Category Archives: Insolvency Bill

Insolvency Laws Not Due Until Autumn

Justice Minister – Alan Shatter  has said that he now expects the new insolvency legislation to come into force in the Autumn.

Only last week it was announced that  publication of the new legislation has been delayed until the end of June, even though the original target date was  the end of April.

A range of voluntary debt settlement systems are outlined in the draft version of the laws, as well as a plan to cut the period of bankruptcy from 12 years to three.

Minister Shatter said that ” we hope the second-stage debate on the Bill will commence in the Dáil in July.”



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.

Debt Forgiveness and Mortgages in Ireland

Ratings agency FITCH  has said that Debt forgiveness will be “the dominant factor shaping the Irish mortgage market” if the  proposed personal insolvency bill is made law.

Earlier this month, Moody’s rating agency said a quarter of all Irish mortgage debt was susceptible to being written down under proposals in the new personal insolvency legislation

The ratings agency said the proposals were “credit negative” for bonds backed by residential mortgages sold by Irish institutions.

Personal Insolvency Bill and interest rates.

In the Dail thi sweek – Enda Kenny was talking about mortgage debts and the proposed Personal Personal Insolvency Bill .
He said the ” negative equity generation” are directly impacted on by this issue. Thousands of people are in negative equity because of reckless lending processes in banks.

He also said that he “noted the comments of the Bank of Ireland which is moving back towards private funding, but I disagree with Mr. Richie Boucher, its chief executive, when he says Government personal insolvency legislation will increase interest rates for mortgage holders who are paying their way.”

Kenny continued … “The Personal Insolvency Bill is for those who have a series of difficulties across a spectrum of circumstances. It should be made clear, as the Bank of Ireland is aware, that the banks have been recapitalised to deal with mortgage distress and with circumstances where people are in serious difficulty with their mortgage. The Bill has been designed to deal with people in difficulty.”

“It is wrong to suggest, as I saw in a newspaper today, that the Personal Insolvency Bill will cause interest rates to rise for people who are paying their way and facing challenges in their mortgage. That is not the intention. The banks have been recapitalised to deal with cases in which the holders of a residential mortgage are in serious distress. It is a matter for the banks and lending institutions to sit down with individuals and work out the best prospect.

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.”





MABS could run the Insolvency Service

Money Advice and Budgeting Service (MABS)  could end up running the new State-run insolvency service .

The insolvency service is to be set up under the Personal Insolvency Bill.
It will be responsible for  helping people to manage personal debt through budgeting advice and new arrangements with lenders.

Labour TD Anne Ferris said she would seek her  support for the nomination of Mabs, when insolvency practitioners address the committee next week.

Among the groups invited to address the committee next week are Mabs, Free Legal Advice Centres (Flac) and advocacy group New Beginning.

MABS has over 60 offices across the State and Ms Ferris said they seemed the “obvious choice to be the designated intermediary under the insolvency Bill”.

The Citizens Information Board currently has statutory responsibility for Mabs but Ms Ferris’s proposal would see the agency attain statutory responsibility in its own right.




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.