Our bankruptcy laws are outdated and need urgent revision. Currently, if you are declared a bankrupt, the bankruptcy survives for the next twelve years. In England and Wales, you may only face bankruptcy for twelve months. Arguably, individuals should be able to re structure and move forward in the same way that a company can. Our current legislation is based on the Bankruptcy Act of 1988. In September 2009, the Law Reform Commission published a Consultation paper on “Personal Debt Management and Debt Enforcement” that makes various recommendations. It does remain however a Consultation paper, and nothing more than that.
There is stark contrast between the Irish and English Laws which has resulted in a number of people relocating to Northern Ireland and parts of Britain to avail of those jurisdictions bankruptcy legislation. Some startling figures – In 2005, the UK had over 47,000 bankruptcies. The Republic of Ireland had 9. It is relatively expensive (from a Creditor and Debtor perspective) to organise a bankruptcy in Ireland. It is much cheaper in the UK.
Prior to a Debtor considering declaring one’s self bankrupt, one of the options open to a Debtor is to approach MABS – Money Advice and Budgeting Service which is funded by the Department of Social and Family Affairs. This is a free and confidential service and has become increasingly popular with middle class persons.
One criticism of the Irish Law is that it does not allow for “individual voluntary arrangements” (IVA). This is commonly used in England and Wales. An IVA is similar to an examinership for individuals whereby the individuals assets are examined by an insolvency practitioner, and a scheme of arrangement is organised for the Creditors.
What is bankruptcy?
“Bankruptcy is a law for the benefit and the relief of Creditors and their Debtors, in cases in which the latter are unable or unwilling to pay their debts”.
Who can petition the Court?
Either a Creditor or Debtor can petition the High Court to have a Debtor adjudicated bankrupt. There must be a liquidated debt of more than €2,000 owing. Once a debtor has been adjudicated bankrupt, all of the bankrupt assets and property (including the family home) vests in an Official Assignee. This Official Assignee, under supervision of the Court, will realise the bankrupts assets and distribute the assets rateably among the Creditors. Generally, a Court will take into account the bankrupts family, responsibilities and personal situation.
Petition by a Debtor
A Debtor can bring his or her own petition for bankruptcy where he or she is unable to pay debts to Creditors and where his or her available assets are sufficient to produce at least €2,000.
Petition by a Creditor
A Creditor can petition for bankruptcy against a Debtor where the Debtor has committed an act of bankruptcy within the previous three months.
Normally, the acts of bankruptcy relied on by a Creditor are:
a) Failure by the Debtor to comply with a bankruptcy summons requesting payment of the sum due
b) The making of a return of “no goods” in respect of the Debtor by the Sheriff or County Registrar.
For a Creditor to be entitled to petition the Court to make a Debtor bankrupt, there are a certain number of Conditions to include:
1. That the petition must be presented within three months of the act of bankruptcy.
2. The debt owed must be at least €2,000.
3. The Debtor must be normally resident in the State.
Disadvantages in declaring personal bankruptcy
There are many disadvantages in declaring oneself a bankrupt.
Currently, the Bankruptcy Act of 1988 does allow for the entering into of settlement arrangements with Creditors under the supervision and protection of the Court. This is a costly and time consuming process. It is a process that is the most similar under Irish Law to the IVA process in the UK.
Is it possible for a Debtor to stop the bankruptcy proceeding?
It is open for a Debtor to apply to the High Court within three days of the service of the bankruptcy order, giving reasons why you should not be made bankrupt. If one cannot show just cause, one will be deemed a bankrupt and must co-operate fully with the Official Assignee.
The European Solvency Regulations of 2002 merit a mention. Bankruptcy proceedings in Ireland are recognised as proceedings in most other EU Member States. Thus property owned abroad by a Debtor could very easily be taken into account by the Official Assignee.
21 July 2010