The High Court delivered a stark reminder to personal insolvency practitioners (PIPs) that they serve an integral role in upholding the legitimacy of the bankruptcy process in a judgment delivered on 5 February 2018.
The judgment arose out of an application by the Official Assignee (“OA”) to postpose the automatic discharge of a bankrupt. The OA submitted that the bankrupt had hidden assets from or failed to disclose assets which could have been realised for the benefit of the creditors of her estate.
The bankrupt was adjudicated bankrupt on 18 April 2016 on her own petition. She submitted at that time that her debts exceeded her assets by the sum of €41,592.63. It was later accepted that this was incorrect and should have been €26,593.63 which brought the application only marginally within the €20,000 limit for adjudication.
Within twelve months of the date of adjudication, the Bankrupt had received a gratuity payment on her retirement. This was not disclosed to the OA in the Statement of Affairs and / or Statement of Personal Information. Furthermore, the bankrupt failed to disclose the purchase of a car for €12,500, gifts to her children of €8,000 and the fact that she had spent over €12,000 on a trip to Australia in the short months before her self adjudication.
Order for the extension of the bankruptcy
The Court found that:
“It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and the lesser failures will attract a lesser sanction.”
The Court issued a reminder to all bankrupts of their obligations in completing the statutory documentation and noted that:
“The obligation is on a bankrupt to disclose on a proactive basis the necessary information regarding his or her assets, liabilities and affairs and it is not sufficient simply to respond to queries from the Official Assignee.”
While the Court noted that the failures on the part of the bankrupt were not wilful or deliberate, it was felt that the integrity of the bankruptcy process required a sanction to be applied. The bankruptcy period was extended for a period of nine months.
Commentary in relation to PIPs
The Court noted that the circumstances of this case raised “grounds for disquiet” regarding the role of PIPs:
At a time when the bankrupt was presumably being advised by her solicitor and PIP, she may have:
“Innocently or otherwise, the bankrupt in effect manufactured her own insolvency so she met the threshold for bankruptcy by entering into these relatively modest transactions”
The Court questioned whether the advices of the bankrupt’s PIP should have been to consider a Debt Settlement Arrangement instead of bankruptcy and concluded that:
“The Court must rely upon the diligence and vigilance of personal insolvency practitioners to ensure as far as possible, that this does not occur when they are advising debtors in relation to their financial affairs.”
The net effect of the failure to disclose relatively modest transactions resulted in the bankruptcy period being almost doubled. This should be seen as a warning to all bankrupts that even small transgressions will be penalised and proactive disclosure is mandatory.
It is clear that in taking the time to prepare the judgment, the Court was anxious to caution PIPs that they are obliged to offer their clients alternatives to bankruptcy and that bankruptcy is not a process to be entered into lightly. This places an onus on PIPs to take the time to make appropriate enquiries into the circumstances of their clients and their lifestyle in advance of bankruptcy.
The High Court will continue to act as a guardian of the integrity of the bankruptcy process. The Court is clearly concerned as to potentially orchestrated bankruptcies and the OA will no doubt be encouraged to seek to extend even the smallest of indiscretions on the part of bankrupts in their co-operation and disclosure of information.