Will New Irish Government Tackle Personal Debt Law?

It will fall to the new Irish government – widely expected to be a coalition of the Fine Gael and Labour parties – to enact new personal insolvency legislation in Ireland. The Green party has been credited with recognition of the void in Irish law in this area and with pushing the Law Reform Commission (LRC) to finalize its proposals for change. However the Greens have failed to negotiate the final hurdle of enacting legislation, largely due to the lack of interest from their senior coalition partners Fianna Fail who have been preoccupied with dealing with the financial tsunami currently engulfing Ireland. The massive bailout negotiated last year 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.

What will the new Irish government do when they come into power towards the end of February 2011? The LRC in December 2010 published its final report on Personal Debt Management and Debt Enforcement and went one step further when it incorporated as an appendix to that report a Draft Insolvency Bill 2010. So, for an incoming government, the work is largely done but will it lead to early legislation?

The proposals contained in the draft bill are quite radical. They say, for example, that debtors should not be jailed for non-payment of debt even in instances where the debtor can afford to pay but refuses to do so. The proposed sanction is community service and not jail time.

This is not the only radical proposal. The draft bill provides for what is effectively debt forgiveness although the term ‘forgiveness’ is avoided like the plague. In fact in the 440 page report it appears only three times and two of those are quotations from other sources. It appears that the report adheres to the letter of the words of the now-retired Fianna Fail Minister of Justice Minister Dermot Ahern when he ruled out ‘debt forgiveness’ for ordinary people in May of this year at the publication of the LRC’s interim report.

The LRC however has shown 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 ceiling on the total quantum of debts above which this relief would not be available for the insolvent debtor but this is not set out at this point. (In the UK the ceiling is £15,000).

The principal provision is the setting up of a Debt Settlement Arrangement (DSA) scheme where insolvent debtors would pay what they could afford for a period not exceeding five years, after which the unpaid balances of their 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 DSA for it to be approved and binding on all unsecured creditors, including those who chose not to vote on the proposal.

Other provisions include:

  • Set up a Debt Enforcement Office (DEO) to arrange non-judicial settlement of debts
  • Set up a Debt Settlement Office (DSO) as an integral part of the DEO to license and monitor insolvency practitioners, to be known as Personal Insolvency Trustees
  • Institute a regulatory regime to control debt collection and debt advice bodies

It is now clear that – with the exception of the (failed) efforts of the Greens – the Fianna Fail led Government had not the time, energy or inclination to enact the legislation which was and still is desperately needed to give effect to the proposals contained in the LRC’s final report and to pass its Draft Personal Insolvency Bill 2010. The general election is expected to take place at the end of February 2011 and the new government should be up and running by the end of March 2011.

While the LRC itself originally excluded detailed consideration of and recommendations for amending Irish Bankruptcy law (or formulating new law) from its scope and terms of reference, it has in fact and in spite of itself, made thirteen specific recommendations (provisions) relating to bankruptcy in an appendix to the report – on top of its clear statement recognizing 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’.

This footnote smacks of political ‘instruction’ as it is patently clear from the published work of the LRC that as a body it is extremely dissatisfied with the lack of (political) progress in taking steps to address the reform of bankruptcy law. Apart from anything else, the enormity of the task of reforming bankruptcy law means that it could take anything up to another five years to achieve that goal – even if the entire resources of the LRC were devoted to that task. Can the vision, energy and commitment of a new government shorten that timescale? It gives the phrase ‘the law’s delays’ a totally new and unintended interpretation – delays in formulating and enacting legislation rather than in the just execution of those laws.

It would be indeed astounding that Ireland’s draconian bankruptcy law, though rarely used, could remain the law of the land for another half decade or more. 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. At the same time, it appears that, unless the new Fine Gael and Labour government shows considerably more competence, urgency and energy that its predecessors, the humble consumer is going to have to wait a while yet before solutions for personal debt problems are enacted into Irish law.

Paddy Byrne 26 January 2011

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