The legal framework under which unsustainable personal debt is resolved has up to now been totally inadequate and out of line with other developed countries. It is hoped that the Personal Insolvency Bill, which is currently going through the Oireachtas, will redress the situation.
The Personal Insolvency Bill was published on 29th June 2012 and it is expected to be enacted into law in mid-November. The Personal Insolvency Service, which will implement the law, will take about six months to get up and running so it is expected that the first cases will be approved by Spring 2013.
The Bill includes proposals for reform of the bankruptcy regime, whereby the automatic discharge from bankruptcy is reduced from twelve years to three years. However, the courts retain their discretion to order the making of payments to creditors from a discharged bankrupt’s income for a period of up to five years from the date of discharge. Thus, a person might not be free of bankruptcy for up to eight years. This still compares unfavourably with one year in the UK, so individuals may still decide to move their centre of main interest to the UK in order to become discharged after one year. This is subject to a maximum three year payments order running concurrently with bankruptcy, so the UK procedure would bind a person for three years maximum, compared with eight years in Ireland.
Three types of non-judicial debt resolution mechanisms are provided for:
- Debt Relief Notices (“DRN”);
- Debt settlement arrangements (“DSA”); and
- Personal Insolvency Arrangements (“PIA”)
Debt Relief Notices
DRNs apply to insolvent individuals with debts of €20,000 or less and very limited means (net disposable income of €60 or less per month and assets of €400 or less). Application is made, through an approved intermediary, to the Insolvency Service who, if satisfied with the application, will issue a Debt Relief Notice. Three years later, if the debtor is unable to pay the debts, they will be written off.
Debt Settlement Arrangement
This applies only to unsecured debts. A Personal insolvency Practitioner (“PIP”) will prepare a proposal for payment of unsecured debts over a period of up to five years (with a possible extension to six years). If approved by at least 65% in value of unsecured creditors voting at a creditors meeting, and subsequently approved by the Circuit Court (debts up to €2.5m) or otherwise by the High Court, it will become binding on all unsecured creditors. If the debtor meets his commitments under the proposal over the five years, the unpaid balance of debt will be written off.
Personal Insolvency Arrangement
A PIA allows for settlement of both secured and unsecured debt over a period of six years (with a possible extension to seven years), provided that at least one creditor is secured and that the aggregate secured debt does not exceed €3 million (unless all secured creditors agree to waive this limit). A PIA must be approved at a creditors’ meeting by at least 65% in value of votes cast at the meeting by secured and unsecured creditors, and by (i) more than 50% of secured creditors and by (ii) more than 50% of unsecured creditors. The PIA will become effective when approved by the appropriate court on notification by the PIP.
- A creditor may challenge the issue of a DRN, DSA, PIA or a protective certificate by way of application to the appropriate court.
- Secured debt cannot be written down to less than the market value of the security.
- If a mortgaged property is subsequently sold for more than the written down debt, a claw-back will be available to the creditor
- Neither a DSA nor a PSA can require a debtor to leave or sell their principal private residence unless the PIP considers that the costs of staying there are disproportionate to the debtor’s means.
- The debtor must be left with sufficient income to maintain a reasonable standard of living for the debtor and his dependants. A code of practice will be issued by the insolvency service, which will influence people in deciding whether or not to apply for a DSA or PIA.
- There is no appeals procedure for debtors whose proposals are rejected by creditors. A secured creditor effectively has a veto in respect of a PIA so an independent appeals procedure should be built in to prevent creditors unreasonably rejecting settlement proposals.