Torpey v Personal Insolvency Acts 2012–2015

• Jurisdiction: Ireland
• Judge: Mr. Justice Mark Sanfey
• Judgment Date: 11 August 2022
• Neutral Citation: [2022] IEHC 496
• Court: High Court
• Docket Number: [Record No. 2021/78CA]

In the Matter of Part 3, Chapter 4 of the Personal Insolvency Acts 2012–2015

And in the Matter of Linda Torpey of the Cottage, Ballinamona, Ballyneal, Carrick-on-Suir, Co. Tipperary

And in the Matter of an Application Pursuant to Section 115A(9) of the Personal Insolvency Acts 2012–2015

[2022] IEHC 496

[Record No. 2021/78CA]

THE HIGH COURT

CIRCUIT APPEAL

Personal insolvency arrangement – Debt– Conduct – Debtor appealing against the refusal of an application by the debtor’s personal insolvency practitioner – Whether the debtor had failed in the two years prior to the issuing of the Protective Certificate to make such payments to the objecting creditor as her means would have allowed her

Facts: Ms Torpey (the debtor) appealed to the High Court against the refusal of the Circuit Court (Judge Enright) on 2nd June, 2021 of an application by the debtor’s personal insolvency practitioner, Mr O’Brien (the PIP) pursuant to s. 115A(9) of the Personal Insolvency Acts 2012-2015 (the Act). In its notice of objection of 22nd November, 2019, Promontoria (Oyster) DAC (the objecting creditor) objected to the coming into effect of the personal insolvency arrangement (the PIA) on a number of grounds. There was initially an objection that there was no “relevant debt” as required by s. 115A(1)(b) of the Act; ultimately, the objecting creditor did not proceed with that objection. For the purpose of the appeal before the Circuit Court and ultimately the High Court, the objecting creditor distilled its grounds of objection to the following points as expressed in the written submissions before both courts: “(a) The proposed PIA contains an ‘excludable debt’ which is not a ‘permitted debt’, in breach of section 92(7) of the Act. Further, the proposed PIA contains terms that would release the debtor from an ‘excludable’ debt, which is not a ‘permitted debt’, and therefore pursuant to s. 115A(8)(a)(iii) of the Act, the Honourable court may not make an Order approving the proposed PIA, under section 115A(9) of the Act. (b) For the purpose of section 115A(9)(g), no class of creditor has accepted the proposed PIA, by a majority of over 50% of the value of the debts owed to the class...(c) [This objection was withdrawn during the hearing] (d) For the purpose of section 115A(10), the Debtor has failed, in the two years prior to the issuing of the Protective Certificate to make such payments to Promontoria as her means would have allowed her.”

Held by Sanfey J that in the somewhat unusual and fact-specific circumstances of the case, he was satisfied that the Revenue debt included in the PIA was in fact a permitted debt, notwithstanding the statement in the PIA itself to the contrary. He was satisfied that there was a basis upon which the court may form a view that the Bank of Ireland debt constitutes a class of creditors for the purpose of s. 115A(9)(g). It did not appear to him that the debtor’s conduct and payment history in the two years prior to issue of the Protective Certificate was such as to persuade the court that an order pursuant to s. 115A(9) should not be made.

Sanfey J held that, having taken all of the evidence before the court into account, together with the helpful submissions of counsel, he was persuaded that this was an appropriate case in which to grant the relief claimed under s. 115A(9) of the Act. He therefore made an order setting aside the order made by the Circuit Court judge on 2nd June, 2021 and confirmed the coming into effect of the proposals for the PIA in accordance with their terms.

Appeal allowed.

JUDGMENT of Mr. Justice Mark Sanfey delivered on the 11 ^th day of August, 2022 .

Introduction

1 . This matter concerns an appeal by Linda Torpey (‘the debtor’) against the refusal of the Circuit Court (Her Honour Judge Mary Enright) on 2 ^nd June, 2021 of an application by the debtor's personal insolvency practitioner Mitchell O'Brien (‘the PIP’) pursuant to s.115A(9) of the Personal Insolvency Acts 2012–2015 (collectively referred to herein as ‘the Act’).

2 . In its notice of objection of 22 ^nd November, 2019, Promontoria (Oyster) DAC (‘PODAC’ or ‘the objecting creditor’) objected to the coming into effect of the personal insolvency arrangement (‘the PIA’) on a number of grounds. There was initially an objection that there was no “relevant debt” as required by s.115A(1)(b) of the Act; ultimately, the objecting creditor did not proceed with this objection. For the purpose of the appeal before the Circuit Court and ultimately this Court, PODAC distilled its grounds of objection to the following points as expressed in the written submissions before both courts:-

“(a) The proposed PIA contains an ‘excludable debt’ which is not a ‘permitted debt’, in breach of section 92(7) of the Act. Further, the proposed PIA contains terms that would release the debtor from an ‘excludable’ debt, which is not a ‘permitted debt’, and therefore pursuant to s.115A(8)(a)(iii) of the Act, the Honourable court may not make an Order approving the proposed PIA, under section 115A(9) of the Act.

