Personal Insolvency Act 2012

Protections for secured creditors in Personal Insolvency Arrangement.

103.— (1) A Personal Insolvency Arrangement which includes terms providing for the sale or other disposal of the property the subject of the security shall, unless the relevant secured creditor agrees otherwise, include a term providing that the amount to be paid to the secured creditor shall amount at least to—

(a) the value of the security determined in accordance with section 105 ; or

(b) the amount of the debt (including principal, interest and arrears) secured by the security as of the date of the issue of the protective certificate,

whichever is the lesser.

(2) A Personal Insolvency Arrangement which includes terms providing for—

(a) retention by a secured creditor of the security held by that secured creditor, and

(b) a reduction of the principal sum due in respect of the secured debt due to that secured creditor to a specified amount,

shall not, unless the relevant secured creditor agrees otherwise, specify the amount of the reduced principal sum referred to in paragraph (b) at an amount less than the value of the security determined in accordance with section 105 .

(3) A Personal Insolvency Arrangement which includes terms involving—

(a) retention by a secured creditor of the security held by that secured creditor, and

(b) a reduction of the principal sum due in respect of the secured debt due to that secured creditor to a specified amount,

shall, unless the relevant secured creditor agrees otherwise, also include terms providing that any such reduction of the principal sum is subject to the condition that, subject to subsections (4) to (13), where the property the subject of the security is sold or otherwise disposed of for an amount or at a value greater than the value attributed to the security in accordance with section 105 , the debtor shall pay to the secured creditor an amount additional to the reduced principal sum calculated in accordance with subsection (4) or such greater amount as is provided for under the terms of the Personal Insolvency Arrangement.

(4) Subject to subsections (5) to (13), the additional amount referred to in subsection (3) shall be the lesser of—

(a) the entire of the difference between the value of the property on disposition and the value attributed to the security in accordance with section 105 , and

(b) the amount of the reduction in the principal sum due in respect of the secured debt under the Personal Insolvency Arrangement as referred to in subsection (3)(b).

(5) For the purposes of subsection (4), any portion of the increase in the value of the property attributable to significant improvements made to (or other measures taken which have made a material contribution to the increase in the value of) the property over which the debt is secured which were made subsequent to the valuation of the security for the purposes of the Personal Insolvency Arrangement shall be disregarded in calculating the additional amount payable by the debtor.

(6) Subsection (5) shall not apply unless the secured creditor has given his or her consent in writing to the improvements or other measures concerned, which consent shall not be unreasonably withheld.

(7) For the purposes of subsection (4), any payment or transfer of assets to the secured creditor pursuant to the Personal Insolvency Arrangement properly attributable to a reduction of the principal sum due in respect of the secured debt shall be deducted from the additional amount referred to in subsection (3).

(8) For the purposes of subsection (4), the expenses and costs borne by the debtor in connection with the sale or other disposal of the property shall, to the extent that those costs and expenses are of a type and amount normally payable by the vendor of property of that nature, be deducted from the value attributable to the property on such sale or disposal.

(9) The obligation to pay an additional amount arising by virtue of this section shall not apply where the value of the property on its sale or other disposal is less than the amount of the debt secured by the security (other than any additional amount secured by virtue of subsection (10)) immediately prior to such sale or other disposition of the property.

(10) Any additional amount payable by virtue of this section shall stand secured in the same manner and with the same priority as the principal sum referred to in subsection (3)(b).

(11) The obligation to pay an additional amount arising by virtue of this section shall cease—

(a) on the expiry of the period of 20 years commencing on the date on which the Personal Insolvency Arrangement comes into effect, or

(b) on the day on which the debtor is scheduled or permitted to fully discharge the amount secured by the security (or such later date as may be specified for so doing in the Personal Insolvency Arrangement) and does so discharge his or her indebtedness,

whichever first occurs.

(12) Unless otherwise provided for under the terms of the Personal Insolvency Arrangement, where a property in respect of which subsection (3) applies is the subject of security held by more than one secured creditor—

(a) any additional amounts payable by virtue of this section to the secured creditors shall be paid in order of the priority of the security held by each secured creditor, and

(b) if the security held by a secured creditor is not ranked first in priority, the obligation to pay an additional amount to that creditor arising by virtue of this section shall apply only if and to the extent that the sum of the additional amounts payable to secured creditors holding security with higher ranking priority than the secured creditor concerned is less than the additional amount calculated in accordance with subsection (4).

(13) For the purposes of subsection (3)

(a) without prejudice to the generality of that subsection, a disposal by a debtor of property the subject of security held by a secured creditor shall include the voluntary grant by the debtor of security over that property to any person other than that secured creditor, including any such grant of security in connection with what is commonly known as a refinancing of the existing secured debt, and

(b) a debtor shall not be considered to dispose of property the subject of security held by a secured creditor where the debtor leases or licenses the property to any person for a term of less than 20 years.