Court dismisses application for early protective certificate due to lack of exceptional circumstances and procedural delays.

7. ANNEXED CIRCUIT COURT DECISIONS / NOTES

7.1 RE FARRELL (A DEBTOR) (TRIM CIRCUIT COURT 24TH SEPTEMBER 2020)

Record No. C:IS:ESKE:2019:001182

AN CHUIRT CHUARDA

THE CIRCUIT COURT

EASTERN CIRCUIT COUNTY OF KILDARE

IN THE MATTER OF PART 3, CHAPTER 4 OF THE PEROSNAL INSOLVENCY ACT 2012 AND IN THE MATTER OF JAMES AND GRAINNE FARRELL OF 31 SEVEN SPRINGS, NEWBRIDGE, COUNTY KILDARE (THE DEBTOR) AND IN THE MATTER OF AN APPLICATION PURSUSANT TO SECTION 91(3) OF THE PERSONAL INSOLVENCY ACT 2012

Decision of Her Honour Judge O’Malley Costello given on the 24th day of September, 2020. James Farrell and Grainne Farrell apply for leave to make an application pursuant to section 91.3 of the Personal Insolvency Acts 2012, 2015 i.e. that they may apply for protective certificate even though one year has not expired since they last enjoyed the protection of this Court under the Personal Insolvency Acts. I will deal with Mr. Farrells application as broadly the same considerations apply. This was the approach taken at the hearing. On the 15th July 2019, he was granted a protective certificate in respect of all of the debts he set out in his PFS which was sworn in June 2019. I am informed that the protective certificate remained in force until 28 May 2020 as a result of the fact that there were ongoing section 115A proceedings leading to an extension of that protective certificate beyond the usual period up to the 28th May when he withdrew the section 115A application due to what he considered a change in circumstances. He therefore had the protection of the Court from 15th of July to 2nd of November and thereafter the effective protection of the Court as a result of the S.115A proceedings until 28 May 2020 i.e.

for a period of 10 months. 27

2 THE ACT: Section 91.3 provides that a person shall not have to wait one year to after the expiry of a PC to apply for a new protective certificate where the appropriate Court has made an order stating that it is satisfied that the current insolvency of the debtor arises by reason of exceptional circumstance or other factors which are substantially outside the control of the debtor and that it would be just to permit the debtor to make a proposal for a personal insolvency arrangement.

3 ISSUES: The question which the Court has had to consider is whether the Court is so satisfied taking into account the elements set out in this section:  Does the current insolvency of the debtor arise by reason of exceptional circumstances or other factors substantially outside the control of the debtor?

 Is it just to permit the debtor to make a proposal for a personal insolvency arrangement at this stage?

4 MR FARRELLS AFFIDAVIT: In his affidavit Mr. Farrell confirms that in the midst of the most recent insolvency process which commenced on June 2019 he was ordered to pay a sum of €61,957 plus costs to Joseph Walsh in his capacity as liquidator of Business Mobile Security Services Ltd (BMSS) by Mr. Justice O’Connor in the High Court during November 2019. He avers at paragraph 16 of his affidavit that this debt arose: “due to my role within that separate and distinct corporate entity and related to a debt paid to 3rd parties in advance of the winding up process.” He avers that he was not in a position financially to oppose the order at that time in circumstances where he was in the middle of an insolvency process and stressed. He avers that it did not dawn upon him to notify his Personal Insolvency Practitioner. He avers that this new liability gives rise to a new insolvency and materially and fundamentally changes the figures for both his application and that of Grainne Farrell the interlocking applicant hence the requirement for renewed applications for personal insolvency. At paragraph 20 of his affidavit he refers to Mr. O’Brien having brought bankruptcy proceedings against him previously which were dismissed by the High Court and he avers that the present bankruptcy summons issued stands adjourned in the bankruptcy division of the High Court for 22nd of June 2020. It is notable that the affidavit is sworn on that same day 22 nd of June 2020.It appears that the bankruptcy summons was adjourned and will now be heard on 12 th of October 2020.

5: Mr. Farrells Affidavit is somewhat confusing in that while on the one hand at paragraph 22 of his affidavit he avers that he has sought the support of other parties and that with their support and a rectification of figures i.e. re costs to which he is entitled he would be in a better position to make a better offer to his creditors. Then at paragraph 25 he avers that due to Covid 19 there is a material change in his circumstances but he does not say exactly what this is. At paragraph 26 he avers that these factors amount to a new insolvent position at paragraph 32 he avers that his insolvent situation has worsened without exactly describing exactly how this arises.

