Re Melcher

Section 135 of the Bankruptcy Act 1988 interpreted on standing of Official Assignee; inherent jurisdiction applied: ‘I am satisfied that the Applicant can bring this application, certainly pursuant to the inherent jurisdiction but also pursuant to s.135.’ [29]

1. 1.1

   Argument on statutory functions: Bankrupt/Respondent argued ‘A recission application was not one of those functions; it was an attempt to undo the order that constituted his jurisdiction … To read s.135 as conferring on the Assignee a further function to undo the adjudication itself would “circumvent that graduated scheme and its safeguards”’ [27].

2. 1.2

   Best Idea v. Kruuda [2023] IECA 317 at [110] applied: ‘Although obiter, Pilkington J’s comment reflected her own experienced view and the unanimous view of the Court of Appeal.’ [28]

3. 1.3

   Implied power; Dodd and Cush, Statutory Interpretation in Ireland (2008) at 12.23 adopted: Courts may read into enactment powers “unexpressed but which are ancillary to, or consequential upon, that which is expressly authorised by statute” [28].

   1. 1.3.1

      Hogan, Morgan and Daly, Administrative Law in Ireland (5th ed, 2019) at 12-10 test for implied power adopted: Power implied only where:

      1. “that is justified by the statutory context;
      2. the power contended for is not of such a nature that one would expect to see [it] set out specifically and
      3. the power contended for is consistent with the statutory scheme” [28].
   2. 1.3.2

      Test met: ‘Hogan’s three questions mandate such a conclusion and the power to bring such an application is ancillary to, or consequential upon, the role vested in the Applicant by statute.’ [29]

4. 1.4

   Interpreted systematically: ‘Since the Applicant is required by statute to implement and give effect to an adjudication order he is, in my view, a party affected by any such order and thus entitled to apply for its annulment or rescission’ [32].

   1. 1.4.1

      Article 5 of Regulation (EU) 2015/848 on insolvency proceedings (recast) interpreted: Enabling provisions only. ‘They stipulate that creditors must be permitted to challenge jurisdiction asserted by debtors (and indeed vice versa). They are not an exhaustive list of the parties entitled to bring such a challenge.’ [31]

   2. 1.4.2

      Exclusion requires express language: ‘I do not accept that as an officer of the Court, the Applicant could be compelled to continue exercising statutory powers administering an estate, adopting a “see no evil, hear no evil, speak no evil” approach even if, for example, he was to discover that the adjudication was improperly obtained. It would be remarkable if he was debarred from drawing material developments to the Court’s attention, even if the Court had been misled. Express language would be required to establish such a statutory intention.’ [33]

5. 1.5

   Interpreted purposively: ‘unless the Applicant can bring such issues before the Court in the public interest, smaller creditors could be left without a remedy … the official assignee, an officer of the Court undertaking a public interest role defined by statute, could be in the unedifying position of discharging a function which would grant a petitioner immunity from suit by pre-adjudication creditors even though the adjudication may have been wrongly procured. This would be an extraordinary result and can scarcely have been the intention of the Oireachtas.’ [29]

   1. 1.5.1

      Candour-breaching debtor otherwise shielded: ‘Perversely, a respondent guilty of a lack of candour could invoke the official assignee’s assistance in resisting attempts by lawful creditors to enforce pre-bankruptcy claims as the Respondent sought to do here.’ [30]

Best Idea v. Kruuda [2022] IEHC 406; [2023] IECA 317 affirmed: ‘If material information was omitted, Kruuda principles are engaged and the Court must consider materiality, culpability and the exercise of its discretion.’ [74]

1. 2.1

   Bambrick v. Cobley [2006] 1 ILRM 81 affirmed: ‘the factors most likely to weigh heavily were the materiality of the undisclosed facts and the extent to which the failure to disclose was culpable’ [13]. In Kruuda, ‘the Bambrick principles applied a fortiori to debtors’ s. 15 applications’ [15].

2. 2.2

   Inherent jurisdiction to set aside ex parte order affirmed: ‘absent a statutory provision to the contrary, the Court has an inherent jurisdiction to set aside an ex parte Order on the application of an affected party’ [25(vii)].

