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Changes to Ireland’s Personal Insolvency Regime
The Personal Insolvency (Amendment) Act 2015 (the “Act”) was signed into law on 28 July 2015. It introduces a number of changes to the Personal Insolvency Act 2012 (the “2012 Act”). These changes include:
- the establishment of a Circuit Court review mechanism in instances where creditors reject a borrower’s proposal for a Personal Insolvency Arrangement (“PIA”)
- an increase in the amount of debt which may be covered by a Debt Relief Notice from €20,000 to €35,000
- an increase in the functions and powers of the Insolvency Service of Ireland (“ISI”)
Circuit Court review
Under the 2012 Act, an insolvent debtor could seek to enter into a PIA with his creditors whereby debt could be written off and restructured allowing the debtor to return to solvency within a fixed period of time. Before the PIA proposal could become legally binding, it had to be approved by a majority of creditors. In circumstances where a PIA proposal was rejected by creditors, there was no provision for a review or appeal. Accordingly, the 2012 Act was widely criticised as not doing enough to assist distressed borrowers in that, notwithstanding the provisions enabling a borrower enter into a PIA, the banks maintained an effective right of veto over a borrower’s PIA.
The Act has amended this position by permitting an application to be brought before the Circuit Court when a PIA proposal is not approved in circumstances where the debts that would be covered by the proposed PIA include a “relevant debt”. A “relevant debt” means a debt (a) the payment of which is secured by security in or over the debtor’s principal private residence and (b) in respect of which (i) the debtor, on 1 January 2015, was in arrears with his or her payments, or (ii) the debtor, having been, before 1 January 2015, in arrears with his or her payments, has entered into an alternative repayment arrangement with the secured creditor concerned.
The Circuit Court can then review the PIA proposal and make an order imposing the PIA proposal if it considers that a fair and equitable solution is offered to both the debtor and creditors. It will be interesting to see whether the amount of PIAs will increase following this enactment or whether, in practice, the banks will continue to exercise a veto over the implementation of many PIAs by being able to demonstrate that the solutions offered by distressed borrowers are not just and equitable.
Applications to appeal the rejection of a PIA proposal must be taken to the Circuit Court by personal insolvency practitioners on behalf of debtors and must be made promptly (in general terms, 14 days after the creditors’ meeting rejecting the PIA proposal). Applications will be heard by specialist Circuit Court judges who have been assigned to deal with personal insolvency cases.
Debt Relief Notices
These provide debt relief for people who have virtually no disposable income or assets and no prospect of being able to repay a debt in the next three years. Under the 2012 Act, Debt Relief Notices facilitated the write-off of qualifying debt up to €20,000, subject to a three year supervision period. This amount has now been increased to €35,000.
Functions and powers of the ISI
The Act increases the functions and powers of the ISI significantly. A greater emphasis has been put on promoting the use of insolvency arrangements, data collection, analysis and dissemination of information and statistics. The ISI also now has significant powers to supervise personal insolvency practitioners in the performance of their functions, including the ability to appoint authorised officers for this purpose.
On a related issue, the Irish Government's Joint Committee on Justice, Defence and Equality recently published a report recommending that the term of bankruptcy be reduced from three years to one year (which can be extended up to three years in certain circumstances). If implemented, this will bring Irish bankruptcy law more in line with the UK provisions.