Irish Debt Reform

Almost fifteen months have now passed since the Law Reform Commission (LRC) of Ireland published a consultation paper on personal debt in Ireland, in which it made many recommendations for urgent changes to insolvency law in Ireland to bring it into line with other EU countries.

The LRC work was to a great extent the result of the European Commission putting pressure on the Irish Government to deal with the issue. In Irish terms the recommendations were a bold and perhaps courageous attempt to provide a legislative framework for rectifying the injustices of the Irish insolvency regime. Compared to the rest of Europe of course there was little new in the recommendations since many of the changes were already implemented in many EU countries.

What would make a difference to Irish people would be if the government enacted and implemented the recommendations. That has not happened and with the Fianna Fail – Greens coalition government now likely to go out of office early in 2011 it will fall to the new Fine Gael – Labour coalition to legislate in the matter.

With the current crisis in the Irish banks and in the public finances is taking up the time of all parties at present, perhaps a fresh look at the original LRC recommendations would be worthwhile. The consultation 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. Those who can’t pay personal debts should not go to prison but the Commission stated that such legal sanctions should be retained for those who can pay but refuse to do so. Among the key recommendations made were:

1. Bankruptcy Act 1988 should be significantly amended to provide an adequate and effective system. Significantly however, the LRC stated that making detailed recommendations for a new bankruptcy law was beyond the scope of the consultation paper.
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 an appropriate majority.
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.
4. Insolvent debtors should not be excluded from the scheme due to excessive costs.
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.
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.  
7. The repayment timeframe should be between three and five years after which the debtor would be ‘debt-free’.

The Commission examines the whole area of Debt Management Plans (DMPs) and Individual Voluntary Arrangements (IVAs) and their proposed ‘Debt Settlement System’ is remarkably similar in many respects to how IVAs are currently administered in the UK. The commission invited submissions across the whole range of its provisional recommendations in all areas of personal insolvency. In detailed recommendations, made recently by an expert working group, the LRC’s original suggestions were largely reiterated.