This book was written to address the knowledge gap in respect of the jurisprudence of Personal Insolvency Law to assist Legal Practitioners and Personal Insolvency Practitioners (‘PIP’) in understanding the law. Up to this point, the only publications about Irish Personal Insolvency Law were annotated books explaining the Personal Insolvency Act, 2012. The legislation and jurisprudence has not been explained or examined in detail by way of a reference book, which deals with all of the legal and practical issues that have arisen in Personal Insolvency Law.
When I sat down to write the book, I considered from what perspective I should approach it. As both a solicitor and a personal insolvency practitioner I appreciate that there are differing approaches to the subject. I sought to combine the approaches into one book that will assist personal insolvency practitioners in developing insolvency arrangements while assisting legal practitioners in understanding the law.
This book is set out to give an overview of the Insolvency Service of Ireland and the solutions by way of a Debt Relief Notice and Debt Settlement Arrangement. The book then deals in depth with Personal Insolvency Arrangements for which most of the High Court jurisprudence relates to. The High Court jurisprudence in turn will guide the practitioner in relation to DSAs and DRNs.
The idea for the book came from the lack of any other publication dealing with the development of personal insolvency law in Ireland. I have been involved in personal insolvency both as a solicitor and a personal insolvency practitioner since the introduction of the legislation. I decided to write the book during the Covid-19 lockdown period and have been working on it since.
The most difficult part of the process was getting my head around how to structure the book as I had never embarked on something like this before. It was particularly relevant as the legislation provides for three solutions while most of the jurisprudence is in respect of one solution only.
There are now over 60 written High Court judgments which practitioners can rely upon which started with Re O’Connor in 2016. In that case, I was on record for the PIP. The court granted the order sought under s 115A, approving the personal insolvency arrangement, notwithstanding that the result of the creditors meeting was not one which approved that arrangement.
The decision in Re JD has been an important decision in the development of the personal insolvency process, where it has been pivotal in enabling debtors to resolve their own personal insolvency without the participation of a refusing co-borrower or a co-borrower whose whereabouts are unknown.
As practitioners will be aware, it has proven most difficult to negotiate with credit institutions on behalf of one party to a debt if the other party had not been engaging also. The banks had been fearful of the implications of the civil liability act and this case allows debtors to overcome that in a formal PIA.
The PIP in this case proposed a PIA where the secured debt of €333,785 was written down to the current market value of the PPR, being €160,000. PTSB made a counter proposal where they wanted no debt written off and the balance to be warehoused. The PIP rejected the counter proposal and proceeded to a s 115A application. The s 115A application was won by the PIP in the Circuit Court and on appeal; the High Court rejected the PTSB appeal and confirmed the order of the Circuit Court and the write-off as proposed by the PIP.
The significance of the case is that it dealt with the following points
Proportionality of Supporting Creditor
In this case the unsecured creditor held 1.1% of the debt at €3,816 but Mr Justice McDonald held that it is not an unsubstantial debt as it equates to one month income for the debtor.
Warehousing
The court held that warehousing per se is not contrary to the Act but held that warehousing is not appropriate in circumstances where it crystallizes a large debt at the date of retirement and where the warehoused debt has the capacity to make the debtor insolvent at that stage.
Future Income
The court commented that it is not appropriate for practitioners to overlook expected salary increases or pension entitlements. The practitioner needs to set out exactly what entitlement the debtor has to any increase in salary over the next number of years and in particular during the six years of a PIA.
College Costs & Third Level Children
The PIA in this case provided for €549.91 for a third level child. This accords with the letter received by APIP from the Official Assignee where he confirmed that he allows €549 in bankruptcy. McDonald J commented that the debtor would be doing very well if she can manage to keep her daughter's monthly college costs to €549.91. He also noted that it was not always certain that parents would stop supporting children at the age of 23.
Pension Entitlements
The court expressed the view that there was an obligation on a debtor to disclose in their PFS any pension arrangements.
The court was of the view that pensions that are not accessible within the period of a PIA/DSA cannot be considered in an arrangement.
The High Court subsequently reaffirmed this in the decision of Sanfey J in Re Fitzpatrick.
Write Down
It is not acceptable to the court that a proposal would write-down debt to CMV for no explained reason. A write down should be based on the individual circumstances of the debtor.
The court has held that to simply write down to CMV arbitrarily is incorrect. The court followed the decision in Re Laura Sweeney that the appropriate write down figure is to be assessed in light of the repayment capacity of the debtor. The court held the view that there could be no question of any automatic write down of mortgage debt to CMV. It commented that CMV was a floor to which debt could be written down to but not a ceiling.
The PIP in this case proposed a 24 month PIA writing down the mortgaged debt from €300k to CMV of €185,000. Everyday Finance DAC and Ulster Bank Ireland DAC held judgment mortgages which would be treated as unsecured debt. Prior to the hearing, Pepper made an open offer of a write down to CMV as proposed with match payments of 58% to clear over the course of the mortgage. The s 115A application was rejected by Cork Circuit Court and was then appealed to the High Court. The case dealt with the following points:
Issue No. 1: Relevant debt
The court held that there is no express provision in the Act, which prohibits a secured debt, which for the purposes of the PIA is to be treated as an unsecured debt, from constituting a relevant debt. Mr Justice Sanfey stated: ‘It is clear from the definition of “security” in s.2(1) of the Act that a judgment mortgage is capable of constituting a relevant debt in accordance with s.115A(18).’
The court decided that the judgment mortgage debt, notwithstanding its treatment in the PIA as an unsecured debt, is a debt in respect of which the debtor was in arrears, and that it is capable of constituting a relevant debt for the purpose of the Act.
