In Brief:
The Supreme Court dismissed an appeal by a former solicitor of a High Court bankruptcy adjudication grounded on a bankruptcy summons issued by the Collector General of the Revenue Commissioners (“Revenue”). Whilst no overstatement arose in this case, the Supreme Court also restated the legal principle that an overstatement of liability in a bankruptcy summons will result in the dismissal of the bankruptcy petition pursuant to the Bankruptcy Act 1988 (“the 1988 Act”), even where the undisputed portion of the debt exceeds the legislative threshold.
Background
A bankruptcy summons was issued and served on the appellant in April 2016 on foot of seven Judgments, amounting to €405,808.66. The appellant failed to challenge the bankruptcy summons within the 14-day time limit prescribed by Order 76, Rule 13 (2) of the Rules of the Superior Courts. He sought an extension of time to challenge the validity of the bankruptcy summons on the basis that the summons allegedly overstated the liability by €71,030. The Appellant never disputed that a substantial amount of the debt to the sum of €334,778.66 remained unpaid by him to Revenue.
Decision of the High Court
The High Court concluded that there was no substantive argument put forward to demonstrate that an extension of time should be granted. Mr. Justice Costello considered the grounds on which the appellant sought to dismiss the bankruptcy summons; an alleged payment resulting in a potential overstatement of the liability and an agreement that the appellant claimed to have reached with Revenue and the Department of Agriculture, Food and Marine. This alleged agreement involved attaching forestry grants due to the appellant’s client in order to discharge the stamp duty liability. The court dismissed the arguments made by the appellant and rejected the application to dismiss the bankruptcy summons on its merits. The appellant was adjudicated bankrupt by the High Court on 13 November 2017.
Decision of Court of Appeal
The High Court decision was appealed to the Court of Appeal. Mr. Justice Collins found that there was no credible evidence to suggest that any overpayment had been made by the appellant. The court expressed reservation regarding the approach taken in the case law, which indicates that a bankruptcy summons should be dismissed where the liability is overstated, even where the undisputed portion of the debt exceeded the statutory minimum required for a bankruptcy summons.
Leave to Appeal to the Supreme Court
The appellant was granted leave to appeal by a determination of the Supreme Court on 14 June 2021. The Court listed three issues to be addressed in the appeal; firstly, does any overstatement of a claim of debt in a bankruptcy summons cause the dismissal of the petition or does it suffice that at least the statutory threshold is met, no matter how overstated a bankruptcy summons is in amount? Secondly, what threshold of credibility must be passed by a debtor whereby he or she may dispute, as an overstatement, a sum claimed in bankruptcy? Thirdly, whether the failure to assert a defence in time is fatal to raising an argument that the summons overstates the debt due?
Issues before the Supreme Court
1. The effect of an overstatement of debt
The appellant relied on a long-standing common law precedent that a court should dismiss a summons where it contains an overstatement of the amount due by the appellant. This line of case law states that the court, pursuant to section 8(6)(b) of the 1988 Act, must dismiss the summons if it is shown that an issue would arise at trial. The appellant argued that as the 1988 Act is classified as a penal statute; it must be interpreted considering the principle of doubtful penalisation.
Revenue, the respondent, contended that no overpayment was made by the appellant and therefore, the liability stated on the bankruptcy summons is correct, and that the High Court and Court of Appeal judgments should not be overturned. Without prejudice to this position, the respondent did submit that an overstatement of liability declared on the bankruptcy summons may have been fatal to the validity of the bankruptcy summons under the old regime. However, as the Bankruptcy (Amendment) Act 2015 considerably diminished the consequences of being adjudicated bankrupt, the principle ought to be reviewed.
2. The Credibility Threshold
The appellant submitted that the credibility threshold that a debtor must meet is proving that an issue, which is not fanciful, illusionary, or unreal, exists. He argued that there must be no doubt as to the point of law raised by a debtor in order to justify upholding the summons.
In response to this, the respondent argued that the threshold which should be met is set out in the case law and considers whether a “real and substantial issue” exists, which is at least arguable and has some prospects of success.
3. Extension of Time
It was suggested by the appellant that the court retains discretion to grant an extension of time in the interests of justice. He further submitted that no prejudice would emerge for the respondent in granting the extension of time. He stated that that, by comparison, if the extension of time was not granted, there would be greater implications for a debtor, who would be prevented from arguing his case for the dismissal of the bankruptcy summons.
The respondent asserted that the appellant never sought to challenge the underlying judgments on which the bankruptcy summons is based, and that an attempt by the appellant to challenge the figures amounts to a collateral attack on the previous decisions of the courts. The respondent also submitted that the appellant did not display sufficient reason for an extension of time.
Judgment of the Supreme Court
The Supreme Court dismissed the appeal.
In dealing with the effect of an overstatement of debt issue, it was concluded that the authorities in this area show support for strict compliance with the 1988 Act having regard to the penal nature of an adjudication. Ms. Justice Dunne noted that the 1988 Act is clear and that an act of bankruptcy cannot be committed by a failure to pay a sum demanded in excess of the sum due. Ms. Justice Dunne acknowledged that the 1988 Act had undergone significant reform which reduced the severity of an adjudication of bankruptcy and suggested that its operation may not be suitable for the modern commercial world.
