The new personal insolvency regime went live on 9 September 2013, and put into action some important and long overdue changes to our bankruptcy laws. After its first two months in operation, is it a success?
While the introduction of these schemes has set a useful benchmark for many clients when they engage in consensual negotiations with their banks, it is still early days and the simple answer is 'not yet'.
Recent press coverage and the comment from insolvency professionals indicate that the new regime has not opened a floodgate of applications for debt write-downs. Prior to its introduction, some commentators anticipated that in the first 12 months up to 15,000 individuals would apply for the non-judicial processes (Debt Relief Notice (DRN), Debt Settlement Arrangement (DSA) and Personal Insolvency Arrangement (PIA)) and that there would be over 5,000 bankruptcy applications. At Smith & Williamson we felt that these numbers were not realistic and we are not surprised by the relatively slow take-up.
Exact information is not available from the Insolvency Service of Ireland (ISI), although its website states that it "...fully intends to provide quarterly statistics once a statistically meaningful number of applications have been processed". We understand from press comment that to date only three protective certificates have been issued for a PIA and no information is available on the number of cases being processed by the ISI.
Why has the public reaction to the new legislation been so muted? Is the legislation as currently drafted fit for purpose? We have a number of observations.
- Bank veto. For debts over €20,000, a proposal requires 65% creditor approval. In effect, the banks control the process and the public believe that in many cases the new legislation is not workable. For example, if a debtor has been unsuccessful in reaching a compromise with their bank, why would they feel that by entering into a PIA it would yield a different result?
- Personal Insolvency Practitioners (PIPs). There are 82 authorised PIPs in Ireland, however many of the recognised
- insolvency practices are not represented. Many firms are not entering this area because of a mismatch between what they perceive to be the onerous responsibilities attaching to a PIP versus the level of fees available.
- Fees. Initial information indicates that the vast majority of applicants have insufficient funds to pay either a PIP or the fees charged by the Insolvency Service.
- Minimum criteria. Many people seeking to enter an arrangement are not earning enough money to qualify. One practitioner recently commented that of over 1,000 cases on their books, almost half fail to meet the minimum criteria required to fund a PIA or DSA. For these individuals, bankruptcy remains the only option.
- Cautious approach. The introduction of personal insolvency legislation was always going to be a slow burner as people are understandably cautious. It will more than likely be well into 2014 before we any real level of cases coming through.
Where to now? For many, the UK bankruptcy route remains the best option. Where debtors comply with the process, they should expect to be discharged within 12 months.
Where debtors have been unsuccessful in reaching a consensual approach with their banks, bankruptcy in Ireland is now a realistic alternative. The minimum period has been reduced from 12 years to 3 years, and it is no longer a 'life sentence'.
With the possible exception of Debt Relief Notices (for debts less than €20,000), the non-judicial options do not appear workable in their present format. We believe that some tweaking of the legislation is required to address the imbalance, where the banks hold too much influence in the process.
We have taken great care to ensure the accuracy of this newsletter. However, the newsletter is written in general terms and you are strongly recommended to seek specific advice before taking any action based on the information it contains. No responsibility can be taken for any loss arising from action taken or refrained from on the basis of this publication. © Smith & Williamson Holdings Limited 2013. code 13/1077 exp: 31/03/2014