Ireland: The Impact Of The Personal Insolvency Act On Loan Portfolio Purchasers

Last Updated: 30 November 2017
Article by Conor Houlihan, Kate Curneen and Weisim Ho

Most Popular Article in Ireland, December 2017


The decision of the High Court in Re Hayes (a debtor) ([2017] IEHC 657), illustrates the impact that the Personal Insolvency Act 2012 (as amended) (the "Act") may have on secondary purchasers of loan portfolios.

Baker J. held that when determining whether any personal insolvency arrangement ("PIA") would be unfairly prejudicial to a creditor regard shall be had to the particular financial profile of the creditor. As the creditor in Re Hayes was an investment fund, and not an originating lender, Baker J. held that unfair prejudice should be assessed by reference to the return on that creditor's investment, rather than by reference to its future funding needs.


Jacqueline Hayes and her husband, James Hayes, had difficulties in repaying a loan secured by a mortgage over their family home. The loan was part of a portfolio that had been bought by Shoreline Residential DAC from IBRC Limited (in special liquidation).

The borrowers, who were in financial difficulties, engaged a personal insolvency practitioner to formulate PIAs in relation to their debt. The PIAs outlined certain proposals for the repayment of the Shoreline loan, including that: (i) the balance of €323,626 be written down to €190,000 (the value of the family home); (ii) there would be interest-only payments for the 6 year period of the PIA; (iii) the term would be extended from 18 years and 2 months to 27 years; and (iv) the interest would be fixed for the entire term at a rate of 3.65%.

The PIAs were rejected as unsustainable in the long term by Shoreline at the creditors' statutory meeting. This objection was upheld by the Circuit Court. The borrowers then appealed the Circuit Court decision to the High Court.

High Court Decision

Baker J. in the High Court allowed the appeal and confirmed the proposed PIAs.

Section 115(9)(b) of the Act provides that a court may confirm a PIA only where it is satisfied, amongst other things, that: (i) the debtor is reasonably likely to be able to comply with the terms of the PIA; and (ii) the proposed arrangement is not unfairly prejudicial to the interests of any interested party.

Sustainability of the PIA

Baker J. held that the PIAs were, in the circumstances, sustainable and that the Act does not require the Court to assess the likely circumstances of a debtor after the six-year term of a proposed PIA. On this basis, she dismissed Shoreline's argument that the PIAs were unsustainable as they could result in the borrowers living below the prescribed level of reasonable living expenses from year 18 onwards. She did acknowledge that where presented with evidence, the Court could not disregard the likely circumstances that might exist after the six-year period, but went on to say that the weight to be attached to such evidence would depend on the specific facts of each case.

Unfair Prejudice?

Shoreline adduced evidence that the proposal to fix an interest rate of 3.65% "represents a radical departure even from the most competitive rates available on the open market" and argued that the borrowers would not be able to avail of a comparable rate in the Irish market. However, Baker J. placed emphasis on the fact that Shoreline was not a lender, but an investment fund and that the Shoreline loan was being restructured and not refinanced. She said that the fairness of the rate should be tested against the position of the objecting creditor and went on to describe the loan as an asset of Shoreline, secured over real property, which offers a fixed return on Shoreline's investment, with repayments proposed at a set amount over the term. She said that the asset value of the loan would be more accurately compared to that of a bond and therefore in order to establish that the return on the investment was unfairly prejudiced, a comparison would need to be made by reference to the bond markets and not the domestic lending market.

Baker J. further observed that Shoreline had not provided evidence that it would need to return to the market to meet its capital needs in order to fund the investment, nor had it provided evidence of the terms on which the loan was purchased and how it was financed. On that basis, she held that there was insufficient evidence on which to conclude that the proposal to fix the interest rate for the proposed extended period was unfairly prejudicial to Shoreline, having regard to its status as an investment fund.

She held that a comparison between the likely return on bankruptcy and that under the PIAs was an appropriate consideration in determining whether the PIAs were unfairly prejudicial. She found that on a comparison between the two, the return on the PIAs were more favourable.

In this regard she held that the test for unfair prejudice should not be considered purely on a mathematical basis; consideration should also be given to whether the proposed PIAs would enable the borrowers to continue to live in their principal private residence and whether a creditor could recover the amounts owing to it, insofar as reasonably possible, without the need to resort to bankruptcy proceedings; both questions being specific factors for consideration under the Act. Baker J. concluded that the proposed PIAs were not unfairly prejudicial solely by virtue of the fact that the likely return on bankruptcy would be marginally better.

Context and Implications

The decision in Re Hayes creates uncertainty for potential buyers of non-performing loan ("NPL") portfolios, such as investment fund and private equity vehicles and may potentially have an adverse impact on the pricing of proposed future deals in this area.

As a significant proportion of NPLs in Ireland are secured on real estate, including principal private residences, the availability of the personal insolvency regime and the decision may make debt and collateral enforcement over NPL portfolios more difficult.

Given that Baker J. held that there was insufficient evidence to conclude that the proposal to fix interest rates was unfairly prejudicial to Shoreline having regard to its status as an investment fund, it may be advisable for secondary purchasers of loans that are involved in PIA applications to provide evidence of how the loan was priced when it was initially purchased and details of any loss of anticipated investment return as a result of the fixing of such rates.


The case illustrates the potentially significant impact of PIAs on the terms of mortgage loans and the weight that may be placed by the Irish Courts on the financial profile and investment strategy of a creditor when deciding whether or not to sanction a PIA.

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.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
In association with
Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions