Insolvency in Ireland

Back in 2009 we looked at what the prospects were at that time for new legislation which would address the then burgeoning problems of personal debt and for many people the looming threat of personal insolvency.

Perhaps now is as good a time as any, to compare what was being proposed then with what we now have and see how many of the original boxes were ticked. In 2009 the Law Reform Commission of Ireland or LRCI published what we then described as a remarkable consultation paper on personal debt which made many recommendations for urgent changes to insolvency law in Ireland to bring it into line with most other EU countries.

At the time the European Commission was also putting pressure on the Irish Government to deal with the issue. The LRCI paper looked closely at the key issue of ability to pay and recommended that the treatment of those who can’t pay should be in stark contrast to the treatment of those who can pay but won’t. At the time the EC stated that those who can’t pay personal debts should not go to prison but such legal sanctions should be retained for those who can pay but were refusing to do so.

Let us assign marks out of ten for the actions taken by government since 2009 versus the LRCI recommendations of 2009. The key recommendations were:

1. That the Bankruptcy Act 1988 should be significantly amended to provide an adequate and effective system. The LRCI stated at that time that making detailed recommendations for a new bankruptcy law was beyond the scope of the consultation paper. Marks out of ten: three.  Though the law has been amended significantly, it does not seem to be either adequate or effective. In particular the three years discharge period makes it unattractive when compared to the UK bankruptcy regime where discharge within one year is the norm and bankruptcy tourism from Ireland to the UK is flourishing.
2. New Irish Laws should be enacted to provide for a non-judicial Debt Settlement System, which would be favoured over court-based personal insolvency proceedings. Such a Debt Settlement Scheme would be binding in law on all creditors, if accepted by a majority of creditors. Marks out of ten: three again. The government seems to have erred badly in implementing a system of ‘Protective Notices’ or PCs similar to the old and now disbanded UK system of ‘Interim Orders’. PCs can only be obtained from a court and six judges were newly appointed to run the system, which seems to be turning out to be little more than a ‘rubber-stamping’ exercise. Bureaucratic, inefficient and costly for the debtor and creditors and worst of all a time consuming and delaying mechanism with few if any discernible benefits.
3. Only insolvent debtors would be permitted to participate in the scheme. Insolvency would be defined as inability to meet debts as they fall due and this condition would have to be likely to continue over a significant period of time i.e. not a ‘snapshot’ condition. Marks out of ten: eight. All of the new insolvency solutions seem to have this conditionality clearly stated. There is a problem however in that there are probably significant numbers of insolvent debtors for whom none of the new insolvency solutions are suitable, affordable or both. If only reliable statistics were available from ISI or elsewhere to measure this issue.
4. Insolvent debtors should not be excluded from the scheme due to excessive costs. Marks out of ten: four. Surely it is unacceptable that insolvent persons must fork out large amounts of money which they don’t have to PIPs or to the ISI before they can even begin to access one of the new insolvency solutions. It is true that many PIPs do not charge upfront fees and the statutory costs of bankruptcy have been reduced in Ireland but surely it would have given a badly-needed stimulus to the new insolvency system to delay charging statutory fees until creditors have accepted the debtor’s proposal.    
5. The scheme would not exclude those with no income and no assets and it should be possible for a debtor making ‘zero payments’ to be accommodated. Marks out of ten: eight. The new Debt Relief Notice or DRN which is available for insolvent debtors with debts of less than €20,000, few assets and low disposable income meets this criterion but why the term of a DRN had to be set at three years rather than say one year, as it is in the UK, is baffling.
6. Repayment plans under the scheme should allow debtors to retain sufficient income to provide a reasonable standard of living for themselves and their families. Marks out of ten: nine. The new solutions certainly allow for debtors availing of them to continue to enjoy a reasonable standard of living but it remains to be seen how creditors will react when debtors claim genuine living expenses out of the norm for certain exceptional living costs.
7. The repayment timeframe should be between three and five years after which the debtor would be ‘debt-free’. Marks out of ten: four. The term of a DRN is three years, the term of a Debt Settlement Arrangement or DSA is five to six years and the term of a Personal Insolvency Arrangement or PIA is six to seven years. Once again the duration of each solution appears to be punitive as far as the debtor is concerned and appears to have been weighted in the interests of creditors. As for bankruptcy the glaring discrepancy in the duration before discharge between the Irish system and the UK system speaks volumes.