Quirke v The Personal Insolvency Acts 2012-2015 (Approved)

Factual and Procedural Background

This matter concerns an appeal by the Debtors from the judgment of the Circuit (Personal Insolvency) Court on the Midlands Circuit, which refused the Debtors’ application pursuant to section 115A of the Personal Insolvency Acts 2012-2015. The Debtors had interlocking applications with a single creditor, the Bank, regarding secured debt over their principal private residence (PPR).

A protective certificate was issued in May 2019, and a Personal Insolvency Arrangement (PIA) was formulated in July 2019 following consultation with the Bank. The Personal Insolvency Practitioner (PIP) decided to make two separate applications despite a single debt owed to the Bank. The Bank rejected both PIAs in July 2019.

The proposed PIAs contemplated a two-year repayment period, shorter than the usual six years. The Debtors have two dependent children who had turned sixteen when the PIA was submitted. The Bank was owed approximately €306,877.61, with the property valued at €176,000, leaving an unsecured balance of about €130,877.61. The mortgage payment was €1,400 monthly at 4.49% interest, with an original term of 216 months.

The PIA proposed restructuring the mortgage with an extended term of 300 months and repayments of €1,013.94 monthly during and after the PIA. The PIP indicated no surplus income capacity to fund a standard PIA. The net household income was €4,312.55, and PIP fees were approximately €8,351, matching the available contribution from the Debtors over two years. No lump sum was included.

The bankruptcy comparison in the PIAs showed a better outcome for the Bank under the PIAs than bankruptcy, including interest payments over the restructured term. The Bank filed a notice of objection and affidavit, and there was an exhaustive affidavit exchange. The hearing took place in March 2021, with an agreed issue paper outlining substantive and discretionary questions, including whether the arrangements were unfairly prejudicial, sustainable, and calculated in accordance with law.

Legal Issues Presented

1. Whether the proposed PIAs are unfairly prejudicial to the Bank as the creditor.
2. Whether the rejected arrangements return the Debtors to solvency and are sustainable.
3. Whether the live balance on the Debtors’ home loan was calculated in accordance with law.
4. Whether the repayment terms under the PIAs accord with the Debtors’ future means.
5. The impact of the Debtors’ repayment history in the two years prior to the protective certificate.
6. The effect of the Bank’s possession order and the Debtors’ attempts to set it aside.

Arguments of the Parties

Appellant's Arguments

• The appeal centers on the Bank’s policy, specifically its refusal to support payment of college fees for adult dependents, which was the key reason for rejecting the PIAs.
• The Debtors argue that payments supporting adult children in college are permissible and recognized by the Official Assignee in Bankruptcy, with the children intending to pursue nursing and physiotherapy studies.
• The PIAs were calculated based on affordability and sustainability without requiring a write-down to market value for the PPR.
• The PIP considered special circumstances over six years, showing reduced monthly contributions when college costs begin, with near-zero repayments in years three to six due to these costs.
• The Debtors have maximized their resources, with the Bank continuing to receive interest payments during the PIA.
• Regarding the Debtors’ poor payment history, it was explained by prior unemployment and recent return to full-time employment, with consistent recent repayments and improved financial circumstances.
• Alternative housing options were discussed but deemed not viable; family support has mitigated childcare costs.
• The Bank’s affidavit was criticized for failing to recognize the changing nature of special circumstance costs over time and the PIP’s consideration thereof.
• The Bank’s objections were inconsistent, simultaneously arguing for longer PIAs and larger repayments while claiming the PIAs were unsustainable.
• The Debtors contend they have no other viable options and face homelessness without the PIA.
• It was submitted that joint applications are rare and the use of two separate applications was prudent and did not necessarily increase costs unfairly.
• The inclusion of college costs is a normal incident of insolvency arrangements, reflecting real-life events and expenses.
• The PIP has assured that fees will not be enforced if they would render the PIA unaffordable.

Appellee's Arguments

• The Bank’s objections focus on four main points: affordability and sustainability of the PIA, the Debtors’ past conduct, the costs of the PIA, and the calculation of the live balance.
• The PIA is unaffordable and unsustainable; it is a once-in-a-lifetime opportunity, and if rejected, the Debtors may apply again in the future.
• The Debtors’ payments during the protective certificate period were sporadic and below the amounts due under the PIA, with only one instance of payment meeting or exceeding the scheduled amount.
• The Bank emphasized the poor payment history, including two years of non-payment not coinciding with the Debtor’s unemployment.
• The Bank referred to relevant case law requiring explanation for poor payment records and submitted the Debtors failed to adequately explain theirs.
• The Bank criticized the Debtors’ attitude as “blasé,” noting lack of cooperation and engagement, including ignoring communications.
• The monthly repayment under the PIA was comparable to rental costs, and alternatives such as renting were available, undermining the Debtors’ claim of facing homelessness.
• The Bank suggested the Debtors could apply for a new protective certificate under applicable statutory provisions.
• The Bank criticized the use of two separate applications, arguing a joint application would have been appropriate and less costly.
• The calculation of the live balance was challenged, suggesting alternative approaches such as warehousing portions of debt might have been more appropriate.
• The Bank argued that college costs should not be fully accounted for during the entire PIA term, as these costs will fall away, and allowing full benefit of these costs after independence would confer an undue advantage.

Table of Precedents Cited

Court's Reasoning and Analysis

The court carefully reviewed the submissions and affidavits, including the digital audio recording of the hearing, to clarify arguments. It acknowledged the Bank’s firm opposition to the structure of the PIAs, particularly the short two-year term and inclusion of college costs, but found no evidence that a six-year PIA would be more acceptable to the Bank.

The court accepted the PIP’s decision to make two separate applications rather than a joint application, considering such joint applications rare and the additional costs to be borne by the Debtors.

The court strongly rejected the Bank’s policy position that the Debtors should not use income to support college fees, recognizing the sending of dependent children to college as a valid special circumstance warranting allowance in PIAs, consistent with established case law.

The court found the Bank’s attitude indicative of non-engagement with the insolvency process, which may require debt write-downs and allowances for normal life events to achieve viable PIAs.

The delay since the initial rejection of the PIAs meant that projected year three expenses, including college costs, would now fall in year one, placing strain on affordability. However, the PIP’s assurance that fees would not be enforced if unaffordable was significant.

Applying the affordability test from precedent, the court held that the PIA need not guarantee lifelong solvency but must be practicable. It concluded that the Debtors face a difficult but viable task to adhere to the restructured repayment schedule, especially while children are at college.

The court found the PIAs not unfairly prejudicial to the Bank, noting that bankruptcy or possession would not yield a better outcome. The Bank retains protections including a clawback provision and a possession order, and will continue to receive interest payments over the extended term.

The court was satisfied that the live balance was properly calculated and that the costs, including PIP fees, were appropriate.

Holding and Implications

The court’s final decision is to confirm the coming into effect of the Personal Insolvency Arrangement (PIA).

The direct consequence is that the PIA will proceed, obliging the Debtors to adhere to the restructured repayment terms with protections for the Bank. The matter will be listed for further submissions on the terms of the court’s order.

No broader precedent beyond the application of established principles was set by this decision.