[2016] IEHC 127
THE HIGH COURT
[H: IS: HC: 2015: 000027]
IN THE MATTER OF PART 3, CHAPTER 4 OF THE PERSONAL INSOLVENCY ACTS 2012 - 2015
AND
IN THE MATTER OF JAMES NUGENT OF MAPLE 6, HAZELDENE ANGLESEA ROAD, DUBLIN 4
(“THE DEBTOR”)
AND
IN THE MATTER OF A PROTECTIVE CERTIFICATE (PERSONAL INSOLVENCY ARRANGMENT) ISSUED BY THE COURT ON THE 3RD DECEMBER 2015 (“THE PROTECTIVE CERTIFICATE”)
AND
IN THE MATTER OF AN EXTENSION TO THE PERIOD OF THE PROTECTIVE CERTIFICATE ISSUED BY THE COURT ON 10TH FEBRUARY 2016
AND
IN THE MATTER OF AN APPLICATION PURSUANT TO S.97 OF THE PERSONAL INSOLVENCY ACTS 2012 - 2015 AND THE INHERENT JURISDICTION OF THIS HONOURABLE COURT
JUDGMENT of Ms. Justice Baker delivered on the 10th day of March, 2016.
1. This judgment is given in the motion by Danske Bank (“Danske”) for an order setting aside an extension of a protective certificate granted ex parte me on the 10th February, 2016 on application by the personal insolvency practitioner (“the PIP”) on the grounds that the ex parte application was made with a lack of candour. The application is made pursuant to the inherent jurisdiction of the High Court and/or pursuant to the provisions of s. 97 of the Personal Insolvency Acts 2012 - 2015 (“the Act of 2012”) and/or O.76A, r.19 of the Rules of the Superior Courts.
Background
2. Mr. Nugent is a businessman, and on 8th January, 2012 the Master of the High Court granted liberty to Danske to enter final judgment against him in the sum of €8,469,490.43. The judgment was registered in the Central Office of the High Court on 19th March, 2013. Danske claims that the debtor remains indebted to it in the sum of approximately €9.5 million excluding costs, and that interest on the judgment sum continues to accrue.
3. Danske presented a petition that the debtor be adjudged bankrupt on 5th February, 2015 and the petition has been adjourned on eight occasions on application by the debtor, for the express purpose of enabling the PIP to apply for a protective certificate under the Act of 2012 and to seek to put in place a personal insolvency arrangement under the legislation. The adjournments were contested, and affidavits have been sworn by Danske and by Mr. Nugent for that purpose. The bankruptcy petition stands adjourned to Monday 14th March 2016.
4. Application was made to me for a protective certificate pursuant to s.95 (2) of the Act of 2012 on 3rd December, 2015 and that order was made for the statutory period of 70 days from the date of issue. That 70-day period was due to expire on 11th February, 2016. Danske did not appeal the grant of the protective certificate and the grounding affidavit sworn in respect of the present motion states that it determined not to do so as a matter of expediency.
The statutory regime
5. Section 95 of the Act of 2012 makes provision for the grant of a protective certificate to a debtor who establishes the statutory proofs. The effect of the grant of a certificate is that during its currency the debtor is protected from any action or enforcement proceedings by his creditors, and by virtue of s. 96 of the Act a creditor to whom notice of the issue of a protective certificate has been given shall not initiate or continue legal proceedings, nor take any steps to secure or recover payments or judgment, or on foot of any security. Whilst a protective certificate remains in force a bankruptcy petition may not be presented, or, in a case where a petition for bankruptcy has already been presented, may not be processed. The issuing of a protective certificate is a matter of considerable benefit to a debtor in that it gives breathing space in which to seek to come to an arrangement with creditors, and avoid the less benevolent consequences of bankruptcy.
6. The long title of the Act of 2012 recites a need perceived by the Oireachtas that debtors be assisted in resolving their indebtedness…
“without recourse to bankruptcy and to thereby facilitate the active participation of such persons in the economic activity of the State.”
7. I have already considered the import of the legislation in Re P. Bankruptcy [2016] IEHC 117. The intention of the Oireachtas was to facilitate a debtor to avoid bankruptcy, and this was seen as being a matter in furtherance of the common good. I will return later to the proposition that the court might take a certain approach to an application where a person seeks the protection, or the continued protection, of a protective certificate, and whether the purpose of the Act of 2012 suggests that I should approach a creditor’s opposition to such application with some degree of caution.
