Discharge
Cases
Grace v Ireland & Anor
[2007] IEHC 90 [2007] 2 ILRM 283
Judgment of Miss Justice Laffoy delivered on 7th March, 2007.
Claim
The primary relief claimed, and in the event the only relief pursued, by the plaintiff in these proceedings are declarations that “all or part” of s. 85 of the Bankruptcy Act, 1988 (the Act of 1988) is repugnant to the Constitution and/or incompatible with the European Convention on Human Rights (the Convention). In response to a notice for particulars from the defendants, the plaintiff particularised the nature of his claim as follows:
(a) the part of s. 85 which he alleges is repugnant to the Constitution and incompatible with the Convention is the requirement in sub-s. (4) that all expenses, fees and costs due and also all preferential claims existing must be paid in full as a prerequisite for availing of the twelve years exit from bankruptcy, regardless of the circumstances that gave rise to the bankruptcy, the amount of those sums and how they were incurred, and supervening events;
(b) that Article 40.3.1 and 2 are the constitutional provisions against which it is alleged that s. 85 is repugnant on the basis of the requirement implied in those Articles that legal proceedings be prosecuted and brought to conclusion in a reasonably expeditious manner, bankruptcy being no more than a convenient mode of collective debt recovery; and
(c) that articles 6.1 and 13 of the Convention are the provisions of the Convention against which it is alleged that s. 85 is incompatible, for the same reasons as are stated at (b).
The plaintiff also sought the release, discharge or other termination of his present status as a bankrupt. However, counsel for the plaintiff informed the court that he accepted that that relief could not be an “automatic outcome”. On that basis, my understanding is that that relief was not pursued. In fact, counsel for the plaintiff indicated that he accepted the position as pleaded in paragraph 11 of the defendant’s defence (that this Court does not have jurisdiction to order the release or discharge from, or the termination of the plaintiff’s status as a bankrupt other than in accordance with the appropriate procedure set out in the Act of 1988) is correct.
The foundation of the plaintiff’s claim, as set out in the written submission made on his behalf, is the assertion that s. 85 permits a state of affairs where certain bankrupts, including the plaintiff, can be kept in a state of permanent bankruptcy – those whose liabilities involve substantial preferential debts, being mainly tax liabilities. Such a state of affairs, it was asserted, contravenes the right to a reasonably speedy resolution of legal disputes, to private property, to engage in various political and economic activities and to equality under the Constitution and under the Convention. The plaintiff has not pleaded any infringement of any constitutional or Convention right other than the right to a reasonably speedy resolution of legal disputes.
In broad terms, the defendants defended the proceedings on the basis that the plaintiff has not established any locus standi to present the claim. In any event, s. 85 is neither repugnant to the Constitution nor incompatible with the Convention. Further, it was asserted that the court does not have jurisdiction under the European Convention on Human Rights Act, 2003 (the Act of 2003) to award a declaration of incompatibility on the ground that the alleged cause of action occurred on a date prior to the coming into force of that Act.
The impugned provision
Section 85 of the Act of 1988 deals with discharge from bankruptcy and annulment of adjudication. Sub-section (4) provides as follows:
“A bankrupt whose estate has, in the opinion of the court, been fully realised shall be entitled to a discharge from bankruptcy when provision has been made for payment of the expenses, fees and costs due in the bankruptcy, as well as the preferential payments, and –
(a) his creditors have received fifty pence or more in the pound, or
(b) he and his friends have paid to his creditors such additional sums as would together with the dividend paid make up fifty pence in the pound, or
(c) the bankruptcy has subsisted for twelve years:
provided that in any application under paragraph (c) the court shall be satisfied that all after acquired property has been disclosed and that it is reasonable and proper to grant the application.”
The plaintiff’s challenge to that provision is grounded on the circumstance provided for in paragraph (c), that the bankruptcy has subsisted for twelve years. In that circumstance, the bankrupt is entitled to a discharge where –
(i) the court is of opinion that the bankrupt’s estate has been fully realised, which is a pre-condition to an entitlement to discharge arising,
(ii) provision has been made for payment of the expenses, fees and costs due in the bankruptcy, as well as the preferential payments,
(iii) the court is satisfied that all after acquired property has been disclosed, and
(iv) it is reasonable and proper to do so.
In summary, the plaintiff’s case is that, as regards circumstance (c), the requirement at (ii) should not apply.
As regards bankruptcies where the order of adjudication was made after 1st January, 1960, the scheme of s. 85 is to give the bankrupt an entitlement to be discharged in the circumstances and subject to satisfaction of the conditions set out in sub-s. (3) and in sub-s. (4), which I have just quoted. Sub-section (3) outlines two situations in which a bankrupt is entitled to be discharged. The first is where provision has been made for the payment of the expenses, fees and costs due in the bankruptcy, as well as the preferential payments, and the bankrupt has either paid his creditors in full with such interest as the court may allow or has obtained the consent of all of his creditors. The second situation is where the court discharges the adjudication order under s. 41 so as to give effect to a composition with his creditors which has been approved under the provisions of ss. 38 to 41 inclusive. It is the bankrupt who must initiate and follow through on the composition procedure provided for. It is the bankrupt who must initiate the process to obtain a discharge where either sub-s. (3) or sub-s. (4) of s. 85 apply (sub-s. (7) of s. 85).
The facts
The plaintiff, who was apparently a sole trader, was adjudicated a bankrupt by order of this Court made on 11th March, 1991 on foot of a petition presented by Thomas F. Mulherin, Collector General, on 22nd November, 1990 in which it was asserted that the plaintiff was indebted in the sum of IR580,759.69 in respect of arrears of income tax (Pay As You Earn), pay-related social insurance contributions, Value Added Tax and interest thereon and also a High Court judgment dated 4th October, 1989 and interest thereon. These proceedings were initiated on 3rd December, 2004, more than twelve years after the date of adjudication.
The Official Assignee is not a party to these proceedings. The only evidence tendered to the court on behalf of the plaintiff was the evidence of his wife, Ann Grace. The only evidence tendered on behalf of the State was the evidence of Bill Holohan, solicitor, who had acted for the Official Assignee in the bankruptcy proceedings.
A feature of this case which is a cause for concern is that, with their replies to a notice for particulars dated 12th April, 2005, the plaintiff’s solicitors furnished to the Chief State Solicitor a medical certificate dated 30th March, 2005 issued by the plaintiff’s general practitioner, Dr. Brendan Thornton. In the certificate, Dr. Thornton gave the plaintiff’s date of birth as 20th January, 1933. He certified that the plaintiff was suffering “from a progressive dementia whose onset was several years ago”. He stated that the plaintiff was then currently on medication specifically for the management of dementia. He had had a significant level of deteriorating mental function dating back from the previous four or five years. He was then currently incapable of caring for himself and he was certainly not capable of earning an independent living. All activities of daily living required either help or supervision. He was then attending a Dementia Centre in Limerick City. In a further certificate put before the court, which was dated 13th November, 2006, Dr. Thornton certified that the plaintiff had severe dementia and was functionally dependent for all activities of daily living. He further certified that he was in no fit state to attend court or be a witness.
Mrs. Grace’s evidence was that the plaintiff was diagnosed with dementia in June, 2003. This was not disputed at the hearing. Mr. Holohan interviewed the plaintiff on behalf of the Official Assignee in June, 2003. The interview was not productive. A view was formed that an examination by the court would not elicit any further information. Mr. Holohan’s evidence was that the view at the time was that either the plaintiff was genuinely forgetful or had consigned the events to the past, but there was nothing to indicate mental deficiency.
The aspect of all of this which causes concern is that a question mark must hang over the competence of the plaintiff to give instructions for the prosecution of these proceedings, probably at the time they were initiated and certainly from March, 2005. Notwithstanding that, the claim was prosecuted in his name and defended. It would appear that the proceedings are not properly constituted having regard to Order 15 of the Rules of the Superior Courts, 1986.
I found Mrs. Grace to be an impressive, and despite the conflict of interest referred to below, a reliable witness. However, she had only second hand knowledge of some of the factual matters which arose and she had no knowledge at all of other factual matters. Apart from that, the evidence disclosed a fundamental conflict of interest between Mrs. Grace, on the one hand, and the plaintiff and the Official Assignee, on the other hand, and it is a conflict which would preclude Mrs. Grace from acting as the plaintiff’s next friend. While counsel for the plaintiff conceded at the hearing that the facts surrounding that conflict are irrelevant to the plaintiff’s case, in my view, it is not something the court can ignore against the background of the admitted evidence of the plaintiff’s medical condition. Prior to his bankruptcy, in 1988, the plaintiff had transferred his dwelling house and 80-acre farm to Mrs. Grace and his daughter. In 1992 the Official Assignee instituted proceedings against Mrs. Grace and the plaintiff’s daughter, as I understand it, to set aside that transfer. Those proceedings have not been prosecuted to completion. Counsel for the plaintiff made the concession that those facts were not relevant in the context of an objection on behalf of the defendants that the conduct of the Official Assignee was not in issue and had not been pleaded. Obviously, that being the position and the Official Assignee not being a party to these proceedings, it would be improper to draw any inference from those facts as to why the proceedings were not prosecuted to completion and none is drawn. However, the precondition to entitlement to a discharge under s. 85(4) that the estate of the bankrupt has been fully realised, allied to the absence of the Official Assignee from the proceedings and to the conflicted position of the only witness in support of the plaintiff’s case, raises the question whether there is any evidence on which the court can conclude that the precondition is complied with, the onus being on the plaintiff to adduce such evidence. I will return to this question when dealing with the issue of locus standi and mootness because I consider it to be relevant to those issues.
The evidence which was regarded as relevant was evidence in relation to four actions in this Court which the plaintiff had initiated before he was adjudicated a bankrupt. The actions in question and the evidence adduced in relation to them were as follows:
(1) Proceedings by the plaintiff against Independent Star Limited and Others (Record No. 1990 No. 3720 P), being proceedings for libel arising out of articles published in the Star newspaper about the plaintiff in 1988. It is common case that this cause of action did not vest in the Official Assignee and that the plaintiff was entitled to prosecute it outside the bankruptcy proceedings. Mrs. Grace’sevidence was that the case was settled in 1993 for IR£20,000, but that it was settled without the plaintiff’s permission, which had ramifications to which I will return later. The evidence of Mr. Holohan was that he was informed by the solicitors on record for the defendants, Dillon Eustace, Solicitors, that the matter had been settled in 1993 for IR£30,000 together with legal costs.
(2) Proceedings by the plaintiff against Radio Telefis Éireann (Record No. 1990 No. 467 P), being proceedings for libel arising out of the broadcast by the defendant of material in relation to a newspaper article which was the subject of the proceedings at (1). It is common case that these proceedings have not been prosecuted to completion. Mrs. Grace’s evidence was that a decision was made in December, 2004, I am not clear by whom, that there was no point in proceeding. Mr. Holohan’s evidence, as a result of a contact he had with the solicitor who acted for the plaintiff in the proceedings, was that they “withered on the vine”.
(3) Proceedings by the plaintiff against Comhlucht na hÉireann um Arachas Cpt (Record No. 1990 No. 5910 P). In these proceedings the plaintiff was claiming damages for breach of contract and negligence arising out of alleged mismanagement by the defendant of the Town Hall Shopping Centre in Rathmines where the plaintiff ran a restaurant business between 1978 to 1989. Prima facie this cause of action would have vested in the Official Assignee. There is no evidence of any formal arrangement between the Official Assignee and the plaintiff in relation to it. However, like the proceedings referred to at (2) above, Mr. Holohan’s understanding from the solicitor who acted for the plaintiff in the proceedings was that they “withered on the vine”. Mr. Holohan further testified that these proceedings were investigated and the conclusion was that they were not viable.
(4) Proceedings by the plaintiff against Michael Cronin, practising under the style of Cronin & Company, Accountants, (1990 No. 17385 P). In these proceedings the plaintiff claimed damages for breach of contract and negligence against the accountant who handled his revenue affairs in the years between 1986 and 1989 in which he alleged that his indebtedness to the Revenue Commissioners was due to mishandling of his tax affairs by the defendant. By an assignment dated 10th March, 1992 the Official Assignee assigned the right of action to the plaintiff on the conditions set out in the agreement. Mrs. Grace disavowed any knowledge of the conduct or outcome of these proceedings. However, the evidence of Mr. Holohan was that the proceedings were dismissed in late 2004 for want of prosecution. I understand from Mr. Holohan’s evidence that the viability of these proceedings was assessed and that, while the conclusion was that there was some substance in the action, it was dependent on the evidence of the plaintiff which would not be forthcoming because of his medical condition.
Mrs. Grace testified that, as a result of the settlement of the libel action against Independent Star Limited and Others referred to at (1) above, the plaintiff initiated proceedings against the solicitor who acted for him in those proceedings some time in 1994 or 1995. The proceedings were settled in June, 2000 for IR£100,000 and the plaintiff did not have to pay any costs out of the settlement. Mr. Holohan testified that the Official Assignee was unaware of these proceedings or their outcome until Mrs. Grace testified in court in these proceedings. Mrs. Grace gave evidence of the disbursement of the sum of IR£100,000 by her on the plaintiff’s instructions. Apart from paying for a medical procedure, a cataract operation, which the plaintiff underwent, all of the monies were distributed to family members, Mrs. Grace, a daughter and two sons, in varying amounts.
The only preferential claims of which the court has evidence are claims aggregating €75,632.51 in respect of PAYE/PRSI, VAT and income tax, as claimed in a letter of 2nd June, 2005 from the office of the Collector General to the Official Assignee. No evidence was adduced as to the expenses, fees and costs due in the bankruptcy.
There was correspondence between the plaintiff’s solicitors and the Official Assignee in 1998 which indicates that, in the context of the proceedings against Michael Cronin referred to at (4) above, the plaintiff was then contemplating a composition with his creditors and again in 2001 and 2002, but nothing came of the correspondence or the proposal which was in contemplation.
Mrs. Grace accepted that after his adjudication, the plaintiff did not seek gainful employment for his own personal reasons, rather than because of any legal constraint. She was unable to say whether after to 1998 he was seeking a discharge, as opposed to a composition, because the subject of his bankruptcy and his dealings with the Official Assignee was a very fraught one, which, she implied, she was not eager to confront. In response to a question put to her in cross-examination, Mrs. Grace stated that the reason the plaintiff did not go through with the composition which was mooted in 1998 was probably due to the state of his mind.
What emerges from the evidence is that, on the basis of the information furnished in the letter of 2nd June, 2005 from the Collector General to the Official Assignee, is that the plaintiff’s preferential revenue debts amount to €75,632.51, whereas his non-preferential debts in respect of PAYE/PRSI, VAT and income tax amount to €1,001,169.50. While no finding can be made as to his ability prior to the institution of these proceedings to pay the preferential debts and the expenses, fees and costs of the bankruptcy, the latter not having been quantified, the fact is that following his adjudication the plaintiff he received either IR£120,000 (€152,368.57) or IR£130,000 (€165,065.95) from the settlement of two legal actions which he prosecuted. I will consider the relevance of this evidence in the context of the defence of locus standi raised by the defendants.
Before doing so or considering the substantive issues, however, I propose considering the authorities relied on by counsel for the plaintiff. While that may seem like “putting the cart before the horse”, I believe it is an approach which gives a useful perspective on the gravamen of the plaintiff’s case.
The authorities
In the context of his invocation of article 6 of the Convention, counsel for the plaintiff referred to four authorities of the European Court of Human Rights (ECHR). Article 6.1 of the Convention, insofar as it is relevant for present purposes, provides:
“In the determination of his civil rights and obligations or of any criminal charge against him, everyone is entitle to a fair and public hearing within a reasonable time by an independent and partial tribunal established by law …”
The first of the authorities referred to by counsel for the plaintiff was Luordo v. Italy [2003] ECHR 372. Counsel stated that he was relying on this decision only for the purpose of illustrating that bankruptcy proceedings are civil proceedings for the purposes of the Convention. The basis on which article 6.1 was invoked in that case was that during the bankruptcy, which lasted for fourteen years and eight months, under the Italian Bankruptcy Code the bankrupt’s legal proceedings concerning disputes over property issues arising in respect of assets forming part of the bankrupt estate were to be taken or defended by the trustee in bankruptcy and the bankrupt was precluded from intervening in such proceedings save insofar as they concerned an allegation of criminal bankruptcy or if permitted by law. The ECHR held that there had been an infringement of Article 1 of Protocol No. 1, which secures the right to peaceful enjoyment of possessions (para. 71). In relation to the article 6.1 argument it found that the restrictions on the applicant’s ability to take legal proceedings concerned disputes or issues of a pecuniary nature, so that the civil limb of article 6 was applicable (para. 84). Having stated that the “right to a court” is not absolute, the ECHR stated as follows at paras. 86 and 87:
“86. The Court considers that the purpose of the restriction on the applicant’s capacity to take legal proceedings is to assign the role of representing the bankrupt in Court in respect of issues arising over the bankrupt’s pecuniary rights to the trustee in bankruptcy as, once the bankruptcy order has been lodged, he is responsible for the administration of the bankrupt’s assets. Indeed, it is self-evident in the Court’s view that disputes over such matters may have major repercussions on the assets and liabilities of the bankrupt estate. The Court consequently finds that the restriction is intended to protect the rights and interests of others, namely those of the bankrupt’s creditors. The court must go on to examine whether the consequences suffered by the applicant were proportionate to the legitimate aim pursued.
87. The restriction on the applicant’s right of access to a court is not in itself open to criticism. However, the risk with such a system is that it may unreasonably limit the right of access to a court, particularly if the proceedings are protracted as they were in the instant case in which they lasted fourteen years and eight months. In that connection, referring to its findings with respect to Article 1 of Protocol No. 1, the Court considers that, contrary to what the Government have affirmed, the delays in the proceedings were not attributable to the failure of the attempts to sell the applicant’s house at auction or to the applicant’s conduct.
Consequently, it finds that there was no justification for restricting the applicant’s right of access to a court for the full duration of the proceedings, since while in principle a restriction on the right to take legal proceedings is necessary to achieve the aim pursued, the necessity will diminish with the passage of time. In the court’s view, the length of the proceedings thus upset the balance that had to be struck between the general interest in securing the payment of the bankrupt’s creditors and the applicant’s personal interest in having access to a court. The interference with the applicant’s right was accordingly disproportionate to the aim pursued.”
Accordingly, the court held that there had been an infringement of the right of access to a court as guaranteed by article 6.1.
By contrast to the bankrupt in the Luordo case, after his adjudication the plaintiff was entitled to prosecute proceedings against Michael Cronin on foot of the assignment of the cause of action by the Official Assignee to him. He had the right under ss. 38 to 41 of the Act of 1988 to enter into a composition with his creditors and it is clear on the evidence that he contemplated that initiative, and he also had the right to invoke the discharge provisions contained in s. 85. Under the Act of 1988 he was the driver of all those initiatives, not the Official Assignee or any other organ or agent of the State.
The second authority relied on by counsel for the plaintiff was Tierce v. San Marino [2003] ECHR 304. The article 6.1 issue in that case was the applicant’s contention that the length of the proceedings seeking termination of her lease and an eviction order against her for non-payment of rent (from commencement in March, 1993 to the decision on her appeal in October, 2001) had infringed the reasonable time principle enshrined in article 6.1. The ECHR reiterated the jurisprudence on the reasonable time principle (at para. 30) as follows:
“The Court reiterates that the reasonableness of the length of proceedings must be assessed in the light of the circumstances of the case and having regard to the criteria laid down in its case law, in particular the complexity of the case, the conduct of the applicant and of the relevant authorities and what is at stake for the applicant in the litigation …”
The court concluded that the length of the proceedings, which lasted for approximately eight years and nine months, was mainly due to the complexity of San Marino litigation procedure. It found that there had been a violation of article 6.1.
