The High Court must reconsider whether it is fair to approve a personal insolvency arrangement (PIA) permitting a man to keep his farming assets, home and rental property, the Supreme Court has ruled.
A debt fund appealed against the High Court’s approval of a PIA for Co Wexford farmer Fergus O’Connor (48) that restructured his €874,000 debt to it by extending the repayment period to 30 years.
A PIA involves the forgiveness or restructuring of debts to ameliorate the effect of a person’s indebtedness without some of the harsher consequences of bankruptcy.
Promontoria (Oyster) DAC claimed Mr O’Connor’s farm, spanning 77 hectares (190 acres), is a “readily realisable” asset that could be sold to repay his debts and return him to solvency. Mr O’Connor’s personal insolvency practitioner argued it was a “core asset” necessary for his livelihood.
Mr O’Connor, a separated father of three, was balance-sheet solvent with net assets of €594,000, but he did not have sufficient cash flow to make his debt repayments as they fell due.
The central question in the appeal was whether Mr O’Connor was insolvent for the purpose of the 2012 to 2015 personal insolvency Acts, given the value of his assets far exceeded his liabilities.
On Thursday, a five-judge Supreme Court found there was sufficient evidence for the High Court to conclude Mr O’Connor was insolvent for the purpose of the Acts. However, the High Court did not sufficiently consider the fairness of the proposed arrangement to ensure it was fair and equitable to affected creditors, the court ruled unanimously.
Promontoria’s claim arose out of its purchase of two loan facilities advanced to Mr O’Connor by Ulster Bank. It was the largest of Mr O’Connor’s creditors, to whom he owed a total of €1.1 million, and holds security over some of his lands, including the folio containing his home in Kilmuckridge, Gorey.
The PIA allowed him to keep his farming assets, including land, machinery and sheep, and his €230,000 home. The arrangement restructured Promontoria’s debt, while all unsecured creditors would be paid within three years. It did not involve any debt writedown.
Lawyers for Mr O’Connor’s personal insolvency practitioner, Gary Digney, described the farm as a “core asset” supporting Mr O’Connor’s livelihood as a tillage and sheep farmer.
Giving judgment on behalf of the Supreme Court, Ms Justice Marie Baker said the debtor argued he would not return to solvency if he disposed of his assets as his farming enterprise would be rendered unsustainable.
Such disposal, he claimed, would be a breach of a section of the 2012 Act that states that a PIA “shall not require the debtor to sell any of his or her assets that are reasonably necessary for the debtor’s employment, business or vocation unless the debtor explicitly consents to such sale”.
The High Court was correct in its application of the statutory cash flow test and entitled to conclude Mr O’Connor was insolvent, having regard to impediments to a swift sale of assets and that his current income could not meet his liabilities, Ms Justice Baker said.
The role of a personal insolvency practitioner is as an “independent intermediary” by which he or she has an obligation to creditor, debtor and the court, the judge said.
The Supreme Court was concerned that the High Court had not properly considered the fairness and equity of the PIA. Ms Justice Baker said a court being asked to approve such an arrangement must be satisfied it is fair to creditors that will be affected by a rescheduling or debt forgiveness.
The court had no useful evidence from either side regarding the possibility of selling Mr O’Connor’s lands in whole or in part, she said. The insolvency practitioner made no observations regarding the severability of the lands.
Ms Justice Baker said it seems possible “on a superficial glance” that the residential rental property could be sold.
However, with the lack of evidence, the High Court was in a difficult position of being unable to fully engage with the facts, she said.
These factors and the lack of evidence supporting a “bald assertion” about the state of the market and saleability of the lands should have been scrutinised by the court, she added.
This approval application should be returned to the High Court for proper consideration of whether the statutory requirement of fairness is satisfied.
Both Promontoria, represented by Declan McGrath SC and Stephen Byrne, and Mr O’Connor’s insolvency practitioner, represented by Paul Gallagher SC and Keith Farry, were partially successful, so the court said they can make submissions about liability for legal costs incurred in the appeal.
Ms Justice Baker’s decision was supported by Ms Justice Iseult O’Malley, Ms Justice Marie Baker, Mr Justice Séamus Woulfe and Mr Justice Brian Murray.
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