8. Application for a protective certificate is brought pursuant to the provisions of s.93 of the Act by a personal insolvency practitioner, and on notice to the Insolvency Service of Ireland. The Insolvency Service of Ireland, provided it is satisfied that the application is in order, provides for an application to be made to the appropriate court for the issuing of a certificate pursuant to s. 95(2). The court, once it is satisfied that the criteria and eligibility requirements are met, is mandated to issue a certificate:
“(2) Where the appropriate court receives the application for a protective certificate and accompanying documentation pursuant to subsection (1)(a), it shall consider the application and documentation and, subject to subsection
(3)—
(a) if satisfied that the eligibility criteria specified in section 91 have been satisfied and the other relevant requirements relating to an application for the issue of a protective certificate have been met, shall issue a protective certificate, and
(b) if not so satisfied, shall refuse to issue a protective certificate.”
9. The eligibility criteria are set out in s. 91, and no issue arises as to whether the debtor does satisfy these. Application is made to the specialist judges of the Circuit Court save where the level of debt exceeds €2.5m, when application is to the High Court.
Application to set aside
10. Danske makes an application that I set aside the order made by me on the 10th February, 2016 by which I extended the original period of the protective certificate for a further period of 40 days. The application is made in reliance on the inherent jurisdiction of the court and/or pursuant to s.97 of the Act of 2012 as amended. It is convenient that I consider the extent of the jurisdiction of the High Court in this application before I turn to consider the application.
11. Section 95 of the Act and O.76A r.15 of the Amended Rules of the Superior Courts provide for the making of an ex parte application to extend the period of a protective certificate. The application is on notice to the Insolvency Service of Ireland under r.17, but not on notice to any of the creditors. The court may in its discretion direct under r.15 (2) that notice of the application for extension be given to any person as it may direct.
12. The application for the original protective certificate was heard by me on the 3rd December, 2015 on notice to the Insolvency Service of Ireland, although the Service did not participate in the hearing. There was nothing unusual about this and as the application met the statutory criteria, the order was made.
13. The application for the extension of the time was made ex parte to me on the 10th February, 2016, and the Insolvency Service of Ireland, having been served with notice of the intention to make the application, did not offer any opposition to the making of the order.
14. Thus the scheme of the legislation and the Rules of the Superior Courts provide for the making of an application ex parte for the extension of a protective certificate. Practice and procedure in the High Court makes provision for the granting of relief ex parte in various types of applications, and it cannot be said that the form of application for extension of the period of a protective certificate under s. 95 (6) of the Act of 2012 arises by virtue of a unique statutory provision, or is a unique jurisdiction of the court.
15. The court, in making an order for the extension of a protective certificate, is continuing the umbrella of protection afforded to a debtor by virtue of the certificate such that his/her creditors may not proceed to seek judgment or enforce any judgment or take any other action on foot of a debt. The period of protection is a matter of significant benefit to a debtor, and the extension of the period accordingly also offers a measure of advantage in the same way. The statutory requirement that application be made to the court for the extension of a protective certificate, and the fact that the legislature did not provide for an automatic once-only, or further, extension, imports a requirement that the court be satisfied that the extension is merited, not merely on account of the way in which the debtor has engaged with the insolvency process during the period of the original certificate, but whether the extension of the period is likely to prove beneficial to the process as a whole. This is apparent from the express language of s. 95 (6):
16. The extension of the protective certificate affects the rights and interests of creditors. Given that all creditors are impacted to the same extent in that none of them may seek enforcement or judgement during the period, there is no question of the loss of priority during the period of protection. However, there may be many reasons why a delay in obtaining or recovering judgment is prejudicial to a creditor.
17. I consider, accordingly, that the making of an order extending the period of the protective certificate is a matter which engages the constitutional guarantee of fair procedures. This arises by virtue of the presumption of constitutionality afforded to post 1937 statutes as identified by the Supreme Court in East Donegal Co-operative v. Attorney General [1970] I.R. 317, and has resulted in an approach to statutory interpretation which has guided the approach of the court in considering exercise of statutory powers.
18. Whether the court had an inherent jurisdiction to set aside an order made ex parte has been considered by McCracken J. in Voluntary purchasing groups Inc. v. Insurco International Limited & Anor [1995] 2 ILRM 145 in the context of the old O. 39 which dealt with procedures under the Foreign Tribunals Evidence Act 1856. He took the view that the court had an inherent jurisdiction to set aside an order made ex parte for reasons explained as follows:
“In my view however quite apart from the provisions of any rules or statute, there is an inherent jurisdiction in the Court in the absence of an express statutory provision to the contrary, to set aside an Order made ex parte on the application of any party affected by that Order. An ex parte Order is made by a judge who has only heard one party to the proceedings. He may not have not have had the full facts before him or may even have been misled, although I should make it clear that is not suggested in the present case. However, in the interests of justice it is essential that an ex parte Order may be reviewed and an opportunity given to the parties affected by it to present their side of the case or to correct errors in the original evidence for submissions before the Court. It would be quite unjust that an Order could be made against a party in its absence and without notice to it which could not be reviewed in the application of the party affected.”
