Two recent developments may have rendered the Irish legal system less attractive to creditors. We examine the scope of these developments and the likely impact on debt collection activity in Ireland.
Rate of interest of judgment debts falls by 6%
The rate of interest on judgment debts has been reduced from 8% to 2%, with effect from 1 January 2017, in accordance with the Courts Act 1981 (Interest on Judgment Debts) Order 2016 (S.I. No 624 of 2016) (the “Order”).
The Minister for Justice, Francis Fitzgerald had flagged in mid-2016 that she intended to review the rate of interest on judgment debts, commonly known as “Courts Act interest”.
The interest rate applicable on judgments given on or after 1 January 2017 is now 2%. The rate of 8% interest will accrue up to 31 December 2016 on applicable judgments made prior to that date.
This amendment to the rate of interest on judgment debts has been welcomed by judgment debtors. Advocates had claimed that the previous 8% rate was punitive and unnecessary. However, while the rate of interest on judgment debts was not a typical factor in determining whether a creditor-issued legal proceedings, the new rate reduction has not made issuing proceedings more attractive. Assuming it can be collected from the debtor, an interest rate of just 2% is arguably insufficient compensation, for a creditor having to wait a long time, for a payment legitimately due. Accordingly, while this development may not directly cause a reduction in the volume of debt collection claims, it will increase the onus on creditors to try to enforce a judgment, once obtained.
Statute of Limitations (Amendment) Bill 2017
The Statute Of Limitations (Amendment) Bill 2017 (the "Bill”) has passed through the First Stage of the Irish legislature or Oireachtas, without objection from the Government parties. It was introduced as a private member’s bill by Mick Wallace, TD on 8 March 2017. If enacted in its current form, it will reduce the time period for making a claim based on a contract from six years, down to two years, from the date on which the cause of action arises.
While there are provisions in the Bill that will apply to a range of different claims, the preamble makes a rather pointed reference to “the collection and enforcement of civil debt where Banks and Vulture Funds are concerned”.
As well as seeking to reduce the time period for bringing legal actions on contracts before they become statute-barred, the Bill reduces the limitation periods for enforcing judgments from 12 years to two years. It also proposes to reduce the timeframe during which arrears of interest on any judgment debt to be claimed from six years to two years, from the date on which the interest became due.
Although the Bill seems to be aimed at restricting the ability of lenders, or third parties who have acquired the rights of lenders, to bring proceedings against debtors, it may well have the effect of increasing rather than decreasing litigation in respect of claims. If the relevant time period for creditors and lenders seeking to protect their positions from becoming statute-barred is reduced to just two years, it is likely that creditors will be less likely to engage with debtors to agree payment plans. Similarly, as those creditors are only entitled to 2% interest on their judgments since 1 January 2017, they are even less likely to hold their hands on enforcing their contractual rights.
Submissions and debate upon the Bill will be closely monitored given the potential consequences for creditors, if enacted in its current form.