Re Jd (A Debtor)

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 21 February 2017
• Neutral Citation: [2017] IEHC 119
• Docket Number: [C:IS:SEWX:2015:001313]
• Court: High Court
• Date: 21 February 2017

SOUTH EASTERN CIRCUIT COUNTY OF WEXFORD

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

AND IN THE MATTER OF JD OF COUNTY WEXFORD (‘THE DEBTOR’)

AND IN THE MATTER OF AN APPLICATION PURSUANT TO S. 115A(9) OF THE PERSONAL INSOLVENCY ACTS, 2012 — 2015

[2017] IEHC 119

Baker J.

[C:IS:SEWX:2015:001313]

THE HIGH COURT ON CIRCUIT

Insolvency – The Personal Insolvency Acts, 2012-2015 – Personal Insolvency Arrangement – Retention of residence – Payment to secured and unsecured creditors – Unfairness – Delivery of better returns.

Facts: The debtor had filed an appeal against the order of the Circuit Court for refusing the debtor's application for the approval of Personal Insolvency Arrangement (‘PIA’) despite the rejection of the proposed PIA by the secured creditor/objector. The debtor argued that the proposed PIA gave her the right to retain her principal private residence and promised to give better returns to all the creditors. The debtor contended that she had secured the debt by obtaining an order for the attachment of earnings of her husband as the default in non-payment of arrears was primarily due to the failure of her husband to make the monthly child maintenance payments. The debtor, being the mother of two young children, argued that any rental obligation, if put upon her, would have the effect of reducing her income and hence, she would be unable to meet the mortgage payments. The objector claimed that the proposed PIA was highly prejudicial as there was no agreement to guarantee that the husband of the debtor would fulfil his obligation as a maintenance debtor.

Ms. Justice Baker allowed the appeal. The Court held that the protection of the principal private residence of a debtor was not an absolute right, and if mandatory conditions under s. 115A(9) of the Personal Insolvency Acts, 2012-2015 were not met, the Court might not approve the proposed PIA. The Court observed that it was obliged to compare the likely returns to the creditors in bankruptcy and those available under the proposed PIA. The Court noted that if the proposed PIA adversely affected the interests of the creditors, then it could be said to be unfairly prejudicial. The Court found that the proposed PIA was more advantageous than a likely outcome of bankruptcy as it provided for the payment of 9% dividend, payment of live mortgage and warehouse loan with interest over the term and assured the security of debt by way of a court order. The Court held that the proposed PIA preserved the right of entitlement of a debtor to continue to reside with her young children in her principal private residence and did not deprive the secured creditors of any claims against the co-debtors and hence, it was not prejudicial in any way.

JUDGMENT of Ms. Justice Baker delivered on the 21st day of February, 2017.

1 This judgment is given in an appeal from an order of the Circuit Court personal insolvency judge, Judge Enright, given on 4th November, 2016 where she made an order refusing the application of the debtor under s. 115A of the Personal Insolvency Acts 2012 – 2015 (‘the Acts’), and upheld the objection of the secured creditor, EBS Limited (‘EBS’).

2 JD (‘the debtor’) is a young woman who resides with her two very young children at her principal private residence at a townland in County Wexford, which she holds jointly with her former husband, MR. The couple are co-borrowers and co-mortgagors to EBS in respect of a loan obtained in September, 2007 in the sum of €300,000.

3 The loan fell into arrears in 2013, and I am satisfied that this primarily occurred following a serious illness suffered by Ms. D, and the subsequent breakdown of her marital relationship. The couple separated informally in January, 2012 and Mr. R has failed or refused to make any contribution towards the mortgage repayment since that time.

4 The couple also have unsecured loans, and while these were obtained in the sole name of Ms. D, they were incurred during the marriage and for family purposes.

5 A year or thereabouts after Mr. R left the family home he agreed to make a maintenance payment, but he reduced this voluntary payment on two occasions, in November, 2013 and March, 2014.

6 The mortgage fell into significant arrears and EBS, after engaging with Ms. D and her former husband through the MARP process, and no agreement being achieved, commenced proceedings seeking possession of the dwelling. Through the Money Advice and Budgeting Service (MABS), a short-term arrangement was put in place in 2012/13 that permitted the payment of interest only for a period of time, and by which arrangements were made with the unsecured creditors.

