Re P Bankruptcy

JurisdictionIreland
CourtHigh Court
JudgeMs. Justice Baker
Judgment Date19 January 2016
Neutral Citation[2016] IEHC 117
Date19 January 2016
Docket Number[2015 No. 1587 P]

IN THE MATTER OF THE PETITION FOR ADJUDICATION OF BANKRUPTCY BY ACC LOAN MANAGEMENT LIMITED AGAINST P.

[2016] IEHC 117

[2015 No. 1587 P]

THE HIGH COURT

BANKRUPTCY

Bankruptcy – S. 14 of the Bankruptcy Act, 1988 – S. 91 of the Personal Insolvency Act, 2012 – Adjudication of bankruptcy – Rights of secured creditors – Personal insolvency arrangement

Facts: The bank being the judgment creditor sought an order for adjudication of bankruptcy against the judgment debtor. The judgment debtor sought an order for dismissal or stay of the present petition pending the decision of the Court of Appeal against the judgment of High Court that the judgment debtor was entitled for an award of damages arising out of the proceedings brought by the judgment debtor to challenge the validity of the appointment of the receivers. The judgment debtor contended that the bank had filed the present petition with the collateral purpose of avoiding the outcome of the decision of the Court of Appeal.

Ms. Justice Baker granted an order for adjudication of bankruptcy against the judgment debtor. The Court held that the judgment debtor could continue to pursue the damage claim before the Court of Appeal either through official assignee or personally being permitted by that official assignee. The Court held that a judgment creditor was legally entitled to enforce the debt with the assistance of the court by any means and the bank was not precluded to bring the present petition on the ground that it had security for debt. The Court found that the property in lieu of which the receivers were appointed did not have a value to discharge the debt and the damages that were likely to be awarded by the Court of Appeal would be for the benefit of the entire creditors and no additional advantage would accrue to the bank by adjudication of bankruptcy of the judgment debtor. The Court observed that before making an order for adjudication, the Court was mandated under s. 14 (2) of the Bankruptcy Act, 1988 as to whether the debtor wanted to explore personal insolvency arrangement. The Court however, held that s. 91 of the Personal Insolvency Act 2012 permitted a debtor for entering into such an arrangement only if the aggregate of the debtor's secured debts was less than €3 million. The Court held that in the present case, there had been no approval from the secured creditors to enter into any sort of personal insolvency arrangement and that the aggregate of judgment debtor's secured debt exceeded the prescribed statutory limit. The Court held that having regard to the nature and value of the debt in the present case, as evidenced by the statement of affairs filed by the judgment debtor, the Court was mandated to make an order for adjudication of bankruptcy under s. 14 (1) of the said Act of 1988 notwithstanding any prejudice that might be caused to the judgment debtor.

JUDGMENT of Ms. Justice Baker delivered on the 19th day of January, 2016.
1

ACC Bank (hereinafter ‘the Bank’) presented a petition for adjudication of bankruptcy against P. on 17th April, 2015, in which it is claimed that Mr. P. is indebted to the Bank in the sum of €3,647,281.92, on foot of a judgment obtained in the High Court against him on 30th July, 2014. The Bank holds security for the debt in real property estimated as having a value in October 2013, of €895,000.

2

The Petition was adjourned from time to time and came before me for determination following the exchange of affidavits and the filing by the respondent of a statement of affairs.

3

At the hearing of the Petition, counsel appeared for the Bank and for Mr. P.

4

Counsel for Mr. P. argued that the Petition ought to be dismissed as having been brought for a collateral purpose, and makes the alternative argument that the Petition ought to be adjourned pending the determination of proceedings he has commenced against the Bank and against receivers appointed by the Bank over the secured property and for the reasons more fully recited below. I will deal first with the application to dismiss the Petition.

