High Court refuses to confirm PIAs where secured creditor class is unfairly prejudiced by low dividend rates.

[2018] IEHC 682

THE HIGH COURT

Record Nos H:IS:HC:2016: 00046 and 000792

IN THE MATTER OF THE PERSONAL INSOLVENCY ACTS 2012-2015

AND IN THE MATTER OF NOEL TINKLER OF 3 STONEY LANE, RATHCOOLE, CO. DUBLIN

AND IN THE MATTER OF BRITT TINKLER OF 3 STONEY LANE, RATHCOOLE CO. DUBLIN

AND IN THE MATTER OF APPLICATIONS IN BOTH OF THE ABOVE NAMED CASES PURSUANT TO SECTION 115A (9) OF THE

PERSONAL INSOLVENCY ACTS 2012-2015

JUDGMENT of Mr. Justice Denis McDonald delivered on the 3rd day of December, 2018.

Introduction

1. In both of the above cases, the debtors (who are husband and wife) have brought applications pursuant to s. 115A (9) of the

Personal Insolvency Act 2012 (“the 2012 Act”) (as inserted by s. 21 of the Personal Insolvency (amendment) Act 2015 (“the 2015

Act”)) seeking orders confirming the coming into effect of a proposed Personal Insolvency Arrangement (“PIA”) notwithstanding that

the PIA, in both cases, has not been approved in accordance with Chapter 4 of Part 3 of the 2012 Act (as amended).

2. In each case, a creditors’ meeting took place on 27th January, 2017 to consider the respective PIAs. In the case of Mr. Noel

Tinkler, 22% of creditors voted in favour of the proposal with 78% voting against. When this is broken down as between secured

creditors and unsecured creditors, 42.74% of secured creditors voted in favour of the proposal whereas 57.26% voted against. In the

case of the unsecured creditors, 8% voted in favour while 92% voted against.

3. However, of the secured creditors, one class, namely the principal private residence class, voted in favour of the proposal and, on

this basis, it has been possible to satisfy the requirement set out in s. 115A(9)(g) of the 2012 Act (as amended). That subsection

makes it a precondition of any application under s. 115A that at least one class of creditors has approved the proposal.

4. In the case of Mrs. Britt Tinkler, the percentages were slightly different, but the overall outcome was similar. In her case, 19.1% of

creditors voted in favour of the proposal while 80.9% voted against. Insofar as secured creditors are concerned, 42.73% voted in

favour while 57.26% voted against. In the case of unsecured creditors 100% of those creditors voted against the proposal. Again, as

in the case of her husband, the principal private residence creditor voted in favour of the proposal.

Material terms of the PIA in each case

5. In each case the terms of the PIA are similar. It is unnecessary to set out all of the terms here. In the case of Mr. Noel Tinkler, the

dividend payable under the PIA to unsecured non-preferential creditors will be 6.32 cents per euro. In the case of Mrs. Britt Tinkler,

the dividend will be 6.15 cents.

6. In the case of the principal private residence creditor, Start Mortgages Limited (“Start”), the debt to it is secured on the family

home. Although the value of the family home was agreed at €380,000 there will be no write-down of the full mortgage debt

outstanding at €502, 291.87. Instead, interest only repayments will be applied to this account for the term of the PIA (which is 72

months). On the successful completion of the PIA mortgage repayments will revert to full capital and interest repayments. An interest

rate of 1.25% will be applied.

7. The debtors also own property at 14 Franford Close, Enniscrone, Co. Sligo. Under the respective PIAs, the debtors will sell this

property and the residual mortgage balance due to Bank of Ireland Mortgage Bank (“BOIMB”) will be treated as an unsecured debt

after the proceeds of sale have been paid to BOIMB less the agreed costs of sale. BOIMB will be paid the same dividend as all of the

other unsecured creditors and, on successful completion of the PIA, the balance of the unsecured debt will be written off.

8. The debtors also own commercial property known as “Tinkler’s Yard”, Main Street Rathcoole, Co. Dublin. This yard has a current

market value of €350,000. Cheldon Property Finance DAC (“Cheldon”) have the benefit of a mortgage over this property which was

originally granted by the debtors to Permanent TSB. Under the PIAs, the debtors will retain this commercial property for business

purposes. The rental income of this property (from a number of business tenants) forms a significant part of the debtors’ overall

income. The amount outstanding to Cheldon is in excess of €1,750,000. Under the PIA, the secured debt would be reduced to

€350,000 with a balance of €1,430,522.11 being treated as an unsecured debt and ranking for a dividend accordingly. The term of the

loan would be extended from 85 months to 252 months. The applicable rate of interest would be reduced from 6.95% to 4.5%. For the

72-month duration of the PIAs the debtors would make interest-only repayments in respect of the restructured commercial loan in the

combined sum of €1,312.50 reverting to capital and interest repayments of €2,667.48 thereafter.

9. As I understand the proposal, Cheldon would receive a total of €90,344.22 by way of dividend in respect of the unsecured portion

of its debt under the Noel Tinkler PIA while it would receive a further dividend of €87,911.41 under the Britt Tinkler PIA. On completion

of the respective PIAs, the remaining debt of €1,252,266.48 would be written off.

10. The debtors also own a quarry site at Calligstown, Rathcoole, Co. Dublin. There are three judgment mortgages registered against

that property which, together, exceed the current market value of the property at €165,000. Under the PIA, the debtors will retain

this site as it is their place of work. At retirement age, the debtors will sell this property, at which stage the judgment mortgage

debts secured on it will be discharged in full.

The Notice of Objection

11. Cheldon has filed a notice of objection in both cases. The grounds of objection in both cases are the same. While there were a

large number of grounds set out in the notice of objection in each case, there were essentially three grounds relied upon by Cheldon

at the hearing, namely:-

(a) concern was expressed about the treatment of Revenue debt in the PIAs which it was suggested would have

unintended consequences for unsecured creditors given that part of the Revenue debt has preferential status;

(b) Cheldon argued that the proposed PIA in each case is not fair and equitable in relation to each class of creditor that

has not approved the proposal and whose interests or claims would be impaired by its coming into effect;

(c) the proposed PIA in each case is alleged to be unfairly prejudicial to the interests of Cheldon.

The hearing

12. The hearing of the application under s.115A together with Cheldon’s objections took place over the course of two days namely on

23rd July, 2018 and on 8th October, 2018. Very helpful and detailed submissions were made by counsel on behalf of the Personal

Insolvency Practitioner (“the practitioner”) and on behalf of Cheldon. The submissions addressed each of the three grounds of

objection summarised in para. 11 above.

