Debtors cannot directly appeal rejected insolvency arrangements

A debtor cannot seek a court review of a rejection of their proposed personal insolvency arrangement because the law requires any such review must be applied for by their Personal Insolvency Practitioner, the High Court has ruled.

Ms Justice Marie Baker’s findings have implications for hundreds of cases which stand adjourned pending clarification of whether a debtor, rather than their PIP, can seek such a review.

Today, the judge agreed with Bank of Ireland that a man's appeal over the rejection of his proposed arrangement (PIA) was not validly brought because it was by the debtor himself and not his PIP.

On a “plain” reading of the “clear words” of the relevant provisions of the Personal Insolvency Act and the relevant Circuit Court Rules, only a PIP has legal standing to apply for a Circuit Court review of rejection of a PIA and only a PIP has standing to appeal a Circuit Court finding on such an appeal, she held.

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Her judgment follows a Circuit Court judge’s similar ruling last month in a separate case concerning an objection by KBC Bank to a couple’s proposed PIA.

In that case, Circuit Court Judge Susan Ryan ruled only PIPs, not debtors, can seek such reviews.

Following Judge Ryan’s decision, the Association of Personal Insolvency Practitioners said there are 450 cases due for appeal and it believed PIPs would not take cases for fear of losing and facing a costs order.

At the conclusion of her judgment today, Ms Justice Baker said she was conscious of the “practical problems” her findings might have but she must construe the law as she had.

She was unaware of any case where costs were awarded against a PIP and, while she had said there was “no reason in principle” costs could not be awarded against a PIP in a suitable case, such jurisdiction would be exercised in “exceptional circumstances”.

If a PIP lodged an application bona fide and in exercise of their professional and reasonable judgment, it seemed unlikely they would be subject to a costs award as successful creditors usually sought costs orders against the debtor involved.

Invalid appeal

Her judgment arose after a man’s proposed PIA was not supported by a sufficient number of creditors at a meeting late last year. Bank of Ireland, owed some €720,000 and holding security over the debtor’s family home, voted against the proposal while KBC, owed €600,000, supported it.

After the Circuit Court dismissed the man’s appeal over the rejected PIA, he appealed to the High Court where Bank of Ireland asked Ms Justice Baker to decide, as a preliminary issue, the appeal was invalid because it was by the debtor, not his PIP.

Ms Justice Baker said Section 115A(1) of the Personal Insolvency Act clearly gives a PIP power to apply to the court for review of a rejection of a PIA, where the PIP considers there are “reasonable grounds” for that.

The High Court can only hear and decide an appeal that complies with the statutory procedural rules for the bringing of the decision under appeal, she ruled. An appeal from a Circuit Court decision on a review of a PIA must, “to be properly constituted”, be brought by a PIP.

She accepted the power vested by Section 115A (1) was to apply on behalf of the debtor and the interests of the debtor, not the PIP, were engaged in any review application but disagreed the PIP’s role is “merely procedural”.

A debtor cannot engage the process without an intermediary who cannot act merely on instructions from the debtor but must at all times seek to achieve resolution of the debt and engage their knowledge and experience in financial matters to fashion a remedy “satisfactory to all parties concerned”.

It is the debtor who appoints a PIP to act on the debtor’s behalf and, once a PIP is appointed, the PIP takes on a statutory role and an insolvency arrangement cannot be concluded without a PIP’s involvement.