A farmer and his wife have been spared the prospect of bankruptcy and the loss of their family farm after a court ruled they could avail of personal insolvency arrangements to restructure more than €500,000 in debts.
he decision is significant as it signals a new pathway for heavily indebted farmers to deal with creditors without being forced to sell their land.
Until recently, personal insolvency arrangements (PIAs) have been associated with saving family homes, rather than property.
But the Circuit Court decision is the second in eight months where both a residence and a family farm have been saved through a PIA. It is the first time such an arrangement has been approved in the face of creditor opposition.
Danske Bank had presented a bankruptcy petition against the couple, both in their early 60s, and wanted the sale of their 112-acre Co Roscommon farm after they defaulted on loans of €434,000. The bank also appointed a receiver over their single-farm payment, an EU agricultural subsidy.
However, Judge Mary Enright approved PIAs that will restructure their total debts of €522,000. Under the arrangement, they will get 20 years to repay Danske. The couple will be in their 80s by the time the debts are cleared.
While there was no debt write-off involved, it means they will be able to keep their house and family farm.
The PIAs were devised by PKF-FPM Restructuring Director & Personal Insolvency Practitioner, Gary Digney and brought before the court by barrister Keith Farry, instructed by Elizabeth Howard & Co solicitors.
Danske Bank held the mortgage security over the farmlands, which were valued at €600,000. It argued these could be sold and that the farmer could clear all his debts, keeping the family home but not the farm.
In legal filings, the bank claimed it would be unfairly prejudiced by having to wait 20 years for repayment. It said the debtors defaulted nine years ago and had made only one repayment since then. It also claimed the arrangement was unworkable as the bank closed its personal and business banking operations in the Republic of Ireland in 2013.
These arguments were rejected by Judge Enright.
In a virtual court ruling last Wednesday, she said she could not condone the behaviour of the debtors, which may have partly been due to bad advice.
However, she said the court could not come to a decision to refuse the arrangement.
“I find no unfair prejudice. All creditors are being paid in full,” Judge Enright said.
The judge noted the single-farm payment would be able to cover all Danske Bank repayments under the PIA and that the bank would receive an additional €90,000 in interest.
The couple’s financial difficulties began with an outbreak of bovine tuberculosis, which meant their cattle herd had to be destroyed in 2009. They got compensation for only a third of the value of the cattle.
After rebuilding the herd, there was further misfortune two years later when calves contracted a disease caused by a lack of iodine. This led to one-third of the herd being lost, without compensation.
These events left them unable to service bank loans under existing terms.
Mr Digney, of PKF-FPM Accountants, said investment funds that had bought up farm debt from the banks were pursuing short-term strategies to recover the borrowings.
As a result, long-term restructuring was not being offered by such entities.
However, he said this case had shown this could be achieved under a PIA.
“The process guarantees engagement with decision makers and the court can overturn unreasonable refusals and approve the proposals,” said Mr Digney.
“If a farmer can pay his debts in full over time, surely they should be allowed to do it.
“This judgment shows that there is a way of allowing that to happen.”