The High Court has refused a personal insolvency practitioner’s application to confirm a proposed personal insolvency arrangement for a self-employed debtor, finding that the evidence did not give confidence in the income figure on which the arrangement depended.
Mr Justice Mark Sanfey delivered judgment on 2 November 2021 in an appeal from the Circuit (Personal Insolvency) Court’s refusal of the application. The objecting creditor, Bank of Ireland Mortgage Bank, had voted against the arrangement. The High Court refused the application; it did not confirm the arrangement. The terms of the court’s order were left for submissions at a later listing.
The proposal involved reducing the mortgage on the debtor’s principal private residence to its stated market value of €85,000, extending the mortgage term, and reducing monthly repayments to €518. It also proposed a €10,000 lump sum for unsecured creditors. The arrangement relied on a stated monthly net income of €1,861, including €100 in proposed family assistance. The judgment recorded a very limited monthly surplus after the proposed costs and repayments.
The bank challenged the sustainability of the proposal, including the reliability of the debtor’s self-employed income. The debtor’s accountant-prepared accounts showed a trading profit that implied a lower monthly income than the PIA figure, and contained unexplained loan and overdraft entries. The debtor said those liabilities had been settled before the insolvency process and attributed their appearance in the accounts to old figures that had not been removed. A 2019 tax return showed income below the figure in the PIA, but the judge said the material did not establish how reliably it had been compiled.
The judge said the personal insolvency practitioner had a responsibility to examine and verify the financial information used in the proposal. He also criticised the bank for not raising its concerns more clearly during the earlier consultation process. However, the bank had raised income concerns in its first affidavit, and the practitioner’s response asserted that income had been verified without showing what records had been examined or how verification had been done.
The court concluded that it could not determine from the evidence whether the debtor’s income was understated or overstated in the proposal, or be satisfied that he was reasonably likely to meet its terms. That was sufficient to refuse the application, so the judge did not determine the bank’s other objections in detail. He observed that affidavits from the debtor’s siblings went a long way towards satisfying the court that they would provide the proposed assistance, and that the debtor had offered explanations for his payment history. Those observations did not alter the refusal.