7 Unfortunately for Ms. D, in August, 2014 she engaged the services of a company which held itself out as being an insolvency advice service, Money Bloom, and was assured by them that engagement was being had with her creditors, including the secured creditor, and that an agreement by which the mortgage would be restructured was likely to be agreed. Ms. D engaged fully with that organisation and supplied it with financial statements and personal information.

8 Her affidavit evidence is that she was told that ‘my mortgage difficulties have come to an end’ and that proposals put to EBS had been accepted. This evidence is uncontroverted, as is the evidence that it was not until the mortgage debt had been purchased by a company, Pepper Finance Limited, that she realised that, as she put it ‘something was not right’. She wrote to Pepper but received no reply, and Pepper ultimately passed the resolution of her debt back to AIB/EBS which then commenced proceedings for repossession by civil bill dated 28th May, 2015.

9 It seems that Money Bloom is not an accredited or regulated insolvency agency and the principal of that entity has a large number of convictions for theft, fraud and forgery.

10 Unfortunately, the engagement that Ms. D had with Money Bloom cost her money and involved her in a loss of time and effort in her attempts to rationally resolve her debt.

11 When Ms. D realised that no arrangement had been made with her mortgage lender, she resumed monthly payments on the mortgage in the sum of €700 per month, less than the agreed amount, but relatively substantial in the context of her earnings.

12 Ms. D made application against her former husband, and a maintenance order in respect of the dependent children was made in the District Court on 27th May, 2014 in the sum of €120 per fortnight, and in December, 2014 after he had ceased making payments she sought and obtained an attachment of earnings order in respect of the maintenance liability.

13 Ms. D sought the assistance of a personal insolvency practitioner (‘PIP’), Darragh Duffy, and a protective certificate issued in the Circuit Court on 12th October, 2015. Mr. Duffy presented a Personal Insolvency Arrangement (‘PIA’) to a meeting of creditors on 29th January, 2016 which was rejected by the secured creditor, EBS. The relevant details of the PIA are central to the objections made by EBS, and central to the appeal before me.

14 Following the rejection of the PIA at the meeting of creditors, an application was lodged in the Circuit Court for an order under s. 115A of the Acts by which the court has power to approve the coming into effect of a PIA notwithstanding the rejection of the PIA at a meeting of creditors, and the relevant provisions of that legislation will be dealt with in the course of this judgment.

15 The primary focus of the proposed PIA is to procure the retention by Ms. D of her ownership and occupation of her principal private residence. She argues that the proposed PIA gives a better return for creditors than would be achieved in bankruptcy, enables her to retain ownership and occupation of her principal private residence where she resides with her two small children, and that the mortgage repayment arrangements proposed thereunder are capable of being sustained by her in the currency of the Arrangement such as to enable her to return to solvency.

The proposed PIA

16 The provisions of the proposed PIA deal with secured and unsecured debt and provide for a dividend payment to the unsecured creditors and for the splitting of the mortgage into three parts. The secured creditor makes no objection to the splitting arrangement as such, but has sought certain preconditions for the coming into operation of the splitting arrangement, namely the written consent of Mr. R to the proposed treatment of the secured debt, and that evidence be adduced as to his capacity to continue to meet the maintenance payments.

17 Ms. D has unsecured debts to financial institutions of approximately €32,000 and a hire purchase agreement in respect of her motor vehicle in the sum of €17,000 in round figures.

18 The principal private residence of Ms. D has a value, assessed in accordance with s. 105(1) of the Acts, of €190,000. The secured debt at the date of the PIA was €322,227.27, leaving a deficit or negative equity of €132,227.27. It is proposed to write off uncapitalized arrears and a further €80,000, so as to leave a balance of debt of €220,000 split into two parts, a live mortgage balance of €140,000 and a warehoused loan of €80,000. The term of the mortgage is to be extended to 27 years, and to be repayable at variable interest rates.

19 The proposal is for the making of a monthly mortgage payment of €684 to the active live balance for the term of the PIA, 6 years, and a contribution from income in the sum of €338 per month to be applied to the payment of the modest fees of the PIP and by way of a dividend to unsecured creditors. At the end of the PIA it is proposed that the warehoused element of the mortgage would be brought into account and payment of interest and capital on that amount would be made thereafter.

The basis of objection

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