High Court dismisses interlocking personal insolvency proposals due to unaffordability and prejudice to secured creditor.

[2025] IEHC 516

[2024 No. 286 HCA]

[2024 No. 285 HCA]

IN THE MATTER OF PART 3, CHAPTER 4 OF THE PERSONAL INSOLVENCY ACTS 2012-2021

AND IN THE MATTER OF FIONA MALONEY OF KILTORCAN, BALLYHALE, CO KILKENNY, R95 E4C0 (“THE DEBTOR”)

AND IN THE MATTER OF ANDREW MALONEY OF KILTORCAN, BALLYHALE, CO KILKENNY, R95 E4C0 (“THE DEBTOR”)

AND IN THE MATTER OF AN APPLICATION PURSUANT TO SECTION 115A (9) OF THE PERSONAL INSOLVENCY ACTS 2012-2021

JUDGMENT of The Hon. Mr. Justice Alexander Owens delivered on 24 day of September

2025

1. These applications under s.115A of the Personal Insolvency Act 2012 (the 2012 Act)

seek approval for interlocking proposals for Personal Insolvency Arrangements for a husband and wife. The main feature is a restructuring of their mortgage so that they reduce their present loan debit balance of €361,000 odd to an estimated €303,000 after 32 years of monthly payments and then pay off this residual debt by selling or mortgaging their house.

2. I am not approving these proposed Personal Insolvency Arrangements. I am not satisfied that debtor compliance with the requirements of ss.99(2)(e) and 115A(9)(c) and (f) of the 2012 Act has been proved. I am dismissing the debtors’ appeals and affirming the orders of the Circuit Court. Any issue of costs of these appeals will be adjourned to the next High Court personal insolvency list.

3. The debtors are now 45 and 50 years of age. Their house is worth €365,000. Their current and projected income for the foreseeable future is insufficient to service their current mortgage liabilities on a reducing balance basis.

4. Their mortgage arrears, which comprised outstanding instalments of principal and accumulated unpaid interest, was €91,189 odd at time of proof of debt.

5. These proposed Personal Insolvency Arrangements are structured to last for a year.

For ten months of that year most of the debtors’ free income will go towards paying the practitioner’s fee and a very small dividend for some unsecured creditors. During this period no payment will be paid on their mortgage loan and interest will “roll-up.”

6. Thereafter, the debtors will make monthly mortgage payments of €1,100. These will fall to €900 after year 5. They are projected to increase to €1,400 between years 12 to 19, and to reduce to €750 for the final 12 years of the revised mortgage term. A payment table shows that these lower levels of monthly payment turn this borrowing into what is virtually an interest only mortgage between year 6 and year 11, and between year 20 and year 33 of that term.

7. These provisions have been formulated by current estimations of likely available means of the debtors to make mortgage payments as their 4 children grow older.

The practitioner has put forward a “Set-Costs Calculation” for the first 15 years of the proposed revised mortgage term which is highly speculative.

8. The outstanding balance on mortgage advances on terms that they be repaid on a reducing balance basis over outstanding terms of between 194 months and 245 months now become repayable after 384 months. During that period their mortgage will, in essence, be “interest only” for 17 years of that term. Their dwelling is the only asset currently available to repay the large residual debt at the end of that term.

9. The main issues are whether the evidence establishes that this arrangement is “not unfairly prejudicial” to the mortgage holder; whether these debtors are “reasonably likely to be able to comply with the terms of” their proposed Personal Insolvency Arrangements and whether there is a reasonable prospect that confirmation of these arrangements will enable the debtors “not to cease to occupy…[their] principal private residence”: see s.115A(9)(b),(c) and (f) of the 2012 Act.

10. The second of these points ties in with the requirement that Personal Insolvency Arrangements do not make payment commitments which have the effect of depriving debtors and their dependents of a reasonable standard of living. As to the third of these points, if it is likely that the debtors will default again on their mortgage commitments and will face renewed proceedings for possession of their dwelling.

11. Chapter 4 of the 2012 Act provides for Personal Insolvency Arrangements. An arrangement may be for a maximum duration of 72 months: see s.99(2). The purpose of these provisions is to enable personal debtors to return to solvency at the end of the period of their arrangements, provided that they have honoured their commitments under those arrangements in the meantime.

12. In my experience, most arrangements under s.115A of the 2012 Act are structured for a period of a year and the fee of the personal insolvency practitioner is met during that year out of resources which would otherwise be used to make mortgage payments. The unsecured debts must be dealt with during that period. The secured debts remain outstanding thereafter, except to the extent specified in the arrangement: see s.125 of that Act.

13. It will often be possible to devise a proposal for an arrangement of short statutory duration which, when implemented, will restore a debtor to illusory solvency at the end of that period. This is because that proposed arrangement includes commitments to make future repayments to secured creditors which will be unaffordable.

14. The evidence in an application for approval under s.115A(9) must establish that “the debtor is reasonably likely to be able to comply with the terms” of the proposed arrangement, both during the statutory period of the arrangement and thereafter in cases where those terms deal with payments to secured creditors: see s.115A(9)(c).