Issue No. 2: Affordability and sustainability
The court stated that the question of whether the debtor will have sufficient income under a PIA to maintain a reasonable standard of living for himself and his dependents is a question of fact to be assessed in each case.
In this case, the court was concerned that the proposed €859 per month is considerably more than any payment made by the debtor in respect of his mortgage to date but as against that, there is no doubt that the debtor and his family are deeply involved in the local community, and that the debtor is committed to making the arrangement work. It appears that third-party support is available to the family in case of need or unforeseen events. The court noted that it may well be that, in exercising prudent economy in the household budget in the manner set out in the debtor’s affidavit, the envisaged ‘cushion’ in the post-PIA situation of €57 per month may be improved, and in this way it may be possible for the debtor to develop a contingency fund which will enable the family to deal with the expense of unforeseen events.
The court ultimately decided that the implementation of the proposals would require considerable discipline and vigilance on the part of the debtor and his family in managing their finances. However, on balance, the court was satisfied that there is sufficient evidence before the court to hold that the terms of the PIA have been formulated in compliance with s 104, and that the debtor was ‘reasonably likely to be able to comply with the terms of the proposed arrangement’.
Issue No. 3: Appropriateness of the PIA
In this case, the debtor could not argue that he was insolvent by reason solely of his liabilities under the PPR loan. He argued that he was insolvent because of the totality of his liabilities, amounting to approximately €85,000.
Of those creditors, Everyday obtained judgment against the debtor in 2010 and Ulster obtained their judgment in 2012. The court noted that it seemed that both creditors were not disposed to take enforcement action in respect of their debts, but were content to await a sale or refinance of the property at some point to have their debts paid and judgment mortgages discharged.
The court commented that the debtor in the present case was under no pressure on arrears in relation to his PPR mortgage, and this gave rise to the suspicion that, while he may technically be insolvent, his historic debts were being used to contrive a situation where he could achieve a sizeable write-down of the PPR debt in circumstances where he was not in arrears as regards the PPR loan, and any apprehended default is in the future.
In this regard, the court found it was significant that no approach appears to have been made prior to the application for a protective certificate by the debtor to Pepper to explore the concerns, which he undoubtedly held in relation to what he saw as the inevitability of being unable to discharge the capital sum of €300,000 in 2025. The court considered that a ‘cards on the table’ approach from a debtor genuinely concerned about default in the future would have met with a sympathetic response, and discussions or proposals for a more manageable structure for repayment.
The court also regarded it as significant that no interlocking proposal has been made by the co-borrower, or that his solvency or assets and liabilities are not otherwise addressed where the debtor proposes a very substantial write-off of the debt to Pepper, in circumstances where there is no visibility as to the means of the co-borrower, or his ability to contribute to or underwrite the proposed repayments. In all the circumstances, the court did not consider it appropriate to make an order confirming the coming into effect of the proposed arrangement.
The issue of the fixing of interest rates was dealt with in Re Hayes, where the PIA proposed the fixing of the interest at a rate of 3.65 per cent over the extended mortgage term of 27 years. The objecting creditor in that case described this as ‘completely unheard of in banking practice’ and argued that it was unfairly prejudicial within the meaning of the legislation. Baker J decided that the legislation permitted a provision for interest only payments, interest and part capital payments or deferral of a mortgage payment in each case for a period of time which shall not exceed the duration of the Personal Insolvency Arrangement, i.e. for a maximum of six years but that no such temporal limitation is placed on a proposal to fix an interest rate, or to track it to another identifiable rate. Thus, the statute permits that interest rates may be fixed or variable, or linked to a reference rate, and the legislation does not limit the period of time for which this can be done.
This is of particular relevance in a time of rising interest rates and when there is much public discussion on the failure of funds to offer fixed rates to customers to cover such part of the difference between the attributed value and the amount for which the property is sold as is specified in the terms of the PIA.
Many of these cases that are reported are cases that have been approved by creditors at a creditors meeting and are, as such, unopposed rulings. They are uncontentious and the reporting is sometimes quite detailed. My own preference is to try and preserve a person’s privacy where possible. While the write-downs may be eye watering at times, the net result is the same as for a person who enters the process with much smaller debts that are similarly unmanageable. In the end, the debtor will maybe keep their home/maybe not and will live to RLEs and have their debts discharged either by way of a lump sum or through a monthly repayment term lasting up to six years.
PIAs have an applicability in family law proceedings whether the parties are married, in a civil partnership or are cohabitating couples. This applicability is little known and underused but has the ability to change how family law practitioners deal with clients pursuing Decrees of Divorce or Judicial Separation.
As family law practitioners are aware, it is possible to obtain a property adjustment order under s 9 of the Family Law Act 1995 and s 14 of the Family Law Divorce Act 1996. This relief was extended to civil partners and co-habitants by virtue of s 118 and s 174 of the Civil Partnership and Certain Rights and Obligations of Cohabitants Act 2010.
It is not possible for the courts to make an order to adjust the liability for debts, which generally is the mortgage debt on the family home. In practice, it is common to see decrees of judicial separation and decrees of divorce make property adjustment orders and contain best endeavours or indemnity clauses. The secured creditors in principle will not permit any such removal of a person’s liability for a debt because of the provisions of s 17 of the Civil Liability Act.
Following the decision of Baker J in Re JD [2017] IEHC 119, it is now possible to split joint liability for debts in a PIA.
Arising therefrom, it is possible to utilise the provisions of the family law acts and the personal insolvency acts to achieve a solution of both matrimonial and financial difficulties for insolvent parties undergoing marital breakdown. Such a solution is probably only possible where both parties are willing participants, and the family law proceedings are proceeding on consent terms. The agreement of the PPR secured creditor is also a necessary element to getting the solution approved.
