In a recent judgment, the High Court has provided further guidance on the correct approach to an assessment of an application under s115A of the Personal Insolvency Acts.
The application concerned a debtor who resided with her two young children at her principal private residence, which she held jointly with her estranged husband. The couple were co-mortgagors with EBS. Following the breakdown of the marriage, the husband had not contributed to the mortgage and it had fallen into arrears. EBS had commenced repossession proceedings. The debtor had then obtained the assistance of a personal insolvency practitioner who had presented a personal insolvency arrangement ("PIA") to a meeting of her creditors. The PIA was rejected by EBS. Following this rejection, the debtor had brought a Circuit Court application for an order under s115A of the Personal Insolvency Acts 2012-2015. Under this section, the court can approve a PIA notwithstanding its rejection by creditors. The Circuit Court upheld EBS's rejection. However, this decision was reversed by Baker J on appeal.
EBS did not object to the terms of the PIA per se but instead on the following grounds:
- it was unfairly prejudiced as a creditor of the husband. He had not agreed to the PIA and had not engaged with the process at all;
- it was unsatisfied that the debtor could meet the proposed terms of the PIA, primarily because there was no evidence to show that her husband would continue to meet his maintenance obligations to her;
- certain income calculations from the debtor were incorrect;
- the debtor's conduct after she fell into arrears showed a degree of financial imprudence. The court was mandated to take this into account in the statutory scheme.
Decision of the Court
Baker J explained that the power of the court under s115A was not absolute and the jurisdiction should only be exercised if it was satisfied that the proposals were not unfairly prejudicial to the relevant interested parties. This was not focused simply on the figures and calculations, but with the fairness of the proposal having regard to the circumstances of the creditors and the debtor.
She noted that EBS had argued that the failure of the co-mortgagor to engage meant that there was an underlying unfairness as the PIA could impact on any claim it might have against him. It argued that while s116 specified that it could still proceed against a person who had "jointly contracted with the debtor" or was "jointly liable with the debtor to the creditor", this did not preserve its rights against a debtor who was severally liable to it. Baker J did not see this distinction as material. Further, s17 of the Civil Liability Act 1961 would adequately protect EBS by preserving its position against him. This provides that "[t]he release of, or accord with, one concurrent wrongdoer shall discharge the others if such release or accord indicates an intention that the others are to be discharged." A PIA was precisely the class of agreement which could come within this provision, and it was clear that the PIA would vary the repayment terms to be agreed by the debtor. However, there was also nothing in the PIA to infer that the EBS intended to discharge the co-debtor here.
The court noted that the proposed PIA would be more beneficial to the creditors than bankruptcy. Baker J also said that the court should consider that the purpose of the personal insolvency legislation was to enable the resolution of personal debt, and the common good sought to be achieved in s115A was the protection of the right to continue to enjoy residence in a person's home. This focus should be kept in mind when considering the broad benefit of the PIA, and in consideration of whether prejudice was generally unfair. However, this protection was not an absolute right, and if the mandatory conditions in s115A were not met, the court could not approve a PIA notwithstanding that the result would be the preservation of this right.
In relation to certainty of income, the debtor had obtained court orders for maintenance and attachment of earnings against her husband. She had taken all rational steps to secure this payment on an ongoing basis. The court could not assess the viability of a PIA by reference to hypothetical and unknown future events and was not required to have regard to whether the PIA would guarantee the return to solvency of a debtor. The test of the sustainability of a PIA was one of reasonableness. Under s115A(9)(c), the court should be satisfied that the debtor was "reasonably likely" to be able to comply with the PIA. In ascertaining what was reasonably likely, a court should consider the extent to which payment of a debt was assured. A court order and an attachment of earnings was sufficient to characterise the payment of child maintenance as being reasonably secure or reasonably certain into the future. The court also rejected objections to what it described as "de minimus" omissions from the debtor's income figures.
In relation to the debtor's conduct, the court rejected an argument based on s120 of the Acts which provides for a challenge to a PIA where the debtor has previously sought to arrange their affairs primarily with an eye on eligibility to apply for a PIA. The court found that while the debtor's actions had been influenced by her interaction with an unregulated insolvency agency who had led her astray, she had rationally approached her finances in the circumstances in which she had understood them.
This judgment provides valuable guidance for all participants in the personal insolvency process as to the principles which the court will apply in considering how to exercise its jurisdiction under s115A of the Personal Insolvency Acts. Of further note, is the reliance of the court in this judgment on existing case law in the area of examinership to guide it in its interpretation of this evolving area of the law.