High Court asked to clarify insolvency legal issues

A High Court judge has been asked to clarify legal issues potentially affecting more than 600 insolvency cases.

Lawyers representing a number of debtors claim the insolvency service has ground to a halt due to alleged exploitation of a legal loophole by banks and other creditors.

That claim is disputed by creditors who have alleged Personal Insolvency Practitioners (PIPs) are seeking to achieve a situation where they will have no exposure to legal costs of failed reviews of rejections of proposed Personal Insolvency Arrangements (PIA) put forward by them for debtors.

Ms Justice Marie Baker described as “very important” the issues raised in the three test cases before her. The hearing opened this week and has been adjourned to December 21st for final legal arguments after which the judge is expected to reserve judgment.

Debtors

The cases concern the role of debtors and their PIPs in relation to seeking reviews of rejections of proposed PIAs under the Insolvency Acts.

Ms Justice Baker, in a judgment last October [the Reilly judgment on a preliminary issue raised by Bank of Ireland], ruled the relevant law - Section 115 A of the Insolvency Acts - requires any such review must be applied for by a debtor’s PIP and not the debtor themselves.

The Association of Personal Insolvency Practitioners, following an earlier Circuit Court ruling to the same effect, has said it believed PIPs would not take cases for fear of losing and facing a costs order.

Addressing those concerns in the Reilly judgment, Ms Justice Baker indicated a PIP who lodged a review application or pursued an appeal in good faith was unlikely to face an award of costs.

This week, the judge was asked to address the legal role of PIPs and debtors in three cases involving debtors who sought a review after their proposed PIA was rejected by creditors.

Submissions

In submissions for the applicants, John O’Donnell SC and Keith Farry BL, said what was happening was an overcomplication of a “very simple” proposition which was that the PIP makes the review or appeal application “on behalf of” the debtor. The debt, the creditors, the PIA, the protective certificate and the review application all remain those of the debtor, it was argued.

Bank of Ireland, represented by Bernard Dunleavy SC, submitted these cases were effectively an attempt to have the court revisit the Reilly judgment and to hold that case was wrongly decided.

The Insolvency Service of Ireland, represented by James Doherty SC, said in its submissions the service is aware many PIPs remain reluctant to commence review applications under Section 115A because they are fearful of adverse costs orders being applied to them personally should they lose.

The ISI also said it is aware that solicitors for some objecting creditors have written to PIPs stating they will or may seek costs personally against the PIP if a Section 115A application is brought and fails. The service was not suggesting that occurred in this case, it stressed.