Wednesday, 17th October 2018

Reform assists the indebted and blows the dust off antiquated bankruptcy law

Analysis: Minister for Justice Alan Shatter has described the Personal Insolvency Bill as the “most radical reform [in this area] since the foundation of the State”. Politicians are prone to exaggeration but he is not far off the mark.HARRY McGEE

The legislation runs to 145 sections and there were well over 200 amendments debated before it passed the final hurdle in the Oireachtas last night.

It has been three years in the making and Shatter is confident it will be up and running by March 1st.

The new law replaces Ireland’s antiquated and inflexible bankruptcy procedure with a court-backed system of mechanisms designed to help individuals who find themselves hopelessly in debt.

It deals with sums ranging from less than €20,000 to debts totalling €3 million. Given the scale of the property crash and the crisis, there are plenty of such individuals. And for many, their family home – especially if in negative equity – has become an albatross.

Secure homestead
Shatter told The Irish Times yesterday his aim was to ensure that people were not forced to vacate their homes because they were in mortgage debt. The solutions all involve a “degree of forbearance over a period of time” to debtors, he said. In reality, that will mean debt write-off.

The mechanisms are detailed but the principles are pretty straightforward.

“This is not a magical mystery tour,” is how Shatter puts it. At its essence, a portion of the debt is written off. If that fails, there is the nuclear option of bankruptcy. That too, however, has changed, reduced from a punitive 12 years to a more manageable three, even though that period can be extended to up to eight years.

Shatter argues that three years is close to the EU norm, although not as facilitative as the UK, where it is one year.

Opposition parties and interest groups have expressed some deep and fundamental concerns. Most of the critical focus has been on a claimed concession to financial institutions and an assertion that banks can exercise a veto on any proposal. Those critics say that the banks will not accede to proposals involving debt-forgiveness. Shatter has argued that they will.

The scheme involves the setting up of a new body, the Insolvency Service of Ireland, which will manage the scheme.

There are three different arrangements. The first is a personal insolvency arrangement (PIA), mainly aimed at those with secured assets including mortgage debt. They must have debts over €20,000 and up to €3 million and must be in a position where there is no possibility of full repayment.

The application must be made and approved by the Circuit Court (eight specialist judges will be assigned), while a “personal insolvency practitioner” will try to broker an agreement between debtor and institution.

Families will be allowed to live in their home unless it is disproportionately expensive compared to their means.

A combination of lenders with 65 per cent of the debt must agree to the PIA, which lasts about six years, by which stage non-mortgage debt is discharged.

Debt settlement
The scheme for a debt-settlement arrangement is broadly the same, but it deals with amounts of more than €20,000 in unsecured debt.

The third solution is a debt- relief notice which deals with debt less than €20,000, where people have low disposable incomes and few assets and have no prospect of paying the debts.

If a person opts for bankruptcy, the period has been reduced from 12 years to three. One of the upshots is that those who have been bankrupted under the old legislation, including businessman Seán Quinn, will be in a position to discharge their debts after three years.

However, the legislation has been harshly criticised.

Hypothetical and untested
David Hall of the Irish Mortgage Holders Organisation says it is hypothetical and untested and reliant on the banks to co-operate – he insists they won’t.

“The Minister wants to say this piece of legislation will have a hypnotic effect on the bank. It won’t,” says Hall. “Any process that is controlled by the lender can only fail.”

Independent TD Stephen Donnelly said he would vote against the Bill “with reluctance” because of the inclusion of provision of a bankruptcy payment order, which he said had the effect of extending the bankruptcy from three to eight years.

“The Bill introduces a credible threat for the borrower to say that if the lender did not compromise in a reasonable manner, the lender would declare himself bankrupt.”

Ross Maguire SC, a founder of New Beginning, said he broadly welcomed the legislation. “It is very innovative but it does take the banks to co-operate. If banks co-operate, it will be a huge success. If they don’t, they will break it.”

by Harry McGee

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Grant Thornton Supports Personal Insolvency Bill with New Debt Solutions Platform

Grant Thornton announced today that in anticipation of the pending enactment of the Personal Insolvency Bill, the company will be offering a personal debt solution service in Ireland. Grant Thornton is in full support of this bill, which is designed to give people more constructive ways of resolving their debt problems and to get back in control of their finances and futures.

Grant Thornton Debt Solutions, which will launch in early 2013, aims to offer a range of transparent debt solutions, and tailored debt advice to ensure people are offered the right options suitable to their own needs to help reduce their financial worries and get them on a journey of recovery from debt.

Grant Thornton has offered customers a similar intermediary service in the UK for the last 15 years, where it has achieved a market leading success rate of ensuring that the solutions they offer are approved by creditors. Grant Thornton UK is one of the top personal insolvency practitioners in the market, with 250 employees and 44 000 active cases. Grant Thornton is confident that it will be able to help those in financial difficulty in Ireland to navigate the waters of personal insolvency.

Michael McAteer, Partner in Recovery and Reorganisation said: “We believe the implications of financial difficulties are far reaching and time spent helping people address their unique and individual debt problems can help their overall health and wellbeing. Our aim is to work to understand each individual situation, to provide options and to create a solution to suit their needs. We firmly believe that the enactment of the Personal Insolvency Bill will present a solution for the thousands of people suffering with the burden of unmanageable debts. Grant Thornton has a strong track record of finding debt solutions for people in the UK through our market leading Belfast office.”

He added: “It is important to offer people in Ireland detailed information and honest advice to help them start on the journey to debt recovery. The Draft Bill proposes the introduction of three non-judicial debt settlement arrangements and a reform of the existing bankruptcy regime. The non-judicial processes are a Debt Settlement Arrangement (DSA), Debt Relief Notice (DRN) and Personal Insolvency Arrangement (PIA). We want to find the right options for people as Bankruptcy may be the right solution for one person whilst a PIA may work for another.”

In January, Grant Thornton Debt Solutions will be running a series of seminars which will discuss the implications of the new Personal Insolvency Bill whilst also providing an insight into the issues surrounding the ‘Psychology of debt’. The seminars will be held in Dublin on 16th January, Cork on 17th January, Dundalk on 21st January, Galway on 23rd January and finish in Limerick on 24th January.

The seminars will be open to money advisors, volunteers and professionals who are looking to improve their knowledge on debt solutions. Gareth Neill, Partner of Grant Thornton UK will present on the ‘Psychology of Debt’, Michael McAteer and Stephen Tennant, Partners of Grant Thornton Ireland will present on how the Personal Insolvency Bill will help people in Ireland.

We are pleased to confirm leading guest speakers will be joining us on the seminar road show to share their opinions and expertise. Lorcan O’Connor, Director Designate of the Insolvency Service of Ireland (ISI) will be the guest speaker at the Dublin and Cork seminars. Paul Joyce, senior policy researcher for the Free Legal Advice Centres (FLAC) will speak at the Dundalk event. Michael Norris will be speaking about his experience of the personal insolvency process in the UK at the Galway and Limerick seminars.

Stephen Tennant, Partner in Recovery and Reorganisation at Grant Thornton said: “The enactment of this bill will begin a new era for personal insolvency in Ireland. Our objective will be to find solutions which will work for people. We will look to provide a service which enables creditors to manage recovery of debts whilst ensuring the insolvent debtor can afford to repay in an orderly and rational manner. Transparency and honesty are key to the success of this new phase for Ireland.”


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