The Draft Heads of the Personal Insolvency Bill were published by Minister  Shatter this week. We have been reviewing the contents of bill and have highlighted some issues. The new legislation is welcome which appears to be
targeted at helping struggling homeowners, which we welcome. However, there are issues with the bankruptcy element of the draft legislation.

The Bill can be divided up into 3 parts:

1. The creation of a new Insolvency Service – independent body to oversee the non-judicial personal insolvency system;

2. New system for debt reduction – 3 main parts:

a. Debt relief certificate – Main points:

i. Level of debt – 0 – €20,000

ii. Unsecured debt

iii. Disposable income less than €60 per week

iv. Less than €400 savings

b. Debt settlement arrangements – non-secured;

i. Two or more creditors -65% have to vote in favour;

ii. Level of debt – €20,000 – €3 million

iii. Applicants have to be insolvent – no definition of insolvency (traditionally if you cannot pay €1,500 if called in)

iv. Unsecured debt;

v. Only allowed avail of arrangement once every 10 years

vi. Term – 5 years (extend to 6 years)

c. Personal Insolvency Arrangements – secured;

i. One or more creditors – 75% of the secured creditors have to vote in favour;

ii. Level of debt – €20,000 – €3 million

iii. Secured debts can be included;

iv. Applicants have to be insolvent;

v. Only allowed avail of arrangement once in your lifetime

3. Reducing the period to be  discharged from bankruptcy from 12 years to 3 years.

The surprising inclusion was the Personal Insolvency Arrangement but we believe that this is just a nod in the direction of the banks to negotiate with individuals. The reason for this is that if the bank do not vote to allow the proposed insolvency arrangement then it cannot be appealed to the Circuit Court to enforce the proposed agreement. The only threat is the softer bankruptcy term of 3 years. Therefore a bank would prefer to get something than the threat of
getting no money from a bankruptcy. The practical application will only come to light when the Act is fully implemented.

However, there are serious problems with the proposed bill, which many of those looking for a bankruptcy in Ireland need to be aware of. Bankruptcy can possibly be effectively extended to 8 years at the Courts discretion.

The Heads of Bill state the following:

“The court shall, on application to it, have discretion to make and vary an order requiring the discharged bankrupt to make payments from his or her income to the Official Assignee or any other trustee for the benefit of his or her creditors for a period lasting up to 5 years from the date of the discharge of the bankruptcy.”

This means that it is open to the banks to make an application to the Courts to extend the term for a further 5 years. This can happen anytime up until the last day of the bankruptcy, effectively extending the bankruptcy period from 3 years to 8 years. We believe this is unworkable and will discourage people from using the Irish bankruptcy system.

Ireland needs a more user friendly bankruptcy system that levels the playing field between banks and debtors. The reason why the UK government has a more forgiving insolvency regime is to ensure that entrepreneurs who previously failed are encouraged to start again and contribute to society. We do not want our entrepreneurs to leave Ireland to go to the UK to restart their financial lives. The proposed heads of bill with a possible 8 year discharge date will encourage further bankruptcy emigration from Ireland to the UK and many of these people may not return.

Ends