Court decisions and Personal Insolvency Arrangements
It is now five years since the Personal Insolvency Act (the Act) was signed into law in December 2012. The Act sets out the provisions for Personal Insolvency Arrangements (PIAs) for debtors with both unsecured and secured debt.
During 2014, the first full year that the scheme was available, 199 PIAs were approved. In 2015 and 2016, 619 and 697 PIAs were approved respectively. 400 PIAs were approved in the first half of 2017 but there was a sharp decline in the third quarter with only 132 PIAs approved.
It is surprising how low these figures are bearing in mind that there are currently c. 50,000 private residential mortgages and c. 20,000 buy-to-let mortgages in arrears for over 90 days.
There are currently c. 400 PIAs subject to court review and two recent court decisions, namely the Callaghan and Hayes cases, have brought some clarity for Personal Insolvency Practitioners and Debtors in formulating PIAs.
In May 2017, the High Court delivered judgment in favour of two homeowners, Paula and Colm Callaghan, allowing a significant write-down of their mortgage debt and rejecting a proposal by their lender that the debt should instead be deferred or ‘warehoused’ for future enforcement. Debtors are likely to rely on this judgment in support of write-off over warehousing solutions to personal debt. However, warehousing solutions proposed in appropriate cases which are properly formulated and evidenced can still be successful. Importantly for lenders, the Court found that a warehousing proposal was permissible in principle although not in the particular circumstances of the Callaghan case. Whether warehousing will be allowed in other cases will therefore depend on their individual facts and circumstances.
In November 2017 the decision in the Hayes case illustrated the impact that the Personal Insolvency Act 2012 may have on secondary purchasers of loan portfolios. The Court held that when determining whether any PIA would be unfairly prejudicial to a creditor regard shall be had to the particular financial profile of the creditor. As the creditor in this case was an investment fund, and not an originating lender, the court held that unfair prejudice should be assessed by reference to the return on that creditor’s investment, rather than by reference to its future funding needs.
With c. 400 PIAs currently subject to Court review it may account for the sharp decline in the number of PIAs approved in the third quarter of 2017 so we should expect the number of approved PIAs to increase considerably in the first half of 2018. The Callaghan and Hayes judgements have also established a precedent for enforcing a PIA even after it was rejected by creditors. However, with c. 70,000 buy-to-let and residential mortgages currently in arrears for over 90 days we have a long way to go to help sort out personal debt problems in this country.