Bronte
I attach a summary below of the new Act:
PERSONAL BANKRUPTCY ACT 2012
The Government initially published the Personal Insolvency Bill on 25 January 2012, and re-issued an updated version of the Bill on 29 June 2012. The Personal Bankruptcy Act 2012 itself was signed into law by President Higgins on 26th December 2012.
Insolvency Service
The Personal Insolvency Act 2012 Act provides for the establishment of an Insolvency Service.
Debt Relief Notice
The Personal Insolvency Act 2012 provides, subject to certain conditions, for a Debt Relief Notice of forgiveness for persons with no assets and no income that are unable to meet qualifying debts totalling not more than €20,000. The purpose is to create an efficient non-judicial means of allowing persons to resolve unmanageable unsecured debt problems. (Similar systems operate in the UK, Northern Ireland and Australia).
With the assistance of an approved intermediary the debtor may apply to the Insolvency Service to certify that the qualifying debts be frozen for one year following which if, the person still cannot pay, the Service will certify that the debt is written off.
General conditions for a DRC
• debtors would have qualifying debts of €20,000 or less;
• debtors will have a net monthly disposable income of €60 or less after provision for “reasonable” living expenses;
• debtors would hold assets (separately or jointly) to the value of €400 or less (one vehicle up to value of €2,000 would be exempt from the asset test, as would household assets and tools or other items of equipment up to a value of €6,000, and one item of personal jewellery up to a value of €750);
• debts qualifying for inclusion in a DRC are unsecured debts: e.g. credit card, personal loan, catalogue payments, etc;
• debts that will not qualify for inclusion in a DRC include: secured debt, court fines, and family maintenance payments.
Where a DRC has been granted by the Insolvency Service
• it will be formally registered;
• a further DRC cannot be applied for before 6 years has elapsed;
• a DRC may not be availed of more than twice;
• there is a restriction on the debtor from applying from further credit.
Debt Settlement Arrangements
The Personal Insolvency Act 2012 provides for a system of Debt Settlement Arrangements (DSA) between a debtor and two or more creditors to repay an amount of unsecured (consumer type) debt over a set period. The DSA would assist persons who have an income and assets and debts that exceed the threshold (€20,000) for a Debt Relief Certificate. With the required assistance of a personal insolvency trustee, the debtor may apply to the Insolvency Service for a Protective Certificate in respect of preparation of a DSA. If granted, the Certificate would provide for a standstill period during which creditors may not take action against the debtor. The trustee would then put forward a DSA to creditors for agreement. If approved, the Insolvency Service would provide formal registration of the DSA. At the satisfactory conclusion of the DSA all debts covered by it would be discharged. The Insolvency Service has no role in the negotiation and agreement of a DSA. (Similar systems operate in the UK, Northern Ireland and Australia).
General conditions for application for a DSA
• the debtor must normally be resident in the State or have a close connection.
• only one application for a DSA is permitted in a ten year period.
• a Protective Certificate, if granted, will provide a standstill period of 30 working days to allow for a creditors meeting to consider the DSA.
• a DSA will normally runs for 5 years.
• the DSA requires the approval of 65% in value of qualifying creditors.
• a DSA if approved, it is binding on all creditors.
When a DSA has been agreed with creditors
• the DSA will come into effect on registration by the Insolvency Service.
• the DSA may be varied or terminated.
• there may be an application for adjudication in bankruptcy on ending, termination or failure of the DSA.
• there are grounds for challenge by creditors to a DSA and a role for the courts on application to have a DSA annulled.
Personal Insolvency Arrangements
The Personal Insolvency Act 2012 provides for a system of Personal Insolvency Arrangements (PIA) between a debtor and one or more creditors to repay an amount of both secured and unsecured debt over a period of 6 years (with a possible agrred extension to 7 years)
General conditions for application for a PIA
• A debtor will only be able enter into a PIA once in his lifetime
• A debtor may only propose a PIA if he or she is cash flow insolvent (i.e. unable to pay their debts in full as they fall due) and it is unforeseeable that over the course of a period of time the debtor will become solvent
• A debtor may only propose a PIA if a DSA would not be a viable alternative to restore the debtor to solvency over a five year period
• It will deal with debts between €20,001 and up to a ceiling of €3m. The €3m cap can be waived with the written consent of all secured creditors.
• A Personal Insolvency Practitioner, operating in a manner that is fair to all parties and having considered the full financial circumstances and advised the debtor, will make the PIA proposal to creditors and if accepted by creditors will then administer the PIA for its duration
• A PIA will normally run for 6 years
A PIA must be supported by at least [65%] of creditors and at least [50%] of secured creditors and [50%] of unsecured creditors in terms of value
When a PIA has been agreed with creditors
• To the extent that they are not provided for in the PIA, all other debt obligations will remain
• Creditor objections to a PIA may be taken to the Circuit Court on stated grounds
• A PIA may be varied or terminated
Bankruptcy
The Personal Insolvency Act 2012 provides for a number of amendments to the Bankruptcy Act 1988 to provide for a more enlightened, less punitive and costly approach to bankruptcy. These amendments continue the reform of bankruptcy law begun in the Civil Law (Miscellaneous Provisions) Act 2011.