Collateral or improper purpose?
5

Counsel relies primarily on the judgment of Budd J. in McGinn v. Beagan [1962] I.R. 364, where Budd J. stayed proceedings on the debtor's bankruptcy summons on the grounds that it had been issued for an ulterior or collateral purpose. The circumstances were unusual and the court found a collateral and ulterior purpose in the context of a long history of personal ill-will on the part of the petitioner against the respondent, and considered that the real purpose for which the petitioner had purchased the debt and then petitioned for bankruptcy was to render the debtor ineligible to be a member of the Urban District Council as an undischarged bankrupt. In the final paragraph of the judgment, Budd J. said as follows:-

‘The proper purpose of bankruptcy proceedings is to make assets available to creditors. The debtor in this case has very big debts, and I am quite satisfied that he has no assets to meet them. Judgments remain unsatisfied and creditors have failed to obtain instalment orders. In my view McGinn brought this debtor's summons for improper reasons, and I am satisfied that proceedings were not taken to get payment, but to make Mr. Beagan a bankrupt and unseat him. Hence, the purchase of the debt and the issue of the summons were to enable Mr. McGinn to commence proceedings for a collateral purpose. It seems to me that I should not allow the Court's processes to be used for an ulterior and collateral purpose, and I will therefore stay all further proceedings on the debtor's summons.’

6

Counsel for the respondent argues that the case is directly on point and that the Bank has issued the Petition solely for the purpose of avoiding the conclusion to judgement of litigation already commenced by the respondent against the Bank and receivers appointed by the Bank.

7

I consider that there is an inherent jurisdiction to stay proceedings including bankruptcy proceedings that are, or have become, oppressive or an abuse of process, and that in the case of a petition for adjudication in bankruptcy, the principles identified in McGinn v. Beagan, are engaged, and the court may inquire whether the petition was presented, and is genuinely being prosecuted, for the purposes of recovering the debt. Dunne J. considered and applied the decision of Budd J. in McGinn v. Beagan in D. v. D. [2008] IEHC 435, where she rejected the argument made on behalf of the debtor.

8

In that case, the High Court in family law proceedings had made certain orders for the payment of money by the debtor to the petitioner, including lump sum payment orders. The orders were not performed, and no satisfactory explanation was put forward by the debtor to explain the default. Dunne J. took the view that:-

‘an adjudication will have the effect of assisting the applicant in the recovery of the debt due to her… think it is an inference too far to suggest that the petitioner is aware that an adjudication will not assist in the recovery of the debt. On the contrary, an adjudication will have the effect of assisting the applicant in the recovery of the debt due to her. Obviously an adjudication of bankruptcy would have an effect on the position of the debtor as the director of the companies within the group. However, there is nothing in the evidence before me to suggest that that was the purpose of the petitioner in bringing these proceedings.’

9

Dunne J. found also that no ‘ill will or spite’ towards the debtor in pursuing the proceedings had been shown, and concluded that the petitioner had been ‘driven to take these steps in order to secure the payments of the money provided for in the order of the court’.

10

I adopt the reasoning of Dunne J. in my approach in the present case.

The litigation between the Bank and the debtor
11

In proceedings entitled ACC v. P. 2014 No. 5970 P., and related proceedings between P. v. ACC Loan Management Limited & Ors [2014 No. 5264 P., Cregan J. gave judgment on 31st July, 2014, [2015] IEHC 591. In the first proceedings, the plaintiff as receiver appointed by the Bank sought possession over certain properties of the defendant, and in the second set of proceedings, Mr. P. sought a declaration that neither the current receiver, nor a receiver previously appointed, were validly appointed. Cregan J. concluded that the Bank had not validly appointed either receiver, and as a consequence Mr. P. was entitled to damages for trespass to his property. Cregan J. held over any issue of whether Mr. P. was entitled to damages because the injunction by which the receivers had obtained possession had been wrongly granted.

12

The Bank and the receivers have appealed the decision of Cregan J. to the Court of Appeal, and I am advised that the matter is at directions stage in that Court. Cregan J. has deferred the assessment of damages until the Court of Appeal has delivered its judgment. Counsel agree that the likely timeframe for the conclusion of the High Court damages claim, if such arises, is 18 months or thereabouts.

13

Counsel for Mr. P. argues that the Bank seeks the adjudication in bankruptcy in order to prevent him from prosecuting the appeal or the claim for damages against the receivers or the Bank in those proceedings. For the purpose of the argument before me, it was accepted by both counsel that, while the receiver and the Bank have somewhat different roles in the proceedings, damages that might be assessed against either the Bank or the receiver could ultimately become the subject of a set off as between the debtor and the Bank. It seems to me, and I will return to this point later, that any damages recovered by Mr. P. against the receivers and/or the Bank might fall into the general fund available for creditors should the bankruptcy proceed....

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