Justice Minister Alan Shatter recently revealed the specifics of the Civil Law (Miscellaneous Provisions) Bill which is going to provide the consequence of reducing the term of bankruptcy in Ireland. Bankrupts according to the proposed new law will ‘enjoy’ guaranteed release from bankruptcy after twelve years but will be legally permitted to make an application for release from bankruptcy after five years.
If the situation was not so important, the new government’s initial, fumbling and weak attempts at reform of Ireland’s draconian and arcane bankruptcy legislation would be laughable. The unfortunate justice minister, under whose remit this thorny matter falls, has succumbed to the temptation to attain some brownie points for the new coalition government by merely doing something – anything – in the area of personal insolvency but the action is such a timid and minor one that all it is likely to (deservedly) get from the domestic and global financial community is ridicule and scorn and the announcement will undoubtedly be viewed as just one more cute sound bite.
It isn’t entirely apparent precisely why the government is kicking this particular can down the line and by so doing give the clear perception that they are buying time. Besides, according to the terms and conditions of the EU/IMF/ECB bailout, the government is legally required to overhaul Ireland’s individual insolvency laws and introduce new laws by March 2012. Additionally, there is the question of an upcoming High Court challenge to Ireland’s arcane bankruptcy laws which was predicted just recently by Maeve Sheehan in a recent report in The Sunday Independent. The challenge was purportedly to be prepared on the basis of alleged breaches of the constitutional rights of people looking at bankruptcy. Might it be that the minister’s announcement was made purely to weaken the validity of the projected challenge? To be fair to the new Fine Gael – Labour coalition government, it has started to take action on the issue of individual insolvency inside of four months of taking office in comparison with the inertia and inaction of the previous Fianna Fail – Greens government, that weren’t able to get its combined heads around the idea of personal debt forgiveness and who just sat on their hands for years.
Industry experts gave what could at best be described as a skeptical welcome to the government’s announcement presumably in the expectation of there being a realistic hope that it is genuinely just the first of numerous measures waiting to be taken. The Law Reform Commission (LRC) has certainly performed all the heavy lifting. The studies have been carried out. Specialists have already been employed both at home and internationally. A number of overseas jurisdictions have been examined and benchmarked. The credit and insolvency sectors have given their input. The LRC circulated its final report Personal Debt Management and Debt Enforcement in December 2010. The LRC advocates that any new Irish insolvency legislation will need to stress the ‘fresh start’ philosophy on which most of the best European and American personal insolvency legislation is based.
The LRC has already recognized the most important and key reforms necessary regarding the Bankruptcy Act 1988. In fact the proposed new act (at present entitled the Draft Personal Insolvency Bill 2010) and the old Bankruptcy Act 1988 (needing urgent reform and modification) are so intricately intertwined that it is senseless to pass new legislation without concurrently (or as contemporaneously as is possible) amending the old act.
The reform of the Bankruptcy Act 1988 as proposed by the LRC is wide reaching and fundamental. It recommends laying down a minimum amount of debt of Euro 50,000 before a creditor may petition for the bankruptcy of an insolvent borrower. It also proposes the removal of the need that the insolvent debtor possess accessible assets of at least Euro 1,920 before he or she can on their own petition for bankruptcy. The LRC wants the court to be empowered to look at the debtor’s insolvency and to stay proceedings to enable the borrower to try a Debt Settlement Arrangement (DSA) – as envisaged and detailed in the new draft act. It wants to see the establishment of a Pre-Action Protocol which would apply to a creditor’s petition for bankruptcy and would oblige the debtor and creditors to investigate other feasible options such as a DSA before starting the bankruptcy path. The court would also be empowered to postpone bankruptcy proceedings to make available time for the contemplation of different means in the case of a debtor’s petition for bankruptcy, with very much the same obligations and powers as under the Pre-Action Protocol. The court would set conditions for the automatic release of the bankruptcy and allow discharge before all of the bankrupt’s property had been realized. It could limit the automatic release duration to three years and demand repayments by the bankrupt for up to five years. The powers of the court would cover release from bankruptcy and addressing objections to release by the Official Assignee/Personal Insolvency Trustee. The requirement to pay expenses, fees etc before release would be removed. The specification of priority debts e.g. Revenue obligations would be revised. The LRC also proposed that actions against dishonest and/or irresponsible bankrupts, such as restrictions and disqualifications be set. It recommended that specific possessions would be exempt from the bankruptcy so as to ensure a fair living standard for the bankrupt. Finally it advocated that conditions be identified and set in place for the appointing and licensing of a new office holder called Personal Insolvency Trustee acting in bankruptcy, with the new licensing system to be overseen by a (new) Debt Settlement Office.
Not everybody welcomes these types of significant changes and there’s no scarcity of advice or even lobbying by vested interests which include banks and financial institutions. Plainly any level of personal debt forgiveness as distinct from forbearance will have a adverse impact on the bottom line of banks and other lenders. Bad debts must be crystallized and bad debt provisions will have to be boosted. Countless different viewpoints have been expressed by so many commentators and lobbyists which range from economic ‘experts’ to barristers to accounting firms to bankers. They wax lyrically on matters for instance moral hazard, can’t-pay versus won’t-pay, and other such red herrings while the financial suffering of the insolvent citizen in Ireland goes predominantly unheeded. Incredibly senior civil servants have labeled the proposed reform of Irish insolvency law as unfair because it is ‘very debtor friendly’!
While admitting that numerous Irish people have outstanding debts that they’ll never reasonably have the capacity to repay, the thought of personal debt forgiveness is rejected on the spurious grounds that it is not just the banks and other big credit houses which will suffer difficulty, but also many regular small businesses and self employed people such as tradespeople, small builders, architects and other individuals who may possibly be left behind without repayment by defaulting debtors whose obligations may have been ‘forgiven’.
So has the work of the LRC all been in vain and a squandering of taxpayer’s money? Minister, you must grasp the nettle and quickly create the changes so urgently desired. The time for analysis and consultation is finished. You and your government were elected to enact new and good legislation. Don’t be a laughing stock. Become a champion for all the people including the financially troubled masses who would like more than forbearance – they want forgiveness and the opportunity of a new start in Ireland. Now is the time to take action.