(b) For the purpose of section 115A(9)(g), no class of creditor has accepted the proposed PIA, by a majority of over 50% of the value of the debts owed to the class…

(c) [This objection was withdrawn during the hearing]

(d) For the purpose of section 115A(10), the Debtor has failed, in the two years prior to the issuing of the Protective Certificate to make such payments to Promontoria as her means would have allowed her.”

The PIA

3 . A protective certificate (‘PC’) issued on 19 ^th August, 2019 in respect of the debtor. After consultation with the creditors as mandated by the Act, the PIP generated a proposed PIA on 9 ^th October, 2019. This document was circulated to the creditors in advance of the creditors' meeting held on 24 ^th October, 2019. 4. As of October 2019, the debtor was 45 years of age, with two dependent children aged 16 and 18. She was employed part-time with a bookmaker. Her principal private residence (‘PPR’) had an agreed current market value of €120,000. The mortgage balance at that point was €300,139.84 owing to PODAC. There was therefore negative equity of €180,139.84 in respect of the PPR.

5 . The specified debt creditors were PODAC, Bank of Ireland in respect of an overdraft of €2,597.71, and the Revenue Commissioners in respect of “unpaid taxes” in the amount of €5,805.00. Of this latter amount, €2,478.24 is expressed in the PIA to be preferential. The debtor's monthly income is expressed in the PIA to be €2,288.70; after deduction of set costs, the monthly mortgage payment and some small special circumstance costs, the debtor is in a position to make a monthly contribution to her debts of €78.66.

6 . The PIA is constructed as a seventy-two-month arrangement which prioritises the debtor's PPR mortgage loan payments. The mortgage is to be restructured on the basis of a capitalisation of arrears, a reduction in the interest rate, an alignment of the mortgage term with the Old Age Pension for the debtor, and – as the PIA puts it – a “rightsizing of the mortgage balance in-line with Debtor affordability”. The PIA provides that the preferential debt owed to Revenue will be paid in full in years three and four of the six year term.

7 . At part IV of the PIA, further detail is given in relation to how the PIA is to work. The mortgage loan is to be restructured to 276 months (23 years) from the coming into effect of the PIA. The interest rate relating to the mortgage loan is to be reduced and fixed at 3% for the full restructured term. The mortgage loan balance is to be reduced to the current market value of the house: €120,000 down from €300,139.84. Monthly mortgage payments are to be €602.42 throughout the restructured mortgage term.

8 . Paragraph 3.5 of the PIA sets out the dividends which may be expected by unsecured creditors. PODAC is to receive a dividend of €4,017.40; Bank of Ireland will receive a dividend of €57.93; and the Revenue Commissioners (‘Revenue’) will receive a dividend of €74.19. The bankruptcy comparison in the appendix at Part VI of the PIA suggests that there would be a 40% dividend for secured creditors under the PIA, but only 36% in a bankruptcy. The preferential amount owed to Revenue of €2,478.24 will be discharged in full and in preference to payments to unsecured creditors in the PIA; in bankruptcy, Revenue would receive nothing. It is suggested that unsecured creditors will receive a dividend of 2.2% under the PIA; in the bankruptcy, those creditors will receive a dividend of 0.1%.

9 . The treatment of the Revenue debt, both preferential and non-preferential, is clearly explained in the PIA. However, para. 5.2 of part IV of the PIA states bluntly that “there are no Permitted Debts in this arrangement”. As we shall see, the objecting creditor relies heavily on this statement in support of its submission that the consent of the Revenue to inclusion of the Revenue debt in the PIA was not sought in accordance with s.92 of the Act.

10 . In his s.107 report, the PIP sets out some of the debtor's background. The debtor's eldest child had in October 2019 entered third-level education, with the younger child in fifth year of secondary school. The debtor was expressed to be working part-time “and is studying Multimedia Applications in WIT having just completed her first year…”. The PIP states that the debtor “had a women's/children's fashion retail business in Carrick-on-Suir which closed during the recession… Since then she has taken many part-time jobs while being the sole carer for her children. Now that they are older, she has returned to third level education while continuing to work, with a view to increasing income in the medium to long term. Linda works part-time in a bookmakers in Waterford, she also receives social welfare assistance”. It is stated that the failure of the debtor's business and resulting reduction in income...