Personal Finance

Wednesday 30 July 2014

Revealed: debt law revamped after just three months

Dearbhail McDonald Legal Editor

Published 10/01/2014|02:30

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THE Government has been forced into an embarrassing overhaul of Ireland's new personal insolvency regime just three months after it came into force.

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The controversial insolvency laws -- which took two years to devise -- were seen as a key element of the Government's strategy to help tens of thousands of people who are swamped with personal and mortgage debt.

However, the new system, which led to the appointment of six Circuit Court judges to deal with an anticipated avalanche of court cases, has been hampered by a very low uptake because many believe it is too costly and complicated.

Now the Irish Independent has learned that Justice Minister Alan Shatter is to change the system to make it more similar to the UK's Individual Voluntary Arrangement (IVAs) -- making it cheaper and less bureaucratic.

A new protocol will be devised to streamline the insolvency process for people trying to work out deals with banks and other creditors.

The protocol, designed to make debt deals more "straightforward", efficient and acceptable to debtors and banks, will cover arrangements involving secured debts, such as mortgages, as well as unsecured loans.

The UK saw its success rate for IVAs soar to 90pc following a series of radical protocols to make the system work.

The Irish Government opted not to directly transpose the IVA protocol, which deals with unsecured debts, into Irish law.

But last night the Department of Justice said that the Insolvency Service of Ireland (ISI), the state agency that approves three types of debt deals, "hopes to develop a protocol with both practitioners and creditors similar to that which already exists in the UK for IVAs".

The department also confirmed that the new protocol will cover all eligible debt subject to a personal insolvency arrangement (PIA), which includes unsecured as well as secured debts, including mortgages and property.

Justice Minister Alan Shatter will address an ISI conference of personal insolvency practitioners (PIPS) next month to "initiate efforts" to put the new protocol in place.

He has described the conference as "technical," but PIPs who have spoken to the Irish Independent say the new regime is inefficient and will require key changes to help solve indebtedness.

While the ISI began accepting applications for three types of debt deals last September, fewer than 30 cases have reached the courts.

Thousands had been expected to avail of the service, but the laws governing it had to be updated twice before Christmas.

Last Christmas Eve, President Michael D Higgins signed new laws to overcome "operational difficulties" with the 2012 Personal Insolvency Act, which contained flaws that made it almost impossible for mediators to progress debt deals for people with debts of less than €20,000.

The bankruptcy fee was also reduced in the Companies (Miscellaneous Provisions) Act 2013.

Now a third, more radical change -- so early in the life of the legislation -- has been described as "embarrassing".

"For the tens of thousands of people who are in debt, it is essential for us to have an accessible and functioning insolvency regime," said David Hall of the Irish Mortgage Holders' Association.

"Its clear that the current system is not working and the planned introduction of the UK IVA protocol is an admission of that.

"However, if applied correctly, this could make the system more accessible and faster for arrangements to happen".

GRANTED

The new protocol comes as a judge granted court protection to a married father of one with debts of €1.77m who is hoping to strike a deal with his creditors. The case was the largest to come before the courts under the new legislation.

But Ennis-based PIP John Hogan, who represented the debtor, said that the one thing he has been surprised about is the lack of debtors seeking to go through the insolvency service. "There has been no avalanche," he said.

In Britain, Individual Voluntary Arrangement (IVAs) are organised by insolvency practitioners, who work out what a debtor can afford to repay after assessing their financial situation.

They decide how long the arrangement will last.

The insolvency practitioner contacts creditors and an arrangement will be put in place if those holding more than 75pc of the debts agree.

Irish Independent

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