Gallagher v Personal Insolvency Acts 2012-2015 (Approved)

Factual and Procedural Background

This matter arises from an appeal by a personal insolvency practitioner ("the PIP") against the refusal by the Circuit (Personal Insolvency) Court to confirm the coming into effect of a Personal Insolvency Arrangement ("PIA") under section 115A of the Personal Insolvency Acts 2012-2015. The debtor, a self-employed individual operating a panel beating business, proposed a PIA involving restructuring his mortgage and unsecured debts, supported by contributions from his siblings. The objecting creditor, a bank holding the debtor's mortgage, opposed the arrangement primarily on grounds of affordability and sustainability, citing concerns about the debtor's income verification and poor payment history.

The protective certificate was issued in November 2017, and the PIA was presented to creditors in February 2018, where the bank, holding the vast majority of creditor votes, rejected the proposal. The PIP applied to the Circuit Court for confirmation of the PIA notwithstanding this rejection. The Circuit Court refused the application in August 2020, prompting the appeal now before the High Court.

Legal Issues Presented

1. Whether the income figure stated in the PIA, and relied upon to assess the debtor's ability to comply with the arrangement, had been properly verified by the PIP in accordance with statutory obligations.
2. Whether the proposed PIA was affordable and sustainable for the debtor, considering his income, payment history, and financial support from third parties.
3. Whether the objection by the bank regarding the debtor’s income verification and payment history justified refusal of the PIA confirmation under section 115A(9) of the Act.

Arguments of the Parties

Appellant's (PIP's) Arguments

• The PIP asserted she had thoroughly assessed and verified the debtor's income by examining various documents, including accounts, valuations, bank statements, and creditor statements, as set out in the PIA.
• The PIP contended that the bank had accepted the income figures during the consultation process under sections 98 and 102 of the Act and had not requested corroborating documentation prior to the creditor meeting.
• The PIP argued that the bank's objections as to income reliability were raised late in the proceedings and were not substantially developed in the affidavits.
• The PIP maintained that the debtor’s payment history and the siblings’ financial contributions were the main issues raised by the bank, not the quantum of income.
• The PIP emphasized that poor payment history is a factor to be considered but is not determinative under section 115A(10).

Respondent's (Bank's) Arguments

• The bank challenged the reliability and accuracy of the debtor's income figure, highlighting discrepancies in the documentation submitted by the debtor, including unexplained term loans and overdrafts not accounted for in the PIA or prescribed financial statement.
• The bank criticized the PIP for failing to provide satisfactory evidence verifying the debtor’s self-employed income despite multiple adjournments to address this issue.
• The bank contended that the debtor’s poor payment history and lack of substantiation of siblings' financial support undermined the sustainability of the PIA.
• The bank relied on precedent emphasizing the PIP’s duty to properly verify income and criticized the PIP’s general and unsupported assertions of verification.
• The bank submitted that the court could not have confidence that the debtor could meet the terms of the PIA given the lack of reliable income verification.

Table of Precedents Cited

Court's Reasoning and Analysis

The court emphasized the heavy onus on the PIP to verify all financial information in the PIA, particularly the debtor’s income, which is critical to assessing affordability and sustainability. The court referenced the Insolvency Service of Ireland’s Debt Solutions Protocol Principles, which provide detailed guidance on the documents and verification processes expected of PIPs, especially for self-employed debtors with variable income.

Although the PIP averred to having assessed and verified the debtor’s income, the court noted the absence of documentary evidence to substantiate this claim. The debtor’s own accounts, submitted during the proceedings, contained significant unexplained items ("term loans" and overdrafts) and errors that undermined their reliability. The debtor’s 2019 tax return showed a monthly income figure lower than that stated in the PIA, further complicating the income assessment.

The court found it problematic that income verification queries were effectively left to the debtor rather than addressed by the PIP, who is statutorily responsible for verification. The bank did not challenge the income figure in detail during the consultation process but raised concerns later, which the PIP did not adequately address with supporting evidence.

Comparing the present case to the precedent in Varvari, the court noted that while the income figure in the PIA here was neither clearly overstated nor understated, the lack of reliable verification meant the court could not be satisfied that the debtor would be able to comply with the PIA.

The court also commented on procedural issues, noting that the absence of written submissions and an imprecise issue paper made it difficult for parties to know the exact points of contention before the hearing. The court cautioned that future hearings would require clear identification of issues in advance.

Holding and Implications

The court REFUSED the PIP's application to confirm the PIA under section 115A(9) of the Personal Insolvency Acts 2012-2015.

This decision directly affects the parties by upholding the Circuit Court's refusal to confirm the PIA due to insufficient verification of the debtor’s income and concerns over affordability and sustainability. No new legal precedent was established; rather, the court reinforced existing principles regarding the PIP’s duty to thoroughly verify financial information, particularly income, in personal insolvency arrangements.