13. I now consider, in turn, each of these grounds of objection.

The position of the Revenue

14. The Revenue Commissioners were not represented at the hearing. However, counsel for Cheldon emphasised that s. 115A confers

a far-reaching power on the Court. He argued that this places a significant onus upon the practitioner to satisfy the Court that all of

the relevant statutory conditions are met. Counsel submitted that there were a number of issues of concern in relation to the way in

which the Revenue Commissioners were dealt with in this case, namely:-

(a) in the first place, in s. 5 of the PIA in each case, it is stated that there are no “permitted debts” and no “preferential

debts” and that the PIA does not include any “excludable debts”. This is relevant in the context of s. 115A(8)(iii) which

requires that, on an application under s. 115A the Court must be satisfied that the proposed PIA does not contain any

terms that would release the debtor from (inter alia) an excludable debt (other than a permitted debt). For this purpose,

s. 2 of the 2012 Act defines an excludable debt as including a liability of a debtor in respect of taxes. Thus, amounts due

to the Revenue would fall within the ambit of an “excludable debt”. S. 92(1) makes clear that such a debt can be included

in a proposal for a PIA only where the creditor (in this case the Revenue) has consented to the inclusion of that debt in

the PIA. Where such consent is given, s. 92(a) provides that the debt in question will then be regarded as a “permitted

debt”.

(b) in the case of Mr. Noel Tinkler, the statements made in s. 5 of the PIA (as summarised in subpara. (a) above) are

incorrect. It is clear that the PIA does in fact include debts in that it shows a total of €261,599.20 due to the Revenue of

which €145,940.56 is to be repaid to Revenue on sale of the Calligstown property on the retirement of Mr. Tinkler. The

statements of s. 5 of the report are therefore manifestly incorrect. As noted by me in para. 63 of my judgment in Donal

Taffe [2018] IEHC 468, there is no mechanism under the 2012 Act to correct an error of this kind in a PIA. Where an error

is inconsequential, it is possible, in the order of the Court confirming the PIA to note that the error exists and to set out

the correct position in the order. It is open to question whether the error in s. 5 of the Noel Tinkler PIA could be said to

be inconsequential. However, when the PIA is read as a whole, I believe it would readily be seen by any creditor that s. 5

could not possibly be correct given the detailed information which is given in s. 12 of the PIA dealing with the position of

creditors including the Revenue. However, the creditors might not have been aware that any aspect of the Revenue debt

was preferential. Section 12 of the PIA simply identifies how much of the Revenue debt is secured and how much of it is

unsecured. Section 25.5 of the PIA provides that where Revenue debt has a preferential status this will be specified in

Part IV. I can see nothing in Part IV of the PIA in Mr. Tinkler’s case which identifies that any part of the Revenue debt is

preferential. On the contrary, there is a statement in s. 5 (which is contained in Part IV) that there is no preferential

debt. Furthermore, s. 3 of Part IV simply records the amount that will be paid to Revenue on foot of its secured debt

together with the small dividend to be paid in respect of the unsecured balance.

(c) Counsel for Cheldon also raised an issue as to whether the Revenue Commissioners had in fact opted into the PIA

process in this case such as to make the “excludable debt” due to them a “permitted debt” for the purposes of the PIA.

If it was not a permitted debt, this would raise an issue as to whether s. 115A(8)(a)(iii) of the 2012 Act had been

complied with. In order for an excludable debt to become a permitted debt, the creditor concerned (in this case the

Revenue) must consent or be deemed to consent under s. 92 to the inclusion of the debt in the proposal for a PIA. In this

context, my attention was drawn by counsel for the practitioner to the proof of debt form which was submitted by the

Revenue Commissioners in this case which shows the total amount of the Revenue claim to be €261,559.20 of which

€249,046.51 is secured by the judgment mortgage on the Calligstown property. It also shows that €78,957.27 is a

preferential debt. In the table attached to the proof of debt, one can see that the entire of the preferential debt is

secured by that judgment mortgage. My attention was also drawn to an email of 11 January 2017 furnished by the

Insolvency Unit of the Revenue Commissioners in which the Revenue advised the practitioner that: -

“Revenue opts in to the Personal Insolvency Arrangement . . . proposed on the 9th January 2017.

Please find attached a proof of debt listing all the outstanding amounts to be as Revenue’s specified debt in the

PIA.”

In these circumstances, it appears to be clear that the Revenue debt is covered by s. 92 of the 2012 Act and is

accordingly a “permitted debt”. In those circumstances, there would not appear to me to be any danger that the

provisions of s. 115A (8)(a)(iii) have not been complied with.

(d) However, a further point was made by counsel for Cheldon that there is no evidence in writing that Revenue have

agreed that the preferential debt due of €78,957.27 will not be paid in priority. S.101(1) of the 2012 Act is very relevant

here. It provides as follows: -

“Unless the creditor concerned otherwise agrees in writing and provision is so made in the terms of the [PIA], a

preferential debt shall, subject to subsection (3), be paid in priority by the debtor . . ..”

S.101(3) is not relevant here, since it only applies where a creditor fails to satisfy the practitioner that the debt in

question is a preferential debt. There was no suggestion in the hearing before me that the practitioner here was not

satisfied that €78,957.27 is preferential. Counsel for Cheldon made the simple point that, for s. 101(1) to be disapplied,

there must be consent in writing from the creditor concerned (in this case the Revenue) and specific provision to that

effect must also be made in the PIA. In this case, it is implicit in the PIA that no part of the Revenue debt will be paid in

priority to other debts. On the contrary, it is envisaged that €145,940.56 will be paid out of the proceeds of sale of the

Calligstown site (but this will not take place until the retirement of Mr. Tinkler) while the Revenue will receive no more

than €7,301.86 by way of dividend in respect of the balance of its debt of €115,658.64. However, counsel makes the

point that, absent consent in writing from the Revenue Commissioners, s. 101(1) nonetheless applies and accordingly the

Revenue Commissioners would be entitled, as a matter of law, to enforce the preferential element of the debt at the

expense of the other creditors. In response, counsel for the practitioner argued that this would have no more than a

marginal impact on the creditors reducing the anticipated dividend from 6.32% to approximately 6%. He argued that the

PIA could therefore still be performed even if the Revenue were to proceed in that way. He also submitted that it was

unlikely that Revenue would proceed in that way, given that Revenue did not appear at the hearing to oppose the

application under s. 115A. He drew attention to an email from the Insolvency Unit of Revenue of 27 January 2017 in which

Revenue had indicated that it would not be voting in favour of the proposal. However, these points on behalf of the

practitioner are undermined by the fact that the Revenue proof of debt refers very clearly to the preferential element of

the debt such that there can be no guarantee that the Revenue Commissioners will not wish to rely on their rights under

s. 101(1). The proof of debt form also makes it difficult to understand how the preferential debt was overlooked in the

PIA.

