About this case:

• Citation:
  [2023] IESC 32
• Judgment:
  External link
• Court:
  Supreme Court
• Judge:
  Ms Justice Elizabeth Dunne

Delivering judgment for the Supreme Court, Ms Justice Elizabeth Dunne determined: “The approach taken in this case that a creditor who does prove his debt drops out of the process does not, in my view, stand up to scrutiny… whether a creditor proves his debt or not, the creditor is fully bound by the process and the effects thereof once a PIA has been approved.”

Background

The appellant, the respondent debtor and a third party set up a company, Ezeon Entertainment Ltd, to purchase and operate a pub in Cork. The purchase and renovation of the pub was financed by borrowings which the appellant agreed to personally refinance in October 2014. This loan was personally guaranteed by the debtor and third party, who signed an agreement in respect of same.

The pub traded successfully until the Covid-19 restrictions resulted its closure, causing financial issues for the debtor and leading him to obtain the services of a personal insolvency practitioner (PIP).

The PIP informed the appellant that a protective certificate had issued in respect of the debtor and called upon him to file a proof of debt within 14 days. In a letter to the PIP, the appellant made 11 complaints including that the debtor was not insolvent, had sufficient assets to meet the debts owed, had failed to disclose some of his assets in his prescribed financial statement (PFS), and that a debt owed by Ezeon to the debtor had not been addressed in that statement.

Multiple requests by the appellant for an extension of time to lodge proof of debt were denied by the PIP, who called upon the appellant to prove his debt within the prescribed time. A second PFS was completed by the debtor, and the PIP wrote to the appellant with notice of the creditor’s meeting which was due to take place on 5 January 2022. The appellant request for the meeting to be cancelled in light of his concerns was rejected by the PIP.

On 20 December 2021, the appellant issued a motion seeking leave to execute against the debtor pursuant to s.96(3) of the Personal Insolvency Act 2012 and sought an order refusing the coming into effect of the personal insolvency arrangement (PIA) pursuant to s.115(2)(b) of the 2012 Act.

The creditors’ meeting took place as scheduled, and the PIA was approved by creditors who had previously proved their debt. The PIP wrote to the creditors, including the appellant, informing them that if an objection was forthcoming it was required to be lodged within 14 days in accordance with s.112(3) of the 2012 Act.

Circuit Court and High Court

The appellant’s motion and notice of objection came on for hearing together in March 2022 before the Circuit Court, and were dismissed as the Court believed the appellant had no locus standi to object to the PIA without proving his debt.

On appeal to the High Court, the appellant argued that he had locus standi to make an objection, relying on Re Varma [2017] 3 IR 659. The appellant also relied upon the express restrictions on participation by a creditor who failed to prove its debt in s.98(2)(b) of the 2012 Act, submitting that if the Oireacthas’ intention was to curtail the right of a creditor who has not proven its debt from making an objection, the 2012 Act would have provided for same.

The High Court dismissed the appeal, finding that a person loses their designation as a creditor under the 2012 Act if they fail to prove their debt when requested to do so. The court also conclude that “creditor” in s.112 was preceded by the word “concerned”, indicating that s.112 refers only to creditors affected by the PIA — those who had proved their debt and had voted in a creditors’ meeting.

The appellant was subsequently granted leave to appeal to the Supreme Court, with a single issue to be decided: whether a creditor who fails to prove its debt when called upon to do so under s.98(2)(a) retains the right to object to a PIA pursuant to s.112 and s.120.

The Supreme Court

Ms Justice Dunne examined the wording of the 2012 Act, finding that there was no disagreement between the parties that the appellant was a creditor as defined by s.2.

Recognising that s.98(2)(b) was unambiguous in its terms, the court highlighted s.98(2)(c) as providing that a creditor may subsequently furnish a proof of debt if granted an extension of time within which to do so, and thereafter take part in the process, without prejudice to steps taken up to that point.

The court stated that “it is clearly envisaged that the creditor may have a role subsequent to the approval of a PIA, and even potentially after a distribution has been made”.

Ms Justice Dunne considered in respect of s.112 that “the phrase ‘creditor concerned’ seems to me to encompass those who are affected by the process of a PIA… the word ‘concerned’ does not appear to me to alter the status of the creditor… There is no category of… non-proving creditors that is required to be treated differently by virtue of any of the provisions of the Act, save for… a creditor who does not prove their debt is not entitled to vote at a creditors’ meeting or share in any distribution that may be made under the PIA.”

Finding it difficult “to understand how it could be said that a creditor in the position of the appellant in this case loses all rights to object to the PIA simply by virtue of the fact that they chose not to prove their debt”, Ms Justice Dunne observed: “It is hard to conceive of any similar situation in which a party bound by a decision of a court, such as the one in this case, would not have a right to be heard before a final decision was made.”

Noting the presumption against unclear changes in the law, the court emphasised that “had the Oireachtas wished to exclude a creditor from proving their debt, one would have expected that this would have been done in express terms by means of a specific prohibition in the 2012 Act and not simply in some indirect or oblique fashion”.

Ms Justice Dunne concluded that in the absence of express language to the contrary in the 2012 Act, “a creditor in the position of the appellant here is entitled to lodge an objection, and thus has locus standi to make such an objection and is entitled to be heard in that regard”.

The court made a final observation, that “a court can allow a creditor to prove his debt notwithstanding that the creditor failed to do so within the time limited in that regard by the PIP. Many of the difficulties in this case would have been avoided had that course been followed.”

Conclusion

Accordingly, the court allowed the appeal and remitted the matter for consideration as to the entitlement of the appellant to prove his debt, and to lodge a notice of objection to the PIA.

O’Flynn v. O’Driscoll & Ors [2023] IESC 32