Cork property developer Michael O’Flynn retained a right to object to the personal insolvency agreement (PIA) of his former business partner despite failing to participate in an earlier stage of the insolvency process, the Supreme Court has ruled.
Mr O’Flynn’s attempt to object to John O’Driscoll’s PIA was rejected by the Circuit Court and the High Court, which found he lacked the standing as the process depended on a creditor proving their debt, which Mr O’Flynn had not done.
The High Court then approved Mr O’Driscoll’s PIA, which is designed to return to solvency a person who cannot afford to repay their personal debts.
On Thursday the Supreme Court overturned the decision to reject Mr O’Flynn’s application, ruling that a creditor that is who is affected by the process of the PIA is entitled to lodge an objection with the court prior to approval.
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Ms Justice Elizabeth Dunne, with support of the court, said a provision in the 2012 Personal Insolvency Act “clearly envisages” that a creditor may take part in the process subsequent to the approval of a PIA or after distribution has been made if granted an extension of time within which to furnish proof of debt.
The judge said it seems the matter should be remitted to be dealt with by a lower court, but further submissions will be heard on this point.
The developer, represented by Martin Hayden SC and Keith Farry BL, claimed Mr O’Driscoll, who is also his neighbour, owes him more than €750,000 and was not insolvent when the court approved his PIA. Mr O’Driscoll, from Ovens, Co Cork, denies he was solvent.
The High Court heard the alleged debt arose from a €2.2 million personal guarantee given to Mr O’Flynn concerning liabilities of pub operator Ezeon Entertainment Ltd, which was established by Mr O’Driscoll.
Rugby coach and former Irish player Ronan O’Gara was a co-guarantor on the loan agreement and filed an affidavit as part of the dispute alleging Mr O’Driscoll had “fleeced” him.
The deal approved by the High Court had been voted upon favourably by Mr O’Driscoll’s creditors at a creditors’ meeting that Mr O’Flynn could not participate in due to his failure to prove his debt.
Mr O’Flynn appealed to the Supreme Court, which agreed to examine how the relevant provisions of the 2012 Personal Insolvency Act should be interpreted. The appeal was contested by Mr O’Driscoll’s personal insolvency practitioner, Alan McGee.
The five-judge court on Thursday held that a creditor who has failed to prove their debt when requested to do so by an insolvency practitioner retains the right to lodge a notice of objection to the PIA pursuant to section 112 of the 2012 Act.
In her ruling on behalf of the court, Ms Justice Dunne said provisions of the 2012 Act provide that a creditor who does not file a proof of debt is not entitled to vote at a creditors’ meeting or share in any distribution made under the PIA.
However, a “creditor concerned”, which she found includes anyone affected by a proposed PIA, can object to the PIA in court, she said.
Once a PIA comes into effect, a creditor with a “specified debt” is a “creditor concerned” and is bound by the terms of the PIA, notwithstanding that they have chosen not to prove their debt, she said, adding that such a creditor is prevented from recovering their debt.
It cannot be said that a creditor who has not proved their debt has “dropped out” of the process, and they are entitled to be notified by the insolvency practitioner of matters so they can object to the PIA before approval by the court, Ms Justice Dunne added.
Ms Justice Dunne was supported in her decision by Chief Justice Donal O’Donnell, Ms Justice Iseult O’Malley, Mr Justice Gerard Hogan and Ms Justice Aileen Donnelly.
In a statement responding to the decision, Mr O’Flynn said he was pleased with the outcome.
“Whilst my rights have now been vindicated, it must be noted that I did not take the step to object or appeal lightly, especially considering the parties involved,” he added.
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