About this case:

• Citation:
  [2021] IEHC 686
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Mark Sanfey

The court held that the PIA left “no room for error” and that it was therefore crucial to have a clear assessment of the debtor’s income.

In opposing the application, the personal insolvency practitioner (PIP) took issue with the matter being raised by the objecting bank, claiming that the bank had never taken issue with the figures in the PIA during the consultation process.

Background

The debtor was 59 years old, lived in Sligo and worked as a panel beater. His house was had a market value of €85,000 but he had a mortgage balance of €159,000 owing to the bank. As such, there was a deficit of €74,000.

The debtor’s monthly income was assessed at €1,861 which included €100 provided by his family each month. It was proposed to reduce the mortgage debt to €85,000 with the rest written off. The mortgage term would be extended to 15 years and €518 was payable monthly. The debtor would only be left with a surplus of €2 per month, meaning that he would be living on the “reasonable living expenses” recognised by the Insolvency Service of Ireland for years. Finally, a lump sum of €10,000 was offered by the debtor’s family.

In the usual way, the personal insolvency practitioner (PIP) consulted with creditors. The main creditor was the bank. At the Circuit Court hearing for the s.115A(9) application, the bank took issue with the viability of the debtor’s income as assessed by the PIP. The payment history of the debtor was severely criticised, with the debtor having failed to pay the mortgage between 2015 and 2017.

Several affidavits were subsequently exchanged. The PIP argued that the bank had not raised the issues prior to the PIA proposal. The bank argued that the PIP had failed to provide satisfactory evidence of the debtor’s self-employed income. In response, the PIP stated that she had assessed the debtor’s accounts and verified the income levels, although did not provide specific steps taken.

The matter was adjourned in the Circuit Court because the judge was not satisfied about the assessment of the debtor’s income. The PIP was given a further opportunity to clarify matters. The debtor later exhibited a “certificate of income” from his accountant, which caused serious confusion.

The certificate related to the debtor’s accounts for 2018 and included term loans to the bank which had been settled previously in 2015. The bank noted that there was no satisfactory explanation of why the loans appeared on the balance sheet. It took several affidavits to clarify that the terms loans were no longer relevant despite appearing on the 2018 accounts.

In all the circumstances, the Circuit Court refused to grant the application and the PIP appealed to the High Court. The bank argued that the fundamental question was whether the court was satisfied that the debtor’s income had been verified by the PIP prior to the PIA proposal. The PIP reiterated her position that the bank should have raised the issue prior to the PIA application, noting that there was no specific reference to the income assessment in the grounds of objection.

The PIP also argued that the bank’s issues with the income assessment went to the issue of the sustainability of the PIA rather than the requisite standards of proof.

High Court

Mr Justice Mark Sanfey began by stating that it was the responsibility of a PIP to verify all the information contained in the proposal. The court said: “This information is the basis upon which the creditors will decide whether or not to vote for or against a proposed arrangement, and the PIP bears a heavy onus to ensure that the information presented to the creditors is accurate.”

The court noted that the trading income of the debtor had been raised in the Circuit Court hearing and said that it was “puzzling that it was left to the debtor to deal with queries regarding his income”, because the applicant was the PIP, not the debtor.

The debtor’s evidence ultimately confused matters and the court queried how the PIP “could allow accounts to be proffered by the debtor which contained errors which, if uncontradicted or uncorrected, would only serve to tarnish her application and which in any event were damaging to the PIP’s case”.

The court noted that the trading income in the 2018 accounts showed a monthly income of €1,327, which was €434 less than the equivalent figure in the PIA. However, the debtor also exhibited his 2019 tax return, which showed a monthly income of €1,728 which was €72 less than the PIA.

The court also considered In Re Ciprian Varvari, a debtor [2020] IEHC 23, where Mr Justice Denis McDonald was highly critical of a PIP for overstating a debtor’s income and refused an application with costs. The court distinguished Varvari only on the basis that the debtor’s income was substantially overstated, whereas in the present case, the debtor’s income was “completely unclear.”

In considering the PIP’s claim that she had assessed all the necessary accounts, the court said that the PIP provided no evidence or detail on the accounts that were assessed. Given the “infirmities” with the accounts provided by the debtor (either in the 2018 accounts or 2019 return), the court held that the Circuit Court was correct to refuse the application.

The court held that there was no evidence that the PIP had properly assessed the debtor’s income. None of the documents before the court corroborated the income figure in the PIA. The court stated that if the income figure could not be relied upon, then it could not approve the PIA.

Conclusion

The court refused the appeal. It was noted that the bank’s pre-hearing conduct was “open to question” because it was accepted that it had not sought documents to verify the debtor’s income.

The court also commented that the issue paper agreed by counsel was vague, which led to confusion about whether the income verification was in dispute before the court. It was said that, in future, “serious consideration” would be given to refusing permission to raise an argument that was not contained in an issue paper.