If you have clients, friends or colleagues with an unpaid judgement mortgage (‘JM’) on their family home that pre-dates 1 January 2015 then, depending on their financial circumstances, they may be able to use that JM to prove eligibility for Section 115A of the Personal Insolvency Act 2012, and thereby achieve a significant write off of their debts.

Alternatively, if they have a mortgage that was in arrears as at 1 January 2015, or had been re-structured prior to 1 January 2015, they may be able to use Section 115A.

Section 115A is one of the most complex insolvency provisions ever written: It runs to more than 4 pages.

Why was Section 115A introduced into the legislation?

After the passing of the 2012 Personal Insolvency Act it was felt that lenders would vote in favour of “fair” PIAs that allowed families to stay in their family homes. However, the experience was that lenders exercised their “Veto” and voted against many PIAs. Accordingly, in order to balance up the scales, the Government introduced Section 115A which gave the Courts an opportunity to “Review” any “No” votes by banks, and, provided that no creditors were “unfairly prejudiced”, enforce PIAs.

A particular strength of Section 115A is that the debtor may only need “one class” of creditor to vote in favour of the PIA in order for it to be successful. A Judgment Mortgage is a specific “class of creditor”.

Why would a Judgment Mortgage creditor vote in favour of a PIA?

Many creditors now realise that a Judgment Mortgage on a family home is not a practical way to collect a debt. For a full discussion of the reasons why please read the link below:

Accordingly, some JM creditors may vote in favour of a PIA, as the PIA may write off other substantial creditors thereby enabling the debtor to possibly re-finance the entire JM or, alternatively to start making payments on it.

Even if a JM creditor voted against a PIA, the PIA may still be voted through provided another class of creditors voted in favour.

If you have a client who is about to have a JM registered on their family home, then they should immediately consult a Personal Insolvency Practitioner to consider their options. As the case study discussed in the link below shows, the pending JM might be a blessing in disguise for your client.

How a Judgment Mortgage of €1.4 million forced 3 other creditors owed €59 million to accept €1,200 in full and final settlement

The High Court approved a PIA yesterday which involved a write off of some €60 million of debts in consideration of dividends amounting to €50,200.

The Relevant facts were as follows:

Family home valued at €235,000, with a Bank of Ireland mortgage of €4,681.

Bank of Scotland: First judgment mortgage for €1,462,000

Cabot: Second judgment mortgage for €1,442,000.

Everyday Finance: Unsecured debt of €905,000.

NAMA: Unsecured debt of €56,411,000.

Bank of Scotland realised that they could not enforce their judgment mortgage, as a result of the Muintir Skibbereen Credit Union judgment. After some negotiation, BOS agreed to support a PIA provided it received a dividend of €49,000. Once I had BOS support, the next step was to ensure that no other creditor would be prejudiced by the PIA. As, at that time, I could prove that the other creditors would receive nothing in a bankruptcy (because of the “protection” afforded by the BOS judgment mortgage) I formulated a PIA that provided a dividend of €100 each to Cabot and Everyday, €1,000 to NAMA and €49,000 to BOS.

Whilst NAMA initially objected to the PIA, they finally withdraw their Objection provided certain conditions were met, including extending the term of the PIA from 3 months to 12 months, which will allow for a modest increase in dividends arising from the Debtor’s surplus income over his Reasonable Living Expenses.

I am grateful to my solicitor, Alan Magee, and my barrister, Keith Farry for progressing the PIA through the High Court. I am also grateful to Mitchell O’Brien PIP for his expert witness report which supported the PIA.

PS: Some of the links in the above may not be viewable on mobile devices. The links might be best accessed via a PC.