A recent High Court case has brought about a change in the status quo involving personal insolvency arrangements and separated spouses. Banks were previously unable to complete deals with one spouse without the mutual cooperation of both parties. However the decision of JD & Personal Insolvency Acts1 has altered this position.
A Personal Insolvency Arrangement (“PIA”) is an insolvency procedure under the Personal Insolvency Act 2012 whereby a formal agreement is entered into between a debtor and one or more of his creditors. A PIA can include both secured and unsecured debts and will typically write off some unsecured debt and restructure any remaining secured debt.
In this case, a wife was appealing a Circuit Court decision that ruled in favour of EBS’s objection to a proposed PIA. The wife and her estranged husband owed EBS €300,000 on a mortgage on their home. The husband failed to make contributions towards the mortgage after their separation and the loan subsequently fell into arrears. The wife then engaged an insolvency advisor. He proposed a PIA at a meeting of her creditors, which was rejected by EBS. The wife started proceedings under section 115A of the Personal Insolvency (Amendment) Act 2015, which permits a debtor to go to court and challenge a bank’s objection to a PIA.
The PIA proposed involved writing off a proportion of the mortgage including the arrears. He suggested that the remaining sum be split between a live mortgage balance and a warehoused loan (short term credit facility). For the six year term of the PIA, the wife would make monthly payments towards the live balance, to cover the insolvency advisor’s fees and a dividend was to be paid to her unsecured creditors. Thereafter, the wife was obliged to begin making payments on the warehoused loan.
EBS claimed it was unfairly prejudiced by this PIA as the husband did not agree to the proposed variations. They asserted that this might prevent EBS from pursuing claims against the husband as a co-debtor on the mortgage. Ms. Justice Baker found that the PIA was “more advantageous” to EBS than the possible result of bankruptcy and that there was no suggestion of unfair prejudice to EBS. It was found that the woman was “reasonably likely” to be able to make the repayments noting the court order she had obtained in relation to her husband for maintenance and an attachment of earnings. Justice Baker stated EBS was not deprived of any right to pursue the husband as a co-debtor or co-mortgagor and there was an express provision in the agreement which stipulated that the PIA would not affect any rights the creditor had regarding persons other than the debtor.
This judgment has ended an impasse which hindered the resolution of bad mortgage cases involving separated couples. The courts have now shown a willingness to offer a pragmatic and fair solution which benefits both creditors and separated persons who are seeking a resolution to debts for which they are jointly liable.