Personal Insolvency Reforms – Early 2012?

In 2010 the Law Reform Commission launched its Report on Personal Debt Management and Debt enforcement.  The Report makes 200 recommendations for reform.

The main proposed reforms to current Bankruptcy Legislation are:-

1.         An automatic discharge from Bankruptcy after 3 years subject to:-

-          Leaving the Bankrupts full Estate (including any house) in the Bankruptcy and

-          Allowing the Official Assignee in Bankruptcy to order the Bankrupt to make repayments for up to 5 years.

2.         An increase in the minimum debt level necessary to bring forth a Creditors Bankruptcy Petition from €1,900.00 to €50,000.00

3.         Revenue to lose its preferential status in the Bankruptcy process.

4.         The introduction of a system in Personal Insolvency similar to Section 150 / Section 160 of the Companies Acts (Restriction/Disqualification of Company Directors).

The Report recommends the creation of a Debt Enforcement Office which would oversee an out of Court debt settlement system.  It is proposed that, for those individuals who are in a position to discharge at least some of their debts, the Debtor and his Creditors (under the supervision of a Personal Insolvency Trustee) would enter into a legally binding commitment whereby an agreed amount of the debt would be repaid over a period of up to 5 years.  The process will require the support of 60% of Creditors and obliges the Debtor to make full disclosure of all assets and to act in good faith.  Should the Debtor comply with the Debt Settlement Arrangement, he will be deemed to have repaid his debts in full and will be in a position to “draw a line in the sand” and start afresh.

Where a Debtor has no prospect of ever repaying any proportion of his debt, it is proposed that the Debt Enforcement Office could make a once off Debt Relief Order.  The effect of this Order would be to deem all of the debts discharged, unless the Debtors circumstances changed dramatically.

One obvious shortfall is that Mortgage related debt will fall outside this process unless the Mortgage Provider has crystallised the Mortgage debt through enforcement proceedings.

Conclusion

It now falls to the Government to introduce the necessary legislation.  The Government has entered into a Letter of Intent and Memorandum of Understanding with the EU/IMF committing the Government to bring legislation before the Oireachtas before the end of the first quarter of 2012.  It is to be hoped therefore that we will see personal insolvency in this jurisdiction evolve into a process more befitting of the current social and economic environment and which will bring Irish Bankruptcy Law into line with modern European insolvency standards.

Brian Dignam is Partner - OSK Audit t: 01 4394207