The next decision relied on, Davies v. United Kingdom [2006] 2 B.C.L.C. 351, concerned disqualification proceedings brought by the Secretary of State for Trade and Industry against the director of a group of companies (the Blackspur Group), which had gone into liquidation owing an estimated £34 million. The proceedings were commenced in July, 1992 and terminated in January, 1998 on the basis of a settlement under which the applicant agreed to pay the Secretary of State’s costs. Having stated that the reasonableness of the length of proceedings is to be assessed in the light of the circumstances of the case, having regard in particular to its complexity and the conduct of the parties to the dispute and of the relevant authorities, the ECHR continued (at para. 26) as follows:
“In the present case the court must also bear in mind that, given that the applicant was a company director and that disqualification proceedings would have had considerable impact on his reputation and his ability to practise his profession, special diligence was called for in bringing the proceedings to an end expeditiously …”
On the facts, the court found that the United Kingdom was responsible for the greater part of the delay. It considered that the proceedings against the applicant were not pursued with the diligence required by article 6.1 and that there had been a violation of that provision, in that his civil rights and obligations were not determined within a reasonable time.
The fourth authority relied on by counsel for the plaintiff, Eastway v. United Kingdom [2006] 2 B.C.L.C. 361, concerned an application for disqualification of another director of the Blackspur Group. The ECHR applied its decision in the Davies case.
Counsel for the plaintiff did not cite any authority to support the plea that there has been an infringement of article 13 of the Convention, nor did he cite any authority in support of his contention that the section 85(4) is repugnant to the Constitution. However, the basis on which Article 40.3 was invoked was that it guarantees a right to a speedy trial in the same way as the Convention guarantees such right. In other words, the plaintiff did not develop that constitutional argument independently of the argument based on article 6.1 beyond the position taken in the reply to the notice for particular referred to earlier.
As the main focus of the plaintiff’s submissions was on the Convention and the jurisprudence of the ECHR, rather than on the Constitution, I propose considering the case made on incompatibility with the Convention first. There was no debate before the court as to whether it is appropriate for the court to consider Convention issues or constitutional issues first.
Non-retrospectivity of the Act of 2003
It was submitted on behalf of the defendants that the decision of the Supreme Court in Dublin Corporation v. Fennell [2005] 2 I.L.R.M. 288 makes it clear that the Act of 2003 is not retrospective and that no declaration of incompatibility may be granted in proceedings in respect of an act which took place prior to the coming into operation of that Act. The defendants’ contention that the court has been asked to apply the Act retrospectively is based on an analysis which points to the commencement of the bankruptcy process in 1990 and the plaintiff’s adjudication in 1991, from which the legal disabilities of which the plaintiff now complains flowed, as being the events by reference to which the court should assess whether the invocation by the plaintiff of the Act of 2003 has a retrospective or a prospective effect.
I have no doubt that, if the plaintiff in these proceedings was seeking to challenge the validity of his adjudication as a bankrupt in reliance on the provisions of the Convention and the Act of 2003, he would not be entitled to do so. That situation would be entirely analogous to the situation which arose in the Fennell case where, on an appeal to the Circuit Court against an order of the District Court granting Dublin City Council possession of premises on foot of a notice to quit served pursuant to s. 62 of the Housing Act, 1966, both the notice to quit and the order of the District Court having preceded the coming into operation of the Act of 2003, Mrs. Fennell sought to invoke the provisions of the Act of 2003 and, in particular, ss. 2 and 3 thereof. Kearns J., with whom the other judges of the Supreme Court agreed, having examined the texts and authorities on the issue of retrospectivity of statutes, concluded (at p. 318) that the Act of 2003 cannot be seen as having retrospective effect or as affecting past events. He also concluded that, although the appeal to the Circuit Court was prospective in the sense that it still had to be heard, the provisions of the Act of 2003 could not be invoked on the hearing of the appeal, stating as follows at p. 319:
“The parties’ legal rights and obligations were, in my view, fixed and determined once the wheel was set in motion by the service of a notice to quit, an act which triggered the provisions, requirements and consequences of s. 62 of the Housing Act, 1966. That is the moment when the invocation of legal rights determined the applicable law and the position of the parties. The requirement to protect the respective positions of the parties thereafter is all the greater in a situation where vested rights are involved and where changes proposed by the 2003 Act are agreed to be substantive rather than procedural.”
The position here, however, is that the plaintiff is not challenging his adjudication. What he is challenging is the requirement in s. 85(4) of the Act of 1988 that his discharge from bankruptcy is dependent on provision having been made for the payment of the expenses, fees and costs during the bankruptcy, as well as the preferential payments as it currently applies to him. It is in respect of that requirement, as it impacts on him at this point in time, that he seeks a declaration of incompatibility with the State’s obligations under the Convention pursuant to s. 5 of the Act of 2003.
Section 5 was not in issue in the Fennell case. In determining whether, if the plaintiff was entitled to a declaration of incompatibility, the declaration would have retroactive effect, it is necessary to consider the effect of such a declaration. Sub-section (2) of s. 5 provides that a declaration of incompatibility shall not affect the validity, continuing operation or enforcement of the relevant statutory provision, nor does it preclude the making of representations in proceedings before the ECHR. Sub-section (3) provides that the Taoiseach shall cause a copy of any order containing a declaration of incompatibility to be laid before each House of the Oireachtas within the time span stipulated. Sub-sections (4) and (5) provide for the payment of ex gratia compensation to a party to the proceedings in which the declaration is made in respect of injury or loss or damage suffered by him or her as a result of the incompatibility.
If the plaintiff could establish that the impugned requirement in s. 85(4) is incompatible with the State’s obligation under the Convention, the declaration would only operate prospectively to require the Taoiseach to comply with sub-s. (3) of s. 5 and to entitle the plaintiff to pursue a claim for an ex gratia payment of compensation under sub-ss. (4) and (5). The declaration would not affect any legal rights and obligations of the plaintiff or any other party. For instance, the declaration would not disentitle the Official Assignee to the payment of the expenses, fees and costs due in the bankruptcy, nor would it disentitle the Revenue Commissioners to the preferential payments due. Accordingly, in my view, the making of a declaration of incompatibility would not have a retroactive effect and the plaintiff is not barred from pursuing it.
The claim for a declaration of incompatibility
The plaintiff’s claim for a declaration of incompatibility in reliance on article 6.1 of the Convention is utterly misconceived.
The plaintiff’s case is not that his “right to a court”, in the sense in which that expression was used by the ECHR in the Luordo case, has been infringed. His case is that the continuance of the bankruptcy proceedings, and his status as a bankrupt, infringes the reasonable time principle enshrined in article 6.1, to use the terminology which the ECHR used in the Tierce case. The State’s obligation in relation to the reasonable time principle is to ensure that the civil process is brought to a conclusion by a judgment within a reasonable time. The State’s obligation is explained in the following passage from Jacobs and White on The European Convention on Human Rights (Oxford University Press), 4th Edition, commencing at p. 187:
“The object of the provision in article 6(1) is to protect the individual concerned from living too long under the stress of uncertainty and, more generally, to ensure that justice is administered without delays which might jeopardise its effectiveness and credibility.
In civil cases there is usually no problem in deciding when the period to be taken into consideration commenced: this is usually the date on which proceedings were initiated, for example by the issuing of a summons or writ. … The period to be taken into consideration lasts until the final determination of the case, and therefore includes appeal or cassation proceedings, proceedings to assess damages or sentence, and enforcement proceedings. The State can be held responsible only for delays which are attributable to it; if the parties to the litigation or the defendant in a criminal case have caused or contributed to the delay, those periods are not taken into account.
The reasonableness of the length of proceedings is assessed in the light of all the circumstances of the case, having regard in particular to the complexity of the issues before the national courts, the conduct of the parties to the dispute and of the relevant authorities, and what was at stake for the applicant.”
The plaintiff’s case is not that the bankruptcy process has been unduly protracted because of dilatoriness on the part of organs or agents of the State, for example, this Court, the Official Assignee, the Revenue Commissioners in proving their claim and so forth. The plaintiff’s case is that on the expiration of twelve years from adjudication a bankrupt should be discharged from bankruptcy without being required to pay the expenses, fees and costs of the bankruptcy and the preferential payments. Such a case, which involves substantial interference with the rights of third parties, is not a case which can be advanced on the basis of the reasonable time principle enshrined in article 6.1.
It may be that, because of the requirement to discharge expenses and preferential payments as a precondition to being discharged from bankruptcy, the plaintiff has no prospect of being discharged and will remain a bankrupt for the remainder of his life unless, as counsel for the plaintiff put it, he wins the lottery. However, that circumstance does not render the requirement contained in s. 85(4) incompatible with article 6.1 of the Convention.
Although the plaintiff invoked article 13 of the Convention, no case was advanced on the basis of article 13.
Locus Standi
The rule in relation to locus standi in challenging the constitutionality of a statutory provision was summarised by Henchy J. in his judgment in Cahill v. Sutton [1980] I.R. 269 (at p. 286) as follows:
“The primary rule as to standing in constitutional matters is that the person challenging the constitutionality of the statute, or some other person for whom he is deemed by the court to be entitled to speak, must be able to assert that, because of the alleged unconstitutionality, his or that other person’s interests have been adversely affected, or stand in real or imminent danger of being adversely affected, by the operation of the statute.”
Applying that test, the Supreme Court held that the plaintiff, Ms. Cahill, was disentitled to raise the allegation of unconstitutionality of s. 11(2)(b) of the Statute of Limitations, 1957, which provides that an action claiming damages for breach of contractual duty, in which the damages claimed consist of or include damages for personal injuries, shall not be brought after the expiration of three years from the date of accrual of the cause of the action. The breach of contract alleged by Ms. Cahill occurred in March, 1968. Her proceedings commenced on 11th April, 1972, outside the limitation period. The basis of her contention that s. 11(2)(b) was invalid having regard to the provisions of the Constitution was the absence of any saver to the time bar which would be applicable to a situation where the would-be plaintiff did not know, and could not possibly have known, of the accrual of the right of action within the permitted period (cf. judgment of O’Higgins C.J. at p. 276). However, the factual position was that Ms. Cahill became aware of the breach of contract in 1968. On the basis of those facts Henchy J. stated (at p. 286):
“Even if the Act of 1957 contained the saving clause whose absence is said to amount to an unconstitutionality, she would still be barred by the statute from suing. So the alleged unconstitutionality cannot affect her adversely, nor can it affect anybody whose alter ego or surrogate she could be said to be. As to such other persons, although the statute was passed in 1957, the plaintiff is unable to instance any person who has been precluded from suing for damages because of the absence from the statute of the saving clause for which she contends. Therefore, her case has the insubstantiality of a pure hypothesis. While it is true that she herself would benefit, in a tangential or oblique way, from a declaration of unconstitutionality, in that the consequential statutory vacuum would enable her to sue, that is an immaterial consideration in view of her failure to meet the threshold qualification of being in a position to argue, personally or vicariously, a live issue of prejudice in the sense indicated.”
In applying the primary rule as to locus standi, as enunciated by Henchy J. in Cahill v. Sutton, to this case the question which arises is whether the plaintiff can assert that his interest has been adversely affected by the requirement in s. 85(4) that provision be made for the expenses, fees and costs during the bankruptcy, as well as preferential payments, before his entitlement to a discharge arises on the basis that the bankruptcy has subsisted for twelve years. It seems to me that the answer to that question depends upon whether he has established that, if that requirement were excised, he would be entitled to a discharge. While the plaintiff’s bankruptcy has subsisted for in excess of twelve years, there are other conditions to be complied with before an entitlement to a discharge would arise. I have already adverted to the fact that one condition, the precondition that the plaintiff’s estate has been fully realised, is of relevance in the context of mootness. I consider that, irrespective of the views of the parties that the conduct of the Official Assignee in prosecuting the proceedings to set aside the transfer by the plaintiff of his house and farm to Mrs. Grace and his daughter is irrelevant, the pendency of those proceedings is of relevance to the issue of the plaintiff’s locus standi, because their mere existence, prima facie, excludes the conclusion that the plaintiff’s estate has been fully realised. The plaintiff, on whom the burden of showing that he has standing rests, has not discharged the onus of establishing that a precondition to his entitlement to a discharge has arisen. Therefore, to adopt the words of Henchy J. in Cahill v. Sutton, his case “has the insubstantiality of a pure hypothesis”.
As well as relying on the rule as to locus standi as enunciated in Cahill v. Sutton, the defendants also submitted that the plaintiff lacks standing to challenge the constitutionality of s. 85(4) because he has not pursued all avenues open to him to secure his discharge from bankruptcy, by analogy to the position adopted by O’Hanlon J. in E. v. E. [1982] I.L.R.M. 497 and the implicit acceptance of the principle of exhaustion of other remedies by Barrington J. in Brennan v. Attorney General [1983] I.L.R.M. 449. In my view, there is substance in that submission. The proceeds of the two actions which the plaintiff settled could have been utilised in an attempt to procure a composition with his creditors. The Official Assignee’s proceedings to set aside the transfer of the house and farm could have been pressed with a view to procuring a discharge under s. 85(4) and to this end he could have sought the assistance of the court pursuant to s. 61(7) of the Act of 1988. Against that background, the plaintiff’s constitutional challenge, viewed objectively, seems to be particularly unmeritorious. If this Court were to entertain the plaintiff’s challenge, thereby allowing the plaintiff to by-pass remedies available under the Act of 1988 to enable a bankrupt to procure his discharge, I have no doubt that, to adopt the words of O’Higgins C.J. in Cahill v. Sutton (at p. 277) “it would result in a jurisdiction which ought to be prized as the citizen’s shield and protection becoming debased and devalued”.
It was also submitted on behalf of the defendants that, insofar as the plaintiff seeks to rely on particular legal consequences flowing from bankruptcy, such as his inability to set up a building society or stand for election to the European Parliament, the plaintiff has not established any evidential basis that these restrictions have a detrimental impact on his personal situation. That is so, as far as it goes. However, it is peripheral to the core issue on standing, which is whether the requirement in s. 85(4) of payment of the expenses and preferential debts constitutes a live issue of prejudice to the plaintiff’s interest. As I have found, it does not because, absent such requirement, as things stand the plaintiff could not procure his discharge.
For the foregoing reasons, I have come to the conclusion that the plaintiff does not have locus standi to challenge the constitutionality of s. 85(4).
Even if he had locus standi, I consider that the plaintiff’s invocation of Article 40.3 and his contention that the impugned statutory provision is an infringement of an implied requirement that legal proceedings be prosecuted and brought to a conclusion in a reasonably expeditious manner is as misconceived as his case founded on article 6.1 of the Convention.
Inequality
As I understand it, the inequality contended for on behalf of the plaintiff was inequality between the position of an undischarged bankrupt, who may be consigned to a perpetual state of bankruptcy because of inability to pay a preferential claim of the Revenue Commissioners, and the position of the Revenue Commissioners the payment of whose preferential debt is necessary to procure a discharge from bankruptcy, which was characterised as exceptional discrimination in their favour. The comment made on behalf of the defendants on that argument was that it appears to involve no more than an assertion of disequilibrium as between the individual citizen and the revenue authorities, which is not in any way constructed into or related to any legal claim of infringement of the equality guarantee contained in the Constitution. In my view, that comment is justified. The plaintiff’s argument, which I must emphasise is wholly unconnected to the plaintiff’s case as pleaded, does not advance the plaintiff’s constitutional challenge or his assertion of incompatibility with the Convention.
In the circumstances it is neither necessary nor appropriate to express any view on the submission made on behalf of the defendants that the question whether a bankrupt who has failed to discharge certain debts and expenses should be released from the status of bankrupt after a particular period is a matter of policy for the Oireachtas and the policy should not be second-guessed by the courts.
Order
There will be an order dismissing the plaintiff’s claim.
Gill v. O’ Reilly and Co. Ltd. & Ors
[2003] IESC 202 (5 February 2003)
URL: http://www.bailii.org/ie/cases/IESC/2003/202.html JUDGMENT delivered on the 5th day of February, 2003, by FENNELLY J.
The appellant is a litigant in person. He was adjudicated a bankrupt in 1995. In 2001, he applied to the High Court to annul the order of 1995, which adjudicated him a bankrupt. McCracken J rejected his application. He has appealed to this Court.
The Bankruptcy Act, 1988 codified the law of bankruptcy in Ireland. Section 11 of that act lays down the procedure for adjudicating a person bankrupt. A creditor is entitled to present a petition to the High Court proving that a debt, in the form of a liquidated sum, of at least £1,500 is owing to him by a debtor domiciled in the State.
The appellant was adjudicated a bankrupt on 28th July 1995 on the Petition of Philip O’Reilly and Company Limited. (hereinafter called “the Petitioner”). Section 16 of the act allows a bankrupt, within three days (or such extended time as the Court allows) after service of the order of adjudication on him, to show cause to the Court against the validity of the adjudication.
The history of the matter, as set out in the judgment of McCracken J, is not in controversy and is as follows:
“Background to the Bankruptcy
The Bankrupt is a building contractor carrying on business at Newmarket-on-Fergus in County Clare and on 23rd July, 1993 the Petitioner obtained judgment against him in the Circuit Court in the sum £8,523.90 together with interest at Courts Act rates from 1st January, 1994 to 14th March, 1994 and costs, which total sum under the judgment amounted to £10, 935.86. The Bankrupt made two payments to the Petitioner subsequent to the judgment on 18th March, 1994 and 18th July, 1994 amounting in all to over £2, 000.
The Petitioner then issued a bankruptcy petition which is dated 26th July, 1994 but was not in fact filed until 21st October, 1994 and which was presented to the Court on 21st November, 1994. The petition claims that the Bankrupt committed an act of Bankruptcy in that.–
`The said John Gill has failed to pay to your Petitioner Philip O’Reilly and Company Limited the said sum of £8, 935.86 due as aforesaid and has failed to secure or compound for the same to the satisfaction of your Petitioner Philip O’Reilly and Company Limited following service upon the said John Gill on the 11th July, 1994 of a bankruptcy summons issued under seal of the High Court as your Petitioner has been informed and believes’
This petition was supported by an Affidavit of a Director of the Petitioner sworn on 12th August, 1994 which averred that the Bankrupt was and still is indebted to the Petitioner in the sum of £8, 935.86. This Affidavit is supported in the normal way by a schedule setting out the original sums due under the judgment and the payments made by the Bankrupt and further stating:
‘Neither your Petitioner, the said Philip O’Reilly and Company Limited nor any person or persons on its behalf hold or have ever held a bond, bill of exchange, promissory note or security for the debt referred to in the first schedule hereto. ‘
The matter was adjourned before the Bankruptcy Court on a number of occasions following the presentation of the petition on 21st November, 1994, and the Petitioner made eight further payments between that date and June 1995 amounting in all to £5, 000. The matter finally came before the Court on 28th July, 1995 when the Bankrupt was adjudicated. At that date there was a balance due to the Petitioner of £3,935.86
Following his adjudication, the Bankrupt filed a statement of affairs dated 31st October, 1995 in which oddly enough he did not list the Petitioner as a Creditor, but listed two unsecured Creditors namely, Clune Lynch Accountants at £2,400 and the Collector General at an estimated £8, 000. He also listed as a secured Creditor the Bank of Ireland for a sum just in excess of £100, 000 “.
Under section 44 of the act,
“subject to the provisions of this Act, all property belonging to [the bankrupt] shall on the date of the adjudication vest in the Official Assignee for the benefit of the creditors of the bankrupt. “
As provided by section 61 of the act,
“the functions of the Official Assignee are to get in and realise the property, to ascertain the debts and liabilities and to distribute the assets in accordance with the provisions of [the] act. “
By a Notice of Motion issued on 8th October 2001, the bankrupt applied to the High Court for:
“Liberty to enter the Defendant’s application against the decision to adjudicate the Defendant Bankrupt by the Adjudicator in the herein bankruptcy matter dated 28th July 1995, which the Petition was entered and duly lodged by the Petitioner on or about 14th of March 1994… “
McCracken J decided to treat this Notice of Motion as an application under section 85(5) of the Bankruptcy Act, 1988 for an order annulling his adjudication on the basis that he should never have been adjudicated a bankrupt. Section 85(5) provides as follows:
“(5) A person shall be entitled to an annulment of his adjudication –
(a) Where he has shown cause pursuant to Section 16, or
(b) In any other case where, the opinion of the Court, he ought not to have been Bankrupt”.
It will be noted that the appellant had never sought to show cause against his adjudication.
McCracken J also dealt with certain debts in the bankruptcy, but there has been no appeal against his order in respect of these matters.
