Personal Insolvency Act

The Personal Insolvency Act was passed into law in December 2012 with the aim of modernising the Irish personal insolvency laws and addressing the obligations of debtors and the rights of creditors in a proportionate and balanced way. There is also a need to distinguished between debtors who are genuinely unable to pay their debts and those who are unwilling to pay.

The Act provides for:-

• the introduction of three non-judicial debt resolution processes for insolvent debtors who are unlikely to become solvent within a five year period;
• the establishment of an Insolvency Service to oversee these non-judicial debt resolution processes; and
• reforms to the Bankruptcy Act 1988.

Non-Judicial Debt Resolution Processes

a) Debt Relief Notices (DRNs) provide for the write-off of qualifying unsecured debts (credit cards, utility bills, overdrafts, rent etc) up to €20,000. This process is only available to debtors who have a net disposable income of €60 or less a month and assets worth no more than €400.

b) Debt Settlement Arrangements (DSAs) assist persons who do not meet the eligibility criteria for DRNs. DSAs are only available in respect of unsecured debts and cannot be used to affect the rights of secured creditors. A debtor seeking to avail of this process must engage a personal insolvency practitioner to put a debt settlement proposal to creditors for the repayment of an amount of the debt over a five year period (or six years, where agreed). A DSA must be approved by at least 65 per cent (in value) of the creditors present and voting at a creditors' meeting.

c) Personal Insolvency Arrangements (PIAs) are the only option available to debtors with both secured and unsecured debts and may include terms altering the rights of secured creditors. PIAs are available in respect of any amount of unsecured debts and secured debts up to a cap of €3 million, which may be waived by written consent of all secured creditors.

Proposals for a PIA must be made through a Personal Insolvency Practitioner and provide for the compromise and settlement of both secured and unsecured debts over a six year period (or seven years, where agreed).

A proposal for a PIA must be approved by at least 65 per cent in value of the total of the debtor's debts; and by creditors representing more than 50 per cent of the value of the secured debts; and by creditors representing more than 50 per cent of the value of unsecured debts. Where a PIA is rejected, the debtor does not have any right of appeal.

The Act does not provide guidance for banks or other secured creditors on how proposals for PIAs ought to be evaluated, leaving both debtors and creditors unsure as to how these will operate in practice. Without further clarification, there is a danger that confidence in the PIA process may be undermined.

Reforms to bankruptcy legislation

Amongst other reforms, the Act reduces the automatic bankruptcy discharge period from 12 to three years, subject to certain conditions. Whether this will go far enough to reduce the recent trend in bankruptcy tourism to Britain and the North remains to be seen.

 Debtor /Creditor Balance

Concerns have been expressed that the PIA voting requirements effectively provide secured creditors with a right of veto. Against this, Minister Shatter has stated that the reduction to the automatic discharge period will strengthen a debtor's position in dealings with creditors, including banks.

Where a creditor refuses to approve a PIA, the debtor will retain the option to file for bankruptcy and, if successful, could potentially be relieved from indebtedness within three years.