A bank has recently successfully challenged the coming into
effect of a debt settlement arrangement ("DSA") on
grounds that inaccuracies existed in the debtor's statement of
affairs such that its approval would cause material detriment and
prejudice to his creditors.
The debtor owed ACC Loan Management Limited (formerly ACC Bank
plc) (the "Bank") the sum of €250,000 pursuant to a
guarantee executed in 2004 and sought the protection of the Circuit
Court in order to allow him to make a proposal for a DSA with his
creditors pursuant to the provisions of the Personal Insolvency Act
2012 (as amended). The proposal put forward at the
creditors' meeting was that the unsecured creditors of the
debtor would receive a dividend of 2.52% in full and final
settlement of their claims. At the creditors' meeting the
Bank and another creditor (ADM Londis plc) voted against the
proposal for a DSA. However, the DSA was approved by the
requisite majority in value of the debtor's
creditors.
Following the meeting the Bank lodged a notice of objection to the
coming into effect of the DSA. The Bank challenged the DSA on
two grounds:
- That a material inaccuracy existed in the debtor's statement of affairs (based on the prescribed financial statement) which caused a material detriment to his creditors; and
- That the DSA unfairly prejudiced the interests of a creditor.
The Bank had concerns with the manner in which the debtor had
conducted his affairs over the previous four to five years in light
of the fact that a significant number of the assets that had
appeared in a statement of affairs furnished by the debtor to the
Bank in 2009 no longer appeared in the prescribed financial
statement which had been prepared by the debtor and it was evident
that the majority of these assets had been transferred to the
debtor's wife. In addition, two Brazilian creditors of
significant value had voted in favour of the DSA, but the basis
upon which these entities had a legally enforceable liability
against the debtor was not clear from the documentation that had
been furnished.
At the objections hearing, the cross-examination of the debtor
exposed a vast number of inaccuracies and inconsistencies.
The court upheld the objections and concluded that there would be a
material detriment to all of the debtor's creditors as a result
of the inaccuracies and inconsistencies which emerged from the
challenge to the debtor's DSA in that, if the DSA was approved,
the debtor's creditors would be prevented from taking further
steps to properly examine the affairs of the debtor and certain
transactions that had taken place over the previous number of
years.
This case highlights that if a creditor has suspicions that a
debtor has not been fully upfront in respect of his assets and in
adhering to the prescribed requirements, the creditor should
consider challenging the DSA where its concerns are not adequately
addressed. Given the significant write-downs which can be
imposed on creditors pursuant to a DSA, it is encouraging that the
courts will require that debtors act in good faith in availing of
the relevant statutory provisions.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.