The High Court has recently upheld a debtor’s challenge to a lender’s rejection of a proposed Personal Insolvency Agreement (PIA). The case is significant as the applicant debtor is a co-mortgagor of her home along with her estranged husband, who had stopped contributing to the discharge of the couple’s joint debts. It is also one of the first cases in which the relatively recent section 115A of the Personal Insolvency (Amendment) Act 2015 has come before the High Court.
By way of background, s 115A provides a mechanism that allows debtors to challenge their creditor’s rejection of a proposed Personal Insolvency Agreement through the courts - the courts have jurisdiction to approve the PIA once certain conditions in the section are met. The debtor in this case, named as JD, had a mortgage with EBS over her principal private residence along with her husband. The couple had informally separated and JD continued to live in the property with their two children, while the husband stopped contributing to repayments, resulting in arrears of over 300,000. JD was also granted an attachment of earnings order in respect of her estranged husband as he had stopped paying court-order maintenance. When EBS commenced possession proceedings, JD engaged a Personal Insolvency Practitioner, who presented the PIA to creditors. This was rejected, where upon the debtor brought a s 115A application to the Circuit Court, which upheld the bank’s rejection of the PIA. This was challenged before Ms Justice Baker in the High Court, who reversed the Circuit Court decision and allowed JD’s appeal.
EBS objected to the PIA on the basis that it would be unfairly prejudiced as JD’s husband, as a co-debtor, had not agreed to the PIA yet it could impact any future claims against him by the bank. It further argued that it was unsatisfied that JD could meet the terms of the PIA as it had not been furnished with evidence that her husband would fulfil his maintenance obligations, allowing her to meet the repayments under the PIA. These arguments were rejected by the High Court, holding that approving the PIA was not unfairly prejudicial on these grounds as the scheme of the Personal Insolvency Acts allows for application for PIA by a joint debtor without the involvement of the co-debtor.
Justice Baker stated that the power of the court under s 115A is only exercised once the court is satisfied that it would be fair to both parties in the circumstances. Here, it held that the proposed PIA would be more beneficial to EBS than bankruptcy, and it emphasised that one of the purposes of the Personal Insolvency Acts is the protection of the right to continue to enjoy residence in one’s home, once the mandatory conditions in s115A are met. To exercise its s 115A jurisdiction, the court need not be satisfied that the PIA guaranteed the debtor’s return to solvency, merely that this is reasonably likely. As such, the fact JD that had secured an attachment of earnings order against her husband made payment of maintenance reasonably likely and thus the court was satisfied that JD met the conditions necessary for approval of the PIA.
Click here for the full judgment in Re JD (a debtor).
Click here for further commentary on the case.