Debt Settlement Arrangement is one of three new personal insolvency measures proposed in The Personal Insolvency Bill 2012 which is currently making its way through the Irish legislative process. The other two measures are Debt Relief Notice or and Personal Insolvency Arrangement and all three measures are largely non-judicial in nature.
The proposed legislation also covers the establishment of a body to be known as The Insolvency Service which will oversee the Debt Settlement Arrangement system as well as the other two new personal insolvency measures being introduced. The government has already appointed a director of the The Insolvency Service which will create and maintain a Personal Insolvency Register to record the details of debtors who participate in and become subject to any of the new insolvency measures.
We have already looked at the proposals for a Debt Relief Notice in some detail in a previous article. In summary, a Debt Relief Notice is aimed at insolvent individuals whose unsecured debts in total amount to no more than €20,000. The gross value of their assets must not exceed €400 other than a car which may be worth up to €1,200, their disposable income may not exceed €60 and they must be normally resident in Ireland or have lived and had a place of business in Ireland for one year. A key consideration is that there should be no prospect of the debtor becoming solvent within five years before a Debt Relief Notice will be issued. There are some other restrictions on who may or may not be issued with a Debt Relief Notice and of course the legislation is not yet finalised. All in all, the Debt Relief Notice as proposed is very similar to the Debt Relief Order which has now been available for some years in the UK.
How does the Debt Settlement Arrangement differ from the Debt Relief Notice? Essentially it sets out to cater for insolvent individuals whose unsecured debts exceed €20,000 and are owing to at least two creditors (which may change to just one), although the legislation as it stands does not specify any minimum threshold level of debts and therefore there may be an overlap between the Debt Relief Notice and the Debt Settlement Arrangement in that regard. The measure does not allow a secured creditor of the debtor to participate in the Debt Settlement Arrangement, ‘with respect to a secured debt’. The allowable unsecured debts in a Debt Settlement Arrangement include overdrafts, unsecured loans, credit card and store card debts, utilities, rent, phone, benefit overpayments, social fund loans and guarantees. There are certain unsecured debts which are excluded and which must be paid by the debtor in full, outside of the Debt Settlement Arrangement. These include any liability arising out of a court order made in family law proceedings; any liability arising out of damages awarded in respect of personal injuries or wrongful death arising from the tort of the debtor; any debt or liability arising from a loan or forbearance of a loan obtained through fraud, misappropriation, embezzlement or fraudulent breach of trust; any debt or liability arising by virtue of a court order made under the Proceeds of Crime Acts 1996 and 2005 or by virtue of a fine ordered to be paid by a court in respect of a criminal offence.
The insolvent debtor must reside in Ireland or carry on business in Ireland or have a close connection with Ireland. The Insolvency Bill 2012 seeks to ensure that no debtor applying for a Debt Settlement Arrangement has entered into any transactions at undervalue or carried out any preferential transactions in the two years prior to the granting of the Debt Settlement Arrangement. Undischarged bankrupts, debtors subject to a Debt Relief Notice or Personal Insolvency Arrangement, and debtors who are the subject of a protective notice within twelve months prior to the Debt Settlement Arrangement proposal are all excluded from applying for a Debt Settlement Arrangement. An insolvent debtor may propose a Debt Settlement Arrangement only once in any ten years period. This of course puts a huge burden on the debtor and on his or her Personal Insolvency Practitioner to get the initial Debt Settlement Arrangement proposal exactly right first time since if creditors reject it at the first meeting of creditors, they will not be allowed to propose another Debt Settlement Arrangement for at least ten years. Again, this provision may be amended in the final legislation. The Personal Insolvency Practitioner will have to be registered and licensed by The Insolvency Service.
The Debt Settlement Arrangement proposal must contain the core proposal for repayment of all or part of the debts included in the Debt Settlement Arrangement and must be specific as to the way in which the funds are to be contributed. This method may be via a lump sum payment by the debtor or a third party, a transfer of assets, assignment of property or by a payment arrangement such as regular monthly payments from disposable income for the duration of the Debt Settlement Arrangement or by some other such proposal which will satisfy the debts in whole or in part. The debtor can obtain a Protective Certificate from The Insolvency Service to prevent creditors from taking enforcement action in respect of the debts while the Debt Settlement Arrangement is being prepared. This Protective Certificate lasts for a thirty days period which may be extended in certain circumstances for a further ten days.
The Personal Insolvency Practitioner’s duties include advising the debtor of the options available, investigating the debtor’s finances, devising the Debt Settlement Arrangement proposal, sending the proposal to The Insolvency Service, calling the meeting of creditors and swearing out statutory declarations regarding the proposal. A minimum of 65% in value of votes cast by creditors must approve the proposal for the Debt Settlement Arrangement to come into effect and this occurs thirty days after the Insolvency Service is notified that the Debt Settlement Arrangement was approved by creditors. If a Debt Settlement Arrangement proposal is approved at the meeting of creditors it is subsequently approved by the Circuit Court where the total debts are less than €2.5 million and otherwise by the High Court. At that point it becomes binding on all creditors and is registered by The Insolvency Service. All creditors who were entitled to vote at the meeting of creditors are bound by the terms of the Debt Settlement Arrangement as approved at the meeting. The maximum term of the Debt Settlement Arrangement will be sixty months but it may be extended to seventy two months with the express agreement of creditors.
During the term of the Debt Settlement Arrangement, creditors may take no debt enforcement action against the debtor but may continue to try to recover debt from any guarantor. At the end of the term of the Debt Settlement Arrangement, the debtor is discharged from all debts specified under the arrangement.
Any creditor has the right to object to the Debt Settlement Arrangement by applying to the Circuit Court within thirty days of the notification to The Insolvency Service of the outcome of the meeting of creditors. Grounds for such an objection include the creditor’s interests being unfairly prejudiced. If the objection is upheld by the Circuit Court the Debt Settlement Arrangement would cease and the debtor would be open to bankruptcy proceedings. Even after approval a Debt Settlement Arrangement may be varied or terminated at any time during its term by creditors provided a minimum of 65% of voting creditors vote in favour of such variation or termination.
One area of interest is how Personal Insolvency Practitioners will be trained, qualified, registered and licensed and what fee structure will be put in place for such personnel and how soon mutual recognition will be given to Insolvency Practitioners registered already and practicing in other jurisdictions such as the UK and particularly Northern Ireland? It is expected that these matters will fall within the remit of the director of The Insolvency Service in accordance with the legislation and any applicable regulations that are put in place to flesh out the administrative and logistical organization of the system, backed up by ministerial order where appropriate.
Written by Paddy Byrne 14/12/2012