Perhaps due to the draconian nature of the bankruptcy regime, even in the current economic climate there have been very few cases of personal bankruptcy. However, personal insolvency/bankruptcy has become increasingly prevalent with some high profile individuals entering the bankruptcy sphere. For example, Sean Fitzpatrick, former CEO of Anglo Irish Bank, was adjudicated a bankrupt on 12 July by the High Court. This followed the collapse of his proposed scheme of arrangement days earlier when his largest creditor, Anglo Irish Bank, rejected it.

The options available to an individual in financial difficulty need to be examined carefully. In the right circumstances a suitable arrangement can be mutually beneficial for debtor and creditor – it is often private, can avoid bankruptcy for the debtor and provide a greater return for creditors. We set out very briefly below some of the options open to individual debtors. However, as was demonstrated in the recent bankruptcy of Mr. Fitzpatrick, creditor approval is essential to the success of any such arrangement.

An Informal Arrangement

An informal arrangement is a commercially driven collective agreement between a debtor and all of his creditors for the payment of a dividend in settlement of his debts. An informal arrangement is voluntary and will be entirely contractual as to its terms as between the parties. It has no statutory basis.

A Statutory Deed of Arrangement

A Deed of Arrangement involves a debtor and his creditors voluntarily entering into a formal binding contract in the form of a deed pursuant to the Deeds of Arrangement Act 1887. As with an informal arrangement, all creditors must collectively enter into the Deed of Arrangement. This can be difficult to achieve.

Court Arrangement

An individual Debtor can petition the High Court, verified on affidavit, for an order from the Court granting him a period of protection (usually 10 weeks but extendable on application) from his creditors in which to formulate and present a scheme of arrangement to his creditors in an attempt to satisfy the debt . There is a risk though, that a court may declare a debtor bankrupt if his proposal is rejected by his creditors or not approved by the Court. A court arrangement will also be more costly than an informal arrangement or Deed of Arrangement.

The personal bankruptcy regime in its current form in this jurisdiction is draconian in its nature and a number of interest groups are suggesting legal reform to it.

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