Category Archives: Insolvency Arrangements

Insolvency Statistics Ireland 2016

Since the Insolvency Service was launched in 2013 there have been just 6800 applications for  debt relief. Made up of about 1000 DRNs  and 5000 PIAs and the rest were DSAs

Of those applications –  24.5% were from unemployed people and  63.7% were from working people. The rest were from students/ retired or housewife/househusband.

Male applicants made up 52.3% and female made up 47.7%.

The highest rate of Insolvency applications were from Co Waterford (32.6 per 10,000 adults). In second place was Co Wicklow at 21.8 per 10,000 adults.

The county with the lowest application rate was  Limerick at 5.9 per 10,000 adults.

Co Kildare had the highest rate  of Bankcruptcy applications – 7.5 per 10,000 adults – whilst Kerry had the lowest (2.2 per 10k)


A DEBT RELIEF NOTICE (DRN) PROVIDES FOR THE WRITE-OFF OF QUALIFYING DEBT UP TO €35,000 SUBJECT TO A 3 – YEAR  SUPERVISION PERIOD.

A DEBT SETTLEMENT  ARRANGEMENT (DSA) PROVIDES FOR THE AGREED SETTLEMENT OF UNSECURED DEBT WITH NO LIMITS INVOLVED OVER A PERIOD OF UP TO  5 YEARS.

A PERSONAL INSOLVENCY ARRANGEMENT (PIA)  PROVIDES FOR  THE RESTRUCTURING OR SETTLEMENT  OF SECURED DEBT
UP TO €3M AND THE SETTLEMENT OF UNSECURED DEBT OVER A PERIOD OF UP TO 6 YEARS

Summary of New Insolvency System in Ireland

The Insolvency  Act will  introduce 3 new debt resolution mechanisms to help mortgage-holders and other people with unsustainable debt to reach agreements with their creditors. It will probably be July before anyone can apply for any of these.

The three proposed new mechanisms are summarised below :  Click on the links to find out more about each of them

 

A Debt Relief Notice (DRN) to allow for the write-off of debt (generally unsecured ) up to €20,000, subject to a 3-year supervision period

A Debt Settlement Arrangement (DSA) for the agreed settlement of unsecured debt, with no limit involved, normally over 5 years

A Personal Insolvency Arrangement (PIA) for the agreed settlement of secured debt up to €3 million (though this cap can be increased) and unsecured debt, with no limit involved, normally over 6 years

The Personal Insolvency Act will also introduce automatic discharge from bankruptcy, subject to certain conditions, after 3 years as opposed to 12 years at present.

Personal Insolvency Practitioner Fees

Some of the big financial companies will be trying to get some of the personal insolvency work in Ireland now that the new Personal Insolvency legislation is going to be implemented.

Anyone applying for the Debt Relief Notice (on debts under €20k)   will not pay any fees.
The more complex DSA and PIA will require the involvement of a Personal Insolvency Practitioner – and they can charge fees. It is the creditors who will pay the fees (the people or companies that are owed the money).
How much will the Fees be ?  In  in one of the examples on the Insolvency Service website – the PIP fees were estimated at €12000 over 5 years.  This was for a Personal Insolvency Arrangement for a couple. In the example the unsecured creditors were owed around €90000 – but at the end of 5 years they will only get just over €18000 back. The PIP gets two thirds of what the creditors get – and over €72000 is written off.

In another example of a PIA – the estimated PIP fees were €5100 over 5 years.
An example of a DSA involving  debts of €80000 –  the PIP fees were estimated at €4000 over 5 years.

Target Dates for Insolvency Service Launch

Establishment of the Insolvency Service of Ireland (ISI)

The new Insolvency Service is urgently needed in Ireland to help sort out some of the people in mortgage arrears.

On March 13th the Department of Finance  announced some target dates for the Insolvency Service

They said that extensive work is taking place to get the new Insolvency Service of Ireland operational as early as possible in 2013 under its Director who was appointed in October 2012.

Applications from the public will not be accepted until June 2013

These are the milestones

Launch the Insolvency Service of Ireland website :  End-March 2013

Publish Guides to the three new arrangements :  End-March 2013

Put in place an information line for the public. :  End-March 2013

Publish Regulations for the authorisation and licensing of Personal Insolvency Practitioners :  End-March 2013

Publish Guidelines on a Reasonable Standard of Living and Reasonable Living Expenses for Debtors :  End-March 2013

Authorise and regulate approved intermediaries and personal insolvency practitioners :   Q2 2013

Commence taking applications from public :  June 2013

Note –  The targets have already been missed. The Insolvency Service of Ireland are now saying that they will not be launching the site until mid April

Insolvency Service of Ireland Website

The Insolvency Service of Ireland is planning to fully launch it’s website in April. The ISI  full publicity campaign launch was  scheduled for the week of  8th of April 2013. That has now been delayed until “mid April”

During April ISI plan to publish  guides to the three new arrangements: Debt Relief Notices (DRN), Debt Settlement Arrangements (DSA) and Personal Insolvency Arrangements (PIA).