It appears that the appellant argued in the High Court that the evidence presented to the Court on the date of his adjudication was incorrect, going so far, indeed, as to claim that the affidavit used was perjured. This contention was based on the failure to adjust for the payments which were made against the debt due to the Petitioner over the period from the original presentation of the Petition in March 1994 up to 28th July 1995. This was, of course, entirely misconceived and McCracken J correctly pointed out that the grounding affidavit was correct at the time when it was sworn. Furthermore, and more crucially, the Petitioner’s solicitors’ letter from their Town Agent of 17th July 1995 records that counsel informed the Court on that day that the amount then outstanding was £3,902.44. Although the Petitioner wished to proceed with the Petition, the judge allowed one further adjournment to 28th July 1995. All these adjournments were, of course, in ease of the appellant, to enable him to reduce the debt. For the purposes of the Petition, it was enough that he owed £1,500, a fact which the appellant does not contest.
The appellant went on to argue in the High Court that the Petitioners had security for the debt. McCracken J referred to some correspondence cited by the appellant in purported support of this argument. It is quite clear that, as McCracken J correctly held, there was no such security. At the most, the appellant was trying to buy time over a number of years and to persuade the Petitioners that the money due to them would be forthcoming. None of this, as McCracken J correctly held, had any impact upon the liability for the outstanding debt due on the date of adjudication.
McCracken J, having considered the merits of the application, held that he should not entertain it, in any event, because of the delay by the appellant of more than five years in bringing the application. He pointed out that:
“During that time the Bankrupt has been in communication with the Official Assignee’s office regularly both personally and through his solicitor and never raised the complaints which he now makes. When he was adjudicated he did not avail of the provisions of Section 16 of the Bankruptcy Act, 1988 which provides that the Bankrupt may within time show cause against adjudication and in effect he has consented to the Official Assignee taking possession of his assets. “
McCracken J cited the earlier decisions of the High Court: In the Matter of Sean Hussey (Hamilton P. Unreported 23rd September 1987); O’ Maoileoin v the Official Assignee (Laffoy J. Unreported 21 st December 1999). In the former case, Hamilton P (as he then was) held:
“I am satisfied the [the bankrupt] is estopped by raising this or any other point with regard to his original adjudication at this stage. The time for making objections as to the adjudication of Bankruptcy is on the motion to show cause and not at this stage of the proceedings. “
McCracken J concluded:
“I am quite satisfied that a delay of over five years in the present case was both inordinate and inexcusable, and 1 am further satisfied that the balance of justice is certainly against allowing this application, by reason of the advanced stage which has been reached in the Bankruptcy. “
In his notice of appeal from the judgment and order of McCracken J, the appellant puts forward grounds which may be summarised as follows:
1. The figures before the Court on 28th July 1995 were incorrect;
2. The appellant had, through his solicitors given the Petitioner “guarantees and undertakings, promissory notes and assets…. and a guarantee of a cash payment…. that the balance due and owing namely ;C3,904.86 would be available on 01” July 1995…; “
3. The appellant had got permission from the Official Assignee to negotiate settlements with his creditors;
4. That the Examiner/Adjudicator was negligent in adjudicating him bankrupt;
5. On the date of adjudication, the figure used was £8,935.76, which was incorrect;
6. there was not good reason to adjudicate him bankrupt because there were sufficient assets available to pay the debts;
7. A proper statement of affairs was not available on the day of adjudication.
Clearly, several of these grounds are irrelevant and unsustainable: it was the Court that adjudicated the appellant a bankrupt; no question of a statement of affairs arises on the day of adjudication. Section 19(c) of the Act requires the bankrupt to file a statement of affairs after adjudication. As McCracken J said in his judgment, the appellant filed a statement of affairs on 31 s` October 1995. Even granting the greatest possible latitude to the appellant, the only meaningful point that can be extracted from the grounds of appeal is the suggestion that assets were made available or could have been made available to satisfy the debt. The appellant has sought by a motion to introduce new evidence to expand on this argument. He has, in the meantime, dispensed with the services of his solicitors, who were not in Court for the hearing of the appeal. The burthen of the complaint is that the solicitors were negligent, or even in collusion with the Petitioner, and that the order adjudicating the appellant a Bankrupt should not have been made: there were sufficient assets to discharge the debt. Both the solicitors and the Petitioner were fully aware of this. The appellant has sworn in the affidavit used to admit allegedly “new vital and important evidence ” that he was “made BANKRUPT by the negligence and misconduct of my former legal advisers.. “
It is important not to forget the fact that the appellant seeks to rely, many years after his adjudication in bankruptcy, on material of which he necessarily must have been aware at the time. Hence, his motion should be defeated on the ground of delay and the allegedly new evidence was not new: he has been aware of it at all relevant times.
However, even assuming that the Court should give the appellant the benefit of considering the substance of his case, it is clear that it is entirely devoid of merit. The appellant fully and clearly accepted at the hearing of the appeal that, at the date of the adjudication, a sum of more than £3,000 remained unpaid to the Petitioners. The failure to pay this sum, on demand, amounted to an act of bankruptcy. Whether the appellant had other assets is irrelevant. If he had, it was up to him to use them to pay the debt. Nor does it avail him to blame his former solicitors. Any complaint of the bankrupt against his solicitors is a matter between him and them. This is not to imply that there is any merit in the allegations made, simply that it is irrelevant to the present case.
Finally, I would say that, even if there were merit in the appellant’s case, it would certainly be defeated on the ground of delay. In the case of Re Sean Hussey, mentioned above, it was established that there were several technical defects affecting the correctness and regularity of the original adjudication; in that case there was a delay of only two years, before the application for annulment. Hamilton P said:
“However, I am satisfied that it is not open to the Bankrupt to rely on this point at this stage to have the adjudication of a bankruptcy annulled.
He did not raise the point on the motion to show cause, allowed the bankruptcy to proceed, allowed the realisation of the assets to proceed, allowed the proof of debt sittings to proceed, allowed the interim dividend herein before referred to to be paid, negotiations with his creditors for the purpose of making an offer of composition after bankruptcy and generally the bankruptcy to proceed in the ordinary way, and allowed the Official Assignee to continue to fulfill his statutory functions in this regard from the date of adjudication.
1 am satisfied that he is thereby estopped from raising this or any other point with regard to his original adjudication of bankruptcy is on the motion to show cause and not at this stage of the proceedings. “
The machinery of bankruptcy commences with the adjudication and the automatic vesting of the bankrupt’s assets in the Official Assignee. Creditors are restrained from pursuing remedies for their debts other than through the bankruptcy. The appellant submitted his statement of affairs and took no step to show cause against the bankruptcy itself. Matters took their normal course. The realization of the estate of the bankrupt proceeded in the normal way. Assets were investigated and creditors proved their debts. The Official Assignee entered into a contract for the sale of part of the property of the bankrupt. This cannot be undone without extremely compelling reasons. None exist in this case.
In my view, the learned High Court judge was correct to refuse the application. The application to admit new evidence in this Court is also without merit. The suggested evidence is not new and, further, is not such as would affect the outcome of the appeal. It is irrelevant. It cannot be admitted.
In my view the appeal should be dismissed.
Re Gorham.
[1924] 2 IR 46
Pim J.
K. B. Div. (I. F. S.)
An adjudication in bankruptcy changes the status of the person adjudicated, and rights and interests arise with which, except in a very special case, it would be dangerous and wrong to interfere. This present case is an example of the injury that might be done, for if the bankruptcy be now annulled, certain rights arising under a post-nuptial settlement will become effective, and the consequence will be that the creditors will get nothing. That, however, is not in itself a reason for refusing to annul the bankruptcy, but it is a reason why the Court should be slow to do what the bankrupt now asks.
Both Mr. Blood, on behalf of the bankrupt, and Mr. Price, on behalf of the assignee, have referred me to sect. 358 of the Irish Bankrupt and Insolvent Act, 1857 (20 & 21 Vict. c. 60), and to sect. 10 of the English Bankruptcy Act of 1869 (32 & 33 Vict. c. 71). The section of the Irish Act is as follows (I quote the relevant words only): “If the bankrupt shall not (if he were within the United Kingdom at the date of the adjudication) within one month after the advertisement of the bankruptcy in the ‘Dublin Gazette’ . . . have commenced a suit to dismiss the petition, or to dispute or annul the adjudication, and shall not have prosecuted the same with due diligence and with effect, the ‘Gazette’ containing such advertisement shall be conclusive evidence in all cases as against such bankrupt, and in all suits brought by the assignees for any debt or demand for which such bankrupt might have sustained any suit, that such person so adjudged bankrupt became a bankrupt before the date and filing of the petition for adjudication.”Sect. 10 of the English Act is as follows: “A copy of an order of the Court adjudging the debtor to be bankrupt shall be published in the ‘London Gazette,’ and shall be advertised locally in such manner (if any) as may be prescribed, and the date of such order shall be the date of the adjudication for the purposes of this Act, and the production of a copy of the ‘Gazette’ containing such order as aforesaid shall be conclusive evidence in all legal proceedings of the debtor having been duly adjudged a bankrupt, and the date of the adjudication.”
Mr. Blood, in comparing these two sections, contended that the words, “shall be conclusive evidence in all legal proceedings of the debtor having been duly adjudged a bankrupt,” made the”Gazette” also conclusive evidence that there had been a legal act of bankruptcy, on the ground that he could not be duly adjudged a bankrupt without such act of bankruptcy; and he further contended that, inasmuch as the Irish section did not contain the word “duly,” the Court was not bound to assume that a legal act of bankruptcy had been committed. I cannot agree with counsel’s contention. The words of the Irish Act are:”That such advertisement shall be conclusive evidence that such person so adjudged bankrupt became a bankrupt before the date and filing of the petition for adjudication.” To be a bankrupt before the filing of the petition necessarily involves an act of bankruptcy, which the Court must assume to have been proper as a ground for the adjudication. The section further enacts that all suits to annul an adjudication, if brought after the proper time, are to be null and void. The first contention of the bankrupt was that the Court had inherent jurisdiction to annul a bankruptcy, even though the time for appealing had elapsed. It could be argued from the words I have already quoted from sect. 358 of the Irish Act that the Legislature had destroyed this power in the Irish Courts in all cases; but I doubt if the section can be stretched so far. I am prepared to hold that in a proper case in Ireland, as in England, the Court has power, no matter what time may have elapsed, to annul a bankruptcy. The whole question is whether the case is a proper one. In Ex parte Geisel, In re Stanger (1), Lord Justice Cotton asked the question, “Does sect. 10 apply at all to an application to annul an adjudication?” but neither he nor any other of the learned Lords Justices who heard the case answered the question. I think, in England, at all events, the question is apt, and I wish it had been answered. In any event, whether the answer be in the affirmative or negative, the section cannot be neglected by the Court when the question whether the case is a proper one for amendment is before it. One case, and one case only, of the annulment of a bankruptcy after the time for appealing had gone by has been quoted to me; it is the case of Ex parte Geisel (1),to which I have already referred. In that case a bankruptcy petition had been presented on the ground that the bankrupt had absented himself from his dwelling-house with intent to defeat and delay his creditors. Some time after the adjudication an application was made to the Probate Division to grant probate of a will executed by the bankrupt, and the Division presumed him to have been dead on and since a date anterior to the bankruptcy petition. The Lords Justices annulled the bankruptcy on the ground that they were not satisfied that the bankrupt was alive at the date of the alleged act of bankruptcy. This seems to me to have been a proper case for the exercise of the inherent jurisdiction of the Court. A dead man cannot commit an act of bankruptcy; neither can he be adjudicated a bankrupt.
The only other cases that occur to me are those in which a bankruptcy had been obtained by fraud, or where the bankruptcy was an abuse of the process of the Court: see Ex parte Painter, In re Painter (2). But when the cases in which such applications have been refused are looked at, the matter becomes, to my mind, entirely free from doubt. In the case of In re West (3) the bankrupt was a minor, and at that time a minor could not be made a bankrupt unless he had fraudulently concealed or misstated his age. This the bankrupt had not done. The Court refused to annul the bankruptcy. In Ex parte French, Re Trim (1) the Court of Appeal held that the proved insufficiency of the petitioning creditor’s debt was not a reason for annulling a bankruptcy. And in In re Johnson, Ex parte Wigg (2)Sir James Bacon, it being alleged that the bankrupt was not a trader, and therefore could not be adjudicated, refused to consider the question of whether he was a trader or not, and declined to annul the adjudication after it had been advertised in the “Gazette” in the usual way and the time had elapsed.
In all these cases the complaint made was a matter of substance. In the case before me it is, at most, a matter of procedure. It seems to me to be much less strong than any of the three cases I have quoted. As a result I am satisfied that I should not annul the present bankruptcy. The application therefore fails, and must be dismissed with costs.
Secretary of State for Work & Pensions v Balding
[2007] EWCA Civ 1327 (13 December 2007)
URL: http://www.bailii.org/ew/cases/EWCA/Civ/2007/1327.html
Cite as: [2008] WLR 564, [2008] 3 All ER 217, [2007] EWCA Civ 1327, [2007] BPIR 1669, [2008] 1 WLR 564
LORD JUSTICE MUMMERY :
The issue on the appeal
This appeal is about the relationship between the provisions of the Insolvency Act 1986, as amended, (the 1986 Act) for the release of bankruptcy debts on the discharge of a bankrupt and the provisions of the Social Security Administration Act 1992 (the 1992 Act) empowering the Secretary of State for Work and Pensions to recover overpayment of social security benefits by deductions from prescribed benefits.
Mr John Balding, who brought these judicial review proceedings and is the respondent to this appeal, claimed and received income support over a number of years. Investigations revealed that he had failed to make disclosure of material facts about his residence at 32 Glencoe Avenue, Leicester and the mortgage interest payable in respect of it. He had been paid too much benefit. On 6 July 1994 an Adjudication Officer determined that the sum of £8680.45 was recoverable from him in respect of the period 19 March 1991 and 29 March 1993.
The calculation of the amount of the overpayment and obligation to pay it back was clearly explained to Mr Balding in the following letter from the Benefits Agency dated 17 October 1994:
“Income Support
We have paid you too much
Dear Mr Balding,
The Adjudication Officer has looked at your claim for Income Support. He has decided that we paid you £8680.45 too much income support from 19 March 1991 to 29 March 1993. This is because you failed to disclose that you were no longer liable to pay the mortgage on your former home. The Adjudication Officer has also decided that you have to pay this money back to us.
The table I have sent you with this letter shows you how the Adjudication Officer worked out this amount.
Adjudication Officers are people who decide whether the law says you are entitled to benefit or not. They also decide how much benefit the law says you are entitled to.
The Adjudication Officer’s decision is written on the sheets Adjudication Officer’s Decision in the words of the law.
If you think the decision is wrong.
You have the right to appeal. The sheet with the Adjudication Officer’s decision on it also tells you how to appeal.
If you do not want to appeal against this decision
Please pay back the £8680.45 as soon as you can.”
Rather than comply with the request to pay the money back Mr Balding appealed. His appeal was unsuccessful, save that in its decision of 8 December 1995 the Leicester Social Security Tribunal re-calculated the amount of the overpayment as £8335.35.
While the appeal was pending Mr Balding had presented his own bankruptcy petition on 15 June 1995. On the following day he was declared bankrupt by order of the Leicester County Court. Three years later, on 16 June 1998, Mr Balding was discharged from his bankruptcy. In the meantime the Secretary of State began recovery by way of deductions from prescribed benefits payable to Mr Balding. The deductions from prescribed benefits continued at the rate of about £7 per week after his discharge from bankruptcy, though this was not continuous because for some time he was not in receipt of prescribed benefits from which a deduction could be made. The bulk of the overpayment had still not been recovered by the Secretary of State when Mr Balding asserted that his liability to make repayment to the Secretary of State had been wiped out as a “bankruptcy debt” on his discharge from bankruptcy under the 1986 Act. The outstanding balance was over £7,500. Mr Balding was declared bankrupt for a second time on 7 August 2003, but his second bankruptcy has no bearing on the issue in this appeal.
The Secretary of State disputed Mr Balding’s claim that the right of recovery had ceased on his discharge from bankruptcy, contending that the determination of the Adjudication Officer under section 71(1) did not create a “bankruptcy debt.” There was a continuing right of recovery under section 71(8) of the 1992 Act by means of deductions from prescribed benefits. The Secretary of State argued that the effect of the authorised deductions was that he paid to Mr Balding his net entitlement to benefit under the statutory social security scheme.
On 12 September 2006 Mr Balding commenced his legal challenge by way of judicial review to the decision of the Secretary of State on this point. He succeeded in the Administrative Court, which quashed the Secretary of State’s decision in letters dated 14 June and 18 July 2006 that he had a right to continue to recover overpayment of income support by deductions from Mr Balding’s prescribed benefits. The court also made a mandatory order requiring the Secretary of State to pay to Mr Balding any sums that were withheld by way of purported recovery of the overpayment from 16 June 1998 onwards. It indicated that no interest was payable on such sums. The case is reported in [2007] 1 WLR 1805.
The Administrative Court granted permission to appeal, as the case raised an important question which the Court of Appeal should consider.
The Legislation
The relevant provisions of the 1986 Act and the 1992 Act are all fully cited by Davis J at paragraphs 13 to 23 of his judgment. Instead of unnecessary repetition, I shall summarise them, quoting the precise legislative language where relevant to the disputed questions of construction.
The judgment also contains a careful review of the authorities. They make it clear that the right of the Secretary of State to make deductions continues after the onset of bankruptcy but, as Davis J correctly observed in paragraph 40, they are not decisions on the effect of discharge from bankruptcy on the right to make deductions. The authorities do not answer, or help us to answer, that question.
In general, a “bankruptcy debt” is released when a bankrupt is discharged: section 281 of the 1986 Act. This does not apply if the debt was incurred in respect of any fraud or fraudulent breach of trust. No fraud was alleged against Mr Balding.
As a general rule and except in so far as the context otherwise requires, a “bankruptcy debt” means a liability to pay money, “including any liability under an enactment”: section 382(4) of the 1986 Act.
Under section 71 of the 1992 Act the Secretary of State is entitled to recover overpayments of income support benefits made as a result of misrepresentations or failure to disclose material facts. Recovery may be by deduction from prescribed benefits. This method of recovery is “without prejudice to any other method of recovery”: section 71(8). The determined overpayment is also recoverable by execution issued from the county court as if it were payable under an order of that court: section 71(9).
The judgment
For the reasons stated in his excellent judgment Davis J, with whom Laws LJ agreed, held that Mr Balding had been released from his liability to repay the overpayment. The Court quashed the decision of the Secretaryof State that he had a continuing right to recover overpayment of income support by means of deduction from prescribed benefits after the discharge of Mr Balding’s bankruptcy.
The court held as follows:
(1) As a result of the determination made by the Adjudication Officer under section 71(1) of the 1992 Act Mr Balding was under a liability to repay the overpayment of benefit. Davis J said “.the overpaid benefit was recoverable from Mr Balding just because, by reason of the determination, he was liable to repay the overpaid benefit” (paragraph 43).
(2) This was “a liability to pay money under an enactment” within section 382(4) of the 1986 Act and was therefore a bankruptcy debt. The fact that Mr Balding’s benefit entitlement was to the net amount after deduction did not displace the fact that there was a repayment liability under the 1992 Act (paragraph 44).
(3) The overpayment was recoverable by the Secretary of State from Mr Balding by two methods of recovery specified in section 71 “without prejudice to any other method of recovery.” Deduction from prescribed benefits was one of the methods of recovery specified in section 71(8). The other was by issue of execution from the county court: section 71(9). It was conceded that by the Secretary of State that, if he had sued Mr Balding for recovery of the overpayment as a debt, he could elect to prove for the debt as a creditor in the bankruptcy. Davis J commented that the liability to repay cannot be said not to be a “bankruptcy debt” if one form of recovery is adopted, but is a “bankruptcy debt” if another form of recovery is adopted (paragraph 46).
(4) The discharge from bankruptcy released Mr Balding from the liability under the 1992 Act for the overpayment of benefit. A bankrupt is released from all the bankruptcy debts on his discharge from bankruptcy: section 281 of the 1986 Act. The legislative policy is to wipe the slate clean and, broadly speaking, enable the bankrupt to make a fresh start (paragraph 48(i)). The case does not fall within any of the express exceptions to discharge, such as fraud. A liability to repay under section 71 is not listed in the exceptions to discharge in section 281.
