We are Ireland's leading firm in advising individuals who are facing personal bankruptcy. We do not deal with consumer debt cases, and we would refer such cases to the Money Advice & Budgeting Service (www.mabs.ie). For people who are concerned about retaining their family home we suggest that they visit the following web site for useful information: www.keepingyourhome.ie
Our services are principally targeted at borrowers, directors of collapsed companies who have given personal bank guarantees, personal guarantees to creditors in respect of trade credit, personal guarantees to landlords in respect of leases, bondsmen in respect of performance bonds and leasing companies in respect of lease. We also advise sole traders and partnerships who are facing bankruptcy, or investors who are facing calls on personal guarantees in respect of their investments in property syndicates. Our philosophy is that there is “always a deal to be done”.
Informal Schemes of Arrangement for Individuals
In some cases, an individual just needs time to sell assets in order to discharge his creditors in full. In such cases, it is relatively easy to obtain the creditors’ consent not to take legal action to allow time for assets to be sold. In other cases, the Director concerned would not have sufficient assets to discharge all of his creditors. Our approach to such cases is to propose an “Informal Scheme of Arrangement”, under which creditors agree to accept just a portion of their debt in full and final settlement. Our experience is that creditors are receptive to such schemes provided the following criteria are met:
- The Director enters into an honest and open dialogue about his current financial circumstances with his creditors.
- The Director is pro-active with his creditors, and does not wait for them to initiate legal action.
- The Director appoints an independent firm of accountants to prepare and agree the Informal Scheme of Arrangement with his creditors.
In preparing an informal scheme of arrangement we consider all issues, including tax opportunities. For example, disposal of assets may be structured in such a way that Capital Gains are off set by Capital Losses etc.
If a director is involved with a group of companies, we can advise if other companies should be place into Liquidation, Receivership or Examinership
We also consider if any Personal Guarantees given are legally binding on the Director. In respect of investors who are facing significant cash calls as a result of their involvement in a property syndicate, we also carefully consider whether the investor might have a claim for negligence, breach of a bank's facility letter, misrepresentation or abuse of a Power of Attorney.
Creditors will generally support a scheme of arrangement, as they will receive a greater return, over a much shorter period of time, than under a formal bankruptcy.
We regularly negotiate Informal Schemes of Arrangement (Debt Forgiveness)on behalf of individuals.
Arrangements under Control of Court
Nearly all Schemes of Arrangement done with creditors are done on an informal basis in this country. It was possible to organise a formal arrangement under the Bankruptcy Acts 1988 to 2011. However, all such formal arrangements were repealed by the Personal Bankruptcy Act 2012, and were replaced by three new arrangements, which are outlined below.
To be adjudicated Bankrupt the Debtor must have committed an “act of Bankruptcy”. These are defined in Section 7 subsection (1) of the Act. The act of Bankruptcy most commonly cited in Bankruptcy proceedings is Section 7(1) (f) which provides that a debtor has committed an act of Bankruptcy:
“if execution against him has been levied by the seizure of his goods under an order of any court or if a return of no goods has been made by the sheriff or county registrar whether by endorsement on the order or otherwise”
The High Court did have a "rule of practice" which stated that a "return of no goods" (nulla bona) was required to be obtained by a creditor before the High Court would grant the creditor leave to issue a bankruptcy summons. However, the Supreme Court held in February 2009 (Gerard Harahill -v- Eugene Cuddy) that there should be no rule of practice which requires a return of no gods in order for a bankruptcy summons to issue.
1. Bankruptcy Summons
This demands payment of the sum due within 14 days in default of which the debtor will have committed an act of Bankruptcy (Section 7 (1) (g))
2. Petition for arrangement
The debtor can Petition the Court for protection from Bankruptcy proceedings so that he can put an offer of composition to his creditors. If the offer is accepted by three-fifths in number and value of his creditors and approved by the Court then it is binding on all his creditors. If the offer is not accepted or not approved by the Court then the Court itself may adjudicate the debtor Bankrupt.
Formal Insolvency Proceedings:
These proceed by way of Petition (which must issue within three months of the commission of the act of Bankruptcy) grounded on Affidavit.
The Petition, Affidavit and all other forms required in Bankruptcy proceedings can be found in appendix O of the Rules of the Superior Courts Statutory Instrument no. 79 of 1989
Who can request the opening of Bankruptcy proceedings?
Either a creditor, or the debtor, may commence bankruptcy proceedings.
