The Minister for Justice and Equality and Defence, Alan Shatter TD is pleased to announce today the publication of the Personal Insolvency Bill 2012. The Bill was approved by the Government at its meeting on 26 June, 2012.

The development of modern insolvency law is in line with the commitments in the Programme for Government and the EU/IMF Programme of Financial Support for Ireland.  This is a very significant Bill providing for a comprehensive reform of insolvency law.  It provides new and more flexible options to address the circumstances of insolvent debtors. 
 
A number of recent reports have recommended significant reforms to Ireland’s personal insolvency framework. For example, the Inter-Departmental Working Group on Mortgage Arrears (Keane) Report of October, 2011 recommended that "the early introduction of new judicial and non-judicial bankruptcy options is vital" and stated that "without effective bankruptcy legislation the mortgage arrears problem will not be resolved". In addition, the Law Reform Commission’s December 2010 Report also made very significant recommendations. Its report and earlier work was of considerable assistance in the formulation of this Bill.
 
 
The draft general Scheme of the Personal Insolvency Bill was published for consultation by the Government on 24 January, 2012.  A number of important submissions, in particular the Report of the Joint Committee on Justice, Defence and Equality, were received in response and were taken into account in the finalisation of this Bill. While the primary architecture of the draft general Scheme remains the same, considerable development of the individual provisions in terms of legal and technical detail has taken place in order to provide for a more coherent approach in the Bill.

The Minister said that the reform of personal insolvency law contained in the Bill will involve the introduction of the following new non-judicial debt resolution processes, subject to relevant conditions in each case:
· a Debt Relief Notice to allow for the write-off of qualifying debt up to €20,000, subject to a three year supervision period;
· a Debt Settlement Arrangement for the agreed settlement of unsecured debt over 5 years;
· a Personal Insolvency Arrangement for the agreed settlement of secured debt up to €3 million (though this cap can be increased with the consent of all secured creditors) and unsecured debt over 6 years.


The new Insolvency Service, to be established under the Bill, has a role in either certifying or determining an application for a Debt Relief Notice or certifying applications for a Debt Settlement Arrangement or a Personal Insolvency Arrangement and, thereafter, referring the relevant documentation to the Circuit Court. 

In order to protect the constitutional rights of all concerned provision has been made for Circuit Court oversight of these three new procedures. 

The significant reform of the Bankruptcy Act 1988, begun by the Minister in the Civil Law (Miscellaneous Provisions) Act 2011 is continued. The critical new element is the introduction of automatic discharge from bankruptcy, subject to certain conditions, after 3 years as opposed to 12 years at present. This development moves Ireland to the European norm for such discharge.

The Minister is conscious that further development of the text of the Bill will be necessary in regard to a number of issues. This work will continue and  it is his intention to bring forward further relevant proposals and amendments during the progress of the Bill through the Oireachtas in the Autumn.

Minister Shatter said that "this Bill is designed to provide a modern insolvency process in Ireland which addresses the obligations of debtors and the rights of creditors in a proportionate and balanced way having regard to the financial reality of an individual’s true circumstances." 

Minister Shatter further said "I am convinced that new personal insolvency laws including the reform of our bankruptcy law will, in addition to providing new legal remedies, also provide a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers. The provisions relating to a Personal Insolvency Arrangement are specifically designed to facilitate a debtors continued ownership and occupation of his principal private residence unless the debtor does not wish to do so or the costs of the debtors continuing to reside in it are disproportionately large."

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.

The Minister hopes that the provisions of this Bill will receive careful consideration by all potentially affected by it.  He is keen to stress, however, that individual circumstances vary and that the solutions found within the context of the DSA and PIA processes will also vary. The Minister is anxious to emphasise that the Bill makes it clear that those persons experiencing difficulties in regard to mortgage arrears should engage with their lenders so as to seek a satisfactory solution and also emphasised the importance of lenders constructively engaging with customers in genuine financial difficulty. The protections afforded under the Central Bank Code of Conduct on Mortgage Arrears will continue to be available to co-operating borrowers.

