The High Court has set aside a 40-day extension of a protective certificate granted to businessman James Nugent after finding that material information was omitted from the insolvency practitioner’s ex parte application.
Ms Justice Baker delivered the judgment on 10 March 2016. The extension had been granted on 10 February, extending the certificate originally issued on 3 December 2015. Danske Bank asked the court to set the extension aside, alleging a lack of candour. The judge found material and culpable non-disclosure and ordered the extension set aside. She did not decide whether Danske had proved its debt.
The certificate temporarily prevented creditors from pursuing legal proceedings or enforcement, and prevented a pending bankruptcy petition from being processed. Danske had petitioned for Nugent’s bankruptcy in February 2015; that petition had been adjourned eight times to allow an attempt to arrange a personal insolvency agreement. It was listed to return on 14 March 2016.
The extension application was made without notice to creditors. The judge held that the High Court could review an ex parte extension order on an affected creditor’s application, and that the duty of full and frank disclosure applied. She said a creditor seeking to challenge such an order was not confined to the test in section 97 of the Personal Insolvency Acts.
The insolvency practitioner’s affidavit said Nugent expected to contribute about €1.2 million from repayment of a director’s loan and €2.76 million from a possible share sale, linked to a proposed nursing-home development. But a letter from solicitors for the prospective funding partner described funding as potential and the transaction as proposed, with due diligence and contractual matters still outstanding. The judge said the application had not made the project’s funding position clear. She also noted that Nugent had previously valued his shares at nil and €50, while the valuation relied on was a two-year-old draft based on assumptions, including the availability of capital.
The judge found that the practitioner had not disclosed his view that Danske’s proof of debt might be invalid, which could affect the bank’s ability to vote on a proposed arrangement. She also found that the court had not been told that a possession order over Nugent’s home, owned with his wife, had been made in favour of KBC Bank Ireland in late October 2015.
The court concluded that these omissions could have affected its decision to grant the extension. It set the order aside, citing the material and culpable non-disclosure and the lack of evidence that the proposed funding arrangements were nearing completion.