19. The recent and authoritative judgment of Hogan J. in Re Belohn Limited and Merrow Limited [2013] IEHC 157 provides a helpful summary of the principles, and a guide as to how those principles impact upon the approach of a court to an application to set aside an ex parte order. Hogan J. held that there is to be imported an implied right in any party affected by an order made ex parte which affects the interests and rights of a party to apply to set aside or vary such order. In para. 13 of his judgment Hogan J., having considered the judgment of the Supreme Court in East Donegal Co-operative v. Attorney General and Dellway Investments Limited v. National Asset Management Agency [2011] IESC 14, [2011] 4 I.R. 1, said the following:
“Applying these principles, it is plain that any interim order made ex parte interferes with the contractual rights of secured creditors, even if the examinership procedure does not present the reputational issues which were also in view in both Dellway Investments and Custom House Capital. The mere fact that the order interferes with a constitutionally protected right - whether as a property right (such as a contractual right of that kind) or a right to fair procedures - does not in and of itself make this process unconstitutional, for as Costello J. put it in Daly v. Revenue Commissioners [1995] 3 I.R. 1, 11, “legislative interference in property rights occurs every day of the week and no constitutional impropriety is involved.” But all of this does mean that any interim order made in examinership process is of a necessity a provisional one, precisely because the court could not constitutionally be given the power by means of a final order to override such due process and property rights prior to at least hearing the affected parties and for all the reasons given by the Supreme Court in D.K. and applied by that Court in Dellway Investments.”
20. I adopt that statement of principle and practice of Hogan J. in Re Belohn Limited and Merrow Limited, and consider that it has the effect in the present case that the order made by me on the 10th February, 2016 must be seen as one in respect of which application to set aside may be made. I consider therefore that the High Court does have a power to set aside an order extending the period of a protective certificate and this is a concrete realisation of the constitutional imperative of fair procedure and arises from the presumption that the Act of 2012 is constitutional in its impact and effect.
21. But this does not fully address the issue before me, namely the criteria that may be engaged by the High Court in setting aside an order extending the certificate. To answer this question involves an understanding of the scheme of the Act of 2012 and the consideration of whether the High Court is exercising an identical jurisdiction to that of the specialist judges appointed by virtue of Part 6 of the Act. The specialist judges exercising their statutory function under the Act are constrained by the powers and functions conferred by the Act of 2012, and do not exercise the full powers of a Circuit Court judge under the Courts Acts or under the Constitution. The specialist judges for example do not seem to have any power to engage principles of equity, or common law provisions outside those powers expressly conferred. The specialist judge, while the role is not merely an administrative one, does not act with full judicial powers.
22. The question arises whether the High Court in exercising its power under s. 5 is engaged in the exercise of its full original jurisdiction, or whether it is constrained in its powers and functions in the same way as the specialist judges of the Circuit Court. The legislation is silent on this, and having regard to the fact that the original jurisdiction of the High Court arises not merely by statute but also under the Constitution, I consider that any constraint on the jurisdiction of the High Court could arise only were it to be expressly contained in a statutory provision. I conclude, in the absence of such express limitation, that the High Court is exercising its full original jurisdiction in hearing any application under the Act of 2012.
23. This has the consequence in the present case that in my consideration of the application to set aside the order extending the period of the protective certificate, that I am confined to the provisions of s. 97 of the Act of 2012 in regard to the factors that bear on my decision. S. 97 provides as follows:
"97.— (1) Where a creditor is aggrieved by the issue of a protective certificate that creditor may within 14 days of the giving of notice of the issue of the protective certificate to that creditor apply to the appropriate court for an order directing that the protective certificate shall not apply to that creditor.
(2) A creditor who brings an application under subsection (1) shall give notice to the Insolvency Service and the relevant personal insolvency practitioner and to such other persons as the court may direct of that fact, and the application shall be made in such form as is provided for in rules of court.
(3) In determining an application under this section the court shall not make an order directing that the protective certificate shall not apply to that creditor unless it is satisfied that—
(a) not making such an order would cause irreparable loss to the creditor which would not otherwise occur, and
(b) no other creditor to whom notice of the protective certificate has been given would be unfairly prejudiced".
24. I will deal more fully below with the argument of counsel for the debtor that the test that must be applied by me in hearing the application to set aside is that found in s. 97, namely that the objecting creditor must show that it is being caused irreparable loss which would otherwise not occur, but I turn now to consider the jurisprudence of the Court with regard to applications to set aside an order made ex parte.
