The High Court has dismissed an appeal over a personal insolvency arrangement that proposed exchanging part of a mortgage debt for an equity share in a family home, ruling that the arrangement could not proceed without the secured bank’s consent.
Mr Justice Denis McDonald delivered the judgment on 2 March 2020. The appeal was brought by a personal insolvency practitioner after the Circuit Court refused, on 14 February 2019, to confirm the arrangement under section 115A of the Personal Insolvency Act 2012.
The proposal concerned Denise Lowe, whose total indebtedness was €561,685.33. Her mortgage debt to the Governor and Company of the Bank of Ireland included €358,502.56 secured against a family home valued at €300,000. The proposed arrangement would treat €170,000 as a live mortgage balance to be repaid by instalments and exchange a further €130,000 of debt for a purported 43.3% equity share in the home. A further €58,461.56 was to be written off and treated as unsecured debt.
The practitioner argued that the equity share meant the bank would receive value equivalent to the home’s market value while allowing Ms Lowe to remain there. The bank objected, submitting that the arrangement effectively reduced the principal to €170,000, below the home’s €300,000 market value, and that the proposed interest in the property was uncertain. The judgment also records that the arrangement’s terms did not clearly explain how the bank’s interest would be valued or realised.
The court held that section 103(2) requires a specified reduced principal sum no lower than the market value of the secured property, unless the creditor agrees otherwise. The proposed equity share fluctuated with the property’s value and therefore could not count as a specified principal amount of €130,000. The court concluded that the principal sum under the arrangement was €170,000. It also held that section 102(6)(f), which allows a secured creditor to be granted a share in a debtor’s equity, is expressly subject to section 103 and does not override that minimum protection.
The bank had not consented. The judge therefore held that the arrangement failed a mandatory statutory requirement and that he could not consider confirmation under section 115A. He did not decide the other contested grounds for opposing the arrangement.
The judgment also expressed an obiter view that “equity” in section 102(6)(f) means positive, valuable equity in the property. That view was not necessary to the decision. The court dismissed the practitioner’s appeal and affirmed the Circuit Court order refusing the section 115A application.