Published by the Irish government at the end of January 2012 the heads of the proposed new Personal Insolvency Bill promises a whole new insolvency regime in Ireland. Like any new legislation however, the devil is in the detail or rather will be in the detail when the heads of the bill are fleshed out with the details of how it will operate. Insolvency experts in Ireland and beyond will inevitably compare the proposed provisions in the bill to existing insolvency legislation and practice in other member states of the European Union and in particular with established practice in the UK including Northern Ireland.
Justice Minister Alan Shatter claimed in a recent interview that the reason why the bankruptcy discharge period of three years was being proposed for Ireland was that his counterparts in the UK were having second thoughts about the merits of the one year discharge period in that jurisdiction and were seriously considering lengthening it. There does not appear to be any basis for this claim. In fact, it appears that the average discharge period in the UK is about seven months with the one year period being a maximum under law. No pronouncements whatsoever were made by the UK Insolvency Service recommending any change to the discharge period. In fact, no UK politicians have commented publicly on this matter either and the opposite is probably the case in that the UK prides itself on the efficacy of its bankruptcy system.
Minister Shatter also referred to the recent Sean Quinn bankruptcy issue where the bankruptcy order made in Belfast was annulled on the grounds that Mr Quinn failed to prove that his Centre of Main Interests or COMI was in Northern Ireland. Mr Shatter used this single case to claim that it would set a precedent and severely curtail bankruptcy tourism thus inhibit insolvent Irish persons from petitioning for bankruptcy in the UK. In fact, the opposite will probably happen. Irish debtors who are considering bankruptcy will ensure that their COMI claims are ironclad. It is generally considered that Sean Quinn could well have succeeded in establishing that his COMI was in Northern Ireland if his case had been better supported by evidence to that effect.
There are at least three further major issues that need to be addressed in reforming the old bankruptcy legislation i.e. the Bankruptcy Act 1988. The first is the requirement that the bankrupt’s unrealised property remains vested (indefinitely) in the Official Assignee even after the bankrupt is discharged from bankruptcy (after three years). If this provision is unchanged, the assets might not be dealt with for twenty years or more following discharge. The legislation in the UK puts a time limit of three years after the bankruptcy order is made for the trustee to deal with the bankrupt’s assets and if this is not done in that timeframe, the assets are re-vested in the (now discharged) bankrupt.
The second big difference between Ireland and the UK in regard to bankruptcy is the treatment of the bankrupt’s pension. In the UK, a pension is not treated as an asset whereas in Ireland it is. Surely there should not be such variance between these two adjoining jurisdictions. Provided the pension contributions were not ‘loaded’ in the preceding two (up to say five) years prior to the debtor declaring insolvency, then surely a pension should simply be treated as income only. In Ireland, the Official Assignee gets it all.
The third significant difference between the UK and (proposed) Irish legislation is that the court in Ireland, on application to it, shall have the discretion to order the bankrupt to make contributions from income to the Official Assignee for a further five years after the date of discharge from bankruptcy, i.e. for a total of up to eight years. It is unclear on what grounds such an application can be made or by whom. If it can be applied for routinely by the Official Assignee or by creditors then why would it not apply to all cases, where the bankrupt had some material level of disposable income after discharge? In the UK, income payments agreements and income payments orders have a maximum validity period of three years, again commencing with the date of the bankruptcy order.
The concerns above all relate to the proposed amendments or indeed the lack of proposed amendments to the old Bankruptcy Act 1988. If not addressed, these concerns will simply enhance the attraction of bankruptcy tourism particularly to the UK for many insolvent Irish residents.
There are also three totally new proposals contained in the proposed Personal Insolvency Bill and while each has some merit they each also raise some concerns, particularly when compared to best practice elsewhere and indeed when compared to each other and to the new proposed amendments to our bankruptcy laws. The new solutions being mooted are a Debt Relief Certificate, a Debt Settlement Arrangement and a Personal Insolvency Arrangement. We have in a separate article looked at the merits of each of these and outlined the main concerns about them.
Paddy Byrne 17/02/2012