In this regular briefing, we summarise recent cases, developments and trends relevant to the ongoing efforts to resolve the mortgage arrears crisis.
A series of recent cases have shed further light on factors that a Court will take into account when hearing a debtor's appeal of a secured creditor's decision
to reject a proposed Personal Insolvency Arrangement (PIA) under the Personal Insolvency Act 2012 (the 2012 Act).
- Comparison with bankruptcy: In Ennis & Personal Insolvency Acts, Baker J confirmed that the Courts must consider the fairness of the PIA, and that a comparison with the likely outcome in bankruptcy is an essential part of that fairness assessment.
- Warehousing: In Dunne & Personal Insolvency Acts, the High Court considered the terms of a proposed PIA that involved a warehousing element.
The debtor's unsecured creditors had supported his PIA
proposal, as had PTSB (as secured creditor) until such time as the
debtor's personal insolvency practitioner
(PIP) proposed the inclusion of a further term
which purported to restrict PTSB's ability to renegotiate the
terms of the warehoused portion after a period of time. While the
Court had no issue with the inclusion of a warehousing element in
the proposed PIA, it felt that the further condition would unfairly
prejudice PTSB by restricting its right to review the warehousing
element in the context of the debtor's future means.
In Re Callaghan (a debtor), KBC appealed a Circuit Court decision confirming the debtor's PIA. One of the points considered by the High Court was whether the 2012 Act allows for a PIA that proposes to warehouse a portion of the secured debt beyond the PIA's term. The Court held that a PIA can provide for a portion of the debt to be warehoused in that manner. However, in this particular case, the Court was not satisfied that KBC had shown that its warehousing proposal offered a better return than the debtor's proposed PIA. KBC had proposed warehousing €135,000 of the secured debt (50% of the secured debt that would remain after a debt write-down of €15,000) at a 0% interest rate, giving the debtors the ability to live in the property for the rest of their lives, with KBC's security not being enforceable until the survivor died. However, that amount was more than 125% of the value of the debtor's home, and was not proportionate to, or reasonably derived from, the debtor's current income or assets, or future ascertainable means.
- Creditor objections: In Re Varma (a debtor), the Court looked at Section 115A(3) of the 2012 Act which allows a creditor to lodge an objection (within 14 days) to a debtor's appeal of the secured creditor's decision to veto a PIA. The Court held that this particular 14-day period is not mandatory and that the specialist judges of the Circuit Court have discretion to agree to extend it (because a creditor's rights are capable of being adversely affected on appeal, and because the 2012 Act does not expressly prevent the Court from hearing from a creditor who has not lodged a formal notice of objection.
This article contains a general summary of developments and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.