Sweeney & Personal Insolvency Acts 2012-2105

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 31 July 2018
• Neutral Citation: [2018] IEHC 456
• Date: 31 July 2018
• Court: High Court
• Docket Number: [2017 No. 277 CA] [C:IS:ESNH:2016:002044]

[2018] IEHC 456

THE HIGH COURT

ON CIRCUIT

Baker J.

[2017 No. 277 CA]

[C:IS:ESNH:2016:002044]

EASTERN CIRCUIT COUNTY OF MEATH

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

AND IN THE MATTER OF LAURA SWEENEY OTHERWISE LAURA HUTTON OF BALTAZAAR, KILLASKILLEN, KINNEGAD, MEATH

('THE DEBTOR')

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

Personal Insolvency Arrangement – Single creditor – Totality of evidence – Debtor seeking an order that a Personal Insolvency Arrangement be approved notwithstanding its rejection by a single creditor – Whether the circuit Judge erred in law and in fact in failing to properly consider the totality of the evidence

Facts: The debtor, Ms Sweeney, made a proposal for a Personal Insolvency Arrangement (PIA) which was rejected by EBS Ltd, her single creditor pursuant to s. 111A(6) of the Personal Insolvency Acts 2012 to 2015 (the Act). The debtor appealed to the High Court the rejection by Judge O'Malley Costello in the Circuit Court on 12 September 2017 of the application under s. 115A(9) of the Act for an order that the PIA be approved notwithstanding its rejection by the single creditor. The notice of appeal of 18 September 2017 pleaded that the circuit Judge erred in law and in fact in failing to properly consider the totality of the evidence, in particular in determining that the PIA was unfairly prejudicial and in making a determination that the special circumstance costs and childcare costs for which provision was made in the PIA were not properly calculated.

Held by Baker J that, in the circumstances, the failure to approve the PIA would mean that the debtor, her husband and small child would lose their principal private residence, and that factor, taken with the uncontested evidence that the financial outcome for EBS on a sale should it take possession would be less than that to be achieved under the proposed PIA was central to Baker J's decision.

Baker J held that she would make an order under s. 115A(9) of the Act approving the coming into operation of the PIA of Ms Sweeney, notwithstanding that it was rejected by her single creditor.

Appeal allowed.

JUDGMENT of Ms. Justice Baker delivered on the 31st day of July, 2018

1 Laura Sweeney, the debtor, made a proposal for a Personal Insolvency Arrangement ('PIA') which was rejected by EBS Ltd. ('EBS'), her single creditor pursuant to s. 111A(6) of the Personal Insolvency Acts 2012 to 2015 ('the Act'). This judgment is directed to the appeal of the debtor of the rejection by Judge O'Malley Costello in the Circuit Court on 12 September 2017 of the application under s. 115A(9) of the Act for an order that the PIA be approved notwithstanding its rejection by the single creditor.

2 The notice of appeal of 18 September 2017 pleads that the circuit Judge erred in law and in fact in failing to properly consider the totality of the evidence and in particular in determining that the PIA was unfairly prejudicial and in making a determination that the special circumstance costs and childcare costs for which provision was made in the PIA were not properly calculated.

3 An unusual element of the present case which bears consideration is the correspondence that took place between the PIP and EBS, which has the appearance of having resulted in an agreement to terms ultimately not incorporated into the proposed PIA.

Background facts

4 In 2008 the debtor borrowed the sum of €225,000.00 repayable over a term of 35 years at variable interest rates secured by way of a first legal charge on her principal private residence. She fell into arrears in February 2010, less than two years after the term of the mortgage commenced. An attempt to resolve her arrears through the Mortgage Arrears Resolution Process ('MARP') failed.

5 EBS issued proceedings for possession on 17 June 2015 in the Circuit Court and these were adjourned pending the attempt by the debtor to resolve her indebtedness through the Act, the application to the Circuit Court under s. 115A, and the result of this appeal.

Material facts

6 Ms. Sweeney is a 37 years old married woman employed full-time as a teacher and with one young dependent child. Her husband derives a very small income from a start-up self-employed business enterprise and his contribution to family income is minimal. The principal private residence of the couple is a detached home in the sole name of Ms. Sweeney, has an agreed current market value of €130,000.00, and is held by her subject to a mortgage in favour of EBS with a current balance of €258,183.86. The premises are, therefore, in significant negative equity. Ms. Sweeney has no other assets of note.

