Significant Ruling sets precedent for people in debt to use a Personal Insolvency Arrangement (PIA)

Supreme Court ruling, in favour of FPM Personal Insolvency Practitioner, sets precedent for people struggling with debt to utilise a Personal Insolvency Arrangement (PIA).

In a landmark decision that could have widespread implications for those struggling with personal debt, especially farmers and sole traders, the Supreme Court of Ireland has clarified the legal test for insolvency, keeping the door open for people to use a personal insolvency arrangement to resolve their debt issues.

Clarifying the legal test for insolvency

The recent case involved a Wexford farmer, who faced significant debt amounting to €1.1 million. The vulture fund Promontoria (Oyster) DAC appealed the decisions of the Circuit and High Court, where both courts had approved the personal insolvency arrangement (PIA). Promontoria argued that the individual’s assets, primarily consisting of agricultural land, made him ineligible for insolvency relief. The ruling clarifies that the test for insolvency should focus on an individual’s cash flow rather than their balance sheet.

Approval of Personal Insolvency Arrangement (PIA)

In the case, a personal insolvency arrangement (PIA) was approved for the farmer, allowing him to restructure his remaining debt of €874,000 over a period of 30 years. Despite having significant agricultural land assets, our client was considered insolvent due to his limited cash flow. This decision highlights the importance of considering an individual’s financial circumstances holistically and not solely relying on their asset value.

Personal Insolvency Practitioner’s perspective

FPM Partner, Gary Digney, the farmers’ Personal Insolvency Practitioner, emphasised the significance of the ruling. He stated that this decision reaffirms that farmers with land assets are eligible to utilise the personal insolvency regime to address their debts and receiver demands. Mr. Digney also noted that each case must be evaluated individually, as there is no one-size-fits-all approach and advised those in difficulty to seek early professional advice.

The case was the first contested PIA involving a farm to be presented before the High Court and Supreme Court, further underscoring the importance of this ruling. The Supreme Court ruled against the vulture fund opposing the PIA, affirming that the Wexford farmer was indeed insolvent. It was instructed that the matter should be returned to the High Court for a proper review of whether the restructuring satisfied the statutory requirement of fairness to creditors.

Implications for farmers and individuals facing debt

This ruling has significant implications for farmers and other individuals who may be asset-rich but cash-poor. Under the Personal Insolvency Act, individuals facing insolvency can now demonstrate their financial circumstances accurately, considering factors beyond the value of their assets.

Support and recognition from industry leaders

The decision was welcomed by various parties in the agricultural and debt assistance sectors. David Hall, of the Irish Mortgage Holders Organisation, highlighted the importance of the insolvency test in the current economic climate, where property prices have increased, leaving individuals with equity but a lack of disposable income to meet their debt obligations.

Pat McCormack, President of the Irish Creamery Milk Suppliers Association, also expressed support for the ruling, recognising the challenges faced by many farmers in managing their debts. He stated that this decision provides much-needed support to farmers who are seeking a solution to their financial difficulties.

The ruling serves as a reminder that the personal insolvency regime should prioritise fairness and consider an individual’s financial circumstances comprehensively. It opens the door for more farmers and others facing similar challenges to seek relief through the insolvency system.

Seek help for financial difficulties

If you are struggling with debt, it is crucial to explore all available options. Contact FPM today to discuss how a Personal Insolvency Arrangement (PIA) may help you regain control of your financial situation.