Publicity Requirements :
The Petition must be served personally on the Debtor. In practice, this can be very difficult if the debtor choses to be evasive.
If the debtor is adjudicated Bankrupt notice of Adjudication must be published in the Iris Ofigiuil ,a National Daily and, where applicable, a local Daily.
What is the role of the various participants in the bankruptcy proceedings?
Only the Court can adjudicate someone Bankrupt
For practical purposes, all steps in a Bankruptcy require Court approval.
When someone is adjudicated Bankrupt their property vests in the Official Assignee in Bankruptcy. The Official Assignee deals, subject to the approval of the Court (Section 61 (7)), with all practical aspects of the day to day running of the Bankruptcy - such as disposing of the Bankrupt’s assets and certifying to the Court who the creditors of the Bankrupt are for the purposes of Irish Bankruptcy Law. The powers, duties and functions of the Official Assignee are set out in part III of the Bankruptcy Act, 1988.
Duties of the Debtor
Among other duties, the Bankrupt is required to disclose all property to the court; to deliver up to the Official Assignee all property in his/her custody or control; to deliver up to the Official Assignee all books and papers relating to his/her estate.
Section 123 of the Bankruptcy Act, 1988 sets out 16 separate offences commissable by a Bankrupt all of which fall under the broad heading of failure to co-operate with the Court in the administration of the Bankrupt’s estate.
How are claims against the Debtor categorised?
Creditors of a debtor may be categorised as either Preferential or non-preferential.
The several claims within each of the above categories rank pari passu as between themselves.
Preferential Claims, as a generality, include rates, taxes and social insurance contributions. They are set out in detail in Section 81 et seq. of the Act. It should be noted that the costs of the Bankruptcy rank in priority to all claims pursuant to Section 80 of the Act.
What are the conditions for the lodgment and admission of claims?
Lodgment and admission of Claims are dealt with in the (lengthy) first schedule to the Bankruptcy Act.
Only Creditors who prove their claims in the Bankruptcy can share in any dividend. The Official Assignee can fix the time within which claims must be submitted. Proof of Debt may be furnished by way of a detailed statement of account, an affidavit of debt or other prescribed means.
What are the conditions to be discharged from bankruptcy?
The new methods of being discharged are as follows:
1. Every bankruptcy shall, on the 3rd Anniversary be discharged (The discharge may be delayed for up to 8 years if the bankrupt has not co-operated etc.) or
2. The Bankrupt has paid all costs and preferential claims and obtained the consent of all creditors or
3. Q. Is my bankruptcy public knowledge?
A. Following adjudication (the court order making you bankrupt) a notice of this is published by the petitioning creditor or you (if you have made yourself bankrupt) in one national and one local newspaper. This notice will also contain information about the next statutory court sitting. A local newspaper is one which is published in the area where you live or carry on business.
Other creditors may appear at the statutory court sitting and may make a claim under the bankruptcy. Other notices are also published at various stages of the bankruptcy, such as advertising for creditors and notice of discharge of bankruptcy. A Bankruptcy Register in the Office of the Examiner of the High Court and searches can be made against this register.
Q. Can I stop the bankruptcy?
A. You may apply to the High Court within 3 days of the service of the bankruptcy order on you, giving reasons why you should not have been made bankrupt. This is called a ‘show cause’ application.
Q. What am I required to do when I am made bankrupt?
A. You must co-operate fully with the Official Assignee’s office in all matters relating to your bankruptcy. You must inform the Official Assignee if you change address. Initially you must attend for interview with the Official Assignee. You must also file a Statement of Affairs in the Office of the Examiner of the High Court.
The Statement of Affairs must set out all of your financial details including assets held and all amounts owed by you. The statutory court sitting will only be passed in the High Court when your Statement of Affairs has been filed. You also have other legal obligations in connection with the administration of your estate and assets. This includes: the delivery of your accounts or papers to the Official Assignee when requested, the delivery of your title deeds to property and any other possessions to the Official Assignee, assisting the Official Assignee in the administration of your estate, and disclosing any property acquired by you since the date of your bankruptcy Order to the Official Assignee. Where you fail to co-operate with the Official Assignee, the High Court may summon you to examine you under oath.
