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In a recent ex tempore High Court decision, Judge Marie Baker considered the provisions of Section 115A of the Personal Insolvency (Amendment) Act 2015 (the “Act”). Section 115A places a limit on the extent to which a creditor can veto a personal insolvency arrangement by allowing a Court to review the arrangement.
The personal insolvency arrangement prepared by the debtor’s personal insolvency practitioner (“PIP”) in this particular case was vetoed by Pepper acting as agent for an investment fund.
In order to avail of a Court review a PIP will have to form a view that there are reasonable grounds for applying for a review. Section 115A sets out the criteria which must be met before a Court may make an order confirming the proposed personal insolvency arrangement.
Judge Baker’s judgment took into account a number of technical matters set out in Section 115A as well as certain financial matters. The case in question concerned a debtor with debts of approximately €2.8 million. There were eight creditors involved including banks (with security over the family home and investment properties), credit card companies and a credit union. The number of creditors in the matter is relevant to whether or not the Court will grant the order to confirm the personal insolvency arrangement in circumstances where Section 115A(9)(g) sets out that:
"Other than where the proposal is one to which section 111A applies, at least one class of creditors has accepted the proposed Arrangement, by a majority of over 50 per cent of the value of the debts owed to the class."
In the case before Judge Baker, a single creditor (which was held to constitute a “class” for the purposes of the Act) backed the personal insolvency arrangement which enabled the Court to make the order. Without this backing the application could not have been made.
The Act does not define the meaning of “class” of creditor and it would appear that a PIP may choose any creditor who will support the personal insolvency arrangement and on the basis of their support seek to have that plan enforced. Some level of proportionality however must exist between the “class” who backs the personal insolvency arrangement and the creditors who do not. The application to enforce is effectively an argument between the debtor and the opposing creditors as to whether or not the personal insolvency arrangement is economically viable.
It remains to be seen whether her judgment will lead to a wave of appeals seeking to overturn a creditor’s veto. However, it is a positive result for debtors and is likely to significantly increase the volume of personal insolvency arrangements which one might presume was the purpose of the amendment. It will cause some concern in lending institutions who appear to be losing their right to veto an arrangement.