(5) The Secretary of State had no entitlement to recover the overpayment by continuing to make deductions from the prescribed benefits payable to Mr Balding after his discharge from bankruptcy.
Submissions of the Secretary of State
In submitting that the decision under appeal was wrong Mr Kolinsky, who appears for the Secretary of State on the appeal (but did not appear below), contended that a determination under it was a public law decision or a decision “in a public law context.” This decision did not itself give rise to or create a liability to pay money under an enactment. There was therefore no bankruptcy debt capable of being released on the discharge of Mr Balding.
He argued that, on a careful analysis of section 71(1) of the 1992 Act, the determination of the amount of overpayment in fact declares that the overpaid benefit is recoverable for the purposes of the statutory recovery mechanisms in the remainder of the section. The determination is a pre-condition for taking action under the section to recover benefit. The two routes for recovery from the person who has been overpaid are distinct and have different legal consequences.
As for recovery through the county court under section 71(9), Mr Kolinsky accepted that, for these purposes, the amount sought to be recovered can be “equated to” a liability to repay the overpaid benefit and is tantamount to a debt which is capable of being proved in the claimant’s bankruptcy. He agreed that it followed that this debt would be released on Mr Balding’s discharge from bankruptcy. Mr Kolinsky then turned to the second route, which was followed by the Secretary of State in this case.
Mr Kolinsky submitted that, in the case of deductions from ongoing prescribed benefits payable to Mr Balding, a claimant in the position of Mr Balding is only entitled to receive the net amount of the benefit after the deduction is made. In such a case the determination does not create a liability to pay money under the 1992 Act. It is only a statutory pre-condition of the possibility of the Secretary of State taking action, if he is minded to do so, under the statutory scheme for making deductions.
Mr Kolinsky reminded the court that the Secretary of State has a discretion whether to enforce his entitlement to repayment: see B v. Secretary of State for Work and Pensions [2005] 1 WLR 3796 at paragraph 41. He is under no obligation to recover the amount of the overpayment once a determination has been made: R (Steele) v. Birmingham City Council [2006] 1 WLR 2380 at paragraph 17. He also has a discretion as to which method of recovery to adopt, county court enforcement or statutory deduction.
If, as happened here, the Secretary of State exercised his discretion to take the deduction route, which is tightly regulated by the Social Security (Payments on Account, Overpayments and Recovery) Regulations 1988, he is not enforcing a liability against the claimant to pay money under the 1992 Act. He is actually exercising his statutory power to pay the recipient no more than the correct amount of net benefit due to him under the applicable social security legislation. The Secretary of State is only legally obliged to pay the net amount of the benefit to the claimant. The Secretary of State’s exercise of the statutory power to make a net payment to Mr Balding is outside the regime and reach of the 1986 Act, as are the future prescribed benefits from which the deductions may be made.
When asked when and how Mr Balding became legally liable to repay the overpayment, if not under section 71(1), Mr Kolinsky submitted that there was no liability until there was a decision by the Secretary of State to recover the overpayment. Liability to pay then arose on the decision of the Secretary of State to recover it. Further, the decision of the Secretary of State to deduct a sum created a liability only for the amount of the deduction, not for the full amount of the overpayment. There was no liability to pay the whole amount of the overpayment.
In brief, the court below erred in treating the determination itself as creating a liability to pay money under an enactment in the same way as the right to sue for the recoverable overpayment as a debt in the county court. The more sensible and natural analysis of section 71(1) is that the determination is a pre-condition to making deductions. When deductions are made from future prescribed benefits under section 71(8) the Secretary of State is only obliged to pay the net amount of the benefit due to the claimant. This benefit falls outside the operation of the 1986 Act.
Discussion and conclusion
I have reached the same conclusion as Davis J for the reasons given in his comprehensive judgment. As Laws LJ recognised in his concise concurrence, there is not much left to discuss in another judgment. There is no point in appeal court judges saying things at length simply for the sake of saying something. What follows is a short statement of my reasons for rejecting Mr Kolinsky’s criticisms of the judgment under appeal.
It is common ground that section 71 of the 1992 Act provides the Secretary of State with two particular methods of recovering overpaid benefits. Both methods presuppose that the Secretary of State has a right to recover the amount determined under section 71(1). The same is true of other methods of recovery expressly preserved by section 71(8). It would be fatuous for Parliament to specify or preserve methods for recovering overpayments, unless the Secretary had a pre-existing right to recover the amount and the overpaid recipient was under a corresponding liability to repay the amount determined under section 71(1).
As for the method of recovery by registration of the overpayment as a debt recoverable in the county court, I think that Mr Kolinsky accepted that, if the Secretary of State pursued this route, there would be a bankruptcy debt which would be released on Mr Balding’s discharge from bankruptcy. Even if Mr Kolinsky did not accept it, it is plainly the correct position in law.
As for recovery by deduction from the prescribed benefits, this method also requires a prior determination of the amount of the overpayment which Mr Balding is liable to repay. If Mr Balding were under no liability to repay the amount in question, it would be futile to arm the Secretary of State with the means of recovery from him.
Further, there is no rhyme or reason in the proposition that, in the case of one method of recovery (the county court), there is a liability to pay money under an enactment, but in the case of the other method (deduction) there is no such liability. In both cases there is a liability to pay money under the 1992 Act. Neither the existence of the right to recover money nor the existence of a liability on the recipient to repay money is dependent on or determined by the available methods of recovery. The Benefits Agency’s letter quoted in paragraph 3 is consistent with this position, in demanding payment of the whole sum.
In my judgment, on the natural and ordinary meaning of section 71, a determination under subsection (1) creates a liability on the recipient to repay the amount overpaid, which is accurately described as a liability to pay money under an enactment (i.e. under the 1992 Act). Liability in this form did not arise under any contract or under any general legal liability to make restitution. This liability has arisen from the statutory determination. It is available as the basis of all methods of recovery. There are no grounds for holding that it is irrelevant for certain other purposes, such as those of the 1986 Act.
Finally, it does not follow from the fact that the Secretary of State has elected to recover the overpayment by the deduction method, rather than by any other method available to him, and to make a net payment of prescribed benefit to Mr Balding, that there was no liability under the 1992 Act on Mr Balding’s part to pay the amount stated in the determination.
Result
I would dismiss the appeal.
I add a statement of the obvious, which may not do any good, but will not do any harm. If, as may well be the case, Parliament thinks that the inability of the Secretary of State to recover overpayments by deduction from prescribed benefits after the discharge of a bankrupt claimant is unacceptable, it is within its power to remedy the legislative loophole. As it is plain under the current legislation that a liability under the 1992 Act to repay overpayments of income support is a “bankruptcy debt” within the 1986 Act, it is beyond the power of the courts to remedy the situation. It is not the role of the courts to perform the functions of Parliament.
Lord Justice Thomas:
I agree.
Lord Justice Lloyd:
I also agree.
Lehane -v- Farrell
[2016] IEHC 637
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF SECTION 85 OF THE BANKRUPTCY ACT, 1988 AS AMENDED
AND IN THE MATTER OF ANGELA FARRELL, A BANKRUPT
[Bankruptcy No. 2594]
BETWEEN
CHRISTOPHER D LEHANE (AS OFFICIAL ASSIGNEE IN BANKRUPT IN THE ESTATE OF ANGELA FARRELL, A BANKRUPT)
APPLICANT
AND
ANGELA FARRELL
RESPONDENT
JUDGMENT of Ms. Justice Costello delivered on the 14th day of November, 2016
1. By notice of motion in these proceedings issued on 1st July, 2016, the applicant, the Official Assignee, sought an order extending the bankrupt period of Ms. Angela Farrell, the respondent, by five years pursuant to s.85A(1) of the Bankruptcy Act, 1988 on the basis that the bankrupt had failed to co-operate with the Official Assignee in the realisation of the assets of the respondent or had hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the respondent. On 25th July, 2016, I made an interim order extending the bankruptcy of the respondent pending further order of the Court and determination of motion. This judgment relates to the hearing of the motion which took place on 10th October, 2016, and 1st November, 2016.
The Official Assignee’s case
2. The Official Assignee says that the respondent, Angela Farrell, was adjudicated a bankrupt by order of the High Court in Bankruptcy on 13th May, 2014. By virtue of the provisions of s. 85(1) of the Bankruptcy Act, 1988, as amended by s.10 of the Bankruptcy (Amendment) Act, 2015, she was due to be automatically discharged from bankruptcy on 28th July, 2016. He brought this motion in advance of her automatic discharge in order that her period of bankruptcy might be extended for a period pursuant to s.85A(1)(a) and (b). The subsection provides as follows:
“85A.—(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.”
3. The Official Assignee swore an affidavit on 30th June, 2016, setting out the details of the respondent’s failure to co-operate with the Official Assignee in the realisation of her assets and the fact that she had hidden from or failed to disclose to him income or assets which could have been realised for creditors of the respondent. In summary, he says that she did not disclose her address, or any address where she regularly could be contacted; she did not file a statement of affairs and she did not file a statement of personal information; she did not attend for interview with the Official Assignee; she was obliged to be summoned to court to be examined as to her assets pursuant to s.21 of the Act of 1988. While she furnished some information during the course of that examination, she subsequently refused to give the names and addresses of the alleged transferees of properties, the date of the alleged transfers, or any explanations for the transfer of assets previously owned by the respondent. As a result of information she provided to the Court, the Official Assignee was able to realise 2,558 shares held by the respondent in CRH plc. The proceeds of €68,592 have been paid into the bankrupt’s estate. He says that they would not have been identified and realised for the benefit of the estate creditors in the absence of the s.21 examination. He says he has no information as to her income or the source of her income which finances her living expenses and her legal expenses (incurred in various proceedings brought by the respondent) and therefore, he is unable to ascertain whether or not there is surplus income available for distribution to her creditors. He says that she refuses to acknowledge her adjudication as a bankrupt and refuses in any way to acknowledge his title to the assets in her estate or his right to information concerning her assets.
The respondent’s case
4. The respondent swore an affidavit on 30th September, 2016. It does not address any of the matters raised by the Official Assignee in his affidavit. At the hearing of the motion she did not contest any of these averments. Fundamentally her resistance to the application is based upon arguments that the order of adjudication of 13th May, 2014 is void and therefore, it is not binding upon her.
5. The respondent says that there are in fact no bankruptcy proceedings before the Court and in particular no proceedings bearing record number 2594. She says that the order of adjudication dated 13th May, 2014, in proceedings bearing record number 2594 are null and void and that as there are no bankruptcy proceedings in being, the notice of motion with which this judgment is concerned is not properly before the Court. The respondent submits that as the notice of motion is not properly before the Court, there are no proceedings before the Court and the Court did not have the power to make an interim order on 25th July, 2016. That being so, she says that even if there were bankruptcy proceedings in being, this application is now out of time as she was entitled to an automatic discharge from bankruptcy before this motion was heard and this judgment given. She also submits that the Court had no jurisdiction to make an interim order on the basis that the notice of motion did not seek any interim relief.
6. Most of the respondent’s submissions were directed towards the alleged nullity of the order of adjudication of 13th May, 2014. She argues that the petitioning creditor is not a creditor and that a fraud is being perpetrated. She argues that there have been multiple breaches or ignoring of the provisions of the Bankruptcy Act, 1988 prior to the order of adjudication of 13th May, 2014. In summary, she complains that there were numerous errors by the petitioner (who she says is not a creditor) and by the judge dealing with the bankruptcy list at the relevant time, the Central Office and various registrars in the period of 2013 to 27th May, 2014. As a result, she says she was never properly adjudicated a bankrupt; the order of 13th May, 2014, is a nullity; the Official Assignee has no title to any of her assets; she is not a bankrupt and therefore the provisions of the bankruptcy code do not apply to her; her assets were revested in her free from all claims by any creditors by order of the High Court of 17th February, 2014. The Court should not have any regard to the order of 13th May, 2014, which she says is void and a nullity and therefore these proceedings should be dismissed.
Discussion
7. The arguments relating to the validity (or invalidity) of the order of adjudication of 13th May, 2014, are all res judicata. The petitioning creditor obtained a judgment against the respondent on 21st September, 2010. The respondent sought to have this judgment set aside and on 14th November, 2013, Cooke J. refused to set aside the judgment. His order has never been appealed. Therefore the judgment stands. By virtue of the judgment the petitioning creditor must be recognised as a creditor of the respondent. Thus all of her arguments to the effect that the petitioner is not a creditor of the respondent are of no avail to her in this case.
8. Originally the respondent was adjudicated a bankrupt by order of the Court on 9th December, 2013. The respondent brought a motion to show cause seeking to annul the bankruptcy. However, the Court acknowledged that it had not considered the matters set out in s. 14(2) of the Bankruptcy Act, 1988 as amended by s. 147 of the Personal Insolvency Act, 2012 when it made the adjudication on 9th December, 2013. Therefore, on 17th February, 2014, the Court heard the notice to show cause and made the following order;
“The Court DOTH REFUSE to annul the Adjudication of Bankruptcy and DOTH DISMISS the said Application to show cause and in order to consider the matter set out in Section 14, Subsection (2) of the Bankruptcy Act, 1988 as amended by Section 147 of the Personal Insolvency Act, 2012
IT IS ORDERED that the said Order herein dated the 9th day of December, 2013 be set aside and that the hearing of the Petition of FCR Media Limited (formerly Truvo Ireland limited) bearing record number 833P for an order that Angela Farrell by adjudged Bankrupt in main proceedings in accordance with Article 3(1) of Council Regulation (EC) number 1346/2000 be adjourned unto the 24th day of March 2014
….And IT IS ORDERED that any and all the property of the said Angela Farrell which vested in the Official Assignee pursuant to the said Order of Adjudication be and the same is hereby revested in the said Angela Farrell.”
9. McGovern J., delivered a written judgment on 13th May, 2014, when he adjudicated the respondent a bankrupt. The judgment deals with the adjourned petition for bankruptcy brought by the petitioning creditor and notices of motion issued by the debtor, the respondent, seeking various reliefs in the bankruptcy proceedings. It is clear from his judgment that most, if not all of the matters complained of and the points raised by the respondent before me were in fact argued before McGovern J. and are dealt with in his judgment.
10. On 12th January, 2015, the respondent brought a notice of motion in bankruptcy proceedings Record Number 2594 seeking:
“1. An Order pursuant to Section 135 of the Bankruptcy Act, 1988 rescinding the order of Mr. Justice McGovern on the 13th and the 27th of May 2013 respectively.
2. A Declaration that s. 85(c)of the Personal Insolvency Regulations, 2012 makes an inseparable connection between the setting aside of the order of Bankruptcy on the 9th of December 2013 and its annulment
3. An Order of Annulment pursuant to Section 85C(1)(b) of the Bankruptcy Act, 1988 in respect of the order of bankruptcy dated 9th December, 2013.
4. An Order terminating Bankruptcy Proceedings.
5. An Order providing for interim damages.
6. An Order for damages to include general, exemplary and compensatory damages
7. Further and Other Relief as the Court deem meet.”
11. On 19th January, 2015, I made an order refusing the reliefs and dismissing the motion.
12. In the circumstances, the respondent has already raised or has had the opportunity to raise and have considered arguments which she says invalidates the entire bankruptcy procedure and the adjudication of bankruptcy of 13th May, 2014. These arguments have been heard, adjudicated upon and rejected by two judges of the High Court. Furthermore, there was an order of the High Court establishing the fact that the petitioning creditor was entitled to judgment against her and a judge of the High Court refused to set aside the judgment. Her remedy in respect of each of these orders of the High Court lay by way of an appeal. She is well aware of this fact and acknowledges the fact that she was informed on more than one occasion that if she was dissatisfied with an order of the High Court that her remedy lay in an appeal. She argues that as the orders according to her, are nullities, she is not obliged to appeal them and furthermore that no person may rely upon the orders, in particular the order of adjudication of 13th May, 2014. I reject this submission.
13. In addition, at the hearing of the application for an interim order on 25th July, 2016, I already ruled that the adjudication order of 13th May, 2014, was binding and valid.
14. As I have ruled that the order of adjudication of 13th May, 2014, in case number 2594 was valid and noting that the respondent never sought to appeal the order of adjudication, it must follow that the motion of the Official Assignee was properly brought in these proceedings pursuant to O.76, r.47 of the Rules of the Superior Courts. It follows from this conclusion that the court had power to make an interim order on 25th July, 2016. This order was made before the respondent was automatically discharged from bankruptcy. Consequently, the argument that the application is out of time must also be rejected.
Conclusion on the Issue of Extension of the Bankruptcy
15. In my judgment, there is considerable uncontroverted evidence which establishes that the respondent bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of her assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of her statutory obligations. There was a very limited degree of cooperation during the course of a s.21 examination but otherwise the attitude of the respondent could best be described as obstructive and uncooperative. Her refusal to acknowledge the validity of the bankruptcy and therefore her refusal in any way to cooperate with the bankruptcy process has continued to this day and, therefore, I will make an order pursuant to s.85A extending the period of bankruptcy in this case.
16. In the matter of Thomas McFeely, A Bankrupt [2016] IEHC 299, I considered the principles applicable in considering the duration of extension of bankruptcy. I applied the principles established by the decision of the Supreme Court in Killally (a bankrupt) v The Official Assignee [2014] IESC 76, where Mr Justice Clarke held that any extension of the bankruptcy period should be proportionate to the established wrongdoing. I held that graver breaches will attract a longer period of extension than lesser wrongs.
17. In my opinion, the wrongdoings of the respondent in this case established by the Official Assignee are grave. She has failed to cooperate in any meaningful way with the bankruptcy. She has placed obstacles in the path of the Official Assignee in contacting her. He has been obliged to serve her by way of substituted service on more than one occasion. He was obliged to summon her pursuant to s. 21 in order to obtain information from her. On the return date for the resumption of examination pursuant to s.21, she failed to attend. No explanation was forthcoming for her absence.
18. Ultimately, the Official Assignee decided that he would be in a position to make inquiries without further cooperation from the respondent and he withdrew the s.21 motion. As a result of limited cooperation by the bankrupt, certain assets were realised for the benefit of creditors of the estate. It would appear that the assets which were not disclosed by the respondent originally to the Official Assignee were charged in favour of secured creditors and, therefore, no benefit from these properties was ever going to accrue to the creditors of the respondent. While it is true that the Official Assignee has no insight whatsoever into the income of the respondent and, therefore, cannot say whether or not the respondent’s creditors have been prejudiced by her refusal to disclose her income, he did not lay great emphasis on this point.
19. The non-cooperation of the respondent was severe but the effect of the non-cooperation was not greatly to prejudice the realisation of her estate for the benefit of her creditors. In my opinion, this is a mitigating factor in her favour. When the Supreme Court says that the extension of the period of bankruptcy should be proportionate to the established wrongdoing, I take that to mean not merely the wrongful acts or omissions of the bankrupt but also the consequences to the creditors of the bankrupt. In this case, it has not been clearly established that the creditors have been gravely prejudiced by the admittedly egregious behaviour of the respondent.
20. I am also very mindful of the fact that the aim of the legislation is not only to deter the individual bankrupt from non-cooperation but also to deter others and to protect the public. As was acknowledged in the Killally case, an order may be made under s.85A which is solely penal in nature with a view to protecting the bankruptcy process in the jurisdiction.
21. In my judgment, there have been serious, multiple, continuous breaches and wrongdoings by the respondent during the course of her bankruptcy. It is important to maintain the integrity of the bankruptcy process and to encourage bankrupts to cooperate fully with the bankruptcy process. It has not been established that the acts or omissions of the respondent damaged her creditors, as opposed to the bankruptcy process. I am, therefore, of the opinion that while grave, this is not the most extreme case to come before the courts. I am empowered to extend the period of adjudication in this case for a period of up to five further years. In my opinion, the appropriate period of extension should be four years in the circumstances, and I, therefore, extend the duration of the bankruptcy of the respondent for a period of four years from the date when she would otherwise have been automatically discharged from bankruptcy by operation of law.
In the matter of John Gaynor (A bankrupt)
[2017] IEHC 27
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF SECTION 85 OF THE BANKRUPTCY ACT 1988 AS AMENDED
IN THE MATTER OF JOHN GAYNOR (A BANKRUPT – 3411)
JUDGMENT of Ms. Justice Costello delivered on the 23rd day of January, 2017
1. The Official Assignee in bankruptcy brought an application seeking an order extending the bankruptcy period of John Gaynor pursuant to s. 85A(1) of the Bankruptcy Act 1988 on the basis that the bankrupt had failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt or had hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt. If necessary he also sought an order pursuant to s. 85(3) of the Act that the bankruptcy period shall not stand discharged until the investigation and pending the making of a determination under the application.
