“Debt for equity” swap in proposed personal insolvency arrangement fails to satisfy statutory requirements

Personal insolvency - lawfulness (or otherwise) of a personal insolvency arrangement which proposes what is colloquially known as a debt for equity swap - €358,000 debt – proposal to pay €300,000 - €170,000 to be repaid by regular instalments of principal and interest - interest in the family home to value of €130,000 – relevant facts - difficult to identify any provisions in the proposed arrangement which clearly set out the bank’s rights in these terms – whether the consent of the secured creditor is required - provisions of s. 103(1) are clearly an integral and indispensable part of the statutory scheme established by the 2012-2015 Acts - mandatory such that there is no scope to excuse any failure to comply with them - protection available under s. 103(1) would be illusory if practitioners, in formulating arrangements, were free to depart from the requirements set out in the subsection - mandatory obligation rather than as a directory or aspirational provision – principal sum cannot be written down to less than market value without the consent of the secured creditor concerned - requirement of consent would be meaningless if the subsection was to be interpreted as being merely directory or aspirational - while the arrangement proposes that the bank will be given an interest in the property, the bank argues that there is no guarantee that the bank will ever recover €130,000 - fallacy to suggest that the principal sum has not been written down below €300,000 - it is crucial, if the debtor is to be returned to solvency, that the arrangement should expressly identify the amount of the ongoing liability on the part of the debtor and that it should address how that amount is to be repaid - in order that a practitioner will be in a position to draft an arrangement on that basis and in order that the debtor will be in a position to know what payments are to be made, it is critically important that the precise amount of the principal money to be repaid should be specified - one could not properly conclude for the purposes of s. 103 (2) that the reduction in value of the principal debt here was specified at €300,000 - the reality is that the principal sum has been reduced to €170,000 - in circumstances where the principal sum has been reduced below the market value of the family home (assessed in accordance with s. 105), the proposed arrangement cannot be confirmed in the absence of consent of the bank or in the absence of some other provision of the 2012- 2015 Acts which permits an arrangement of this kind – whether there is some other provision of the Acts that would permit the practitioner to proceed in the manner proposed - s. 103(2), it clearly contemplates that the share of a debtor’s equity to be given to the secured creditor is not treated as part of the reduced principal sum - s. 102 (6) (f) does not authorise a reduction in the principal sum beneath the market value of the secured property - In the absence of bank consent, the ‘debt for equity’ proposal is not capable of being confirmed under s 115A - court is given no discretion under s. 115A to override the requirements of s. 103(2) – other issues – statutory requirements not complied with in proposed “debt for equity” swap – appeal dismissed.