3. 2.3

   Duty heightened in self-adjudication: ‘While the obligation to bring all material information to the Court’s attention applies to ex parte applications generally, the duty assumes even greater significance in the context of self-adjudication petitions … Such relief fundamentally affects the unsecured creditors’ property rights in respect of lawful debts and their rights of access to the courts (including in other jurisdictions). Full disclosure before granting such permanent relief is thus even more important than in interim applications pending an early inter partes hearing (where the onus stays with the applicant).’ [4]

4. 2.4

   COMI facts in particular: Applicants ‘must also fully and fairly disclose any material facts which might point to a different COMI determination. They must disclose both helpful and unhelpful evidence and any order may be set aside if material information is withheld.’ [5]

5. 2.5

   Forms not exhaustive: ‘Applicants for self-adjudication do not necessarily discharge their duty of candour simply by completing the statement of affairs. If they have more information which could reasonably be expected to be material to the application then it should be volunteered whether or not it is expressly requested on the form, even if it is unhelpful or requires explanation.’ [91(b)]

   1. 2.5.1

      Duty continues in replying evidence: ‘It is incumbent upon him to volunteer all material information, rather than confining himself to responding to the Applicant’s averments.’ [93(i)]

Information withheld material: ‘the Applicant was asking me to determine whether the withheld/misrepresented information raised the possibility of a different outcome on the original application. The distinction matters and the latter approach is correct. I consider that information was withheld or misrepresented and the Applicant has established that it was material.’ [91]

1. 3.1

   James Nugent (a debtor) [2016] IEHC 127 on objective test applied: “the test is an objective one as to what could have influenced me in the exercise of my jurisdiction in making the order ex parte.” [14(vi)]

2. 3.2

   James Nugent (a debtor) [2016] IEHC 127 on possibility of different course, as endorsed in Best Idea v. Kruuda [2023] IECA 317, applied: “the crux of any issue regarding material non-disclosure is whether it raises the possibility (as opposed to a clear certainty) that a different course may have been adopted by the judge determining the application.” [25(iii)]

   1. 3.2.1

      Possibility established: ‘the Applicant does not need to rebut the presumption at this stage but to establish the possibility of a different outcome on the original application in the event of full disclosure. He has done so.’ [90(vii)]

3. 3.3

   Creditors’ silence immaterial: ‘I would not assume that they accepted that the Respondent’s invocation of Irish COMI was genuine.’ [101]

Petition probably refused or adjourned: ‘I would probably either have refused it outright or at least adjourned it to allow further parties to be placed on notice or for the provision of further evidence to enable me to satisfy myself that the statutory criteria (including as to COMI and jurisdiction) had been met’ [95].

COMI undetermined: ‘the current application is not the forum for me to adjudicate such issues. The materiality test is met once I am satisfied that material evidence has been withheld which at least raises the possibility of a different outcome on COMI or other issues.’ [86]

1. 5.1

   Article 3(1) classification reserved: ‘I would require further submissions as to whether the Respondent falls to be considered under the third or fourth paragraph of Article 3(1) and the possible impact, if any, of the interposition of a company established by and wholly owned by the Respondent which then employs him.’ [84]

2. 5.2

   Genuine migration lawful: ‘It is lawful to change one’s residence and COMI to avail of a more advantageous bankruptcy regime unless, for example, the arrangements are a sham or an attempt to defraud creditors or conceal assets.’ [120]

   1. 5.2.1

      Shierson v. Vlieland-Boddy [2005] 1 WLR 3966 on change of COMI adopted, as in O’Donnell v. Bank of Ireland [2015] IESC 14: Change must be “a change based on substance and not an illusion; and that that change has the necessary element of permanence.” [120]

3. 5.3

   Irish indicia not conclusive: Lease, gym membership, utility bills, PPS number, car and employment ‘would be obvious and easy steps to be taken by a self-adjudicant cynically seeking to create a sham COMI, justified or not. Irish COMI is not a flag of convenience to be determined on the basis of shallow, transitory or superficial evidence.’ [90]

4. 5.4

   Own Irish employer company not conclusive: ‘I also reject the submission that the establishment of the Irish Company is necessarily sufficient to trigger the presumption of Irish COMI. If it was in fact a shell company and the transaction was a sham then it may not have that effect.’ [85(g)]

Iberian affairs disclosable: ‘the Respondent should have disclosed all four Iberian addresses, the fact that he entered into the Lease and the arrears.’ [92(c)] ‘Since he relies on evidence such as the German deregistration, Irish utility bills and tenancy agreements as confirming his Irish COMI, his (higher value) Spanish lease, Spanish utility bills and Spanish address registration are at least equally probative countervailing evidence.’ [87]

1. 6.1

   Representation as Spanish resident material: ‘whatever the true position may be, it is material that there was evidence pointing to Spain as his actual place of residence and that the Respondent held himself out to (at least some) creditors as living in Spain.’ [92(d)] ‘Even more seriously, the Respondent misinformed the Spanish Court itself as to whether he was actually living in the House at the time of the litigation.’ [79(e)]

2. 6.2

   Single transaction outweighs: ‘the Respondent entered into a two-year €204,000 commitment when he signed the Lease purporting to secure a home in Barcelona … In terms of objective ascertainability that single transaction may well outweigh the aggregate value of all other economic activity in which he personally engaged in the months preceding the petition.’ [85(c)]