Q. What happens to my property when I am made bankrupt?
A. All property held by you when you are made bankrupt vests in the Official Assignee for the benefit of your creditors. The role of the Official Assignee is to sell or otherwise dispose of this property (called realisation) and distribute the proceeds to your creditors. A vesting certificate is lodged in the Office of the Examiner of the High Court and with the Property Registration Authority. This document records the interest of the Official Assignee in any property held by you at the date of adjudication. It means that you cannot sell or use this interest in the property as security to take out a loan.The only property that does not vest in the Official Assignee is essentials up to a value of €6,000 (or more if the High Court allows). Any property you acquire after you are made bankrupt, transfers to the Official Assignee, if and when the Official Assignee claims it.
Q. What about property I own abroad?
A. Under EU legislation, (EU Insolvency Regulations 2002) bankruptcy proceedings in Ireland may be recognised as proceedings in most other EU member states. In most cases, this should allow the Official Assignee to realise such property for the benefit of your creditors.
Q. Does it have implications for my salary and pension
A. Yes, the High Court may appropriate your salary or pension for the benefit of your creditors. However this is subject to any provision the High Court may make to meet your family responsibilities and your personal situation.
Q. Can I operate a bank account while I am a bankrupt?
A. Yes, you can operate a bank account. However if you obtain credit of €650.00 or more without disclosing your bankruptcy, you are guilty of an offence.
Q. Can I still trade while I am a bankrupt?
A. Yes, as long as you trade in your own name. If you trade in a name other than that in which you were made bankrupt without disclosing this name, you are guilty of an offence. You must notify the Official Assignee of any business or trade in which you engage.
Q. Can I manage a company or become a director of a company?
A. No, under the Companies Acts it is an offence for a bankrupt to act in various capacities in relation to a company. These include director,auditor, manager, liquidator or receiver of a company.
Q. Can I seek employment whilst a bankrupt?
A. Yes, and you can continue in current employment or seek employment.
Q. Can I travel abroad?
A. There is no outright prohibition on you travelling abroad but you should inform the Official Assignee if you intend to do so. You may be arrested if it appears to the High Court that you may be leaving the State in order to avoid the consequences of your bankruptcy.
Q. Are there other consequences?
A. Yes, bankrupt persons are not entitled to hold elected representative office, in local authorities, in the Dáil or the Seanad.
Q. Are there alternatives to being made a bankrupt?
A. Yes, a debtor may enter a voluntary arrangement with their creditors to settle debts due to them and to avoid bankruptcy or other proceedings against them. Arrangements made outside of the control of the High Court tend to be less costly in the long run.
Q. I have been discharged from bankruptcy; will my name be removed from the Register?
A. No, the Register is a record of all bankruptcies, including those that have been discharged. A person searching the Register is told the status of the bankruptcy (discharged) and the date it was discharged. No information is given about the address of the former bankrupt.
Q. Can the family home be sold?
A. The bankrupt’s interest in the family home vests in the Official Assignee as with all other property. However the Official Assignee may not sell the family home without obtaining permission from the High Court. Where the Official Assignee seeks this permission, the High Court may postpone the sale of the family home having regard to the interests of the creditors and of any spouse and dependants of the bankrupt.
Q. What if we have a mortgage against the property?
A. Then this is a secured loan against the property and the Official Assignee’s interest only relates to the equity remaining in the property.
Q. I own the family home with the bankrupt; what about my interest?
A. Where the bankrupt owns property jointly with a spouse or partner,the bankruptcy causes the joint ownership to be split. The Official Assignee and the non-bankrupt co-owner then hold separate interests in the property.
Q. Is it possible to "ring fence" my assets from creditors?
A. In a bankruptcy all your assets will be taken by The Official Assignee. If you are presently insolvent, but not yet bankrupt, you may take certain steps to protect "future" assets such as expected inheritances, or pension entitlements.
Q. What about my income?
A. The Official Assignee may apply to court for the appropriation of part of the bankrupt’s salary, income or pension. If the High Court directs any deduction to be made, it may have regard to the bankrupt’s family responsibilities and personal situation. Social welfare and unemployment payments are not liable to appropriation.
Disadvantages of being made bankrupt
An undischarged Bankrupt suffers certain statutory disabilities such as being prohibited from being a Company Director or in any way concerned with the management of a company – Companies Act, 1963 Section 183 ; being prohibited from being a member of the Dail or of a local authority.
On discharge, any property remaining in the hands of the Official Assignee automatically revests in the discharged Bankrupt. A discharged Bankrupt can set up a business in the same way as anybody else.
At a commercial level a discharged Bankrupt may have difficulty getting any kind of credit.
