Ireland: High Court Rules Debtors Have A Voice In Applications To Review Creditors' Rejection Of A PIA

Following on from her decision of late last year in Re Darren Reilly & the Personal Insolvency Acts 2012 to 2015 [2017] IEHC 558 (further details of which can be found here), Ms. Justice Marie Baker has found in her recent judgment In the Matter of Niamh Meeley & Ors that debtors also have a voice in applications brought on their behalf by a Personal Insolvency Practitioner ("PIP") under section 115A of the Personal Insolvency Act, 2012, as amended ("the Act").

Preliminary issue

The judgment related to the determination of a preliminary issue as to whether five separate applications (involving five debtors) under section 115A¹ of the Act were properly constituted. Specifically, the question for determination was whether, in circumstances where a debtor has "no free standing right" to bring an application under section 115A, there exists a residual right of a debtor to directly engage in such an application, considering the "central and substantive statutory role" of a PIP in the process. Some 400 applications under section 115A had been suspended pending clarification of this issue. During the hearing, the Insolvency Service of Ireland ("the ISI") made submissions as amicus curiae² and raised a particular concern that in some section 115A applications, solicitors acting for an objecting creditor have indicated in correspondence to PIPs that if an application under section 115A is unsuccessful, an order for costs may or will be sought against the PIPs personally.  

Balancing interest of debtors and creditors

In rejecting the creditors' arguments that the voice of the debtor is "intended to be silenced" and that the voice of the PIP is the only voice to be heard in the "articulation of the arguments or interests of the debtor in the review", Ms. Justice Baker held that the PIP is not the agent of either the debtor or the creditor but is required to engage professionally with both to achieve a satisfactory solution to both, if at all possible. In that regard, she held that the Court in a section 115A review is required to balance the interests of the creditor and the debtor and is therefore not confined "to the evidence that the PIP so considers".  Further, Ms. Justice Baker held that a debtor has a "vital interest" in the outcome of a section 115A application. Importantly, the debtor may only be heard where the application is properly constituted before the Court and the issue of how the debtor is to be heard is a matter for the Court conducting the review. Ms. Justice Baker also rejected an argument made by Counsel for Bank of Ireland that allowing a debtor's voice to be heard would result in "litigation chaos". In particular, she noted that the threshold proofs (as set out in section 115A(2)³) must be met before an application is heard, that the PIP has a role in "filtering unmeritorious applications" and that the Court also has express power to make directions regarding the hearing of the application.

Costs

In considering the question of costs in section 115A applications, Ms. Justice Baker re-iterated the principle enunciated in Re Darren Reilly that costs would only be granted against a PIP in unsuccessful section 115A applications in "exceptional circumstances" or where the PIP had acted "in bad faith". This is particularly the case having regard to the express public interest that is performed by a PIP in the insolvency process. The Court also expressly stated that it does not condone the practice of correspondence from creditors threatening an application for costs against PIPs in "routine or ordinary" unsuccessful applications.

While the Court found some procedural incorrectness in how the applications the subject of the judgment had been constituted, it held that the striking out of these proceedings was not justified and adjourned the cases to permit the parties to consider how they should proceed.

Comment

The decision certainly brings further comfort for PIPs who may be considering applying for a review under section 115A, but are fearful of an adverse costs order in the event that the application is not successful. However, given that there is no statutory means by which the Court may award the PIP costs out of the estate of the insolvent debtor (and there is no provision under section 115A for the Court to modify the personal insolvency arrangement for the purpose of providing for the costs of a PIP in bringing the application), there remains the question as to how PIPs are going to recover their costs incurred in a section 115A review.

Separately, it is noteworthy that Ms. Justice Baker suggested that none of the applications the subject of these proceedings were properly constituted in terms of their form. Accordingly, in circumstances where there were divergences in the manner in which the proceedings were drafted (none of which were decided to be correct), there is scope for guidance to be given by the ISI or indeed, the Court, as to the correct form to be used in s115A applications.

Footnotes

1 Further details of section 115A can be found here insights/significant-ruling-on-challenging-a-creditor-s-rejection-of-a-personal-insolvency-arrangement.

2 "Friend of the Court"

3 These include, inter alia, a statement of the grounds of the application, a copy of the proposal for a PIA, a copy of the report of the PIP referred to in section 107(1)(d) and a certificate with the result of the vote at the creditors' meeting, identifying the proportions of the respective categories of votes cast by those voting at the creditors' meeting and the creditors who voted in favour of and against the proposal, and the nature and value of the debt owed to each such creditor

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