After many long delays, and much political wrangling, the new Insolvency Service of Ireland (ISI) is up and running. A central part of the Government’s new framework for dealing with personal insolvency, the agency is expected to have a heavy workload in the years ahead, and a major impact on the lives and businesses of debtors and creditors. Therefore, it is important to understand how it will work.
This month, we plan to look at the new service from both the creditor and debtor’s points of view, beginning with a common situation for businesses today – dealing with an individual unable to discharge his or her debt.
The legislation setting up the ISI outlines three distinct processes for managing personal insolvency, depending on an individual’s circumstances. These are the Debt Relief Notice (DRN) for individuals with debts of under €20,000, income after living expenses of less than €60 per month and assets of under €400, the Debt Settlement Arrangement (DSA) for individuals with unsecured debts only, and the Personal Insolvency Arrangement (PIA) for those with a mix of secured and unsecured debt. DRNs can be processed with an approved intermediary, while DSAs and PIAs require a Personal Insolvency Practitioner.
DRNs for Creditors
In the case of DRNs, the issue of a notice will usually be the first official notice that your debtor has applied for a write-off. However, there are certain debts marked as ‘excludable’, in that they require the creditor’s consent: these are largely debts due to public sector bodies, but also include annual service charges to property management companies. Excludable creditors will have advance notice as the ISI will consult them on including the debts in the DRN. In most cases, a DRN consists of a flat write-off of unsustainable debt.
If you are a creditor and receive notice of a DRN, it is possible to object to the Circuit Court. Creditors can only object, however, in certain circumstances: if a debtor either doesn’t meed the eligibility conditions for a DRN, has filed inaccurate documentation in his or her application, is an undischarged bankrupt, or has committed an offence under the Personal Insolvency legislation since the DRN came into effect. Creditors can also object if procedural requirements for a DRN were not followed, and if a person has either failed to inform the Insolvency Service of changed circumstances or failed to surrender extra income as required.
The DSA and PIA processes involve a creditors’ meeting where creditors can vote on proposed arrangements. A qualified majority of creditors is needed to approve an arrangement – if this isn’t achieved, the case goes forward towards personal bankruptcy. As a creditor, you do not have to participate in any of these processes. However, non-participation will not stop an arrangement taking effect, so you are far better off participating.
Under the legislation, creditors have a number of defined rights. These include the right to information about the debtor’s financial position, the right to make submissions to the Personal Insolvency Practitioner on how best to deal with debt in a DSA or PIA, the right to share in any distributions to creditors under a DSA and a PIA and, of course, the right to vote on the approval of a DSA or PIA. Also, when a debtor’s financial position improves during the period covered a DRN, DSA or PIA, creditors may have the right to increased payments. You can also contest the granting of a protective certificate (which protects individuals from legal proceedings by creditors while they’re going through the DSA or PIA process) in court.
Crosshead: Moving Forward
By and large, a creditor’s involvement in the DSA or PIA process a consists of supplying accurate information as requested by the Personal Insolvency Practitioner and approving or rejecting the proposed settlement.
All going well, and with an approved arrangement, creditors can expect settlement of unsecured debts over a period of up to five years in the case of a DSA, or six under a PIA – these can be extended to six and seven years respectively in certain circumstances. Debtors are then released from debts at the end of that period.
The new Personal Insolvency arrangements have often been presented as a major boon for debtors, and that description is fair. However, for creditors, they represent an opportunity to resolve bad debts without the vagaries and crippling costs of the formal court system. Time will tell whether the service can discharge its duties efficiently and with a fair hand towards both creditor and debtor. However, for both sides of the unsustainable debt equation, there is reason to be optimistic about this new, more streamlined process.
We assist both creditors and debtors from a variety of industries. DCA Partners Declan Dolan and Eamonn Garvey will be registered as Personal Insolvency Practitioners and will be in a position to advise individuals in this area. If you are affected by the new framework for personal insolvency resolution, do not hesitate to contact us or connect with us on Twitter.