This is also an aspect of the requirement in s.115A(9)(b)(iii) that any Arrangement which has been approved must “enable the debtor…(II) not to cease to occupy all or part of his principal private residence.”

15. In my view this provision allows a court to assess what is likely to happen after the expiration of that arrangement; in considering whether to approve terms which affect a secured creditor. Will the debtor be able to honour revised commitments in the medium term and not just for the period selected as the statutory duration of the arrangement for the purposes of ss.99(2)(b) and 116 of the 2012 Act?

16. Debtors seeking relief often have a bad payment record and the reasons for their failure to make mortgage payments over a prolonged period are not adequately explained.

17. Payments made during a Personal Insolvency Arrangement, which has a short duration, give little comfort about commitment of a debtor to continue periodic repayments of secured debt after the statutory period has elapsed.

18. If there are issues about sustainability and payment record, I would have much more confidence in a debtor who is willing to commit to an arrangement which has a longer statutory duration.

19. The case advanced by this practitioner and these debtors in support of their applications involves much speculation. Use of current information relating to reasonable living expenses is of limited value in assessing affordability of an arrangement over a 15 year period. Even in the shorter term, use of information in current ISI guidelines on “Reasonable Living Expenses” involves making speculative assumptions.

20. While money is lent on the basis of current information relating to a borrower’s present and likely circumstances, a capacity to repay in the short and medium term must be established in order to show that a repayment regime is sustainable.

21. There is uncontradicted evidence that if, assuming current guidelines on reasonable living expenses remain applicable, these arrangements are approved the debtors and their children will bear a monthly shortfall of between €132 and €622 in their reasonable living expenses during the first 7 years of their restructured home mortgage loan.

22. These debtors and the practitioner have not explained how the debtors dealt with their mortgage liabilities in the two years prior to the issue of the protective certificate. I am obliged to have regard to that matter and to the conduct of the mortgage creditor in considering whether to confirm the coming into effect of these Personal Insolvency Arrangements: see s.119 A (10) of the 2012 Act. It is relevant to assessment of the likelihood that the debtors will adhere to their arrangements. I am also obliged to have regard to the conduct of the creditor during that period.

23. I appreciate that these debtors have been making payments of €1,450 since the date of their protective certificate, but this is in the context of large arrears. The reason why these arrears were allowed to accumulate has not been explained. The mortgagee obtained an order for possession against them in 2016 and sought to execute it in 2022, following the end of the Covid 19 pandemic. The debtors had very little engagement with their lenders until they attempted to renew the court order for possession. They have been living on borrowed time for nearly a decade.

While their creditor has been proceeding slowly, they have had the advantage of living in a house bought with loans which they failed to repay.

24. These proposed Personal Insolvency Arrangements also fall foul of s.99(1)(e) of the 2012 Act. This requires that “a Personal Insolvency Arrangement shall not contain any terms which would require the debtor to make payments of such an amount that the debtor would not have sufficient income to maintain a reasonable standard of living for the debtor and his or her dependants”. The debtors are committing to pay amounts on their mortgage which are in excess of what they can afford if they are to maintain a reasonable standard of living.

25. The ISI guidelines comprise material which I am obliged to have regard to in considering this aspect. I am not bound to require that debtors must show that they can maintain a standard of living in full accordance with these guidelines. However, the evidence in this appeal shows that the effect of the proposed arrangements will be that these debtors will have significant shortfalls in means needed to maintain a reasonable standard of living over a prolonged period.

26. The evidence does not prove that these debtors will have sufficient means to be reasonably likely to comply with the terms of their proposed arrangements. They have a poor payment history and, when their present and future means are taken into consideration, it is more likely than not that they will go into default again in the short to medium term. This evidence shows that their proposed arrangements are unaffordable.

27. I also agree that the proposed arrangements are unfairly prejudicial to the interests of the secured creditor. In effect, am being asked to turn a repayment mortgage into an interest-only mortgage for €303,000 of the existing borrowing; to be repaid from unidentifiable means after 32 years. I am also being asked to change the interest rate on a home-loan to a fixed interest rate of 3.00% over the entirety of that period. While the current holder of the mortgagee’s interest in these loans is not a bank, preservation of current value of an annual return of 3.00% depends on continuation of this rate as giving an acceptable gross rate of return over that period.

28. I do not accept the logic of the practitioner’s position that, when the balance of this restructured loan comes to be repaid in February 2054 the value of the equity of redemption in this house will have increased by over €371,000. That is speculation, as are suggestions that the debtors will then be in a position to remortgage, pay down their loan from pension lump sums or other means, or sell their home and a cheaper dwelling. This approach confuses the value of the lender’s security over a mortgaged residence with the requirement to demonstrate that a restructuring under a proposed Personal Insolvency Arrangement will enable the arranging debtor to repay the mortgage loan.

29. I am not expressing any view on whether these proposed arrangements, in envisaging eventual sale of the dwelling to repay mortgage liabilities, also fall foul of the requirement in s.115A(9)(iii)(II) of the 2012 Act that they must “enable the debtor-(1) not to dispose of an interest in, or (II) not to cease to occupy, all or part of his principal private residence.”