Update on Personal Insolvency Legislation
January 31, 2013
The revised Personal Insolvency Law was 24 years in the making but the question remains as to whether it will deliver an effective solution to the debt crisis facing so many people in Ireland today.
Drafted in line with the EU/IMF Programme of Financial Support for Ireland, with a very limited fanfare, the Personal Insolvency Bill 2012 finally slipped into legislation during the latter stages of December 2012.
Despite 104 pages of amendments by Seanad Éireann, much of the Act remains as it was when published in July 2012 with key clarifications in respect of pensions, the inclusion of preferential and certain previously excluded debts from schemes and the obligation on the new Insolvency Service to stipulate living standards (on which a considerable amount of social commentary must be expected) being the only truly noteworthy amendments.
The revised laws which have been drafted with the clear intent of preventing Ireland becoming a site for Bankruptcy Tourism Laws and preventing multiple uses borrow heavily from similar UK legislation and show 4 classes of personal insolvency regimes as follows:
1) Debt Relief Notice
3) Debt Settlement Arrangement (DSA)
4) Personal Insolvency Arrangement (PIA)
Debt relief notices effectively cover personal insolvencies where the debtor has little assets, little net income and little liabilities and as there are no fees payable by the debtor, it is likely that such work will be predominantly undertaken by not for profit organisations.
Bankruptcy, despite being greatly improved in terms of exit prospects, still remains restrictive and costly while also remaining considerably less attractive than the expected release after 12 months under the UK legislation.
DSAs and PIAs are expected to become far and away the largest areas of personal insolvencies. These arrangements are very similar in terms of content with Personal Insolvency Arrangements, due to the inclusion of Secured Debt therein, being allotted more time to address the expected greater complexities to enable schemes to put forward and implemented.
It is difficult to know which of these regimes will ultimately be most prevalent. Indications from Banks are that their preference is firstly to negotiate a position through one of the many State approved debt re-organisation mechanisms and failing that to see debtors / borrowers use a DSA to address unsecured debt and thereby effectively allowing the write down in the unsecured debt to finance the secured borrowings. (An interesting little contradiction to this is that in corporate situations, Banks remain extremely guarded in their support of examinations even though the same principal of using the write down of unsecured can apply.)
While the Banks may have their preference, this may well be at odds with borrowers / debtors who will want to immediately avail of a PIA in an attempt to address all debt issues rather than a piecemeal approach. As a result, predictions for numbers for the new processes range between the tens of thousands per annum to only a few hundred per annum.
It remains likely that the first to avail of these new regimes may still have to wait until the middle of 2013 to allow for the structures and staffing of the new Insolvency Service of Ireland headed by Lorcan O’Connor.