The High Court has affirmed a Circuit Court order confirming personal insolvency arrangements for a married couple from Drogheda, rejecting KBC Bank Ireland plc’s appeal. The arrangements had been confirmed despite creditors voting against them.
In a judgment delivered on 22 May 2017, Ms Justice Baker found that personal insolvency law permits part of a secured mortgage debt to be warehoused beyond the term of a personal insolvency arrangement. Whether a creditor’s warehousing proposal can reasonably be rejected depends on the circumstances of the case, including likely returns and the debtors’ means.
The couple’s six-year arrangements proposed reducing their mortgage balance by about €165,647, leaving €120,000 outstanding. During the arrangement, they were expected to have €474 a month available for mortgage payments. KBC proposed an alternative: reduce the debt by about €15,000, split the remaining €270,000 into two parts, and defer payment of €135,000 without interest. The bank also proposed that the couple could remain in their home for their lifetimes, with enforcement of the security postponed until after the survivor’s death.
The Circuit Court specialist judge had rejected KBC’s objection and confirmed the arrangements. KBC appealed, arguing that its alternative would produce a better return and that the arrangements did not require the couple to contribute their means as far as reasonably possible.
Justice Baker said the bank had not shown with evidence that its alternative would produce a better return. The warehoused sum would carry no interest for about 23 years, and its future real value was uncertain. The house was valued at €105,000, less than the proposed warehoused debt, and there was no present expectation of future means that could meet the shortfall. The judge also noted that the couple had no pension expected to provide a retirement lump sum for repayment.
The court considered that the bank’s proposal relied on conjecture about the couple’s circumstances and whether they would want or need to remain in the home for life. It could leave them insolvent at the end of the mortgage term, and the legislation generally allows a person only one personal insolvency arrangement in their lifetime. The judge concluded that the practitioner had not acted unreasonably in rejecting the bank’s proposal and that the arrangements were not unfairly prejudicial to KBC.
The High Court affirmed the Circuit Court order under section 115A. It did not itself modify the arrangements; the judgment noted that the court has no power under that provision to do so.