Ireland: Court Has No Role In Considering The Reasonableness Of A Creditor In Relation To A Personal Insolvency Arrangement

The High Court has confirmed that it does not have a role in examining the reasonableness of a creditor's vote on a personal insolvency arrangement when considering if a bankruptcy petition should be adjourned.

In a number of recent cases, debtors:

  • proposed a personal insolvency arrangement ("PIA"), under the Personal Insolvency Act 2012 (the "2012 Act"), that was voted down by their creditors; and
  • presented their own petitions for bankruptcy but argued that:
    • the projected outcome for creditors under the PIA was better than in bankruptcy;
    • their creditors had been unreasonable; and
    • their petition should be adjourned, effectively to permit them to present the same PIA again.

The court selected the case of Eric O'Callaghan, from a number of petitions before it in which this argument was made, adjourning the others, and invited Ulster Bank Ireland Limited (the "Bank") to make submissions. Ms. Justice Caroline Costello delivered judgment on 27 March 2015.

Factual Background

Mr. O’Callaghan had:

  • been unemployed between autumn 2008 and June 2013;
  • fallen into arrears with his mortgage payments;
  • made four partial mortgage payments in 2014;
  • presented a PIA, which provided for a significant write-down of his mortgage debt;
  • rejected a proposal from the Bank, which would have required mortgage payments at a lower level over a five year period than those proposed under the PIA;
  • through counsel, informed the court that his first priority was a return to solvency rather than to remain in his home.


When adjudicating on a bankruptcy petition the court is obliged, according to Section 15(2) of the Bankruptcy Act, 1988, (as amended) (the "1988 Act"), to consider whether the debtor's inability to pay his debts could more appropriately be dealt with by means of a PIA or a debt settlement arrangement. If the court forms such a view, it has discretion to adjourn the bankruptcy petition to allow a debtor an opportunity to enter into one of those arrangements.

The petitioner in this case asked the court to consider its jurisdiction where a PIA had failed as a result of a creditor voting against it and taking, in the petitioner's view, an unreasonable position.

In considering this, the court had regard to the provisions of the 2012 Act and held that it was clear from the relevant provisions that creditors are entitled to vote to accept or reject a proposed PIA as they deem in their best interests.  The court held that it was not entitled to oblige a creditor to vote in favour of a PIA and that the question of reasonableness or otherwise of a creditor's decision in this regard was not a matter for the court.  To say otherwise would be to give the court the power to decide whether or not a PIA was acceptable and this was not what was intended by the legislation. 


In circumstances where the petitioner had attempted to enter into a PIA and the proposed PIA had not been approved by his creditors, Ms. Justice Costello found that the petitioner's inability to meet his engagements with his creditors could not be more appropriately dealt with by means of a PIA and, therefore, the question of adjourning the petition to allow the debtor to enter into such a PIA did not arise. 

The petitioner was adjudicated bankrupt.

The court decided the case on the assumption that the Bank behaved unreasonably, but expressly made no finding that the Bank had been unreasonable.


This case makes it clear that: 

  1. creditors are free to vote for or against a PIA;
  2. whether a creditor was reasonable, or unreasonable, in refusing to vote for a PIA is not a matter for the courts; and
  3. a creditor's decision making process in relation to a PIA, or a DSA, will not be subject to examination by the courts.

The ruling is likely to promote engagement between personal insolvency practitioners and creditors to arrive at PIA proposals that are mutually beneficial to creditors and debtors rather than presenting a completed PIA, which is rejected by creditors, and inviting the court to impose this on creditors.  It should also avoid the costly and time consuming exercise of the courts considering the reasonableness of the creditors' behaviour in relation to rejected insolvency arrangements.  It is not, however, a charter for creditors to behave unreasonably. Regulated financial services providers remain subject to the Central Bank of Ireland's codes of conduct.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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