The Minister expressed the hope that the provisions contained in the Bill act as the catalyst to honest, open and constructive engagement between both unsecured and secured creditors (including financial institutions) and those in genuine substantial financial difficulty.  He stated that "the Bill provides concrete options for those genuinely unable to discharge their financial obligations as opposed to those who can but won’t do so."  Moreover, he noted that if creditors fail to constructively engage in the DSA or PIA process or if agreement does not prove possible, the option of initiating an application for a court adjudication of bankruptcy is available both to creditors and to an insolvent debtor.

Minister Shatter also reiterated that the Bill does not provide for the automatic writing-off of negative equity, where such may exist. Where a person is in a position to service their mortgage or other debt obligations, they must continue to do so. This Bill does not relieve solvent debtors of their responsibility to meet their contractual obligations.

The Insolvency Service of Ireland will be established to operate the new insolvency processes and to provide a focal point for development of insolvency policy in the future. The Minister is advancing the organisational planning for the new Service and the Director Designate will likely be appointed during the summer

The Personal Insolvency Bill 2012 is available on the Oireachtas website; www.oireachtas.ie    

Supplementary Information on Mortgage Arrears is available on the Department of Justice and Equality website by accessing the following link; www.justice.ie/en/JELR/Pages/PB12000197 

29 June 2012

Ends

 

Main provisions of the Personal Insolvency Bill 2012


The Personal Insolvency Bill 2012 provides for:

Insolvency Service of Ireland
The Bill (in Part 2) provides for the establishment of an Insolvency Service of Ireland to operate the new non-judicial debt resolution processes.

Insolvency Arrangements
The Bill (in Part 3), in 6 Chapters, provides for:
- three new non-judicial debt resolution processes,
- the appointment of Personal Insolvency Practitioners for these insolvency arrangements,
- offences, and
- miscellaneous provisions.

Debt Relief Notices (Part 3, Chapter 1) provides, subject to certain conditions, for the issue of a Debt Relief Notice (DRN) to permit the write-off of qualifying debts totalling not more than €20,000 for persons with no "income – no assets" and who are insolvent and have no realistic prospect of being able to pay their debts within the next 5 years. The intention is to create an efficient non-judicial process of allowing such persons to resolve unmanageable debt problems. The process is akin to bankruptcy in its broad approach, but provides a low cost insolvency option having regard to the extent of the debts involved. Applications for a DRN must be submitted on behalf of the debtor by an authorised approved intermediary body, (e.g. the Money Advice and Budgeting Service - MABS)

The approved intermediary would:
· advise the debtor as to their options and the qualifying requirements,
· assist in the preparation of the necessary Prescribed Financial Statement – which must be verified by means of a statutory declaration - and any other required documentation, and
· if the qualifying criteria are met, transmit the debtor’s application to the Insolvency Service to have a DRN approved.

General conditions for application for a DRN
· debtors would have qualifying debts of €20,000 or less;
· debtors would not be eligible where 25 per cent or more of the qualifying debts were incurred in the 6 months preceding the application;
· debts qualifying for inclusion in a DRN are most likely to be unsecured debts: e.g. credit card, personal loan, catalogue payments, etc;
· debtors will have a net monthly disposable income of €60 or less after provision for "reasonable" living expenses and payments in respect of excluded debts (if any);
· debtors would hold assets (separately or jointly) to the value of €400 or less. There is an exemption from the asset test for essential household appliances, tools, etc required for employment or business and one motor vehicle up to value of €1,200;
· debtors must act in good faith and co-operate fully;
· debts excluded from a DRN include: taxes, court fines, family maintenance payments and service charges arrears.

Role of the Insolvency Service in DRN
On receipt of the completed application, the Insolvency Service shall consider it and make such enquiries as it considers appropriate to verify the information, including enquiries with the Department of Social Protection and the Revenue Commissioners. The Insolvency Service shall be entitled to presume that the eligibility criteria for the DRN have been met if it has no reason to believe that the information is incomplete or inaccurate. The Insolvency Service, being satisfied as to the application, shall issue a certificate to that effect and furnish the certificate and supporting documentation to the court. The court will consider the application and if satisfied issue the DRN and notify the Insolvency Service.

The Insolvency Service will notify the approved intermediary and the creditors of the issue of the DRN and register it in the Register of Debt Relief Notices.