15. In my view, it is unsatisfactory that a PIA should be presented to creditors and voted upon by creditors in circumstances where

the PIA does not expressly identify the preferential element of the debt due to Revenue. Not only is this inconsistent with s. 25.5 of

the PIA but it is manifestly wrong that creditors should be asked to vote upon a PIA without any explanation as to how the

preferential element of the debt to Revenue is to be dealt with. Furthermore, in my view, counsel for Cheldon was correct insofar as

he suggested that, absent a written consent from Revenue, s. 101(1) continues to apply and that it would therefore be open to

Revenue, notwithstanding the existence of the PIA, to enforce its right to be paid in priority in respect of the preferential debt of

€78,957.27.

16. If this were the only issue to be considered, I would adjourn my consideration of the matter and require the practitioner to

provide a full explanation on affidavit as to how this occurred. However, this is not the only issue that falls to be considered. The

delivery of such an affidavit would serve no useful purpose if it transpires that Cheldon is to succeed on one of its remaining grounds

of objection raised by Cheldon, namely: -

(a) Whether the proposed PIA is fair and equitable in relation to each class of creditors that has not approved the

proposal;

and;

(b) Whether the proposed PIA is unfairly prejudicial to the interests of Cheldon.

Is the proposed PIA fair and equitable in relation to each class of creditor?

17. Under s. 115A(9)(e), the court must be satisfied (if it is to confirm the coming into effect of the proposed PIA) that the PIA is: -

“Fair and equitable in relation to each class of creditors that has not approved the proposal and whose interests or claims

would be impaired by its coming into effect.”

18. For the purposes of this issue, counsel for Cheldon argued that Start and Cheldon are in different classes and that the proposed

PIA is not fair and equitable as between those classes.

19. The judgment of Baker J. in Sabrina Douglas [2017] IEHC 785 provides considerable guidance as to the constitution of classes for

this purpose. As Baker J. observes in para. 27 of her judgment, the governing criterion is contained in s.115A(17)(a)(ii) under which

the court is to have regard to whether the creditors: -

“ . . have, in relation to the debtor, interests or claims of a similar nature”

20. In Sabrina Douglas, Baker J. referred to the decision of Laffoy J. in Re: Millstream Recycling Ltd [2010] 4 IR 253 where Laffoy J.

(in the context of the constitution of classes for the purposes of a scheme of arrangement under s. 201 of the Companies Act 1963)

applied the classic test laid down in Sovereign Life Assurance Company v. Dodd [1892] 2 QB 573 where Bowen L.J. said: -

“The word 'class' used in the statute is vague, and to find out what it means we must look at the general scope of the

section, which enables the Court to order a meeting of a 'class of creditors' to be summoned. It seems plain that we

must give such a meaning to the term 'class' as will prevent the section being so worked as to produce confiscation and

injustice, and that we must confine its meaning to those persons whose rights are not so dissimilar as to make it

impossible for them to consult together with a view to their common interest."

21. That test has been consistently applied by the courts ever since. In the Millstream case, Laffoy J. also referred to the

observation by Chadwick L.J. in Re: Hawk Insurance Co. Ltd. [2001] BCLC 480. Laffoy J. at p. 277 summarised the approach proposed

by Chadwick L.J. in that case as follows: -

“are the rights of those who are affected by the scheme proposed such that the scheme can be seen as a single

arrangement; or ought to be regarded, on a true analysis, as a number of linked arrangements? . . . it is necessary to

ensure not only that those whose rights really are so dissimilar that they cannot consult together with a view to a

common interest should be treated as parties to distinct arrangements and have their own separate meetings, but also

that those whose rights are sufficiently similar to the rights of others that they can properly consult together should be

required to do so. . ..”

22. Each of the decisions in Sovereign Life Assurance Co. v. Dodd, Re: Hawk Insurance Co Ltd., and Re: Millstream Recycling Ltd

were concerned with whether class meetings were properly constituted for the purposes of voting on a scheme of arrangement. That

is not the issue here. However, the approach taken in those cases is nonetheless of significant assistance in deciding whether, for

the purposes of the application under s. 115A, Start Mortgages and Cheldon should be considered to be in separate classes of

creditors. In Sabrina Douglas, Baker J. held that the principal private residence creditor in that case was in a different class to the

secured creditors. She arrived at that conclusion applying the approach taken by Laffoy J. in the Millstream Recycling case. In

particular, she drew attention to which the 2012 Act (as amended in 2015) gives special protection for the principal private residence

of a debtor. In my view, applying the approach taken by Laffoy J. in Millstream Recycling, Start and Cheldon should be treated as

different classes for present purposes. Their rights under the proposed PIA are quite different. In truth, the scheme is not a single

arrangement which treats all secured creditors in the same way; instead it is, on a true analysis, a number of linked arrangements,

insofar as the secured creditors are concerned. In particular, Start is dealt with quite separately and distinctly under the scheme from

the way in which the position of Cheldon is addressed.

23. In contrast to Cheldon, Start does not suffer any write down of the indebtedness secured on the family home of Mr. and Mrs.

Tinkler. In the case of both Start and Cheldon, the underlying security is worth less than the amount of the secured debt. In the case

of Start, the current market value of the family home of Mr. and Mrs. Tinkler is €380,000. This leaves a deficit of €122,292.00. The

proposed PIA does not involve any write down of that deficit. Nor does it envisage that Start will be paid only a dividend in respect of

that element of the debt.

24. In the case of Cheldon, the indebtedness is €1,780,522.11. The value of the underlying security is €350,000. Under the proposed

PIA, the balance of €1,430,522.11 will fall to be dealt with as an unsecured debt resulting in a dividend payment at a rate of 6.32%

(or a rate of 6% in the event that the Revenue exercise their priority right in respect of the preferential debt).

25. In the circumstances described in paras. 23-24 above, I find it impossible to understand how Cheldon and Start could, to

paraphrase Bowen L.J. consult together with a view to their common interest. Under the proposed PIA, their respective rights are

simply too dissimilar. There is an obvious incentive for Start to vote in favour of the PIA. If the PIA succeeds, Start will achieve a

much better result under the PIA than it would in the event of bankruptcy. Under the PIA, Start will ultimately get paid in full. In a

bankruptcy, Start would have to compete with the other creditors of the debtors in relation to the extent of the indebtedness over

and above the value of their security.

26. In contrast, there is no such incentive available to Cheldon. Its rights are different under the proposed PIA. It will simply receive a

dividend in respect of the element of the debt which exceeds the value of the underlying security.

27. Given the dissimilar ways in which Start Mortgages on the one hand and Cheldon on the other are addressed in the proposed PIA,

I believe the PIA is better characterised as a series of interlinked compromises or agreements – there is one form of agreement with

Start and another with Cheldon. In all of these circumstances I have come to the conclusion that Start and Cheldon are not to be

treated as being in the same class for the purposes of this application under s. 115A. For completeness, I should add that, although

BOIMB was not represented at the hearing, it appears to me that its rights under the proposals are also quite different to the rights of

either Cheldon or Start, such that the arrangement with it should be treated as separate to that with either Cheldon or Start. In

para. 7 above, I have summarised the way in which the BOIMB debt is to be addressed under the proposals. The manner in which it is

to be dealt with is markedly different from the way in which the proposals treat either Cheldon or Start. It will be able to realise its

security under the proposals, such that it is impossible to see how it could plausibly be suggested that it could consult together with

Start and Cheldon or either of them in the manner envisaged in the Sovereign Life case. The true position is that each of the three is

being pulled in different directions given the very different ways in which each is treated under the proposals.

