Loan Sales: High Court Personal Insolvency Decision Differentiates Between Types Of Secured Creditor

Following a High Court decision of 1 November 2017 , it seems that the High Court will assess an objection by a secured creditor to a personal insolvency arrangement (PIA) differently depending on whether the creditor is a bank (or other originating lender) or a loan purchaser that is not a bank.

In the former case, the High Court will look at the future capital costs to the creditor resulting from a proposed PIA. In the latter case, the High Court will view the creditor's position as more akin to that of an investor in a bond.

BACKGROUND

Shoreline Residential DAC purchased the debtors' loans from IBRC which were secured on their principal private residence (PPR). Shoreline is not a regulated entity, but had appointed Pepper Asset Servicing (a regulated credit servicer) to service the loans. When the debtors (a husband and wife) encountered financial difficulties, they developed a proposal for interlocking PIAs with a personal insolvency practitioner (PIP). Shoreline was the largest secured creditor, owed just over €323,000 with a remaining mortgage term of 18 years and 2 months. The PPR was worth approximately €190,000. Mrs Hayes was in full-time employment, with Mr Hayes in part-time employment and in receipt of social welfare payments.

PROPOSED PIA

Under the proposed PIA:

the amount owing to Shoreline would be written down to €190,000 (the value of the PPR); the remaining mortgage term would be extended from 18 years and 2 months to 27 years; and the interest rate would be fixed for the 27 year term at 3.65%. SECURED CREDITOR'S OBJECTIONS

Shoreline objected to the proposed PIA, and that objection was upheld by the Circuit Court in February 2017.

That decision was then appealed to the High Court. In the High Court, Shoreline's outlined its principal objections to the PIA as being that:

the fixing of an interest rate for 27 years was "unheard of in banking practice"; the PIA was unsustainable; and the PIA was unfairly prejudicial to it. On 1 November 2017, the High Court overturned Shoreline's rejection of the PIA and allowed the PIA to proceed. Baker J's comments regarding the proposal to fix the interest rate for 27 years are particularly noteworthy, notably the distinction she drew between a creditor that is a commercial bank/originating lender, and a creditor that is a loan buyer structured as a fund (or similar).

FIXED INTEREST RATE

As mentioned above, Shoreline argued that to fix an interest rate at 3.65% for an extended mortgage...