Thursday 21 September 2017

Workers may have to repay banks out of funds from their pension

Dearbhail McDonald Legal Editor

Plan to bring defined benefit scheme into insolvency process

WORKERS in debt may have to use their pensions to repay banks under Ireland's new personal insolvency regime.

Justice Minister Alan Shatter has confirmed that his department is reviewing whether pension assets could be distributed to the creditors of people who have their debts written off under the new IMF-mandated scheme.

Under current bankruptcy laws, the likes of Approved Retirement Funds, PRSAs and self-employed pensions can be used to pay creditors.

But occupational pensions held on trust, such as defined benefit and defined contribution schemes, are generally not available to write down debts.

That could all change when the Personal Insolvency Bill, which passed the second stage of the Dail on Wednesday night, falls for consideration by TDs.

"The current position with regard to the position of pensions in bankruptcy is maintained in the new insolvency processes," said a justice spokesperson.

"This matter will remain under review in the final completion of the Bill."

Yesterday, a gathering of more than 200 lawyers and bankers heard that the definition of reasonable living standards would be the main source of tension between banks and former high-fliers under Ireland's new personal insolvency regime.

Bankers were told that debt forgiveness strikes fear into the hearts of creditors, but were assured that the new Bill would not be "a zero-sum game" for cash-strapped lenders.

The Bill states that debtors, or their dependents, with secured debts of up to €3m and an unlimited amount of unsecured debts cannot be deprived of a reasonable standard of living.

But borrowers and lenders views on what is "reasonable" could determine the success of personal insolvency arrangements aimed at big debtors, according to Declan Black, head of litigation at business law firm Mason, Hayes & Curran (MHC).

"Creditor and debtor take-up will be heavily shaped by the definition of reasonable standard of living," said Mr Black at the MHC seminar at the Conrad Hotel in Dublin.

Mr Black said that it was "a major policy choice" by the Government to include all security, including security over shares portfolio -- and not just the family home -- under the new laws aimed at big debtors.

Uplift

Banks, who could receive a lump sum or phased payments from debtors who obtain a PIA, will enjoy any uplift if the value of debtor's secured assets rise.

The cost, income and ability to contribute by debtor's co-residents, which may include relatives and children, could be taken into account by creditors if the cost of continued residence in the family home is disproportionately large.

"This is debt forgiveness with checks and balances," said Mr Black.

The Bill provides for automatic discharge from bankruptcy, subject to certain conditions, after three years, compared to the current 12-year period.

Barrister Declan Murphy told the seminar that the personal insolvency bill was not exclusively "debtor-focused" and was aimed at creating a distinction between the "can't pays and won't pays".

Irish Independent

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