The Government has now approved and published the “Personal Insolvency Bill” as part of its plans for major reform of the laws on personal insolvency to address the significant level of personal debt in the country. The Bill, which may be subject to further amendment, is expected to come into effect later this year after its passage through the Oireachtas.
The initial draft heads of the Bill had been published on 25 January 2012. A number of important submissions were subsequently recieved and taken into account by the Government in the finalisation of the current Bill. Whilst the main principles remain unchanged from the draft Bill, the individual provisions have been further developed in terms of legal and technical detail.
The Changes
The Bill provides for the following key changes:
- The introduction of three out of Court debt relief processes to provide effective alternatives to bankruptcy for individuals and creditors (although there will be Circuit Court oversight of the new procedures);
Personal Insolvency Arrangements (“PIA”);
Debt Settlement Arrangements (“DSA”),
Debt Relief Notices (“DRN”).
- New bankruptcy reforms; the most significant change being the reduction of the discharge period from 12 years to 3 years.
- The establishment of an Insolvency service in Ireland to operate the new process and to develop insolvency policy in the future.
The reforms are expected to result in a significant increase in personal insolvency related applications as more individuals opt to file for bankruptcy in Ireland rather than the UK or resolve their financial difficulties through the implementation of one of the out of Court debt relief processes.
1. Personal Insolvency Arrangements (“PIA”)
A PIA is a binding agreement between an individual and his or her creditors involving a compromised settlement of creditors’ claims unlike the other two processes PIA’s include secured liabilities. The key features are as follows;
- The debtor’s secured liabilities must be less than €3m (although this limit can be waived with the consent of all secured creditors);
- The debtor must owe a debt to at least one secured creditor;
- An individual can only propose one PIA in their lifetime;
- A PIA would normally involve the payment of income by a debtor into the arrangement for a period of up to 6 years (with a possible 12 month extension) but can also involve lump sum payments;
- On completion of the arrangement, the debtor is discharged from the remainder of their debts;
- A PIA is voted on at a creditors’ meeting and requires the agreement of at least 65% (in value) of creditors who vote at the meeting which must include over 50% of secured creditors’ votes and 50% of unsecured creditors’ votes;
- The process involves a Personal Insolvency Practitioner who facilitates the process and ensures the arrangement is implemented in accordance with the approved proposal;
2. Debt Settlement Arrangements (“DSA”)
A DSA is a similar mechanism to a PIA although it does not include secured debts and cannot otherwise affect the rights of secured creditors. Other key features are as follows;
- An individual can only propose one DSA in their lifetime;
- A DSA can last up to 5 years but can be extended by a further 12 months;
- The DSA is voted on at a creditors’ meeting similar to the PIA and requires at least 65% of creditors (in value) voting in favour at the meeting before it is approved and becomes binding on all creditors;
- Similar to a PIA, the process involves a Personal Insolvency Practitioner who facilitates the process and ensures the arrangement is implemented in accordance with the approved proposal;
3. Debt Relief Notices (“DRN”)
A DRN is designed to provide ‘debt forgiveness’ for insolvent individuals who have little or no assets. It has been designed to be a low cost efficient process to resolve unmanageable debt problems. It creates a moratorium which lasts for 3 years, after which time the individual will be fully discharged from the relevant debts.
An individual must meet the following criteria before a DRN can be proposed:
- Unsecured liabilities must be equal to or less than €20,000;
- Assets must be less in value than €400 (excluding certain assets such as household items and tools of trade);
- Surplus income must be less than €60 per month;
- There must be no likelihood of the debtor being able to pay their debts within 5 years of the DRN application;
- An individual can only propose one DRN in their lifetime;
- A DRN must be reviewed, approved and submitted to the Insolvency service, by an approved intermediary;
A DRN only applies to unsecured debts and cannot otherwise affect the rights of secured creditors.
Bankruptcy
The new bankruptcy reforms represent a significant change from existing legislation and are expected to result in a substantial increase in bankruptcy applications in the country. The main changes are as follows:
- Reduction of the automatic discharge period from 12 years to 3 years;
- The Court will have discretion to order a debtor to make income payments into the bankruptcy for a period up to 5 years after discharge;
- Creditors can only petition for an individual’s bankruptcy when they are owed more than €20,000;
- The Court will be required to consider the financial position of the debtor and weather it may be appropriate to adjourn proceedings to allow for the possibility of a DSA or PIA to be assessed;
- New processes are expected to make the bankruptcy application process more efficient.