The Minister for Communications, Energy and Natural Resources and Michael O'Connell v Michael Wymes

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 01 July 2021
• Neutral Citation: [2021] IESC 40
• Docket Number: [S.C No. 125 of 2020],S:AP:IE:2020:000125 Bankruptcy No. 4549
• Year: 2021
• Court: Supreme Court

In the Matter of Michael Wymes, A Bankrupt

Between/

The Minister for Communications, Energy and Natural Resources and Michael O'Connell

Petitioners/Respondents

and

Michael Wymes

Respondent/Appellant

[2021] IESC 40

O'Donnell J.

Dunne J.

Charleton J.

O'Malley J.

Baker J.

S:AP:IE:2020:000125

A:AP:IE:2019:000247

Bankruptcy No. 4549

THE SUPREME COURT

Judgment of Ms. Justice Baker delivered on the 1 ^st day of July, 2021

1 . The question for consideration in this judgment surprisingly has not been the subject of any decision of our courts notwithstanding that the statutory provision at its core is found in legislation since the 19th century. The question is this: can a debtor commit an act of bankruptcy when he or she has challenged the summons relied on by the creditor?

2 . The debt at the root of these bankruptcy proceedings is a certificate of taxation of 31 July 2003 in respect of a costs order made in 1997 against Mr Wymes and another person. At the date of the certificate the debt was €3,297,493.33, which together with interest was €4,881,012.86 at the date relevant to the subject matter hereof. No payment has been made by the appellant. The debt has been finally determined and is not affected by any challenge to the bankruptcy process.

3 . Mr Wymes was adjudicated bankrupt by order of Meenan J. on 23 March 2018 on the petition of the Minister in reliance on his failure to pay following service of a bankruptcy summons ( [2018] IEHC 213). The appellant's challenge to the summons under s. 8(5) had previously been rejected by McGovern J. on 29 April 2010, and the appeal was finally determined by this Court on 9 March 2017 ( [2017] IESC 16) and 26 July 2017 ( [2017] IESC 58).

4 . The petition issued on 11 June 2010, after the decision of McGovern J. but before the decision of this Court on appeal. The respondent had been restrained from acting on the petition pending the conclusion of the appeal process, and it came to be heard by Meenan J. on 23 January 2018.

5 . This appeal concerns the post-adjudication challenge by Mr Wymes by Notice to Show Cause pursuant to s. 16 of the Bankruptcy Act 1988, as amended, (“the Act of 1988”) inter alia on the ground that no act of bankruptcy had occurred in the three months preceding the petition, and his argument was that he could not have committed an act of bankruptcy whilst the validity of the bankruptcy summons had yet to be finally adjudicated. That argument comes for consideration in this judgment.

6 . Pilkington J. rejected his arguments for the reasons set out in her written judgment ( [2019] IEHC 245) and the Court of Appeal dismissed the appeal per Faherty J. (Kennedy and Ní Raifeartaigh JJ. agreeing) ( [2020] IECA 182).

7 . Leave to appeal was granted solely on the question of whether an act of bankruptcy can occur while a challenge to a bankruptcy summons remains undetermined, in the light of the provisions of ss. 7(1)(g), 8(5) and 11(1)(c) of the Act of 1988: [2021] IESCDET 8.

The issue in the appeal

8 . The issue in the appeal is one of statutory interpretation, and can be stated as follows:

• (1) Whether a debtor can commit an act of bankruptcy pursuant to s. 7(1)(g) of the Act of 1988 by failure to satisfy a bankruptcy summons within 14 days after service of the summons, if within the 14-day period provided under s. 8(5) of the Act of 1988, the debtor seeks dismissal of the summons;

  or reformulated as:

• (2) Whether the reckoning of time for an act of bankruptcy pursuant to s. 7(1)(g) of the Act of 1988, that occurs on the expiry of a 14-day period after service of a bankruptcy summons, is stayed or suspended pending determination of an application by the debtor pursuant to s. 8(5) of the Act of 1988 to dismiss the bankruptcy summons.

General purposes of bankruptcy legislation

9 . The first Bankruptcy Act directly applicable in Ireland was the Act in 1722 11 and 12 Geo. 2, c.8, the stated purpose of which was to “prevent fraud permitted by bankrupts”, but bankruptcy is now seen as having a much broader purpose and social effect as it permits an ordinary resolution of debt, fairness between creditors, and protection of debtors.