CENTRAL BANK'S REGULATIONS ON FITNESS & PROBITY
Many people in the financial services sector have been adversely affected by the current financial crisis. As a result of the financial crisis the Central Bank has recently tightened up its Fitness and Probity regulations. For ease of reference we summarise the regulations relating to financial fitness below:
5.1 A person shall manage his or her affairs in a sound and prudent manner.
5.2 Without prejudice to the generality of paragraph 5.1, a person must be able to demonstrate that his or her role in a relevant function is not adversely affected to a material degree by the fact that one or more of the following may be applicable:
(a) the person has defaulted upon any payment due arising from a compromise or scheme of arrangement with his or her creditors or made an assignment for the benefit of his or her creditors;
(b) the person is subject to a judgment debt which is unsatisfied, either in whole or in part, whether in the State or elsewhere;
(c) the person is or has been the subject of a bankruptcy petition, whether in the State or elsewhere;
(d) the person has been adjudicated a bankrupt and the bankruptcy is undischarged, whether in the State or elsewhere; or
(e) a person was a director of an entity which has been the subject of insolvency.
We are advising many clients in the Financial Services sector on how to comply with the new regulations.
Forum Shopping for bankruptcy
Forum shopping (or "bankruptcy tourism")is the term given to the debtor determining the best jurisdiction to be made bankrupt in. In many cases it is clear which jurisdiction the debtor should be made bankrupt in. However, in practice, it may be possible to change a person's Residence and Domicile from, say, Ireland to that of, say the United Kingdom, where the bankruptcy regime is much more favourable to the bankrupt debtor in terms of the length of the bankruptcy. A "simple" Irish bankruptcy will last at least 3 years. A "simple" UK bankruptcy could last just one year, with very straightforward cases just lasting 6/7 months. An Income Payments Order could be made in the UK for three years, whilst the period in Ireland is 5 years.A faster bankruptcy process may have significant benefits for a bankrupt in areas such as pensions and expected inheritances.
Some commentators have suggested that the Belfast High Court's decsion in respect of Sean Quinn's decsion to self adjudicate for bankruptcy, and which was challanged by Irish Bank Resolution Corporation Limited, makes it more difficult for Irish people to avail of UK bankruptcy procedures. However, the High Court's decision to annul the Bankruptcy Order was based on the specific facts of the case. If anything, the High Court decision confirms that if the proper procedural steps are taken by a bankrupt in the UK, that it would be very difficult for an Irish creditor to challange it. We are experts at advising clients on how to comprehensively change their COMI to the UK.
In the United Kingdom, the position of your pension may depend on:
- the date you were made bankrupt;
- whether you have been discharged from bankruptcy or not;
- whether your pension is an occupational pension or a personal pension.
The United Kingdom Welfare Reform and Pensions Act 1999 protects all pensions arising from tax-approved pension schemes against being part of a bankrupt's estate, for anyone made bankrupt after 29 May 2000. So, the Trustee in Bankruptcy cannot usually control UK approved pension schemes to pay off creditors. However, there is uncertainty as to whether certain Irish pension schemes may be seized, and thus expert advice should be taken.
The Trustee in Bankruptcy can apply to the Court, however, to receive a pension in payment for a period, under an Income Payments Order. But the United Kingdom Enterprise Act 2002 has reduced the automatic discharge period for people made bankrupt after 1 April 2004 to one year, so it is anticipated that a Trustee in Bankruptcy will have little time to apply for an Income Payments Order. Also, the bankrupt can make an out-of-court agreement with the Trustee in Bankruptcy to pay over a part of the pension for a specified period.
However, the discharge period can be extended if the bankrupt fails to comply with the obligations of the bankruptcy order. This can happen if the bankrupt for example had made what are deemed to be “excessive” contributions to a pension policy before bankruptcy.
While the United Kingdom has general bankruptcy rules, the specific rules vary between between England & Wales, Northern Ireland and Scotland.
While forum shopping might reduce the length of the bankruptcy period, the end result is the same i.e. all of the bankrupt's existing assets are taken away and distributed amongst the creditors.
The United Kingdom offers Individual Voluntary Arrangements (IVA's), which allows individuals to enter into a Scheme of arrangement with their creditors. Such schemes avoid the stigma of bankruptcy.
If a bankrupt debtor is prepared to change their place of Residence and Domicile, we can provide advice on the best jurisdiction to select and put them in contact with a reputable Insolvency Practitioner to ensure that the bankruptcy process is completed in the fastest possible time, or, alternatively, to carry out an Individual Voluntary Arrangement.