25. Hogan J. in Re Belohn Limited and Merrow Limited, having determined that the application before him was permissible, did not expressly deal with the question of whether the statutory provisions allowing for the appointment of an interim examiner would be determinative of his approach to the application to set aside. I consider however that there is implicit in his finding in that case, where he did set aside the appointment of an interim examiner on the grounds of non disclosure, that the order to set aside was “essentially restitutionary in nature” as it involved the setting aside of an order which was tainted by non disclosure. His judgment it seems to me is a strong authority for the proposition that the application to set aside is determined by the court on broad principles of fairness and the solemnity of the court and its process. The decision of Hogan J. guides my approach to the question in the present case, and I consider that my jurisdiction is not constrained by the statutory provisions contained in s. 97, and must be seen in the broader context of the requirement of candour and disclosure in ex parte applications, and because the operation of a constitutionally complete ex parte procedure must involve a degree of respect for the court by those who make such application.
Setting aside ex parte relief
26. In the circumstances I consider that I can obtain some guidance on the approach of the Court generally to the duty of a person applying for ex parte relief. Clarke J. set out the principles in what is now the leading case of Bambrick v. Cobley [2005] IEHC 43. Application was made to him to set aside a mareva type order made ex parte on the grounds that the applicant had failed to disclose what were said to be objectively material facts. As he pointed out full and frank disclosure in ex parte applications has been identified as a “golden rule” in Tate Access Floors Inc. v. Boswell [1993] All ER 303 and Clarke J. adopted the dicta of Sir Nicholas Browne-Wilkinson V-C that the rule was well established and important. Clarke J. held that there was:
“… a clear obligation on a plaintiff moving for a mareva type injunction to make full disclosure to the court of all matters relevant to the exercise of the courts discretion.”
27. As to what is required to be disclosed in furtherance of candour, Clarke J. identified this in Bambrick v Cobley:
"While I am not prepared to hold on the evidence that the plaintiff deliberately mislead the court I am constrained to the view that as a solicitor the plaintiff, in particular, ought to have been aware to his duty to disclose all material facts and must be regarded as significantly culpable in failing to bring to the attention of the court matters which on any objective view would have had the potential to influence the courts determination"
The borderline between material and non-material facts can sometimes be uncertain and he identified what I accept is the correct test namely that:
“...the test by reference to which materiality should be judged is one of whether objectively speaking the facts could reasonably be regarded as material with materiality to be construed in a reasonable and not excessive manner.”
28. Keane J. in McDonagh v Ulster Bank (Ireland) Limited [2014] IEHC 476 adopted and applied the approach of Clarke J. in Bambrick v Cobley and made an order discharging an interim injunction granted ex parte on the grounds of lack of candour.
Was the application under section 95 ex parte?
29. The PIP argues that the application before me for the extension of the period of the protective certificate was not truly an application ex parte as it was made on notice to the Insolvency Service of Ireland. The fact that the application was not on notice to the creditors does not, it is argued, make it an ex parte application. I do not consider this submission to be well founded, as the application for the extension may properly be described as ex parte in that the persons affected or likely to be affected thereby were not on notice. An ex parte application is not merely one to which no person or body is on notice, but one of which the person whose interests are impacted is not on notice. I accept that the legislation and the Rules providing for the making of an application were formulated in a way that permitted, or perhaps even required, the application to be made ex parte to the court, but the jurisprudence which I have referred to leads me to the inevitable conclusion that any person whose interests are affected by the order may have a right to seek to set aside such an order, even if that person might not be required by the statute or the rules to be on notice. This result flows from the approach identified by Hogan J. in Re Belohn Limited and Merrow Limited, where he held that the making of an order ex parte without the availability of a remedy to set aside could not be constitutionally sanctioned.
30. Before dealing with the matters alleged to amount to lack of candour in the present case, I turn briefly to consider the role of the PIP in the insolvency process.
The PIP
31. A Personal Insolvency Practitioner is in a unique role, not equivalent to the role of an examiner or a liquidator appointed by the court under the Companies Acts, although some similarities can be noted. The PIP is required to be interposed between the Insolvency Service of Ireland and the debtor. A debtor may not engage with the process envisaged by the Act, whether to seek a personal insolvency arrangement, or a debt settlement arrangement without employing a PIP. The PIP takes a role between the administrative functions of the Insolvency Service of Ireland and the creditors. The PIP is required for example to consider whether a debtor may avail of the options available under the personal insolvency legislation as an alternative to bankruptcy. The PIP is required to undergo an examination and to apply for registration as a PIP before he or she can operate within the State. Further, by S. 14 of the Bankruptcy Act 1988, a court shall, before making an order of adjudication, consider whether the debtor’s inability to meet his engagement could be more appropriately dealt with by a personal insolvency arrangement or a debt settlement arrangement, and the court hearing a petition in bankruptcy must be satisfied that this option has been explored by a PIP who has considered the alternatives and whose professional view is a factor taken into account by the bankruptcy court. All interactions that the debtor has with the Insolvency Service of Ireland, on the one hand, and the court, on the other hand are through the PIP, and this puts the PIP in a unique position of responsibility to the Insolvency Service of Ireland, the court, the creditors and of course to the debtor. That this imports a duty of frankness and full disclosure seems to me to be unequivocal, and while the PIP is not an officer of the court in a true sense, he is a professional engaged with a process in respect of which the court expects a full, professional and objective approach. The PIP may, but does not always engage a solicitor, but the obligation of frankness must be one which the PIP bears personally by virtue of his unique role at the centre of the process, and as the person uniquely with standing to bring application to the court.