2. The application was grounded upon the affidavit of Christopher Lehane, the Official Assignee, sworn on 24th November, 2016.
3. Mr. Gaynor (“the bankrupt”) was adjudicated a bankrupt on 7th December, 2015 by me on foot of a petition presented by his former solicitors Messrs. Noel Sheridan and Peter Quinn. The bankrupt brought an application to show cause against the adjudication. That application was dismissed by O’Connor J. on 20th April, 2016. The bankrupt argued that this order ought not to have been made on the basis that he was ill and O’Connor J. ought not to have proceeded with the application. I am unaware of the details of what occurred before O’Connor J. On the face of it, there is a valid order of the High Court which has not been set aside on appeal.
4. The bankrupt appealed the adjudication to the Court of Appeal. Apparently this was out of time. The Court of Appeal (Ryan P., Irvine and Fulham JJ.) dismissed the appeal on 10th October, 2016 on the basis that the appeal was bound to fail.
5. It follows that the order of adjudication stands as a valid order, though the bankrupt is apparently applying to the Supreme Court for leave to appeal.
6. In his affidavit of 24th November, 2016 the Official Assignee said that the bankrupt had completely failed to co-operate in the bankruptcy. His position is summarised by an e-mail of 1st February, 2016 where he stated “I reject the nonsense that I am a bankrupt”.
7. Initially he refused to co-operate with the bankruptcy inspector by giving him the necessary contact details. However, as the bankrupt wished to bring a show cause application, he arranged for the order of adjudication to be served upon him by consent on 1st February, 2016. That was the full extent of his co-operation in the bankruptcy.
8. On 10th December, 2015 the bankruptcy inspector sent the bankrupt a copy of a statement of affairs and a statement of personal information to be completed by him, as well as correspondence advising him of issues arising in his bankruptcy. As of the date of the hearing before me no statement of affairs had been filed and no personal information had been given to the Official Assignee.
9. The bankrupt did not attend for an interview in relation to his assets and he did not engage in any way with the process. On 17th October, 2016 the Official Assignee’s office wrote to the bankrupt stating as follows:—
“Failure to comply — reminder
I refer to your adjudication as a bankrupt on 7th December 2015 on foot of a petition brought by Noel Sheridan and Peter Quinn.
Our office has previously attempted to contact you in relation to fulfilling your statutory obligations as a bankrupt. An e-mail issued on 10th December 2015 informing you that you were adjudicated bankrupt and requesting that you submit to this office a statement of personal information and a statement of affairs. To date you have not returned these completed documents.
It is advised that your ongoing failure to co-operate with this office means that you are in breach of your duties pursuant to s. 19 of the Bankruptcy Act 1988 a copy of which I enclose for your reference.
Please complete the enclosed statement of affairs and statement of personal information and return to this office by Wednesday 26th October 2016.
Please be advised that if you fail to provide this information by Wednesday 26th October 2016, the Official Assignee will have no alternative but to consider taking legal action in this case (e.g. High Court application to extend your bankruptcy discharge period).
I trust that this will not be necessary but wish to remind you that it is the duty of the Official Assignee to ensure compliance with the legislation in the best interests of the creditors of your estate.”
10. The bankrupt did not reply to this letter and did not provide the information sought. On Thursday, 17th November, 2016 the bankruptcy inspector once again called to the bankrupt’s house in an effort to have him complete his statement of affairs and statement of personal information. The Official Assignee averred that the bankrupt refused to engage with the inspector.
11. In addition to his complete failure to co-operate with the bankruptcy process, the bankrupt failed to disclose any assets at all to the Official Assignee. The Official Assignee was advised by the petitioning creditors that the bankrupt has assets. The Official Assignee says that the bankrupt has land comprised in folios 5864, 2299, 2538, 11873F, 11874F, 10753 and 7609, all in the County of Westmeath. He further understands that the bankrupt has livestock, farm machinery and motor vehicles. He is unable to give any indication as to the value of these assets and whether or not they are encumbered. He states:—
“I do not have a proper picture of the assets of the bankrupt as he has not disclosed same in any way.”
12. At para. 10 of his affidavit he states:—
“I further say that my office understands that the bankrupt withdrew the sum of €46,567.41 from his bank account in the days immediately following his adjudication and those funds remain unaccounted for.”
13. Accordingly the Official Assignee sought the reliefs set out in his notice of motion on the basis of the non co-operation of the bankrupt and his non-disclosure of assets.
14. I am satisfied that the evidence adduced by the Official Assignee establishes a prima facie case of very grave non co-operation and a failure to disclose assets in this particular bankruptcy.
15. The first issue for the Court to consider therefore is whether the bankrupt has anything to say in relation to these matters. Far from seeking, albeit belatedly, to co-operate with his bankruptcy, the bankrupt persists in his obstruction and defiance of the process. The non co-operation continued in relation to service of proceedings. Niall Hayes, Bankruptcy Inspector, swore an affidavit of service of the papers on the bankrupt on 30th November, 2016. He stated as follows:—
“b. That I served a copy of the s. 85 motion papers by attempting to hand same to John Gaynor which he declined to accept. However I still managed to affect service by touching his shoulder and forearm with the s. 85A(1) motion papers at 1.40 pm on 29th November 2016 at Farthingstown, Rathconrath, Co. Westmeath, he having identified himself to me.
c. When the envelope containing the papers subsequently fell to the ground he took them up and threw them across the road, however I am fully satisfied that proper service was affected and John Gaynor was aware of what the papers were in the envelope. I was accompanied by a Garda from Ballynacargy Garda Station who witnessed this service.”
16. The bankrupt did not sweat an affidavit controverting any of the matters set out in the affidavit of the Official Assignee. He did not offer any explanation or excuse for his failure to complete a statement of affairs or a statement of personal information other than to insist that he was not properly adjudicated a bankrupt.
17. On the return day for the notice of motion, 5th December, 2016, the defendant produced an affidavit which he swore on that day and a document described as a notice of motion but which apparently had not been issued. He invited me to recuse myself from hearing any further matter relating to him. His grounds for the application were that I had a personal interest in the continuation of his bankruptcy and that he had not been afforded a proper or fair hearing when he was adjudicated a bankrupt on 7th December, 2015.
18. In relation to my alleged partiality, the bankrupt argued that the firm of solicitors in which my husband is a partner represented the Bank of New York Mellon “who owns much if not all of the equity of Teck Ireland Limited, a company granted a licence upon my lands without my knowledge.” The only information before the Court in relation to any creditor of the bankrupt was in respect of the petitioning creditors, his former solicitors, Messrs. Sheridan & Quinn. I had and have no knowledge of either the creditors of the bankrupt or the clients of my husband’s firm of solicitors. In those circumstances I ruled that this argument was not a proper basis upon which I should recuse myself from hearing the motion.
19. In relation to the allegation that he had not received a fair hearing when the petition for adjudication was heard on 7th December, 2015, the bankrupt had the opportunity to bring a motion to show cause and also appealed the order of adjudication to the Court of Appeal. If there had been merit in his second ground for asking me to recuse myself, he had the opportunity to raise the issue and have it considered by two different courts. His applications were rejected on both occasions. He may not relitigate the point now. As he himself said in his own affidavit, the Court of Appeal dismissed his appeal on the grounds that it was “bound to fail”. That conclusion necessarily implies that the hearing of the petition was not the unfair or biased hearing he has now alleged it to have been.
20. There is an obligation upon judges to recuse themselves in appropriate cases. This occurs as a matter of course relatively frequently. However there is also a duty on judges to hear cases that are assigned to them and not to accede to groundless applications to recuse themselves. Where an application is based upon alleged objective bias the test is whether a reasonable person with full knowledge of the facts would reasonably apprehend that the party seeking the recusal could not have a fair or unbiased hearing from that particular judge. Against this background I refused to recuse myself. On 5th December, 2016, due to the pressure of the work in the bankruptcy list, the motion could not be heard and I made an order directing that his bankruptcy should not be discharged until further order of the Court and adjourned the motion for hearing for one week. I did so in the knowledge that the list would be taken on that occasion by a different judge so he would have the opportunity to have the matter considered by a judge who had not previously dealt with his case notwithstanding the fact that I had refused his application to recuse myself.
21. In the event the bankrupt chose not to deal with the matter before my colleague who was taking the bankruptcy list on 12th December but instead moved an application for judicial review before Humphreys J. Humphreys J. refused that application. The motion listed in the bankruptcy list was adjourned to 16th January, 2017.
22. On 16th January, 2017 the matter again came before me in the bankruptcy list. On that occasion the bankrupt sought to subpoena the petitioning creditor and officials in the Central Office. I refused these subpoenas on the basis that they were directed towards challenging the validity of the adjudication and thus were not relevant to the matters before the Court.
23. In reply to the application of the Official Assignee the bankrupt sought to relitigate many of the points which had been dealt with at the hearing of the petition. He produced no evidence relevant to these points but he submitted:—
i. The application was improperly brought because the Official Assignee was not authorised to bring the application.
ii. The application was improperly brought because the Official Assignee had no authority to instruct counsel.
iii. The Court has engaged in a trespass and he referred to a hearing before Finlay Geoghegan J. This apparently referred to an order of possession made by Finlay Geoghegan J.
iv. The Court had breached the Bankruptcy Act in adjudicating him a bankrupt and had failed to have regard to his human rights.
v. The Court had formulated its own rules for bankruptcy.
vi. Other members of his family were involved.
vii. The Court had no jurisdiction to deal with a person who has no creditors. He had not been properly adjudicated a bankrupt.
viii. The motion to show cause had not been properly heard. Therefore he was still entitled to appeal his s. 16 application.
ix. He relied on the case of McGinn v. Beagan 2014 IEHC 344 and argued that the petition for his bankruptcy had been brought for an improper purpose.
x. He wished to complain about his former solicitor to the President of the High Court.
xi. The cause book in respect of which a judgment was obtained in 2003 (or as he said, had not been obtained) should be in court.
xii. He was in extremely bad health.
xiii. The Court had failed to comply with the provisions of s. 14(2) of the Bankruptcy Act, 1988, as amended, before he was adjudicated a bankrupt. He said the purpose of s. 14(2) was to give someone a chance to pay after the adjudication (emphasis added).
xiv. The order recording that I refused to recuse myself from hearing the application on 5th December, 2016 had not been perfected and therefore he had not been afforded an opportunity to appeal this decision. Accordingly the proceedings before me on 16th January, 2017 were flawed.
xv. He applied to adjourn the application to the President of the High Court.
24. These points are not relevant to the issues for decision on the Official Assignee’s motion. It is clear that the bankrupt is seeking to relitigate matters which either were dealt with before or were not originally argued by him or which, if valid, could have given rise to grounds for appealing the order of adjudication. I have ruled against some points (iii, ix, xi) and the Court of Appeal has taken the view that these and others are bound to fail (iv,v,vii,xiii). Some are unsustainable (i,ii,vi) or unsupported by any evidence (vi,xii). In any event I am bound by the fact that there exists a valid order of adjudication and I cannot go behind that order on the basis of the submissions of the bankrupt.
25. I do not believe that it is appropriate to adjourn the matter for hearing to the President of the High Court. The fact that the petitioning creditors in this case are solicitors is not sufficient reason to adjourn the matter to the President’s solicitors’ list.
The Law
26. Section 85A(1), (3) and (4) of the Bankruptcy Act 1988, as amended by the substitution of s. 157 of the Personal Solvency Act 2012, provides as follows:—
85A.- (1) The Official Assignee, the trustee in bankruptcy or a creditor or the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has-
i. failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
ii. hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(3) Where it appears to the Court that the making of an order pursuant subection (4) may be justified, the Court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the Court is satisfied that the bankrupt has-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
The Court may where it considers appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being no later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.
27. The order of adjudication in this case was 7th December, 2015. The bankrupt would have been discharged at midnight on 6th December, 2016, pursuant to the provisions of s. 85(1), the application of the Official Assignee was brought prior to that date and an order was made that the bankruptcy should not stand discharged by virtue of s. 85 until further order of the court on 5th December, 2016. Thus, I am satisfied that the application was brought prior to the automatic discharge of the bankruptcy in this case.
28. It is clear from the provisions of subs. (1) that the Official Assignee is authorised to bring the application. That being so, he is also authorised to instruct solicitor and counsel as he sees fit. I, therefore, reject any argument, to the effect, that he was not entitled to bring the application or to instruct counsel.
29. I am satisfied from the uncontroverted evidence of the Official Assignee in his affidavit of 24th November, 2016, that there has been a total failure of the bankrupt to cooperate with the Official Assignee in relation to the bankruptcy process. He has failed to comply with the duties of a bankrupt set out in s. 19(c) in relation to a statement of affairs. It is quite clear that he has failed to cooperate with the Official Assignee in the realisation of his assets and by definition has hidden from or failed to disclose to the Official Assignee any income or assets which could be realised for the benefit of the creditors of the bankrupt.
30. Of particular concern is the withdrawal of a significant sum of money from his bank account just days after his adjudication and the failure to account for any of the monies to the Official Assignee.
31. In all the circumstances, I am satisfied that it is appropriate to make an order that the bankruptcy shall not stand discharged by virtue of section 85.
32. The next matter for consideration is the duration of the extension of the bankruptcy period. In Killally (A Bankrupt) v. Official Assignee [2014] 4 I.R. 365, Clarke J. in the Supreme Court stated at para. 54:—
“…s. 85A of the Act of 1988 confers on the Official Assignee a jurisdiction to seek, and on the High Court a jurisdiction to impose, a postponement of the entitlement of a bankrupt to be discharged provided that the court is satisfied that a failure to cooperate or a hiding of or failure to disclose assets, in accordance with the terms of the section, has been established. That jurisdiction exists even though any wrongdoing thus established may be completed and, indeed, remedied.”
33. In McFeely (A Bankrupt) [2016] IEHC 299, I considered the decision in Killally (A Bankrupt) and noted that Clarke J. had emphasised that once a court is satisfied that there has been a failure to cooperate with the Official Assignee in relation to the bankruptcy or that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets that the extension of the bankruptcy period should be proportionate to the established wrongdoing. At para. 30 of my judgment, I stated:-
“The Oireachtas empowers the court to extend the period of bankruptcy up to the eighth year anniversary of the date of adjudication. The Oireachtas clearly contemplates a spectrum of such orders. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.”
34. In McFeely’s case, I took the view that the wrongdoings were at the very grave end of the spectrum. I did not extend the period for the full duration as I took account of the bankrupt’s age and I reduced the period by three months.
35. In Lehane v Farrell [2016] IEHC 637, I held that there had been serious multiple continuous breaches and wrongdoings by the respondent during the course of her bankruptcy. However, in view of the fact that it had not been established that the acts and omissions of the respondent damaged her creditors, as opposed to the bankruptcy process, I did not extend the period of bankruptcy for the full period open to the court. I extended the duration of the bankruptcy of the respondent for a period of four years from the date when she would otherwise have been automatically discharged from bankruptcy by operation of law.
36. In this case, there is limited evidence which establishes that the creditors have been prejudiced by the wrongdoings of the bankrupt, though the extent of that prejudice is not clear. In particular, the withdrawal of the sum of €46,567.41 from his bank account in the days immediately following his adjudication is a very grave matter. It would also appear that there are assets in the form of livestock, farm machinery and motor vehicles which could be realised for the benefit of his creditors. There are obviously folios of land in Co. Westmeath in which he is said to have an interest. Somewhat surprisingly, very limited information is before the court in relation to this. At the very least, it must remain a possibility that the failure to disclose these assets to the Official Assignee has resulted in further prejudice to the creditors of the bankrupt.
37. The conduct of the bankrupt in relation to his bankruptcy challenges the integrity of the bankruptcy process. It cannot be ignored by the court. The maintenance of the integrity of the bankruptcy process requires to be encouraged by the imposition of sanctions for breaches of the process, as was held by Clarke J. in Killally’s case following the decision in the High Court of McGovern J.
38. In this case the creditors of the bankrupt have suffered further losses over and above those they inevitably will suffer arising out of his bankruptcy by reason of his wrongdoings. He has not enabled any recovery to be made for the benefit of his creditors. He has deliberately hindered it by withdrawing €46,567 from his account. While this may not appear to be a very large sum in the context of the indebtedness of some estates-and possibly this estate also-the fact that the Official Assignee cannot identify any greater loss sustained cannot by itself be a ground to reduce the term of the possible period of postponement of the discharge from bankruptcy. That would be to permit the wrongdoer to benefit from his wrongdoing: concealing the existence and value of his assets. What is important from the perspective of the court is the degree of non co-operation and concealment of assets which has led to loss. The actual level of loss thereby caused to his creditors is a factor to be taken into account but it does not necessarily follow that a proved lesser loss to creditors will result in a shorter period of postponement of the discharge from bankruptcy, especially where the court knows that there is very little information available in relation to the assets of the bankrupt.
39. For these reasons I extend the duration of the bankruptcy of the bankrupt for a period of five years from the date when he would otherwise have been automatically discharged from bankruptcy by operation of law.
lRe: Webster ( A Bankrupt )
[2018] IEHC 41
THE HIGH COURT
BANKRUPTCY
[No. 3590]
IN THE MATTER OF SECTIONS 85 AND 85 (A) OF THE BANKRUPTCY ACT, 1988 (AS AMENDED)
BETWEEN
CHRISTOPHER D. LEHANE IN HIS CAPACITY AS THE OFFICIAL ASSIGNEE IN BANKRUPTCY
APPLICANT
AND
BREDA WEBSTER
RESPONDENT
JUDGMENT of Ms. Justice Costello delivered on 5th day of February 2018
Introduction
1. The applicant (the Official Assignee) has brought an application seeking to postpone the automatic discharge of the respondent (the Bankrupt) from bankruptcy pursuant to the provisions of s. 85A of the Bankruptcy Act, 1988, as amended, on the grounds that she has hidden from or failed to disclose to him assets which could be realised for the benefit of the creditors of the Bankrupt.
The facts
2. The Bankrupt petitioned for her own bankruptcy and she was adjudicated bankrupt on the 18th April, 2016. Her petition was accompanied by a statement of affairs sworn by the Bankrupt on the 30th March, 2016. There is a requirement in Part 1 of the statement of affairs to list the debts (if any) due to the debtor. This is marked not applicable in the statement of affairs. On the final page she states that her debts exceed her assets by the sum of €41,592.63. In fact, it was accepted that this was incorrect and the correct figure should have been €26,593.63.
3. Section 19 (d) of the Act of 1988 requires a bankrupt to “give every reasonable assistance to the Official Assignee in the administration of the estate”. It is standard practice for the Official Assignee to require all persons who are adjudicated bankrupt to complete a form described as a statement of personal information. This is not a statutory form but represents a reasonable manner in which the Official Assignee seeks to ensure the assistance of bankrupts in the administration of their estates. On p. 2 of the form it is stated that if the person requires any help to complete the form they should contact the bankruptcy division of the Insolvency Service of Ireland at the address, telephone number or email given on the form. It is accepted that the Bankrupt did not seek assistance in completing this form either from the Insolvency Service of Ireland or her solicitors. She therefore must accept the consequences of any errors she made in the information she furnished to the Official Assignee which might have been avoided had she sought guidance in completing the form.
4. The Bankrupt retired from her employment with the HSE in July 2015 upon reaching her 65th birthday. She was entitled to receive a lump sum payment. The sum of €72,460.34 was paid to her on the 1st September, 2015. By the time she presented her petition for bankruptcy and swore her statement of affairs these monies had been dissipated in the manner discussed below. It was not suggested that the sum should have been disclosed in the statement of affairs as it had been dissipated by the time of swearing that document. However, it was argued that failure to disclose this payment on p. 8 of the statement of personal information amounted to a wrongful omission on the part of the Bankrupt. Under the heading “Investments” each bankrupt is asked:
“Have you received any payment from an investment fund in the past five years?”
The answer given was No. It was not disputed by Mr. Lynch, solicitor, who appeared on behalf of the bankrupt, that she should have filled out this section by referring to the lump sum payment received on the 1st September, 2015. He accepted that a payment from an investment fund included a lump sum pension payment from her employer.
