The High Court has ruled that a personal insolvency protective certificate does not apply to Clones Credit Union Limited, after finding that the debtor’s failure to disclose family loan charges left the credit union unable to challenge them during the protection period.
In a judgment delivered on 27 May 2016, Ms Justice Baker granted the credit union’s application under section 97 of the Personal Insolvency Act 2012. The order applies only to the credit union. It does not remove the charges from the property folio or, by itself, prevent the personal insolvency process from continuing.
The certificate was issued on 11 February 2016 and later extended. The credit union objected, arguing that it faced irreparable loss and that the debtor had not disclosed material information about charges on his jointly owned principal private residence in Cavan.
The charges arose from a family loan arrangement described in the debtor’s affidavit. He said relatives had agreed to lend a total of €120,000, secured against the property: €60,000 in relation to him and his wife, and a further €60,000 in relation to his wife. He said the arrangement was intended to release equity and help fund a proposal to creditors. The court noted that the written agreement did not make the charges conditional on approval of an insolvency arrangement.
The credit union had obtained liberty to enter judgment for €203,983.22, plus costs, in October 2015. It lodged the judgment for registration as a judgment mortgage in November. The court accepted that the mortgage’s loss of priority under the three-month rule would have occurred regardless of the later charges. But it found a separate prejudice: while the protective certificate remained in force, the credit union could not bring proceedings to challenge the charges or their priority. If creditors approved an arrangement, the opportunity to challenge them could be lost.
Justice Baker also took account of the charges and family loan agreement not being disclosed in the application for the certificate. The financial statement had given a “wholly wrong impression” of the equity in the residence, the judgment said. The judge found that the credit union had met the statutory test and that no argument had been made that the order would unfairly prejudice another creditor.
The court did not decide the broader question of whether different principles apply when seeking to set aside an initial certificate rather than an extension. It also did not address other alleged omissions from the debtor’s application.