We recently published an article entitled “Good news for financial institutions seeking to challenge Protective Certificates” which outlined the positive steps taken the High Court to prevent a Debtor from receiving the full benefit of a protective certificate (“PC”) where it would cause irreparable loss to a lending institution. Mark Woodcock, Partner and Head of the Insolvency and Litigation Unit, explores the circumstances under which the the Court of Appeal recently overturned the decision of the High Court.

The High Court sets aside a Protective Certificate

The High Court was asked to set aside a PC applied for by a debtor, who was also a solicitor. The timeline of events before the Court was significant. Judgment was obtained against the debtor on 27 October 2015 and his application for a stay on the entry of the judgment was refused on 3 November 2015. On the same date, he lodged a priority entry with the Property Registration Authority which allowed any application for registration of a burden lodged by him within the following 40 days, be deemed registered on 3 November 2015.

The debtor then registered charges on his principle private residence in favour of his mother and wife as security for their advancing funds to him to deal with his creditors. He did not however disclose this security as part of his application for a PC.

When the Credit Union sought to register their judgment as a judgment mortgage, they were advised of the priority entry and that their charge would rank below the other burdens.

The High Court granted the Credit Union’s application to set aside the PC in so far as it applied to them. It held because the debtor had created two legal charges on his principle private residence in the period leading up to the application for the PC, the Credit Union would suffer a significant diminution in the value of its debt. The particular prejudice and the “irreparable loss” [1]would be that the Credit Union could not bring proceedings to set aside the charges on the Debtor’s principle private residence until the expiry of the PC. If a Personal Insolvency Arrangement (“PIA”) was approved by the Debtor’s creditors at the end of the currency of the PC, the High Court held that it would be too late for the Credit Union to challenge the charges registered by the Debtor.

It was evident from the tone of the High Court judgment that it was less than impressed by the methods used by the Debtor to frustrate the Credit Union in recovering its debt. Inappropriate correspondence with Central Office in relation to the entry of the judgment and the careful timing of the filing of a priority entry, coupled with the failure to make a material disclosure when applying for a PC[2] was sufficient for the Court to exercise its discretion and order that the PC should not apply to the Credit Union.

The Court of Appeal decision will force creditors to consider other remedies

However, the Court of Appeal has just overturned the decision of the High Court.

The Court disagreed that the circumstances were such that they should use its discretion and find that the Credit Union would have suffered irreparable loss by the sequence of events and by the PC.

The Court of Appeal held that “irreparable loss” should be akin to a “withering asset or something that cannot be undone” before the Court should exercise its discretion that a PC should not apply to a particular creditor. It held that there were other avenues open to creditors[3] which enabled them to challenge the coming into effect of or the variation of PIAs.

Therefore, if the terms of the PIA were not acceptable to the Credit Union, it could challenge it at the creditors’ meeting rather than dealing with their grievance during the lifetime of the PC. The Court of Appeal held the prevention of any proceedings during the currency of the PC was the intended consequence of the legislation. It appears that the Court restricted its assessment to a strict reading of the legislation in contrast to the more holistic view taken by the High Court.


While the High Court was willing to make an overall assessment of the calculated manipulation by the debtor of statutory provisions designed to assist those in dire situations, and exercise its statutory discretion accordingly, the Court of Appeal appeared only to focus on the claim of irreparable loss that would be suffered by the Credit Union, and whether or not it was in fact “irreparable”.

The Court of Appeal took the view that the prevention of the Credit Union challenging the charges registered as a result of the filing of the priority entry and the material non-disclosure at the time of the application for the PC were not an “irreparable loss”.

Unfortunately, the decision leaves lending institutions back where they started; at the peril of protective certificates that can be used, in conjunction with other statutory tools, to artfully protract and frustrate enforcement proceedings. Although the deliberate deception by the debtor will make this decision all the more unpalatable in the banking community, there are still remedies available to creditors to challenge a PIA.