Family can stay on in house after High Court decision

by Ann O'Loughlin

A couple and their two young children can remain in their family home after a High Court judge dismissed a fund’s objection to their proposed personal insolvency arrangements.

In a significant judgment rejecting the fund's claims of unfair prejudice by the arrangements, Ms Justice Marie Baker said the test for unfair prejudice required seeing the fund in light of its position as a "fund", not a financial lender.

The test must be seen in the context of investment returns, not the costs of the capital needs of the creditor in the future, she said.

Shoreline Residential DAC, an investment fund, is owed about €323,000 having acquired loans from Irish Bank Resolution Corporation. Its debt is secured on the couple’s home, valued about €190,000, and their PIAs provide the €323,000 debt be written down to €190,000.

On foot of objections from Shoreline, the Circuit Court refused last February to approve interlocking PIAs for the couple as proposed by their Personal Insolvency Practitioner.

In her judgment on Yesterday (Wed) allowing the appeal by the couple, represented by Keith Farry BL, against the Circuit Court refusal, Ms Justice Marie Baker said two primary matters arose for consideration.

The first was the PIAs’ proposal to extend the remaining mortgage term of 18 years and two months to 27 years, when the husband will be 79 and likely to have retired from his part-time employment, and his wife will be 68.

The second matter was the proposal to fix interest for the entire term at a rate of 3.65%. During the six year period of the PIA, interest only payments would be made on the mortgage after which the interest rate would remain at 3.65% over the remaining term of the mortgage.

Shoreline argued the proposed PIAs were unsustainable and would not return the debtors to solvency. It also claimed the PIAs unfairly prejudiced the fund's interests in proposing an extension of credit on terms which, the fund argued, departs radically from those generally available to borrowers from lenders in the Irish market.

Ms Justice Baker said the couple live in a “modest family home” and have a joint monthly income of some €3,112 with set costs, based on Reasonable Living Expenses (RLE) Guidelines of the Insolvency Service of Ireland (ISI), of €1,835.

Their PIAs also provided for monthly mortgage repayments of €1,080, plus €106 mortgage protection insurance. The monthly outgoings of €3,022 left them with a monthly surplus of some €89.

The PIP asserts the mortgage payment of €1,080 is sustainable on the couple’s current income, she said. She was satisfied the total available income was correctly stated at €3,112, and the means by which payments are to be met on restructuring of the mortgage were adequately reflected in the income and expenses schedule.

While the proposed PIAs would “stretch” the couple, especially in their later years, a factor in their favour was the wife has a secure income, is “significantly younger” than her husband and the extended mortgage term will not extend far into her retirement, she said.

She was satisfied the PIAs, and mortgage repayment following successful completion of the PIAs could preserve the family home. In no sense could it be argued the couple would get a "bonanza" from the proposed PIAs but, as a result of the PIAs, they will be returned to solvency and, insofar as can be reasonably predicted, remain solvent.

Shoreline, she also ruled, had not provided sufficient evidence to show fixing interest at 3.65 per cent over the extended mortgage term would be unfairly prejudicial to it.

Shoreline’s evidence was predicated on a treatment of the objecting creditor as a "lending bank", not an "investment fund" and there was insufficient evidence to show Shoreline, as a fund, not a bank, was unfairly prejudiced.

The insolvency acts envisage the preferred option is to avoid a debtor having recourse to bankruptcy and a proposed PIA is not itself unfairly prejudicial merely because a likely return on bankruptcy could be marginally better, she said. The court must also have regard the proposed PIA, as far as practicable, sought to preserve ownership by a debtor of their home.