The  Insolvency Service of Ireland website will contain various scenarios as to how the new arrangements may work in practice.

The ISI will also publish  Guidelines on Reasonable Standard of Living and Reasonable Living Expenses for debtors.

During that week they will also publish  information about the Regulations for the authorisation and licensing of Personal Insolvency Practitioners (PIP).

The website will be  www.isi.gov.ie

Personal Insolvency Arrangements

Personal Insolvency Arrangements – How will they work ?

New Insolvency laws are due to come into force in Ireland in 2013
One feature of the new rules is a  Personal Insolvency Arrangement.

If you have a mixture of secured and  unsecured debts that you cannot repay – you may be able to enter into a  Personal Insolvency Arrangement or PIA.
Unsecured debts are those  such as credit card, personal loans, overdrafts etc.  Mortgages are secured debts  – these might be on your own  principal private residence or on a  buy-to-let or investment property.

A PIA is for people with debts between €20,000 and €3,000,000 who are insolvent and it is unforeseeable that over the course of a 5  year period they will  become solvent

(If you are insolvent it means you are unable to pay your  debts in full as they fall due.)

A personal Insolvency Arrangement will  provide a mechanism for  debt settlement and restructuring if you are insolvent but  have the means to make part payments of your debts over a period of years.

An application for a Personal Insolvency Arrangement has to be made via a personal insolvency practitioner (PIP) . They will complete a standard financial statement with you setting out your financial affairs in full. The personal insolvency trustee will advise you about your  options and will assess whether you meet the eligibility criteria for a PIA. Those criteria include the following:

· You  must be “cash-flow”  insolvent (i.e. unable to meet your debts in full as they fall due);

· it is unforeseeable that over the course of a five year period, you will become solvent;

· a debt settlement arrangement (DSA) would not be a viable alternative to a PIA as a mechanism to make you  solvent within a period of five years.

If the personal insolvency practitioner is satisfied that you meet the above eligibility criteria and is satisfied that there is a reasonable possibility that a PIA would be capable of making you solvent within six years, the personal insolvency trustee applies to the Insolvency Service for a protective certificate.
The Insolvency Service carries out certain checks in relation to the application and issues a protective certificate which protects you from action by your creditors for a minimum of 40 working days (and up to a maximum of [60] working days, subject to extension for a further [10] working days).

The personal insolvency trustee notifies your creditors and sends them prescribed information, including information about your financial situation.
The personal insolvency trustee considers any submissions from creditors and prepares a proposal for a PIA, taking into account what you can afford to pay to your creditors while leaving you  with sufficient income to maintain a reasonable standard of living.

The PIA can include things such as writing down mortgage debts , writing down unsecured debts. You cannot be forced to sell your home as part of the arrangement.

If  you consent to the proposal –  the PIP then summons a creditors’ meeting to vote on the proposal. In considering whether to vote in favour of the proposal, the creditors take into account whether the financial outcome for them under the PIA is likely to be better than the estimated financial outcome for them in alternative scenarios such as enforcement or bankruptcy.

The arrangement is accepted if creditors representing 65% of the value of the total debt (secured and unsecured) vote in favour and if more than 50% of the secured creditors and 50% of the unsecured creditors vote in favour.

If your financial circumstances improve over the course of the PIA  you are obliged to notify the PIP and the  terms of the PIA may be varied to provide for increased payments to the creditors.

If  you don’t  abide by the terms of the PIA (e.g. there is a 6 month arrears default in making the payments due under the PIA) the arrangement will fail and you  will again be liable in full for the debts. The creditors can then take enforcement action against you  or petition for your bankruptcy.

If you  successfully complete the PIA, all of your  unsecured debts  are discharged.  You will remain liable to pay the mortgage in respect of his principal private residence on the restructured terms agreed under the PIA.

 

 

Insolvency Laws Need to be Carefully Drafted

The European Commission produced a report on Ireland this week – titled Economic Adjustment Programme for Ireland — Winter 2011 Review

They noted that ……

Progress continues to be made towards reforming the personal insolvency framework, including amendments to the Bankruptcy Act and the creation of structured non-judicial settlement and restructuring systems. An important element of the authorities’ strategy in this regard, as reflected in the Heads of the Personal Insolvency Bill approved by the government and published on 24th January 2011, is the proposed establishment of a dedicated Insolvency Service to oversee the main elements of the out-of-court debt resolution process. These include:

(i) debt relief certificates (DRCs). These certificates are intended to benefit persons who have no assets and no income and are unable to pay relatively small unsecured debts (the debt obligation needs to meet certain conditions, including being not larger than EUR 20,000);

(ii) debt settlement arrangements (DSAs). These are meant to allow the settlement of unsecured debts larger than EUR 20,000 between a debtor (who has income and assets) and two or more creditors; and

(iii) personal insolvency arrangements (PIAs), which allow for the agreed settlement and/or restructuring of both secured and unsecured debts larger than EUR 20,000 (up to a ceiling of EUR 3 million) between a debtor (who has income and assets) and one or more creditors.

