To address the serious and continuous disruption to society and the Economy as a result of widespread insolvency amongst debtors with both secured and unsecured debt and to provide a realistic alternative to bankruptcy to those debtors in appropriate circumstances.

In order to achieve those objectives there would be a radical overhaul of personal insolvency law and this would be achieved by:

i)              changes to the Bankruptcy Act

ii)             Introduction of a new structure to allow for relief of debt under 3 new arrangements depending on the type of debt and quantum.

Changes to the Bankruptcy Act

The major changes are that the Bankruptcy Act allows for Bankruptcy to be automatically discharged after 3 years.

New Structures

The 3 new structures by which debt can be tackled are:

1)    The Personal Insolvency Arrangement (PIA)

2)    The Debt Settlement Arrangement (DSA)

3)    The Debt Release Certificate (DRC)

A new agency will be established called the Insolvency Service to register arrangements and to check the eligibility of individuals. There is also a new role for a Personal Insolvency Trustee who will be regulated and licensed by the Minister.

There are also intermediaries which will apply only in the area of DRC (<€20,000) and these will generally be The Money Advice Budgeting Service (MABS).  

The following table outlines the arrangement to be entered at the appropriate debt level arrangement

Legislation was due to be published at the end of April but this has been delayed by a minimum of 2 months.

Call Jim Murphy on 01 6619142 for more details.

The Personal Insolvency Arrangement (PIA) area is likely where most of the issues will be involved. The level of tests are greater,  it will involve secured creditors maybe taking a write down or the terms of the debt being altered to suit payment arrangements. Therefore there is stringent legislation involved in this process, which, to some extent will be mirrored in the DSA.

The eligibility criteria for a Personal Insolvency Arrangement is as follows:

1)         The debtor must be insolvent and it is unforeseeable that he will become solvent in the coming five years

2)         The Personal Insolvency Arrangement must be proposed by a Personal Insolvency Trustee

3)         The debt must be €20,001 or more and not exceed €3,000,000

4)         The debtor must owe a debt to at least one or more secured creditors holding security over a property situated in the State.  There are specific provisions for debts due to secured creditors.

5)         A detailed statement of the debtor’s financial affairs must be prepared called a Standard Financial Statement

If someone feels they are eligible for a Personal Insolvency Arrangement they will approach a Personal Insolvency Trustee who will prepare an application for a protective certificate which will be submitted to the Insolvency Service.

The Personal Insolvency Trustee will first of all engage with the debtor and he will ensure the following matters are carried out:

1)         will provide the debtor with a letter of engagement

2)         will confirm with the debtor that he is willing to act

3)         will receive a full disclosure of the debtors financial affairs or else assist in producing the standard financial statement

4)         will establish the eligibility of the debtor’s proposed personal insolvency arrangement

5)         will hold a meeting with the debtor and advise the debtor about the options in addressing the situation

That advice will address the appropriateness or otherwise of the debtor entering into a personal insolvency arrangement with regard to such matters as:

i)              the debtors financial and other circumstances as set out in Standard

Financial Statement.

ii)             Whether the debtor is likely to be able to meet the financial

commitments on an ongoing  basis.

iii)            the nature and extent of the debts owed by the debtor, and, in the case of secured debts, the nature of the security.

iv)           the likelihood, in the Trustee’s opinion, that the terms of the Personal Insolvency Arrangement are more acceptable than the debtor’s bankruptcy.

v)            that it is appropriate to propose a Personal Insolvency Arrangement and that there is a reasonable prospect that the debtor will become solvent within a period of six years

The Trustee makes a Statutory Declaration that he has reasonable grounds to

believe that the information contained in the statement is correct and if he is

satisfied that the criteria have been  met, he will apply to the Insolvency

service for a protective certificate.

There may be a standard form issued by the Insolvency Service and that application allows the Insolvency Service carry out verification tests and also access of personal data by them and the application is accompanied by the Standard Financial Statement and the Statutory Declaration by the trustee.

In assessing the application, the Insolvency Service will have regard for the following

1)    That the trustee is somebody qualified to act.

2)    Having regard to the information that is presented the debtor satisfies the eligibility criteria.

3)    That the application is not frivolous and that the debtor’s intention to seek a Personal Insolvency Arrangement is not without merit or prospect of success.

They can then carry out verification checks on bank accounts, payments from Social Welfare, taxes paid etc.

Where they are satisfied that the requirements are met, they will issue a protective certificate and notify the Trustee to that effect and it will remain in force for a minimum of 40 days and can be extended to 60 days.  Even in exceptional circumstances, it can be further extended for 10 more days.

