25 January 2012
The Minister for Justice and Equality, Alan Shatter, TD today announced that the Government has approved publication of the Heads of the Personal Insolvency Bill and his proposals for it’s drafting in final legislative form to provide a new approach to dealing with insolvency.
Making the announcement Minister Shatter said "In bringing forward this draft Bill the Government is delivering on a crucial promise made in the Programme for Government. The Bill will radically reform our insolvency legislation by prescribing new mechanisms for non judicial debt settlement in the public interest, in the interest of both debtors and creditors and, in particular, will assist those in unexpected difficulties as a result of the current fiscal, economic and employment conditions. When enacted this legislation will be one of the key legislative instruments for addressing the financial difficulties of general insolvency; mortgage debt and negative equity."
The Minister stated that "The draft Bill is in line both with the express commitment to reform contained in the Programme for Government and will fulfill this State’s obligation under the EU/IMF Programme of Financial Support for Ireland."
The General Scheme of the Bill will be furnished to the Joint Oireachtas Committee for Justice, Defence and Equality for their consideration. The views of the Committee will be sought by 1st March. Any submissions received by 1st March from interested parties will also be taken into consideration in the further development of the Bill by the Attorney Generals Office in consultation with the Department of Justice and Equality and the Department of Finance.
The finalisation of the Bill will be arranged on a priority basis, so that it can be published in full by end of April - in line with the revised commitment in the EU/IMF Programme of Financial Support. The completion of the Bill will be subject to ongoing consultation with relevant Departments and the Attorney General. The Heads of the Bill which the Government approved yesterday will, of course, be subject to further refinement during the formal drafting stages in advance of publication.
Following the Bill’s publication on 30th April there will be a Second Stage debate in the Dail and a further opportunity for submissions. In making today’s announcement, the Minister stressed that the legislation in this area is complex and that "the Government recognises that no one has a monopoly of wisdom in relation to this." The Minister further stated that "serious consideration will be given to submissions received and to amendments later proposed."
The Minister said that the proposals for the reform of personal insolvency law will involve the introduction of the following new non-judicial debt settlement systems, subject to relevant conditions in each case:
· A Debt Relief Certificate to allow for the full write-off of qualifying unsecured debt up to €20,000, after a one-year moratorium period;
· a Debt Settlement Arrangement for the agreed settlement of unsecured debt of €20,001 and over;
· a Personal Insolvency Arrangement for the agreed settlement of both secured and unsecured debt of €20,001 and over.
The Minister said that he will also continue the reform of the Bankruptcy Act 1988, begun in the Civil Law (miscellaneous Provisions) Act 2011. This will include, critically, the introduction of automatic discharge from bankruptcy, subject to certain conditions, after 3 years in place of the current 12 years.
The Bill makes provision for the establishment of an Insolvency Service to operate the new non judicial insolvency arrangements.
The Minister said that the development of modern insolvency law is in line with the commitments in the Programme for Government. It will also fulfil his Department’s obligations in respect of implementation of the recommendations of the Inter-Departmental Working Group on Mortgage Arrears (Keane) Report of October 2011. That Report stated that "the early introduction of new judicial and non-judicial bankruptcy options is vital; but this is highly complex and will need to be properly resourced. Without effective bankruptcy legislation the mortgage arrears problem will not be resolved".
Minister Shatter further said "I am of the view that new personal insolvency laws, including the reform of our bankruptcy law, should provide a significant incentive for financial institutions to now better develop and implement realistic agreements to manage or settle debt with their customers".
The Minister noted that failure to agree a suitable non-judicial debt settlement between debtors and creditors will leave open the option of debt enforcement or judicial bankruptcy. Minister Shatter emphasised that the Personal Insolvency Bill is one of a number of measures recommended in the Keane Report. He stated that "further announcements will be made shortly in respect of other recommendations contained in the Keane Report by Ministerial colleagues."
The Minister for Finance welcomed this important step in assisting those in difficulty with their mortgage and debt commitments:
"The Government is acutely aware of the financial stress that households are facing arising from difficulties in meeting their mortgage and loan commitments.
I have always stated that the introduction of a new Scheme of Personal Insolvency is a key step in addressing the mortgage arrears crisis. This Personal Insolvency scheme will rebalance the rights of the borrower and lender in a fairer manner."