As Jim Stafford is the only Irish Insolvency Practitioner to have had direct practical experience of bankruptcy procedures in the US and the United Kingdom (having worked in New York for 2 years and London for 5 years) he is uniquely placed to advise bankrupt debtors on forum shopping. If a client wishes to move to the US, we can advise on the best State to move to. (While there is a Federal Bankruptcy Code, each state has its own State legislation, with varying degrees of protection for family homes, pensions etc.)
For clients who wish to apply of UK bankruptcy, we can refer them to UK specialists. We have relationships with established Insolvency Practitioners in Northern Ireland, Scotland, England & Wales who can provide detailed local advice on how to go bankrupt in the UK. In practice, some of the High Courts/County Courts have their own specific requirements e.g. some Courts are now seeking Witness Statements in addition to the normal statutory documentation. We have agreed fixed fees of Stg£2,000 + VAT for clients wishing to have their "hands held" through the UK process. This service includes the preparation of the Statement of Affairs that has to be submitted.
PERSONAL INSOLVENCY ACT 2012
The Government initially published the Personal Insolvency Bill on 25 January 2012, and re-issued an updated version of the Bill on 29 June 2012. The Personal Bankruptcy Act 2012 itself was signed into law by President Higgins on 26th December 2012.
Insolvency Service of Ireland
The Personal Insolvency Act 2012 Act provides for the establishment of an Insolvency Service. If you wish to have detailed guidance on the operations of the Insolvency Service of Ireland please go to their web site at www.isi.gov.ie Their web site provides detailed guidance on the various formal options avialable, together with illustrative examples of cases. We set out below a summary of the options available.
Debt Relief Notice
The Personal Insolvency Act 2012 provides, subject to certain conditions, for a Debt Relief Notice of forgiveness for persons with no assets and no income that are unable to meet qualifying debts totalling not more than €20,000. The purpose is to create an efficient non-judicial means of allowing persons to resolve unmanageable unsecured debt problems. (Similar systems operate in the UK, Northern Ireland and Australia).
With the assistance of an approved intermediary the debtor may apply to the Insolvency Service to certify that the qualifying debts be frozen for one year following which if, the person still cannot pay, the Service will certify that the debt is written off.
General conditions for a DRC
• debtors would have qualifying debts of €20,000 or less;
• debtors will have a net monthly disposable income of €60 or less after provision for “reasonable” living expenses;
• debtors would hold assets (separately or jointly) to the value of €400 or less (one vehicle up to value of €2,000 would be exempt from the asset test, as would household assets and tools or other items of equipment up to a value of €6,000, and one item of personal jewellery up to a value of €750);
• debts qualifying for inclusion in a DRC are unsecured debts: e.g. credit card, personal loan, catalogue payments, etc;
• debts that will not qualify for inclusion in a DRC include: secured debt, court fines, and family maintenance payments.
Where a DRC has been granted by the Insolvency Service
• it will be formally registered;
• a further DRC cannot be applied for before 6 years has elapsed;
• a DRC may not be availed of more than twice;
• there is a restriction on the debtor from applying from further credit.
Debt Settlement Arrangements
The Personal Insolvency Act 2012 provides for a system of Debt Settlement Arrangements (DSA) between a debtor and two or more creditors to repay an amount of unsecured (consumer type) debt over a set period. With the required assistance of a personal insolvency trustee, the debtor may apply to the Insolvency Service for a Protective Certificate in respect of preparation of a DSA. If granted, the Certificate would provide for a standstill period during which creditors may not take action against the debtor. The trustee would then put forward a DSA to creditors for agreement. If approved, the Insolvency Service would provide formal registration of the DSA. At the satisfactory conclusion of the DSA all debts covered by it would be discharged. The Insolvency Service has no role in the negotiation and agreement of a DSA. (Similar systems operate in the UK, Northern Ireland and Australia).
General conditions for application for a DSA
• the debtor must normally be resident in the State or have a close connection.
• only one application for a DSA is permitted in a ten year period.
• a Protective Certificate, if granted, will provide a standstill period of 30 working days to allow for a creditors meeting to consider the DSA.
• a DSA will normally runs for 5 years.
• the DSA requires the approval of 65% in value of qualifying creditors.
• a DSA if approved, it is binding on all creditors.