It was held that in seeking to dismiss a bankruptcy summons a debtor must prove the credibility test for a debtor to prove is that “a real and substantial issue” must be shown in order to dismiss a bankruptcy summons.
In accepting the respondents arguments on the extension of time issue, the court stated that the principles of Eire Continental v Clonmel Foods Limited [1955] 1 IR 170 (“Eire Continental”) applied by analogy when seeking an extension of time to challenge a bankruptcy summons outside of the statutory time limit. The key principles are as follows:
- that the applicant must show a bona fide intention to form an appeal within the permitted time;
- the existence of a mistake in the decision of the lower courts, with a mistake as to procedure not being sufficient; and
- that the applicant must be able to establish that an arguable ground of appeal exists.
Implications of the Supreme Court decision in bankruptcy
This decision is an important restatement of the well-established principles governing bankruptcy in Ireland. In particular:
- An act of bankruptcy cannot be committed by a failure to pay a sum demanded in excess of the sum due.
- In seeking to dismiss a bankruptcy summons a debtor must prove that “a real and substantial issue”.
- Restated the principles set out in Eire Continental.
Holmes were pleased to guide our client, the Revenue, to a successful outcome in this long running dispute.
AIB Business Banking Limerick has worked very successfully with HOLMES for a number of years. We value their expertise and advice on transactions for our commercial customers in all aspects of commercial lending. The strong working relationships we have with their Banking Te...
Diarmuid Leen
Head of Business Development | New Business Team – Business Banking Southwest
Holmes O’Malley Sexton's managing partner Harry Fehily is involved in a wide range of disputes on behalf of corporate clients, being particularly active in the construction and insurance sectors. Clients say that he is "commercial and communicates clearly and concisely.
Harry Fehily
Dispute Resolution | Chambers Europe 2021
Harry Fehily is best known for his handling of claims arising under financial lines policies. He has experience in professional liability claims brought against insured accountants. He also defends EL/PL claims. Sources say that he is "knowledgeable and efficient."
Harry Fehily
Insurance Dispute Resolution | Chambers Europe 2021
Harry Fehily maintains a solid reputation in the dispute resolution market. He advises on wide-ranging topics including insurance claims, commercial disputes over the early termination of contracts and the defence of regulatory enforcement actions. Clients appreciate his ava...
Harry Fehily
Dispute Resolution | Chambers Europe 2020
Harry Fehily maintains a solid reputation in the dispute resolution market. He advises on wide-ranging topics including insurance claims, commercial disputes over the early termination of contracts and the defence of regulatory enforcement actions. Clients appreciate his ava...
Harry Fehily
Dispute Resolution | Chambers Global 2020
Holmes provides services across Ireland and they also have an office in London. The team is particularly active in property finance, advising on a number of high-profile development finance matters, M&A financing and restructuring transactions. The ‘learned and astute’ L...
Harry Fehily
Banking and Finance | Legal 500 EMEA 2020
Insurance litigation, defamation and environmental disputes are key areas of strength at Holmes O’Malley Sexton, which is also increasingly active in contentious construction matters. Harry Fehily is active in a range of commercial disputes and also strong for mediation.
Harry Fehily
Dispute Resolution | Legal 500 EMEA 2020
The team, which is based across Ireland regularly handles litigation in the public sector, including judicial review proceedings and regulatory matters for healthcare and education entities. Pat McInerney regularly acts for public sector bodies.
Pat McInerney
Dispute Resolution | Legal 500 EMEA 2020
Insurance litigation, defamation and environmental disputes are key areas of strength at Holmes O’Malley Sexton, which is also increasingly active in contentious construction matters. The team, which is based across the firm’s offices in Dublin and Limerick, also regular...
Dispute Resolution | Legal 500 EMEA 2020
The Holmes team have particular expertise in the education sector, representing a number of universities, acting for a range of state and semi-state bodies and statutory corporations. The practice advises on judicial review proceedings and disputes in the public sector.
Public Sector | Legal 500 EMEA 2020
The Holmes team have particular expertise in the education sector, representing a number of universities, acting for a range of state and semi-state bodies and statutory corporations. Harry Fehily has extensive experience of judicial reviews and regulatory investigations.
Harry Fehily
Public Sector | Legal 500 EMEA 2020
The 'articulate and intelligent' team has a national presence, with offices in Dublin, Cork and Limerick. It is highly experienced in property and construction finance, as well as M&A finance and refinancings. Limerick-based Lisa Killeen leads the practice.
Banking and Finance | Legal 500 EMEA 2021
Excellent and professional and know their brief well.
Banking and Finance | Legal 500 EMEA 2021
A firm of substantial scale. Their lawyers have very close relationships with their clients and in addition to providing legal advice are a trusted adviser and confidante. The team are very well networked and are very visible in the market that they serve.
Banking and Finance | Legal 500 EMEA 2021