32. I turn now to consider the matters in respect of which the lack of candour is alleged.
The financial basis for a personal insolvency arrangement
33. The application for an extension of the period of the protective certificate was made on the grounds that the debtor expected to be in a position to complete the contracts for the development of a thousand nursing home beds in respect of which he hoped to recover the sum of almost €4m for distribution to creditors in the context of a personal insolvency arrangement. The grounding affidavit of the application for the extension was sworn by the PIP, Tom Murray, on 8th February, 2016. He describes the financial affairs of the debtor as “extremely complex”, but which were expected to provide “a brilliant return for creditors if successful”. He explained that the debtor hoped to achieve a significant financial return from an investment, as follows:-
“10. I say that the debtor is a Director in Preference Healthcare who have concluded an agreement with Ground Lease Capital Partners, a partnership of US pension funds, to finance on a long term basis the development of an initial one thousand nursing home beds at a capital cost of €100m.
11. I say and I am informed that Balfour Beatty Plc, a world renowned construction company, has joined the agreement to act as construction partners to Preference.
12. I say and I am informed that over the past year, the group have sourced land sites sufficient to complete the development along with securing planning permissions. The locations are cleared and ready for construction. The programme will completed with eighteen months giving rise to over one thousand long term jobs. I say that the project will include a full operational management team of finely experienced clinical and caring staff with extensive nursing home management in Ireland and internationally. I say that this project has the support of government department and its agencies.
…
14. I say that as part of the project, the debtor stands to receive circa €1.2m in repayment of a director’s loan with the option of selling his shares (5%) in the company to generate a further €2.76m. These monies are to be contributed to the arrangement for the benefit of creditors and particularly to the benefit of Danske as the dominant creditor.”
34. Danske argues that the debtors failed conspicuously to disclose the true details of that possible source of funds by reference to the affidavits sworn by the debtor in his application for an adjournment of the bankruptcy petition, and other matters. The debtor disputes the relevance of any matters that arose in the context of the bankruptcy petition, and I reject that suggestion, partly because the bankruptcy legislation envisages a close connection between processes in bankruptcy and engagement with the insolvency legislation, but also because coherence between the affidavit evidence of the debtor in the two processes is desirable.
35. In an affidavit sworn 27th November, 2015, by Mr. Nugent, in support of his application for an adjournment of the bankruptcy petition, relied, inter alia, on an argument that his debts could more appropriately be dealt with by a personal insolvency arrangement. He identified the underlying financial basis for such an arrangement as “the payment of €2m in project management fees” arising from the construction of a thousand nursing home beds by the end of 2016. He avers that the relevant parties had met in Dublin prior to the end of October, 2015, and confirmed that the “project is progressing as planned and that the process is in its very final stage”. He said that “the funding is fully agreed” in the sum of €200m and that the construction company Balfour Beatty plc “have been fully retained”. He exhibited correspondence from Ground Lease Capital Partners LLC of 18th November, 2015, which confirmed that the parties were “working diligently towards the finalising of an agreement for an initial investment of some €100m to develop care homes in Ireland”. He identified that circa 2% of the initial investment of the €100m would be “allocated by way of payment for project management services” to himself which he, in turn, would “use to pay third party suppliers for work they had done in conjunction with the sourcing of the land”.
36. When the debtor was cross examined in aid of execution before the Master of the High Court, on a date which was not identified to me but which was in the last number of months, he swore that he expected to recover a sum of approximately €1.4m in respect of fees owed to him by a company, Limra Healthcare Limited/ Limra Pensions Limited. He described the company Preference Healthcare as a “branded company”, and which would have a number of nursing homes “underneath it”. He described the structure of the companies as involving “a lot of complexities” and that he was responsible for design and build in project management.
37. The application to extend the period of the protective certificate was grounded on the affidavit of the PIP. He stated that Mr. Nugent expected to receive substantial monies through the repayment of a director's loan to Preference Healthcare, and he made no reference to management fees. In his replying affidavit to the motion to strike out sworn on 29th February, 2016, Mr. Murray explained the connection between Limra Health Limited and Ground Lease Capital Partners LLC, and said that the latter was “now the funding partner for the project”. He explained the change in the financial profile of the debtor as arising from the fact that the payment of €2m as management fees would result in a significant personal tax liability and that it was considered "more prudent" that the debtor would seek to collect his director’s loan of €1.2m from Pragma Services Limited which would, in turn, invoice Preference for services it would perform.
