The Personal Insolvency Bill 2012 completed its passage through the Dáil and Seanad today (19 December 2012). In accordance with the Constitution, it will now be presented to the President for signature.
The Personal Insolvency Bill represents the most radical and comprehensive reform of our insolvency and bankruptcy law and practice since the foundation of the State and is a fundamental part of the Government’s strategy to return this country to stability and economic growth. It is an extensive and legally complex Bill and introduces new concepts to Irish law and, indeed the Personal Insolvency Arrangement, introduces a concept unique in international insolvency law.
The passage of the Personal Insolvency Bill fulfils a key commitment in the Programme for Government. It was also required by the terms of the EU-IMF-ECB Programme of Financial Support for Ireland. The Bill provides for the introduction of three new debt resolution processes, which though requiring approval by the court, are essentially non-judicial in nature:
· The Debt Relief Notice (DRN) will allow for the write-off of qualifying unsecured debt up to €20,000, subject to a three year supervision period.
· The Debt Settlement Arrangement (DSA) provides for the agreed settlement of unsecured debt, with no limit involved, normally over five years.
· The Personal Insolvency Arrangement (PIA) will enable the agreed settlement of secured debt up to €3 million, although this cap may be increased with the consent of all secured creditors, and unsecured debt without limit, normally over six years.
The Bill will continue the reform of the Bankruptcy Act 1988 which Minister Shatter began in the Civil Law (Miscellaneous Provisions) Act 2011. The critical new provision is the introduction of automatic discharge from bankruptcy after three years, subject to certain conditions, rather than the current 12 year arrangement. Further information on each of the new debt resolution processes is included below.
Speaking following the passage of the Bill, Minister for Justice, Equality and Defence, Alan Shatter TD, said "I have been keen to ensure that the Insolvency Service of Ireland make an immediate impact upon completion of the legislation. The Director-designate of the Insolvency Service, Mr Lorcan O’Connor, commenced in his role at the end of October 2012. Since his appointment he has established an implementation team to address all operational matters necessary for the opening of the Service as soon as possible.
"The Insolvency Service is working towards a launch date in Quarter 1 of 2013 that will include the opening of an office and website, the launch of an information campaign and the issuing of publications and relevant guidelines.
Intensive efforts are also under way to design and implement the regulatory and IT frameworks required to be in place prior to the Service accepting applications for the new debt solutions. These should be in place during Quarter 2 of 2013."
While it is difficult to ascertain the likely demand on the new Insolvency Service, the tentative estimate of applications for the two main debt resolution processes - the Debt Settlement Arrangement and Personal Insolvency Arrangement - is roughly 15,000 applications plus a further 3,000 to 4,000 applications for Debt Relief Notices in the first full year. We would also expect about 3,000 bankruptcy applications during this time. There were approximately 30 bankruptcy adjudications in 2011.
Minister Shatter continued "In order to deal with this anticipated volume of work and to facilitate the speedy consideration of insolvency applications, a small new cadre of Specialist Judges of the Circuit Court will be introduced. Rather than seeking to appoint additional judges with the associated extra salary and pension costs to the Exchequer, the Government has decided that eligibility for these new judgeships will be initially confined to serving County Registrars with the necessary legal qualifications and practice experience. This should have the effect of ensuring that the creation of this new cadre will be largely cost neutral".
The Bill makes provision for a maximum of eight such specialist judges. The final number will depend on the volume of work but it is likely that six will be appointed in the first instance. The posts will be advertised by the Judicial Appointments Advisory Board which will forward a list of suitable applicants to Government following which nominees will be recommended to the President for appointment.
The Bill makes provision for the Insolvency Service to draw up guidelines in regard to reasonable living expenses that would be allowed to a debtor in one of the new insolvency processes. Minister Shatter said "In doing this, the Service will have regard to poverty indicators as set out in Government publications on poverty and social inclusion and statistical information collated by the Central Statistics Office on household income and expenditure. The Service will take into consideration individual circumstances such as differences in the size and composition of households, and the differing needs of persons, having regard to matters such as their age, health and whether they have a physical, sensory, mental health or intellectual disability".
With regard to the appointment of personal insolvency practitioners (PIPs) the Minister said "The Insolvency Service will not impose any particular restrictions as to the type of professions of persons who will be licensed to perform this function. However, the entry requirements will be set at a high level to ensure the competency of the Personal Insolvency Practitioners and to promote public confidence in the system. Looking at the experience in other countries, insolvency practitioners tend to be accountants or lawyers, but can also be other professionals in the broad financial services sectors. Professional mediators may also bring their unique skills to the role. The Service will be responsible for the direct regulation of personal insolvency practitioners".