The effect of the issue of this protective certificate is that no bankruptcy petition maybe presented or no other proceedings or enforcement may commence against the debtor except with the leave of Court.

The duties of the Personal Insolvency Trustee following the issue of the Certificate are that without delay he notifies the debtors / creditors of the appointment and invites submissions from them regarding the debts in a manner in which the debts ought to be dealt with as part of a Personal Insolvency Arrangement.

Accompanying that notice would be the debtor’s Standard Financial Statement together with the Trustee’s statutory declaration.

He would also consider any submissions made by the creditors.

Following those submissions and considerations he will prepare a proposal for a Personal Insolvency Arrangement and also then consider the likely viability of the proposal, it’s fairness to all parties and whether it’s an acceptable alternative to bankruptcy.

He will then advise the debtor, once again, of the general effect of entering into this arrangement and then with permission of the debtor, summon a creditors meeting which must give 14 days’ written notice and circulate the following documents when summoning the meeting:-

1)         A completed statement of the debtor’s financial affairs in the form of

            the Standard Financial Statement.

2)         The terms of the proposal.

3)         Statement by the trustee as follows:-

a)    That he is qualified to act

b)    That the debtor has been advised of the options for managing his debt difficulties.

c)    That he has reasonable grounds to believe the information is accurate and complete. 

d)    It must also state whether in his opinion that the proposal has a reasonable prospect of being accepted and why the creditors are better off than in bankruptcy and that the proposal is reasonable and fair to everyone.  This is also sent to the Insolvency Service.

Mandatory Requirements

There are certain mandatory requirements concerning a Personal Insolvency Arrangement and these are:-

1)    Maximum duration of a Personal Insolvency Arrangement shall be 72 months but there would be an extension for a further 12 months in circumstances specified in the terms of the Personal Insolvency Arrangement.

2)    Upon the completion of the obligation as specified in the Personal Insolvency Arrangement the debtor shall be discharged from the remainder of the unsecured debts covered by the Personal Insolvency Arrangement, but shall only be discharged from the remainder of the secured debts to the extent provided under the terms of the Personal Insolvency Arrangement.

3)    A Personal Insolvency Arrangement does not release a debtor from a Court Order made in the family law proceedings.

4)    It does not release him from any liability arising out of damages awarded by a Court or from a liability arising for a loan obtained through fraud.

5)    A Personal Insolvency Arrangement does not contain any terms requiring a debtor to sell any assets that are reasonably necessary for his employment, business or vocation unless he explicitly consents to such a sale.

6)    The Personal Insolvency Arrangement shall not contain any terms which would leave the debtor with insufficient income to maintain a reasonable standard of living for himself and his dependants.

7)    The Personal Insolvency Arrangement shall not provide for the debtor to cease to occupy or dispose of an interest in his principle private residence unless he confirms to the trustee that he does not wish to remain in occupation or that the costs of remaining in the residence in the opinion of the trustee are disproportionate relative to his income.

    Independent legal advice must be obtained and the requirements of the Family Home Protection Act are satisfied to the extent applicable.

9)    A Personal Insolvency Arrangement shall provide for at least an annual review by the Trustee and the debtor shall complete a new standard financial statement.  The trustee will issue a statement commenting on the Standard Financial Statement and this will be sent by the Trustee to each creditor.  The Personal Insolvency Arrangement shall provide for the treatment of the security held by the secured creditor.

10)  The Personal  Insolvency Arrangement may include terms providing for the following repayment options:-

a)    Lump sum payment to creditors either from own money or from a third party.

b)    Payment arrangement with creditors

c)    An offer to transfer all or any of the debtor’s property to a trustee for the benefit of the creditors.

d)    Transfer of assets to creditors in respect of secured debt, any arrangement for the treatment of the security or restructuring of the security.

Where there are creditor arrangements between classes, the proposal may be accompanied by a charge or a guarantee.

The Minister and the Insolvency Service may prepare and publish guidelines or codes of practice in relation to any of the above and the trustee may take into account amongst other things

1)    The nature, term and interest rates or any other factor relative to the debt.

2)    The arrangements in relation to the security to consider the type of security

3)    Whether the debt is incurred in the course of a debtors business, trade or profession.

4)    The circumstances in which the credit was advanced including whether the creditor acted prudently in advancing such credit, having regard to the nature of the debt and the debtor’s financial circumstances at the time the credit was advanced.

However any arrangement must provide for the payment in full of any

debts specified in the Bankruptcy Act 1988 as preferential debts in

priority of debts which are not preferential.

