High Court ruling brings good news for insolvent debtors wanting to pursue reviews of creditor rejections

Ms Justice Marie Baker today rejected arguments by banks and other creditors that such reviews are exclusively a matter for a debtor's personal insolvency practitioner (PIP) and she ruled the law envisages a role for the debtor in the process.

Addressing concerns by the Insolvency Service of Ireland (ISI) that, if the law required reviews be pursued by PIPs with no debtor involvement, then fear of incurring legal costs might discourage PIPs seeking reviews, she considered it would be "truly exceptional" to have costs awarded against a PIP.

About 400 insolvency cases are on hold pending the clarification of the roles of debtors and PIPs in seeking reviews of creditors rejections of their personal insolvency arrangements (PIAs).

The judgment was on test cases involving five debtors and followed an earlier ruling by Ms Justice Baker [the Reilly case] on a preliminary issue raised by Bank of Ireland.

In Reilly, the judge said Section 115A of the Insolvency Act requires a review must be applied for by a debtor's PIP, not the debtor themselves.

In opposing the test cases, the creditors involved argued those cases were aimed at achieving a situation where PIPs, who are involved in a commercial enterprise, would be insulated from any costs of bringing applications on behalf of debtors.

In her judgment, Ms Justice Baker noted the Act does not stipulate how an application for a review under Section 115A of a rejection of a proposed PIA is to be heard.

Having analysed the scheme and purpose of the Act, she found it does not envisage a PIP is the “sole voice” to be heard in a court review of the rejection of a PIA.

While the Reilly ruling meant a debtor has no "free standing right" to bring applications under Section 115A without the engagement of a PIP, there is a residual right of a debtor to be heard in the process, she held.

She did not accept the creditors' arguments the PIP is the only voice to be heard in articulating a debtor's interests in a review.

The PIP must consider the reasonableness of the review application before it is lodged but the PIP does not bear sole responsibility of answering the objections or arguments of a creditor, she said. The PIP is not the agent of either the debtor or creditor but rather an "intermediary" interposed to bring financial knowledge and analysis to the process of orderly debt resolution.

The issue of how the debtor is to be heard is a matter for the court conducting the review, she said.

She considered the Oireachtas, in enacting the law, had envisaged a two-stage process of a review application being made and the hearing of the review conducted according to directions of the court.

While there was some procedural incorrectness in relation to how these cases were advanced, it was not such as to require any of the cases be struck out, she added.

Noting the Act makes no provision for payment of fees of lawyers for the PIP or the PIP themselves, she said it would be "absurd" if the PIP was to be personally responsible for those costs or for those to be treated as liabilities of the insolvent debtor to be dealt with outside the insolvency process.

She considered a costs order would not be made against a PIP unless it could be shown they acted without bona fides, dishonestly or with impropriety and that the circumstances in which a costs order would be made would be "truly exceptional".

Correspondence from certain creditors - although not the creditors in these cases - threatening that costs would be sought against a PIP in a routine or ordinary case which was lost was "not appropriate" and not something the court would condone.

The cases have been adjourned to allow the sides consider how the reviews should proceed in light of the judge's findings.