The effect of the issue of the DRN is that the debtor is subject to a supervision period of three years. During that period, creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods or contact the debtor.

The DRN will last 3 years from date of issue. At that time (and subject to no other action) the DRN terminates and the qualifying debts are discharged and the debtor will be removed from the Register of Debt Relief Notices.

Only one DRN per lifetime is permitted and not within 5 years completion of a Debt Settlement Arrangement or Personal Insolvency Arrangement. There is a restriction on the debtor from applying for credit over €650 during the DRN supervision period without informing the person of his status.

The debtor must inform the authorised intermediary and the Insolvency Service of any material change in financial circumstances. So as not to reduce the incentive to seek and obtain employment following approval of a DRN, there is provision for the debtor to repay a portion of the debts in circumstances where his financial situation improves. These circumstances include receipt of gifts or windfalls over €500 or where the debtor’s income has increased by over €250 per month. The debtor will transmit funds to the Insolvency Service to be paid on a pari pasu basis to the listed creditors. Should a debtor make repayments totalling 50 per cent of the original debt, the debtor will be deemed to have satisfied the debts in full, the DRN will cease to have effect and the debtor will be removed from the Register and all of the debts will be discharged. 

Appointment of Personal Insolvency Practioners for the purposes of Chapter 3 (DSA) or 4 (PIA) (Part 3, Chapter 2) provides for a range of practical matters in regard to the appointment of a personal insolvency practitioner, the duties and obligations on such a practitioner and the documents to be prepared in an application for a Debt Settlement Arrangement or Personal Insolvency Arrangement. A key requirement is the provision for the completion of the Prescribed Financial Statement by the debtor with the assistance of the personal insolvency practitioner. The Statement must be verified by means of a statutory declaration. These Statements are the critical element in application for the debt resolution processes. The Minister may prescribe in regulations the details required.


Debt Settlement Arrangements (Part 3, Chapter 3) provides for a system of Debt Settlement Arrangements (DSA) between a debtor and one or more creditors to repay an amount of unsecured debt over a period of up to 5 years (with possible agreed extension to 6 years). The DSA would assist persons who have such income and assets and debts that they would fall outside the eligibility criteria for a Debt Relief Notice. The Chapter provides for all aspects of the eligibility, application, determination, duties and obligations arising, court application, objection by creditor and discharge from qualifying debts under the DSA process.

The application for a DSA must be made through a personal insolvency practitioner (PIP) appointed by the debtor. The PIP must advise:
- the debtor as to their options in regard to insolvency processes,
- assist in the preparation of the necessary Prescribed Financial Statement – which must be verified by means of a statutory declaration - and any other required documentation, and
- if the qualifying criteria are met, apply to the Insolvency Service for a Protective Certificate in respect of the preparation of a DSA. A joint application is permitted where the particular circumstances might warrant such approach. The debtor must normally be resident in the State or have a close connection. Only one application for a DSA in a lifetime is permitted.

Certain debts are excluded from the DSA, including Court fines in respect of a criminal offence. In addition, certain other debts are also excluded, such as family maintenance payments, taxes, local authority charges and service charges, unless the relevant creditor agrees otherwise. (In addition, any debt that would have a preferential status in bankruptcy will also have a preferential status in a DSA).

The Insolvency Service, being satisfied as to the application, shall issue a certificate to that effect and furnish the certificate and supporting documentation to the court. The court will consider the application and, subject to the creditors right to appeal, if satisfied issue the Protective Certificate and notify the Insolvency Service. Once such approval is granted, the Protective Certificate is registered in the Register of Protective Certificates and a "stand-still" period of 70 days applies to permit the PIP to propose a DSA to the listed creditors. That period may, on application to the court, be extended for no more than a further 40 days. The PIP will inform the creditors of the issue of the Protective Certificate.
The effect of the issue of the Protective Certificate is that the creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods or contact the debtor. The rights of secured creditors are unaffected.

A DSA proposal does not require the debtor to dispose of or cease to occupy their principal private residence where appropriate. If the DSA proposal is accepted (by 65% in value of the creditors present and voting) it is binding on all creditors. The PIP shall inform the Insolvency Service who shall then transmit the agreement to the relevant court for approval. If satisfied and if no objection is received by it within 10 days, the court shall approve the DSA and notify the Insolvency Service which will register it in the Register of Debt Settlement Agreements whereupon it comes into effect. The PIP will then administer the DSA for its duration.

