Cosgrove Gaynard Solicitors

Personal Insolvency Bill : Explained

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Minister for Justice Alan Shatter published the long-awaited Personal Insolvency Bill on the 29th June 2012 aimed at reforming insolvency laws, some of which have been in place for over a century.

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The Bill includes a number of new non-judicial debt settlement arrangements designed to offer an alternative to bankruptcy as follows:

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(i) Personal Insolvency Arrangement (“PIA”)

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A Personal Insolvency Arrangement provides a solution to insolvent debtors whose combined secured and unsecured debts total more than €20,000 and less than €3million over a 6 year period. A debtor can enter a PIA with his creditors if a majority of creditors (65% in value of the debtor’s obligations ) vote in favour of the arrangement.

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Critically, the debtor must be allowed to have sufficient income to maintain a reasonable standard of living. It also provides that a personal insolvency arrangement shall not require that the debtor sells his home unless the personal insolvency practitioner forms the view that the costs of continuing to reside there are disproportionately large.

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 (ii) Debt Settlement Arrangement (“DSA”)

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This provides for the agreed settlement of unsecured debt over 5 years. A debtor who owes over €20,000 in unsecured debt to one or more creditors will have the option of proposing a Debt Settlement Arrangement. If the arrangement is accepted by the creditors and adhered to over 5 years by the debtor, the balance of the debtor’s debts covered by the arrangement will stand discharged. The debtor must make the proposal through a personal insolvency practitioner. There is no financial ceiling on the level of debt which can be included in a DSA. A debtor may enter into a DSA once only.

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(iii) Debt Relief Certificate (“DRC”)  

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A debt relief notice to allow for the write-off of qualifying debt up to €20,000, subject to a three year supervision period. This procedure allows for the write-off of qualifying debts up to €20,000 either by paying half of them or following a three year supervision period. Qualifying debts include credit card debt, an overdraft or unsecured bank loan, bills in respect of utility bills or rent. however they may also include secured debt. Only one DRN per lifetime is permitted and a person may not enter into the DRN process within 5 years of completion of a DSA or PIA.

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Whilst the Bill is a step in the right direction in providing the mechanism for realistic agreements to resolve debt issues the bill is weak in a number of areas:

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1. Under the Bill, creditors will continue to hold the upper hand over debtors with a veto . Creditors holding 65% by value of debt must approve any Debt Settlement Arrangement (DSA) or Personal Insolvency Arrangement (PIA) and there is a reinstatement of debts if a debtor fails to honour a PIA or DSA.
   
   
2. The proposals are still not as liberal as the UK system, which allows bankrupts to be discharged from their debts after one year. As it stands the Bill provides that bankrupts will automatically be discharged after three years compared to 12 years at present;
   
   
3. Pensions. In the UK, a pension is not treated as an asset whereas in Ireland it is. This is a huge variance between the two jurisdictions. Provided the pension contributions were not ‘loaded’ in the preceding years , then there is a strong argument that a pension should simply be treated as income only.
   
   
4. Unrealised property. There is an issue with the requirement that the bankrupt’s unrealised property remains vested (indefinitely) in the Official Assignee even after the bankrupt is discharged from bankruptcy (after three years). If this provision is unchanged, the assets might not be dealt with for twenty years or more following discharge. The legislation in the UK puts a time limit of three years after the bankruptcy order is made for the trustee to deal with the bankrupt’s assets and if this is not done in that timeframe, the assets are re-vested in the (now discharged) bankrupt.
   
   
5. Another significant difference between the UK and (proposed) Irish legislation is that the court in Ireland, on application to it, shall have the discretion to order the bankrupt to make contributions from income to the Official Assignee for a further five years after the date of discharge from bankruptcy, i.e. for a total of up to eight years. It is unclear on what grounds such an application can be made or by whom. In the UK, income payments agreements and income payments orders have a maximum validity period of three years, again commencing with the date of the bankruptcy order.

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If not addressed, these concerns will simply enhance the attraction of bankruptcy tourism to the UK for many insolvent Irish residents.

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