Bankruptcy & Insolvency

Bankruptcy

We advise on all areas regarding Bankruptcy and Insolvency law.

Bankruptcy in Ireland is governed largely by the Bankruptcy Act, 1988.

• The process
  
  
• The Pitfalls
  
  
• Alternatives
  
  
• New Form of Debt Relief in Ireland – Law Reform Commission Recommendations 2009.

The Process

Bankruptcy is a legal process involving the seizure of property & assets of an individual who is unable – or unwilling – to pay his/her debts. The assets and property is transferred to a trustee to be sold. The proceeds of the sale are then distributed between the person’s creditors.

The debtor’s family home will also be sold to pay creditors, however, if the house is owned by both debtor and their spouse the trustee must apply to the High Court for permission to sell the house. If permission is granted the house is then sold, the remaining proceeds are then split between both debtor and spouse with the debtor’s proceeds being disbursed amongst creditors.

However, personal bankruptcy in Ireland is a very different process; that unfortunately lags far behind the process of bankruptcy in other countries such as the UK. In the UK for example over 67,000 individuals went bankrupt in 2008 with another 39,000 entering into the formal alternative to bankruptcy the Individual Voluntary Arrangement or IVA. In Ireland in the same year number of people entering bankruptcy was below 10 due to the long drawn out, complicated and overly punitive bankruptcy process Ireland currently has in place.

Although, to the recent decisions of the Supreme Court in the cases of:

B.D. and J.D. [2008] (Unreported High Court, Dunne J., December, 2008), and, Harrahill –and- Cuddy [2009] (Unreported Supreme Court, Geoghegan J. ex tempore, February, 2009), have made Bankruptcy a much more attractive remedy for parties seeking to recover debts due to them.

According to the decisions in the above cases, the creditor can serve a Bankruptcy Petition on the debtor without having to previously obtain a Court Order. In the event that the debtor fails to pay the due dept within 4 days from receipt thereof, the creditor can then apply to the Court to adjudicate the debtor bankrupt. This has a dramatic effect on the length of time taken in which to bring bankruptcy proceedings, together with significantly reducing the costs of said proceedings.

Pitfalls of Personal Bankruptcy process in Ireland

Process of bankruptcy in Ireland has major pitfalls including:

• Any individual who is made bankrupt in Ireland remains a bankrupt, unless they have been discharged by the court. The courts will only consider allowing an individual to leave bankruptcy after a 12-year elapsed period. This explains the hesitancy with which the Irish courts declare someone bankrupt.
  
  
• An individual declared bankrupt cannot be a Director in a company without the permission of the court, and they cannot hold certain positions as an elected representative.
  
  
• Any existing or future inheritance that the individual receives will be used to pay creditors.
  
  
• The court can order part of the bankrupt’s salary or pension to be deducted to pay creditors.
  
  
• The individual will find it extremely hard to receive any credit in the future as their credit rating will be severely affected. Once a person becomes bankrupt, their name and address is entered into the Bankruptcy Register kept by the Examiner’s Office, which is widely used by individuals looking to sell or buy property. Even if the person is discharged from bankruptcy, their name will remain on the register.

Alternatives

Debt Management Plans handled by specialist representatives still remain by far the most practical and popular debt solution in Ireland.

Debt Management Plans 

Debt Management Plans are a negotiated arrangement between an individual and the companies or people that they owe money to. Debt Management Plans are often negotiated by solicitors. They aim to:

• Focus on brokering a debt repayment plan that is affordable to the individual and accepted by their creditors.
  
  
• Reduce or freeze Interest and other charges to assist the person with debt problems and
  
  
• Agree monthly payment that can be then sent electronically to the person’s creditors.

This arrangement is quick to set up and is the most widely used form of debt mediation in Ireland. The only problem with such plans is that they are non-enforceable by the law against the creditor and so rely on the creditor’s goodwill.

Current Formal Schemes of Arrangement in place in Ireland

Although legislation for the Formal Scheme of Arrangement (FSA) does exist in Ireland the reality of putting such a scheme in place is very complicated and very few Formal Schemes of Arrangement have actually occurred.

How can I arrange an FSA?

You complete a petition for the protection of the Court and an Affidavit that sets out your financial affairs background and the reasons you have financial difficulties. We can prepare this on your behalf. It is vitally important that you disclose all information that may be relevant to your application; otherwise you may be refused assistance.

Sixty per cent of your creditors must then agree with this arrangement for it to proceed.

How can an FSA help me?

Once it is completed, you and your creditors are all bound by its terms.

• Your creditors can no longer bombard you with letters and phone calls.

• It should have far less impact on your lifestyle, and in most cases should not affect your professional status.

• Even if 40% of your creditors vote against the FSA, they are still bound by it.

• Unlike bankruptcy, you can still trade and do business during the term of your FSA.

• You can decide which type of assets you will provide to your creditors.

• FSA's are not advertised in publically accessible media, such as newspapers and magazines.

The Pitfalls of the Formal Scheme of Arrangement in Ireland

In theory, a Formal Scheme of Arrangement can protect you from being sued by your creditors for the recovery of monies owed to negotiate a situation where with the approval of 60% (by number and value) of your creditors’ approve the arrangement. A Court can then order your creditors to be bound by the arrangements agreed between you and your creditors.

The problem with this system is that if the necessary number of creditors (60%) is not secured or if the Formal Scheme of Arrangement application to the Court is unsuccessful because full disclosure was not forthcoming from you or for any other reason, then you will be adjudicated to become bankrupt immediately.

It is important to use this remedy with extreme caution and only after the Debt Management Plan option has been explored. Formal Scheme of Arrangements in Ireland are of benefit in more extreme cases, where the level of debt is considerable. If your creditors agree and you can get an underwriter to put it in place, you are eligible to enter an FSA.

A New Form of Debt Relief in Ireland?

The Law Reform Commission has recently published its proposals regarding the updating and improving of the law regarding to Bankruptcy and Personal Debt Management.

Although none of the Commission’s proposals have been enacted as of yet, it is apparrant that further change is coming to this particular area of Law.

Please visit our website regularity as we are constantly updating our information.