Just eight months in power now, the new Irish government, comprising a coalition of the Fine Gael and Labour parties, has begun to make noises about the personal debt elephant in the room. Were it not for the EU-IMF demand that legislation in this area be enacted by the deadline of the first quarter of 2012, it’s unclear if anything would be done in the near future. Sitting on hands is not now an option but who will drive the necessary reform. The Green party has been given little credit for identifying the gaping chasms in Irish insolvency law and for the publication of the Law Reform Commission’s final report in December 2010. However time ran out for the Greens and they failed in their efforts to enact any relevant legislation, largely due to the lack of interest from their senior coalition partners, the now discredited Fianna Fail party who were preoccupied indeed overwhelmed by the financial tsunami then engulfing Ireland, although largely of their own making. The massive bailout negotiated with the IMF, ECB and EU took up almost all of the time of the relevant government ministers and the problems of citizens in regard to their personal debt was parked while the fiscal and banking crises were tackled head on.
Time passed and a new Irish government came into power in March 2011. The Law Reform Commission (LRC) had completed its work in December 2010 when it published its final report on Personal Debt Management and Debt Enforcement and indeed it went one step further when it incorporated as an appendix to that report a Draft Insolvency Bill 2010. The heavy lifting was done for the initially energetic incoming government but another year has almost passed and no legislation is yet in place, or even proposed. The contrast between the unwarranted haste with which the disastrous decisions that gave birth to the bank bailout in September 2008 were made and the subsequent procrastination by, it can now be said succeeding governments, relating to the enactment of personal insolvency legislation, is nothing short of scandalous. It appears that the travails of Sean Citizen must continue while government deals with the consequences of the legacies of Sean Fitzpatrick et al who destroyed the Irish banking system, while the financial regulator and government looked the other way.
The proposals contained in the draft bill were quite radical. They stated, for example, that debtors should not be jailed for non-payment of debt even in instances where the debtor could afford to pay but refused to do so and came up with less costly sanctions such as carrying out community service rather than going to jail. That was not the only radical proposal. The draft bill provided for what was effectively debt forgiveness although the term ‘debt forgiveness’ is pointedly avoided. In fact in the 440 page report it appeared only three times and two of those instances were quotations from other sources.
The LRC showed considerable courage in ensuring that the spirit of its final report and the draft bill contain copious amounts of provisions which amount to nothing if not debt forgiveness. In particular the proposals for insolvent debtors with no income and no assets (NINA) provide for what are described as Debt Relief Orders. In effect qualifying debtors will be able to have their unsecured debts totally written off within a twelve months period so that they can start afresh. It is likely that there will be a qualifying ceiling on the total quantum of debts that an insolvent debtor may have and above that level, relief via a Debt Relief Orders would not be available. In the UK the ceiling is £15,000.
The principal provision would be the setting up of a Debt Settlement Arrangement scheme where insolvent debtors would pay what they could afford for a period not exceeding five years, after which the unpaid balances of their unsecured debts would be discharged in their entirety. Under this scheme at least 60% of voting creditors as measured by the value of unsecured debts would have to approve the Debt Settlement Arrangement for it to be approved and it would be binding on all unsecured creditors, including those who chose not to vote for or against the proposal.
Further major provisions included the setting up of a Debt Enforcement Office to arrange non-judicial settlement of debts, the setting up of a Debt Settlement Office as an integral part of the Debt Enforcement Office to license and monitor insolvency practitioners, to be known as Personal Insolvency Trustees and to establish a regulatory regime to control debt collection and debt advice bodies.
It is now clear that that the new Fine Gael led government has to find resolve, energy and the urgency to enact the legislation which is so desperately needed to give effect to the proposals contained in the LRC’s final report and to pass its Draft Personal Insolvency Bill 2010, or perhaps a somewhat amended version of it. Looking it the various ministers, it is clear that no minister is able and willing champion the process, although responsibility falls squarely on the shoulders of the Minister for Justice, Alan Shatter.
While the LRC itself originally excluded detailed consideration of and recommendations for formulating or amending Irish Bankruptcy law from its scope and terms of reference, it has in fact and in spite of itself, made thirteen specific recommendations relating to bankruptcy in an appendix to the report, as well as stating clearly its recognition the need to reform the Bankruptcy Act 1988. A footnote to that appendix makes fascinating and somewhat incredulous reading:
‘The commission has not included these provisions in the draft Personal Insolvency Bill in Appendix A as it understands that a new legislative framework to reform the Bankruptcy Act 1988 is currently (December 2010) under consideration’.
That footnote had political fingerprints all over it as it was patently clear from the LRC’s published work that as a body it was extremely dissatisfied with the lack of political progress in taking steps to address the reform of bankruptcy law. Because of the enormity of the task of reforming bankruptcy law, it could take years to achieve that goal, even if the entire resources of the LRC were devoted to the task. The phrase ‘the law’s delay’ can in these circumstances apply equally validly to delay in formulating and enacting legislation as to the original meaning of delay in the just execution of law.
It would be indeed astounding that Ireland’s draconian bankruptcy law, though rarely used, could remain unchanged as the law of the land for years to come. The IMF, ECB and the European Commission were able to descend on Dublin at short notice and in a matter of weeks agree measures to tackle the insolvency problems of the Irish banks and of the sovereign state itself. Unless the Fine Gael and Labour government shows considerably more competence, urgency and energy that its predecessors, the humble consumer is going to have to continue waiting for the provision of real legislative solutions for personal debt and personal insolvency.
Paddy Byrne 16 November 2011