High Court: Invalid protection certificate prevents debtor from filing new personal insolvency claim within 12 months

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The Supreme Court decided that an insolvent debtor was not entitled to a new protection certificate under the Personal Insolvency Laws 2012-2015 after having benefited from an invalid protection certificate during the last 12 months. The debtor alleged that the contested certificate had been invalid from its inception and therefore did not count towards the general 12-month rule against a new claim.

However, Mr. Justice Mark Sanfey determined that the debtor had obtained a material advantage from the invalid certificate and did not admit that it was defective until the day of the request. As such, the invalid certificate continued to weigh on the general 12-month ban on re-filing, and the court duly struck this case out. The judge also made some striking comments about the expectations of the parties to the insolvency regime.

Background

The debtor, Mr. Paudie Barry, ran a home-based business selling medical supplies and devices to prevent bedwetting. He had significant debts of over 1.2 million euros owed Bank of Ireland and was indeed insolvent. Mr. Barry also owed money from the purchase and development of land. All funds were secured against his home.

In November 2014, he hired a Personal Insolvency Practitioner (PIP) and a first Protective Certificate (PC) application was made. A Personal Insolvency Arrangement (PIA) was offered to the bank, but this was refused. The Bank initiated proceedings for possession of Mr Barry’s domicile in 2015, although this matter was adjourned due to personal insolvency claims filed by Mr Barry.

The debtor obtained a second PC in September 2016, with another PIA proposed. Again, this was refused by the bank. Although a request under subsection 115A (9) of the Act was issued to confirm the proposed PIA, PIP agreed that the request would not be processed. This request was withdrawn on consent in December 2017.

A third CP issued in February 2018. A PIA was proposed by the PIP and again rejected by the bank. This PC was not valid because it was not issued until 3 months after the cancellation of the previous application under section 115A (9). This was recognized by the PIP and the request was withdrawn on consent in January 2019.

Finally, a fourth PC issued in April 2019, only three months after the cancellation of the third request. As usual, the debtor proposed a PIA and it was rejected. Seeking to justify issuing the fourth PC within 3 months of the previous request, PIP claimed that the third PC never legally existed for the purposes of the 12 month rule as it had been invalid since its inception. As such, it was claimed that it was not appropriate for the third PC to reset the clock and prevent the fourth application.

The bank sharply criticized the debtor and the PIP in this case, saying the PC requests were an abuse of process and that the proposed PIA would prevent the bank from recovering the money owed to it. In response, counsel for PIP claimed that the debtor was required to issue multiple PCs due to the bank’s general policy of refusing any PIA that involved a write-down of the underlying debts.

Supreme Court

On the issue of the invalid third PC and the effect on the 12-month rule, the debtor sought to rely on Re Hickey, a debtor (# 3) [2018] IEHC 313, where Madam Justice Marie Baker ruled that a PC was not effective because the section 115 request was not made on time. However, Justice Sanfey singled out this case, noting that there was nothing in the hickey case that said the PC was invalid. Rather, “the ruling was that the protection it offered did not continue beyond its expiration in circumstances where the Section 115A request had not been made on time,” said the tribunal.

The court said the third PC was on its face regular and tied the bank to the usual restrictions on creditors under the Personal Insolvency Laws 2012-2015. The court was also struck by the fact that the debtor continued to benefit from the third PC until the date of the section 115 application, when it was finally admitted that the PC was invalid. As such, the court ruled that the third PC excluded the fourth claim because it was filed within 12 months.

The court also made some striking comments regarding the parties’ obligations under the personal insolvency regime. Justice Sanfey reviewed criticisms that the debtor was seeking to “play the system” and found that PIP had acted inappropriately in this case. The PIP should have known that the third PC was “fatally flawed”, but it did not react until the Section 115 hearing. A PIP must act with honesty and frankness when seeking protection. court, the judge said.

However, the court also said that the spirit of the insolvency regime was to allow “a mutual exchange of documents, information and views between the PIP and secured creditors, in particular with a view to achieving a Workable PIA that will resolve the insolvency of the debtor. . “Since the bank’s policy was to reject any PIA proposal that reduced debt, such an approach” contravenes the spirit and intent of the statutory regime, “the court said. Although a creditor have the right to object to a PIA for any reason, a bank should approach each case “pragmatically, with an open mind” and with a view to resolving a debtor’s insolvency fairly and efficiently .

Conclusion

In light of the court’s finding on the validity of the third PC, the court dismissed the request.


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