The Personal Insolvency Bill published today represents a radical overhaul and modernisation of Ireland's personal insolvency law. The Bill introduces a comprehensive and balanced regime to address personal insolvency as required by Ireland's IMF country programme. It envisages the creation of an Insolvency Service of Ireland to oversee the legislative regime. Under the Bill, creditors will continue to hold the whip hand over debtors: Creditors holding 65% by value of debt must approve any Debt Settlement Arrangement (DSA) or Personal Insolvency Arrangement (PIA); Secured creditors must get the value of their security; Criminal and civil penalties are provided for failures to disclose assets by debtors; There is a reinstatement of debts if a debtor fails to honour a PIA or DSA. There is a "triple lock" to get into the main processes of DSA or PIA requiring an insolvency practitioner, the Insolvency Service and the court to be satisfied that the debtor qualifies. There is a touchstone test that a PIA, DSA (but oddly not a Debt Relief Notice) cannot be unfairly prejudicial to a creditor. A critical role is envisaged for the Insolvency Service to determine what is a reasonable standard of living for a debtor and his dependents. All security rights (not just the family home) can be affected by a PIA. This may impact on banks' appetite to lend to unincorporated businesses such as doctors, dentists, accountants and lawyers.
The Insolvency Service of Ireland ("the Service")
The Bill provides for the establishment of the Insolvency Service of Ireland, an independent body, which will have a key role in the delivery, monitoring and execution of the new personal insolvency arrangements provided for in the Bill. The Service will have all powers necessary to ensure its ability to exercise the delivery of the functions provided for in the Bill.
The principal functions of the Service include:
Monitoring of arrangements relating to personal insolvency; Consideration of applications for Debt Relief Notices ("DRNs"); Processing of applications for protective certificates relating to Debt Settlement Arrangements ("DSAs") or Personal Insolvency Arrangements ("PIAs"); Maintaining registers of DRNs, protective certificates, DSAs and PIAs; Providing information to the public on workings of the legislation; and Developing policy. The Bill contains a number of provisions which deal with the Service's planning, reporting, fee generation and accounting obligations.
In relation to a DRN, the Service must consider and, if appropriate, certify to the court that an application for a DRN is in order. The Service also has a role in liaising with creditors and other parties as regards the DRN process generally, in making payments under the DRN process, in investigating relevant matters, in seeking to extend the DRN process, and in bringing the DRN process to an end if necessary.
In relation to a DSA, the Service must consider and, if appropriate, certify to the appropriate court the application for a protective certificate which operates, as a moratorium from creditor action (save for secured creditor enforcement).
In relation to a PIA, the Service must consider and, if appropriate, certify to the appropriate court the application for a protective certificate. A key issue is that under a PIA, a debtor cannot be required to make payments of such an amount that the debtor (and his dependents) would not have a reasonable standard of living. The Bill envisages that the Service will publish guidelines on reasonable expenditure and essential income which should clarify what constitutes a reasonable standard of living. Such guidelines will be of key significance.
Personal Insolvency Arrangements ("PIA")
A PIA is a process which allows a debtor to pay creditors a portion of what is due to them over a six or seven year period and then be discharged from further liability.
A debtor can enter a PIA with his creditors if a majority of creditors representing 65% in value of the debtor's obligations vote in favour of the arrangement. In addition, 50% of the value of secured creditors and 50% of the value of unsecured creditors must vote in...