Minister for Justice Alan Shatter recently unveiled further details about the new personal insolvency process, which forms part of the Personal Insolvency Act, 2012. An information campaign about the process has also begun.
Changes to Personal Insolvency Regime in Ireland
The Personal Insolvency Act, 2012 (the “Act”), which provides for significant changes to the personal insolvency regime in Ireland, was signed into law on 26 December 2012. The Act will come into operation by way of a series of commencement orders to be made by the Minister for Justice and Equality, of which some have already been made.
The Act radically alters the law and procedures of personal insolvency. It reforms the existing bankruptcy law, including reducing the period of automatic discharge from bankruptcy from 12 years to three years and providing for a carve-out of pension assets from a bankruptee’s estate. It also introduces, for the first time in Ireland, three new, largely non-judicial, debt resolution processes designed to offer an alternative to bankruptcy and which can address unsecured debts (of any value) and secured debts (up to €3 million in aggregate but without limit in the case of agreement).
The Act establishes an independent body to be known as the Insolvency Service of Ireland (the “ISI”) under the supervision of Director, Lorcan O’Connor, which will oversee the three new debt settlement processes contained in the Act: (1) Debt Relief Notices ("DRN") (applicable to unsecured debt up to €20,000), (2) Debt Settlement Arrangements ("DSA") (applicable to unsecured debt of any value) and (3) Personal Insolvency Arrangements ("PIA") (applicable to unsecured debt and secured debt up to €3m (unless all secured creditors agree to waive this limit). The ISI will also be responsible for the authorisation and regulation of personal insolvency practitioners (“PIPs”) in accordance with detailed provisions set out in the Act.
Launch of ISI website and information campaign
On 18 April 2013, Minister for Justice, Alan Shatter, unveiled details of the new insolvency process and the ISI commenced an information campaign, including the publication of guides to the new debt settlement arrangements, the launch of a website (www.isi.gov.ie) and an information helpline for queries.
The ISI has also published the Guidelines on a Reasonable Standard of Living and Reasonable Living Expenses. The guidelines are central to the insolvency regime as they give an indication of the kind of restrictions that may be imposed on debtors seeking settlement terms with their creditors. Reasonable living expenses will vary depending on a number of factors such as the particular composition of a household; the need for a car; reasonable housing costs in terms of rent or mortgage payments; reasonable payments in respect of childcare; and the particular needs of debtors, having regard to matters such as their age, health and whether they have a physical, sensory, mental health or intellectual disability. Lorcan O’Connor, Director of the ISI, said that these guidelines are meant to be flexible and they are a baseline for negotiations and discussions.
The guidelines will attract considerable attention and will undoubtedly influence how many people will look to avail of the new debt settlement procedures under the Act when they come into force. How the guidelines are received and interpreted by creditors will greatly influence the effectiveness of the legislation and the quality of life of debtors subject to the arrangements.
Read a copy of the guidelines.
Update on commencement provisions
Part 6 of the Act which enables the appointment of “specialist judges” to perform the functions, powers and jurisdiction conferred on the Circuit Court by the Act, came into effect on 18 January 2013.
The Minister made a further order commencing the following provisions of the Act with effect from Friday 1 March 2013:
- Part 1 (with the exception of section 6) dealing with preliminary and general matters. (Section 6, yet to be commenced, repeals certain sections of the Bankruptcy Act 1988).
- Part 2 (with the exception of section 13) providing for the establishment and functions of the ISI and for related matters. (Section 13, yet to be commenced, provides for the making of a superannuation scheme for the staff of the ISI).
- Section 25, which is a general interpretation provision.
- Section 47 conferring on the ISI the power to authorise persons to perform the function of an Approved Intermediary under the Act. An Approved Intermediary can act on behalf of debtors applying for a DRN.
- Sections 126 to 141. Sections 126 to 132 prescribe certain offences under the Act (eg concealment or falsification of documents or fraudulent disposal of property). Sections 133 to 141 provide for miscellaneous matters, including the establishment and maintenance of public registers of insolvency arrangements and the publication by the ISI of guidelines and / or codes of practice.
- Part 5, dealing with the regulation of PIPs, who are authorised to act on behalf of debtors seeking to enter either a DSA or a PIA.
- Schedule 2 detailing the various provisions applicable to oral hearings conducted for the purposes of an investigation in relation to PIPs.
- Schedule 3 providing for the establishment of a Complaints Panel and a Complaints Committee (to deal with complaints made in respect of PIPs).
Further Ministerial orders to commence parts 3 and 4 of the Act are pending. Part 3 is the key part of the Act which provides for the introduction of three new, largely non-judicial, debt resolution processes. Part 4 provides for various reforms to the Bankruptcy Act 1988, including the reduction of the automatic discharge period from 12 years to three years (subject to certain conditions) and an increase to three years of the review period for certain pre-bankruptcy transactions.
The next practical key steps to be undertaken over the coming months are as follows:
- Publish regulations for the authorisation and licensing of PIPs
- Authorise and regulate Approved Intermediaries and PIPs (May 2013)
- Appoint 6 new specialist judges
- Commence taking applications from public (end June 2013).
Additional provisions in relation to the treatment of pensions were among the more notable changes made in the final stages of consideration of the Personal Insolvency Bill prior to its enactment.
As regards a DRN, a “pension pot” will not be counted when calculating a debtor's asset exemption limit of €400 (in order to be permitted to apply for a DRN), but payments which the debtor is entitled to receive will be regarded as income. In respect of a DSA and a PIA, a debtor cannot be required to hand over his or her pension pot or to draw down a pension early, but, payments which the debtor is entitled to receive during the course of the arrangement will be regarded as income and form part of the arrangement.
In summary, therefore, “pensions in payment”, ie pension benefits being paid out to a pensioner, and benefits which have been deferred by the pensioner, cannot be excluded from a settlement arrangement. Essentially, any pension income actually being received or receivable will be at risk.
A creditor or a PIP may also apply to the appropriate court for relief where it believes that excessive contributions have been made to a pension arrangement within three years prior to the issuing of a protective certificate and, if successful, the court may order that part of the contribution concerned be repaid to the PIP for distribution amongst the creditors of the debtor.
Similar amendments have been made to the Bankruptcy Act, 1988, whereby future entitlements to a payment under a “relevant pension arrangement” will not vest in the official assignee in bankruptcy (subject to certain conditions), but income which is currently being paid out to a pensioner from a pension scheme, as well as pension income a debtor is entitled to receive within five years of adjudication as a bankrupt, may be claimed.
At present, an Approved Retirement Fund (ARF) is not regarded as a “relevant pension arrangement” for the purposes of the Act and so ARF funds are not protected and may potentially be included as an asset in a settlement arrangement or a bankruptcy.