The much anticipated Personal Insolvency Bill 2012 aims to modernise Irelands archaic personal insolvency Laws and to address the obligations of debtors and the rights of creditors in a proportionate and balanced way, having regard to the financial reality of an individuals true circumstances. The Bill distinguishes between debtors genuinely unable to pay their debts and those who are simply unwilling to pay.

There are a number of key changes introduced in the Bill, most notably the reduction of the period of Bankruptcy from twelve years to three years. The Bill also provides for the formation of the Insolvency Service, an independent body charged with the duty of overseeing the non-judicial personal insolvency system and maintaining a register of settlement arrangements. It is also proposed that Personal Insolvency Trustees and approved intermediaries will be licensed by the Insolvency Service and will play a key role in advising and formulating the arrangements.

The Bill introduces a number of non-judicial debt resolution processes which are as follows.

1) Debt Relief Certificates

A Debt Relief Certificate (“DRC”) allows for the full write off of a qualifying unsecured debt up to €20,000 following a one year moratorium. The DRC procedure is designed to provide relief to parties with little or no ability to pay off their debts. In order to qualify, the Debtor must have a net disposable income of less than €60.00 per month and net assets or savings worth €400 or less.

The effect of a DRC is to restrict a creditors ability to petition in respect of the relevant debt or to commence any other legal proceedings against the Debtor in respect of that debt. Any pending legal actions may be stayed. A DRC will have no effect on a secured debt. At the end of the one year moratorium, provided that the Debtor is still unable to pay, the debtor is discharged from all the qualifying debts specified in the DRC.

2) Debt Settlement Arrangements

A Debt Settlement Arrangement (“DSA”) allows for the settlement of unsecured debt where a debtors liabilities are €20,000 and over. A DSA has no effect on a secured debt.

A DSA may be proposed to two or more creditors by a Debtor in respect of payment or satisfaction of their unsecured debts. When an application is made to the Insolvency Service for a DSA, an Insolvency Trustee is appointed. The Trustee must gather financial information from the Debtor and prepare a proposal to be considered and voted upon at a meeting of the Creditors. A DSA must be presented to the Creditors at a creditors meeting and if approved by 65% of the Creditors, it will then become binding on all of them. Once approved, the DSA will enure for a period of 5 years.

A DSA will involve repayment options which will result in creditors being paid or satisfied in part or in full over the period of the DSA. On completion of the obligations specified in a DSA, the Debtor shall be discharged from the remainder of the debts covered by the DSA. Again, the effect of the DSA will be to restrict a creditors ability to petition in respect of the relevant debt or to commence any other legal proceedings against the Debtor in respect of that debt.

3) Personal Insolvency Arrangements

A Personal Insolvency Arrangement (“PIA”) allows for the settlement of secured and unsecured debts where a debtors liabilities are between €20,000 and  €3,000,000. The aim of PIA is to provide for a realistic alternative to bankruptcy and is the only non-judicial method of dealing with a secured Creditor.

In order to obtain a PIA, the Debtor must hold property in Ireland and it must be unforeseeable that over the course of a five year period the Debtor will become solvent. In addition, it must be shown that a DSA would not be a viable alternative to make the Debtor solvent within a period of five years.

The maximum period of a PIA will be 6 years during which time the Debtor will perform obligations under the PIA. A Personal Insolvency Trustee is appointed and a proposal formulated by the Trustee for presentation to the Creditors. It is worth noting that the Trustee is under a duty to formulate a proposal that will not require the Debtor to vacate their principal place of residence.

The PIA must be approved by at least 65% in value of the total Debtors debts and by Creditors representing more than 50% of the value of the secured debts and Creditors representing more than 50% in value of unsecured debts. Where a PIA is rejected, the Debtor does not have any right of appeal. A Creditor may lodge an objection with the Circuit Court in respect of a PIA. If no objections are received then the Court will make an Order to approve the PIA.

At the expiration of the PIA provided that the Debtor has complied with his obligations thereunder, the Debtor will be discharged from the remainder of the secured and unsecured debts to the extent provided for under the terms of the PIA.

The Act also amends the current judicial bankruptcy legislation and in particular, provides for an automatic discharge from bankruptcy subject to certain conditions after a period of three years, compared to 12 years at present.

It is expected that the Bill will become law by mid- November 2012.

Claire O’Sullivan Greene BCL

Trainee Solicitor, Fiona Foley & Co