Secured Creditors & Personal Insolvency Arrangements

A secured creditor can estimate the value of the security and express a preference as to the treatment of that security and the secured debt under the Personal Insolvency Arrangement.  The trustee, if he thinks it is reasonable and appropriate can include the creditor’s preference.  The insolvency arrangement can include terms such as:-

a)    The sale and other disposition of the property.

b)    Surrender of the security to the debtor

c)    Retention by the secured creditor of its security or

d)    Any other treatment.

Where the arrangement provides for the sale of the property which is subject to the security and if the realised value of that property is less than the amount due, then unless otherwise specified in the terms of the arrangement the balance due to the secured creditor shall abate in equal proportion to the unsecured debts covered by the arrangement.

There may be other terms in relation to the secured debt under the Personal Insolvency Arrangement that the debtor will pay:-

1)    Interest and part only capital of the secured debt paid for a specified period which will not exceed the duration of the arrangement.

2)    That the debtor makes interest only payments for a period which will not exceed the duration of the debt.

3)    That the secured debt period be extended by a specific period of time.

4)    That the secured debt payments due by the debtor be deferred for a specified period of time.

5)    The sum due on the secured debt is reduced provided a secured creditor is granted a share in the debtor’s equity.

6)    There must be a provision for uplift where the ultimate sale price is greater than the value attributed to it in the Personal Insolvency Arrangement.

7)    The principle sum due in respect of the secured debt be reduced to a specified amount and where the property is the subject of the security is the debtors principle private residence, then any of the solutions referred to in the Keane Report are to be applied.

A secured creditor is:

One has registered a judgment mortgage unless the judgement mortgage was registered less than 3 months before the Insolvency Service issued the protective certificate.

There are protections for secured creditors in Personal Insolvency Arrangements such as.

The minimum amount payable to a secured creditor, unless the secured creditor agrees otherwise, shall be the minimum of the value of the security or the amount of the debt secured by the security as at the date of issue of the protective certificate, whichever is the lesser.

Any write-down cannot reduce the principal below the value of the security.

It also provides for a claw back of the uplift in the event of subsequent sale of the profit.  The claw back shall be the lesser of:-

1)    The full amount of the uplift or

2)    The amount representing the amount by which principal sum due in respect of the secured debt was reduced under the Personal Insolvency Arrangement as referred to earlier.

As already mentioned, the Personal Insolvency Arrangement shall not include any terms which require the debtor to cease to occupy his principle private residence.  There can be situations where it will be in his interest to cease to occupy where the costs are disproportionate relative to his income.

Valuation Issues

The value of security in respect of the secured debt will be determined by an agreement between the debtor acting through the trustee and the relevant secured creditor and all parties will endeavour in good faith to agree a fair value having regard to any matter relevant to the valuation of the security including:-

a)      the type of property

b)     the priority of the security

c)     the costs of realising the security,

d)     the date of the most recent valuation,

e)     the value attributable to the property in the debtors accounting records,

f)      the value attributable to the security in the secured creditors accounting records,

g)     whether the market for the type of property is the subject of the security is subject to significant changes in conditions, whether any statistical index is available.

In the absence of agreement, they should appoint an independent person.

Approval of a Personal Insolvency Arrangement.

At the creditors meeting the arrangements must be approved by a majority of 65% in value of actual votes cast at the meeting of the creditors as a whole (whether secured or unsecured) but subject to:-

1)    The agreement of all secured creditors or

2)    A majority of 75% in actual votes cast at the meeting of the secured creditors and

3)    A majority of 55% in actual votes cast of the unsecured creditors.

When it is approved the trustee sends two copies to the Insolvency Service who upon receiving it retain one and send another to the Circuit Court.  The Circuit Court shall make an order approving the Personal Insolvency Arrangement.  If a creditor objects then he must do so within 30 days from the communication of the creditors meeting to the Insolvency Service and the Circuit Court will hear the objection. 

The Insolvency Service will then register the arrangement in the personal insolvency register and no creditor may present a bankruptcy petition against the debtor in respect of any debt covered by the arrangement nor can they commence legal proceedings.

Subsequent then to the arrangement being in place, the trustee has a general function on an annual basis.

He needs to insure that the arrangement proceeds in accordance with its accepted terms, maintain regular contact with the debtor, obtain reports and conduct reviews, he must monitor any problems.  If the debtor’s circumstances change, he may need to vary the options of the arrangement and there are some requirements also regarding the trustees remuneration.

He must deal in a timely manner with a request from creditors for information and notify the creditors as soon as practical of any material non compliance.

The debtor has certain duties which are to cooperate fully and to inform the trustee of any material change during the course of the arrangement.  There is also an obligation not to obtain credit above a prescribed amount unless he discloses this to the creditor.