When a DSA has been agreed with creditors
• the DSA will come into effect on registration by the Insolvency Service.
• the DSA may be varied or terminated.
• there may be an application for adjudication in bankruptcy on ending, termination or failure of the DSA.
• there are grounds for challenge by creditors to a DSA and a role for the courts on application to have a DSA annulled.
Personal Insolvency Arrangements
The Personal Insolvency Act 2012 provides for a system of Personal Insolvency Arrangements (PIA) between a debtor and one or more creditors to repay an amount of both secured and unsecured debt over a period of 6 years (with a possible agreed extension to 7 years)
General conditions for application for a PIA
• A debtor will only be able enter into a PIA once in his lifetime
• A debtor may only propose a PIA if he or she is cash flow insolvent (i.e. unable to pay their debts in full as they fall due) and it is unforeseeable that over the course of a period of time the debtor will become solvent
• A debtor may only propose a PIA if a DSA would not be a viable alternative to restore the debtor to solvency over a five year period
• It will deal with debts between €20,001 and up to a ceiling of €3m. The €3m cap can be waived with the written consent of all secured creditors.
• A Personal Insolvency Practitioner, operating in a manner that is fair to all parties and having considered the full financial circumstances and advised the debtor, will make the PIA proposal to creditors and if accepted by creditors will then administer the PIA for its duration
• A PIA will normally run for 6 years
A PIA must be supported by at least [65%] of creditors and at least [50%] of secured creditors and [50%] of unsecured creditors in terms of value
When a PIA has been agreed with creditors
• To the extent that they are not provided for in the PIA, all other debt obligations will remain
• Creditor objections to a PIA may be taken to the Circuit Court on stated grounds
• A PIA may be varied or terminated
The Personal Insolvency Act 2012 provides for a number of amendments to the Bankruptcy Act 1988 to provide for a more enlightened, less punitive and costly approach to bankruptcy. These amendments continue the reform of bankruptcy law begun in the Civil Law (Miscellaneous Provisions) Act 2011.
The main elements of the bankruptcy reforms include the following:
• The introduction of a minimum debt amount of €20,000 in respect of a creditor petition for bankruptcy;
• The automatic discharge period from bankruptcy (subject to certain conditions) is reduced from the current 12 years to 3 years after the date of adjudication*;
• The discharge from bankruptcy could be delayed by the court, up to a maximum of 8 years, for non-compliance, fraudulent or dishonest behaviour by the bankrupt during the process;
• Full disclosure and realisation of all the bankrupt’s assets and interests would be required for the benefit of creditors, etc;
• Provision for a court to make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses, for a period of up to five years
• Extended timeframes in regard to possible fraudulent transfers or settlements of assets by the applicant for bankruptcy (from 1 year to 3 years)
*With regard to the reduced period for automatic discharge from bankruptcy, in addition to any existing technical and other conditions contained in the 1988 Bankruptcy Act, the following new provisions contained in the Scheme of the Bill would also apply:
- in a new section (Automatic discharge from bankruptcy) that the bankrupt shall after discharge from bankruptcy have a duty to cooperate with the Official Assignee in the realisation and distribution of such of his or her property as is vested in the Official Assignee.
- in a new section (Objection to automatic discharge from bankruptcy) that the Official Assignee or a personal insolvency trustee shall have an explicit power to object to the discharge of a person from bankruptcy. The primary grounds for such objection are evidence as to the bankrupt’s lack of cooperation, dishonesty or other wrongful conduct. The court, if satisfied, as to the evidence may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt up to a maximum of 8 years.
(It should be noted that there are no prohibitions contained in the Bankruptcy Act 1988 with regard to restrictions on the nature of employment or profession of a person adjudicated bankrupt. Such prohibitions, where they exist, are contained in sectoral legislation, e.g. in the Electoral Acts in regard to membership of Dáil Eireann or in contracts of employment, e.g. in the legal profession).
What will people be allowed to live on?
The Insolvency Service has published detailed guidelines on their web site, www.isi.gov.ie on what are reasonable living expenses. It is expected that that in any Debt Settlement Arrangement, Personal Insolvency Arrangement or Bankruptcy any income earned above what is required to pay reasonable living expenses will be used to pay creditors.
