Bankruptcy Reform: An Unlikely Kick-Start for the Economy
| Author | Kevin Bell |
| Position | LLB (Dub), BL Candidate, Honorable Society of Kings' Inns. |
| Pages | 35-50 |
BANKRUPTCY
REFORM: AN
UNLIKELY
KICK-START
FOR
THE
ECONOMY
KEVIN
BELL*
Introduction
2009 was,
economically,
one
of
the
harshest
years
in
living
memory
for
Ireland.
The
economy contracted
by
ten
per
cent,
over
200
000
people
joined
the dole
queues
and
countless
businesses
went
into
liquidation.
Why
then
were
there
only
seventeen
people
declared
bankrupt?'
In
England
and
Wales the
equivalent
number
was
over
74
000.2
Economic conditions
here
were
certainly
no
less
harsh
than
they
were
across the
Irish
Sea,
nor
were
the levels
of
personal
debt
any
lower
in
the
United Kingdom than
in
Ireland.
What
can
explain such
a
striking divergence
in
these
figures?
The
statistics
become
much
less
surprising
when
one
examines
the
differences
in
Irish
and
English
bankruptcy
law.
Irish
law
is
punitive
in
both
its
ethos
and
its
outworking.
The
differences
between
it
and
its
English
equivalent
are
stark.
Irish
bankrupts
are
treated
extraordinarily
harshly
in
comparison
to
bankrupts
in
England.
Moreover, Irish
creditors
are
less
likely
to
avail
of
bankruptcy
options given
the
high
costs
involved
and
the
bureaucratic
nature
of
the
processes.
Ireland
urgently
needs
to
consider what
it
expects
its
bankruptcy
law
to achieve and
what
functions
it
wants
that
law to
fulfil.
The
Bankruptcy
Act
of
1988
punishes bankrupts
for
their perceived
imprudence
and
profligacy
in
an
apparent
attempt
to
dissuade
society from
viewing
bankruptcy
as
an
easy
attempt
to
escape from
poor
financial
decisions.
Historically
this
was the
approach
taken
to
bankruptcy
in
the
common
law
world.
From
the
mid
twentieth
century,
in
both
Britain
and
the
United
States,
this
punitive approach
has
been replaced
by
an
ethos
which
promotes
entrepreneurial
confidence
and
calculated
risk-taking. For
this
reason,
the
bankruptcy
laws
in
both
of
those
jurisdictions
allow
for
easier
LLB (Dub),
BL
Candidate,
Honorable
Society
of
Kings' Inns.
Warren Baxter,
"Why
Reform
of
Ireland's
Bankruptcy
Legislation
is
Urgent"
(2010)
Accountancy
Ireland
42(7),
at
7.
27
January
2011).
2
UK
Insolvency Service
figures
for
2009
27
January
2011).
C
2011
Kevin
Bell
and
Dublin
University Law
Society
Trinity
College
Law
Review
discharge
from
bankruptcy
and for
flexible
and
cheap
alternatives
to
formal
bankruptcy.
We
in
this
country
must
now
consider
whether
our
laws
should
reflect
a
similar
ethos.
It
is
the
considered
judgment
of
the
author
that
they
should. In
the
current
climate,
however,
where
the
economy
is
still
in
the
grip
of
the
consequences
of
a
decade
of
excessive
risk
taking,
it
may
prove
difficult
to
convince
an
angry
society
that
our
laws
should
punish
such
imprudence
less,
and
encourage
people
to
take the
risks
necessary
to
invigorate
an
ailing
economy.
By
releasing
our
small
businesses
and
small
traders
from
their
crippling
debts
through
a
more liberal
approach
to
bankruptcy,
we
can
restore
a
spirit
of
entrepreneurialism
and
productiveness
to
this vital
sector. These
people
are
the
backbone
of
our
economy,
returning
them
to
their
enterprising best
is
just
the
kick-start the
economy
requires;
bankruptcy
reform
is
a
perfect
place to
start.
This article
shall
illustrate
the
failing
impact
of
Irish
personal
insolvency
law.
Examples
of
how
Britain
and
America
deal
with
bankruptcy
differently
to
Ireland
will
be
examined. Irish
law
needs
urgent
change:
the
meagre
numbers
of
people availing
of
the
current bankruptcy
options
are
testament
to
that.
The
real
question
is,
what
shape
should
that
change
take? How
far
should
the
reform
go
in
softening
the
punitive
approach
currently
in
operation?
Perhaps most importantly,
is
Ireland
ready
to
change
this
"philosophy
of
punishment"
in
an
atmosphere
where
punishment
of
profligate
property
developers
and
bankers
is
of
the
uppermost
importance
in
the
eyes
of
many?
The
Current
Irish
Position
The law
governing
personal
insolvency
in
Ireland
is
rooted
in
the
Bankruptcy
Act
1988
and Order
76
of
the
Rules
of
the
Superior Courts.
was
derived
in large
part
from
the
recommendations
of
a
committee headed
by
Budd
J
which reported
in
1973.3
The
committee
outlined
the
main
objectives
of
any
bankruptcy
regime:
(i) to
secure
equality
of
distribution
and
to
prevent
any
one
creditor obtaining
an
unfair
advantage
over
the
others;
(ii)
to
protect
bankrupts
from
vindictive
creditors
by
freeing
them
from
the
balance
of
their
debts where
they
are
unable
to
pay
them
in
full, and
to
rehabilitate
them;
Bankruptcy Law Committee
Report
(Budd
Report)
1962,
Prl 2714
[hereinafter the
Budd
Report].
[Vol. 14
36
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