About this case:

• Citation:
  [2022] IEHC 371
• Judgment:
  External link
• Court:
  High Court
• Judge:
  Mr Justice Mark Sanfey

Under the proposal, the PIP had referred to the entirety of a Revenue debt as a preferential debt, but this was in fact not correct. The court was dissatisfied with the PIP’s explanation that he had made an error, stating that he provided a “garbled and contradictory” rationalisation that did “not address what occurred in any meaningful way”.

Background

The PIP had been engaged by Mr Jonathan Bourke, a well-known restaurateur, in respect of debts which totalled more than €13 million. Pepper Finance Ireland DAC was the largest creditor at €12.2 million. Mr Bourke had substantial equity in his family home and a significant monthly income. It was also hoped that €616,000 would be generated by a shareholding payout.

In early October 2020, the PIP engaged with Revenue regarding a personal insolvency arrangement for the debtor. Discussions continued throughout 2021 where the PIP attempted to convince Revenue to opt-in to the PIA. This was necessary as preferential debt owed to the Revenue was an “excludable debt”, meaning that the consent of the creditor was essential to the debt forming part of the PIA.

The PIP made significant efforts to make the PIA attractive for Revenue. By April 2021, Revenue confirmed that it was opting into a proposal from the PIP which ensured that Revenue debt would be paid in full.

Under the PIA which was put to creditors in October 2021, the Revenue’s preferential debt was stated to be €558,000. However, this was in fact incorrect, as only €351,000 was identified in Revenue’s proof of debt to be preferential debt. It was stated throughout the PIA that the preferential debt was €558,000.

Pepper Finance did not accept the proposal and the PIA was rejected. Accordingly, an application was made by the PIP under section 115A(9) of the Personal Insolvency Acts 2012-2021 to approve the PIA. The application misstated that Revenue preferential debt was €558,000, although the application also separately stated that part of the debt was preferential.

In its notice of objection in December 2021, Pepper Finance put the PIP on proof that the entire debt was preferential and requested proof/particulars of the debts along with all correspondence with the Revenue. In an affidavit from March 2022, the PIP did not engage with the issues raised by Pepper.

The court directed the PIP to answer Pepper’s queries regarding the €558,000 debt being listed as preferential and the apparent inconsistencies in the PIP’s proposal. The PIP replied that Revenue would only opt into the PIA if the entirely debt was treated as preferential, which explained why the full debt was so categorised.

A bankruptcy petition had been ongoing throughout the PIA process. Ultimately, the PIP’s application was withdrawn in April 2022 and, later that month, the debtor was adjudicated bankrupt. However, the court required further affidavits to be sworn on the issues which had been raised.

High Court

In a further affidavit in May 2022, the PIP apologised for the “error in the language” used regarding Revenue’s preferential debt. It was said that Revenue’s bankruptcy petition gave it “all the power and leverage in the case” and that they would only opt in if they were paid in full.

It was claimed that the PIP did not have the benefit of legal advice at the time and it was accepted that “preferential” had a defined meaning. The PIP also stated that he had worked very hard in a difficult case and had no intention to mislead the court or creditors. It was accepted that the PIA wording was less clear than it should have been.

In response, Revenue claimed that it was not correct that Revenue required the entire debt to be classified as preferential. The court noted that Revenue had nevertheless voted for a PIA “which plainly misstated the amount of its preferential debt”. No explanation was offered for this.

Pepper Finance submitted that it was “scarcely plausible” that the PIP made an error by referring to the debt as preferential. The PIP was a highly experienced PIP with KPMG and could not have unconsciously made such an error. Pepper submitted that it was unconvincing that the PIP required legal advice and did not understand the implications of treating the Revenue debt as he did.

Pepper argued that the clear impression of the PIA was that Revenue was entitled to be paid in full as a preferential creditor. It was submitted that this distorted the “unfair prejudice” analysis when comparing a PIA to bankruptcy and that the creditors were misled.

In his judgment, Mr Justice Mark Sanfey accepted that the PIP had “worked extremely hard to find a solution” for the debtor. However, the PIP should have made clear the aspects of Revenue debt which was preferential and explained why the entire debt should be paid in full.

The PIP’s explanation for the mischaracterisation of the preferential debt was “disquieting,” the court said. The evidence suggested that the designation of the debt as preferential was deliberate, rather than mere error. Further, although the PIP claimed he did not have legal advice, he accepted that he knew what “preferential debt” meant.

It was “very difficult” to believe that the PIP acted in ignorance of the meaning of “preferential” and the repeated representation that the entire debt was preferential would have led creditors to believe that Revenue was entitled to be paid ahead of them. If the true position was known, the creditors may have adopted a different viewpoint, the court said.

The court noted that the personal insolvency system depended on PIPs acting as independent intermediaries and not as advocates for debtors. Courts and creditors could only have confidence in the system if appropriate ethical standards were applied (Re Mark Fay, a Debtor [2020] IEHC 163).

Mr Justice Sanfey held that courts and creditors placed trust in PIPs to present accurate evidence in PIA applications. Here, there was not a frank acknowledgement at an early stage that the standards had not been observed, the court said. In particular, the court was concerned that the mischaracterisation of the debt was not addressed immediately.

The issue was first ignored and then rationalised in a way which “raised more questions than they answered”.

Conclusion

The court accepted that the PIP was a “dedicated and skilled practitioner” who worked diligently in the case. However, the court was “not impressed” by the PIP’s explanation of events, describing it as “garbled and contradictory”. The claim that Revenue required the debt to be preferential was “unsupported by the evidence”.

In this case, the PIP had “fallen well below the appropriate ethical standards to be expected from a personal insolvency practitioner”. Although no order was necessary, the court expected all PIPs to “reflect carefully on their obligations to creditors and the court”.

Bourke v Personal Insolvency Acts 2012-2021 [2022] IEHC 371