PERSONAL INSOLVENCY BILL
PUBLISHED 29TH JUNE 2012 (Still at Committee Stage)
Stated Aims:
To amend the Bankruptcy Act 1988 and to provide for the establishment of The Insolvency Service of Ireland in the interest of the common good in order to
(a) Ameliorate the difficulties experienced by debtors in discharging their indebtedness due to insolvency and thereby lessen the consequences for economic activity in the State.
(b) To enable creditors to recover debts due to them by insolvent debtors to the extent that the means of those debtors reasonably permits in an orderly and rational manner and
(c) Enable insolvent persons to resolve their indebtedness (including by determining that debts stand discharged in certain circumstances) in an orderly and rational manner without recourse to bankruptcy and to therefore facilitate the active participation of such persons in the economic activities in the State and to provide for additional mechanisms and arrangements relating to insolvency to facilitate the achievement of those objectives and to provide for connected matters.
Main Features:
(a) The period for automatic discharge from bankruptcy is to be reduced from 12 to 3 years
(b) Bankruptcy will only be available where debtor liabilities exceed €20,000
(c) An independent body known as the Insolvency Service of Ireland is to be established which will oversee three new debt settlement mechanisms contained in the bill.
- Debt relief notice
- Debt settlement arrangements
- Personal insolvency arrangements
The reduction in the bankruptcy period from 12 years to 3 years is a significant change. However, the fact that the relevant Court has discretion to order the making of payments to creditors from a discharged bankrupt’s income for a further period of up to 5 years from the date of discharge, lessens the attraction of this proposal somewhat.
Alternatives to Bankruptcy
The bill proposes three settlement options as follows:
1. Debt Relief Notice (DRN)
Applies to insolvent individuals with unsecured debts of €20,000 or less, disposable income of €60 or less a month and assets of €400 or less with no likelihood of becoming solvent within five years.
If the Insolvency Service is satisfied that the application is in order and the Circuit Court are satisfied that the criteria have been met, a Debt Relief Notice (DRN) will issue.
This notice gives protection for a period of 3 years during which the debtor can’t be pursued in respect of debts specified in the DRN. The debt is written off at the end of the three year period.
2. Debt Settlement Arrangement (DSA)
A Debt Settlement Arrangement is proposed to enable an insolvent individual with unsecured debts to make settlement proposals through a Personal Insolvency Practitioner (PIP) to one or more creditors for repayment of debt over 5 years.
If the proposal is approved by at least 65% in value of the creditors voting at a creditors meeting and subsequently approved by the appropriate Court, it will become binding on all creditors and will be registered by the Insolvency Service.
3. Personal Insolvency Arrangement (PIA)
This applies in situations where the aggregate secured debts do not exceed €3m and at least one creditor involved is a secured creditor. A PIA must be approved at a creditors meeting by at least 65% in value of actual votes cast at the meeting (whether secured or unsecured creditors) and by more than 50% of secured creditors and more than 50% of unsecured creditors. The proposals must be subsequently approved at the appropriate court on notification by the PIA before it will become binding on all creditors.
A PIP acting on behalf of a debtor, whilst in the process of preparing an application for a DSA or a PIA, may apply to the Insolvency Service for a “Protective Certificate” to cover a period up to 70 days protection during which time enforcement or bankruptcy proceeding may not be anticipated or continued against the debtor or his or her property except with the leave of the Court. Failure by a debtor or a PIP acting on their behalf to agree a suitable non judicial debt settlement with the creditors, leaves the debtor open to full bankruptcy proceedings.
As the PIA is likely to apply to the more serious situations there are some important features that need to be noted.
- Only a PIA has the potential to deal with secured debt and the principal owed to a secured creditor cannot be written down to less than the value of the security.
- Certain protections are included in the Bill for secured creditors including a “claw back” in the event of a subsequent sale of a mortgaged property where the mortgage is written down.
- It is also worth noting that a PIA cannot include a requirement that a debtor cease to occupy or dispose of his or her principal private residence unless the debtor agrees to such a proposal or if the PIP, having discussed the issue with the debtor, forms the opinion that the costs of the debtor continuing to reside there are disproportionately large bearing in mind his/her financial circumstances.
Conclusion
The new settlement options are likely to be beneficial mechanisms for dealing with personal insolvency outside of the bankruptcy process and gives scope for allowing qualifying insolvent individuals to deal with their debts in a structured manner. However, it is important to note that the Bill as currently drafted, makes it unlikely that secured creditors will in many circumstances be compelled to accept a write down on their debt but it does offer a formal process through which debtors may apply
