High Court extends property developer’s bankruptcy due to lack of cooperation

About this case:

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Mr Thomas McFeely was declared bankrupt in Ireland and the UK in 2012.

All of his property and assets therefore became vested in the Official Assignee, and he became subject to various statutory obligations under the Bankruptcy Act 1988.

He was obliged to furnish the Official Assignee with all of the documentation that he had in relation to his estate and to identify any documentation held by third parties.

He was also required to swear a statement of affairs disclosing all of his assets, deliver up possession of all of his property to the Official Assignee, and confirm his name and address.

If during his bankruptcy he changed his address or leaves the jurisdiction, he was obliged to notify the Official Assignee.

The High Court observed that cooperation by the bankrupt and any relevant third parties was essential to the operation of the bankruptcy process.

In the present case, the Official Assignee had brought an application under s.85A of the Act, which allows Assignees to apply to the Court to object to the discharge of a bankrupt from bankruptcy where they believe that the bankrupt has failed to co-operate in the realisation of the assets of the bankrupt, or hidden from or failed to disclose income or assets which could be realised for the benefit of the creditors of the bankrupt.

The basis for this application was that the bankrupt refused to give the Assignee his address, and had failed to disclose his interest in seven apartments and five industrial units.

In relation to the address, the bankrupt had identified an address in Co. Derry, but it was well known that he did not reside there, and spent much of his time in London.

The High Court concluded that the bankrupt had given an address when in fact he never resided at that address, which did not comply with his statutory obligation.

Further, it concluded that the bankrupt knew that the information was false or at best misleading, and was fully aware of his statutory obligation to provide the information.

This amounted to a knowing, deliberate breach of his statutory obligations, which was continuous, deliberate and is ongoing.

In relation to the apartments, the Court heard that the Official Assignee had seized documents from premises leased to Coalport Building Company Ltd. which revealed the bankrupt’s interest in the seven properties.

The bankrupt did not deny the fact that he was the landlord of these properties, but argued that third parties were beneficially entitled to the premises and, therefore, he was not under an obligation to disclose the interest he had in these premises to the Official Assignee.

The Court rejected this argument, stating that it was not for the bankrupt to determine the validity of third party claims which result in non-disclosure of his interest, this was a matter for the Official Assignee.

Whether or not the evidence was admissible, which was disputed by the bankrupt, it was apparent that the non-disclosure amounted to a very significant failure of cooperation, and an attempt to hide his assets.

Similarly, in the case of the industrial units, the bankrupt asserted that his brother was beneficially entitled to the properties and he asserted that he was entitled to only a 20% interest in the properties.

Thus, by his own admission he had an interest that should have been disclosed, and he had therefore breached his obligations again.

The Official Assignee also advanced his application to court based upon the bankrupt’s failure to swear and file a statement of affairs.

In response, the bankrupt stated that he had furnished the Official Assignee with a copy of the statement of affairs which he had prepared for his English bankruptcy and which he had furnished to his trustee in bankruptcy in England.

The Court found that as a matter of principle, this did not and could not amount to compliance with the statutory obligation under the regime in this jurisdiction.

The Court also dismissed arguments by the bankrupt which stated that by bringing of this application by the Official Assignee amounted to a decision and that the decision was flawed, finding that such arguments were based on a fallacy, as it was the court who made the decisions.

In relation to the admissibility of evidence, the bankrupt objected that the warrant of seizure issued to the Assignee did not extend to the premises leased by the bankrupt to Coalport Building Company Ltd.

He argued that the evidence should be excluded on the basis of decisions in The People (Attorney General) v. O’Brien I.R. 142, The People (Director of Public Prosecutions) v. Kenny 2 I.R. 110 and DPP v. J.C. IESC 31.

The court found that it was open to the Official Assignee to obtain the consent of the party entitled to possession, the lessee, to enter the premises and take possession of the documents of the bankrupt or, in the alternative, to obtain a s. 28 warrant under the Act.

In relation to the cases, it was found that these related to the inadmissibility of evidence obtained in breach of the constitutional rights of an accused person, and had no application to this case.

It was observed that the bankrupt’s dwelling was not searched. The premises which were entered were those of a limited liability company. The premise was a business premise; it was not a residence. No constitutional right of the bankrupt was in any way breached, and in fact the only party entitled to make complaint of the Official Assignee was the company.

The court found that there was “ample, cogent evidence which establishes clearly that the bankrupt has failed to cooperate with the Official Assignee in relation to the realisation of his assets and has hidden assets from or failed to disclose assets to the Official Assignee in breach of his statutory obligations. This has been deliberate and has persisted despite the attempts by the Official Assignee to secure his cooperation. It is continuing to this day in the case of his address and his failure to file a statement of affairs.”

These breaches of his statutory duty were described as being at the very grave end of the spectrum, with the result being severely to prejudice the realization of his estate for the benefit of his creditors.

The bankrupt was adjudicated bankrupt in Ireland on 30th July, 2012. Therefore, the maximum period which his bankruptcy could be extended pursuant to s. 85A was to 30th July, 2020.

The court was of the view that the discharge should be delayed for the maximum period permissible with a slight reduction due to the age of the bankrupt (67). The court therefore extend the duration of the bankruptcy of Mr. McFeely to 30th May, 2020.