Comparision of UK Bankruptcy with Irish Bankruptcy
The advantages of debtors moving to the UK and utilising the Bankruptcy procedure in the U.K. are obvious. Firstly, the U.K. has a tried and tested system of Individual Voluntary Arrangements (“IVA”) which allow debtors to do deals with their creditors on a low cost basis. The U.K. does approximately 50,000 IVA’s every year. If the IVA is not successful, then the debtor is placed into bankruptcy, but at least he is discharged after a bankruptcy period of just 12 month, which compares favourably with the proposed three years discharge period in Ireland.
One of the key planks of the new proposed Irish bankruptcy regime is a Personal Insolvency Arrangement (“PIA”) which is effectively modelled on the U.K. IVA system.
The reason why IVA’s are so successful in the U.K. is that creditors receive more money back than they do under a Bankruptcy. Similarly, it is expected that under a PIA, that creditors would receive more money back than under bankruptcy.
While the proposed Irish PIA will be closely modelled on the U.K. IVA system, there will still be substantial differences between the actual bankruptcy regimes of each Country. In the U.K., when a debtor is declared bankrupt, the Official Receiver is initially appointed. The Official Receiver is a Government Official whose costs are effectively financed by a levy on all realisations in a bankruptcy. In practice, if the bankrupt estate has realisable assets, the Official Receiver will hand it over to a private sector Insolvency Practitioner who will charge fees on a time cost basis. In Ireland, the Official Assignee, also a Government Official, is initially appointed, and he tends to complete the bankruptcy. The Official Assignee does not charge fees himself, but Court Duty is levied on asset realisations.
A major difference between the Irish bankruptcy regime and the UK bankruptcy regime is the involvement of the court system. In Ireland, there is a constant interface with the Court system, which is costly in terms of solicitor and counsel fees. The best way to illustrate the differences between the Irish and U.K. systems is to show a comparison of an estimated outcome on a typical case. If you assume a Mr. Murphy who has five investment properties with a market value of €1 million and mortgages of €3 million, and an unencumbered property with a market value of €500,000, then a comparison of the different outcomes (on the basis of a “lump sum” IVA or PIA) is shown in the accompanying table. For ease of comparison purposes, the exchange rate is assumed to be €1 to £1.
| ||Irish Bankruptcy||Irish PIA ||U.K. Bankruptcy||U.K. IVA|
Assets Available (After realisation costs)
|Official Receiver's Fees ||1,715|
|Court Duty/Secretary of State||71,700|| ||63,250|
|Nominees Fees/Personal Insolv'y Trustee|| ||12,300|| ||10,000|
|Supervisors Fees/Personal Insolv'y Trustee ||12,300|| ||10,000|
|Bordereau|| || || ||116|
|Net Assets Available||343,300||470,400||363,035||474,884|
The table clearly shows that the creditors receive more either under the proposed Irish PIA or the U.K. IVA. The reasons for the differences are apparent from the table. Firstly, the unencumbered property would realise more in an orderly sale (particularly if the property is located in a different jurisdiction) as opposed to a distressed sale, and secondly the Court Duty/Secretary of State fees (which can get as high as 15% of realisations) would be significant in both types of bankruptcies. The reason for the differences in the cost of the professional fees under the PIA and the IVA is that VAT is no longer charged by insolvency practitioners in the UK following the Paymex Limited case last year.
It is clear from the accompanying table that the high costs associated with bankruptcy actually make it easier for debtors to persuade their creditors to accept a scheme of arrangement.
The majority of IVA’s done in the UK are 5 year arrangements which mainly feature the debtor also making contributions from his personal income towards his creditors. Such “income” IVA’s can produce good dividends for creditors where the debts are consumer type debts such as credit card debts. However, where the debts are in the millions, any dividends available from income tends to be immaterial.
Your Next Step?
You are not alone in the difficulties that you face. In many cases we are able to develop a solution that helps you to regain control over your financial difficulties.
We are Ireland's leading firm for advising individuals facing bankruptcy, and have extensive practical experience of dealing with all aspects of personal insolvency. We have assembled an expert panel of solicitors and Junior/Senior Counsel who are experts in specific areas of personal bankruptcy. We are experts at navigating the complex interfaces of the Bankruptcy Acts, Companies Acts, Taxes Acts, Conveyancing Acts, Codes of Conduct and other key legislation in order to create a solution. We also provide a service of providing a "second opinion" on any existing advice that might have been previously provided.Our fee for an initial consultation, at which we explain the various options that are available to you personally, is €300 + VAT.
We treat all cases with the utmost confidentiality.
For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or email@example.com or firstname.lastname@example.org