A significant ruling that a couple have no legal standing to seek a court review of KBC Bank’s rejection of their personal insolvency arrangement aimed at ensuring they remain in their family home has implications for hundreds of similar cases.
David Hall, of the Irish Mortgage Holders Organisation, said the Circuit Court decision on Wednesday that debtors’ personal insolvency practitioners (PIPs), and not debtors themselves, must seek such reviews was a result of “incompetently drafted” legislation, reinstated the banks’ “veto” over personal insolvency arrangements (PIAs) and brings the insolvency system “to an end”.
The Association of Personal Insolvency Practitioners said it believed PIPs would not take cases for fear of losing and facing a costs order.
There are 450 cases due for appeal and this means PIPs “will be responsible for costs if they are lost”, APIP chairman Eugene McDarby said. “This is a shocking situation and PIPs can’t take the risk on behalf of a client.”
He said there was a “loophole” in the Insolvency Act and the banks’ insistence that reviews be sought by PIPs was “yet another way the banks are trying to veto PIAs” which was “totally against the spirit of the Insolvency Act”.
Negative equity
The issue arose in a case where KBC had rejected a PIA proposed for a couple with three young children, under which the bank would have been eventually paid some €360,000 of a €740,000 mortgage debt secured on their family home in north Co Dublin. The property is in negative equity and valued at about €360,000.
The couple have smaller debts to two creditors who supported their PIA. The proposed arrangement involved them repaying some €1,000 monthly on their mortgage from joint monthly earnings of some €4,400.
They sought a review of KBC’s rejection but KBC, represented by Niall Ó hUiginn, argued any such review must be sought by their PIP.
Keith Farry, for the couple, disputed that and maintained that, if KBC was correct, PIPs would be reluctant to seek reviews as they might be exposed to costs orders if they were unsuccessful.
Dublin Circuit Court Judge Susan Ryan ruled on Wednesday that section 115A of the Personal Insolvency Acts, as amended, clearly means PIPs, and not debtors themselves, must apply for such reviews.
The ruling has raised serious concerns that PIPs may not pursue reviews for reasons including concerns over possible exposure to legal costs if they lose.
Some legal sources suggested PIPs would be at little risk of costs orders against them if there were reasonable grounds for seeking reviews.
The judge’s decision led to her adjourning several cases in the Circuit Court insolvency list pending an appeal by the couple against her ruling. Those cases raise the same issue as to whether debtors have legal standing to seek such reviews.
Application rejected
The judge said she considered section 115A was clear on its face and rejected an application by Mr Farry to refer legal issues concerning the provision for determination by the High Court.
Because her decision will be appealed, she adjourned other cases raising the same legal issue.
In her ruling, she said regard must be had to plain and ordinary meaning of section 115. It provided a PIP “may”, if they consider reasonable, and if so instructed by a debtor in writing, apply for a review of the rejection of a PIA.
An application for a review must be made by a PIP and she was holding in favour of KBC on that issue, she said.
When Mr Farry asked the judge to refer legal issues to the High Court, she declined, saying she had applied well-established principles of statutory interpretation.
She disagreed with Mr Farry that a “very clear constitutional issue” arose because she had found the debtor had no legal standing. If the review application was brought in accordance with the relevant court rules, there would have been no difficulty, she said.
Section 115A was amended, with effect from November last, to introduce a new power for the courts to approve and impose a personal insolvency proposal rejected by creditors, provided the judge considers the proposal is fair and reasonable to all concerned.
An application for court review can be made if the proposal meets set criteria, including that it concerns a mortgage, or other debt, secured on the borrower’s home.
