The High Court recently considered Protective Certificates (PC) in the context of Personal Insolvency Arrangements (PIA) in the recent case of Clones Credit Union –v- McManus. A Protective Certificate can be obtained by debtors to prevent enforcement action threatened by creditors. The PC allows such protection for a period of 70 days to facilitate an informal arrangement with creditors. In this case, a Credit Union argued that the granting of the PC caused irreparable prejudice to them where the debtor had registered a Priority Entry with the Property Registration Authority (PRA) in respect of his property and subsequently obtained a PC. Mark Woodcock, Partner and Head of the Insolvency and Litigation Unit, explores the impact of this judgement for Financial Institutions seeking to seeking to challenge Protective Certificates.
The Credit Union had obtained judgment against the Debtor in the sum of €203,983 on 27 October 2015. The Debtor made an application for a stay on the entry of the judgment which was declined. On 19 November 2015, the Credit Union applied for registration of a judgment mortgage with the PRA on the Debtor’s family home. However, the PRA advised the Credit Union that prior to the judgment mortgage application with the PRA, the Debtor had lodged two charges for registration and that the charges were protected by a priority entry registered on 3 November 2015. The PRA advised the Credit Union that their judgment mortgage would rank after the priority charges.
Arguments made in Court
The Credit Union challenged this decision in the High Court and argued that the Debtor’s application for a Protective Certificate should not apply to them in circumstances where the PC provides a debtor with a period of at least 70 days of protection from creditors. They argued that the Debtor had not disclosed the existence of the priority entry and / or the charges on his principle private residence as part of the application for the PC and that this was a material non-disclosure.
The Debtor claimed that there was no prejudice to the Credit Union on the basis that a creditor who registers a judgment mortgage against a debtor more than three months before the issuing of a PC is a secured creditor for the purposes of a PIA.
The Court’s decision
The High Court held that the Credit Union would, by reason of the issue of the PC, suffer an irreparable loss. The existence of the PC meant that the Credit Union could not, during the currency of the PC, seek to bring any proceedings regarding the validity of the charges or the question of the priority on the relevant folio. If the PIA was approved by the Debtor’s creditors, it would be too late for the Credit Union to challenge the charges registered by the Debtor.
Accordingly, the Court directed that the PC would not apply to the Credit Union.
The purpose of a PIA is to afford a debtor protection for a specific period to resolve their indebtedness to creditors in an orderly way. This judgment confirms that where there is a material non-disclosure by a debtor, a creditor can seek to challenge a PC where it would ultimately deprive them or an avenue of recourse against the debtor that would no longer be available to them at the expiry of the PC.