The Insolvency Service has no role in the negotiation and agreement of a DSA.

While there is provision for a wide range of repayment options, the default position unless otherwise agreed, is that creditors be paid on a pari-passu or proportionate basis. Conditions attach to the conduct of the debtor during the DSA. There is provision for an annual review of the financial circumstances of the debtor and the agreement could if necessary be varied or terminated. On the termination or failure of the DSA, a debtor could risk an application for adjudication in bankruptcy.

At the satisfactory conclusion of the DSA all debts covered by it are discharged.


Personal Insolvency Arrangements (Part 3 Chapter 4) 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 period of 6 years (with possible agreed extension to 7 years). The PIA would assist those persons who have difficulty in the repayment of both secured debt (e.g. mortgage arrears) and unsecured debt. The Chapter provides for all aspects of the eligibility, application, determination, duties and obligations arising, court application, objection by creditor and discharge from qualifying debts under the DSA process.

The application for a PIA must be made through a personal insolvency practitioner (PIP) appointed by the debtor. The PIP must advise:
- the debtor as to their options in regard to insolvency processes. A debtor may only propose a PIA if he or she is cash flow insolvent (i.e. unable to pay his or her debts in full as they fall due) and there is no likelihood within a period of 5 years that the debtor will become solvent.
- assist in the preparation of the necessary Prescribed Financial Statement – which must be verified by means of a statutory declaration - and any other required documentation, and
- if the qualifying criteria are met, (which includes cooperation with the secured creditor in respect of the debtor’s principal private residence, under a mortgage arrears process approved or required by the Central Bank), may apply to the Insolvency Service for a Protective Certificate in respect of the preparation of a PIA. A joint application or an interlocking PIA is permitted where the particular circumstances might warrant such approach. The debtor must normally be resident in the State or have a close connection. Only one application for a PIA in a lifetime is permitted.

Certain debts are excluded from the PIA, including Court fines in respect of a criminal offence. In addition, certain other debts are also excluded, such as family maintenance payments, taxes, local authority charges and service charges, unless the relevant creditor agrees otherwise. (In addition, any debt that would have a preferential status in bankruptcy will also have a preferential status in a PIA).

The Insolvency Service, being satisfied as to the application, shall issue a certificate to that effect and furnish the certificate and supporting documentation to the court. The court will consider the application and, subject to the creditors right to appeal, if satisfied issue the Protective Certificate and notify the Insolvency Service. Once such approval is granted, the Protective Certificate is registered in the Register of Protective Certificates and a "stand-still" period of 70 days applies to permit the PIP to propose a PIA to the listed creditors. That period may, on application to the court, be extended for no more than a further 40 days. The PIP will inform the creditors of the issue of the Protective Certificate.

The effect of the issue of the Protective Certificate is that the creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods, enforce security or contact the debtor.

A PIA proposal does not require the debtor to dispose of or cease to occupy their principal private residence where appropriate. There are certain specific protections for secured creditors, including a "claw back" in the event of a subsequent sale of a mortgaged property where the mortgage has been written down.

If the PIA proposal is accepted it is binding on all creditors. A PIA must be supported by at least 65% of all creditors voting at the creditors meeting (based on the value of the total of both secured and unsecured debt owed to those voting creditors) and more than 50% of secured creditors voting (based on the lesser of value of the security underpinning the secured debt or the amount of that debt) and 50% of unsecured creditors (based on the amount of the debt).

The PIP shall inform the Insolvency Service of the agreement and the Service will then transmit the agreement to the relevant court for approval. If satisfied and if no objection is received by it within 10 days, the court shall approve the PIA and notify the Insolvency Service will register it in the Register of Personal Insolvency Arrangements and it comes into effect. The PIP will then administer the PIA for its duration.

Conditions attach to the conduct of the debtor during the PIA. There is provision for an annual review of the financial circumstances of the debtor and the agreement could if necessary be varied or terminated. On the termination or failure of the PIA, a debtor could risk an application for adjudication in bankruptcy.