10 . Prior to the amendment effected by the Personal Insolvency Act 2012 (“the Act of 2012”), the Act of 1988 identified seven discrete means by which an individual debtor commits an act of bankruptcy. Most are for the protection of creditors, a means of dealing with fraudulent conveyances, fraudulent preferences, or activity intended to defeat, delay or evade creditors, or in the case of s. 7(1)(f) of the Act, if execution has been levied by the seizure of a debtor's goods. Only one of those, the commencement of the process by service of a bankruptcy summons, is relevant to the present appeal, that most frequently relied on by creditors.

11 . The amendments made by the Act of 2012 provide for the happening of the event of bankruptcy also if a debt settlement arrangement or personal insolvency arrangement has either failed or been terminated under the Act of 2012.

12 . The report of the Bankruptcy Law Committee Report (the Budd Report), delivered to the Minister for Justice in 1972, comments usefully that bankruptcy has a broad range of purposes and, although the fact is probably of no more than academic interest now, bankruptcy is not wholly a creature of statute but has a recognition at common law in Moss v. Smith 1 Camp. 489. The Act of 1988 is described as a consolidating Act and it does not expressly provide that the proceedings under the Act be the sole means by which a person may be declared bankrupt. Notwithstanding, it seems wholly improbable that a petition in bankruptcy issued other than in accordance with the procedures in the Act of 1988 could proceed with any confidence having regard to the fact that the machinery in the Act is complex and would not readily be available to a person seeking the common law remedy of bankruptcy.

13 . The Budd Report noted and recommended that it was desirable that all bankruptcy provisions be consolidated into one statute, and this is what occurred.

14 . It is useful to repeat the purposes or objects of bankruptcy identified in the Budd Report at para. 1.13.1 as this shows that in truth the bankruptcy process is not one which can now be considered to be wholly for the benefit of creditors, and it has equally a benefit for debtors including, more obviously now in the current statutory framework, the fact that the period of bankruptcy is considerably foreshortened to 12 months, and a person who is discharged from bankruptcy may, as a result of the forgiveness of onerous and cumbersome debt, be in a position to engage in financial and commercial activity without fear of action from creditors whose debts were unsustainable.

15 . The Budd Report identified the four main objects of bankruptcy as follows:

• (i) To secure equality of distribution between creditors and to prevent any one creditor obtaining an unfair advantage over the others.

  In the light of the modern legislative scheme, this purpose must be seen to be to the benefit of creditors and indeed of debtors, and to the benefit generally of commerce, trade and the financial lives both of debtors and creditors;

• (ii) To protect bankrupts from vindictive creditors by freeing them from the balance of their debts when they are unable to pay them in full and to help “rehabilitate” them.

  The Act of 2012 uses more modern language and speaks of the common good that is to be achieved by the return to solvency of a debtor, the need to ameliorate the difficulties experienced by debtors due to insolvency, to “lessen the adverse consequences for economic activity in the State”, and to permit the orderly and rational recovery of debts as may reasonably be permitted in the light of the means of the debtor. The active participation of debtors in the economic activity of the State was recited in the long title as being in the interest of the common good including the stability of the financial system in the State;

• (iii) To protect creditors, not alone from debtors who prefer one or more creditors to others, but also from the actions of fraudulent bankrupts;

• (iv) To punish fraudulent debtors.

16 . One means by which an act of bankruptcy is deemed to occur by statute is where the debtor himself or herself files in court a declaration of insolvency, and, since the economic crash in 2008, many debtors have themselves opted to seek bankruptcy as a means of regulating their financial affairs. Debtors who avail of the so-called self-adjudication process do so with a view to regulating their financial affairs and being in due course restored to solvency.

17 . Thus bankruptcy, while it still might be said to carry some degree of stigma, and whilst it may impact on future creditworthiness, has become a means by which a person may deal with debt and thereafter return to full economic activity and take part in the economic life of the State. The statutory provision that has now reduced the period of bankruptcy to 12 months in the normal course must be seen as a legislative support for a rapid return to normal financial activity by a debtor. The element of shame attached to the status is one which finds echoes in literature and history but may be less apparent now in the light of contemporary thinking on the societal impact of debt, and the shortened term.

The steps leading to adjudication

18 . It is useful to briefly first set out the steps leading to adjudication provided in the Act of 1988, and I will later where necessary quote the precise statutory provisions in the course of the judgment.

19 . The first step is to ascertain if the debtor has committed one of the acts of bankruptcy identified in the Act. One such act, that relevant to the present appeal, is the failure of the debtor to pay or secure to the creditor the debt demanded in a...