It is possible to implement a variation of an arrangement provided the debtor consents and the creditors agree to it in the same voting proportion as they did at the initial meeting.  It is possible that a creditor can challenge the arrangement from coming into effect, if they feel

1)    The procedural requirements specified in this Act were not followed

2)    There was material inaccuracy in the financial statements

3)    That the debtor did not satisfy the eligibility requirement.

4)    That the arrangement unfairly prejudices the creditor.

5)    The debtor has committed an offence.

6)    The debtor entered into a transaction with a person at an under value within the proceeding two years.

The insolvency arrangement shall be deemed to have failed after a 6 month arrears default.

Upon expiration of the Personal Insolvency Arrangement, the trustee shall, if the debtor has complied with its obligations, notify the debtor, the creditors, the Insolvency Service that the Personal Insolvency Arrangement has been successfully implemented. 

This means that the debtor is discharged from the remainder of the unsecured debts and in relation to the secured debts covered by the Personal Insolvency Arrangement, the debtor is only discharged from the remainder of those secured debts to the extent provided for under the terms of the Personal Insolvency Arrangement.

Offences under the Bill

If a debtor participates in the process which involves fraud or dishonest conduct, he commits an offence.

Examples of this are:-

a)    If he makes a false of incomplete representation

b)    Knowingly conceals or refuses to produce, or produces falsified document.

c)    Conceals or disposes of property

d)    Obtains credits above a prescribed limit without disclosing that the debtor is party to a Personal Insolvency Arrangement

e)    Where the trustee has reasonable grounds to believe that the debtor has committed a criminal offence, the trustee must notify the Insolvency Office.

Debt Settlement Arrangements

Overview

A DSA must be proposed by a Trustee on behalf of a debtor.

1. A DSA cannot be proposed by anyone who :-

(a)  Does not reside in the State;

(b)  Does not carry on business in the State; or

(c)  Does not have a close connection with the State

1. The debtor must be insolvent.
2. The debtor’s liabilities must be €20,001 or more.
3. A proposal to enter a DSA in an “Act of Bankruptcy”.
4. Only one DSA is permitted in ten years.
5. The maximum duration for implementing a DSA is 60 months, but this can be extended to 72 months.
6. On completion of the obligations specified in the DSA, the debtor will be discharged from the remainder of the debts covered by the DSA.
7. (a) A secured creditor may not participate in DSA.

(b) The right of a secured creditor to enforce security is not affected.

(c) The Trustee may liaise with the secured creditor and vary the terms of the secured debt.

          However, this will not be deemed to “participate” in the DSA.

1. A creditors’ meeting is held. The proposals will be approved if 65% in value of the actual votes cast are in favour of the Scheme.
2. The terms of a DSA may be varied during the course of its implementation.

Debt Relief Certificates

Overview

1. A DRC applies only to unsecured debt.
2. The debts are €20,000 or less.
3. The debtor must have net disposable income of €60 or less per months after payments of household expenses.
4. The debtor has assets of €400 or less.
5. The debtor must reside in the State or within three years before the application have been resident in the State.
6. “Assets” shall not include:-

(a)  Household items;

(b)  Tools etc., used by the debtor in business;

(c)  A car worth more than €1,200;

(d)  Payments from pension fund, where the debtor is retired.

1. Debts not covered  include:-

(a)  Child support payments;

(b)  Spousal maintenance payments.

1. Goods on “hire purchase” must be returned unless someone else pays the instalments.
2. The application for a DRC must be made through “an approved intermediary”.
3. The DRC creates a moratorium. The moratorium period continues for one year.
4. At the end of the moratorium the debtor is discharged from the relevant debts.
5. The discharges does not release any other person from any liability such as partnership debts.
6. The Insolvency Service may investigate matters during the moratorium period.
7. The DRC can be revoked.

Personal Insolvency Arrangment  (PIA)

