Justice Minister Alan Shatter recently circulated the specifics of the Civil Law (Miscellaneous Provisions) Bill which will provide the outcome of decreasing the term of bankruptcy in Ireland. Bankrupts according to the proposed new legislation will ‘enjoy’ guaranteed release from bankruptcy after twelve years but will be legally permitted to submit an application for release from bankruptcy after five years.
If the situation was not so crucial, the new government’s initial, fumbling and weak attempts at reform of Ireland’s draconian and arcane bankruptcy legislation would be laughable. The unfortunate justice minister, under whose remit this thorny problem falls, has succumbed to the temptation to secure a few brownie points for the new coalition government by merely doing something – anything – in the area of personal insolvency but the change is such a timid and minor one that all it is likely to (deservedly) earn from the domestic and foreign financial world is ridicule and scorn and the announcement will undoubtedly be viewed as another cute sound bite.
It isn’t wholly very clear precisely why the government is kicking this particular can down the line and by so doing give the apparent perception that they are buying time. Besides, according to the terms of the EU/IMF/ECB bailout, the government is legally required to change Ireland’s individual insolvency laws and bring in new laws by March 2012. We also have the issue of an forthcoming High Court challenge to Ireland’s arcane bankruptcy laws which was predicted just recently by Maeve Sheehan in a recent report in The Sunday Independent. The challenge was purportedly to be put together on the grounds of alleged breaches of the constitutional rights of citizens looking at bankruptcy. Can it be that the minister’s statement was made simply to weaken the validity of the proposed challenge? To be fair to the new Fine Gael – Labour coalition government, it has started to take action on the issue of individual insolvency within four months of taking office in comparison with the inertia and inaction of the preceding Fianna Fail – Greens government, that weren’t able to get its collective minds around the notion of personal debt forgiveness and who merely sat on their hands for many years.
Business experts gave what may at best be described as a skeptical welcome to the government’s announcement presumably in the expectation of there being a realistic hope that it is really just the first of numerous steps waiting to be undertaken. The Law Reform Commission (LRC) has really performed all the heavy lifting. The studies have been completed. Professionals have already been employed at home and in other countries. Many different overseas jurisdictions have been looked at and benchmarked. The credit and insolvency sectors have provided their suggestions. The LRC issued its final report Personal Debt Management and Debt Enforcement in December 2010. The LRC advocates that any new Irish insolvency legislation will need to stress the ‘fresh start’ school of thought on which most of the best European and American personal insolvency legislation is based.
The LRC has already revealed the most vital and critical reforms necessary regarding the Bankruptcy Act 1988. Indeed the recommended new act (at present called the Draft Personal Insolvency Bill 2010) and the old Bankruptcy Act 1988 (needing urgent reform and change) are so intricately intertwined that it is senseless to pass new legislation without concurrently (or as contemporaneously as is possible) amending the old act.
The reform of the Bankruptcy Act 1988 as proposed by the LRC is wide reaching and essential. It recommends laying down a minimum amount of debt of Euro 50,000 before a lender could petition for the bankruptcy of an insolvent borrower. It also proposes the removal of the need that the insolvent borrower possess accessible assets of a minimum of Euro 1,920 before he or she can by themselves petition for bankruptcy. The LRC wants the court to be empowered to look at the debtor’s insolvency and to stay actions to enable the debtor to try a Debt Settlement Arrangement (DSA) – as envisaged and detailed in the new draft act. It wants to see the establishment of a Pre-Action Protocol which would pertain to a creditor’s petition for bankruptcy and would oblige the debtor and creditors to check out other feasible remedies for instance a DSA before entering the bankruptcy path. The court would also be empowered to postpone bankruptcy proceedings to make available some time for the contemplation of other means in the matter of a debtor’s petition for bankruptcy, with corresponding obligations and powers as under the Pre-Action Protocol. The court would establish stipulations for the automatic release of the bankruptcy and allow discharge before all of the bankrupt’s property had been realized. It could limit the automatic release period to three years and demand payments by the bankrupt for up to five years. The powers of the court would cover discharge from bankruptcy and addressing objections to release by the Official Assignee/Personal Insolvency Trustee. The requirement to pay off expenses, fees etc before release would be eliminated. The definition of priority debts e.g. Revenue obligations would be revised. The LRC also recommended that actions against dishonest and/or irresponsible bankrupts, such as restrictions and disqualifications be set. It proposed that specific possessions would be exempt from the bankruptcy so as to ensure a fair living standard for the bankrupt. Finally it advocated that conditions be determined and set in place for the appointing and licensing of a new office holder known as Personal Insolvency Trustee acting in bankruptcy, with the new licensing system to be overseen by a (new) Debt Settlement Office.
Not everybody welcomes these types of significant changes and there’s no scarcity of advice or even lobbying by vested interests such as banks and financial institutions. Certainly any degree of personal debt forgiveness as distinct from forbearance will have a detrimental affect on the results of banks and other creditors. Bad debts must be crystallized and bad debt provisions will have to be boosted. Countless various viewpoints have been expressed by so many commentators and lobbyists which range from financial ‘experts’ to barristers to accountants to bankers. They wax lyrically on factors for instance moral hazard, can’t-pay compared to won’t-pay, and other such red herrings while the financial torture of the insolvent citizen in Ireland goes commonly unheeded. Amazingly senior civil servants have spelled out the proposed reform of Irish insolvency law as unfair because it is ‘very debtor friendly’!
While admitting that a great many Irish people have outstanding debts that they’ll never reasonably have the capacity to repay, the very idea of personal debt forgiveness is rejected on the spurious grounds that it is not just the banks and other big credit houses which will suffer problems, but also many regular small businesses and self employed people such as tradespeople, small builders, architects as well as other individuals who may possibly be left without repayment by defaulting debtors whose outstanding debts had been ‘forgiven’.
So has the work of the LRC all been in vain and a total waste of taxpayer’s money? Minister, you must grasp the nettle and urgently create the reforms so urgently wanted. The time for analysis and consultation has finished. You and your administration were elected to enact new and good legislation. Don’t be a laughing stock. Be a champion for all the people including the financially troubled public who would like much more than forbearance – they want forgiveness and the opportunity for a new start in Ireland. Now is the time to take action.