Vol 9 (2012) - Issue 5

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Reform of the Personal Insolvency Regime in Ireland

Introduction
The long awaited reform of the personal insolvency framework in Ireland, as required by the EU/IMF Programme for Financial Support for Ireland, is beginning to take shape following the publication on 29 June 2012 of the Personal Insolvency Bill (the 'Bill'). Although the legislation in still in draft form and therefore subject to amendment by the Houses of the Oireachtas (the Irish Parliament), it is expected to be enacted into law by mid-November 2012. It provides for significant changes to the current personal insolvency regime and introduces for the first time in Ireland, a number of largely non-judicial debt resolution processes designed to offer an alternative to bankruptcy for individuals in certain prescribed circumstances. The proposed changes relate to personal insolvency matters only and have no effect on corporate insolvencies.
The need for modernisation of the current Irish personal insolvency laws, which date back to 1988 and which are archaic when compared to other EU countries, has been brought into greater focus in recent times given the unsustainably high level of mortgage arrears and personal debt existing in Ireland since the economic downturn. Ireland has not previously seen the scale of financial difficulty that has been witnessed over the past five years, reflected by recently released figures from the Central Bank of Ireland which show that just over one in five home loans (over 22% of the 761,533 home loans in the State) were either in arrears or have been modified to help borrowers make some form of repayment. Of further note is the extent of personal insolvency arising from the devastating effect of personal guarantees given, by those working in property in particular, to the banks. Where there is little opportunity for the banks to recover any debt through such instruments, this has created a stalemate.

Proposed changes to the bankruptcy regime
The new personal insolvency and bankruptcy regime proposed by the Bill is seen as a first step towards a second chance for individuals in severe financial difficulty, but is arguably still some way behind the tried and tested working regime in the UK.
The Bill provides for a reduction in the period of automatic discharge from bankruptcy from twelve years to three years. Although this would appear at first glance to be a significant change to the current position, the courts will (if the Bill as currently drafted is enacted) retain a discretion to order the making of payments to creditors from a discharged bankrupt’s income for a period lasting for up to five years from the date of the discharge, thus leaving open the possibility that a person may not be free from the shackles of bankruptcy for up to eight years.
In such circumstances, it remains unclear whether the proposed changes will be sufficient to affect the current trend whereby insolvent individuals are moving their centres of main interests (‘COMI’) to Northern Ireland or Great Britain in order to avail of the possibility of discharge from bankruptcy after one year (subject to a maximum three year income payments order running concurrently from the date of bankruptcy).
Other significant amendments to the current bankruptcy regime contained in the Bill include the raising of the minimum level of debt required for the presentation of a bankruptcy petition from EUR 1,900 to EUR 20,000 and the extension of the period prior to an individual being adjudicated bankrupt in respect of which fraudulent dispositions, fraudulent preferences and fraudulent settlements may be deemed void to three years.