knowledge | 21 April 2016 |
PIPs: Disclosure Obligations akin to an Officer of the Court
In a significant recent judgment, the High Court has set aside an extension of a protective certificate issued to a debtor under the Personal Insolvency Act 2012 on the grounds of material and culpable non-disclosure by a personal insolvency practitioner.
In this case,1 Danske Bank (“the bank”) had commenced bankruptcy proceedings against a debtor. These had been adjourned to allow engagement with creditors under the personal insolvency regime. A protective certificate had been issued to the debtor under s95(2) of the Personal Insolvency Act 2012 (“2012 Act”) which protected him from enforcement by his creditors for 70 days. This period had then been extended by the court for an additional 40 days under s95(6) of the 2012 Act following an ex parte application by a personal insolvency practitioner (“PIP”) on behalf of the debtor. The bank now sought, under s97 of the 2012 Act, to set aside the extension on the grounds that the application had been made with a lack of candour.
Baker J held that it was clear from s95(6) that when granting an extension, the court should be satisfied that it was merited, not merely on account of the way in which the debtor had engaged with the insolvency process during the period of the original certificate, but that the extension was likely to prove beneficial to the process as a whole. She noted that the order of extension affected the rights and interests of creditors and accordingly engaged the constitutional guarantee of fair procedures.
Jurisdiction of the court
Baker J held that the court had an inherent jurisdiction to set aside an order of extension made ex parte. Any party whose interests and rights had been affected by the order had an implied right to apply to have it set aside or varied even if it was not required that that party be on notice of the application. This arose out of the constitutional imperative of fair procedures.
Baker J then went on to consider the jurisdiction of the High Court when hearing an application under the 2012 Act. She held that in the absence of any express limitation on the jurisdiction of the High Court in the Act, the court was exercising its full original jurisdiction here. This was in contrast to specialist judges appointed to consider similar applications at Circuit Court level who, when exercising their statutory function under the 2012 Act, were constrained by the powers and functions conferred by that Act.
This meant that, while s97 set a particular test to be satisfied before the creditor’s application could succeed, the High Court’s jurisdiction was not constrained by this statutory provision but should be seen in the broader context of the requirement for candour and disclosure in ex parte applications. Further, the operation of a constitutionally complete ex parte procedure should involve a degree of respect for the court by those who made such applications.
Material non-disclosure by PIP
She found that here the PIP had failed to make appropriate disclosure. Further, the documentation presented to court had contradicted that presented in the bankruptcy hearings. Both factors might have influenced the court’s approach to the application. It was unnecessary to take a view as to whether the PIP, or the debtor, had deliberately sought to present the matter in a way that pointed to a lack of bona fides by them. The test was whether there was a significant and material failure to disclose matters which should have been disclosed. The test was an objective one as to what could have influenced the court in the exercise of its jurisdiction in making the order ex parte.
Baker J said that the court had a discretion in the order it could make as a result of a finding that there had been material non-disclosure, and that the non-disclosure had been culpable in the objective sense. That discretion should take into account the court’s desire to express its displeasure at the failure, but also must bear in mind other potentially relevant circumstances. She decided to set aside the ex parte order on the grounds of the material non-disclosure and also because she saw no reality in the debtor’s proposals to meet his debts.
Role of the PIP in the insolvency process
In the course of her judgment, Baker J also made some significant points in relation to the role of the PIP in the insolvency process. She noted that all interactions between the debtor and the Insolvency Service of Ireland (“ISI”), on the one hand, and the court, on the other hand were through the PIP. This put the PIP in a unique position of responsibility to the ISI, the court, the creditors and the debtor. This imported a duty of frankness and full disclosure and while the PIP was not an officer of the court in a true sense, he was a professional engaged with a process where the court expected a full, professional and objective approach. The PIP might sometimes engage a solicitor but the obligation of frankness was one which the PIP bore personally by virtue of his unique role at the centre of the process, and as the person uniquely with standing to bring the application to the court.
Echoing previous comments on the 2012 Act,2 Baker J accepted that its purpose was to avoid a debtor being made bankrupt, and that the personal insolvency regime offered a more benevolent means by which indebtedness could be dealt with. This was envisaged by the Oireachtas as being in the common good. That statement of principle by the Oireachtas must influence the court in its thinking. However, it would not in the present case influence the court to such an extent that it would not regard the absence of candour as central to the approach to be taken. The availability of a more benevolent or protective regime under the 2012 Act imposed a heavy burden on a PIP coming before the court to act with the utmost good faith and frankness. To gain the protection of the personal insolvency legislation, where a bankruptcy petition had been adjourned pending an attempt to engage with the creditors, a PIP charged with the role of engaging with the court, the creditors and the ISI should do so with the greatest of solemnity and candour. A PIP should not see his role as being one of an advocate presenting an argument in support of his client in an adversarial system, but rather as a person who had responsibility and obligations to all elements of the system.
As of 7 April 2016, there are 141 PIPs authorised and regulated by the ISI. The role of the PIP is central to the functioning of the debt settlement arrangement and personal insolvency arrangement processes under the 2012 Act. While the PIP is appointed by the debtor, the PIP is not the debtor’s advocate. Instead, as this judgment makes clear, the PIP has independent statutory functions under the 2012 Act and has a responsibility to carry out those functions candidly and with due regard to the interests of all stakeholders, including creditors, the ISI and the court.
- 1 Nugent & Personal Insolvency Acts  IEHC 127
- Re P Bankruptcy  IEHC 117
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.