38. Added to that, the debtor would sell his shareholding in Preference for €4.125m which would result in a net sum after tax of €2,763,750.
39. The loan to Pragma Services Limited had been identified in the director's prescribed financial statement prepared for the purposes of the initial application for the protective certificate. The fees accruing from Pragma Services Limited of €2m were also identified. As both of those figures were identified in the paperwork lodged with the Insolvency Service of Ireland, there may have been no requirement that the source of funds be identified specifically in the application for the extension of the protective certificate. However, the PIP in his affidavit grounding the application for extension of the protective certificate identified that a “concluded agreement” with Ground Lease Capital Partners LLC had been achieved and that a concluded agreement Balfour Beatty plc was also in place. In his second affidavit, he exhibits a letter, which I regard as of some significance, of 24th February, 2016, from the London solicitors who act for Ground Lease Capital Partners LLC, which refers to “the potential provision” of funding and to the “proposed transaction”, and makes it quite clear that no concluded agreement has been achieved and that “all necessary due diligence and contractual matters remained to be dealt with”. That letter is dated some more than two weeks after the order extending the protective certificate, and creates, in my mind, serious doubt as to whether Preference Healthcare has concluded an agreement with Ground Lease Capital Partners LLC, and whether in that context, the finance to develop the nursing home beds is or is likely to be available. It is four months since the date of the meeting referred to in the affidavit of the debtor in his affidavit grounding his application for an adjournment of the bankruptcy petition. At that stage, the debtor expected the paperwork to be completed by 4th December, 2015. At the hearing before me on 4th or 5th March, 2016, no paperwork, other than the letter from the London solicitors of the possible investor, was available and that points to no more than ongoing negotiations.
40. It is not my role at this hearing to consider the true position of the finances of Mr. Nugent, but I do consider that the affidavit grounding the application for the extension of a protective certificate wholly failed to identify the true picture with regard to the projected source of funds.
41. Even more potentially problematic is the suggestion in the affidavit grounding the application for the extension that Mr. Nugent’s share in the company Preference Healthcare was valued at €2.76 million after tax and that he had the “option” of selling these. The debtor in his statement of affairs sworn on the 6th July, 2015 valued his shareholding in that company at “nil” and in his prescribed financial statement completed on the 6th November, 2015 for the purposes of the initial application for the protective certificate valued it at €50.00. The PIP attempted to explain the position by accepting that “as matters currently stand”, the company is almost valueless, but expected that “within the next number of days” if the project commences as expected, that the value would be in line with the report furnished by Ernst and Young exhibited to his replying affidavit. That report was a draft report dated 28th April, 2014 and bears some scrutiny. It is quite clearly gives valuations contingent upon the availability of capital, which I have noted above is less than certain. The report was clearly based on data provided by management and throughout it was referred to as a preliminary working draft.
42. The PIP does not give any coherent explanation in his replying affidavit of the 29th February, 2016 as to how he could now rely on a working draft report which is two years old, and based on projections and contingencies which have not yet been realised. His affidavit was given as one of an experienced accountant and insolvency practitioner and the body of the report goes nowhere near supporting his valuation of the shares of the debtor, and does not engage at all with many assumptions made by Ernst and Young, and with the fact that the capital basis for any ongoing activity by reference health care is not yet agreed. The report estimates the value of the company, based on the successful delivery of 750 beds at €110.6 million.
43. I regard the omission of these explanations and details from the grounding affidavit as material and being matters that might have been relevant to the exercise of my statutory jurisdiction under 95(6) of the Act 2012.
44. It is also a matter of great concern that the PIP did not inform me at the ex parte hearing that the status of Preference Healthcare at the time of the application, was “strike off listed”. No evidence has been adduced as to any step being taking to regularise the position of the company, if that is to happen at all, although counsel did say that the matter was “in hand”.
Proof of debt
45. Another matter relied on by the PIP in his application to extend the period of protection is engagement with Danske since the original protective certificate issued. In his affidavit grounding the application for the extension of the certificate the PIP says he engaged with the specified creditors, as is required under the legislation. He also says that the matter “progressed as normal and without issue” until he came to engage with the London solicitors acting for the U.S. pension fund, which I have dealt with above. He goes on later in the affidavit to say that the personal insolvency arrangement which he was putting together was likely to be accepted by the creditors including Danske, and that this serves the best interest of those creditors, “a point emphasised by my actions in seeking to engage with Danske and the debtor to date”. The suggestion was that Danske had been kept informed of progress, and if not actively supportive, at least it could be said it was not hostile. Danske through its solicitor avers that there has been no engagement between the PIP and the bank whatsoever save with regard to the completion of the bank’s proof of debt to which I will return below. He suggests that the impression given by the PIP was misleading and suggests that the proposition that creditor support would be forthcoming is one not founded in the facts of which the PIP was well aware, namely that Danske which holds well in excess of 65% of the total debt, has made it clear that none of the proposals made by the debtor were in its view credible.
