High Court: Invalid protective certificate prevents debtor from bringing a further personal insolvency application within 12 months
The High Court has ruled that an insolvent debtor was not entitled to a new protective certificate under the Personal Insolvency Acts 2012-2015 after he had benefitted from an invalid protective certificate within the previous 12 months. It was claimed by the debtor that the impugned certificate was invalid from inception, and therefore did not count in the general 12-month rule against of a further application.
However, Mr Justice Mark Sanfey determined that the debtor had obtained significant advantage from the invalid certificate and only accepted that it was defective on the day of the application. As such, the invalid certificate still counted against the general 12-month prohibition on bringing a further application, and the court duly struck out the present case. The judge also made some striking comments regarding the expectations of parties in the insolvency regime.
The debtor, Mr Paudie Barry, ran a business from his home selling medical supplies and devices to prevent bedwetting. He had significant debts of more than €1.2 million to Bank of Ireland and was effectively insolvent. Mr Barry also owed money arising from the purchase and development of land. All of the monies were secured against his home.
In November 2014, he engaged a personal insolvency practitioner (PIP) and a first application for a protective certificate (PC) was made. A personal insolvency arrangement (PIA) was proposed to the bank, but this was refused. The Bank issued possession proceedings of Mr Barry’s home in 2015, although this case was adjourned due to the personal insolvency applications brought by Mr Barry.
The debtor obtained a second PC in September 2016, with another PIA proposed. Again, this was declined by the bank. Although an application under s.115A(9) of the Act was issued seeking to confirm the proposed PIA, it was accepted by the PIP that the application was not to proceed. This application was struck out on consent in December 2017.
A third PC issued in February 2018. A PIA was proposed by the PIP and rejected by the bank yet again. This PC was invalid because it had issued only 3 months after the previous s.115A(9) application had been struck out. This was recognised by the PIP and the application was struck out on consent in January 2019.
Finally, a fourth PC issued in April 2019, which was only three months after the third application was struck out. As usual, the debtor proposed a PIA and it was rejected. In seeking to justify issuing the fourth PC within 3 months of the previous application, it was claimed by the PIP that the third PC had never lawfully existed at all for the purposes of the 12-month rule as it was invalid from inception. As such, it was claimed that it was not appropriate for the third PC to reset the clock and prevent the fourth application.
The bank was deeply critical of the debtor and the PIP in the case, claiming that the PC applications were an abuse of process and that the proposed PIA would prevent the bank from recovering the monies owing to it. In response, counsel for the PIP claimed that the debtor was required to issue multiple PCs because of the bank’s blanket policy of refusing any PIA which involved a write-down of the underlying debts.
On the issue of the invalid third PC and the effect on the 12-month rule, the debtor sought to rely on Re Hickey, a debtor (No. 3)  IEHC 313, in which Ms Justice Marie Baker held that a PC was not effective because the s.115 application had not been made in time. However, Mr Justice Sanfey distinguished this case, noting that there was nothing in the Hickey case which said that the PC was invalid. Rather, “the decision was that the protection which it afforded did not continue beyond its expiry in circumstances where the s.115A application was not made within time,” the court said.
The court said that the third PC was regular on its face and bound the bank to the usual restrictions on creditors under the Personal Insolvency Acts 2012-2015. The court was also struck by the fact that the debtor continued to benefit from the third PC until the date of the s.115 application, when it was finally accepted that the PC was invalid. As such, the court held that the third PC precluded the fourth application because it was made within 12 months.
The court also made some striking comments in relation to the obligations of parties under the personal insolvency regime. Mr Justice Sanfey considered the criticism that the debtor was seeking to “game the system,” and held that the PIP had acted inappropriately in the case. The PIP should have known that the third PC was “fatally flawed” but he failed to act on this until the s.115 hearing. A PIP must act with honesty and candour when seeking to invoke the protection of the court, the judge said.
However, the court also said that the spirit of the insolvency regime was to allow “a mutual exchange of documentation, information and views between the PIP and the secured creditors in particular with a view to arriving at a workable PIA which will resolve the debtor’s insolvency.” To the extent that the bank had a policy of rejecting any PIA proposal which wrote down debts, such approach “offends against the spirit and intendment of the statutory scheme,” the court said. Although a creditor was entitled to object to a PIA for any reason, a bank should approach each case “pragmatically, with an open mind,” and with a view to resolving a debtor’s insolvency in a fair and efficient manner.
In light of the court’s conclusion relating to the validity of the third PC, the court dismissed the application.
© Irish Legal News Ltd 2021