Re Dunne (A Debtor)

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 06 February 2017
• Neutral Citation: [2017] IEHC 59
• Judgment citation (vLex): [2017] 2 JIC 0604
• Docket Number: [C:IS:SEWD:2015:001543]
• Court: High Court
• Date: 06 February 2017

[2017] IEHC 59

THE HIGH COURT ON CIRCUIT

Baker J.

[C:IS:SEWD:2015:001543]

SOUTH EASTERN CIRCUIT COUNTY OF WATERFORD

IN THE MATTER OF PART 3, CHAPTER 4 OF THE PERSONAL INSOLVENCY ACTS 2012 — 2015

In re Dunne (A DEBTOR)

AND IN THE MATTER OF APPLICATION PURSUANT TO SECTION 115A (9) OF THE PERSONAL INSOLVENCY ACTS 2012 – 2015

Bankruptcy – S. 115A (9) of the Personal Insolvency Acts 2012–2015 – Personal Insolvency Arrangement – Prejudicial and unreasonable PIA – Continued solvency.

Facts: The Personal Insolvency Practitioner ('PIP') had filed two separate appeals against the orders of the Circuit Court whereby the Personal Insolvency Arrangements ('PIA') as proposed by the PIP on behalf of debtors were rejected by the Circuit Court and the objection of the lender was upheld. The lender/objector contended that the proposed PIA failed to satisfy the requirements under s. 115A (9) (b) (ii), s. 115A (9) (e), and s. 115A (9) (f) of the Personal Insolvency Acts 2012-2015 ('Acts') as it did not enable the creditors to recover the debts to the extent the means of the debtor permitted and it was unfairly prejudicial. The objector argued that the test under s. 115A (9) (b) (ii) of the Acts was to look into the reasonableness of the repayment proposal over the entire term of the mortgage and not just the duration of the PIA.

Ms. Justice Baker dismissed both the appeals. The Court held that the statutory protection to the debtor did not extend outside the terms of the PIA. The Court found that though the proposed PIA presented an accelerated arrangement of payment to the unsecured creditors within six months, yet it envisaged the repayment of main mortgage in relation to the principal private residence of the debtor and the interlocking debtor over a period of 29 years. The Court observed that the legislature did not intend to allow a PIA whereby it was shown that the debtor would be in a position to continue to meet mortgage payments for his lifetime. The Court found that the disputed clause in the proposed PIA was unfairly prejudicial as it was not clearly defined and envisaged some degree of supervision by the Insolvency Service of Ireland ('ISI') or the Court. The Court refuted the averment made by PIP that he should be protected against any future claim for including a clause in the proposed PIA that restricted the right of review of the warehoused debt. The Court held that it was not the function of the Court to ensure the protection of the PIP from future suit. The Court held that the purposes of the Acts were to achieve solvency of a debtor and not to ensure his or her continued solvency.

JUDGMENT of Ms. Justice Baker delivered on the 6th day of February, 2017.

1 Mitchell O'Brien, the personal insolvency practitioner ('PIP') appointed to act as an independent intermediary in the process, made a proposal for a Personal Insolvency Arrangement ('PIA') under the Personal Insolvency Acts 2012 to 2015 ('the Acts') pursuant to his statutory function. Permanent TSB Plc ('PTSB'), a lender which holds security on the principal private residence of the debtor, voted against the PIA at the statutory meeting of creditors held on 5th February, 2016. The regular unsecured class of creditors supported the PIA.

2 An application to the Circuit Court under s.115A of the Acts was lodged by the PIP on 6th February, 2016. This judgment is given in an appeal from the order of Her Honour Judge Mary Enright in the Circuit Court made on 19th October, 2016 by which the application of the debtor was refused and the objection of PTSB upheld.

3 The PIA of the interlocking debtor, Ms Cathy Dunne, was also rejected at the meeting of creditors and her application under s. 115A was also refused by the Circuit Court. Her appeal, record no. C:IS:SEWD:2015:001544, was listed to be determined by me in conjunction with the present application, and as the legal and factual issues are materially identical, this judgment is intended to dispose of both appeals.

4 Section 115A was inserted by s. 21 of the Personal Insolvency (Amendment) Act 2015 and gives the relevant court power to make an order confirming the coming into effect of a proposed PIA notwithstanding its rejection at a meeting of creditors, when it is satisfied that the jurisdictional tests set out in s. 115A(9) and (10) have been met, and there is a reasonable prospect that the PIA will enable the debtor not to dispose of an interest in or cease to occupy all or part of his or her principal private residence. The Acts have been considered by me in my judgment in Hill and Personal Insolvency Acts [2017] IEHC 18.

