JD (a debtor), Re

Factual and Procedural Background

The judgment concerns an appeal from an order of the Circuit Court personal insolvency judge refusing the application of the Debtor under section 115A of the Personal Insolvency Acts 2012-2015, and upholding the objection of the secured creditor, Company A. The Debtor and her former spouse are co-borrowers and co-mortgagors of a loan secured by their principal private residence in County Wexford. The loan fell into arrears primarily due to the Debtor's serious illness and the breakdown of the marital relationship, with the former spouse ceasing contributions towards mortgage repayments after their separation.

The Debtor engaged with an unregulated insolvency advice service which failed to secure a restructuring agreement with the secured creditor. Subsequently, the Debtor sought a Personal Insolvency Arrangement (PIA) facilitated by a personal insolvency practitioner, which was rejected by the secured creditor at a creditors' meeting. The Debtor then applied to the Circuit Court under s. 115A to have the PIA approved notwithstanding the rejection. The Circuit Court refused the application, leading to the present appeal.

Legal Issues Presented

1. Whether the court should approve the Personal Insolvency Arrangement despite its rejection by the meeting of creditors under section 115A of the Personal Insolvency Acts 2012-2015.
2. Whether the proposed PIA is unfairly prejudicial to the secured creditor, Company A, particularly considering the absence of consent from the co-debtor and co-mortgagor.
3. Whether the Debtor is reasonably likely to be able to comply with the terms of the proposed PIA.
4. The legal effect of a PIA on co-debtors and the secured creditor’s rights against them.
5. The proper interpretation and application of the statutory preconditions in s. 115A(9), including the requirement that the arrangement not be unfairly prejudicial and that the costs of occupation of the principal private residence are not disproportionate.

Arguments of the Parties

Appellant's Arguments

• The proposed PIA provides a better return for creditors than bankruptcy and enables the Debtor to retain ownership and occupation of her principal private residence with her two young children.
• The mortgage repayment arrangements under the PIA are sustainable and reasonably likely to be met by the Debtor.
• The PIA does not deprive the secured creditor of any claims against the co-debtor or co-mortgagor, as the arrangement expressly preserves those rights.
• The Debtor’s conduct, including entering into a hire purchase agreement, was reasonable given her circumstances and the misinformation from an unregulated insolvency service.
• The Debtor has taken rational steps to secure maintenance payments from the former spouse, including obtaining a court order and an attachment of earnings order.
• The costs of the Debtor continuing to reside in the principal private residence are not disproportionate.

Secured Creditor's Arguments (Company A)

• The PIA unfairly prejudices Company A primarily because the co-debtor and co-mortgagor has not consented to the proposed variation of the loan and mortgage contract.
• Insufficient evidence has been provided to demonstrate that the Debtor can meet the proposed terms of the PIA, particularly due to the lack of information on the co-debtor’s ability to meet maintenance obligations.
• Some of the Debtor’s income calculations are incorrect or incomplete.
• The Debtor’s conduct after falling into arrears, including rejecting a more generous offer in 2014 and accumulating significant arrears, demonstrates financial imprudence relevant to the court’s consideration.
• The proposed mortgage restructuring could render the security unenforceable against the co-mortgagor, causing unfair prejudice.

Table of Precedents Cited

Court's Reasoning and Analysis

The court began by examining the statutory framework of s. 115A of the Personal Insolvency Acts, which allows the court to approve a PIA despite creditor rejection, subject to mandatory preconditions including the absence of unfair prejudice to interested parties and reasonable prospects that the debtor will not lose occupation of their principal private residence.

The court noted that some prejudice to creditors is inevitable in insolvency schemes but emphasized that such prejudice must be unfair to justify refusal. Citing established case law, the court highlighted the flexible nature of the unfair prejudice test, which requires a holistic assessment of fairness in context.

The court addressed the secured creditor's concern that the co-debtor's lack of consent to the PIA variation would unfairly prejudice it by potentially voiding claims against the co-debtor. The court analyzed statutory provisions and case law, concluding that the PIA does not discharge co-debtors absent express intention to do so. The contractual terms of the PIA explicitly preserve the creditor’s rights against persons other than the debtor, thus protecting Company A’s interests.

The court then considered whether the Debtor was reasonably likely to meet the PIA’s terms. It accepted that the Debtor had taken rational steps to secure maintenance payments from the co-debtor and that the test of sustainability is one of reasonable likelihood, not certainty. The court rejected speculative concerns about future non-payment of maintenance.

Regarding the Debtor’s conduct, including the hire purchase agreement, the court found no evidence of financial recklessness, noting that the Debtor acted rationally given her circumstances and misinformation from an unregulated insolvency service.

The court compared the proposed PIA’s outcomes with the likely results in bankruptcy, finding the PIA offers a better return to both secured and unsecured creditors and preserves the Debtor’s occupation of her home. This comparison supported the conclusion that no unfair prejudice arises.

Finally, the court emphasized the public interest underlying the legislation: the rational resolution of personal debt and the protection of a debtor’s right to occupy their principal private residence. It held that the statutory preconditions were met and that the secured creditor’s objections did not establish unfair prejudice or justify refusal.

Holding and Implications

The court ALLOWED the appeal and exercised its jurisdiction under section 115A to approve the proposed Personal Insolvency Arrangement despite its rejection by the meeting of creditors.

This decision permits the Debtor to retain occupation of her principal private residence and imposes a restructured repayment scheme that is reasonably sustainable. The secured creditor retains its rights against the co-debtor and co-mortgagor, and no unfair prejudice to creditors was found. The ruling confirms the court’s willingness to uphold statutory protections for debtors under the Personal Insolvency Acts and affirms the balance struck by the legislation between creditor rights and social policy considerations. No new legal precedent was established beyond the application of existing principles to the facts of this case.