The High Court has approved a personal insolvency arrangement for a Waterford couple, blocking an attempt by the investment fund which acquired their mortgage to repossess the family home.
Shoreline Residential, an affiliate of vulture fund Lone Star, had vetoed an insolvency arrangement presented at a creditors' meeting and was seeking to repossess the couple's home. That action was stayed pending an application to the High Court to approve the insolvency arrangement over Shoreline's objections.
In the High Court, sitting on the South Eastern Circuit in Waterford, Ms Justice Baker granted the application and ruled the insolvency arrangement should be implemented as originally conceived.
The Personal Insolvency Arrangement (PIA) involves a writedown of the outstanding mortgage debt to Shoreline from €323,626 to €190,000 and an extension of the term of the loan from 21 years to 27 years. It also involves fixing the interest rate for the entire outstanding term of the mortgage to 3.65%.
Shoreline had objected to this. It argued that the terms of the PIA were "unfairly prejudicial" and that they were a radical departure from the fixed rate mortgage loans available to borrowers on the Irish market. Shoreline argued that no lender would grant a 27 year fixed rate mortgage on those terms. It had also argued the PIA would result in a markedly worse outcome for it than if the couple had declared bankruptcy and Shoreline was allowed to sell the home (currently valued at around €190,000) in satisfaction of the debt.
Ms Justice Baker rejected these arguments. She said part of the aim of the Insolvency Act was to allow debtors to restructure their loans on sustainable terms but that the Act also explicitly stated that a PIA should, as far as was practical, keep a debtor in their principal private residence.
In relation to the interest rate proposed in the PIA she said Shoreline was an investment fund, not a bank, and the relevant factor was the return on its investment and not whether or not a lender would advance a mortgage on the terms sought in the PIA.
The judgement will be closely read by insolvency practitioners and debtors as it offers a precedent for enforcing a Personal Insolvency Arrangement even after its rejection by creditors.
Ms Justice Baker noted, however, that the case had a number of unusual features. The PIA, for example, means the couple will still be making mortgage payments when they are aged 79 and 68 respectively.
The judge accepted the argument that an extended mortgage term which would leave someone paying off a mortgage debt in retirement "would not always be desirable". But, she said, "the factor which makes the present proposal acceptable is that Mrs Hayes is significantly younger than her husband, her income is secure and the proposed extended mortgage term will not continue far into her retirement".