28. Having decided that Start and Cheldon should each be classified as a separate class of creditor, the next question to be

considered is whether the proposed PIA is unfair and inequitable as between Cheldon on the one hand and Start on the other. In this

context, as counsel for Cheldon has very properly acknowledged, there are circumstances where classes of creditors can be treated

differently without unfairness. For example, in the context of a scheme of arrangement formulated under the Companies (Amendment)

Act 1990, McCracken J. in Re: Antigen Holdings Ltd. [2001] 4 IR 600 had to consider whether it was unfair that trade creditors of the

company in examinership were treated more favourably then banking creditors. In that case, the banking creditors were to be paid in

full but without interest. However, the banking creditors were subject to a longer repayment period than trade creditors. McCracken

J. had to consider whether this was unfair. He came to the conclusion, that, notwithstanding the difference in treatment, it was not

unfair. He said at p. 603: -

“It has to be said that no creditors are getting paid interest. The banks' debt . . .. is by far the largest proportion of the

debts owed to the creditors and they undoubtedly are not being treated in the same way as the ordinary creditors.

They are being paid off over a longer period and there is some validity in their point that interest to a bank is the

equivalent to the profit made by an ordinary trade creditor on selling his goods and the trade creditors are in fact

getting paid that profit. However, the question is: is this unfair?

The purpose of the scheme is to ensure the viability of the company. This can only be done if there is a reasonable time

span in which to discharge the debt and if there is an amount being paid which is within the capacity of the company to

pay. Now the vast bulk of remaining creditors are trade creditors who are presumably going to continue trading with the

company. I do not think it is unfair they should get some priority because they are going to keep the company going.”

29. It will be seen that in the Antigen case, there was an objective justification for the difference in treatment between trade

creditors and banking creditors. As McCracken J. said, the trade creditors were entitled to get some priority in that case because

they were going to keep the company going.

30. In the present case, it is therefore necessary to consider whether there is some objective justification for the difference in

treatment between Cheldon and Start. In this context, it must be acknowledged that, as counsel for the practitioner has argued, s.

100(3) of the 2012 Act implicitly acknowledges that creditors in different classes can be treated differently. While s.100(3) expressly

envisages that creditors within the same class must be treated on a pari passu basis, there is no statutory requirement that the pari

passu rule applies as between classes. Nonetheless, s. 115A(9)(e) requires that the Court must be satisfied that the proposed PIA is

fair and equitable in relation to each class of creditors that has not approved the proposal and whose interests would be impaired by

the PIA. In the present case, Cheldon has not approved the proposal. Furthermore, it is clear that its interests will be impaired by the

PIA since it will be prevented from enforcing its security over the Tinkler’s Yard property and will suffer a write down of the secured

indebtedness. In these circumstances, if the court is to approve the PIA pursuant to s. 115A, the Court must be satisfied that there

is some objective justification for the difference in treatment.

31. In his affidavit sworn on 6 July 2017, the practitioner seeks to justify the difference in treatment in the following terms in para.

15-17 of his affidavit: -

“15. . . I say that . . . it is clear that there is both a justifiable and legal reason why the two creditors are treated

differently under the PIA proposal. However, the said different treatment is not what one would describe as a prejudice

or an unfair prejudice in the circumstances.

16. I say that there is a justifiable reason for the keeping and retention of the family and family home debt as opposed

to the more variable and vulnerable commercial debt. I say that the commercial debt has been restructured but

remains profitable for the creditor and represents a far greater return than bankruptcy. I say that the PIA is in reality

contingent on the working life of the debtor to fund any payment and thus there must be a certain degree of reality in

all of the restructuring.

17. . . . I say that it may be the case that the debtor’s income is generated from rental income from the objector’s

security, however in the circumstances it is clear that the PIA both generates an income for the objecting creditor, a

dividend for the objecting creditor, a better return than bankruptcy . . . and enables the debtors to retain their family

home as per the objectives of the Act

18. For the avoidance of any doubt, I say and believe that there is no unfair or inequitable treatment of creditors but

rather proper compliance with the Act and the realities of both personal insolvency practice and what would occur under

the bankruptcy regime.”

32. Essentially, what the practitioner appears to suggest in those paragraphs is that Start is entitled to preferential treatment

because it holds security over the principal private residence of the debtors. It is certainly true that the 2012 Act (as amended)

includes a number of provisions which display a clear legislative intention to protect the principal private residence. Thus, for example,

s. 99(2)(h) expressly provides that a PIA shall not require that a debtor dispose of his or her interest in the debtor’s principal private

residence or to cease to occupy such residence unless the provisions of s. 104(3) applies. This is reinforced by s. 104(1) which makes

clear that, in formulating a proposal for a PIA, a practitioner must, insofar as reasonably practicable, formulate the proposal on terms

that will not require the debtor to dispose of an interest in or to cease to occupy his or her principal private residence. The only

exception to this is under s. 104(3) where the debtor confirms in writing to the practitioner that he or she does not wish to remain in

occupation of the residence or where the practitioner, having discussed the issue with the debtor, has formed the opinion that the

costs of continuing to reside in the residence are disproportionately large.

33. The intention to preserve the principal private residence is further reinforced by the provisions of s. 115A itself which permits the

Court (subject to being satisfied that each of the conditions stated in s. 115A have been complied with) to confirm a proposal for a

PIA even where it has not been approved by a majority of the creditors

34. On the other hand, there is nothing in the 2012 Act (as amended) which suggests that the holders of security over a principal

private residence should be treated more favourably than other secured creditors. In particular, there is nothing in s. 102 of the 2012

Act (which deals with the manner in which secured debts should be addressed in a PIA) which suggests that the holder of security

over the residence should be treated more favourably than those holding security over other assets. Similarly, there is nothing in

s.103 or s.105 (which also deal with the position of secured creditors) which suggests that the holder of security over the residence

is entitled to any more favourable treatment than any other secured creditors. What the Act envisages is that the residence, the

subject matter of the security held by the principal private residence lender, will not be sold (save in the very limited circumstances

outlined in the Act). However, the value of the security held by such a creditor still falls to be assessed in accordance with s. 105(1)

of the 2012 Act – namely the market value of the security. In the event that the PIA did not proceed, that is what the holder of

security could realise through a forced or consensual sale of the residence. That is precisely the same as the holder of security over

any other property could expect to receive on a sale.