5 The relevant considerations which bear on the present appeal may be stated as involving two questions: whether the PIA does, as is contended by PTSB, unfairly prejudice its interests; and whether the means of the debtor have been appropriately brought to bear on the proposals for repayment of the secured debt as envisaged by the Acts.

6 PTSB calls in aid three of the statutory criteria identified as bearing on the jurisdiction of the Court under s. 115A(9) as follows.

7 First, it argues that the proposed PIA does not satisfy the requirement in s. 115A(9)(b)(ii) in that it does not:

'enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit'.

8 Second, it argues that the proposed PIA is not in compliance with s. 115A(9)(e) in that it is not:

'... fair and equitable in relation to each class of creditors that has not approved the proposal and whose interests or claims would be impaired by its coming into effect.'

9 Third, it argues that the proposed PIA does not meet the requirement in s. 115A(9)(f) that it be:

'... not unfairly prejudicial to the interests of any interested party.'

10 It is accepted that the debts that are proposed to be dealt with by the PIA include 'relevant debt' within the meaning of s. 115A(18) of the Acts.

The relevant provisions of the PIA: the split mortgage.

11 The PIA proposes the retention by the debtor and his wife of their principal private residence and the restructuring of the loan secured on that premises. Briefly the financial arrangement proposed is as follows.

12 The principal private residence of Mr. Dunne and his wife is secured for the repayment of a debt of €384,381.26 (rounded up to €385,000 for certain calculations). Prior to the creditors' meeting, and following an engagement between the debtor and his spouse with PTSB, an agreement was reached as evidenced in a letter dated 7th January, 2015 by which the mortgage debt was to be 'split' into two accounts, one account described as the 'Main Mortgage Account', and a second account, the 'Warehouse Account'. The agreement to split the mortgage by warehousing the balance of the debt required the mortgagors to pay full capital and interest on the main mortgage account, and provided that they did not have any obligation to pay the warehoused balance until the end of the mortgage term unless their repayment capacity improved, and subject to review.

13 The warehoused amount was agreed to bear interest at 0%, and it was agreed that at the end of the remaining term of the main mortgage, agreed to be 348 months (29 years) options would be explored regarding the repayment of the warehoused amount, whether by way of refinancing, making a lump sum payment or sale. The letter of 7th January, 2015 from PTSB indicated that when consideration came to be had in regard to the warehoused amount that it would 'endeavour to work closely' with the debtors and take into account their financial circumstances at the relevant time.

14 Both the main mortgage and the warehoused mortgage were to remain secured against the principal private residence of the debtor and his wife.

15 PTSB reserved onto itself a right to 'review' the financial situation of the mortgagors during the currency of the main mortgage, and they were required to advise if their repayment capacity 'materially changed', whether by the improvement or disimprovement of their financial circumstances. It was expressly said that if the repayment capacity of the mortgagors should improve, that on review PTSB could transfer funds from the warehoused account to the main mortgage account. It is a proposed limitation on this capacity to review that forms the basis of the approach of the PIP and the rejection by PTSB of the PIA.

16 The principal private residence of the debtor and his wife has an agreed market value of €230,000, calculated in accordance with the provisions of s. 105 of the Acts. The main mortgage debt is €141,000, and the warehoused element is €244,000. The proposed monthly repayment on the main account is €527.31.

17 The mortgage restructure which provided for a split mortgage was agreed between the debtors and PTSB before the personal insolvency process started and evolved from engagement under MARP. The debtors however found that the agreed repayment schedule had left them unable to service their unsecured debt, and pressure from their unsecured creditors led to engagement with the Insolvency Service of Ireland ('ISI'). A protective certificate issued on 30th November, 2015 under s. 95(2)(a) of the Acts. During the currency of the protective certificate PTSB made a submission under s. 98(1) and proposed that the split mortgage arrangement would form part of any PIA to be put to creditors. Accordingly, the split mortgage proposal was included in Part IV, Clause 2 of the standard form for a PIA under the heading 'Treatment of Secured Debt'.

The proposed term to govern the review

18 The statutory function of a PIP involves a consideration of the financial sustainability of a PIA. It is accepted by both parties that a debtor may seek the benefit of the Acts and achieve a resolution of debt by means of a PIA once only in a lifetime. The PIP has proposed the...