The Insolvency Service has no role in the negotiation and agreement of a PIA.

At the satisfactory conclusion of the PIA all unsecured debts covered by it are discharged. Secured debts are only discharged at the conclusion of the PIA, if and to the extent, specified in the PIA. To the extent that they are not provided for in the PIA, all other debt obligations will remain


Offences under Part 3 (Part 3, Chapter 5) provides for a single offences chapter in Part 3 in regard to all of the non-judicial debt resolution processes. Offences include false representation, falsification of documents and fraudulent disposal of property and may be prosecuted on both a summary or indictment basis.


Miscellaneous (Part 3, Chapter 6) provides, inter-alia, for the creation and maintenance of the insolvency registers to record details of persons concerned with the various debt resolution processes. The registers would in electronic form and members of the public may inspect a register and may take copies of, or extracts from, entries in a register.

Bankruptcy
The Bill (in Part 4) 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 new provisions are as follows:

- a creditor bankruptcy summons: (i) the new minimum amount for a creditor or combined non-partner creditors petition for bankruptcy is €20,000. (The current limits are €1,900 for a creditor and €1,300 for combined non-partner creditors). (ii) Fourteen days notice must be provided to ensure that a bankruptcy summons is not brought prematurely by a creditor, so as to allow the debtor to consider other options such as a Debt Settlement Arrangement or a Personal Insolvency Arrangement.

- presenting a petition for bankruptcy: the creditor must prove for a debt of more than €20,000 (the current limit is €1,900). Where a debtor presents a petition, they must (i) swear an affidavit that they have made reasonable efforts to make use of alternatives to bankruptcy, such as a Debt Settlement Arrangement or Personal Insolvency Arrangement and (ii) present a statement of affairs, which must disclose that their debts exceed their assets by more than €20,000. 

- adjudication of a creditor’s petition for bankruptcy: the court will be required to consider the assets and liabilities of the debtor and assess whether it may be appropriate to adjourn proceedings to allow the debtor to attempt to enter into a Debt Settlement Arrangement or Personal Insolvency Arrangement. 

- excepted articles: the maximum value of household furniture or tools or equipment required by a bankrupt for a trade or occupation is increased from the current level of €3,100 to €6,000.

- avoidance of fraudulent preferences and certain transactions made before adjudication in bankruptcy: the current time period of 1 year is extended to 3 years. 

- avoidance of certain settlements: the time periods in regard to certain voluntary settlements of property made before adjudication in bankruptcy is extended from 2 years to 3 years.

- discharge from bankruptcy: the following new provisions will apply:

(i) the automatic discharge from bankruptcy after 3 years from the date of adjudication (reduced from the current 12 years). 

(ii) bankruptcies existing for 3 years or more at the time of commencement of the Act will be automatically discharged after a further six months have elapsed, this latter time to allow for any creditor objection.

(iii) the bankrupt’s unrealised property will remain vested in the Official Assignee in Bankruptcy after discharge from bankruptcy and the discharged bankrupt will be under a duty to co-operate with the Official Assignee in the realisation and distribution of such of his or her property as is vested in the Official Assignee. 

(iv) the Official Assignee or a creditor may apply to the court to object to the discharge of a person from bankruptcy. The grounds for such an objection are that the debtor has failed to co-operate with the Official Assignee or has hidden or failed to disclose income or assets. The court may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt up to a maximum of 8 years from the date of adjudication.

(v) the court may order a bankrupt to make payments from his or her income or other assets to the Official Assignee for the benefit of his or her creditors. In making such an order, the court must have regard to the reasonable living expenses of the bankrupt and his or her family. The court may vary a bankruptcy payment order where there has been a material change in the circumstances of the discharged bankrupt. Such an order must be applied for before the discharge from bankruptcy and may operate for no more than 5 years.

(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).


Part 5  Regulation of Personal Insolvency Practitioners
The Bill in Part 5 provides for an enabling provision in regard to the regulation of Personal Insolvency Practitioners (PIPs). However, a definitive approach to the regulation of PIPs, be they members of the legal or accountancy professions or other qualified persons awaits final decision. Consultations will continue between the Departments of Finance and Justice and Equality and the Central Bank in that regard and will likely be the subject of a legislative proposal at a later stage.