Re: Featherson (Personal Insolvency), [2018] IEHC 683 (2018)

Docket Number:2018 321 CA







JUDGMENT of Mr. Justice Denis McDonald delivered on the 3rd day of December, 2018.


  1. This is an appeal brought by Daniel Rule, Personal Insolvency Practitioner (“the practitioner”) on behalf of the above named debtor from the decision of His Honour Judge Enright in the Circuit Court of 24 July 2018 by which the learned Circuit Court Judge refused an application brought under s. 115 A of the Personal Insolvency Act 2012 (the 2012 Act) (as amended by s. 21 of the Personal Insolvency (Amendment) Act 2015) seeking an order confirming the coming into effect of a proposed Personal Insolvency Arrangement (“PIA”) notwithstanding that it had been rejected at a meeting of the creditors of the debtor held on 21 September 2017.

  2. At the hearing of the appeal, I was informed by counsel for the practitioner that the principal reason why the learned Circuit Court Judge refused the application under s. 115A was the poor payment history (as described below) of the debtor in the period prior to the issue of the protective certificate which, in this case, was issued on 14 July 2017. Under s. 115A(10)(a) of the 2012 Act, the court is required to have regard to the conduct of the debtor in seeking to pay debts within a two-year period prior to the issue of the protective certificate.

    The proposed PIA

  3. The debtor in this case is a self-employed builder. He lives in an apartment at Ballyboden, Dublin 16. Between July 2016 and March 2018 he was employed on a contracts basis by a civil engineering company and was due to be paid €750 gross per week. However, he says that these payments were intermittent and that accordingly in March 2018, he stopped working for the civil engineering company and commenced working for himself. According to his evidence, he has a number of building projects underway which vary in price from €67,000 to €113,000 with estimated profits varying from €16,000 to €35,000.

  4. The current market value of his apartment is €265,000. However, there is a debt due to AIB Mortgage Bank (“the bank”) of €511,763.39 secured on this property. In addition, the debtor owes money to AIB Leasing Ltd., Allied Irish Banks plc. and the Revenue Commissioners. In this case, there is a preferential debt owed to the Revenue Commissioners of €18,987. Although the debts to the Revenue Commissioners are “excludable debts” it should be noted that the Revenue Commissioners have participated in the PIA process and that they voted in favour of the proposed PIA. In fact, it is their vote in favour of the PIA that is relied upon for the purposes of s. 115A(9)(g) of the 2012 Act under which, on an application for an order under s. 115A, the court must be satisfied that the proposal has been accepted by at least one class of creditors. In the application before the Circuit Court, the Revenue Commissioners were characterised as the “excludable debt class of creditors”. Although this was initially disputed by the bank, no argument was addressed to that issue on the hearing of this appeal and it appears to be tacitly accepted that the Revenue Commissioners are a separate class for the purposes of the proposed PIA. I am satisfied that they do constitute a separate class.

  5. Under the proposed PIA, the secured indebtedness to the bank will be reduced to €291,500 (which is somewhat greater than the market value of the apartment). The balance of €220,263 will be treated as an unsecured debt and will rank with all other unsecured debts (other than the preferential debt to the Revenue Commissioners) for payment of a dividend which is estimated to be 3c per euro. In the case of the preferential debt due to the Revenue Commissioners in the sum of €18,987, this will be paid in full in accordance with s. 101 of the 2012 Act (which makes clear that preferential debts are to be paid in priority).

  6. During the currency of the proposed PIA (which will last for the maximum permitted period of 72 months), the estimated monthly payment to the bank will be €1,126.86 (based on an interest rate of 2.25% over the ECB rate). This compares to payments of €2,696.18 which are currently due per month (based on a margin of 3.81% over the ECB rate which was agreed by the debtor at the commencement of the mortgage). Subsequent to the expiry of the PIA, it is proposed that the interest rate would revert to 3.81% over the ECB rate and that the estimated monthly contractual repayment would be of the order of €1,334.18.

