In mortgage arrears cases separated couples have caused difficulties, in particular where one spouse has washed their hands from dealing with any debt. A recent High Court ruling has provided clarity in this area in relation to the Personal Insolvency Acts 2012-2015 and a secured creditor's position in relation to the non-engaging spouse.
Section 115A of the Personal Insolvency (Amendment) Act 2015 provides for the making of an order confirming the coming into effect of a Personal Insolvency Arrangement ("PIA") if the court is satisfied that there is a reasonable prospect that confirmation of the proposed PIA will enable the debtor not to dispose of an interest in or not to cease to occupy all or part of his or her principal private residence. However, up until now, there had been no judicial consideration of this section or the possible implications for creditors who have rejected such an arrangement.
In this case "JD" the debtor, along with her husband, R, had entered into a mortgage with EBS in 2007. The loan fell into arrears in 2013 after the breakdown of their marriage. The couple separated in 2012 but the husband had failed to make any contribution to the mortgage since that time. Adding insult to injury JD had also engaged the services of an insolvency advice service and was assured that progress was being made. This service later turned out to be fraudulent and unregulated. Eventually she sought the advice of a Personal Insolvency Practitioner ("PIP") and in a meeting of creditors in January 2016 the PIA proposed was rejected by EBS. JD then applied to the Circuit Court under s.115A of the Act by which the Court can approve the PIA despite the rejection by a creditor. EBS had sought both the written consent of R to the proposed treatment of the secured debt, and evidence as to his ability to meet maintenance payments but neither were forthcoming.
Under s.115A the court can make an order confirming the coming into effect of a PIA in the circumstances set out above, however this power is not absolute. The jurisdiction of the court may be exercised only if it is satisfied in accordance with the statutory provisions that the proposals are not unfairly prejudicial to the relevant interested parties. EBS argued that the proposed PIA contained an underlying unfairness in relation to the position of Mr. R as co-borrower and co-mortgagor: the fact that he had not engaged with the PIP, the Circuit Court or the High Court meant that there was considerable uncertainty as to what approach he might take in the future.
Under s.116 (3) of the 2012 Act a secured creditor cannot take any steps to enforce its security against the debtor while a PIA is in effect. However s.116 (6) provides:
“Nothing in subsections (3) [and (4)] shall operate to prevent a creditor taking the actions referred to in that subsection as respects a person who has jointly contracted with the debtor or is jointly liable with the debtor to the creditor and that other person may sue or be sued in respect of the contract without joining the debtor."
R was not a party to the proposed PIA and EBS argued that s.116(6) of the Act was insufficiently broad in that it does not import any preservation of the rights of a creditor against a debtor who is severally liable for a debt.
Baker J. held that a PIA falls within the definition of "an agreement or an accord" as per s.17(1) of the Civil Liability Act 1961, which deals with joint and several liability, but that in this instance the PIA did not contain a term which would have shown an intention for EBS to forgive R as a co-debtor. Thus EBS was free to pursue R for the debt. Nor did the Court find that the proposed PIA would unfairly prejudice EBS in comparison to the likely outcome in bankruptcy. The Court held that the purpose of s.115A is the protection of the right to continue to enjoy residence in a person's home and that this should be kept in mind when considering the issue of prejudice. Although this right is not absolute, here where the scheme as a whole would provide a better outcome than bankruptcy to the secured creditor, as well as fulfilling the purpose of s.115A, the High Court held that the proposed PIA should be upheld.
This case is one of the first to deal with the relatively new section 115A of the Personal Insolvency (Amendment) Act 2015. It demonstrates that the courts will bear in mind the purpose of s.115A in relation to any unfair prejudice claimed by a creditor in rejecting a PIA. It also confirms that a PIA involving one debtor does not, unless expressly agreed, give protection to a co-debtor, whether joint or severally liable, who does not fall under the PIA.