The Irish High Court recently ruled it has a discretion to hear evidence on behalf of a debtor as part of its review of a personal insolvency arrangement. In reaching this decision Justice Baker was of the view that the legislation envisaged a wide discretion be given to a court regarding how it conducted its review under section 115(A) of the Personal Insolvency Acts 2012-2015 (the ‘Acts’). It was important that a debtor who has a vital interest in the result be afforded the opportunity to give evidence. Judge Baker reasoned that she did not consider the Oireachtas envisaged that a non-legally qualified intermediary i.e. a personal insolvency practitioner would be the sole person entitled to argue the merits and legal principles arising in an application under section 115(A) of the Acts. Further the personal insolvency practitioner had not been, in that process, the agent of either the debtor or the creditor – an intermediary to bring financial knowledge and analysis to the process of orderly debt resolution.
One of the issues before the court was to address concerns by the Insolvency Service of Ireland (ISI) that if the law required reviews to be pursued by personal insolvency practitioners with no debtor involvement, that the fear of incurring legal costs might discourage PIPs seeking reviews. Justice Baker concluded that this would be “truly exceptional” to have costs awarded against a PIP.
The present case was taken by five debtors but the issue is one which potentially affects 400 other debtors currently involved in litigation concerning the proper application of section 115(A). The debtors sought to argue that in light of the statutory provisions and the central and substantive role of the personal insolvency practitioner in the review of the court of a proposed personal insolvency arrangement under section 115(A), there existed a residual right in the debtor to engage in the process.
Justice Baker analysed the scheme and purpose of the Act and found that she did not envisage that the personal insolvency practitioner was the ‘sole voice’ to be heard in a court review of rejection of a personal insolvency arrangement. The arguments put forward by the creditors were not accepted that the personal insolvency practitioner was the only voice to be heard in articulating a debtor’s interest. While the debtor has no “free standing right” to bring applications under section 115A without the engagement of a personal insolvency practitioner, there is a residual right of a debtor to be heard in the process. Judge Baker had decided in the earlier case of Re Darren Reilly that no independent right to appeal vested in a debtor where a personal insolvency arrangement was rejected by a creditor(s). Click here for a PILA Bulletin feature examining the in Re Darren Reilly decision.
In relation to how a debtor was to be heard, Justice Baker stated that it was up to the court conducting the review. While there was some procedural incorrectness in relation to how the cases before the court were advanced it did not require for any of them to be struck out. The idea that costs would be made against a personal insolvency practitioner was absurd as there is no provision in the Acts for payment of fees of lawyers for the PIP or the PIP themselves. A cost order could not be ordered unless it could be shown that the PIP acted without bona fides, dishonestly or with impropriety and the circumstances in which this order would be made would be truly exceptional. The idea that creditors would threaten costs would be sought against a PIP in a routine was not appropriate.
Justice Baker did not stipulate how an application for a review under section 115A of a rejection of a proposed personal insolvency agreement was to be heard. Relying on Re Darren Reilly, it was explained that the role of the personal insolvency practitioner in the making of an application under section 115A is one of “substance and responsibility” and not merely procedural or administrative in nature. The role of the personal insolvency practitioner is to seek to achieve a result that is acceptable to both creditor and debtor, and brings into account the interests of both insofar as this may be achieved.
Justice Baker adjourned to allow sides to consider how reviews should proceed in light of her findings. She was not satisfied that the procedural incorrectness is such as justifies the striking out of the proceedings without further argument or application.
For the full judgement- click here.