The main elements of the bankruptcy reforms include the following:
• The introduction of a minimum debt amount of €20,000 in respect of a creditor petition for bankruptcy;
• The automatic discharge period from bankruptcy (subject to certain conditions) is reduced from the current 12 years to 3 years after the date of adjudication*;
• The discharge from bankruptcy could be delayed by the court, up to a maximum of 8 years, for non-compliance, fraudulent or dishonest behaviour by the bankrupt during the process;
• Full disclosure and realisation of all the bankrupt’s assets and interests would be required for the benefit of creditors, etc;
• Provision for a court to make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses, for a period of up to five years
• Extended timeframes in regard to possible fraudulent transfers or settlements of assets by the applicant for bankruptcy (from 1 year to 3 years)
*With regard to the reduced period for automatic discharge from bankruptcy, in addition to any existing technical and other conditions contained in the 1988 Bankruptcy Act, the following new provisions contained in the Scheme of the Bill would also apply:
- in a new section (Automatic discharge from bankruptcy) that the bankrupt shall after discharge from bankruptcy have a duty to cooperate with the Official Assignee in the realisation and distribution of such of his or her property as is vested in the Official Assignee.
- in a new section (Objection to automatic discharge from bankruptcy) that the Official Assignee or a personal insolvency trustee shall have an explicit power to object to the discharge of a person from bankruptcy. The primary grounds for such objection are evidence as to the bankrupt’s lack of cooperation, dishonesty or other wrongful conduct. The court, if satisfied, as to the evidence may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt up to a maximum of 8 years.
(It should be noted that there are no prohibitions contained in the Bankruptcy Act 1988 with regard to restrictions on the nature of employment or profession of a person adjudicated bankrupt. Such prohibitions, where they exist, are contained in sectoral legislation, e.g. in the Electoral Acts in regard to membership of Dáil Eireann or in contracts of employment, e.g. in the legal profession).
What will people be allowed to live on?
The Insolvency Service is a body set up to ensure that the Personal Insolvency Legislation is administered in a fair and structured manner. In due course the Service will provide guidelines on what are considered reasonable living expenses, with criteria such as children and medical conditions being taken into account. The Vincentian Partnership for Social Justice has developed a minimum income standard calculator which is available online at their web site (I am unable to post the link to the web site under the current rules of AAB) and gives realistic estimates of how much money people require to maintain a basic standard of living.
Once the Insolvency Service provides guidelines on what are reasonable living expenses, it is expected that that in any Debt Settlement Arrangement, Personal Insolvency Arrangement or Bankruptcy any income earned above what is required to pay reasonable living expenses will be used to pay creditors.
Comparision of UK Bankruptcy with Irish Bankruptcy
The advantages of debtors moving to the UK and utilising the Bankruptcy procedure in the U.K. are obvious. Firstly, the U.K. has a tried and tested system of Individual Voluntary Arrangements (“IVA”) which allow debtors to do deals with their creditors on a low cost basis. The U.K. does approximately 50,000 IVA’s every year. If the IVA is not successful, then the debtor is placed into bankruptcy, but at least he is discharged after a bankruptcy period of just 12 month, which compares favourably with the proposed three years discharge period in Ireland.
One of the key planks of the new proposed Irish bankruptcy regime is a Personal Insolvency Arrangement (“PIA”) which is effectively modelled on the U.K. IVA system.
The reason why IVA’s are so successful in the U.K. is that creditors receive more money back than they do under a Bankruptcy. Similarly, it is expected that under a PIA, that creditors would receive more money back than under bankruptcy.
While the proposed Irish PIA will be closely modelled on the U.K. IVA system, there will still be substantial differences between the actual bankruptcy regimes of each Country. In the U.K., when a debtor is declared bankrupt, the Official Receiver is initially appointed. The Official Receiver is a Government Official whose costs are effectively financed by a levy on all realisations in a bankruptcy. In practice, if the bankrupt estate has realisable assets, the Official Receiver will hand it over to a private sector Insolvency Practitioner who will charge fees on a time cost basis. In Ireland, the Official Assignee, also a Government Official, is initially appointed, and he tends to complete the bankruptcy. The Official Assignee does not charge fees himself, but Court Duty is levied on asset realisations.
A major difference between the Irish bankruptcy regime and the UK bankruptcy regime is the involvement of the court system. In Ireland, there is a constant interface with the Court system, which is costly in terms of solicitor and counsel fees.
Jim Stafford