 A PIA has benefits for debtors and creditors

1. The PIA can provide benefits for both an insolvent debtor and his creditors. For the debtor , a PIA on appropriate terms can provide him with a viable path to solvency over a reasonable period ( generally, 6 years but extendable to 7) without needing to resort to bankruptcy.
2. These are a number of advantages for a debtor entering into a PIA rather than choosing bankruptcy, including:
   1. a.    Out-of-court process under PIA vs. High Court process in bankruptcy;
   2. b.    Debtor has much more control under PIA process than bankruptcy;
   3. c.    Debtor is advised and assisted by a Trustee under PIA. There is no direct corollary in bankruptcy.
   4. d.    Debtor does not automatically lose ownership of property under PIA whereas all debtors’ assets vest in Official Assignee in bankruptcy.
   5. e.    No employment  restrictions under PIA ( bankrupts are subject to certain restrictions outside of the Bankruptcy Act 1988 relating to certain employments, such company directors, solicitors, accountants, TDs):
   6. f.     The maximum term of a PIA is 6 years ( extendable to 7 ). It is proposed that an income payments order could be made with respect to a discharged bankrupt that could have effect for up to 5 years post-discharge;  and
   7. g.    The long term negative effect on the debtor’s credit rating of entering into a PIA (particularly where the repayments plan is successfully completed) might be less than in case of bankruptcy.

For a creditor the PIA can provide a better financial outcome than the alternatives of seeking recovery from an insolvent debtor through enforcement proceeding or as part of a bankruptcy process. In particular:

1. In appropriate cases, a secured creditor can avoid an immediate crystallisation of losses under a PIA. For example, where a secured debt is in negative equity, repossession and sale of the property would likely crystallise a loss for the creditor on that debt.  A PIA may offer an alternative that would be preferable to both the debtor and the creditor, e.g. by restricting the secured debt so that it is repayable by the debtor on a sustainable basis over an extended period;
2. The PIA provides a statutory mechanism (with appropriate safeguards and monitoring) for the creditor to resolve a debt that is in default (or is at risk of default due to the debtor’s insolvency) on a consensual basis and without incurring costs or administrative time of enforcement action or petitioning for the debtor’s  bankruptcy.
3. Petitioning for a debtor’s bankruptcy can be costly and difficult exercise for a creditor (legal fees etc.) and does not give the creditor any priority over other creditors in the distribution of the debtor’s estate (other than possibly with respect to certain costs associated with the bankruptcy application.);
4. The fees payable in the office of the Official Assignee can be substantial (generally, €900 for the first €3,000 of gross realisation and 15% of gross realisations thereafter). Depending on the circumstances of a debtor’s case, the fees payable to a Trustee under a PIA may compare favourably to the Official Assignees fees in bankruptcy.

Summary

of

The (Draft) Personal Insolvency Bill

                                                                                                        Prepared by:-

                                                                                                        Jim Murphy

                                                                                                        Browne Murphy & Hughes,

                                                                                                        28 Upper Fitzwilliam Street,

                                                                                                        Dublin 2.

www.brownemurphyhughes.ie 

Note:   Extended date of 23^rd for certain taxes for customers who both file and pay electronically

Who is liable

The charge is payable on any residential property in Ireland and the onus is on the property owner to register and pay the charge.

If a building is divided into flats the charge is payable on each flat.

How much is the charge

The charge is €100.

Payment by Instalments

The charge can be paid in 4 instalments of €25 each as follows:

• 1^st Instalment              13^th March 2012
• 2^nd Instalment              14^th May 2012
• 3^rd Instalment              13^th July 2012
• 4^th Instalment              10^th September 2012

In order to avail of the instalment payment method you must be registered before 1^st March 2012.

Penalties

If the charge is not paid by 31^st March 2012 penalties and interest will apply as follows:

• If paid within 6 months of 31^st March 2012 the penalty will be 10% of the charge.
• If paid between 6 months and 12 months of 31^st March 2012 the penalty will be 20% of the charge.
• Thereafter the penalty will be 30% of the charge.

In addition to the above interest at a rate of 1% per month or part thereof will be payable on the unpaid balance.

Please click on the document below to access the registration form.

Further information is available at: http://www.householdcharge.ie

Household Charge Registration Form

Who is liable

Any property in Ireland, subject to some exceptions outlined below, other than your private home is liable for the charge. The main types of property liable for the charge are:

• Private Rented Properties
• Vacant Properties with the exception of new unsold homes
• Holiday accommodation

Exceptions:

• Overseas property
• Mobile homes
• A property that has become vacant because the owner has moved into long-term residential care due to physical or mental illness.
• Certain Heritage buildings
• Newly built residential properties that remain unsold, vacant and part of the trading stock of a business.

What is the cut off date

To determine if a property is liable to the charge or not the status of the property on 31^st March 2012 needs to be considered.

How much is the charge

The charge is €200.

Penalties

If the charge is not paid by 30^th June 2011, interest at a rate of €20 per month will apply until the charge is paid.

Please click on the link below to view our 2012 budget summary.

Budget Summary 2012

See further commentary below by Tony Gilhawley as to what is coverd by the various schemes.

Deposit Guarantee Scheme

Self Employed Individuals

Universal Social Charge – FAQs

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