Where Debtors Are Less Than Fully Candid In Respect Of Their Means

The Personal Insolvency Act 2012 (as amended) permits a debtor to apply to court for a protective certificate while making a proposal for a debt settlement arrangement or a personal insolvency arrangement. A protective certificate affords comprehensive protection to a debtor from his or her creditors for a period of 70 days, which period can be extended on application to court. This protection period allows breathing space for the formulation of proposals for an arrangement with creditors which would resolve his or her indebtedness.

In two separate judgments James Nugent & the Personal Insolvency Act 2012 [10 March 2016] and Fergal McManus & the Personal Insolvency Act 2012 [27 May 2016], Ms Justice Baker set aside the protective certificates granted and provided guidance on the circumstances in which the courts may set aside protective certificates. She held that the High Court was not restricted by section 97 of the Act, which sets out a specific test to be satisfied before a creditor can set aside a protective certificate. She held that the court has, additionally, an inherent jurisdiction to set aside a protective certificate (or an extension to a protective certificate) in circumstances where there has been a lack of candour and full disclosure in the facts attested to before the court, and she emphasised the constitutional imperative of fair procedures to those affected by, but not on notice of, the making of an ex parte order.

In the above cases the High Court has made clear its expectation that if a debtor is to benefit from the protection afforded to debtors under the Act, it is imperative that there is to be full transparency as regards the debtor’s financial position and actions and for all parties involved to act with utmost good faith. In particular the court has made it clear that the role and responsibility of a personal insolvency practitioner (“PIP”) brings with it duties similar to an officer of the court and this unique position imposes a responsibility on the PIP to not just the debtor, but to all other interested parties, including the Court, the Insolvency Service of Ireland and any affected creditors.

These cases highlight that if a creditor has suspicions that a debtor has not been fully upfront in respect of his assets and in adhering to the prescribed requirements, the creditor should consider challenging the issue of the protective certificate or the arrangement itself where its concerns are not adequately addressed. Given the significant write-downs which can be imposed on creditors pursuant to such arrangements, it is encouraging that the courts will require that debtors act in good faith in availing of the relevant statutory provisions.