This Briefing contains a general summary of developments, and is not a complete or definitive statement of the law. Specific legal advice should be obtained where appropriate.
On 26 June 2012, the Taoiseach announced that the Personal Insolvency Bill 2012 (the "Bill") had been approved by the Government (some two months after its originally-expected publication date of end-April).1 The leading banks, following a meeting with the Economic Management Council, then issued statements regarding their approaches to mortgage arrears and, in some cases, details of their proposed modification and forbearance techniques. The Bill itself was published on 29 June, and sets out further detail on three proposed non-judicial debt settlement arrangements (the "Arrangements") (with some variations from the heads of bill published on 25 January 2012 (the "Heads of Bill")) and the proposed reforms to the Bankruptcy Act 1988 (the "Bankruptcy Act"). It is expected to be passed into law later this year.
The three Arrangements proposed by the Bill are:
Personal Insolvency Arrangements (PIAs) (the only Arrangement applicable to secured debt) Debt Settlement Agreements (DSAs) Debt Relief Notices (DRNs) There are a number of common themes in the Arrangements as follows:
each is available in respect of debt incurred by a natural person (not a corporate) whether through personal consumption or in the course of that person's business, trade or profession debtors may only avail of Arrangements where they are insolvent (i.e. unable to pay their debts as they fall due) and meet certain other eligibility criteria debtors must have no likelihood of becoming solvent within a five year period following the making of an application for an Arrangement the application must be made through a third party (an approved intermediary (an "Approved Intermediary") in the case of DRNs, and a personal insolvency practitioner (an "Insolvency Practitioner") in the case of DSAs and PIAs) who will also offer advice to the debtor DSAs and PIAs will generally not affect the obligation to pay "preferential debts" (such as rates and income tax) as defined in the Bankruptcy Act creditors can object to an Arrangement but, in the case of a DRN, their consent is not needed a debtor may only avail of each Arrangement once a debtor has no right of appeal against a decision taken at a creditors' meeting in respect of a DSA or PIA a debtor cannot be forced to leave a principal private residence ("PPR") under a DSA or a PIA, but may opt to do so Key Points To Note
The inclusion of PIAs in the Heads of Bill, and in the Bill itself, is particularly noteworthy as secured debt (including residential mortgages and buy-to-let mortgages) up to €3,000,000 can come within the scope of a PIA. While, as drafted, it is unlikely that mortgage lenders will frequently be compelled to accept a write-down of secured debt, the Bill does provide debtors with a process by which they can apply for this. The process should be robust enough to differentiate between "can't-pays" and "won't-pays", meaning that it is unlikely that there will be a flood of secured debt write-downs, but in many cases a write-down may be the only option. It is worth noting that the Bill does still provide protections for secured creditors, including a claw-back provision. Possibly the most contentious point in the Heads of Bill was the question of the extent to which secured creditors could block, or not block, PIAs, or could be squeezed-out if in a minority. Notably, while the Heads of Bill required 65% in value of creditors (secured and unsecured) together with 75% of secured creditors and 55% of unsecured creditors to vote in favour of a PIA, this has been revised downwards in the Bill. While a majority of creditors representing not less than 65% in value of the total debt (secured and unsecured) who are attending and voting at the creditors' meeting must still vote in favour of a PIA as a prerequisite to it taking effect, only 50% in value of secured creditors attending and voting at that meeting, and 50% in value of unsecured creditors attending and voting at that meeting, must now do so. Consumer advocacy groups still believe that this provides secured creditors with an effective veto (as persons with secured debt tend to concentrate their debt with one institution) but where an individual has an equal amount of secured debt with two institutions, and unsecured debt, all of which is proposed to come within a PIA, it would still be possible for a secured creditor to be squeezed-out by the terms of the PIA being forced upon it if it is approved by the other creditors. Likewise, secured debt includes PPRs and other properties (e.g. buy to lets and commercial investments) and it is therefore possible that the secured creditor on a PPR could be out-voted by other secured creditors. The Heads of Bill and the Bill provide significant protections against abuse and contain a number of features to distinguish between "won't-pays" and "can't pays". Debtors must meet certain criteria and (in the case of a PIA) must have complied with non-statutory resolution processes for at least six months before being eligible to apply for an Arrangement. The process for approving Arrangements, and their effective dates, has also been updated between the Heads of Bill and the Bill itself. Each arrangement must now be approved by the "appropriate court"2 and will take effect when published by the Insolvency Service on the appropriate register3. Further details in relation to the Insolvency Service...