While he avers that he would hope to get the support of his creditors he indicates that if he does not do so he, having taken advice, is of the view that he could if necessary go down the S.115A route. At paragraph 37 he avers that his current insolvency is different as his assets and funds have changed, that his debt to his creditors has increased and therefore from an arithmetic point of view his insolvent position is now different. In a number of paragraphs, he refers to a PIA proposal which he says is better for creditors than the bankruptcy option but the PIA exhibited would appear to be the very same arrangement which he presented to creditors previously and does not appear to contain any new proposals so it is hard to see how it is relevant to this application.

As was made clear by Ms. Justice Baker in her decision of 22 May 2017 in the Hickey 1 case she considered that S.91.3 of the Personal Insolvency Act envisages that the current insolvency of the debtor, if it is to be accepted as a different or new insolvency, cannot be part of or related to the previous failed process and that: ‘in order to be eligible to apply for a protective certificate one must be insolvent and what the provisions of section 91.3 envisages is that new or different circumstances have arisen.” In that case the costs of or an increase in debt which resulted from interest or charges which accrued on the debt originally the subject of the protective certificate would not, she held, change the nature or type of insolvency.

She points out that the section is intended to give the relevant Court power to dispense with the statutory restriction on making an application for a second PIA only in circumstances which were new or different from or not related to the previous proposed PIA. At paragraph 20 she clarifies that: “The current insolvency of the debtor must be an insolvency which is different, new and not part of or related to the previous failed process.” It was made clear in that case that this is an exceptional jurisdiction and only where exceptional circumstances arise which are outside the control of the debtor can the Court exercise its jurisdiction in the debtor’s favour.

6 TIMELINE: In this case the timeline relating to 3 overlapping sets of proceedings that is;

1. The liquidation of the applicant’s company BMSS.

2. The applicants PIA proceedings.

Michael Hickey of Kilmacomma Hill, Clonmel, Waterford (“The Debtor”) [2017] IEHC 333 3.Mr O Brien’s petition to bankrupt the applicant. Are helpfully set out at paragraph 5 of the affidavit of Mr. Kelly who represents Mr. O Brien as follows:

(a) 19 June 2019 - Applicant completes a prescribed financial statement (PFS);

(b) 15 July 2019 - Trim Circuit Court (HHJ O'Malley Costello) grants the Applicant a protective certificate (see "GFI");

(c) 11-16 July 2019 —James Farrell lodges €20,000, €20,000 and €21,957 to his personal AIB current account, money he which had withdrawn by cheque from the company account of BMSS - the PIP later furnishes my firm with statements evidencing these payments - I beg to refer to copies of the said statements, together with the email from the PIP's office dated 18 October 2019 under cover of which they were sent, upon which, marked with the letters "MKI" I have signed my name prior to the swearing hereof;

(d) 22 July 2019 - James Farrell petitions the High Court to appoint a provisional liquidator to BMSS - so ordered (Allen J.). Mr. Farrell is represented in the liquidation proceedings by Brady Kilroy Solicitors, the same firm who act for both himself and the Applicant in these parallel applications and in the bankruptcy proceedings;

(e) 22 August 2019 - Joe Walsh, provisional liquidator of BMSS, issues a motion seeking the return of €61,957 misappropriated by James Farrell from BMSS;

(f) 28 August 2019 - the High Court (Allen J.) orders the winding up of BMSS and appoints Joe Walsh as official liquidator;

(g) 28 August 2019 -James Farrell swears a replying affidavit contesting the Liquidator's claims in respect of the misappropriated €61,957;

(h) 18 October 2019 - the PIP circulates a draft PIA proposal to creditors; (I) 31 October 2019 — Hayes Solicitors write to the PIP on behalf of the Respondent, raising concerns about the receipt of large sums of money into James Farrell's bank account in July 2019 - I beg to refer to a copy of the said letter, upon which, marked with the letters "MK2" I have signed my name prior to the swearing hereof;

(j) 1 November 2019 - creditors' meeting - Applicant's PIA proposal rejected;

