The High Court has overturned Personal Insolvency Arrangements (PIAs) that would have allowed a married couple write off a debt of about €250,000 owed to a bank.
In a detailed judgement, Mr Justice Mark Sanfey upheld EBS DAC's objections to the Circuit Court approving PIAs in respect of Niall McKiernan, a Garda sergeant, and his wife, Karen Fitzpatrick, a secondary school head teacher.
The judge said the PIAs in this instance were premature, and unfairly prejudicial to the interests of the objecting creditor.
The judge said the applications raised important issues as to whether the PIAs enabled the creditors to recover the debts due to them to the extent that the means of the debtors reasonably permitted, or whether, as the objecting creditor was alleging, the terms of the PIAs were unfairly prejudicial to it as a creditor.
The couple’s PIAs had been approved by the Circuit Court in 2019.
Under the terms of the proposed PIAs, the couple, who are in their mid-40s and have three school-going children, would retain their Co Cavan home and would continue to make mortgage repayments on their home over the next 25 years.
They would also pay a lump sum of €40,000 and sell an investment property they bought in Clones, Co Monaghan, valued at €30,000 by the bank.
The proposed PIAs would have seen EBS write off €253,000 of the couple’s debts, whereas under a bankruptcy scenario the write-off would increase to €290,000.
The couple sought the PIAs arising out of home loans they had acquired from the bank of €790,000 dating from 2006.
They fell into arrears in 2011, and in 2014 the loans were restructured and some €286,000 of what they owed to EBS was written off.
In 2019 their home was worth €320,000, while an active loan balance of €386,000 and a “warehoused” amount of €97,900 remained due and owed to the bank in respect of their home.
The payment of “warehoused” debt, which was agreed as part to the 2014 restructuring process, would be deferred until the end of the mortgage term in 2041, the judge noted.
The couple, who continued to make all their mortgage payments to date under the 2014 agreement, sought the PIA because, they claimed, they would be unable to pay the warehoused element of their debt to EBS when it became due.
They claimed that debt would result in them becoming wholly insolvent and homeless.
EBS objected to the Circuit Court’s approving of the PIAs.
It claimed the terms of the PIAs were unfairly prejudicial and inequitable in circumstances where the bank had already granted a significant write-off in 2014.
The couple, EBS claimed, had the capacity to comply in full with the terms of the restructured loan.
Surrounding land
The bank also said that some of the 25 acres of land owned by couple, surrounding their home, could be sold to discharge their liabilities.
The couple, who opposed the bank’s application, argued that the lands could not be sold without the house, and essentially formed part of the same package.
In his ruling setting aside the PIAs, Mr Justice Sanfey said there were “a myriad of circumstances which could affect the couple’s ability to pay the warehoused debt when it falls due”.
The court could not speculate or anticipate at this stage if the couple would be able to meet a liability that would only fall due in 20 years’ time.
“In my view the applications are premature,” he said.
They had not established that they could not discharge their liabilities to the bank as they fell due, given that were fully compliant with their existing loan, he added.
It would be “extremely unfair” to the bank, which had already made major concessions in favour of the couple, to impose further write-offs in circumstances where the repayments on the restructured loans were being discharged without any undue difficulties.
While they were technically “insolvent”, and have some minor creditors, none of which appeared to be exerting pressure for payment, they could not be considered insolvent by virtue of the bank debt, the judge said.
The judge said he also noted the bank’s argument that the debtors had a ready means of raising funds to discharge the warehoused amount, in that they could sell some or all of the 25 acres of land surrounding their family home.
Any sale of those lands would necessitate the release of the bank’s security in relation to that portion, and any such sale would have to be the subject of negotiation between the debtors and the bank, the judge added.
Ease indebtedness
No reason was advanced to the court as to why at least some of the lands surrounding their home could not be sold, and the proceeds used to ease their burden of indebtedness, the judge said.
“Perhaps this is something which the parties could discuss in due course,” the judge added.
A further issue raised in the case, he said, was whether or not personal insolvency laws required pension assets that were likely to accrue to the debtors in the future to be taken into account in assessing the resources available to creditors to discharge their liabilities.
The bank, he said, claimed that future pension payments due to the couple should have been taken into account when assessing whether they would be able to discharge the warehoused amount when it fell due.
However, the judge said he agreed with the couple’s argument that in their particular circumstances any pension lump sums they receive could not be treated as their assets, or used to assess their solvency.
