On 25 December 2015 the Bankruptcy (Amendment) Act 2015 (the “2015 Act”) was signed into Irish law. Its purpose is to create a more rehabilitative regime for bankrupt individuals while simultaneously deterring and penalising those who refuse to cooperate with the bankruptcy or who try to conceal income or assets from creditors. Significantly, the 2015 Act reduces the bankruptcy period in Ireland from three years to one year, thus bringing it into line with the position in both Northern Ireland and in Britain and removing a key incentive for so-called “bankruptcy tourism”.
Bankruptcy law in Ireland is set out in the Bankruptcy Act 1988. This Act has been amended on a number of occasions, and in particular by the Personal Insolvency Act 2012, which, among other things, reduced the bankruptcy period from twelve to three years. In May 2015 the Irish Parliament’s Joint Committee on Justice, Defence and Equality consulted on whether the bankruptcy period should be further reduced to one year. This consultation resulted in the publication of a report in July 2015, in which the Committee recommended this reduction.
Overview of the 2015 Act
The 2015 Act amends the Bankruptcy Act 1988 in a number of key respects. In particular, it reduces the normal duration of bankruptcy to one year, unless the bankrupt individual has failed to cooperate with the bankruptcy or has tried to conceal assets or income. In such instances, the High Court may order a considerably longer bankruptcy period of up to eight years, or, in particularly serious cases, up to 15 years.
The 2015 Act also affects the bankruptcy payment order, which is a court order requiring a bankrupt individual to make payments for the benefit of his or her creditors from any surplus income or assets after the deduction of reasonable living expenses for him or her and any dependents. The 2015 Act reduces the normal maximum duration of a bankruptcy payment order from five to three years, although it retains the maximum five year duration in cases of non-cooperation or asset concealment.
In another major change, the 2015 Act provides that a bankrupt person’s legal interest in his or her home will revest in him or her after three years (subject to any outstanding mortgage), if the Official Assignee has neither sold it, nor applied to the High Court for an order permitting the sale of the house, before that date. This can occur, for example, where the property is in negative equity and/or no purchaser can be found. The 2015 Act provides for certain exceptions to this provision, including if the Court orders otherwise or the bankrupt person agrees otherwise with the Official Assignee. The three year period can be extended by the High Court where it considers that just.
The 2015 Act also extends the powers of the official assignee to disclaim onerous property.
Comment and Next Steps
The majority of the 2015 Act applies from 29 January 2016. Any existing bankruptcy which is due to terminate within six months of 29 January will terminate on its due date. Any other existing bankruptcy will terminate on the later of six months after the commencement of the 2015 Act or one year from the date that the bankruptcy adjudication order was made. Similar transitional arrangements apply to a bankruptcy payment order in existence on 29 January. Specifically, an existing bankruptcy payment order will expire on its due date, if it is due to expire less than six months after 29 January 2016. Otherwise it will expire on the later of three years after it was made or six months after commencement.
The changes to the regulatory framework for bankruptcy introduced by the 2015 Act follow the recent amendments to the regulatory framework for personal insolvency introduced by the Personal Insolvency (Amendment) Act 2015. Among other things, these recent amendments sought to increase the use of personal insolvency arrangements (“PIA”), by removing the so-called ‘bank veto’ where the proposed PIA includes a debt secured on the debtor’s principal private residence. The reduction of the bankruptcy term to one year is likely to provide an additional incentive for financial institutions to engage in the PIA process.