  7. According to Appendix 4 to the PIA, the anticipated self-employed income of the debtor will be €3,024 per month for the 72 month duration of the PIA. After deduction of amounts due in respect of reasonable living expenses, mortgage repayments and other expenses including the fees payable to the practitioner, it is envisaged that there will be net funds available of €1,369 per month in the first year and €5,068 per month in the second and subsequent years which will be used in the first instance to discharge the preferential debt to the Revenue Commissioners and which, over years 5 and 6 will see the 3% dividend paid to the unsecured creditors (including the amount due to the bank over and above the figure of €291,000 mentioned above). Under Clause 12 of the standard terms of the PIA (as set out in Part V), the debtor will be required to account for any increase in his income above the amount specified in Appendix 4. If that additional income exceeds €100 per month, 50% of the additional income will have to be made available to the practitioner for distribution to the unsecured creditors by way of an increase to the 3% dividend.

    The present application

  8. At the meeting of creditors which took place on 21 September 2017, the Revenue Commissioners (representing 7.11% of the unsecured debt) voted in favour of the proposal. 92.89% (predominantly made up of the bank debts) voted against the proposal. However, in circumstances where the Revenue Commissioners have (correctly) been treated as a separate class for the purposes of s. 115A, it was open to the practitioner on behalf of the debtor to make an application to the Circuit Court to confirm the coming into effect of the proposed PIA notwithstanding the outcome of the vote at the creditors meeting. Accordingly, having been so instructed by the debtor, the practitioner filed a notice of motion seeking relief under s. 115A on 27 September 2017. In turn, the bank filed a notice of objection in which a large number of issues were canvassed. However, in the course of the hearing before me, it was made clear by counsel for the bank that it was confining its objection to three points: -

    (a) In the first place, it was submitted that the payment history (addressed in more detail below) was such as to persuade a court to refuse relief under s. 115 A;

    (b) Secondly, it was contended that the payment history was such as to call into question the bona fides of the debtor;

    (c) Thirdly, it was suggested that the means of the debtor (in particular in the period following the expiry of the PIA) showed that the debtor could pay more to the bank than is provided for under the PIA.

    The arguments of the parties

  9. Counsel for the bank very properly accepted that a poor payment history is not an absolute bar to the grant of relief under s. 115A. He accepted that there well may be circumstances where a debtor will be in a position to explain why payments were not made. However, he stressed that the payment history of a debtor in the two year period prior to the grant of a protective certificate was a matter to which the court must have regard, particularly in circumstances where the court, on an application under s. 115A, is asked to grant very far reaching relief. Counsel submitted that it was incumbent on a debtor, invoking the s. 115A jurisdiction, to fully explain any poor payment record during the relevant two-year period. he also suggested that quite apart from that two year period, the debtor owed an obligation to explain any non-payment during the protection period itself.

  10. Counsel for the practitioner accepted that, on an application under s. 115A, the court must look at the payment record of the debtor. However, he submitted that, in contrast to the requirements set out in s. 115A(9) the court, under s. 115A(10) retained a discretion to approve the coming into effect of the PIA even where the payment record of a debtor within the relevant two year period was poor. He also stressed that in this case, the bank had not raised this issue as one of its grounds of objection in the notice of objection described above. He said it was very significant that it was only raised in the affidavits filed on behalf of the bank. He also drew attention to the fact that it had not been an issue which featured at all in the correspondence which had taken place (largely by email) between the practitioner and the bank during the currency of the protection period. Counsel also stressed that, in this case, the bank had made a counterproposal to the practitioner (after the creditors meeting) which he suggested showed very clearly that the bank was not in fact concerned about payment history and that the bank envisaged that the bank could, in fact, do business with the debtor.

  11. Counsel for the practitioner rejected the suggestion that the payment history during the currency of the protection period was relevant to an application under s. 115A. In the first place, he stressed that it is not addressed in the text of s. 115A. Quite apart from that consideration, counsel suggested that payments made during the protection period may operate almost as a preference in favour of a secured creditor, particularly in circumstances...

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