A challenge to Ireland’s arcane bankruptcy laws may be made to the High Court within weeks, according to a recent report in The Sunday Independent by Maeve Sheehan. This is an interesting development if a challenge is made on the grounds of alleged breaches of the constitutional rights of persons facing bankruptcy. It would be truly remarkable if this should transpire and become the catalyst for reform of the law and the introduction of new laws on personal debt and debt enforcement. It would be unfair to accuse the new Fine Gael – Labour coalition government of sitting on its hands on this matter, given the inertia and inaction of the previous Fianna Fail – Greens government, who could not get their collective heads around the concept of personal debt forgiveness. The new government has had many major sovereign and banking financial issues to contend with but it is now time to attend to business that can benefit the private citizen.
There is no shortage of advice or lobbying by vested interests such as banks and financial institutions. Clearly any level of personal debt forgiveness as distinct from forbearance will have a negative effect on the bottom line of banks and other creditors. Bad debts will crystallize and bad debt provisions will have to be increased. So many diverse opinions have been expressed by so many commentators and lobbyists ranging from economic ‘experts’ to lawyers to accountants to bankers. They wax lyrically on issues such as moral hazard, can’t-pay versus won’t-pay, and other such red herrings while the financial pain of the insolvent citizen goes largely unheeded.
The extensive and detailed proposals made by the Law Reform Commission (LRC) relating to personal indebtedness clearly recommended the importance of incorporating personal debt forgiveness in any forthcoming legislation on personal insolvency. Yet senior civil servants have described the proposed reform of Irish insolvency law as unfair because it is ‘very debtor friendly’! While recognizing that many Irish people have debts that they will never realistically be able to repay, the concept of personal debt forgiveness is rejected on the grounds that it is not just the banks and other big credit houses which will suffer, but also many ordinary small businesses and self employed people such as tradesmen, small builders, architects and other professionals who will be left without payment by defaulting debtors who may be ‘forgiven’. This is laughable and anyone who understands how personal insolvency laws operate in the UK for example would quickly realize that.
The LRC has already carried out all the heavy lifting. The studies have been done. Experts have been consulted at home and abroad. Various foreign jurisdictions have been examined and benchmarked. The credit and insolvency sectors have given their input. The LRC has published its final report Personal Debt Management and Debt Enforcement in December 2010. The EU/IMF/ECB has laid down March 2012 as the deadline for reform of Irish personal insolvency law including reform of bankruptcy law. The LRC recommends that any new Irish insolvency legislation should emphasize the ‘fresh start’ philosophy on which much of the best European and American personal insolvency legislation is based.
The LRC has already identified the most urgent and critical reforms needed relating to the Bankruptcy Act 1988. In fact the proposed new act (currently entitled Draft Personal Insolvency Bill 2010) and the old Bankruptcy Act 1988 (needing urgent reform and amendment) are so intricately intertwined that it makes no sense to pass new laws without simultaneously (or as contemporaneously as is possible) amending the old act.
The changes to the Bankruptcy Act 1988 proposed by the LRC are: to set a minimum level of Euro 50,000 to bring a creditor’s petition of bankruptcy; to remove the requirement that the insolvent debtor have available assets of at least Euro 1,920 to petition for his or her own bankruptcy; to empower the court to consider the debtor’s insolvency and to stay proceedings to allow the debtor to attempt a Debt Settlement Arrangement (DSA) – as detailed in the new draft act; to establish a Pre-Action Protocol which would apply to a creditor’s petition for bankruptcy and would oblige the debtor and creditors to investigate other possible solutions such as a DSA before embarking on the bankruptcy route and empower the court to stay bankruptcy proceedings; to empower the court to stay proceedings to consider alternative means in the case of a debtor’s petition for bankruptcy, with similar obligations and powers as under the Pre-Action Protocol; to set conditions for the automatic discharge of the bankruptcy, allowing for discharge before all of the bankrupt’s property has been realized; to reduce the automatic discharge period to three years; to empower the court to order payments by the bankrupt for up to five years; to establish the powers of the court relating to discharge and to objections to discharge by the Official Assignee/Personal Insolvency Trustee; to remove the requirement to pay expenses, fees etc before discharge; to reduce the number of priority debts with certain debts e.g. Revenue debts no longer being priority debts; to set sanctions against dishonest and/or irresponsible bankrupts, such as restrictions and disqualifications; to exempt assets so as to ensure a reasonable living standard for the bankrupt; to set conditions for the appointment and licensing of a new office holder entitled Personal Insolvency Trustee acting in bankruptcy, with the new licensing system overseen by a (new) Debt Settlement Office.
Does the absence of any or all of the above provisions in law constitute a breach of constitutional rights of a citizen facing bankruptcy? Will government act before it is forced to act by a legal challenge? Might a legal challenge be long drawn out and have the effect of unduly delaying the enactment of new legislation? There are sure to be changes coming down the tracks and the question on most peoples’ lips is when.