46. The PIP in a letter of the 29th February, 2016 notified the solicitors acting for Danske that he had knowledge as of the 5th February, 2016, three days before he swore the affidavit grounding the application for the certificate, and five days before application was made to the court, that he was potentially exposed to “a professional negligence action” were he to accept that Danske had proved its debt within the time allowed by the legislation. No information was given to the court at the hearing of the ex parte application that there was any difficulty whatsoever with regard to the validity of the proof lodged by Danske, and this of course is of particular consequence in that Danske has more than 65% of the debt and would have in those circumstances under the legislation the power to veto any personal insolvency arrangement. The PIP in his replying affidavit suggests that Danske had available to it the option of applying to the High Court to have its proof of debt admitted. While I note that in his replying affidavit the PIP outlines a number of possible scenarios that could evolve at the creditors meeting, one of which was that Danske would be unable to vote, I cannot regard this as sufficient disclosure at the ex parte hearing of the facts surrounding the Danke proof of debt. I regard it as material that the PIP did not disclose at the very least his own view that the Danske debt was not properly proved, a view which he clearly held at the time of the ex parte application, and that it was possible that Danske would not be permitted to vote at the creditors’ meeting, with the result that a personal insolvency arrangement put to that meeting would more likely than not be accepted.
47. I reject the suggestion by the PIP that, having regard to the amending legislation of 2015, there exists now a mechanism by which the court may approve a personal insolvency arrangement notwithstanding that it has been rejected at a creditors’ meeting, as that provision envisages the court involvement in the context of seeking to protect the principal private residence of a debtor. What was not disclosed in the grounding affidavit for the extension or at the ex parte hearing, is that the principal private residence of the applicant, which he owns with his wife, has been the subject matter of an order for possession in favour of KBC Bank Ireland Plc, made in late October, 2015. In those circumsatnces, I reject the suggestion of counsel for the PIP that Danske, in bringing the application to set aside the extension of the certificate, is seeking to avoid the provisions of s. 115A as inserted by the Act of 2015, as Mr. Nugent does not have any identifiable principal private residence in respect of which the protection afforded by that new section might be availed of by him.
Conclusion on disclosure
48. I consider that the PIP failed to make appropriate disclosure and that some of the matters are matters which might have affected my mind in hearing the application for the extension of the protective certificate. In particular, I consider that the PIP has failed to identify with any clarity whatsoever the precise basis on which Mr. Nugent claimed to be close to achieving a substantial amount to meet a personal insolvency arrangement. The information furnished is at best incomplete, it is to a large extent so unclear as to be difficult to understand, and it is based on a number of assumptions, including assumptions made more than two years ago, that have not yet come to fruition. Furthermore the documentation contradicts that presented to the hearings in the bankruptcy court. That is a factor that might have influenced my approach to an extension of the protective certificate, as I was aware that the debtor wished to avail of a personal insolvency arrangement to avoid bankruptcy.
49. Furthermore, I note that the PIP failed to inform me that he had taken a view on legal advice with regard to the validity of the proof of debt lodged by Danske, and that it was possible in those circumstances that he would seek to hold a creditors’ meeting without the attendance of Danske.
50. Furthermore, the suggestion that there might have been available some scope for the court to exercise its discretion under s. 115A of the Act, as inserted by the Act of 2015, is misplaced having regard to another fact not disclosed, namely that the principal private residence of the debtor has been the subject of a recent order for possession in favour of another lending institution.
51. It is not necessary for the purposes of this application that I should take a view as to whether the PIP, or the debtor, deliberately sought to present the matter to me in a way that points to a lack of bona fides. As a matter of law the test before me is whether there was a significant and material failure to disclose matters which should have been disclosed and the test is an objective one as to what could have influenced me in the exercise of my jurisdiction in making the order ex parte. I am satisfied that the test is met.
Consequences of non-disclosure
52. It is clear from the judgment of Clarke J. in Bambrick v. Cobley that the court has a discretion, in cases where failure to disclose has been established, as to what order it will therefore make. The extent to which an applicant is culpable in respect of a failure to disclose is one factor and as he put it:
“a deliberate misleading of the Court is likely to weigh more heavily in favour of the discretion being exercised against the continuance of an injunction than an innocent omission.”
Clarke J. identified that there could be intermediate cases, and one factor was the extent of materiality.
