Changing the Irish Bankruptcy Laws

A challenge to Ireland’s arcane insolvency laws and regulations may perhaps be made to the High Court within just a few months, in line with a newly released article in The Sunday Independent by Maeve Sheehan. This is really an significant development if a test is made due to claimed breaches of the constitutional rights of consumers confronting individual bankruptcy. It is surely significant if this might occur and turn into the prompt for reform of the legislation along with the launching of brand new legislation on personal personal debt as well as debt enforcement legislation. It might be unfair to accuse the new Fine Gael - Labour coalition government of sitting on its hands on this question, given the inertia and inaction of the old Fianna Fail - Greens government, which weren't able to get their collective heads round the notion of personal debt forgiveness. The new government has had many big sovereign and banking financial matters to contend with however it's now time to focus on business that will benefit the private citizen.

At this time there is no dearth of opinions or lobbying by vested interests particularly lenders and finance companies. Undoubtedly any amount of personal debt forgiveness as distinct from forbearance will likely have a bad impact on the results of lenders and other creditors. Bad debts will crystallize and bad debt provisions will need to be increased. A multitude of diverse suggestions have been stated by so many experts and lobbyists ranging from economic ‘experts’ to barristers to accountants to bankers. They wax lyrically on questions such as moral hazard, can’t-pay versus won’t-pay, and other such red herrings while the personal financial pain of the financially troubled citizen goes predominantly unheeded.

The comprehensive and thorough recommendations crafted by the Law Reform Commission (LRC) related to private indebtedness certainly advocated the benefits of including personal debt forgiveness in any impending laws on personal financial distress. Yet senior civil servants have described the recommended reform of Irish insolvency legislation as unfair simply because it is ‘very debtor friendly’! While knowing that many Irish people have financial obligations which they will never truthfully be able to pay back, the notion of private debt forgiveness is denied on the grounds that it is not just the banks and other big credit houses which will endure hardships, but also many ordinary small businesses and self employed individuals such as tradesmen, small builders, architects and other professionals who will be left without payment by defaulting borrowers who may be ‘forgiven’. This is laughable and anyone who understands how personal insolvency laws operate in the UK for instance would soon understand that.

The LRC has already carried out all the heavy lifting. The investigation has been completed. Professionals have been conferred with at home and abroad. Various overseas jurisdictions have been evaluated and benchmarked. The consumer credit and insolvency industries have given their feedback. The LRC has issued its final report Personal Debt Management and Debt Enforcement in December 2010. The EU/IMF/ECB has laid down March 2012 as the final target time for reform of Irish personal insolvency law which includes reform of bankruptcy legislation. The LRC recommends that any new Irish insolvency legislation should stress the ‘fresh start’ vision on which much of the best European and American private insolvency legislation is founded.

The LRC has already identified the most imperative and essential reforms needed in respect to the Bankruptcy Act 1988. In fact the proposed new act (currently called Draft Personal Insolvency Bill 2010) and the old Bankruptcy Act 1988 (which really needs urgent reform and modification) are so intricately intertwined that it makes no sense to pass new laws without simultaneously (or as contemporaneously as is possible) amending the old act.

The alterations to the Bankruptcy Act 1988 proposed by the LRC are: to set a minimum level of Euro 50,000 to generate a creditor’s petition of bankruptcy; to remove the qualification that the insolvent debtor have available assets of at least Euro 1,920 in order to petition for his or her own bankruptcy; to authorize the court to take into account the debtor’s insolvency and to stop actions to make it possible for the debtor to check out a Debt Settlement Arrangement (DSA) - as specified in the new draft act; to set up a Pre-Action Protocol which would apply to a creditor’s petition for bankruptcy and which would oblige the debtor and creditors to investigate different feasible alternatives such as a DSA prior to embarking on the bankruptcy path and empower the court to stay bankruptcy proceedings; to empower the court to stay proceedings to look into alternative means in the case of a debtor’s petition for bankruptcy, with similar requirements and powers as under the Pre-Action Protocol; to set types of conditions for the automatic discharge of the bankruptcy, allowing for discharge before all of the bankrupt’s property has been realized; to decrease the automatic discharge period to three years; to enable the court to order payments by the bankrupt for up to five years; to determine the powers of the court pertaining to discharge and to objections to discharge by the Official Assignee/Personal Insolvency Trustee; to eliminate the necessity to settle expenses, fees etc ahead of discharge; to minimize the number of priority debts making particular debts (e.g. Revenue debts) no longer being priority debts; to create sanctions against fraudulent and/or reckless bankrupts, such as restrictions and disqualifications; to exempt resources so as to establish a fair living standard for the bankrupt; to determine conditions for the appointing and licensing of a new office holder called Personal Insolvency Trustee acting in bankruptcy, with the new licensing system overseen by a (new) Debt Settlement Office.

Does the dearth of any or all of the above provisions in law amount to a breach of the constitutional rights of a person going through bankruptcy? Will government move before it is compelled to take action by a legal challenge? a legal challenge be long drawn out and have the consequence of unnecessarily stalling the enactment of new laws? There are certain to be legal changes coming down the tracks and the debate on many peoples’ lips is when that will be.