “reasonably necessary for the debtor's employment, business or vocation” in order to be protected under s. 99(1)(d) of the 2012 Act, and in construing the provisions of s. 99(1)(d) in such a manner as to permit the extinguishment of security over a real property asset, purely on the basis that the debtor derived income therefrom.

Held by Baker J that the High Court judge’s finding of fact that the debtor was insolvent for a long time was sustainable on the evidence. Baker J found that the cash flow of the debtor from his farming enterprise was far less than his monthly outgoings and liabilities. Baker J noted that the debtor’s farmlands were held in some cases subject to the lites pendentes registered by his estranged wife, and the High Court judge accepted the evidence that the farmlands were not readily realisable by reason of that fact. Baker J held that no sale could close as an unencumbered title could not be furnished to a purchaser without either the consent of Mrs O’Connor or the removal of the lites pendentes by court order. Baker J noted that the two courts that dealt with the objection extrapolated and made an inference that either possibility would take time; they assessed solvency on the difference between income and current liabilities, and had regard to the practical reality that a sale would take time. In the application of the cash flow test on that basis, Baker J held that the debtor was insolvent. Baker J held that the Supreme Court is not a court for the correction of errors and must be seen as being bound by the finding of fact by the High Court provided it was one come to on the basis of evidence before the High Court judge. Baker J held that the High Court judge did have sufficient evidence before him on which to come to the conclusion he did, having regard to the clear impediments to a swift sale of assets and to the fact that current income was nowhere close to being sufficient to meet current liabilities.

Baker J held that whilst she would dismiss the appeal from the finding that the debtor was insolvent, she was not persuaded that the High Court properly assessed the PIA in the performance of its statutory role under s. 115A. Baker J noted that there was no argument before that court that engaged the mandatory criteria in s. 115A(9), and the balancing of competing rights was not done. The Supreme Court could not in those circumstances itself be satisfied that the process for which s. 115A provides had been performed. In the light of the absence of proper scrutiny of the facts and the gaps in the evidence, the Supreme Court could not itself make an assessment of the fairness of the PIA. Therefore, Baker J remitted the matter for assessment to the High Court on that aspect of the appeal.

Appeal allowed in part.

JUDGMENT of Ms. Justice Baker delivered on the 30 ^th day of November, 2023

Introduction

1 . The Bankruptcy Law Committee Report (the Budd Report), delivered to the Minister for Justice in 1972, commented that bankruptcy had a broad range of purposes and was no longer properly to be seen as merely a means of protecting creditors. As I noted in my judgment in Re Wymes (A Bankrupt) [2021] IESC 40, [2021] 1 I.R. 803, preventing fraud by bankrupts was the stated purpose of the first Bankruptcy Act directly applicable to Ireland, enacted in 1772. The approach to bankruptcy has evolved since then, and bankruptcy is now seen as having a much broader purpose and social effect, in that it provides for the orderly resolution of debt, fairness between creditors and the protection of both debtors and creditors. Indeed, the Budd Report noted that one purpose or object of bankruptcy was to protect bankrupts from vindictive creditors by freeing them from the balance of their debts when they were unable to pay these in full, and to thereby help to “rehabilitate” the bankrupt.

2 . Nonetheless, as must be apparent from any reading of Dickens, but also modern literature or social commentary, bankruptcy still carries a degree of stigma which can endure and affect a person's creditworthiness. This is so notwithstanding the reduction to 12 months of the statutory period during which a bankrupt is excluded from ordinary economic activity in the State. As I noted in para. 17 of my judgment in Wymes the element of shame which finds echoes in literature and history may be less apparent now in the light of contemporary thinking on the societal impact of debt. Nonetheless, a person adjudicated bankrupt thereby acquires a status which is restrictive of the economic activities of the bankrupt for the duration of the bankruptcy, and which may have significant effects on their credit rating long after the bankruptcy has come to an end. Further, the assets of that person are immediately vested in the Official Assignee upon adjudication, and limitations are placed on the capacity to litigate. See the observations of McKechnie J. in Murphy v. Bank of Ireland [2014] IESC 37, where he says that bankruptcy is seen as “reflecting badly on one's character and reputation.”

3 . The Personal Insolvency Act 2012, as amended, (“the Act of 2012”) provides a wholly new statutory scheme by which the debts of insolvent persons are forgiven or restructured in whole or in part, and provides for a far-reaching procedure intended to ameliorate the effect of indebtedness, and to so without some of the more draconian consequences of bankruptcy. A person availing of the scheme does not thereby acquire a different legal status from other persons, and the invocation of the personal insolvency process does not involve the limitations imposed as a matter of law on a bankrupt as to the ownership of property or the right to litigate.

4 . The Act of 2012 reflects the societal importance of protecting debtors, not merely for the personal interest of the debtor or perhaps his or her family, but also in the interests of the common good. The Long Title of the Act recites in some detail its objectives and the interests of the common good it seeks to enhance, including the stability of the financial system in the State. The Act recites three overriding objectives, first, the need to ameliorate the difficulties experienced by debtors due to insolvency and to thereby lessen the adverse consequences for economic activity in the State; second, the need to enable creditors to recover debts due to them by insolvent debtors to the extent that the means of those debtors reasonably permits in an orderly and rational manner; and third, the need to enable insolvent debtors to resolve their indebtedness without recourse to bankruptcy and thereby facilitate the active participation of such persons in the economic activity of the State.

5 . The perceived benefit to society generally and to the common good by ensuring and enhancing the stability of the financial system in the State was regarded of high value, as were the orderly and reasonable resolution of debt, on the one hand, and recovery by creditors of liabilities on the other hand. The Act rests on a formulated position that bankruptcy was to be avoided should an alternative rational and orderly means of resolution be available to the debtor and creditor.

6 . In Re Nugent (A debtor) [2016] IEHC 127 I remarked that:

“[T]he purpose of the personal insolvency legislation is to avoid a debtor being made bankrupt, and that the personal insolvency regime offers a more benevolent means by which he or she can deal with indebtedness.” (at para. 59)

7 . The innovative nature of the Act was also noted by me in the High Court in Re McManus (A debtor) [2016] IEHC 279.

8 . When an application for approval of an arrangement to resolve debt comes for approval by the relevant court under the legislative scheme, those principles, and the express statutory conditions which reflect them, inform the assessment of the reasonableness and fairness of the arrangements which, once approved,...