53. I regard the non-disclosure in this case as being of matters which were material in the sense in which I have explained above. I also regard the failure of full and frank disclosure to be culpable, but in that I take my guidance from the judgment of Hogan J. in Re Belohn Limited and Merrow Limited where he accepted that the non-disclosure had come about as a result of a bona fide error and oversight and that no personal blame should attach to the petitioners or their advisors, but regarded the “objective relevance and materiality” of the matters not disclosed as being such that it would be unjust to allow the order to stand. Blameworthiness, then, does not have to be established as personal blameworthiness, and it is to be tested objectively in the light of the materiality of the matters not disclosed.
54. I regard the PIP as blameworthy in that objective sense. Further, I am not convinced that there was a genuine oversight on the part of the PIP, which led him not to disclose the true picture with regard to the funding for the nursing home schemes and the difficulty that he perceived with the proof of debt lodged by Danske.
55. I accept too that I have a discretion in the order I may make as a result of a finding that there has been material non-disclosure, and that this was culpable in the objective sense. That discretion must take into account a desire on the part of the court to express its displeasure at the failure, but also must bear in mind other circumstances which might be relevant.
56. Counsel for the PIP argues that Danske has not closed the door to the insolvency process and that this is clear from Danske’s affidavit grounding this application. He also points to the fact that we are, as he puts it “early” in the process, and that were I to now vacate the order extending the period of the protective certificate, I would be failing to recognise that the order was made in part of a process which has not yet crystallised. The process to which he refers is intrinsically tied up with the negotiations for funding from the US pension fund and that has been actively in train for several months, at the latest since October of 2015 as identified above.
57. I cannot ignore the fact that the timeframe envisaged by the personal insolvency legislation is broadly similar to that in examinership, and that the legislature in each of the two processes envisages the parties thereto moving with expedition and in the light of the strict time limits under each legislative scheme. Furthermore, the strictness of the time limits is in part a reflection of the impact on the interests of creditors by the suspension of their rights during the respective periods.
58. There might be some merit in that argument in another case, but having regard to the view that I have taken, and having regard also to the limited timeframe within which a protective certificate can operate, the delay between October, 2015 when negotiations were said to have almost reached a conclusion, is a matter that weighs on my considerations.
59. I accept that the purpose of the personal insolvency legislation is to avoid a debtor being made bankrupt, and that the personal insolvency regime offers a more benevolent means by which he or she can deal with indebtedness. This is envisaged by the Oireachtas as being in the common good. That statement of principle by the Oireachtas must influence me in my thinking, but it does not in the present case influence me to such an extent that I do not regard the absence of candour as central to the approach that I should take. The availability of a more benevolent or protective regime under the personal insolvency legislation imposes a heavy burden on a PIP coming before the court seeking a protective certificate, an extension of that certificate, or approval of a personal insolvency arrangement, to act with the utmost good faith and frankness. To gain the protection of the personal insolvency legislation where a bankruptcy petition has been adjourned pending an attempt to engage with the creditors under that regime, a PIP charged with the role of engaging with the court, the creditors and the Personal Insolvency Service of Ireland must do so with the greatest of solemnity and candour, and he is not in my view to see his role as being one of an advocate presenting in an adversarial system an argument in support of his client, but rather as a person who has responsibility and obligations to all elements of the system.
Section 97 of the Act of 2012
60. Counsel for the PIP argues that my jurisdiction ought to be exercised within the context of the provisions of s. 97 of the Act which allows the court to set aside a protective certificate, and ipso facto an order extending a certificate, on the application of an aggrieved creditor but which makes one of the tests applicable to such application that irreparable loss to the creditor would result from the making of the order. It is said that the proposed personal insolvency arrangement will be to the benefit of all creditors, and specifically to the credit of Danske as the largest creditor, but that the result of a bankruptcy would be that Mr. Nugent would not be in a position to conclude the contractual negotiations for the nursing home funding.
61. I cannot accept that argument, and I have explained above that the court is exercising its full original jurisdiction in this application. I consider that I ought not to exercise my discretion in favour of the continuance of the ex parte order in the present case as I see little or no reality in the conclusion of the contractual arrangements for which Mr. Nugent contends having regard to the fact that even now none of the players is committed to that scheme. Since the making of the order by me on the 10th of February, 2016 he has had a further period of four weeks, or three weeks if one counts the time up to the presentation of the motion to set aside the ex parte order, in which to conclude the contract. Even at the hearing of the motion the PIP was not in a position to put forward any further information that would indicate that the contractual process is coming to an end, and in that context whether the insolvency process was likely to be successful.
Conclusion
62. In my view there has been material and culpable non-disclosure and in the circumstances I propose making an order setting aside the order made ex parte on 10th February, 2016. In those circumstances there is no need for me to consider further the question whether Danske has proven its debt within the requirements of the Act.
