The much anticipated Personal Insolvency Bill, published by the Government on Friday 29 June 2012, will bring Irish law more in line with personal insolvency laws in other EU member states. Minister Alan Shatter stated that the Bill provides a modern insolvency process which addresses the obligations of debtors and the rights of creditors in a “proportionate and balanced way”.
The Bill provides for:
1. Reforms to the current bankruptcy legislation, including:
(i) The reduction of the automatic discharge period from 12 years to 3 years, subject to certain conditions; and
(ii) Increasing to 3 years the review period for certain pre-bankruptcy transactions.
2. The establishment of an independent body corporate called “The Insolvency Service” tasked with overseeing the three new non-judicial debt settlement systems introduced under the Bill.
3. The appointment of “Personal Insolvency Practitioners” to advise and act on behalf debtors.
Three new non-judicial debt settlement arrangements
1. Debt Relief Notices (DRNs) providing for the write-off of qualifying unsecured debt(s) (credit card debt, utility bills, overdrafts, rent etc) up to €20,000 for insolvent debtors with no likelihood of becoming solvent within 5 years and with a net disposable income of €60 p.m. after provision for normal household expenses and assets/savings of up to €400. Following a 1 year moratorium period, if qualifying debts cannot be repaid they are deemed discharged. A debtor is ineligible if 25% of qualifying debts were incurred in the 6 months preceding a DRN application. Only one DRN is permitted per lifetime and a debtor cannot enter into a DRN within 5 years of completion of either of the remaining two non-judicial debt settlement arrangement options provided for in the Bill. A DRN remains in effect for a 3 year “supervisory period” from the date it is recorded in the Register of DRN’s. Any debtor subject to a DRN cannot avail of credit in excess of €650 without informing the creditor of the existence of the DRN.
2. Debt Settlement Arrangements (DSAs) whereby a debtor (with income, assets and debts falling outside the DRN criteria) agrees with one/more creditors to repay an amount of unsecured debt(s) over a 5 year period (possibly extendable to 6 years). The Heads of the Bill published in January 2012 proposed a minimum threshold of €20,000, for DSAs but no threshold amount has been incorporated in the Bill. The eligibility criteria are that a debtor must be domiciled in Ireland or have been ordinarily resident or carrying on a business in Ireland within the previous year; be insolvent; have provided a Personal Insolvency Practitioner with a duly completed “Prescribed Financial Statement” (“PFS”) (and statutory declaration regarding the accuracy thereof). The Personal Insolvency Practitioner will make a DSA proposal to creditors on behalf of the debtor having firstly issued a statement indicating that there is no likelihood of the debtor becoming solvent within 5 years. The Personal Insolvency Practitioner applies to the Insolvency Service on behalf of the debtor for a Protective Certificate. When satisfied this application is in order the Insolvency Service prepares a Protective Certificate application to the Court. If issued by the Court a Protective Certificate remains in force for 70 days (possibly extendable for an additional 40 days) during which time creditors cannot initiate enforcement action against the debtor. Aggrieved creditors have a period of 14 days to appeal the granting of the Protective Certificate. After the issuing of a Protective Certificate the Personal Insolvency Practitioner invites creditors to provide proof of debt(s), makes proposals and also convenes meetings with the creditors. The DSA must be approved by at least 65% of creditors in value of the creditors present and voting. Creditors have 10 days following registration of the DSA by the Insolvency Service to file any objections for consideration by the Court. If approved by the Court the DSA is legally binding and will be administered by a Personal Insolvency Practitioner. A DSA may be entered into only once. If successfully completed the debtor stands discharged of the debts specified in the DSA.
3. Personal Insolvency Arrangements (“PIA”) which are similar to the examinership procedure that exists for insolvent companies seek to assist debtors to repay amounts in relation to both secured and unsecured creditors. To qualify, the debtor must (i) owe a debt to at least one secured creditor; (ii) be insolvent; (iii) have aggregate secured debts of up to €3m (although this cap is capable of being waived) along with unsecured debts, and, (iv) there must be no likelihood of the debtor becoming solvent within 5 years. Any debtor subject to a DRN or DSA which is in force, or who has been the subject of a Protective Certificate within 12 months prior to a PIA application is ineligible to apply for a PIA. A debtor who meets such criteria may, through a Personal Insolvency Practitioner, propose a PIA with his creditors in respect of the payment/satisfaction of his debts over a 6 year period (extendable to 7 years).
The Personal Insolvency Practitioner will make a PIA proposal to the debtor’s creditors. A PIA may include terms altering the rights of secured creditor(s). The PIA must be approved by a majority of creditors representing not less than 65% in value of the debtor’s debt due to the creditors; and creditors representing more than 50% by value of the secured debts; and creditors representing more than 50% of the value of the unsecured debt. If approved, the PIA is legally binding and will be administered by a Personal Insolvency Practitioner.
A PIA may be entered into only once. There is a provision in the Bill for the provisions relating to PIAs to be reviewed not later than 5 years after the commencement of the relevant provisions. It will be interesting to see within that initial period the number of PIA’s actually entered into.
Upon considering the heads of the Bill previously published earlier this year, an Oireachtas Committee made certain recommendations to the Government, including that an appeals mechanism be put in place where creditors unreasonably refused to approve a debt settlement arrangement. However, this recommendation was not implemented in the Bill. A recommendation that the Circuit Court be the appropriate court for certain matters was accepted. The High Court has jurisdiction in respect of applications where the debtor’s liabilities are in excess of €2.5m and, in any other case the Circuit Court is the appropriate Court.
PIAs & Bankruptcy
The reduction in the automatic discharge period from 12 years to 3 will make bankruptcy a more viable option for an insolvent debtor than is currently the case. The threat of bankruptcy might force a secured creditor to agree to the terms of a PIA as a secured creditor may achieve a better outcome under the terms of a PIA when compared with bankruptcy.
The enactment of the Bill is a priority for the Government. It is expected to become law in October/November of this year and may be subject to change as it passes through the legislative process.
For further information please contact Fergus Doorly or Delia McMahon.
This article appeared on accountingnet.ie.