The Bill provides for certain debts deemed "excludable" debts, (mostly owed to the State) to be proposed for resolution in the new debt resolution processes subject to the explicit consent of the creditor concerned. Such provision can assist in a holistic approach to debt resolution by seeking to deal with all of the debts owed by a debtor in one arrangement. "Excludable debts" as defined in the Bill include, for example, any liability arising out of any tax, duty, levy or other charge of a similar nature owed or payable to the State, amounts payable under the Local Government (Charges) Act 2009 and the Local Government (Household Charge) Act 2011, a debt or liability in respect of moneys advanced by the Health Service Executive under the Nursing Homes Support Scheme Act 2009 and a debt due to any owners’ management company in respect of annual service charges under the Multi-Unit Developments Act 2011. Where the creditor consents to the inclusion of their "excludable debt" in a debt resolution process these debts then become known as "permitted debts".
The Minister further added, "A number of concerns have been raised about the balance of power between banks and debtors, which has been commonly referred to as a "Bank Veto". The reality is that it is in the best interests of both debtors and creditors to seek to conclude an acceptable and workable bilateral arrangement under the Personal Insolvency Bill, be it a Debt Settlement Arrangement or Personal Insolvency Arrangement. The latter such Arrangement will be of particular use for those persons experiencing difficulty with repayment of their mortgages and will have to provide, in appropriate circumstances, not only for debt forbearance but also debt forgiveness i.e. a write off of a proportion of outstanding capital or debt.
"The insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward a realistic offer to his creditors that will restore the debtor to solvency within a reasonable period, thus giving creditors a better financial outcome than the alternative bankruptcy. The creditors will need to consider carefully the debtor's offer, conscious that if they refuse, the debtor can avail of bankruptcy. Bankruptcy is the ultimate appeal mechanism of the debtor. It is clearly advantageous for both debtors and creditors to avail of the Debt Settlement Arrangement and the Personal Insolvency Arrangement and to avoid bankruptcy where possible."
Finally, the Minister said "Under the provisions of the Bill, the three new debt resolution processes will be formally reviewed no later than three years after commencement. However, I intend that the operation of this Bill will be subject to ongoing review and I will swiftly intervene, with amending legislation, to make additional provision or to correct any error that arises from operational experience".
19 December 2012
Note for Editors:
The Government published the General Scheme of the Personal Insolvency Bill for consultation on 25 January, 2012. The full Bill was published on the 25 June, 2012
Since January 2012, several important submissions have been received, in particular the Report of the Joint Committee on Justice, Defence and Equality, and taken into account in the finalisation of the Bill. Many of the provisions in the Bill are both complex and new in our legislation dealing with significant issues of personal insolvency.
Debt Relief Notice
The Debt Relief Notice will permit the full write-off of qualifying debts totalling not more than €20,000 for persons with essentially "no assets and no income" and have no realistic prospect of being able to pay their debts within the next 3 years.
In comparison with the comparable process in the UK and Northern Ireland, the Personal Insolvency Bill provides significant exemptions in the Debt Relief Notice in addition to the €400 asset test for applicants. These exemptions are (a) €6,000 for household goods, (b) any materials or equipment needed for educational purposes up to the end of second level education, (c) one item of personal jewellery up to a value of €750 and (d) a motor vehicle of up to a value of €2,000 - these latter exemptions are subject to the proviso that the application itself does not seek to settle the purchase cost of the item as a qualifying debt.
Applications for Debt Relief Notices will be processed through approved intermediaries. The primary such intermediaries will be the Money Advice and Budgeting Service. MABS has significant experience and knowledge in regard to the devising of debt plans and of assisting persons with debt difficulty.
Debt Settlement Arrangement
A Debt Settlement Arrangement may be negotiated between a debtor and one or more creditors to repay an amount of unsecured debt over a period of 5 years (with a possible agreed extension to 6 years). The Debt Settlement Arrangement would assist persons who have such income, assets and debts that would fall outside the criteria for a Debt Relief Notice and would have the capacity to make repayments to their creditors in return for a discount of their debts.
Personal Insolvency Arrangement
A Personal Insolvency Arrangement may be between a debtor and one or more creditors to repay an amount of both secured debt up to a limit of €3 million and unsecured debt over a period of 6 years (with a possible agreed extension to 7 years). The Personal Insolvency Arrangement would assist those persons who have difficulty in the repayment of both secured debt (e.g. mortgage arrears) and unsecured debt. It is anticipated that the debtor would have the capacity to make repayments to their creditors in return for a discount of their debts.
The full operation of the provisions of the Bill is expected in the early part of 2013. The Insolvency Service aims to open its office, launch its website, commence an information campaign with the issuing of publications and relevant guidelines in Quarter 1 of 2013. The regulatory and IT frameworks required for the Service to process applications for the new debt solutions should be in place during Quarter 2 of 2013. This will allow for the regulation of personal insolvency practitioners. It is anticipated that the recruitment of the specialist judges to deal with the anticipated increased volume of insolvency work will also be accomplished in Quarter 2.