35. In those circumstance, it is very difficult to understand the justification for the treatment of the Start debt in this case. As noted

above, under the terms of the proposed PIA, Start will receive payment not merely of the value of the residence (which has been

agreed at €380,000) but it will also receive payment of the balance of €1,222,292.00 albeit over a significantly extended term. Prior

to the proposal for the PIA, the remaining term was 105 months. Under the PIA this will be extended to 252 months. In addition, for

the duration of the PIA, interest only will be paid at a reduced rate of 1.25%. While that rate appears to be significantly lower than a

market rate, the proposal is that on completion of the PIA, all mortgage arrears will be capitalised. This means that they will be

treated as principal. Furthermore, on completion of the PIA, the payments will revert to full capital and interest repayments. Thus, in

circumstances where the arrears will be capitalised, the interest in the 180-month period subsequent to the PIA will be charged on

this capitalised sum rather than on the existing principal. Of course, as counsel for the practitioner correctly argued, Start is itself

adversely affected by the terms of the proposed PIA. The interest rate is to be reduced for the duration of the PIA, no payments of

principal are to be made during the currency of the PIA, and the repayment period is to be significantly extended. However, even

allowing for these factors, it seems to me to be clear that Start is treated significantly more favourably under the PIA than Cheldon.

In contrast to Start, the secured indebtedness in Cheldon’s case will be reduced to the current market value of the Tinler’s Yard

property namely €350,000. The balance of €1,430,522.11 will be treated as unsecured and Cheldon will be confined to a dividend of

somewhere between 6% - 6.3% (depending upon whether or not Revenue exercise their rights under s. 101(1) of the 2012 Act). That

seems to me to be manifestly less favourable than the treatment of the Start debt. I can see no justification for this disparity in

treatment on the basis of anything said by the practitioner in paras. 15-17 of his affidavit sworn on 6th July 2017. Furthermore, as

outlined in more detail below, the further justification offered by the practitioner (in a later affidavit) for the disparity in treatment

gives cause for concern,

36. In this context, it should be noted that Mr. John Burke of Cheldon swore an affidavit on 7 June 2018 in which he responded to the

practitioner’s affidavit. In para. 17 of this affidavit, Mr. Burke said: -

“17. It is not contended, nor could it be, that the preferential treatment of the Start debt is necessary to ensure that

the Debtors continued to reside in their principal private residence. It would clearly have been open to the PIP to

formulate a PIA under which the Debtors retained their principal private residence but with a reduction in debt owed to

Start. Thus I do not accept that the differential treatment of two similarly situated creditors can be justified in the

manner contended for by the PIP”.

37. In turn, this contention on the part of Mr. Burke was addressed in a subsequent affidavit sworn by the practitioner on 19 June

2018 in which he said, in para 26: -

“26. I say in particular response to para. 17 of the objector’s Affidavit . . . Start Mortgages engaged pursuant to s. 98

and s. 102 with my offices and submitted a counterproposal that they would accept. I say and I took it that they would

not accept anything beyond this and in circumstances where the PIA is predicated on the retention of the family home

and where the s. 115 A application is predicated on the principal private residence class of creditors it therefore was

necessary to obtain the support of Start Mortgages”.

38. I have to say that I am deeply troubled by this averment on the part of the practitioner. It clearly suggests that the practitioner

considered it necessary to offer favourable terms to Start in order to obtain its support for a proposed PIA. In my view, such an

approach is manifestly at odds with the requirement that there should be fair and equitable treatment of different classes of creditors.

It is also impossible to reconcile this statement with earlier averments made by the practitioner on affidavit. For example, in para. 5 of

his affidavit sworn on 22 February 2017, grounding the application under s. 115A, he expressly stated: -

“5. For the record, I say that I am an independent Personal Insolvency Practitioner . . .and as such, whilst I stand over

the . . .PIA . . .I do same whilst . . . balancing the interests of each specified creditor and the Debtor . ..”

39. It also seems to me to be at variance with what is said by the practitioner in para. 14 of his affidavit sworn on 6 July 2017 in

which he said: -

“14. . . I say that . . . I therefore drafted the PIA proposal ‘in the dark’ to the best of my abilities and with a view to

ensuring a return to solvency, the retention of the family home and a fair and equal treatment of all creditors.”

(emphasis added)

40. In my view, the approach set out in para. 5 of his first affidavit and para. 14 of his second affidavit, very correctly identifies the

approach which a practitioner should take in formulating proposals for a PIA. I cannot see any proper basis on which a practitioner

could formulate proposals favourable to a particular creditor with a view to securing the approval of that creditor to the proposal. If

proposals for a PIA were to be formulated on that basis, it would inevitably distort and fundamentally undermine the ability of a PIA to

operate fairly and equitably in relation to each class of creditors and to ensure that the PIA is not unfairly prejudicial to the interests

of any interested party.

41. The practitioner makes the point in his affidavits that, in contrast to Start, Cheldon did not engage with him pursuant to s. 98 and

s. 102. Cheldon did not respond to the notice under s. 98. At this point, I should explain that under s. 98(1) of the 2012 Act, the

practitioner is required, as soon as practicable after a protective certificate has been issued, to give written notice to the creditors of

the debtor that the practitioner has been appointed for the purposes of making a proposal for a PIA and he or she is required to invite

creditors to make submissions regarding the debts concerned and the manner in which the debts might be dealt with as part of a PIA.

The practitioner is also required to consider any submissions made by creditors including any submission made by a secured creditor

under s. 102.

42. S. 102(1) imposes an obligation on a secured creditor, following receipt of the notification under s. 98, to furnish to the

practitioner an estimate, made in good faith, of the market value of the securities. In addition, s. 102(1) envisages that the secured

creditor may also indicate, a preference as to how that creditor wishes to have the security and the secured debt treated under the

PIA. In turn, s. 102(2) provides that the practitioner, in formulating the proposal for a PIA, is to have regard to any preference

indicated by the secured creditor under s. 102(2) as to the manner in which the security and the secured debt should be dealt with.

This is subject, however, to the qualification that this is “to the extent [that the practitioner] considers it reasonable to do so”. That

very clearly indicates that the practitioner is required to form his own view on the preference suggested by the secured creditor. It

does not authorise the practitioner to accept whatever is put forward by the secured creditor without scrutiny or evaluation by the

practitioner. One further feature of the statutory scheme to be borne in mind is that, as 102(4) makes clear, a failure by a secured

creditor to furnish a valuation and an indication of preference will not operate to prevent the practitioner from formulating a proposal

for a PIA.

43. The provisions discussed in paras. 41-42 above clearly envisage that a secured creditor will respond to the notice from the

practitioner. While it is not mandatory for a secured creditor to indicate any preference as to how the secured debt should be dealt

with, it is highly desirable that a secured creditor should indicate a preference so that the practitioner will not have to approach the

matter “in the dark” to paraphrase what was said by the practitioner in his affidavit evidence before the Court. In this case, it is

regrettable that Cheldon did not respond in any way to the notification sent by the practitioner under s. 98. That undoubtedly placed

the practitioner at a significant disadvantage. In contrast, as the practitioner explains in his affidavits, Start engaged and submitted a

counterproposal. In para. 26 of his final affidavit, the practitioner says that he: - “took it that they would not accept anything

beyond this”. This appears to suggest that the manner in which the Start debt is proposed to be addressed in the PIA is derived from

the Start counterproposal.