   1. 6.2.1

      Materiality qualitative as well as quantitative: ‘while the debt was large from the perspective of Ms Riemer, a private individual, it was insignificant in the context of the German debts. Furthermore, omitted creditors are not shut out and may still prove in the bankruptcy. However, there is a qualitative as well as of a quantitative aspect to disclosures.’ [92(c)]

   2. 6.2.2

      Disputed debt still disclosable: ‘The vain assertion of a meritless defence cannot change reality.’ [79(a)] ‘even if the Respondent believed he had a defence he should still have disclosed the arrears as a contingent debt.’ [79(c)]

Presentation misleading: ‘It was misleading to refer to the German deregistration and Irish establishment without disclosing the Spanish connections.’ [79(h)]

1. 7.1

   Untrue averment alone sufficient: ‘Respondent’s original COMI declaration was premised on his Verifying Affidavit’s averment that all creditors were informed of his move to Ireland and provided with his current residential address. It was a crucial and misleading element of his COMI declaration … I need not adjudicate his subjective state of mind; it is sufficient to note that, objectively speaking, his statement was materially misleading … That objective misstatement of the position on a highly material issue would, of itself, justify granting the application.’ [88]

Directorships and Foundation material: ‘The information about the directorships and the Foundation was material and this should have been obvious not only to any legal, financial or insolvency advisor but also to any applicant for self-adjudication.’ [93(g)] ‘It was open to him to explain why they should be disregarded but not to omit them entirely.’ [92(e)]

Discretionary expectancy disclosable: ‘he should have disclosed the Foundation, the 100% owner of the Yors Group and the source of all revenues for the Irish Company which he relied upon to ground his claim to Irish COMI.’ [93(e)] ‘All roads lead to the Foundation … In any event, the Foundation should have been disclosed even if it was only a discretionary expectancy with no enforceable entitlement’ [97]. ‘The current position can charitably be described as murky’ [79(r)].

Accounts: Liechtenstein account ‘should still have been disclosed on his original application, with any necessary clarification’ [94].

James Nugent (a debtor) [2016] IEHC 127 on objective blameworthiness applied: “Blameworthiness, then, does not have to be established as personal blameworthiness, and it is to be tested objectively in the light of the materiality of the matters not disclosed.” [14(vii)]

1. 11.1

   Deliberateness not determined: ‘I need not determine whether he deliberately misled the Court. Suffice it to say that it was objectively misleading, he had no reasonable basis for his approach and his conduct was culpable, at least as much as the conduct in Bambrick, Nugent and Kruuda … In practice, only “helpful” material seems to have been disclosed and no convincing explanation has been advanced for the approach adopted. Whatever his intentions, a seriously misleading application resulted. I consider such actions culpable.’ [105]

Objectively culpable: ‘In my view his nondisclosures were objectively culpable. I do not see any objective basis for him to have concluded that his disclosures were adequate. The need to disclose the Lease, the arrears, the Spanish proceedings, the directorships, the Foundation, the usage of the Company accounts and the connections between the corporate entities should have been obvious to him, an experienced business person and managing director’ [104].

1. 12.1

   No Irish legal advice: ‘The PIP specifically and prudently advised the Respondent that he needed to take Irish legal advice “to ensure that you meet the residency criteria in advance of making any application”. The Respondent ignored that warning … The Respondent’s failure to take Irish legal advice as to his responsibilities, especially when expressly warned of the need to do so, renders his failure more culpable.’ [103]

2. 12.2

   Minimal cooperation: ‘I would be less effusive as to the Respondent’s level of engagement post adjudication which seems to me to have been the absolute minimum that could have been expected, or less … Accordingly, I am disinclined to give him much credit for engagement and cooperation.’ [102]

   1. 12.2.1

      False post-adjudication statement: ‘the false confirmation that he was not involved in any legal proceedings although the Spanish hearing was listed for the following day. He failed to give a satisfactory explanation for that omission other than a Micawberesque expectation that he expected that it would be sorted’ [79(w)].

3. 12.3

   Evidence treated with circumspection: ‘Having seen and heard him, I would treat his evidence with considerable circumspection.’ [80] ‘The proceedings had not been opened up against him – he initiated them … That was not a unique example of acrobatic linguistics.’ [79(k)]

Recklessness found: ‘The Respondent was at least reckless in his failure to disclose the existence of the Lease, the arrears, the litigation, the Foundation, his previous role in the German companies and other matters to the Court.’ [103]

Papanicola v. Humphreys [2005] EWHC 335 on discretion under s.135 adopted, as in Best Idea v. Kruuda [2023] IECA 317:

1. “The section gives the court a wide discretion to review vary or rescind any order made in the exercise of the bankruptcy jurisdiction.
2. The onus is on the applicant to demonstrate the existence of circumstances which justify exercise of the discretion in his favour.
3. Those circumstances must be exceptional.
4. The circumstances relied on must involve a material difference to what was before the court which made the original order. In other words there must be something new to justify the overturning of the original order.
5. There is no limit to the factors which may be taken into account. They can include, for example, changes which have occurred since the making of the original order and significant facts which, although in existence at the time of the original order, were not brought to the court’s attention at that time.
6. Where the new circumstances relied on consist of or include new evidence which could have been made available at the original hearing, that, and any explanation by the applicant given for the failure to produce it then or any lack of such explanation, are factors which can be taken into account in the exercise of the discretion.” [24]

1. 14.1

   Criteria met: ‘I consider that the approach to the exercise of the discretion in those cases would also support annulment here’ [106].

Candour key factor: ‘a debtor seeking statutory and judicial protection from lawful creditors, Irish or otherwise, must put all cards on the table in his application seeking such immunity and this is a key factor in the exercise of my discretion … Other factors weighing in favour of my exercising the discretion to annul include:

1. the wide ranging nature of the nondisclosures, going to the heart of the application;
2. the significant culpability;
3. the potential prejudice to innocent parties such as, in this case, Ms Riemer, a lawful creditor;
4. the Respondent’s attempt to secure virtual immunity from suit by his unsecured creditors while failing to meet his duty of candour potentially undermined the integrity of the Irish bankruptcy regime and the proper functioning of the statutory scheme’ [111].

Section 85A of the Bankruptcy Act 1988 not applied: ‘an extension is the statutory remedy for post-adjudication asset concealment or obstruction … A breach of the duty of candour on a self-adjudication application, however egregious, would not justify an extension (unless it continued post adjudication). This application is the appropriate response to nondisclosure on a self-adjudication petition.’ [74]

Delay not decisive: ‘I am not disposed to refuse relief on the ground of delay on this occasion bearing in mind the novelty of the application, the fact that the Applicant believed it was appropriate to gather a complete picture in respect of all issues before bringing the applications and the Respondent’s responsibility in not making full disclosure in the first place … The courts may be less inclined to entertain belated applications in future.’ [110]

1. 17.1

   Official Assignee/Applicant too slow: ‘he should have moved faster. Delay, culminating in an application on the eve of discharge, goes to the Court’s discretion. The Applicant should have avoided such a compressed timetable.’ [108]

   1. 17.1.1

      Escalate when annulment arises: ‘if emerging evidence suggests the possible need for an annulment application … then he should escalate matters and move quickly, shifting gears if circumstances so warrant.’ [109]

Annulment not disproportionate: ‘I do not agree that annulment would be disproportionate – allowing the Respondent to retain an inappropriately obtained benefit appears to be more unjust.’ [114] ‘Although the Respondent complains that annulment would deprive him of bankruptcy protection, that situation is of his own making.’ [116]

Annulment not pointless: ‘I do not agree that annulment would be pointless as any such application would have to be on the basis of full disclosure, including as to COMI, meaning that an adjudication order would only be forthcoming if justified on the basis of accurate and complete information.’ [113]

No prejudice by association: ‘There is no question of the Respondent being prejudiced by association. He bears the consequences of his own multiple defaults.’ [115]

1. 20.1

   Pattern in other self-adjudications relevant: ‘Although not decisive on this occasion, the patterns identified by the Applicant are relevant.’ [118]

Affidavit prepared with AI tools disregarded: ‘I disregarded Ms Riemer’s affidavit due to concerns about its preparation and translation (with the aid of ChatGPT, Perplexity, Google Translate). Affidavits must reflect the witness’s own testimony.’ [65]

Informal interpreter irregular: Former wife of Bankrupt/Respondent testified ‘with the assistance of an informal translator, an irregular and, as it transpired, unsatisfactory arrangement.’ [68]

Re Eichler (No 2) [2011] BPIR 1293 postscript adopted: Court “may adjourn the petition and require that notice of the hearing be given to the debtor’s creditors so that they can appear and make representations at that stage in opposition to the making of the order instead of having to apply after the order has been made.” [120]

Legislation on jurisdiction after discharge recommended: ‘In any future revision of the Act, it may be helpful to determine the extent of the court’s jurisdiction to extend or annul a bankruptcy in exceptional circumstances even after the discharge from bankruptcy.’ [117]

Adjudication annulled: ‘I am satisfied that the adjudication should be annulled or rescinded.’ [123]

Leave to enforce not granted instead: ‘given the gravity of the issues and the significant consequences of allowing the bankruptcy to stand in terms of his German creditors it is more appropriate to annul the entire bankruptcy on the basis of the culpable material nondisclosure.’ [112]