The legislation will be carefully drafted to prevent expectations of debt forgiveness for solvent debtors. While the inclusion of secured debt (e.g. mortgages) in the non-judicial framework can be an important element in facilitating the development of adequate strategies to address the pertinent issue of mortgage distress, it should be carefully formulated in order to prevent an adverse impact on borrower behaviour and unintended consequences for the profitability of Irish banks.

Thus the authorities appropriately intend to permit DSAs and PIAs only on a voluntary basis so that the consent of the debtor and a majority of the creditors would be required.

As regards the reform of the 1988 Bankruptcy Act, the key element of the authorities’ strategy is the reduction of the automatic discharge period from the current 12 years to 3 years, which aims to make the bankruptcy process less punitive and costly for consumers, while ensuring that banks’ incentives to supply credit in future are not unduly affected. The discharge period can be extended to 8 years where the debtor has been uncooperative, dishonest or engaged in wrongful conduct. Provision is also made for income payment orders for up to 5 years from the bankruptcy discharge.

Following completion of on-going consultation with relevant government departments and the Attorney General and further refinement, the Personal Insolvency Bill is expected to be published in full by the end-April 2012 programme deadline.

Mortgage Increases Possible if Insolvency Bill is Passed

If the new personal insolvency rules come into force in Ireland  lenders could be forced to raise mortgage rates to compensate for their extra losses.

Bank of Ireland boss Richie Boucher said  he was looking at raising the interest rates on variable mortgages to compensate for this added “risk”.

He said the new insolvency laws, due later this year, could mark a fundamental change in the playing field for banks (  in Ireland )and make mortgage lending more risky. He said  “We price for risk,” he said, implying that the cost could be passed on to customers in the form of higher interest rates.

About a third of Bank of Ireland’s mortgage holders are on variable rates, and at a typical rate of between 3.4pc and 3.84pc are already paying almost double the interest of those with tracker mortgages.

The threat of higher interest rates comes a week after ratings agency Moody’s said up to a quarter of the mortgages in Irish banks were vulnerable to being written down under the new insolvency rules .

New Insolvency Rules could make things Worse in Ireland

Citibank have produced a report  titled ‘Ireland: Tough times ahead’ – and in it  they say that Personal insolvency rates could rise  when the Insolvency Bill is passed and Ireland could  slip back into recession.

Citibank say —  “In our view, it is likely that personal insolvencies in Ireland will soar in the next year or two, with more use of default as a means of deleveraging, especially since long- term unemployment continues to rise in Ireland.”

Citibank based their assessment on what happened in the UK  when similar changes to insolvencies were introduced about 10 years ago. Despite strong economic growth, the number of insolvencies in the UK doubled between 2001 and 2006.

A knock-on effect of an increase in insolvencies would be a further tightening of lending by banks.

Rising insolvencies are likely to cause additional losses — perhaps substantial — for Ireland’s banks on consumer credit and mortgage loans, and also may feed back to rising interest rates and tighter lending standards as banks seek to protect themselves against rising credit risk.”

 

 

 

 

Do Lenders Have to Accept New Insolvency Rules ?

The Irish Minister for Justice and Equality  -Alan Shatter –  was asked in the Dail on Feb 7th 2012 if he had any  plans to ensure that  lenders will have an obligation or incentives to accept the proposals in the Insolvency Bill

The reply from Deputy Alan Shatter  was that the reform of personal insolvency law  will involve the introduction of three new non-judicial debt settlement systems, subject to relevant conditions in each case. These are as follows:

· A Debt Relief Certificate to allow for the full write-off of qualifying unsecured debt up to €20,000, after a one-year moratorium period for debtors with “no assets – no income”;

· a Debt Settlement Arrangement for the agreed settlement of unsecured debt of €20,001 and over with two or more creditors;

· a Personal Insolvency Arrangement for the agreed settlement of both secured and unsecured debt of €20,001 to €3 million with one or more creditors.

The Personal Insolvency Bill will also continue the reform of the Bankruptcy Act 1988, begun in the Civil Law (Miscellaneous Provisions) Act 2011 will include, critically, the introduction of automatic discharge from bankruptcy, subject to certain conditions, after 3 years in place of the current 12 years.

Mr Satter continued to say that it was not for  him  to speculate as to the future conduct of any of the participants in an insolvency process.
He asaid hea was of the view that new personal insolvency laws, including the bankruptcy law reform, should provide a significant incentive for financial institutions to develop and implement realistic agreements to manage or settle debt with their customers.
He said that such agreements should in time become the norm as the most sensible and cost-effective arrangements, particularly where the issue is one of dealing with repayment difficulties for a single major debt, secured or otherwise. These agreements could include measures to address mortgage arrears.