5. The statement of personal information also requested details of assets transferred within the last twelve months. The Bankrupt was requested to:
“Please detail all payments of money over €5,000, transfers of property to any creditor, or any charges created by you on property in favour of a creditor, in the twelve month period prior to your adjudication as a bankrupt.”
This part of the form was left blank by the Bankrupt and again it was accepted on her behalf that certain payments ought to have been disclosed in this section.
6. The bank statements of the Bankrupt disclosed four payments from her account which should have been disclosed in this section of the statement of personal information. These are:
(1) On the 10th September, 2016 she repayed a loan to AIB in the sum of €16,289.15.
(2) On the 16th September, 2015 she withdrew €5,400 which was used to repay a loan of €5,000 advanced to her by her brother on the 25th August, 2015 (the extra €400 was never explained).
(3) On the 17th September, 2015 she withdrew the sum of €12,500, which she used to purchase a new car. The car was included in her statement of affairs at an estimated value of €11,000.
(4) On the 18th December, 2015 she withdrew the sum of €12,703.50. This was used to pay the expenses she, her daughter and her grandson incurred attending the wedding of her son in New Zealand and other expenses, as explained below.
7. The Official Assignee became aware of the receipt of the pension lump sum and the payment of certain sums by the Bankrupt prior to the date of her adjudication from examination of her bank statements. On the 3rd August, 2016 a member of staff in the bankruptcy division of the Insolvency Service of Ireland wrote to the Bankrupt asking for an explanation of the four transactions identified above together with five other withdrawals; those being on the 10th September, 2015 in the sum of €4,000, on the 16th September, 2015 in the sum of €600, on the 25th September, 2015 in the sum of €3,000, on the 21st March, 2016 in the sum of €2,248.50 and on the 21st March, 2016 in the sum of €2,440.
8. The Bankrupt promptly replied to the letter and explained that the €600 withdrawn on the 16th September, 2015 was to pay for her car insurance and tax; the €3,000 withdrawn on the 25th September, 2015 was explained as “car bought for son plus insurance and tax as he is unemployed”; the €4,000 withdrawn on the 10th September, 2015 was to pay solicitor’s fees.
9. On the 24th March, 2017, Mr. Alex Mathews of the Insolvency Service of Ireland wrote to the Bankrupt raising further queries but these proceedings had issued before the Bankrupt had an opportunity to respond. The application herein was grounded upon an affidavit of the Official Assignee sworn on the 27th March, 2017.
10. On the 3rd April, 2017 I made an order pursuant to s. 85A (3) of the Act of 1988 that the matters complained of by the Official Assignee be further investigated and that the bankruptcy of the Bankrupt be extended pending the making of a determination on the motion. The matter was adjourned to the 8th November, 2017 to afford the Bankrupt an opportunity to reply to the affidavit of the Official Assignee.
11. She swore a replying affidavit on the 25th October, 2017. She confirmed that she repaid the loan to AIB in the sum of €16,289.15 on the 10th September, 2016 at a time prior to considering bankruptcy as a means of dealing with her debts. She corrected what she has stated in her letter to the Official Assignee regarding the payment of the 10th September, 2015 in the sum of €4,000. She stated that this was used to repay a Credit Union loan. She further explained that a payment of €2,000 made to Ms. Mairead O’Keeffe on the 16th October, 2015 was repayment of an advancement of monies provided by Ms. O’Keeffe to allow the Bankrupt to pay for urgent medical treatment which took place on the 24th August, 2014. It was not a loan for the repurchase of her motor vehicle, as had been suggested in correspondence from the Insolvency Service of Ireland.
12. In relation to the withdrawal of €12,703.50 made on the 18th December, 2015 she said this was used to pay for the flights to New Zealand so that she, her daughter and her grandson could attend her son’s wedding. It also covered the costs of accommodation , food, car hire and the extra fees required for an earlier flight to return to Ireland for health reasons.
13. She accepted that the sum included €5,000 to assist her son with the purchase of a house in New Zealand. She said at para.12 of her affidavit:
“I considered same to be a long-term loan or gift made for the purposes of assisting my son and facilitating his future needs. I say that I did not expect this loan to be repaid to me in the immediate future or at all and as such I did not include same on my statement of affairs. I say that this omission was a genuine error and was not made knowingly in an attempt to defraud my creditors or to avoid my obligations under the Bankruptcy acts.”
14. She further stated that part of the monies were used for renovations to the rented accommodation to which she moved following the surrender of her former family home. She said that the sum of €2,248.50 paid on the 21st March, 2016 was used to pay legal costs incurred in her application for bankruptcy.
Jurisdiction
15. The relevant provisions of s. 85A of the Bankruptcy Act, 1988, as amended, provide:
“(1) The Official Assignee … may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee …believes that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt…
(4) Where the court is satisfied that the bankrupt has:-
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,the Court may, where it considers just to do so, order that, in place of the discharge provided for in section 85, the bankruptcy shall stand discharged on such later date
(i) being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers just, or
(ii) being not later than the 15th anniversary of the date of the making of the adjudication order, which the Court considers just in view of the seriousness of the failure to co-operate referred to in paragraph (a) or the extent to which income or assets referred to in paragraph (b) where hidden or not disclosed, or both as the case may be.”
Application To The Facts In This Case:
16. The Official Assignee’s case is brought under s. 85A (4)(b). He alleges that the Bankrupt failed to disclose assets which could be realised for the benefit of her creditors. He raised queries in relation to sums totalling €59,181.15, which is a significant portion of the lump sum of €72,460.34. She repaid loans to AIB, her Credit Union, her brother and Ms. O’Keeffe in addition to the payment of legal fees. No real case was made that these were improper disbursements and represented assets which could be realised by way of recovery for the benefit of her creditors. The case made was that these payments ought to have been disclosed so that the Official Assignee could make his own assessment in relation to these matters.
17. The Bankrupt was criticised for failing to disclose the fact that in September 2015 she withdrew €12,500 in order to purchase a car for herself which she valued in her statement of affairs, seven months later, at €11,000. In other words, she purchased an asset for herself using the funds available to her rather than reducing her liabilities to other creditors. While there may be other issues arising from this conduct, I fail to see how this amounts to a failure on her part to disclose assets which could be realised for the benefit of her creditors. The car was disclosed. The fact that it had been bought in the relatively recent past, does not detract from the fact that monies had been expended and an asset acquired and the asset disclosed.
18. Two matters were not disclosed which should have been disclosed: the loan (or possibly gift) of €5,000 to her son in New Zealand to assist him in buying a house and the purchase of a car for €3,000 for another son, who is resident in Ireland. She was required to disclose this information to the Official Assignee upon which it would become a matter for him to assess whether or not these were assets which could be realised for the benefit of her creditors. Furthermore, the failure to disclose the loan of €5,000 to her son in New Zealand was a failure to properly complete the statement of affairs and therefore amounted to a breach of the statutory requirement of all bankrupts to complete a statement of affairs accurately within the time prescribed.
19. The statement of affairs was also incorrect insofar as the deficiency in the estate was recorded as €41,592.63 whereas it should in fact have read €26,593.63. This does not reflect a failure to disclose assets but rather a failure of mathematics in that the total value of her assets was incorrectly deducted from the total value of her liabilities.
20. Insofar as the bankrupt expended monies on herself or indeed her family in going to New Zealand or in removal expenses when moving from Donegal to County Tipperary, it is difficult to see how these could amount to assets which could be recovered or realised for the benefit of her creditors. Whether she ought to have expended such sums at a time when she was potentially insolvent is a different question.
Discussion:
21. In Killally (a bankrupt) v. the Official Assignee [2014] IESC 76, Clarke J. referred to a “significant failure” or “serious breach” of a bankrupt’s obligation to cooperate with the Official Assignee when considering the jurisdiction conferred on the court pursuant to s. 85A of the Act of 1988. In McFeely (a bankrupt) [2016] IEHC 299, I held at para.30:-
“The Oireachtas clearly contemplates a spectrum of such orders [extending the period of bankruptcy]. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.”
22. In Gaynor, a bankrupt [2017] IEHC 27 the bankrupt had concealed the existence and value of his assets from the Official Assignee and withdrawn the sum of €46,567 a few days after his adjudication. I regarded these as grave matters and extended the period of bankruptcy for a period of five years from the date when the Bankrupt would otherwise have been discharged automatically from bankruptcy in accordance with the law.
23. In this case it is important to distinguish between a failure to disclose assets and a failure to disclose payments. They are not necessarily the same thing. In this case the Official Assignee has established that there were two assets which were not disclosed to him by the Bankrupt: a loan of €5,000 to her son in New Zealand and a gift of a car purchased for €3,000 for her son in Ireland. The other payments which were not disclosed were not assets of the Bankrupt capable of being recovered for the benefit of her creditors. Thus, the established failure in this case is the failure to disclose a loan to one son in the sum €5,000 and the gift of a car purchased for €3,000 to another.
24. In determining an application brought pursuant to s. 85A it is appropriate to consider the conduct and attitude of the bankrupt and whether the established failure was wilful or deliberate. In McFeely I held, at para. 26:-
“In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs.”
25. In this case the bankrupt failed to disclose the two assets identified until they were raised by the Official Assignee in the initial correspondence of 3rd August, 2016. She replied within a fortnight and answered each of the queries raised by the Official Assignee. The Official Assignee was not satisfied with those replies but it was not until the 24th March, 2017 that he responded to her letter of August 2016. While I appreciate that his office required time to investigate her replies, the result was that she had no opportunity in which to respond further to that letter in view of the fact that the Official Assignee was obliged to bring this application, if it were to brought at all, prior to the date of her automatic discharge from bankruptcy which would have occurred on the 17th April, 2017. She cannot be criticised for not clarifying any questions that remained to be clarified prior to the bringing of the motion.
26. The Official Assignee was severely critical of her failure to disclose the receipt of the pension lump sum in her statement of personal information or the other matters I have identified. It is true that the obligation is on a bankrupt to disclose on a proactive basis the necessary information regarding his or her assets, liabilities and affairs and it is not sufficient simply to respond to queries from the Official Assignee. However, I do not regard the actions of the Bankrupt in this case to be either wilful or deliberate or to be designed to hide assets from the Official Assignee or to otherwise frustrate the realisation of assets for the benefit of her creditors. As I have said, only two assets with a maximum value of €8,000 which might have been realised for the benefit of her creditors were not disclosed. Her conduct was not persistent and ongoing, as occurred in McFeely. Unlike Farrell’s Case, she answered the Official Assignee’s questions promptly and, so far as has been established, truthfully. As I stated in Gaynor, at para.38:-
“What is important from the perspective of the court is the degree of non co-operation and concealment of assets which has led to loss.”
27. Taking all these factors into account, I do not regard the breaches of her obligations to fall on the grave end of the spectrum. Rather, I would place them at the lighter end.
28. In determining whether and, if so, for how long, the bankruptcy ought to be extended where there is an established breach of the obligations placed on a bankrupt the court is required to bear in mind the fact that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breaches, as was stated by Clarke J. in Killally.
29. Taking this into account, and having regard to the established non disclosure of assets and the conduct of the bankrupt responding to the queries raised by the Official Assignee, I believe that it is appropriate to extend the period of her bankruptcy, pursuant to the provisions of s. 85A (4) of the Act of 1988, for a period of nine months from the 17th April, 2017. In view of the fact that this period has been exceeded, the Bankrupt is entitled to an automatic discharge from her bankruptcy as of today’s date.
General discussion
30. My decision has been based upon the provisions of the Bankruptcy Act, in particular s. 85A, and the jurisprudence based upon that section. However, an analysis of this case does raise grounds for disquiet. The true deficit in the estate at the date of her petition was only €26,593.63. At the time the Bankrupt petitioned bankruptcy her only creditor was her mortgagee to whom she owed €149,682.63 in respect of a property she valued at €105,000.
31. The evidence established that in the seven months prior to the presentation of her petition she purchased two cars, one to replace her old car and one for her son, incurring an expenditure of €15,500 and she expended the sum of €12,703 paying for herself, her daughter and her grandson to attend the wedding of her son in New Zealand and advancing said son a loan of €5,000. The total of this discretionary expenditure came to €28,203. Had some or all of these monies not been expended in such a fashion then the Bankrupt would not have qualified to apply for bankruptcy. The final expenditure (the sum of €12,703) was incurred at or about the time that her personal insolvency practitioner, her solicitor Mr. Lynch, was to advise whether or not her debts could have been more appropriately dealt with by means of either a debt settlement arrangement or a personal insolvency arrangement. Prior to incurring this expenditure (or even a part of it) it might have been possible to reach an accommodation with her secured creditor and thereby avoid bankruptcy. It is a matter of concern that, whether innocently or otherwise, the Bankrupt in effect manufactured her own insolvency sufficient to meet the threshold for bankruptcy by entering into these relatively modest transactions.
32. While I have stated these reservations, it appears to me that they were not matters which could properly be taken into account in determining the application brought pursuant to s. 85A of the Act of 1988 and, therefore, I have not done so. It is the entitlement of debtors who are genuinely insolvent to seek a fresh start by means of petitioning for their own bankruptcy in appropriate circumstances. Nonetheless it is important that this is not abused or that debtors who do not in fact satisfy the statutory threshold do not petition for bankruptcy. In this regard the court must rely upon the diligence and vigilance of personal insolvency practitioners to ensure, as far as possible, that this does not occur when they are advising debtors in relation to their financial affairs.
Dunne, a Bankrupt, Re
[2017] IEHC 66
THE HIGH COURT
BANKRUPTCY
IN THE MATTER OF THE BANKRUPTCY ACT 1988 AS AMENDED
IN THE MATTER OF SEAN DUNNE (A BANKRUPT – 2478)
JUDGMENT of Ms. Justice Costello delivered on the 13th day of February 2017
The issue
1. This issue for decision is whether the bankrupt may cross examine the Official Assignee on affidavits he has sworn in an application brought by him pursuant to s. 85A of the Bankruptcy Act 1988.The Official assignee seeks an order pursuant to s. 85A(4) postponing the automatic discharge from bankruptcy of the bankrupt on the grounds that he has both failed to co-operate with the Official Assignee in the realisation of assets and has hidden from or failed to disclose to him income or assets which could be realised for the benefit of his creditors. He also seeks an order pursuant to s. 85A(3) directing further investigations into the matters complained of and that the bankruptcy period shall not stand discharged pending that investigation.
Order 76 rr73 and 76
2. The bankrupt argues that in fact he is entitled to serve a notice of cross examination upon the Official Assignee pursuant to O. 76, r. 73 of the Rules of the Superior Courts and that he does not require leave of the Court to serve such notice. This is disputed by the Official Assignee who argues that the matter falls to be decided under O. 76, r. 76 and that leave of the Court is required.
3. Order 76, rule 73 provides:—
“Wherever a witness has made an affidavit or deposition in support of any application or proceeding in the Court, any party to such application or proceeding may by notice require the attendance of such witness for cross-examination.”
4. On the other hand r. 76 provides:—
(1)“Any person wishing to require the attendance of the Official Assignee or any other officer serving in the office of the Official Assignee at any court or place to give evidence in their official capacity or to produce any records in their custody, shall first apply to the judge for liberty to do so…”
5. The bankrupt argues that the Official Assignee has brought the s. 85A proceedings himself and has sworn affidavits in support of his own application. He, the bankrupt, is not a person “wishing to require the attendance of the Official Assignee… to give evidence in their official capacity”. He therefore submits that the Official Assignee is (a) not a witness within the meaning of r. 73 and that (b) he is entitled to rely upon the provisions of r. 76. He says it follows that the bankrupt is entitled to rely upon the provisions of r. 73 and to serve a notice for cross examination on the Official Assignee without obtaining liberty so to do from the Court.
6. The issue has been considered in an earlier proceeding in this bankruptcy. In a judgment delivered on 6th March, 2014 in In the Matter of Sean Dunne (a bankrupt) [2014] IEHC 113 McGovern J. dealt with the bankrupt’s application to cross examine the Official Assignee in relation to affidavits he swore to ground his application for warrants of seizure pursuant to s. 28 of the Bankruptcy Act 1988. On that occasion the bankrupt argued that he was entitled to cross examine the Official Assignee pursuant to r. 73 and the Official Assignee argued that he was subject to the provisions of r. 76 and that he was not a “witness” within the meaning of r. 73.
7. McGovern J. accepted the submission of the Official Assignee and stated that the Official Assignee was not a witness within the meaning of O. 76, r. 73. He said “that is not to say that he is not, where appropriate, amenable to cross examination.”
8. The bankrupt sought to distinguish the situation between the current application and the one before McGovern J. in 2014 on the basis that this application related to an application under s. 85A to extend the period of bankruptcy whereas the previous case concerned an application for a warrant of seizure pursuant to s. 28 of the Act. He submitted that an application pursuant to s. 85A was of graver consequence and therefore could not be compared with an application pursuant to s. 28.
9. I can see no justification in the Rules of the Superior Courts for differentiating between the functions of the Official Assignee under different sections of the Bankruptcy Act and therefore of the application of different rules in the Rules of the Superior Courts to the Official Assignee. Rule. 76 is not qualified or ambiguous. The fact that it extends also to officials working in the Office of the Official Assignee indicates that the rule is concerned with the performance of the statutory obligations and functions conferred upon the Official Assignee. I can see no merit in an argument that there should be a distinction between the statutory powers or functions being exercised for the purpose of construing this rule. I accept the authority of McGovern J. In the Matter of Sean Dunne (a bankrupt) [2014] IEHC 113, and I therefore reject the submission of the bankrupt that he is entitled to serve a notice to cross examine the Official Assignee pursuant to O. 76, r. 73.
Liberty to cross examine the Official Assignee
10. Pursuant to r. 76, the Official Assignee may be cross examined with liberty of the Court. This was recognised by McGovern J. in the judgment referred to above. He considered the matter a month later in Re Sean Dunne (a bankrupt) [2014] IEHC 285 in a judgment he delivered on 10th April, 2014. At para. 11 he observed that anyone wishing to require the attendance in court of the Official Assignee or any other officer serving in the Office of the Official Assignee must apply to the Court for liberty to do so. He stated:—
“There are good public policy reasons for such a filtering process. It protects a court official from frivolous or vexatious applications which could have a significant impact on how he conducts the business of the court. The court should be sparing in the exercise of its discretion to order the attendance of the Official Assignee or one of his officers for cross-examination on affidavits sworn in bankruptcy proceedings.”
11. I had to consider whether to permit the cross examination of the Official Assignee under O. 40 r. 1 (not O. 76 r. 76) in proceedings against the bankrupt’s wife, in Lehane v. Dunne [2016] IEHC 96. Ms. Dunne brought a motion seeking to have the proceedings dismissed on the grounds of forum non conveniens. A number of affidavits were filed by Ms. Dunne and the Official Assignee and attorneys acting on her behalf and on behalf of the Trustee in Bankruptcy of the bankrupt in proceedings in the United States. Ms. Dunne brought an application for liberty to cross examine the Official Assignee and the Trustee’s counsel, Mr. Miltenberger. In Lehane v. Dunne [2016] IEHC 96 I noted that it was not necessary that the conflict on the affidavits be one of fact. At para. 15 I identified the task of the court in determining whether or not to permit cross examination of a deponent under O. 40, r. 1 of the Rules of the Superior Courts as follows:—
“[t]he Court must first identify the issues that fall to be determined on the Motion in respect of which the affidavits were filed. It is then necessary to consider any matters in the deponents’ affidavits which have been identified as giving rise to the need for cross-examination. These must then be assessed in light of the issues that must be determined on the Motion. If there is a conflict on the affidavits in relation to an issue that needs to be determined, can this issue be justly decided in the absence of cross-examination?”(Emphasis added)
12. In Dunne (a bankrupt) [2014] IEHC 113 McGovern J held that in order for the Court to decide whether or not to make an order that the Official Assignee be cross examined on his affidavits pursuant to O. 76, r. 76, it was necessary for the party seeking to cross examine the Official Assignee to set out on affidavit the matters on which he wished to cross examine the Official Assignee and why it was necessary for him to do so. In Irish Bank Resolution Corporation Limited v. Moran [2013] IEHC 295 Kelly J. ruled on an application to cross examine a deponent under O. 40, r. 1 stating at para 15:-
“It is incumbent upon an applicant for such an order to demonstrate (1) the probable presence of some conflict on the affidavits relevant to the issue to be determined and (2) that such issue cannot be justly decided in the absence of cross examination.”
