A challenge to Ireland’s arcane insolvency regulations may perhaps be made to the High Court within just a few months, as per a newly released report in The Sunday Independent by Maeve Sheehan.
This is truly an significant occurrence if a challenge is made due to alleged breaches of the constitutional rights of people dealing with personal bankruptcy. It is surely astounding if this should arise and turn into the catalyst for reform of the statutes and the launching of brand new laws on individual personal debt combined with debt rules. It would be unfair to accuse the fresh Fine Gael – Labour coalition government of sitting on its hands on this subject, given the inertia and inaction of the most recent Fianna Fail – Greens administration, that could not manage to get thier combined heads round the concept of private debt forgiveness. The new administration has had a lot of significant sovereign and banking money challenges to tackle however it’s now time to attend to business that would benefit the individual citizen.
At this time there is no shortage of opinions or lobbying by vested interests in particular banks and lenders. Needless to say any level of individual debt forgiveness as distinct from forbearance will certainly have a negative impact on the results of banks and other creditors. Bad debts will crystallize and bad debt provisions will need to be increased. So many varied suggestions have been stated by so many experts and lobbyists ranging from financial ‘experts’ to barristers to accountants to bankers. They wax lyrically on issues such as moral hazard, can’t-pay versus won’t-pay, and other such red herrings while the personal financial pain of the insolvent citizen goes for the most part unheeded.
The extensive and precise proposals crafted by the Law Reform Commission (LRC) related to private indebtedness clearly endorsed the value of integrating private debt forgiveness in any impending legislation on personal insolvency. Yet senior civil servants have described the proposed change of Irish insolvency legislation as unfair for the reason that it is ‘very debtor friendly’! While recognizing that many Irish people have debts that they will never reasonably be have the ability to settle, the concept of private debt forgiveness is discarded on the argument that it is not just the banks and other big credit houses which will suffer, but also many ordinary small businesses and self employed people such as tradesmen, small building contractors, architects and other people who will be left without payment by defaulting borrowers who may be ‘forgiven’. This is laughable and anyone who appreciates how personal insolvency laws operate in the United kingdom for example would quickly understand that.
The LRC has already carried out all the heavy lifting. The investigation has been done. Specialists have been conferred with at home and in other countries. Numerous overseas jurisdictions have been checked out and benchmarked. The credit and insolvency industries have given their feedback. The LRC has issued its final report Personal Debt Management and Debt Enforcement in December 2010. The EU/IMF/ECB has laid down March 2012 as the deadline for reform of Irish personal insolvency law which includes reform of bankruptcy law. The LRC advises that any new Irish insolvency legislation should stress the ‘fresh start’ idea on which much of the most effective European and American individual insolvency legislation is founded.
The LRC has already selected the most imperative and key reforms needed pertaining to the Bankruptcy Act 1988. In fact the proposed new act (now titled Draft Personal Insolvency Bill 2010) and the old Bankruptcy Act 1988 (which really needs urgent reform and amendment) are so intricately intertwined that it makes no sense to pass new laws without at the same time (or as contemporaneously as is possible) amending the old act.
The alterations to the Bankruptcy Act 1988 proposed by the LRC are: to set a lowest level of Euro 50,000 to generate a creditor’s petition of bankruptcy; to remove the obligation that the insolvent debtor have available assets of at least Euro 1,920 in order to petition for his or her own bankruptcy; to empower the court to take into consideration the debtor’s insolvency and to stay proceedings to enable the borrower to attempt a Debt Settlement Arrangement (DSA) – as detailed in the new draft act; to set up a Pre-Action Protocol which would apply to a creditor’s petition for bankruptcy and which would oblige the debtor and creditors to examine various other possible alternatives such as a DSA before starting out on the bankruptcy course and empower the court to stay bankruptcy proceedings; to empower the court to stay courtroom proceedings to look at alternative ways in the case of a debtor’s petition for bankruptcy, with similar requirements and powers as under the Pre-Action Protocol; to set in place conditions for the automatic discharge of the bankruptcy, allowing for discharge before all of the bankrupt’s property has been realized; to cut down the automatic discharge period of time to three years; to empower the court to order repayments by the bankrupt for up to five years; to establish the powers of the court pertaining to discharge and to objections to discharge by the Official Assignee/Personal Insolvency Trustee; to remove the prerequisite to settle costs, fees etc prior to discharge; to scale back the quantity of priority debts making certain debts (e.g. Revenue debts) no longer being priority debts; to specify sanctions against fraudulent and/or irresponsible bankrupts, such as restrictions and disqualifications; to exempt resources so as to ensure a fair living standard for the bankrupt; to establish conditions for the appointing and accreditation of a new office holder called Personal Insolvency Trustee acting in bankruptcy, with the new licensing system overseen by a (new) Debt Settlement Office.
Does the lack of any or all of the above provisions in law represent a breach of the constitutional rights of a person looking at bankruptcy? Will government act before it is compelled to act by a legal challenge? a legal challenge be long drawn out and have the consequence of unnecessarily slowing down the enactment of new laws? There are sure to be legal changes coming down the tracks and the question on most peoples’ lips is when that will be.