Personal Insolvency Bill 2012

Personal Insolvency Bill 2012

THE PERSONAL INSOLVENCY ARRANGEMENT AND THE AMENDMENTS TO BANKRUPCTY LAW IN THE PERSONAL INSOLVENCY BILL
 

The Personal Insolvency Bill published on 29 June 2012 proposes a radical overhaul to the manner in which personal insolvency is dealt with in Ireland.  The Bill provides for the establishment of an independent Insolvency Service, the introduction of three new non-judicial debt resolution processes and amendments to our bankruptcy law.
 

Personal Insolvency Arrangements (PIAs)

 
This note focuses on some key features of the Personal Insolvency Arrangement (PIA) which may be available in respect of both secured debt up to €3m and unsecured debt (without limitation on value), and the proposed amendments to our bankruptcy legislation.

PIA Procedure

A Personal Insolvency Practitioner (PIP), appointed by the debtor, applies to the Insolvency Service for a protective certificate which subsequently requires Court approval.  During an initial period of 70 days (which can be extended for a further 40 days on evidence being presented to the Court that the debtor and PIP are acting in good faith and with reasonable expedition), a secured creditor will not be able to take any steps to enforce its security.  A creditor can appeal the issue of a protective certificate within 14 days of receipt of the notification that it has issued.  The PIA is to last for a maximum of 6 years with the potential to extend this for one further year.

Eligibility Criteria

The debtor must:

(i) Have aggregated debts of less than €3m (unless all the secured creditors agree to waive this limit);

(ii) Be domiciled or have lived or have carried out business in the state for one year before making the application;

(iii) Be insolvent;

(iv) Have completed a Prescribed Financial Statement and a statutory declaration confirming  that the statement is a complete and accurate statement of assets, liabilities, income and expenditure;

(v) Have the benefit of a certificate from the PIP that in his/her opinion there is no likelihood of the debtor becoming solvent within the 5 year period commencing on the date of the making of the declaration;

(vi) Have made a statutory declaration that he or she has been unable to agree alternative payment arrangements with secured creditors, having co-operated with them for at least six months prior to the application, in relation to any Central Bank approved code of conduct as regards the principal private residence

Main Features of PIA Provisions

The Bill sets out a non exhaustive list of options in relation to payments for inclusion in the PIA.

It provides that preferential debts shall be paid in full unless the creditor concerned otherwise agrees.
Secured creditors are obliged to furnish an estimate made in good faith of market value of the security, and may indicate a preference as to how the security and the secured debt should be treated under the PIA. Ultimately the PIA can provide for the sale of the secured property, the surrender of the security or the retention by the secured creditor of the security.

Section 99 states that insofar as is reasonably practicable, the PIA shall not require the debtor to sell or cease to occupy his or her principal private residence without consent, or unless he/she has formed the opinion that the  costs incurred in staying in the property are disproportionately large. 

The PIA is required to be approved by a qualified majority of 65% in value of all creditors actually voting at the creditors’ meeting, subject to support from greater than 50% (in value) of unsecured and greater than 50% (in value of the secured debts) of secured creditors. If the PIA is not approved, the veil of protection is lifted and the debtor is immediately open to enforcement action (including bankruptcy).

A creditor may object to a PIA by lodging a Notice of Objection to the Court within 21 days.  The grounds for objection include unfair prejudice, material omissions by the debtor, procedural irregularities and that the debtor has in the 3 year period prior to the PIA either transferred assets that have contributed to the insolvency or has preferred a person during that time. 

Bankruptcy

 The main proposed amendments are:-

1. A minimum liquidated debt of €20,000 is required before the Court will grant a bankruptcy summons.

2. Automatic discharge from bankruptcy will be possible within 3 years from the date of adjudication subject to certain conditions.

3. The Circuit Court can make an order on application from the Official Assignee, the trustee in bankruptcy or a creditor requiring a bankrupt to make payments to the Official Assignee (or trustee in bankruptcy) from his/her income or other assets after the discharge from bankruptcy for a period of up to five years.  The Court must have regard to the reasonable living expenses of the bankrupt and his/her family. 

Conclusion

(a) Secured Creditors, given the tendency of most debtors to bank with one institution, should effectively in most cases be in a position to block any PIA proposal, which is justified given the basis on which they advanced loans.

(b) Given the protections in the Bill, the write-down of secured debt will probably only take place in circumstances where the secured creditor was willing to agree to this in any event having assessed the debtor's position.

(c) It will be interesting to see what costs are deemed to be disproportionately large in the opinion of the PIPs in the context of section 99 and formulating PIAs which do not allow debtors to stay in the principal private residence. This opinion will be informed by the guidelines on reasonable expenditure and essential income which have yet to be published.

If you have any questions arising out of the above, please do not hesitate to contact John Fitzgerald.