Bankruptcy law has always sought to strike a balance between the rights of creditors and debtors. In Ireland, bankruptcy and personal insolvency law has incurred seismic change over the past decade. Many of the legislative changes have been implemented from a policy basis of assisting the debtor. We look at recent developments, from the point of view of the petitioning creditor in any bankruptcy.
Automatic discharge from bankruptcy
The Bankruptcy (Amendment) Act 2015 (the 2015 Act) shortened the period in which a bankrupt will be discharged to just 12 months, assuming that the bankrupt co-operates with the process. This gradual shortening of the automatic discharge period , from 12 years prior to 2012, has resulted in a softer bankruptcy process, evidenced by the number of debtors presenting their own bankruptcy petitions over the past few years. The personal insolvency regime now favours Personal Insolvency Arrangements and sees bankruptcy as a last and final resort towards the objective of achieving a debtor’s solvency. Further corroboration of that policy objective can be seen in related enforcement legislation, for example allowing a debtor time for consultation with a personal Insolvency Practitioner, in mortgage arrears cases.
The non-cooperating debtor
In the 2015 Act, the courts have been given the discretion to extend the period of bankruptcy for up to 15 years for non-cooperative individuals and those who have concealed or transferred assets to the detriment of creditors. In the following two cases, we will examine the recent application of this discretion.
In February 2018, Ms Justice Costello in the case of Webster, a Bankrupt; granted an extension of the debtor’s bankruptcy for a period of nine months. She did so as the debtor failed to disclose two assets that could be realised for the benefits of the creditors. These assets were a loan of €5,000 to her son in New Zealand and a gift of a car purchased for €3,000 for her son in Ireland. Ms Justice Costello stated that "what is important from the perspective of the court is the degree of non-co-operation and concealment of assets which has led to loss". She also mentioned the difference between a “significant failure” and a “serious breach” of a bankrupt's obligation. Ms Justice Costello took the view that this concealment did not constitute a serious breach; but merited the extension of nine months.
The Supreme Court in November 2017, endorsed the decision Ms Justice Costello, made on 1 June 2016 in the case of McFeely, a Bankrupt. In this matter, the debtor not only failed to disclose his interest in 12 properties, but he also attempted to hide those assets from the Official Assignee. Ms Justice Costello. took the view that; “the non-cooperation and the failure to disclose assets have been on the extreme end of the spectrum and it follows in my opinion that the extension period should reflect this fact.” In light of this, taking into account the debtor’s age and the gravity of the concealment, the Court extended the bankruptcy duration of Mr. McFeely for a period of three years and eleven months.
The family home of the non-cooperative debtor in bankruptcy
In situation of non-cooperation, the court may order sanctions against the bankrupt’s assets, even the family home. In Lehane v Burke & Anor., the Official Assignee in the bankruptcy of Michael Burke, brought a motion seeking the High Court to sanction the sale of the family home of Mr. Burke and his spouse Jacqueline Burke. Much of Ms Justice Costello’s decision, to allow the application proceed to trial, despite the debtor’s opposition, related to the timing and procedural format of the Official Assignee’s application. However, Ms Justice Costello also rejected arguments made by Mrs. Burke, that the jurisdiction of the court to order the sale was confined to the sale of the interest of the bankrupt in the family home. Accordingly and importantly for creditors, Ms Justice Costello found that, under the 2015 Act, an order for the sale of the non-bankrupt spouse’s interest in the family home, may also be made.
In February 2018, in the matter of O'Shea, a Bankrupt, due to a failure to cooperate with the Official Assignee, Ms Justice Costello granted an order relating to the 2015 Act, for the sale of the family home of the bankrupt subject to the condition that such a sale should be postponed for one year. Ms Justice Costello took into consideration all factors and circumstances balancing the interests of the creditors on the one hand with the interests of the spouse and the young dependants of the bankrupt on the other hand.
The provisions in the 2015 Act were balanced in approach – the Act assists cooperative debtors while also providing sanctions with significantly extended terms where debtors seek to abuse the process. In the above cases, it is clear that the Court has applied both the letter and the spirit of the 2015 Act, in the tests of proportionality for the gravity of the breach committed and the sanction imposed. Overall, this is positive from a creditor’s point of view, especially for those who fear non-cooperation//concealment on their debtor’s part.