44. I accept that the practitioner was placed in a difficult situation in circumstances where he received no communication from

Cheldon. However, I can see no basis on which the failure of Cheldon to respond could in any way relieve the practitioner from the

obligation to formulate a proposal for a PIA that was fair and equitable as between all classes of creditors. In addition, I do not

believe that the failure of Cheldon to respond can in any way justify the decision of the practitioner (as frankly acknowledged in para.

26 of his final affidavit) to agree to the favourable treatment accorded to Start in order to obtain their support for a proposed PIA.

Whether or not a response was received from Cheldon, there was, in my view, an obligation on the practitioner to formulate proposals

for a PIA which were fair and equitable as between the different classes of creditors. The failure to respond did not give the

practitioner carte blanche to formulate proposals for a scheme of arrangement which included such a disparity of treatment as

between Start Mortgages and Cheldon. On the contrary, the obligation remained, as stated above, to formulate proposals which

involved the fair and equitable treatment of the classes. I fully accept that did not require identical treatment as between Start and

Cheldon. I do not rule out the possibility that it might be possible to justify a level of disparity of treatment. The difficulty in the

present case is that I can see no justification for the disparity in treatment here. In my view, the desire to win the support of an

individual secured creditor (even where that secured creditor holds security over a principal private residence) cannot justify the

disparity in treatment.

45. It is true that, of course, a practitioner, when formulating proposals, must have in mind that any proposed PIA must have a

reasonable prospect of appealing to creditors. It would be foolhardy for a practitioner to seek to formulate proposals which did not

have any prospect of success. However, that does not, in my view, entitle a practitioner to single out one creditor or one class of

creditors for particularly favourable treatment in order to secure the support of that creditor or class of creditors for a particular

proposal. On the contrary, the obligation is always to formulate proposals which are fair and do not give rise to manifestly inequitable

treatment as between different classes. The usual way in which to persuade creditors to vote in favour of proposals is to

demonstrate that the proposals will achieve for the creditors a more favourable outcome than is likely to be achieved in a bankruptcy.

If proposals are formulated with that object in mind, there is unlikely to be any basis on which a creditor can show that it has been

unfairly treated or unfairly prejudiced by the proposals. On the other hand, if practitioners were to formulate proposals aimed at

securing the support of particular creditors or particular classes of creditors, this is a recipe for unfairness and will inevitably give rise

to objections which will add enormously to the length and expense of the process and put the confirmation of the proposals in

jeopardy.

46. I have therefore come to the conclusion that the proposals for a PIA which have been formulated in these interlocking cases, are

not fair and equitable in relation to Cheldon (when compared with the proposals insofar as they affect Start). In those circumstances,

the requirement set out in s. 115A(9)(e) of the 2012 Act (as amended) cannot be satisfied. It necessarily follows that an order

cannot be made confirming the coming into effect of the proposed PIA.

Unfair prejudice

47. Lest I am wrong in the conclusion which I have reached in relation to s. 115A(9)(e) I will, for completeness, also consider the

case made by Cheldon by reference to s. 115A(9)(f) under which the Court cannot make an order confirming proposals for a PIA if the

proposed arrangement is unfairly prejudicial to the interests of any interested party. It is clear that the proposed PIA here is

prejudicial to the interests of Cheldon in circumstances where its secured debt is being written down to the value of the underlying

securities and where Cheldon will receive only a dividend of between 6% and 6.3% in respect of the balance of the sum due to it. The

question is whether that prejudice is unfair in all of the circumstances.

48. Unfair prejudice is not defined in the 2012 Act (as amended). Nor is it defined in the equivalent provisions in the Companies Act

2014 dealing with examinerships. However, significant guidance as to the meaning of “unfair prejudice” was given by the Supreme

Court in the context of examinerships in Re: McInerney Homes Ltd. [2011] IESC 31 where O’Donnell J. said at paras. 29 – 30: -

“It might be said that the Act contemplates necessary prejudice to creditors, and only prohibits prejudice which is

unfair. However, it may be more correct to conceive of any scheme as being prejudicial since it requires a creditor to

accept a lesser amount than is, in theory, his or her legal entitlement. For example, in this case the scheme was

prejudicial in that it required creditors to accept a written down amount for their debt. But it was said to be unfairly

prejudicial because that was less than the banks could obtain on a receivership. The question in any particular case is

whether that particular prejudice is “unfair”. The essential flexibility of the test appears deliberate. It is very unlikely that

a comprehensive definition of the circumstances of when a proposal would be unfair could be attempted, or indeed

would be wise. The fact that any proposed scheme must receive the approval of the Court means that there will be a

hearing. The Act . . . appears to invite a court to exercise its general sense of whether, in the round, any particular

proposal is unfair or unfairly prejudicial to any interested party, subject to the significant qualification that the test is

posed in the negative: the Court cannot confirm the scheme unless it is satisfied the proposals are not unfairly

prejudicial to any interested party.

In this case, the trial judge’s approach to the question was to view the scheme against the likely return to affected

creditors under the likely alternative in the event that there was no examinership, and no successful scheme. I agree

that that is a vital test. Furthermore, as the trial judge recognised, there may well be circumstances where a creditor

may be required to accept less than would be obtained in such circumstances on . . . a receivership, but those

circumstances would normally require weighty justification. However, as this case illustrates, there may remain

considerable difficulty in determining the value which a creditor, and in particular a secured creditor, might otherwise

obtain, by reference to which the proposal can be judged.”

49. The decision of the Supreme Court in Re: SIAC Construction Ltd. [2014] IESC 25 is also relevant. In that case, Fennelly J. said at

para. 69: -

“There are two aspects to the notion of unfairly prejudice. The underlying assumption is that the person in question is,

to begin with, prejudiced, that is to say that his interests as a creditor . . . are adversely affected or impaired by the

proposals. It is the inevitable consequence of the insolvency . . . that every creditor will, in that sense, suffer prejudice

no matter what proposals are put forward. But prejudice is not enough to trigger the court's obligation to refuse to

confirm the proposals. It must in addition be unfair. Unfairness, in turn comprises two essential aspects, the general

notion of injustice and the more specific one of unequal treatment.”

50. It is clear from the observations of O’Donnell J. that the concept of “unfair prejudice” is a flexible one and that, in assessing

whether any prejudice is unfair, the concept of fairness should be considered in the round. It is also clear from the observations of

Fennelly J. in the SIAC case, that the concept of unfairness is not confined to cases where a creditor will fare worse in an

examinership (or in this case a PIA) as compared to a receivership or a bankruptcy. Inequality of treatment is also a facet of

unfairness.

