Re: Tinkler ( Personal Insolvency)

Factual and Procedural Background

The cases concern applications brought by debtors, a husband and wife, pursuant to section 115A(9) of the Personal Insolvency Act 2012 (as amended in 2015), seeking orders confirming the coming into effect of proposed Personal Insolvency Arrangements ("PIAs") despite the PIAs not having been approved by a majority of creditors in accordance with the statutory scheme. Creditors' meetings were held in January 2017, with the principal private residence creditor class voting in favour, satisfying the statutory precondition that at least one class of creditors approves the proposal. The PIAs propose various treatments of secured and unsecured debts relating to the debtors' family home, a second residential property, commercial property known as "Tinkler's Yard," and a quarry site. The commercial creditor, Cheldon Property Finance DAC ("Cheldon"), objected to the PIAs on grounds including concerns over the treatment of Revenue debts, fairness and equity between creditor classes, and alleged unfair prejudice to its interests.

Legal Issues Presented

1. Whether the court can confirm the coming into effect of the proposed PIAs pursuant to s. 115A(9) despite the PIAs not being approved by a majority of creditors.
2. Whether the proposed PIAs are fair and equitable in relation to each class of creditors that has not approved the proposal and whose interests would be impaired by the PIA, particularly between different secured creditor classes.
3. Whether the proposed PIAs are unfairly prejudicial to the interests of any interested party, specifically Cheldon.
4. The proper treatment and classification of Revenue debts within the PIAs and whether statutory conditions concerning excludable and permitted debts have been met.

Arguments of the Parties

Objector's (Cheldon) Arguments

• Concerns about the treatment of Revenue debt in the PIAs, including the failure to identify preferential elements and the absence of written consent from Revenue to treat such debts as permitted debts.
• The PIAs are not fair and equitable as between creditor classes, particularly between the principal private residence creditor (Start Mortgages) and Cheldon, as their rights and treatment under the PIAs differ markedly.
• The PIAs are unfairly prejudicial to Cheldon’s interests, as the write-down of secured debt and the limited dividend offered under the PIAs result in a worse outcome than would be achieved in bankruptcy or receivership.

Applicant's (Practitioner) Arguments

• The practitioner submits that the Revenue debt is a permitted debt due to Revenue's opt-in and the related proof of debt submitted, satisfying the statutory requirements under the Personal Insolvency Act.
• The difference in treatment between Start Mortgages and Cheldon is justified by the need to retain the family home and the different nature of the commercial debt, which remains profitable and offers a better return than bankruptcy.
• The practitioner contends that the PIA proposals are fair and equitable, balancing the interests of creditors and the debtors, and that the differential treatment does not amount to unfair prejudice.
• The practitioner emphasizes that Start Mortgages engaged and submitted a counterproposal, whereas Cheldon did not respond to statutory notices, which placed the practitioner at a disadvantage.
• The practitioner rejects assertions that tenants would leave if a receiver were appointed, and describes evidence suggesting otherwise as manufactured and hearsay.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully examined the statutory framework under the Personal Insolvency Act 2012 (as amended) and the specific provisions governing PIAs, particularly section 115A(9). It first addressed the issue of Revenue debts, concluding that while Revenue had opted into the PIA process and the debt was a permitted debt, the PIAs failed to properly identify the preferential element of the Revenue debt or secure written consent to disapply the statutory priority, raising concerns about creditor awareness and compliance with statutory requirements.

In assessing the constitution of creditor classes, the court applied established legal tests from precedent cases to determine that the principal private residence creditor (Start Mortgages) and the commercial creditor (Cheldon) constitute distinct classes due to the significant differences in their rights and treatment under the PIAs.

The court then considered whether the PIAs were fair and equitable between these classes. It found that the practitioner had formulated the proposals to secure the support of Start Mortgages by offering disproportionately favourable terms, which was inconsistent with the statutory obligation to treat creditors fairly and equitably. The disparity in treatment lacked objective justification, particularly given that the commercial creditor’s debt was significantly written down while the principal residence creditor was to be paid in full over an extended period.

Regarding unfair prejudice, the court applied the Supreme Court’s flexible approach and concluded that Cheldon would be unfairly prejudiced as it would receive a materially worse outcome under the PIAs than it would in a receivership or bankruptcy, where it could appoint a receiver and realize rental income and earlier payment of the secured property’s value. The court was not persuaded by the practitioner’s evidence suggesting tenants would leave if a receiver were appointed, finding it unsubstantiated and of no evidential value.

Overall, the court found that the statutory conditions in s. 115A(9)(e) and (f) were not satisfied, preventing confirmation of the PIAs.

Holding and Implications

The court REFUSED the applications to confirm the coming into effect of the proposed Personal Insolvency Arrangements in both cases.

The direct effect is that the PIAs, as proposed, cannot be confirmed and will not take effect. The decision underscores the strict statutory requirements that PIAs must be fair and equitable as between creditor classes and not unfairly prejudicial to any interested party. The judgment highlights the necessity for accurate disclosure, proper creditor classification, and objective justification for differential treatment within insolvency arrangements. No new precedent was established beyond the application and reaffirmation of existing legal principles governing PIAs and creditor rights under the Personal Insolvency Act.