Minister Noonan set out that today’s announcement is only one element of the Government’s strategy for dealing with mortgage arrears and significant work is underway on the other elements as set out in the accompanying documentation:
"The Government is committed to assisting those who cannot pay their mortgage through carefully targeted measures. All of the measures on which we are working, including the Scheme of the Personal Insolvency Bill being announced today, are directed at those in need of assistance. In these difficult times, the taxpayer cannot be expected to provide assistance to those who can afford to pay their mortgages."
The Scheme of the Bill will be available shortly on the Department of Justice and Equality website www.justice.ie
Note to Editors
The EU/IMF Programme of Financial Support for Ireland commitment is as follows:
By end Quarter 1 of 2012 that "Legislation to reform the bankruptcy regime will be presented to the Houses of the Oireachtas".
Main provisions of the Personal Insolvency Bill
The Scheme of the Bill provides for:
The Bill (in Part 2) provides for the establishment of an Insolvency Service.
Debt Relief Certificates
The Bill (in Part 3) provides, subject to certain conditions, for a Debt Relief Certificate of forgiveness for persons with no assets and no income that are unable to meet qualifying debts totalling not more than €20,000. The purpose is to create an efficient non-judicial means of allowing persons to resolve unmanageable unsecured debt problems. (Similar systems operate in the UK, Northern Ireland and Australia).
With the assistance of an approved intermediary the debtor may apply to the Insolvency Service to certify that the qualifying debts be frozen for one year following which if, the person still cannot pay, the Service will certify that the debt is written off.
General conditions for a DRC
· debtors would have qualifying debts of €20,000 or less;
· debtors will have a net monthly disposable income of €60 or less after provision for "reasonable" living expenses;
· debtors would hold assets (separately or jointly) to the value of €400 or less (one vehicle up to value of €1,200 would be exempt from the asset test);
· debts qualifying for inclusion in a DRC are unsecured debts: e.g. credit card, personal loan, catalogue payments, etc;
· debts that will not qualify for inclusion in a DRC include: secured debt, court fines, and family maintenance payments.
Where a DRC has been granted by the Insolvency Service
· it will be formally registered;
· a further DRC cannot be applied for before 6 years has elapsed;
· a DRC may not be availed of more than twice;
· there is a restriction on the debtor from applying from further credit.
Debt Settlement Arrangements
The Bill (in Part 4) provides for a system of Debt Settlement Arrangements (DSA) between a debtor and two or more creditors to repay an amount of unsecured (consumer type) debt over a set period. The DSA would assist persons who have an income and assets and debts that exceed the threshold (€20,000) for a Debt Relief Certificate. With the required assistance of a personal insolvency trustee, the debtor may apply to the Insolvency Service for a Protective Certificate in respect of preparation of a DSA. If granted, the Certificate would provide for a standstill period during which creditors may not take action against the debtor. The trustee would then put forward a DSA to creditors for agreement. If approved, the Insolvency Service would provide formal registration of the DSA. At the satisfactory conclusion of the DSA all debts covered by it would be discharged. The Insolvency Service has no role in the negotiation and agreement of a DSA. (Similar systems operate in the UK, Northern Ireland and Australia).
General conditions for application for a DSA
· the debtor must normally be resident in the State or have a close connection.
· only one application for a DSA is permitted in a ten year period.
· a Protective Certificate, if granted, will provide a standstill period of 30 working days to allow for a creditors meeting to consider the DSA.
· a DSA will normally runs for 5 years.
· the DSA requires the approval of 65% in value of qualifying creditors.
· a DSA if approved, it is binding on all creditors.
When a DSA has been agreed with creditors
· the DSA will come into effect on registration by the Insolvency Service.
· the DSA may be varied or terminated.
· there may be an application for adjudication in bankruptcy on ending, termination or failure of the DSA.
· there are grounds for challenge by creditors to a DSA and a role for the courts on application to have a DSA annulled.
Personal Insolvency Arrangements
The Bill (in Part 5) provides for a system of Personal Insolvency Arrangements (PIA) between a debtor and one or more creditors to repay an amount of both secured and unsecured debt over a set period.
