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Personal insolvency arrangements

By: Mark Tottenham BL

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Under the Personal Insolvency Act 2012, new arrangements were introduced to deal with personal insolvency, so that debtors and creditors did not need to resort to bankruptcy. Under the guidance of a personal insolvency practitioner (PIP), a debtor may seek a personal insolvency arrangement (PIA) to resolve his or her indebtedness. On engagement with the Insolvency Service of Ireland (ISI), a protective certificate is granted, which prevents a creditor with notice from issuing proceedings. Under the Personal Insolvency (Amendment) Act 2015, if creditors do not approve a PIA, the PIP may apply to the court “on behalf of the debtor” for its approval nonetheless. There is now a reasonable body of case law on the effect of this legislation, a selection of which are set out below:

In re McManus [2016] IECA 248 (Court of Appeal, Ryan P, Finlay Geoghegan J, Irvine J, 22 June 2016)

A debtor had obtained a protective certificate, which had the effect of preventing the issue of proceedings by a creditor with notice of it. A credit union applied to the High Court to have its debt excluded from the effect of the certificate. This was granted by the High Court, but set aside on appeal, on the grounds that the credit union had not discharged the required statutory burden: “The court has to be satisfied that if it did not make an order excluding the particular creditor that this party will suffer irreparable loss. Not only that, the irreparable loss has to be such that it would not otherwise have occurred.”

In Re Meeley [2018] IEHC 38 (High Court, Baker J, 5 February 2018)
A number of individual applications were brought to the High Court concerning personal insolvency arrangements (PIAs), where the creditors had refused to approve the arrangements. A number of issues arose in the judgment:

a) The role of the PIP in the application: Under the legislation, the PIP is not the agent of the debtor or the creditors, but an intermediary. Nonetheless, the court held that the PIP did have a right of audience before the court. The PIP did not have the right to instruct counsel directly, but could retain solicitors to instruct counsel. “The PIP has the statutory function of assembling the proofs for the purposes of s. 115A and of certifying certain essential matters, including the reasonableness of the application. But the court is not confined in the exercise of its statutory discretionary function to the evidence or views of the PIP. The PIP does not on account of lodging the application cease to be an intermediary, or take on the role of acting for one party to the hearing.”

b) The role of the debtor in the application: Unlike bankruptcy (or corporate insolvency), a debtor does not lose legal capacity under the personal insolvency legislation. Although the application is made by the PIP “on behalf of” the debtor, the court held that the debtor has standing before the court: “… I do not accept the argument of the creditors that the voice of the debtor is intended to be silenced and that the PIP is the only voice to be heard in the articulation of the arguments or interests of the debtor in the review.”

c) Avoiding litigation chaos: It had been argued by the creditors that chaos would ensue if both the debtor and the PIP had standing to argue for the approval of the PIA. The court rejected this, on the grounds that the court itself had the power to make directions for the hearing and to manage its own processes.

d) Liability for costs: As the PIP was not a party to the proceedings, but had an essential role in the process, the court held no costs order could be made against a PIP unless it could be shown that he or she acted without bona fides, dishonestly or “with any impropriety”.

In re Hayes [2017] IEHC 657 (High Court, Baker J, 1 November 2017)
An application was brought for the approval of a PIA, on appeal from the Circuit Court. The court held that the terms were more favourable for the creditors than they would have been on bankruptcy, and approved the arrangement.

In re Reilly [2017] IEHC 558 (High Court, Baker J, 5 October 2017)
The Circuit Court refused to approve a PIA, and the debtor sought to appeal to the High Court. By way of preliminary issue, the court held that the appeal could only be brought by the PIP: “What the Debtor argues in effect is that the High Court hearing the appeal from the Circuit Court engages a jurisdiction different from that of the Circuit Court, and I reject that contention.”

First published in Law Ireland in April 2018

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