Forgive and Forget bar Development Debt?
By Mícheál Leydon
Despite being updated in 1988, the Bankruptcy Process in Ireland remains an archaic relying heavily on the thought process of the Bankruptcy Acts dating from colonial times.
With no automatic discharge and high barriers to overcome before discharge can be sought, the punitive nature of our bankruptcy laws meant that a man convicted of murder could complete his sentence and be released into society before a man made bankrupt on the same day could be allowed to obtain credit or leave the state without permission.
As a result, Irish Bankruptcy laws are ineffective, costly, punitive, rarely used and a rethinking of debt forgiveness procedures remains badly needed.
The Key Players’ Proposals
In the run up to Election 2011, www.insolvencyjournal.ie made contact with the main political parties to determine their respective policies on corporate and personal insolvency. Only Fine Gael responded prior to the election however given media black out requirements, it was not possible to report on same in advance of the election. The proposals received are in general format and specifics will be needed and certain key areas will need to be clarified now that Fine Gael are in a position to form a government albeit in coalition with the Labour party.
In light of the very extensive research and consultancy process entered into by the Law Reform Commission prior to launching the Report on Personal Debt Management and Debt Enforcement on 16th December 2010, it is logical that Fine Gael’s general proposals, briefly outlined below, do not divert overly from the proposals put forward by the Law Commission:
1) A flexible bankruptcy system
- Court supervised process
- A 3 year period before automatic discharge
- Extension of bankruptcy period subject to certain criteria
- Exact criteria for discharge to be clarified
- Funding of the process to be clarified
2) Out of court debt settlement
- Establishment of a Northern Irish styled Enforcement of Judgments Office
- State Agency rather than Court Supervised Process
- No implications for the debtor if the payment is made
- The Creditor meets the cost of the process
- Appears to be a half way point between a fully State supervised process and private voluntary arrangement
- Proposed Interaction with local County Sheriffs to be clarified
3) Individual Voluntary Debt Plans
- Non court process for individual debtors
- Protection from creditors granted while an arrangement is drawn up by the appointed “certified” practitioner
- Binding on both debtor and creditor
- Applies to unsecured debt only
- Mortgage or secured debt not included
- Some measure of funding must be available to the debtor for payment to unsecured creditors
- Interaction of unsecured and secured in payment structures to be clarified
4) Commercial Voluntary Debt Plans
- Court process for corporate debtors
- Court involvement limited to supervision but Court protection received
- Arrangement drawn up by the appointed “certified” practitioner
- Binding on both debtor and creditor once 75% approval received
- Classification of creditors and inclusion of secured debt to be clarified
The key difficulty for this new Government in drafting legislation on insolvency is to strike a balance between fairness to the debtor and fairness to their creditors. Too lenient a process will see a lack of responsibility, increasing bad debts, the restriction of credit terms, an overburdened system, a lack of international credibility and a slow painful grind to a halt of economic activity. Too punitive a system and you basically have a reoccurrence of our present Bankruptcy Act, 1988.
The Big Questions
- Can processes be developed to properly take into consideration a future bounce in property values and economic activity?
- How will any / all of these processes interact with the National Asset Management Agency as they attempt to maximise recovery of defaulting loans?
- Could we see personal and corporate insolvency rules tiered to take into consideration sizeable debts associated with property development?
- How will any / all of these processes interact with debts owed to Irish and Foreign banks?
- What Government Minister wants the poison chalice of finally confirming that debt forgiveness for developers is inevitable?
- Can the State really advocate / legislate for progressive debt relief without the tax payer ultimately picking up the tab?
- How much debt forgiveness are we likely to see from our friends in the EU and I.M.F.?
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