A major Supreme Court ruling means that heavily indebted farmers can use personal insolvency schemes (PIAs) to avoid the foreclosure of their land.
The decision has major implications for how banks and vulture funds treat farmers, most of whom are wealthy but cash-poor.
The court ruled that a farmer with debts of €1.1 million can be considered insolvent and therefore eligible for a PIA, even though his farm was worth €1.8 million.
Fergus O’Connor (47) was faced with the loss of part of his farm in Kilmuckridge, Co Wexford, after a trustee was appointed. However, he will be able to hold the entire farm under the terms of a PIA after Judge Alexander Owens dismissed arguments from vulture fund Promontoria Oyster, which claimed the farmer was solvent.
The judge agreed with the comments made by Keith Farry BL, on behalf of Mr O’Connor’s Personal Insolvency Practitioner (PIP), that the farm could not be considered an “easily recoverable asset” because it was “a core equity capital”, necessary for Mr. O’Connor’s livelihood.
According to the PIA, Mr. O’Connor will not have any of his debts forgiven, but will instead be given an extended 30-year period to pay back what he owes, while also keeping his home.
The court’s decision will increase pressure on lenders to break off restructuring deals with indebted farmers in the future.
Mr O’Connor told the Irish independent he was relieved by the decision, but said the case should never have gone all the way to the Supreme Court.
“It should not have come to this. I never ran away from my debts. I’ve always wanted to pay them,” he said.
“There should have been a solution, but the banks didn’t want to hear about the spread” [repayments] out over the years. All I wanted was a chance to pay them back. But all they wanted to hear was a final bill.”
The case marks the first time the Supreme Court has heard a disputed PIA filing involving a farm. It was an arrangement made by PIP Gary Digney, to whom Mr O’Connor was referred after seeking help from the Irish Farmers Association (IFA).
A PIA was approved by the Circuit Court earlier this year.
However, Promontoria Oyster, who owes the farmer €874,000, appealed the decision to the Supreme Court.
It unsuccessfully argued that Mr O’Connor had net assets of €717,000, mainly from agricultural land, and that if this were taken into account, he would not be insolvent within the meaning of the Personal Insolvency Act.
Mr Farry argued that this amount was incorrect and that in any case the land was “a tool of his trade and simply represents the means of doing his work from day to day”.
Digney, of FPM Accountants, said the Supreme Court decision meant farmers in debt wouldn’t have to sell land if they had another solution.
“We have a historic case here where essentially the Supreme Court judge has confirmed that it is cash flow that determines insolvency, not your balance sheet,” he said. “Therefore, farmers who have assets worth more than their liabilities can apply for PIAs.”
Mr O’Connor’s debts arose primarily from a €1.1 million loan he and his now estranged wife received from Ulster Bank in 2006 to purchase 64 acres of land.
‘I can now, to a certain extent, get on with my life’
The agricultural and sheep farmer later sold several assets worth approximately €800,000, including the matrimonial home, between 2006 and 2009 to pay off the debt. However, this did not stop Ulster Bank from recording costs for other lands it owns. The bank later sold the loans to Promontoria Oyster, an Irish vehicle of the Cerberus Vulture Fund.
Mr O’Connor said he was “glad” that his PIA was “over the line” as he was determined to continue working on land passed to him by his mother. “I can now, to some extent, move on with my life.”
He said some farmers “don’t want to go down this road” because there was a stigma attached to it.
But he urged others in his situation to talk to a PIP to assess their options.
“A lot of people don’t go down this road because they don’t want their name printed. But there are plenty of people who could take advantage of this if they just started doing it,” he said.
James Kehoe, a former chairman of Wexford IFA who helped Mr O’Connor with his case, said: “It will certainly bring hope to others in his
situation.
“The most important thing for farmers is that the farm is kept intact and that the farmer can remain a farmer and fulfill his obligation to pay back the borrowed money.”