13. As already stated, the application pending is for orders under s. 85A(3) and (4) of 1988 as amended. Section 85A(4) was amended by the Bankruptcy (Amendment) Act, 2015 but it is not applicable to the application before the Court. I therefore set out the section as inserted by s. 157 of the Personal Insolvency Act 2012:—
85A.—(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt.
(2) An application under subsection (1) shall be made on notice to the bankrupt and where made by the trustee in bankruptcy or a creditor, notice shall also be given to the Official Assignee.
(3) Where it appears to the Court that the making of an order pursuant to subsection (4) may be justified, the Court may make an order that the matters complained of by the applicant under subsection (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of section 85.
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of
the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.
14. The Official Assignee is seeking an order pursuant to subs. (3) that the matters he complains of under subs. (1) be further investigated and pending the making of a determination of the application the bankruptcy shall not stand discharged by virtue of s. 85.
The issue for determination on the motion
15. The issue that falls to be determined by the Court on the Official Assignee’s motion therefore is whether it appears to the Court that the making of an order pursuant to subs. (4) may be justified. A court may make an order pursuant to subs. (4) where the Court is satisfied that the bankrupt has (a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or (b) has hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of his creditors.
16. It is necessary then to consider the affidavit sworn in support of this motion to see what matters have been indentified as giving rise to the need for cross examination of the Official Assignee. The deponent must demonstrate the probable presence of some conflict on the affidavits relevant to the issue(s) to be determined.
The matters identified by the bankrupt upon which he seeks to cross examine the Official Assignee
17. The bankrupt swore an affidavit running to five and a half pages. At para. 5 he identifies that in the three affidavits sworn by the Official Assignee he makes a number of allegations against the bankrupt including noncooperation, failure to provide his address and the hiding of assets. He says, “In particular, the Official Assignee makes specific allegations in relation to the Lagoon Beach Hotel in South Africa, Walford, Shrewsbury Road, Ballsbridge, Dublin 4 and 19 Churchfields, Straffan, Co. Kildare.” He sets out averments in the affidavits of the Official Assignee and he recites how the Official Assignee has sought and obtained freezing orders against the Lagoon Beach Hotel in South Africa and has issued proceedings against his wife, Gayle Killilea Dunne and his son, John Dunne, amongst others “seeking to void bona fide transfers by me”. He says that as the proceedings have not been determined, the Official Assignee cannot in fact state that he has failed to disclose income or assets to the Official Assignee. He briefly outlines the Official Assignee’s complaint and his response in relation to Lagoon Beach Hotel, South Africa, Walford and 19 Churchfields, the K Club. He touches briefly on other matters in dispute relating to the US bankruptcy and he says that given the gravity of the application to extend his bankruptcy and the nature of the disputes between the parties it is equitable and just that the Official Assignee be made available for cross examination.
Decision
18. The bankrupt’s affidavit grounding the motion for liberty to cross examine the Official Assignee does not set out the matters on which he wishes to cross examine the Official Assignee or state why it is necessary for him to do so other than to say that it is equitable and just that the Official Assignee be made available for cross examination. He has not demonstrated the probable presence of some conflict on the affidavits relevant to the issue to be determined.
19. When the Court hears the s. 85A application it will not be determining issues as to the ownership of Lagoon Beach Hotel, Walford, or 19 Churchfields. It will not be determining the extent of the bankrupt’s co-operation with his trustee in bankruptcy in the United States. It will not be assessing the extent of the Official Assignee’s information in relation to the bankrupt’s estate acquired from sources other than the bankrupt. The Court is focused on the acts and, where relevant, the failures to act, of the bankrupt.
20. I have carefully read the affidavits of the Official Assignee sworn on 25th May, 2016, 15th November, 2016 and 25th January, 2017, and the two affidavits of the bankrupt sworn on 12th October, 2016 and 28th November, 2016 as well as the affidavits of Mr. James Birman, the bankrupt’s attorney in the United States and Mr. Timothy Miltenberger, the US Trustee in Bankruptcy’s attorney. The bankrupt in fact does not contest most of the facts in relation to his engagement with the Official Assignee set out in the affidavits of the Official Assignee. He relies to a large extent upon correspondence, transcripts and other documents to resist the Official Assignee’s application. I have not been able to identify conflicts on the affidavits relevant to the issues to be determined such that I could conclude that the issue cannot justly be decided in the absence of cross examination. The affidavit grounding this application does not assist in this regard.
21. I am not satisfied that there are disputes of fact which the Court will have to resolve when determining the application for orders under s. 85A(3) and/or (4). It will not be necessary for the Court to determine whether or not the Official Assignee was correct or indeed even reasonable in forming his belief as set out in his affidavits. The obligation is on the Official Assignee to bring an application before the Court grounded upon the facts which lead to his belief that the bankrupt in question has not co-operated with him or has hidden assets from him. The application is on notice to the bankrupt who is entitled to put before the Court such evidence as he or she sees fit. It is then for the Court to be satisfied on the totality of the evidence placed before it whether or not the bankrupt has co-operated with the Official Assignee or whether he or she has hidden assets from the Official Assignee as the case may be.
22. In submissions to the Court counsel for the bankrupt argued that cross examination was required as it would not be possible for the Court to decide the s. 85 application without deciding “where the truth lies”. He said the bankrupt requires to cross examine the Official Assignee in order to challenge the factual underpinning of his belief that the bankrupt has not co-operated with him or has hidden assets from him. It was submitted that the Court could not extend the period of bankruptcy without relying upon the opinion of the Official Assignee and that accordingly the bankrupt must be permitted to cross examine the Official Assignee to test the basis of that opinion.
23. He relied upon the decision of O’Donovan J. in Director of Corporate Enforcement v. Seymour [2006] IEHC 369. In that case an application was brought by the Director of Corporate Enforcement seeking the disqualification of the respondent as a director pursuant to s. 160(2) of the Companies Act 1990. The application was based upon a report of inspectors appointed under s. 8 of the Companies Act 1990 to investigate the affairs of National Irish Bank Limited and National Irish Bank Services Limited. The report was published by order of the High Court on 23rd July, 2004. In the report there were findings of improper conduct on the part of the two companies and findings as to the responsibilities of persons in the two companies for this conduct. The report was relied upon by the applicant in bringing the proceedings pursuant to s. 160. The respondent raised few if any material points of factual disagreement with the averments in the affidavits sworn on behalf of the Director but, he strenuously disputed all and any criticisms of his conduct in the report of the inspectors. The Director sought leave to cross examine the respondent on his affidavits. O’Donovan J. held:—
“The function of cross examination is to cast doubt upon the veracity, accuracy or reliability of evidence given by a witness. In this case, the issue to be determined by the court is… the commercial probity of the respondent’s conduct. In that regard, s. 22(b) of the Companies Act, 1990, provides that the report of an inspector appointed under s. 8 of the Act shall be evidence of the opinion of the inspector and, accordingly, it seems to me that, if that opinion is challenged, notwithstanding that the facts upon which the opinion is based are not disputed, the court is entitled to know the mindset of the challenger and, in my view, the only way that that can be ascertained is by confronting the challenger under cross examination.”(Emphasis added)
He concluded that in the absence of such a cross examination it would be difficult if not impossible for the trial judge to come to a reasoned conclusion with regard to the commercial probity of the respondent and accordingly the interests of justice required that such a cross examination be conducted. Counsel for the bankrupt urged that where there are disputes of fact on affidavit which the Court will have to resolve in order to reach its decision on the s. 85A application then these disputes can only be resolved by cross examination. For this reason he said it was necessary to cross examine the Official Assignee on his affidavits.
24. The decision of the Court does not involve any weighing of the belief of the Official Assignee expressed in his affidavits. As I have stated, it is for the court to be satisfied on the basis of all the evidence whether or not the Bankrupt has cooperated with the Official Assignee or as hidden assets or income from him. It follows that cross examination in relation to the conclusions of the Official Assignee or the inferences he draws from the facts he has put before the Court is not necessary for any issue which requires to be determined by the Court. Therefore the case of Director of Corporate Enforcement v. Seymour [2006] IEHC 369 does not assist the bankrupt in his argument. In fact it is authority for the proposition that the reliability and indeed reasonableness of the contrary views expressed by the bankrupt should be tested by cross examination but that does not arise in this application. In Seymour’s case, the person to be cross examined was the person whose conduct was to be assessed by the Court, in that case as to his commercial probity. In this application it is the bankrupt’s conduct which is under scrutiny not that of the Official Assignee, unless it can be said that the conduct of the Official Assignee provides an answer to the complaints made against the bankrupt.
Conclusion
25. The bankrupt has not demonstrated either the probable presence of some conflict on the affidavits relevant to the issues to be determined or that such issue cannot be justly decided in the absence of such cross examination. In view of the fact that the Court should be sparing in the exercise of its discretion to order the attendance of the Official Assignee or one of his officers for cross examination on affidavits sworn in the bankrupt proceedings, in the exercise of my discretion, I refuse the application to cross examine the Official Assignee on the affidavits sworn in support of the motion for relief under s. 85A.
McFeely, a Bankrupt
[2016] IEHC 299
JUDGMENT of Ms. Justice Costello delivered on 1st day of June, 2016
1. The bankrupt, Mr. Thomas McFeely, formerly of 2 Ailesbury Road, Ballsbridge, Dublin 4, is a well known former property developer in both Ireland and the United Kingdom. As with many property developers, he encountered severe financial difficulties and petitioned for his own bankruptcy in London and on 13th January, 2012, he was adjudicated a bankrupt in London. While a bankrupt he prepared a statement of affairs for his trustee in bankruptcy as he was required to do under the relevant insolvency legislation applicable in England and Wales. His bankruptcy in England was annulled on 15th June, 2012.
2. A creditor of Mr. McFeely petitioned for his bankruptcy within this jurisdiction. On 30th July, 2012, Dunne J. held that his centre of main interests was in Ireland and she adjudicated him a bankrupt in the state. At the date of his adjudication, his residence was 2 Ailesbury Road, Ballsbridge, Dublin 4, but the house was in the process of being repossessed and shortly thereafter NAMA took possession of the house.
3. Upon his adjudication as a bankrupt, all of his property and assets became vested in the Official Assignee. Mr. McFeely, as a bankrupt, became subject to various statutory obligations which are imposed upon all bankrupts pursuant to the Bankruptcy Act 1988, as amended. In particular, he became subject to the obligations set out in ss. 19 and 20 of the Act. The relevant sections provide as follows:-
“19.—The bankrupt shall—
(a) unless the Court otherwise directs, forthwith deliver up to the Official Assignee such books of account or other papers relating to his estate in his possession or control as the Official Assignee may from time to time request and disclose to him such of them as are in the possession or control of any other person;
(b) deliver up possession of any part of his property which is divisible among his creditors under this Act, and which is for the time being in his possession or control, to the Official Assignee or any person authorised by the Court or otherwise under the provisions of this Act to take possession of it;
(c) unless the Court otherwise directs, within the prescribed time file in the Central Office a statement of affairs in the prescribed form and deliver a copy thereof to the Official Assignee;
(d) give every reasonable assistance to the Official Assignee in the administration of the estate;
…
20.—(1) A bankrupt shall forthwith notify the Official Assignee in writing of any change in his name or address which occurs during his bankruptcy.”
4. It follows that the bankrupt was obliged to furnish the Official Assignee all of the documentation that he had in relation to his estate and insofar as there was documentation in the possession of third parties he was obliged to identify that documentation and the parties who had possession of the documentation to the Official Assignee. He was required to swear a statement of affairs which must disclose all of his assets. He was obliged to deliver up possession of all of his property to the Official Assignee. He was obliged to confirm his name and address. If during his bankruptcy he changes his address or leaves the jurisdiction, he is obliged to notify the Official Assignee.
5. The Act confers various powers upon the Official Assignee to enable him to carry out his functions and obligations under the Act. He is entitled to interview the bankrupt and persons who may have information relevant to the assets of the bankrupt and the realisation of those assets. If persons having relevant information do not assist the Official Assignee, he may bring an application for leave to have the individual examined by the court pursuant to s. 21 of the Act. Automatically upon adjudication a s. 27 warrant of seizure is granted to the Official Assignee which provides as follows:-
“27.—(1) The Court may by warrant direct the Bankruptcy Inspector or any of his assistants to seize any property of the bankrupt.
(2) An official acting under the warrant may seize any part of the bankrupt’s property in the possession or control of the bankrupt and, for the purpose of seizing any such property, may enter and if necessary break open any house, building, room or other place belonging to the bankrupt where any part of his property is believed to be.”
In addition, where there may be assets or records of the bankrupt on premises other than those of the bankrupt, it is open to the Official Assignee to apply for a warrant pursuant to s. 28 of the Act which provides as follows:-
“28.—Where it appears to the Court that there is reason to believe that any property of the bankrupt is concealed in any house, building, room or other place not belonging to the bankrupt, the Court may grant a search warrant to the Bankruptcy Inspector or any of his assistants, or other person appointed by the Court, who may execute the warrant according to the tenor thereof.”
6. Cooperation, first and foremost by the bankrupt, but by others also, with the Official Assignee is absolutely essential to the operation of the bankruptcy process. Quite simply, it cannot operate without the full cooperation of bankrupts. They have the information in relation to their estates and normally have possession of both the property and the relevant documentation or the relevant information and/or documentation is in the possession of their accountant, solicitor or other agents. It is essential to the integrity of the bankruptcy regime that the various obligations imposed by the Act on each bankrupt personally are observed and complied with fully and to the best of their respective abilities. There is no such thing as a minimum threshold of cooperation. It is for this reason that the Oireachtas has conferred a power upon the court to extend the period of bankruptcy and not to permit the automatic discharge from bankruptcy after the expiration of three (and now one) years from the date of adjudication where the court is satisfied that there has been either non-cooperation by the bankrupt with the Official Assignee in the conduct of the bankruptcy or there has been a failure to disclose assets or an attempt to hide assets from the Official Assignee. Section 85A(1) and (4) of the Act provides as follows:-
“(1) The Official Assignee, the trustee in bankruptcy or a creditor of the bankrupt may, prior to the discharge of a bankrupt pursuant to section 85, apply to the Court to object to the discharge of a bankrupt from bankruptcy in accordance with section 85 where the Official Assignee, the trustee in bankruptcy or the creditor concerned believes that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt…
(4) Where the court is satisfied that the bankrupt has—
(a) failed to co-operate with the Official Assignee in the realisation of the assets of the bankrupt, or
(b) hidden from or failed to disclose to the Official Assignee income or assets which could be realised for the benefit of the creditors of the bankrupt,
the Court may where it considers it appropriate to do so, order that in place of the discharge provided for in section 85 the bankruptcy shall stand discharged on such later date, being not later than the 8th anniversary of the date of the making of the adjudication order, as the Court considers appropriate.”
The application
7. This application was brought by the Official Assignee against the bankrupt pursuant to s. 85A of the Act. The initial grounding affidavit canvassed several instances of alleged non-cooperation on the part of the bankrupt but ultimately the application proceeded on the basis of three matters where the Official Assignee said that the bankrupt had not cooperated with him or had failed to disclose assets belonging to his estate or had sought to hide those assets. These are that:
(i) the bankrupt refused to furnish the Official Assignee with his actual address throughout the period of his bankruptcy;
(ii) the bankrupt failed to disclose his interest in seven apartments at a development referred to as Aras na Cluaine, he failed to hand over documents relating to those seven apartments and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.; and
(iii) the bankrupt failed to disclose his interest in units 12 – 16 Old Saw Mills Industrial Estate, Lower Ballymount Road, Dublin 12 , he failed to hand over documents relating to those five units and he failed to disclose that the documentation was held by a company which acted as his agent, Coalport Building Company Ltd.
The address of the bankrupt
8. At an interview with the Official Assignee shortly after his adjudication as a bankrupt in August, 2012 the bankrupt stated that his address was 258 Foreglen Road, Claudy, Co. Derry, Northern Ireland. It is common case and indeed was accepted by the bankrupt in his own affidavit that he did not reside at this address, it was his late parents’ home and it is currently owned by his brother. At the very most, he may have stayed there from time to time. It is not necessary to detail the many letters and e-mails that were opened to the Court showing that the Official Assignee was constantly seeking the bankrupt’s actual address. It is sufficient to note that the bankrupt can have been under no misapprehension that the Official Assignee required to know the address where he resided and not merely a postal address. One solicitor acting for the bankrupt stated that “[s]ince September 2009 [the Bankrupt] has spent his time living and working in London” and that the Derry address would suffice for correspondence. On one occasion it was referred to as his address for bankruptcy. In three affidavits sworn in response to this application he stated that he was from 258 Foreglen Road, Co. Derry, Northern Ireland, though each of the affidavits was sworn in London. In para. 42 of his affidavit sworn on 8th September, 2015, the bankrupt confirmed that for the entire duration of his bankruptcy he lived in London, apparently moving around and staying in different accommodation provided by benefactors whom he flatly refused to identify. All of this was either evidence directly from the bankrupt himself or evidence which was not controverted by the bankrupt.
9. The following conclusions emerge:
(a) The bankrupt gave an address to the Official Assignee as his address when in fact he never resided at that address. This did not comply with his statutory obligation.
(b) The bankrupt knew that the information he had given to the Official Assignee was false or at best misleading and at no stage sought to rectify this default and comply with his statutory obligation.
(c) The bankrupt was aware from numerous requests from the Official Assignee that he was constantly seeking his address and therefore was fully aware both of his statutory obligation to provide this information, and the fact that the Official Assignee continued to require the information. The bankrupt has refused on affidavit to state where he has resided in the past and where he currently resides.
This amounts to a knowing, deliberate breach of his statutory obligations. The breach has been continuous, deliberate and is ongoing.
10. In his defence, the bankrupt sought to blame the Official Assignee for the bankrupt’s failure to comply with the bankrupt’s statutory duties and obligations in this matter. He blamed the Official Assignee for not contacting him for more than a year after he had given him the address at Claudy, Co. Derry as his address, he blamed the Official Assignee for not seeking to visit him at the address in Derry (where he did not reside). Also he blamed the Official Assignee for not paying him to travel to Dublin to meet the Official Assignee as it would involve a trip to Ireland on the grounds of his lack of funds. All of these arguments are spurious and irrelevant. The bankrupt knew that he was not residing at that address in Derry and at all stages it was open to him to provide the correct address at which he was residing to the Official Assignee. Insofar as he is suggesting that he had no fixed abode for the three and a half years which elapsed since his date of adjudication to the date of the hearing of the motion, and therefore could not comply with the statutory obligation, I simply do not accept that this is credible in all the circumstances. The bankrupt gave evidence that he was working in London, completing a major building project and that he had the use of an apartment at the development. The bankrupt was the owner of many apartments and there is no reason to believe that he could not have resided in one of these. Far from being homeless, he was the owner of many residential properties and he has been careful not to state that he had nowhere to live.
11. In all the circumstances I am satisfied that there is very cogent evidence to the effect that the bankrupt has persistently refused to furnish the Official Assignee with his true residential address and continues to this day with his refusal.
Apartments at Aras na Cluaine
12. In November, 2012, the Official Assignee attended at the premises 1 Holles Street, Dublin 2. The freehold was owned by the bankrupt and a receiver had been appointed to the property. The premises had been leased for 25 years to Coalport Building Company Ltd., a company of which Mr. McFeely had been a director prior to his adjudication as a bankrupt in England. Coalport Building Company Ltd. acted as the agent of the bankrupt in relation to his property interests. The Official Assignee said that the receiver over the property invited him into the premises, though the leasehold interest of Coalport Building Company Ltd. was still subsisting. The Official Assignee and his assistants attended at the premises and removed documents from filing cabinets and two computers. The bankrupt objected strenuously to the admission of any of the material obtained as a result as evidence in these proceedings. I shall consider the question of the admissibility of the evidence below.
