The section 115A court review process, introduced with effect from November 2015, permits a debtor to ask the court to review and assess the reasonableness of a Personal Insolvency Arrangement proposal which has been refused by creditors and which includes mortgage arrears on the debtor’s home. During the section 115A court review, the court considers the reasonableness of the refusal using a balanced range of criteria and has power, if satisfied, to impose the proposed personal insolvency arrangement on the dissenting creditor(s). This court based review effectively removes the so called “Bank Veto”.
Since the introduction of the section 115A court review, 78 cases have been approved by the courts in favour of the debtor.
Currently, there are over 500 cases before the courts. A significant High Court judgment in early February addressed two key issues that had become a logjam in the process. Namely, technical issues around the application for a court review and a fear from personal insolvency practitioners that creditors might pursue them for costs in a personal capacity. These issues have now been adequately addressed. The judgment has been positively received by both the Insolvency Service of Ireland and Personal Insolvency Practitioners. Subject to any possible appeal, it is expected the judgment will lead to increased activity in Personal Insolvency Arrangements.
The High Court has published a number of important detailed judgments on the criteria that will be applied by the courts in section 115A review cases, and the types of mortgage arrears resolutions that may be imposed. Those precedents involved the following issues.
- Separated Spouses - a case involving a separated spouse who restructured her mortgage. The Court rejected a claim by the bank that, before any restructure, the bank needed the co-operation of the other joint borrower.
- Rejection of unsustainable warehousing proposal and approval for negative equity write-off - a case where the mortgage lender wanted to warehouse part of a mortgage. The Court ruled that this could not be done unless there is a reasonable prospect of the couple paying back the warehoused amount. The Court, instead, imposed the Personal Insolvency Arrangement which wrote off most of the negative equity.
- Fixing interest rate for the long term - a case concerning a mortgage rate fixed for 27 years. In assessing if this unfairly prejudiced, the financial institution (a fund rather than a bank), the court held that it was appropriate to compare with market investment returns rather than with the interest rates and terms that are available to a bank which also has to raise capital. The Court decided that the Personal Insolvency Arrangement proposal, including the fixed interest rate, was fair and reasonable in this context and was not unfairly prejudicial.
Under Abhaile, the Government’s national Mortgage Arrears Resolution Service, a borrower may apply for legal aid to the Legal Aid Board to seek a court review under section 115A where their proposed Personal Insolvency Arrangement has been rejected by the creditors.