General conditions for application for a PIA
· A debtor will only be able enter into a PIA once in his lifetime
· A debtor may only propose a PIA if he or she is cash flow insolvent (i.e. unable to pay their debts in full as they fall due) and it is unforeseeable that over the course of a period of time the debtor will become solvent
· A debtor may only propose a PIA if a DSA would not be a viable alternative to restore the debtor to solvency over a five year period
· It will deal with debts between €20,001 and up to a ceiling of €3m
· A Personal Insolvency Trustee, operating in a manner that is fair to all parties and having considered the full financial circumstances and advised the debtor, will make the PIA proposal to creditors and if accepted by creditors will then administer the PIA for its duration
· A PIA will normally run for 6 years
A PIA must be supported by at least [65%] of creditors and at least [75%] of secured creditors and [55%] of unsecured creditors in terms of value
When a PIA has been agreed with creditors
· To the extent that they are not provided for in the PIA, all other debt obligations will remain
· Creditor objections to a PIA may be taken to the Circuit Court on stated grounds
· A PIA may be varied or terminated
The Bill (in Part 6) provides for a number of amendments to the Bankruptcy Act 1988 to provide for a more enlightened, less punitive and costly approach to bankruptcy. These amendments will continue the reform of bankruptcy law begun in the Civil Law (Miscellaneous Provisions) Act 2011.
The main elements of the bankruptcy reforms include the following:
· The introduction of a minimum debt amount of €20,001 in respect of a creditor petition for bankruptcy;
· The automatic discharge period from bankruptcy (subject to certain conditions) is reduced from the current 12 years to 3 years after the date of adjudication*;
· The discharge from bankruptcy could be delayed by the court, up to a maximum of 8 years, for non-compliance, fraudulent or dishonest behaviour by the bankrupt during the process;
· Full disclosure and realisation of all the bankrupt’s assets and interests would be required for the benefit of creditors, etc;
· Provision for a court to make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses, for a period of up to five years
· Extended timeframes in regard to possible fraudulent transfers or settlements of assets by the applicant for bankruptcy.
*With regard to the reduced period for automatic discharge from bankruptcy, in addition to any existing technical and other conditions contained in the 1988 Bankruptcy Act, the following new provisions contained in the Scheme of the Bill would also apply:
- in new section 85(4) (Automatic discharge from bankruptcy) that the bankrupt shall after discharge from bankruptcy have a duty to cooperate with the Official Assignee in the realisation and distribution of such of his or her property as is vested in the Official Assignee.
- in new section 85A (Objection to automatic discharge from bankruptcy) that the Official Assignee or a personal insolvency trustee shall have an explicit power to object to the discharge of a person from bankruptcy. The primary grounds for such objection are evidence as to the bankrupt’s lack of cooperation, dishonesty or other wrongful conduct. The court, if satisfied, as to the evidence may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt up to a maximum of 8 years.
(It should be noted that there are no prohibitions contained in the Bankruptcy Act 1988 with regard to restrictions on the nature of employment or profession of a person adjudicated bankrupt. Such prohibitions, where they exist, are contained in sectoral legislation, e.g. in the Electoral Acts in regard to membership of Dáil Eireann or in contracts of employment, e.g. in the legal profession).
Progress on the Implementation of the Keane Report
o The Government has assigned a high priority to the implementation of the Keane report’s recommendations, which looked at proposals to assist those in mortgage arrears:
o A Steering Group, chaired by a Second Secretary in the Department of Finance, has been established to oversee and drive the overall implementation of the report’s recommendations. This Group reports regularly to the Economic Management Council and to Government.
o Separate working groups have also been established to progress the individual work streams.
o Additionally, a dedicated team is being established in the Department of Finance, with resources drawn from the relevant Government Departments, to progress the relevant initiatives. This will be supplemented, as necessary, with additional legal, financial and technical expertise as the implementation work proceeds.
o Significant progress has already been achieved across a number of the individual work areas:
· The Minister for Justice, Equality and Defence has produced an initial General Scheme of a Personal Insolvency Bill.
· On "mortgage to rent", the Minister for Environment, Community and Local Government has advanced work with a bank and social housing association to pilot a scheme in order to test the practicalities associated with such a measure in advance of a wider roll out.
· The Central Bank, as the regulator of credit institutions, is considering mortgage arrears resolution strategies and implementation plans from all mortgage lenders. The Central Bank will now engage with banks to ensure that they systematically work through cases and devise long term solutions and make proposals that will be in the best interest of their customer.
· Finally, work has commenced on the necessary steps to put in place the mortgage advisory function as also recommended by the Inter-Departmental group.