51. Counsel for Cheldon submitted that Cheldon will be worse off under the PIA than it would be in the event of a bankruptcy. In the

event of a bankruptcy, Cheldon would be entitled to rely upon its security and remain outside the bankruptcy. It would therefore be

entitled, for example, to appoint a reciever over the rents currently paid by the tenants of the debtors at Tinkler’s Yard. Under the

terms of the PIA, the debtors would make interest only repayments in respect of the Cheldon loan in the sum of €1,312.50 per month

for the 72 month duration of the PIA, reverting to capital and interest repayments of €2,667.48 for the remaining 150 months of the

extended mortgage term. However, the monthly rent roll from Tinkler’s Yard significantly exceeds these figures. The point made by Mr.

Burke on behalf of Cheldon in para. 22 of his first affidavit is that, absent the proposed PIA, Cheldon would be entitled to appoint a

receiver over Tinkler’s Yard and collect the entire rent roll. Mr. Burke suggests that, accordingly, the outcome for Cheldon is clearly

better outside the PIA.

52. In response to Mr. Burke’s affidavit, the practitioner swore an affidavit on 6 July 2017 in which he said, at para. 9, that the net

monthly rent (referable to Mr Noel Tinkler) is €2,041.20 from Tinkler’s Yard. As discussed further below, this is incorrect. In addition, it

should be noted that it is clear from the terms of the PIA itself that one of the principal reasons why the practitioner proposes the

retention of Tinkler’s Yard is that it generates 45% of the debtors’ income. By retaining Tinkler’s Yard, there will be a continued source

of income from which other payments due by the debtor can be made, including, of course, the payments to be made to Start and

Cheldon itself. The other side of that coin is that, in the absence of the PIA, the entire of the rent roll would be available to pay

Cheldon in the event that Cheldon were to appoint a receiver over the rents. Cheldon would, in due course, also be in a position to

sell Tinkler’s Yard but would be unlikely to achieve anything more on a sale than the value attributed to Tinkler’s Yard in the PIA. The

sale would, however, generate an immediate return for Cheldon whereas under the PIA it will have to await payment of the stage

payments envisaged over the course of the 72 month duration of the PIA.

53. In his replying affidavit sworn on behalf of Cheldon on 7 June 2018, Mr. Burke took issue with the suggestion made by the

practitioner that the net income of Tinkler’s Yard in the case of Noel Tinkler was only €2.041.20. In para. 15 of his affidavit, Mr. Burke

drew attention to the fact that in the repayment tables appended to the respective PIAs the income of Mr. Tinkler from the yard is

stated to be €3,995.43, while the income of Mrs. Tinkler is stated to be €3,050.73, giving a total combined income of €7,046.16. Mr

Burke made the point that the repayment provisions of the proposed PIAs are based on the figures of €3,995.43 and €3,050.73

respectively.

54. In his final affidavit sworn on 19 June 2018, the practitioner confirmed that Mr. Burke was correct and he apologised for what he

described as a “typographical error” in his earlier affidavit. I have to say that I am surprised by the suggestion that the figure given

in the practitioner’s first affidavit could be said to be a typographical error. On no reading of para. 9 of the practitioner’s affidavit

sworn on 6 July 2017, could one conclude that the reference to €2,041.20 as the net monthly rent was simply a typographical error.

On the contrary, it is clear that the practitioner very deliberately referred to that sum in contradistinction to the amount of €3,200.00

which had been the figure given by Mr. Burke in his first affidavit. In substance, the practitioner, in para. 9 of his affidavit is

purporting to contradict what Mr. Burke had said as to the level of rental income available from Tinkler’s Yard. The practitioner, in

para. 9, is seeking to suggest that Mr. Burke had overstated the amount of rent. I therefore cannot see any basis on which the

practitioner can now plausibly suggest that his reference to €2,041.20 was merely a typographical error. I regret to say that I am

wholly unimpressed by the practitioner’s attempt to characterise this as a typographical error.

55. I am also deeply unimpressed by a further feature of the practitioner’s affidavit sworn on 19 June, 2018. In para. 21 pf his

affidavit, the practitioner says that: -

“If a receiver was appointed then there would be no tenants, no rent, and thereafter there would be the sale of the land

and the factual and financial position would be that the creditor would have to discharge the cost of sale, the cost of

the receiver and thus the comparison with bankruptcy is in fact absolutely one hundred percent correct.”

56. This averment on the part of the practitioner is, in turn, based on an averment by Mr. Noel Tinkler in his affidavit sworn on 25

June 2018 in which he says that the yard is a: - “very old yard and is in disrepair”, and that he operates his gravel business from it

together with his “two other small businesses”. More pertinently, Mr. Tinkler continues in para. 8 of his affidavit as follows: -

“8. I say and believe that there are three tenants in situ since 2010. A Chinese take away, Indian take away, by the

names of Mandarin House and Pure Indian and a mechanic business called Best Price Tyres. I say that I have spoken to

the three tenants, being Jimmy Chan, Bhapa Singh, and Valdes Lydnusky. I say that they have outlined to me that if it

was the case that a receiver and the uncertainty that brings was appointed on the basis of an inevitable sale in any

event, they would immediately seek to transfer their business and move out of the yard. I beg to refer to a copy of a

letters (sic) from each of them confirming the said position . . ..”.

57. Mr. Tinkler then exhibits two letters which are both in identical form and both very obviously typed on the same machine. One of

them is signed by both Mr. Chan and Mr. Singh. The other is signed by Mr. Lydnusky. In both documents, the signatories confirm that

they have “developed a very strong professional relationship with . . .my landlords”. The documents then conclude in the following

terms: -

“As a result, should Mr. and Mrs. Tinkler stop renting the premises and a new landlord appointed, I confirm that I would

not hesitate to relocate my business to a different premises, as I do not believe I would enjoy the same working

relationship with a new owner”.

58. These documents bear all the hallmarks of having been pre-prepared and placed in front of the tenants for signature. Quite apart

from the hearsay nature of this material, it is of no evidential value in circumstances where the documents were not prepared by the

tenants themselves. It is important to bear in mind that, in an application of this kind, the onus is on the practitioner and the debtors

to place appropriate evidence before the Court to show that the proposals are not unfair. This was made clear by the Supreme Court

in the context of examinerships in Re Tivway [2010] 3 IR 49. I am deeply unimpressed by this very naked attempt to manufacture

evidence to support the proposition that Cheldon would be worse off in a receivership than it would be under the PIA. If there was

genuine evidence to support such a case, it should have been presented to the court in the usual way on affidavit and any such

affidavit should be drafted on the basis of the personal input of the deponent.

