A challenge to Ireland’s arcane insolvency legislation might well be made to the High Court in just weeks, in line with a newly released story in The Sunday Independent by Maeve Sheehan. This is certainly an amazing development if a challenge is made because of claimed breaches of the constitutional rights of people looking at bankruptcy. It would be truly astonishing if this might happen and turn into the prompt for reform of the legislation and also the launching of fresh laws on individual personal debt in addition to debt codes. It might be unfair to accuse the new Fine Gael – Labour coalition administration of sitting on its hands on this question, given the inertia and inaction of the former Fianna Fail – Greens administration, that couldn’t manage to get thier combined minds round the idea of personal debt forgiveness. The new administration has had many significant sovereign and banking money issues to cope with but it is now time to deal with business that would help the individual citizen.
There is no dearth of opinions or lobbying by vested interests such as lenders and financial institutions. Obviously any level of individual debt forgiveness as distinct from forbearance would have a damaging effect on the bottom line of banks and other creditors. Bad debts will crystallize and bad debt provisions will have to be increased. A great many diverse viewpoints have been expressed by so many commentators and lobbyists ranging from financial ‘experts’ to lawyers to accountants to bankers. They wax lyrically on questions such as moral hazard, can’t-pay versus won’t-pay, and other such red herrings while the personal financial distress of the financially troubled citizen goes predominantly unheeded.
The comprehensive and precise recommendations made by the Law Reform Commission (LRC) pertaining to individual indebtedness undoubtedly advocated the necessity of including personal debt forgiveness in any future legislation on personal insolvency. Yet senior civil servants have portrayed the recommended reform of Irish insolvency legislation as unfair on the grounds that it is ‘very debtor friendly’! While recognizing that many Irish people have financial obligations which they will never genuinely be in a position to settle, the idea of individual debt forgiveness is discarded on the argument that it is not just the financial institutions and other big credit houses which will be affected, but also many regular small businesses and self employed people such as tradesmen, small building contractors, architects and other people who will be left without payment by defaulting borrowers who may be ‘forgiven’. This is laughable and anyone who understands how personal insolvency laws function in the Britain for example would quickly realize that.
The LRC has already carried out all the heavy lifting. The investigation has been completed. Experts have been consulted at home and abroad. Numerous overseas jurisdictions have been assessed and benchmarked. The credit and insolvency sectors have given their advice. The LRC has released its final report Personal Debt Management and Debt Enforcement in December 2010. The EU/IMF/ECB has laid down March 2012 as the due date for reform of Irish personal insolvency law which includes reform of bankruptcy law. The LRC proposes that any new Irish insolvency legislation should emphasize the ‘fresh start’ philosophy on which much of the best European and American private insolvency legislation is based upon.
The LRC has already noted the most imperative and vital reforms essential relating to the Bankruptcy Act 1988. In fact the proposed new act (currently entitled Draft Personal Insolvency Bill 2010) and the old Bankruptcy Act 1988 (which needs urgent change and modification) are so intricately intertwined that it makes no sense to pass new laws without at the same time (or as contemporaneously as is possible) amending the old act.
The changes to the Bankruptcy Act 1988 proposed by the LRC are: to set a minimum level of Euro 50,000 to have a creditor’s petition of bankruptcy; to remove the requirement that the insolvent debtor have available assets of at least Euro 1,920 to be able to petition for his or her own bankruptcy; to empower the court to give consideration to the debtor’s insolvency and to stop proceedings to enable the borrower to attempt a Debt Settlement Arrangement (DSA) – as specified in the new draft act; to establish a Pre-Action Protocol which would apply to a creditor’s petition for bankruptcy and which would oblige the debtor and creditors to research alternative feasible alternatives such as a DSA before embarking on the bankruptcy path and empower the court to stay bankruptcy proceedings; to enable the court to stay proceedings to look at different means in the case of a debtor’s petition for bankruptcy, with similar requirements and powers as under the Pre-Action Protocol; to set conditions for the automatic discharge of the bankruptcy, allowing for discharge before all of the bankrupt’s property has been realized; to cut down the automatic discharge period to three years; to empower the court to order repayments by the bankrupt for up to five years; to set up the powers of the court relating to discharge and to objections to discharge by the Official Assignee/Personal Insolvency Trustee; to get rid of the condition to settle charges, fees etc before discharge; to lessen the number of priority debts making certain debts (e.g. Revenue debts) no longer being priority debts; to set sanctions against dishonest and/or irresponsible bankrupts, such as restrictions and disqualifications; to exempt resources so as to ensure a reasonable living standard for the bankrupt; to establish conditions for the appointing and licensing of a new office holder titled Personal Insolvency Trustee acting in bankruptcy, with the new licensing system overseen by a (new) Debt Settlement Office.
Does the dearth of any or all of the above provisions in law represent a infringement of the constitutional rights of a person going through bankruptcy? Will government move before it is pushed to take action by a legal challenge? a legal challenge be long drawn out and have the consequence of unnecessarily slowing down the enactment of new legislation? There are sure to be legal changes coming down the tracks and the debate on many peoples’ lips is when that will be.