(k) 7 November 2019 - Applicant instructs PIP to issue section 115A application;

(l) 8 November 2019 - The High Court (O'Connor J.) orders James Farrell to repay €61,957 to the liquidator of BMSS, having deemed the transactions in question to be an unfair preference (see "GF4");

(m) 12 November 2019 - the PIP issues a Notice of Motion under section 115A of the Personal Insolvency Act 2012 (as amended);

(n) 9 January 2020 - the Respondent files a Notice of Objection in the section 115A proceedings - I beg to refer to a copy of the said Notice of Objection, upon which, marked with the letters "MK3" I have signed my name prior to the swearing hereof;

(o) 12 March 2020 - the Respondent swears a replying affidavit in the section 115A proceedings;

(p) 28 May 2020 — the Applicant / her PIP withdraws the section 115A application - in this regard, I beg to refer to a copy of the order made on that date by the Circuit Court (HI-IJ O'Malley Costello) upon which, marked with the letters "MK4" I have signed my name prior to the swearing hereof;

(q) 22 June 2020 - the Applicant swears an affidavit grounding this application for relief ` under section 91 (3);

(r) 14 July and 4 August 2020 - the Respondent files replying affidavits opposing the bankruptcy petition, the first of which mentions an intention to make this application; (s) 12 August 2020 - the within motion is filed in Trim Circuit Court Office;

(t) 14 September 2020 - the motion is served on the Respondent's solicitors by email;

(u) 12 October 2020 - the Respondent's bankruptcy petition against the Applicant is listed for hearing.

7 ANYLISIS: It is clear that as averred by Mr. Kelly on behalf of the creditor at paragraph 6 of his affidavit the applicant must have been aware that the liquidator was seeking the return of €61,957 at the latest by 28 August 2019, the date on which the applicant swore an affidavit opposing the liquidator’s motion seeking the repayment of those costs. The applicant by his own admission at paragraph

16 of his grounding affidavit accepts he did not tell the Personal Insolvency Practitioner about the liquidator’s motion. From an analysis of the evidence presented on affidavit, it is clear that whatever the PIP may or may not have known from media reports regarding the applicant’s financial position the Personal Insolvency Practitioner had in his possession bank statements showing that the applicant received €61,957 into his personal bank account within days of obtaining a protective certificate. Evidence has been presented that before the creditors meeting concerns about these large sums being paid into the applicant’s bank account were raised by Mr. O’Brien’s solicitor. Furthermore, in the proposal drafted by the Personal Insolvency Practitioner, in the debtor background section, there is a reference to media reports in regard to the liquidation of BMSS and to their being informed that the liquidation is proceeding with no Garda or legal input. Further on in the PIA the personal insolvency practitioner confirms that there are no other disposals or activities found which will prevent the PIA. The inclusion of these words in a PIA is unusual but obviously the personal insolvency practitioner considered it necessary to include this assurance and presumably he did so on the instruction of his client and the checks which he is required to make under the act. That PIA was presented at the creditors meeting on 1st of November 2019. It was voted upon and rejected by the majority of creditors. A section 115A process was then commenced and maintained until 28th of May 2020 when the application was withdrawn. The question therefore arises as to whether this debt of €61,957 due to Mr. Walsh as liquidator of BMSS by virtue of a High Court Order is a debt which is new and outside the control of Mr. Farrell. The High Court have deemed that it was incorrect of Mr. Farrell to receive the sums of money from the company which amounted to €61,957. He avers in his own affidavit paragraph

