The Personal Insolvency Act 2012 became law in Ireland on the 26th December 2012 and provides a dramatic change to debt arrangements in Ireland. The Act provides for three different scenarios offering relief at different levels for different types of debtors. The entry level mechanism designed to deal with unsecured personal debt of €20,000 or less is known as a Debt Relief Notice (DRN). Unsecured personal debt in excess of €20,000 is dealt with under the second heading known as Debt Settlement Arrangement (DSA) Mechanism. Finally secured debt of up to €3 million and unsecured debt of an unlimited size is dealt with under the Personal Insolvency Arrangements (PIA).
DEBT RELIEF NOTICES –
To qualify under this process the debtor must have qualifying debts which do not exceed €20,000, net disposable income of €60 or less per month and assets (excluding the home) worth no more than €400. The debtor must be insolvent and show no likelihood of becoming solvent within a period of three years from the date of the application. Detailed sections in the Act outline qualifying assets and qualifying liabilities and assets which can be excluded in the calculations. The purpose of this chapter of the Act is to allow a person with relatively small but unmanageable personal debts to deal with those debts in a realistic manner without the necessity of going to Court. In the period of the Debt Relief Notice a specified creditor may not initiate any legal proceedings or take any steps to recover a specified debt. At the end of the Debt Relief Notice period the debtor shall stand discharged from the specified qualifying debts.
DEBT SETTLEMENT ARRANGEMENT –
A person with personal unsecured debts of more than €20,000 who seeks debt relief under the Personal Insolvency Act must engage a personal insolvency practitioner to propose a Debt Settlement Arrangement (DSA) with one or more of his creditors. The personal insolvency practitioner will advise the debtor and will submit an application to the insolvency service which shall review the documentation and raise whatever queries it thinks appropriate. Once the insolvency service is satisfied that the application is in order then it will send all of the appropriate paperwork to the appropriate Court. The Court will review the application and the documentation furnished and if satisfied will issue a Protective Certificate for an initial period of 70 days (which may be extended by up to 40 further days). The rights of secured creditors are unaffected by this arrangement. The personal insolvency practitioner shall, in so far as is reasonably possible, try to find a proposed solution to the debtors problems without the requirement of the debtor selling or having to move out of the debtor’s principal private residence. In due course the personal insolvency practitioner will call a creditors meeting at which a vote will be taken by the creditors on whether to agree to the DSA or not. For the DSA to be approved it must be passed by votes of creditors representing not less than 65% value of the creditors present at the meeting. If a DSA comes into effect through the approval of the creditors at the creditors meeting then a creditor may not initiate legal proceedings in relation to the debt during the period of the DSA. Upon expiry of the DSA period and where the debtor has complied with his obligations under the arrangement, the debtor shall be discharged from the debts the subject matter of the DSA.
PERSONAL INSOLVENCY ARRANGEMENTS –
This chapter is designed to assist debtors who have difficulties with both secured (up to €3 million) and unsecured debt over a period of six years which can be extended to a seven year period in certain circumstances.
As with the DSA, a personal insolvency practitioner must be appointed by the debtor to administer the process on his behalf.
In this case the personal insolvency practitioner also makes an application to the insolvency service for a Protective Certificate. Where the insolvency service believes the application to be in order they shall issue a Certificate to that effect and furnish a copy of the application and supporting documentation to the appropriate Court. A similar protection period is allowed as applies under the DSA process. If creditors representing at least 65% in value of the debts at the creditors meeting approve the PIA, then it will be pass and, where the debtor has complied with his obligations under the arrangement, the debtor shall be discharged from the debts the subject matter of the PIA.
Secured creditors have a veto on the operation of the DSA and PIA processes. However, secured creditors will be conscious that the alternative could be that the debtor will become bankrupt and they may not recover any more than in the personal insolvency processes mentioned above.
Once the Insolvency Service has been established and fully staffed it is expected that a large number of applicants will apply and only time will tell as to how successful this Act will be in terms of dealing with personal debt difficulties. Much will depend on how realistic the secured creditors are prepared to be.
Certain debts are excluded from the process and cannot be forgiven even if the creditors approve of the process. These would include but are not limited to various taxes and Domestic Support Orders.
The Act is complex and runs to 144 sections over 118 pages and a full examination of each section is beyond the scope of this article which is designed to give an introductory overview of each of the three main headings of the Act.
Val Stone is the Managing Partner of Stone Solicitors, a law firm based at 14 North Main Street, Wexford. Stone Solicitors can be contacted on 053 9146144 or by e-mail at email@example.com
Val Stone is an Accredited CEDR Commercial Mediator and a Fellow of the Chartered Institute of Arbitrators.