59. I must also record that, in my view, it is inherently improbable that tenants would choose to leave premises in which they have an

established business just because there is a change in the landlord’s interest or because a receiver has been appointed over the

rents. Unhappily, since the financial crisis in 2008, there have been a significant number of appointments both of receivers and of rent

receivers. The Court would require evidence that such appointments have led to the loss of tenants. In the absence of evidence of

that kind, I do not believe that I can place any reliance on the averments made by Mr. Tinkler and by the practitioner respectively in

relation to the suggestion that the tenants will move if a reciever is appointed.

60. A separate point is made by the practitioner and by Mr. Tinkler in the same affidavits. It is suggested that there is no unfair

prejudice in circumstances where (so it is contended) Cheldon purchased the loan book sold by Permanent TSB (to whom the original

mortgage over the Tinkler’s Yard property was originally granted) at a very significant discount. Mr. Tinkler suggests that the loan

book in question was “one of the most impaired loan books in the Irish market” and was sold for ten cents in the euro. On the basis

of this suggestion, Mr. Tinkler speculates that his loan was purchased for “circa 80,000.00” whereas the return under the PIA would

be €350,000.00.

61. In response, Mr. Burke, in his affidavit sworn on behalf of Cheldon on 7 June, 2018, makes the point that the test for unfair

prejudice involves a comparison of the anticipated outcome for the relevant creditor under the proposed arrangement and the

outcome that would arise in the likely alternative in the absence of such an arrangement. He reiterates the point previously made by

him that the appointment of a receiver over Tinkler’s Yard would result in a: - “manifestly better outcome . . . than under the PIA”.

He also notes the concession made by Mr. Tinkler in para. 10 of his first affidavit that Cheldon stands in the shoes of the original

lender and has the right to claim and sue on foot of the purchased debt.

62. It is this paragraph of Mr. Burke’s affidavit that leads to the averment made by the practitioner (in para. 21 of his affidavit sworn

on 19 June 2018) that Cheldon would be worse off in the case of a receivership because it would be left with no tenants and no rent.

I have already expressed my dissatisfaction with that suggestion. In my view, Mr. Burke is correct in what he says in para. 9 of his

affidavit. In my view, it is very clear that Cheldon would be better off in a receivership than under the proposed PIA. Under the

proposed PIA, Cheldon will not be in a position to recover any part of the rents other than the reduced monthly amount to be paid to

it under the terms of the PIA for the 72 month period of the PIA. Furthermore, most of its debt will be written down very significantly.

In contrast, in a receivership, while Cheldon will, of course, suffer a significant loss in the event that the premises are sold for

€350,000, it will, in the event of a sale, have the ability to obtain an early payment of the full value of the property (less the costs of

sale). While the costs of sale must of course be factored into the equation, the fact remains that pending any sale Cheldon will be in

a position to appoint a receiver to collect the rents and will therefore have a significant income stream of just over €7,000 per month

which it can use to discharge the costs of any sale and to pay down part of the indebtedness on foot of the loan accounts of the

debtors or the loan accounts of the debtors which it purchased from Permanent TSB. In the course of the argument before me, it was

suggested that Cheldon, as an investment fund, would have no interest in keeping a receiver in place for any length of time.

However, that is an entirely speculative point. There are obvious commercial advantages for Cheldon in appointing a receiver over

Tinkler’s Yard. The appointment of a receiver will generate a significant monthly income which, on an annualised basis, will be more

than €84,000 per annum. When one compares that with the return which Cheldon will get under the PIA, it is obvious that even by

leaving a receiver in place for six years (which would be the duration of the PIA if it was confirmed) Cheldon would generate receipts

of more than €500,000. In addition, Cheldon would be in a position to dispose of Tinkler’s Yard at a time of its choice. If, for the sake

of argument, it was to decide to sell after leaving a receiver in place for six years, and even if the value of Tinkler’s Yard had not

increased in the meantime, it would ultimately generate gross receipts of more than €800,000 in respect of the debtors’ indebtedness.

This is manifestly a greater return than anything it could achieve under the PIA. I fully appreciate that these are gross figures before

deduction of costs and expenses. Nonetheless, one can readily see that Cheldon would be significantly better off in the context of a

receivership than under the proposed PIAs. In these circumstances, it seems to me that, based on the generally accepted

understanding of “unfair prejudice” as explained by the Supreme Court in McInerney Homes and in SIAC, Cheldon would be unfairly

prejudiced by the proposal. More correctly, in the context of s. 115A(9)(f) I cannot be satisfied that the proposed PIAs are not

unfairly prejudicial to the interests of Cheldon, as an interested party.

63. In these circumstances, I have come to the conclusion that, in addition to the reasons set out at paras. 17 to 46 above, I must

refuse to confirm the proposals for the PIAs in these two cases in circumstances where I have not been persuaded that the

requirements set out in s. 115A(9)(e) have been satisfied.

64. In reaching this conclusion, I have not taken into consideration the fact that Cheldon is an assignee of the original mortgagee,

Permanent TSB. I appreciate that in Jacqueline Hayes [2017] IEHC 657, Baker J. distinguished between the position of a retail banking

company and the position of a party such as Cheldon. However, that was in a very specific context – namely the fixing of an

appropriate interest rate. In that case, Baker J. took the view that, insofar as interest rates are concerned, an investment fund is not

in the same position as a bank. The latter would, from time to time, have to return to the market to meet ongoing capital needs such

that any interest rate would have to reflect (and exceed) in some way ECB base rates. In contrast, there was no evidence in that

case that an investment fund would ever have to return to the market.

65. In my view, there is nothing in the judgment of Baker J. in Jacqueline Hayes to suggest that investment funds are to be treated

any differently to other creditors when it comes to a consideration as to whether they would be worse off in a bankruptcy than under

an arrangement. In particular, I can see nothing in that judgment which would justify the court taking the approach suggested by Mr.

Tinkler in his affidavit (summarised in para. 60 above).

66. In my view, the correct legal position is that Cheldon, as successor in title to Permanent TSB, is entitled to all of the contractual

rights which were previously held by Permanent TSB including the right to recover in full the amounts due on foot of the loans

purchased by Cheldon. Whether or not Cheldon purchased those loans at a discount is not, in my view, relevant. As a matter of law,

Cheldon is entitled to recover the full amount due. Therefore, when considering whether Cheldon is unfairly prejudiced by the terms of

the proposed PIA, the correct comparison to make is as between the amount which it would recover in a receivership (without making

any discount for the fact that it may have purchased the loans at a discount) as against the recovery it is likely to make under a PIA.

67. In light of my conclusions in paras. 17 to 66 above, I do not believe that it is necessary to consider further the concerns

expressed by Cheldon in relation to the preferential debt to the Revenue Commissioners.

Conclusion

68. For the reasons set out above, in each case, I must uphold the objection of Cheldon by reference to s 115A(9)(e) and (f). I must

therefore refuse the application made by the practitioner in each case for an order confirming the coming into effect of the proposals.