7 Ms. Sweeney's total net income is €3,014.53 per month and having regard to the very low income of her husband, Ms. Sweeney is responsible for 89.17% of total family expenditure.

8 The PIP, Colm Arthur, proposes a six-year PIA, with the write down of the mortgage on the principal private residence to its current value of €130,000.00, mortgage payments on that amount on a capital and interest basis on variable interest rate, and at the end of the six-year PIA the balance of the amount due on the mortgage be written off. For the currency of the PIA that balance is to be treated as an unsecured debt on which a small dividend will be paid.

9 The current monthly payment on the mortgage is €1,181.14 and the revised payment will be €594.72 of which €530.33 will be contributed by the debtor through the PIA.

10 The comparison with bankruptcy shows that on the realisation of the principal private residence, and allowing for standard deductions, the amount available to the secured creditor will be €117,000.00. The dividend on the unsecured debt is 16.244% on the PIA and 5.899% on bankruptcy. The calculation on the bankruptcy option is based on an agreed assumption that the debtor will lose her principal private residence and the family will live in rental accommodation.

The basis of objection

11 EBS served a notice of objection on 16 March 2017 in which it made the general argument that the proposed PIA is unfair and inequitable in that it does not provide for repayments to the creditor in accordance with the true repayment capacity of the debtor as required by s. 115A(9)(d) of the Act. EBS also argues that no write-off of her secured debt is necessitated.

12 The objections of the single creditor fall into two broad factual categories:

a) the single creditor argues that the proposed duration of the PIA of 72 months is unreasonable and prejudicial to its interests. The primary basis for this argument is that the PIP fee and outlay on a six-year PIA, estimated at €10,500.00 including outlay and VAT, is excessive and that on a one-year PIA the PIP costs will be considerably less;

b) the single creditor argues that the level of special circumstances costs, especially childcare costs is excessive. Childcare costs are estimated for the household at €650.00 per month, of which €579.63 is attributable to the debtor. Ms. Sweeney had proposed originally childcare costs of €800.00 per month, and these were ultimately reduced in consultation with her childminder to €650.00.

13 The opposition, therefore, is founded in the alleged non-compliance with the provisions of ss. 115A(9)(b)(ii) and 115A(9)(d) of the Act.

14 Section 115(9)(b)(ii) provides that in determining an application under s.115A(9) the court must be satisfied that:

' [...] having regard to all relevant matters, including the terms on which the proposed Arrangement is formulated, there is a reasonable prospect that confirmation of the proposed Arrangement will [...] enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit'.

15 This factor was considered by me in In re Callaghan [2017] IEHC 332 and In re Hayes [2017] IEHC 657.

16 Whilst the continued ownership or occupation of the principal private residence of a debtor is a special statutory factor to which the court must have regard under s. 104, the court must by s. 115A(9)(d) assess whether:

' [...] it is satisfied that having regard to the matters referred to in section 104(2) the costs of enabling the debtor to continue to reside in the debtor's principal private residence are not disproportionately large'.

17 This provision was considered in In re J. D. [2017] IEHC 119 and In re Hill [2017] IEHC 18.

18 The creditor makes the broad argument that the special circumstance costs are unfairly prejudicial within the meaning of 115A(9)(f) of the Act, which reads as follows:

'The court, following a hearing under this section, may make an order confirming the coming into effect of the proposed Personal Insolvency Arrangement only where it is satisfied that [...] the proposed Arrangement is not unfairly prejudicial to the interests of any interested party'.

The counter proposal and the correspondence

19 EBS made a counter proposal which it says offers the debtor the best prospect of returning to solvency without recourse to bankruptcy whilst retaining her principal private residence. This provides for the splitting of the mortgage, the creation of an active mortgage of €235,499.00 and a warehoused amount of €22,815.00 to be repaid at the end of the proposed extended 364-month term, and under which the monthly repayment at variable interest rates is €1,082.00.

20 That proposal was the subject of some correspondence between the PIP and EBS which resulted in an email exchange on 27 February 2017 which is useful to analyse and which gave rise to an argument in the course of the hearing that the PIP appeared to have accepted the counter proposal but thereafter presented for approval a PIA in quite different terms.

21 The PIA issued on 13 February 2017 and the PIP invited a response. The PIA was adjusted to deal with some minor...