Ireland: Radical Changes For Personal Insolvency

Last Updated: 2 May 2012
Article by Tony O'Grady

The proposed Personal Insolvency Bill, published on 25 January 2012, provides for significant changes to the personal insolvency regime in Ireland. The period for automatic discharge from bankruptcy is to be reduced from twelve to three years, bringing Irish law more in line within other jurisdictions such as the UK (where ordinarily the period is one year) and Australia (where ordinarily the period is three years).  Bankruptcy will only be available where a debtor's liabilities are over €20,000.  An independent body known as the Insolvency Service is to be established which will oversee three new non–judicial debt settlement mechanisms.

The reduction in the bankruptcy period to three years (subject to court discretion to order the making of payments to creditors from a discharged bankrupt's income for a period lasting up to five years from the date of the discharge) is to be welcomed, although concerns persist that insolvent individuals may continue to move their centre of main interests to the United Kingdom to avail of the possibility of discharge from bankruptcy after one year.

The bill envisages three non–judicial debt settlement mechanisms: 

  • Debt Relief Certificate (DRC),
  • Debt Settlement Arrangements (DSA) 
  • Personal Insolvency Arrangements (PIA),

These are designed to offer an alternative to bankruptcy for individuals in certain prescribed circumstances, as follows:

  • An insolvent debtor with unsecured debts of €20,000 or less and very limited means may apply to the Insolvency Service for a DRC which, if granted, will provide a one-year moratorium period during which creditors cannot pursue the debtor for debts covered by the DRC. If the debtor is unable to pay the debt at the end of the year, it will be written off. Similar systems operate in the UK, Northern Ireland and Australia.
  • A DSA system enables an insolvent debtor with unsecured, qualifying debts in excess of €20,000 to make settlement proposals through a personal insolvency trustee to two or more creditors for payment of debt over a maximum five year period. If the proposal is approved by a majority of 65% of creditors, it will become a binding DSA and will be registered by the Insolvency Service. 
  • A PIA will allow for the agreed settlement (through a personal insolvency trustee) of both secured and unsecured debt between €20,000 and €3 million by an insolvent individual, and will provide for payment of debt over a maximum six year period. It must be approved at a creditors' meeting by a majority of 65% in value of actual votes cast at the meeting as a whole (whether secured or unsecured creditors) and by (i) all secured creditors or (ii) 75% of secured creditors and 55% of unsecured creditors, at which point it will be binding on all creditors.

A creditor will have certain grounds to challenge a DRC, DSA and PIA, including an application to court. 

The introduction of non-judicial settlement options is likely to be a beneficial mechanism for dealing with personal insolvency outside the Court system and will allow qualifying insolvent individuals to deal with their debts in a structured, straightforward manner. The full Bill is expected to be published by the end of April 2012.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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