The Irish High Court has allowed an appeal by a couple whose family home was facing repossession on foot of an investment fund objecting to the proposed personal insolvency arrangements (PIAs).
The investment fund, Shoreline Residential DAC, had a secured debt over the family home in the amount of €323,000, having acquired loans from the Irish Bank Resolution Corporation. Their Personal Insolvency Practitioner proposed that the €323,000 be written down to reflect the value of the house, which was around €190,000, along with fixing the interest rate to the end of the term of the mortgage. Shoreline Residential DAC objected heavily to these proposed PIAs, and as a result the Circuit Court refused to approve the PIA for the debtor couple.
The couple appealed the case to the High Court, which was allowed by the presiding Ms Justice Baker who considered two primary issues which arose in relation to the mortgage. The first issue concerned the PIAs’ proposal to extend the remaining mortgage term from 18 years to 27 years, by the end of which the husband would be 79, and the wife would be 68.
The second issue at hand was the fixed interest rate for the entire term of the mortgage at 3.65%, and that during the first 6 years of the PIA, interest only payments would be made on the mortgage. After the 6 years the interest rate of 3.65% would remain for the full term of the mortgage.
It was argued by Shoreline Residential that the proposed PIAs were unsustainable, and that it would not allow the debtors to return to solvency. They also contended that the PIAs unfairly prejudiced their interests.
Dismissing these claims, Justice Baker found that the PIAs were sustainable during their term and into the forseeable future. She stated that on the couple’s current joint income of €3,112, and monthly outgoings of €3,022 they would be left with a surplus of €89 each month. The mortgage payment of €1,080 was included in those outgoings and was sustainable according to the PIP. Though the PIAs may “stretch” the debtors in later years, the Court was not willing to make assumptions on their ability to pay based on conjecture.
In rejecting arguments that the PIAs were unfairly prejudicial under the Personal Insolvency Act, Justice Baker stated that what is unfair will depend on the circumstances, including the likely return on bankruptcy, but a test of fairness invokes a comparison or comparative analysis and the principles of proportionality. A proposal in a PIA which disproportionally prejudices a creditor is likely to be unfair, and disproportion could be found if the likely result in bankruptcy, would be not just marginally better than under a proposed PIA, but materially so. The Court placed emphasis on the fact that Shoreline was an investment fund and not a lender, and accordingly the test of unfair prejudice regarding its interest must be seen in the light of investment returns and not the cost of the capital needs of the creditor in the future.
Justice Baker did not believe that the couple were obtaining a benefit from the PIAs, but rather the result would be a return to solvency, and they were likely to remain solvent, insofar as this can be reasonably predicted. Further, the Court saw preservation of the family for the couple and their children was likely to be more beneficial to the children than the sale of that home in a bankruptcy, and the move to rental accommodation, where security of tenure was not guaranteed.
Click here forthe judgment in Re: Hayes, a debtor.