A Debt Settlement Arrangement is one of three new measures contained in the first draft of the Personal Insolvency Bill which was published by the Irish Government at the end of January this year. The draft bill is likely to be changed considerably before the final version which is scheduled to be ready before the end of April 2012. For a start, the draft bill contains just the heads of the bill and it is clear that the government has not made up its mind yet on a considerable number of the detailed aspects of the bill. Each of the three new measures being brought forward is non-judicial in nature. It is also planned to establish a new Insolvency Service which will be funded by the state and which will oversee the three new non-judicial measures, making determinations which would otherwise have to be made by the courts. The new Insolvency Service will create and maintain a Personal Insolvency Register to record the details of debtors who enter into any of the three new processes being proposed.
The second of the new measures being proposed is called a Debt Settlement Arrangement which is very similar to the Individual Voluntary Arrangement or IVA in the UK. The Debt Settlement Arrangement will be of particular interest to insolvent debtors who have unsecured debts which total in excess of €20,000, owing to at least two creditors. It is unclear how this measure will require the insolvent debtor to deal with secured debt repayments but the draft act does state that ‘a secured creditor of the debtor may not participate in a Debt Settlement Arrangement with respect to a secured debt’. It must be assumed until clarification is provided that the debtor continues to service all secured debts by making and continuing to make the full contractual payments in respect of any secured debts. There are certain unsecured debts which are also 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.
Typical allowable unsecured debts in a Debt Settlement Arrangement would include overdrafts, unsecured loans, credit card and store card debts, utilities, rent, phone, benefit overpayments, social fund loans and guarantees. The insolvent debtor must reside in Ireland or carry on business in Ireland or have a close connection with Ireland. 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 Trustee 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. The Personal Insolvency Trustee will have to be registered and licensed but the government’s proposal for these processes have yet to be divulged.
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, an assignment of property or by a payment arrangement – presumably 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 Trustee’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 DSA to come into effect and this occurs thirty days after the Insolvency Service is notified that the Debt Settlement Arrangement was approved by creditors. All creditors who were entitled to vote at the meeting of creditors are then 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 or seventy two months with the express agreement of creditors.
Creditors have 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.
At present the government is consulting with various interested parties and quite a good deal of flesh needs to be put on the bones of the draft bill. One area of interest is how Personal Insolvency Trustees will be trained, qualified, registered and licensed and what fee structure will be put in place for such personnel. Given that there is likely to be a long legislative process in the Dail before the final Personal Insolvency Bill is enacted into law and given that resources have to be assigned to for example the establishment of the Insolvency Service and that appropriate regulations have to be put in place, it seems unlikely at this stage that the Debt Settlement Arrangement will be up and running as a personal insolvency solution before the autumn of 2012.
Paddy Byrne 21/02/2012