16 that he in fact owed these monies to 3rd parties. It appeared he proceeded then to use that money to pay third parties as he does not now have it, and all of this during the currency of his protective certificate/while awaiting the hearing of the section 115A application. It is difficult to imagine therefore how one could describe these events as being outside of his control. Mr. Farrell has confirmed in his own affidavit that he was very engaging throughout the entire process and that he was involved in completing the necessary papers even if he didn’t deal with the mechanics of actually issuing proceedings or appearing in Court. Therefore, it is clear that the circumstances on which the applicant now relies were fully known to him during the currency of the previous protective certificate and insolvency process. Indeed, far from being outside his control it appears the applicant was the indeed author of the circumstances which gave rise to his present application. He was the one who received the €61,957 into his account, on the 8th of November 2019, one day after he had instructed his personal insolvency practitioner to issue the section 115A application. He was ordered by Mr. Justice O’Connor to repay the sum of €61,957 to the liquidator. He then says it did not dawn on him to tell the PIP. He continued the S 115A process nonetheless. Mr. Farry BL behalf of Mr. Farrell argues that Mr. Farrell is now much worse off than arisen originally anticipated. Not only, submits Mr. Farry BL, will he not get the money back that he thinks the company owes him for third parties i.e. €61,957 but he is now found by the High Court to have an obligation to pay that money to the liquidator. That may very well be the case but he is it seems indeed the author of his own misfortune. If he had borrowed money in order to prop up his company, he should have informed his Personal Insolvency Practitioner of that fact. If he forgot about it initially he should have informed his personal insolvency practitioner about it when he became aware of it. If he did so it that might have then been brought to the attention of creditors, and indeed the Court, in the context of his previous application for insolvency.

The Court is cognizant of the fact that in making an application for a protective certificate and indeed throughout the insolvency process there is an obligation on debtors to be clear and transparent. This is set out at section 118:

(1) A debtor who participates in any process under this Chapter is under an obligation to act in good faith, and in his or her dealings with the personal insolvency practitioner concerned to make full disclosure to that practitioner of all of his or her assets, income and liabilities and of all other circumstances that are reasonably likely to have a bearing on the ability of the debtor to make payments to his or her creditors.

(2) A debtor who participates in any part of the process of applying for or operating a Personal Insolvency Arrangement shall co-operate fully in the process, and in particular comply with any reasonable request from the personal insolvency practitioner to provide assistance, documents and information necessary for the application of the process to the debtor’s case or the carrying out of the personal insolvency practitioner’s functions, including any debt, tax, employment, business, social welfare or other financial records. 6) A debtor shall inform the personal insolvency practitioner as soon as reasonably practicable after becoming aware of any inaccuracy or omission in the debtor’s statement of affairs based on the Prescribed Financial Statement.

(7) A debtor who participates in a Personal Insolvency Arrangement shall not pay to creditors any additional payments separate to the Personal Insolvency Arrangement in respect of debts covered in the Personal Insolvency Arrangement. Therefore, the Court is of the view that his obligation to pay the money to the liquidator does not arise by exceptional circumstances outside the control of the debtor and finds, as did per Baker J.

in Hickey, that the current insolvency of Mr. Farrell

“is so related to, or sufficiently related to, his previous insolvency to enable me to come to the conclusion that there is no new or different insolvency arising from different factors or circumstances which might give rise to the exercise of the exceptional jurisdiction to permit him to bring application for a protective certificate within the twelve-month statutory period”.

8 JUSTICE: Another factor which the Court must take into account arriving at a decision in a case such as this is whether or not it is just to allow the making of a new application for a protective certificate. The Court has to look and see whether or not this is a genuine situation where a debtor is seeking to avail of the remedies in an honest attempt to sort out his insolvency in an orderly fashion. However, a further doubt with regard to the bona fides of the applicant arises as a result of the fact that on 22nd June 2020 the applicant swore an affidavit grounding his application for relief under section 91.3 but did not go on then to issue the motion seeking relief under section 91.3 until August 2020 when the motion was filed in the Circuit Court Office. Thereafter the papers were not served on the respondent’s solicitor until 14 th of September 2020 i.e. more than one month later. The motion was then served by email. The Court is cognisant of the fact that Mr. O’Brien has issued a bankruptcy petition, which is listed for hearing on 12 th of October 2020. It is very difficult to understand the reasons for that delay and indeed none have been given save that the debtor through his representatives indicates that there is only an obligation to give four days’ notice. Furthermore, the first insolvency process granted Mr. Farrell protection as a result of which Bankruptcy petition was dismissed as it was inappropriate that it be continued during the insolvency process which then had time to evolve and conclude i.e. from 24 th of November 2017 to March 2018 when it failed to pass at the creditors meeting. In July 2019, a Protective Certificate was granted again. That process too was given ample time to evolve. Mr. Farrell had the necessary assistance to deal with his debt situation in an orderly manner. He did not provide clear and transparent information and as a result that process too was not successful. He now seeks to start again. He did not act in the manner set out in S.118 and he cannot rely on his own wrongdoing to justify another set of proceedings. I must refuse the application.