13. Amongst the papers seized were documents showing that the bankrupt was the owner of seven apartments which had not been disclosed by the bankrupt to the Official Assignee. There were leases signed by the bankrupt in respect of Apartments 93B, 184C and 185C dated respectively 13th December, 2011, and 1st April, 2012 (this latter being during the period when the bankrupt was bankrupt in England and Wales). There was a statement of account from Aras na Cluaine Management Company which referred to the bankrupt’s ownership of 21 apartments between 2006 and 2010. This listed 15 apartments which were notified to the Official Assignee but did not list the further seven apartments and a commercial/office unit at the front of the complex which had no number which had not been disclosed to the Official Assignee. The Official Assignee received an Aras na Cluaine Management Company management fee bill dated 1st April, 2012, and a statement of account in respect of the bankrupt’s 22 apartments and the outstanding management fees in respect of these apartments. He has paid these outstanding fees. The Official Assignee confirmed on affidavit that a receiver was appointed in 2014 by IBRC over the interest of the bankrupt in the 22 apartments and the commercial unit and that he provided all details in relation to the rent and tenants of the 22 apartments to the receiver. The bankrupt did not contest the authenticity of his signatures or deny the fact that he was the landlord of these properties. He said that third parties were beneficially entitled to the premises and, therefore, he was not under an obligation to disclose the interest he had in these premises to the Official Assignee.
14. Whether or not third parties were entitled to claim the whole or part of the beneficial interest in these premises, in no way alters the fundamental statutory obligation of the bankrupt to disclose to the Official Assignee the existence of his interest in these premises and to assist the Official Assignee in taking possession and control of the premises. The interest of the bankrupt in these premises had vested in the Official Assignee upon his adjudication. It is not for the bankrupt, in effect, to determine the validity of the third party claims which is the effect of his non-disclosure of his interest in the premises to the Official Assignee. That is a matter for the Official Assignee and ultimately, if necessary, the court. The Official Assignee was called upon to pay the management fees in respect of those apartments by the management company and he has discharged this debt. He has also worked with the Receiver appointed by IBRC over these apartments. It is thus clear that he has ample evidence of the bankrupt’s ownership of these assets obtained completely independently from the visit to 1 Holles Street, Dublin 2 and which the bankrupt never disclosed to him. Whether or not the evidence obtained by the Official Assignee at 1 Holles Street, Dublin 2 is admissible, which I shall consider below, I am satisfied that the Official Assignee has adduced evidence of the bankrupt’s interest in these properties which was not obtained as a result of his attendance at the premises of Coalport Building Company Ltd. and that the failure of the bankrupt to disclose his ownership of these seven apartments amounted to a very significant failure of cooperation with the Official Assignee in the administration of his bankruptcy and amounted to a failure to disclose his assets and an attempt to hide the assets from the Official Assignee.
Units 12 – 16, Old Sawmills Industrial Estate
15. The Official Assignee adduced evidence recovered from the premises, 1 Holles Street, as described above, which established that the bankrupt was the owner of Units 12 – 16 of the Old Sawmills site. The combined value of the units was estimated as between €750,000 to €1,000,000. There was a letter of loan offer from Bank of Scotland (Ireland) Ltd. to the bankrupt and Mr. Larry O’Mahony dated 20th September, 2004, which was to part-finance the acquisition of Units 12 – 16, Old Sawmills Industrial Estate, Lower Ballymount Road, Dublin 12. The offer was accepted by Mr. O’Mahony and the bankrupt. There was a memo on Coalport Building Company Ltd. headed notepaper recording that the bankrupt and Mr. O’Mahony were the owners of these units and that they intended to retain the property as an asset. There was a letter signed by Mrs. Mary McFeely for and on behalf of the bankrupt on his personal headed notepaper dated 26th June, 2006, stating that the units were owned by the bankrupt and Mr. O’Mahony. There was a lease for 10 years from 1st June, 2006, of Units 12 and 13 executed by the bankrupt and Mr. O’Mahony as landlord to Ms. Pauline Gibson. There was a lease by the bankrupt in his sole name of Unit 15 dated 1st September, 2009, for a period of 4 years, 9 months to Mr. Martin Laird of Autoview Cars Ltd. and there was a lease of Unit 16 dated 1st April, 2006, by the bankrupt and Mr. Laurence O’Mahony as landlord to Apex Tool and Plant Hire as tenant executed by the bankrupt.
16. In response to this claim, the bankrupt asserted that his brother was beneficially entitled to the properties and he asserted that he was entitled to only a 20% interest in the properties. It is, thus, clear from his own admission that he had an interest in these properties and this interest had vested in the Official Assignee regardless of the issue of the admissibility of the documents obtain from 1 Holles Street, Dublin 2. He was obliged to disclose the existence of this interest and it was a matter for the Official Assignee thereafter to realise the interest as he saw fit. It was not for the bankrupt to determine that the interest, in fact, was of no value. For the reasons I have set out in relation to the apartments at Aras na Cluaine, I do not accept that this amounts to an excuse I can accept for the breach of his statutory obligations to deliver up his property including documentation, to disclose information regarding his assets and to cooperate with the Official Assignee.
Failure to swear and file a statement of affairs
17. The Official Assignee also advanced his application to court based upon the bankrupt’s failure to swear and file a statement of affairs but he placed less emphasis upon this failure than those discussed already. Nonetheless, he drew that failure to the attention of the court. In response, the bankrupt stated that he had furnished the Official Assignee with a copy of the statement of affairs which he had prepared for his English bankruptcy and which he had furnished to his trustee in bankruptcy in England. As a matter of principle, this does not and cannot amount to compliance with the statutory obligation under the regime in this jurisdiction. That obligation extends to disclosing all the property of a bankrupt of which the bankrupt is aware. Mr. McFeely was aware of his interest in the properties at issue in these proceedings in Aras na Cluaine and the Old Sawmills. None of these properties are disclosed in the statement of affairs prepared for the English bankruptcy. Other than to say that, in effect, he had done enough by forwarding a copy of his English statement of affairs, Mr. McFeely has made no attempt to explain or excuse his failure for three and a half years to comply with this statutory obligation. This is in circumstances where he knew that the English statement of affairs did not disclose all his assets. It is a breach which stands proud of the three other complaints and applies whether or not the evidence obtained by the Official Assignee from the premises of Coalport Building Company Ltd. is admissible or not and applies whether or not the bankrupt has properly notified the Official Assignee of his address.
Section 85A application
18. The bankrupt asserted that the bringing of this application by the Official Assignee amounted to a decision and that the decision was flawed for a number of reasons. He said that the Official Assignee offended the rule nemo judex in sua causa. It is said that the conduct of the Official Assignee entitled the bankrupt to a dismissal of the application on the basis of objective bias and it was said that the conduct of the Official Assignee had “contaminated” the application. Each of these submissions, even if factually correct, which I am very far from accepting, was predicated upon a fallacy. The Official Assignee is not the decision-maker and therefore the legal principals relied upon have no application to his actions in this case. The Official Assignee has brought an application to court in order that the court may make a decision. The structure of the Act requires that the Official Assignee assesses whether or not there may be a case to answer by a bankrupt under s. 85A of the Act. The Official Assignee has no power to make the impugned decision. It is a matter for the court. The fact that he has made a recommendation to the court as part of the application does not alter the fact that it is solely a matter for the court. This was made clear by the Supreme Court in Killally (a bankrupt) v. The Official Assignee [2014] IESC 76 which is discussed more fully below.
19. Insofar as it is argued that the decision to bring the application before the court attracts these administrative and procedural protections, this argument is without merit or authority. The whole purpose of requiring the Official Assignee to bring the application before the court is in order that a judge who has not been a party to the administration of the bankruptcy may independently consider and assess the evidence adduced on both sides in relation to the issue raised. I dismiss any of the arguments advanced on behalf of the bankrupt to the effect that the application should be dismissed in limine on the grounds that the Official Assignee was somehow prevented or prohibited from bringing the application before the court.
Admissibility of evidence obtained at 1 Holles Street, Dublin 2
20. The Official Assignee removed from the premises, 1 Holles Street, Dublin 2, documents belonging to the bankrupt and pertaining to assets belonging to the bankrupt. He had a right to those documents by virtue of the vesting of all of the estate of the bankrupt in him upon the date of adjudication. Furthermore, the bankrupt had an obligation pursuant to s. 19 to deliver up possession of those documents to the Official Assignee and to notify him of the fact that they were in the possession of Coalport Building Company Ltd., the bankrupt’s agent.
21. The bankrupt objected that the warrant of seizure issued pursuant to s. 27 did not extend to the premises leased by the bankrupt to Coalport Building Company Ltd. The Official Assignee argued that as the bankrupt was the lessor and the receiver appointed over the bankrupt’s interests had invited him into possession and the premises were vacant, that he was entitled to enter the premises.
22. I do not accept that the s. 27 warrant authorised the Official Assignee to enter premises which were the subject of a 25 year lease to a third party (Coalport Building Company Ltd.) and which lease had not been determined. The fact that the bankrupt was the owner of the lessor’s interest did not give him an entitlement to possession. Likewise, the receiver did not have the right to possession of the premises during the currency of the lease and therefore had no right to invite or permit the Official Assignee to enter the premises. It was open to the Official Assignee to obtain the consent of the party entitled to possession, the lessee, to enter the premises and take possession of the documents of the bankrupt or, in the alternative, to obtain a s. 28 warrant. The fact that the premises were vacant does not alter the limits of the Official Assignee’s authority under the s. 27 warrant.
23. The bankrupt sought to exclude from evidence the documents obtained from the premises of Coalport Building Company Ltd. on the basis of the decisions in The People (Attorney General) v. O’Brien [1965] I.R. 142, The People (Director of Public Prosecutions) v. Kenny [1990] 2 I.R. 110 and DPP v. J.C. [2015] IESC 31. These cases all concerned the inadmissibility of evidence obtained in breach of the constitutional rights of an accused person. Each of those cases concerned the inviolability of the dwelling. They can have no application to this case. The bankrupt’s dwelling was not searched. The premises which were entered were those of a limited liability company. The premises was a business premises, it was not a residence. No constitutional right of the bankrupt was in any way breached. The party entitled to make complaint of the Official Assignee was the company. It is noteworthy that the company complained that the Official Assignee had removed documents belonging to the company. It made no complaint concerning the removal of documents belonging to the bankrupt as of course the Official Assignee was entitled to those documents as of right. The Official Assignee did not purport to rely upon any of the company’s documents in this application. He relied upon documents belonging to the bankrupt which were present on the premises of the company but were not company documents
24. It is not open to the bankrupt to object to the Official Assignee taking possession of the bankrupt’s documentation. It is not open to the bankrupt to object on behalf of Coalport Building Company Ltd. to the entry by the Official Assignee of the leased premises. Any wrong that may have occurred (and I am far from holding that there was such a wrong) is a matter as between Coalport Building Company Ltd. and the Official Assignee. It does not afford a basis for the bankrupt to object to the introduction of the documentation in evidence in these proceedings.
25. The bankrupt sought to invoke a constitutional right to fair procedures as the basis for excluding these documents. He argued that because the Official Assignee had possession of the documents and he did not that he was prejudiced in responding to this application. He also stated that he could not obtain copy bank statements which would assist in demonstrating the source of funds for the purchase of the apartments and units and which would therefore assist in demonstrating that the bankrupt’s brother was beneficially entitled to 80% of the ownership of the units at Old Sawmills and that third parties were entitled to some or all of the apartments at Aras na Cluaine. It was not explained why copies of the bank statements could not be obtained by the bankrupt. More fundamentally, it appeared that in the five months between the bringing of the application and the hearing, no attempt had been made by the bankrupt to obtain copies of the documents. He did not ask the Official Assignee for copies of the documents which he said were in the possession of the Official Assignee and which would assist him in dealing with the application. Apparently he did not ask the relevant bank for copies either. In those circumstances, the objection that he was not afforded fair procedures cannot be sustained on a factual basis. It is therefore, not necessary to consider the legal arguments predicated upon the alleged fact of denial of fair procedures as the bankrupt’s case on this ground must fail.
Conclusion on the issue of extension of the bankruptcy
26. In my judgment there is ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs. I will therefore make an order pursuant to s.85A extending the period of the bankruptcy in this case. The issue remaining to be determined is the duration of the extension.
Duration of extension of bankruptcy
27. Section 85A was inserted by s. 157 of the Personal Insolvency Act 2012. The Personal Insolvency Act 2012 reduced the period of bankruptcy from 12 years to three. As part of the rebalancing of the bankruptcy code effected by the Act of 2012, the Oireachtas conferred upon the court a power to make an order where it considered it appropriate so to do to extend the period of bankruptcy for a maximum period of a further five years. The section has to be understood in that context.
28. The section was considered by the Supreme Court in Killally (a bankrupt) v. The Official Assignee. The bankrupt in that case had been convicted in the Circuit Criminal Court of theft involving goods which formed part of his estate. Having pleaded guilty at his arraignment, prior to his sentencing hearing, he paid into the Bankruptcy Office the full value of the goods. Thus the creditors of the estate were not at any loss. He was sentenced to three years imprisonment with the full term suspended and directed to serve 240 hours of community service. An application to extend the period of his bankruptcy was brought and the bankrupt argued that he had already been punished in the criminal proceedings and therefore should not be subject to a further punishment by way of the extension of his period of bankruptcy. The High Court (McGovern J.) ultimately added a 12 month period out of a maximum possible extension of 36 months (due to the length of time the bankruptcy had already been in existence). The bankrupt appealed to the Supreme Court.
29. Clarke J. gave the judgment of the Supreme Court. First, he held that the court can simply extend the period of bankruptcy as a sanction to reflect the established failure to cooperate, hiding or failure to disclose relevant assets. It is not necessary that it be for the purpose of conducting further investigations. He acknowledged that a suspension of discharge from bankruptcy of that nature is necessarily penal in character and he stated that it followed that any wrongdoing would require to be clearly established before the jurisdiction is invoked. He also said that the extent of any extension of the period of bankruptcy ordered by the court should be proportionate to the established wrongdoing. At para. 3.20 of his judgment he stated:-
“[o]n behalf of the Official Assignee, on the other hand, it was contended that the personal bankruptcy regime relies to a significant extent on individual bankrupts to cooperate fully with the Official Assignee and the process. In those circumstances it is said that it is entirely appropriate for the Oireachtas to consider, for the purposes of discouraging non-compliance, that the Court should be empowered, in an appropriate case, to extend the period of bankruptcy in cases of significant failure of compliance. In my view that argument is well-founded.”
He referred to “the need to impose a significant discouragement to prevent bankrupts from failing to comply with their clear obligation to cooperate.” Clarke J. emphasised that once a court is satisfied that there has been a failure to cooperate with the Official Assignee in relation to the bankruptcy or that the bankrupt has hidden from or failed to disclose to the Official Assignee income or assets that the extension of the bankruptcy period should be proportionate to the established wrongdoing. At para. 5.6 of the judgment, Clarke J. stated:-
“[t]he trial judge was entitled to take the view, as he clearly did, that this was a serious breach of the obligation placed on Mr. Killally to cooperate with the Official Assignee and not to seek to gain personal advantage by the sale of equipment which should have formed part of his estate for bankruptcy purposes. The seriousness of that breach needs to be measured in the light of the correct view taken by the trial judge that the maintenance of the integrity of the bankruptcy process is of the utmost importance and requires to be encouraged by the imposition of sanctions for breach. In the light of those considerations, and notwithstanding the fact that Mr. Killally had already been sentenced by the criminal courts, I am of the view that it was within the range of sanctions open to the trial judge in all the circumstances of this case to impose, by way of additional civil sanction, an extension of one year on Mr. Killally’s bankruptcy.” [Emphasis added]
30. The Oireachtas empowers the court to extend the period of bankruptcy up to the eighth year anniversary of the date of adjudication. The Oireachtas clearly contemplates a spectrum of such orders. It is clear that grave breaches of the statutory obligations by bankrupts will attract the full period of extension and that lesser failures will attract a lesser sanction. The issue, therefore, for the court to consider is where along such a spectrum do the particular established acts of each individual bankrupt fall.
31. In my opinion the breaches by the bankrupt in this case which have been established to my satisfaction are at the very grave end of the spectrum. In reality the bankrupt has refused to cooperate in any meaningful way with his bankruptcy. His initial interview in August, 2012 with the Official Assignee was, to his knowledge, misleading. He gave as his address the house in Claudy, Co. Derry when he knew that he never resided at that address and did not intend to reside there. He failed to disclose his interest in 12 properties. He presented the statement of affairs which he had prepared for his English trustee in bankruptcy to the Official Assignee as disclosing his assets when he knew that it was incomplete. He continued thereafter to fail to cooperate with his bankruptcy. He sought to dictate where he would be interviewed by the Official Assignee (by insisting that the Official Assignee should travel to Derry to interview him) and he required to be paid to travel to Dublin if he was to be interviewed by the Official Assignee. Unilaterally he decided that equitable claims by third parties were valid and that therefore his estate had no claim to certain properties. He decided his 20% interest in certain properties (and quite possibly 100% interest) was of nil commercial value, though there was no charge on the properties, without informing the Official Assignee of his interest and his decision. Unlike Mr. Killally, his creditors are, or would be, but for the investigations of the Official Assignee, at a loss as a result of his persistent breach of his statutory obligations. In these proceedings, on affidavit, he has flatly refused to furnish the address or addresses where he has resided and where he now resides. He has failed to furnish a sworn statement of affairs and has furnished in purported compliance with the statutory obligation a statement of affairs prepared in his English bankruptcy which he knows to be false. He has greatly hindered the Official Assignee in the administration of his estate.
32. The effect of his non-cooperation has been severely to prejudice the realisation of his estate for the benefit of his creditors. The non-cooperation and the failure to disclose assets has been on the extreme end of the spectrum and it follows in my opinion that the extension period should reflect this fact.
33. The bankrupt argues that two factors should reduce any period of extension which the court may consider imposing. Firstly, it is said that he is aged 67 and an extension of the bankruptcy period into his seventies would be unjust. Secondly, it is said that the court should take into account the period of five months during which he was bankrupt in England and look at the totality of his period in bankruptcy.
34. In relation to the latter point, in my judgment this is impermissible in principle. Section 85A is concerned with whether or not the bankrupt has complied with his duties under Bankruptcy Act 1988, as amended, in this jurisdiction and whether or not he has cooperated with the Official Assignee. An order may be made under s. 85A which is solely penal in nature with a view to protecting the bankruptcy process in this jurisdiction. In my opinion this is fundamentally different from the situation that occurred in the Killally case. In that case the Supreme Court held that in assessing the proportionality of the period of extension it was appropriate to have regard to the sanction imposed by the criminal courts for the same acts which grounded the application for the extension of the period of Mr. Killally’s bankruptcy. That is by no means the same as taking account simpliciter of the period of bankruptcy in another jurisdiction where the bankruptcy was annulled. In any event, the bankrupt has chosen not to explain to the court the basis for the annulment of his bankruptcy in England and therefore I am not in any position to reach any conclusions in relation to the English bankruptcy other than the fact that it commenced in January, 2012 and was annulled in June, 2012. As there could be any number of reasons why this occurred I cannot assess the implications, if any, for the decision I must make in the absence of evidence. I have not taken the period of the English bankruptcy into account in assessing the appropriate period of extension in this case.
35. The bankrupt could point to no authority where age was a factor which should reduce the duration of an extension of bankruptcy. On the other hand the Official Assignee referred to the English case of The Official Receiver v. Tilbrook [2008] EWHC 2732 (Ch). The Deputy District Judge extended the period of Mr. Tilbrook’s bankruptcy for two years. In so doing, he considered the age of the bankrupt as being a matter which merited a reduction of the period for the extension of the bankruptcy. The High Court on appeal concluded that age and the fact that Mr. Tilbrook was then 60 did not count for very much by way of mitigation having regard to the aim of the legislation not just to deter the individual bankrupt but also to deter others and to protect the public. It thus seems that little, if any, weight ought to be attached to the age of the bankrupt in considering whether or not to extend the period of bankruptcy and for how long.
Conclusion
36. The bankrupt was adjudicated bankrupt in this jurisdiction on 30th July, 2012. Therefore the maximum period which his bankruptcy may be extended pursuant to s. 85A is to 30th July, 2020. For the reasons set out above, I am of the view that the discharge should be delayed for the maximum period permissible with a slight reduction due to the age of the bankrupt. I therefore extend the duration of the bankruptcy of Mr. McFeely to 30th May, 2020.