Changes to Irish bankruptcy law

Frank Flanagan, Senior Associate at Mason Hayes & Curran, examines the Bankruptcy (Amendment) Act 2015, which makes several changes to the rules on bankruptcy in Ireland including reducing the bankruptcy term to one year, bringing them in line with that of the UK.

What changes have been made to the bankruptcy process in the Republic of Ireland as a result of the Bankruptcy (Amendment) Act 2015?

The Bankruptcy (Amendment) Act 2015 (the 2015 Act) amends the Bankruptcy Act 1988 (as amended) (the 1988 Act) to:

  • reduce the default term of bankruptcy from three years to one year from the date of adjudication
  • reduce the default term of bankruptcy payment orders from five years to three years
  • recognise civil partnerships
  • provide for automatic re-vesting of family homes/shared homes/principal private residences after three years, and
  • make a number of technical changes, including:
    • a provision for electronic records, and
    • removing the statutory sitting of the court (not yet commenced)

Default term of bankruptcy

The default term of bankruptcy is now one year, which is in line with the term in England and Wales, and Northern Ireland.

Where a bankrupt has:

  • failed to co-operate with the Official Assignee, or
  • concealed assets or income from the Official Assignee, or failed to disclose assets or income to the Official Assignee, which could have been realised for the benefit of creditors

the court may, where it considers it just, on the application of the Official Assignee (or a creditors’ trustee where appointed), make an order substituting a date, up to eight years from the date of adjudication for the date on which the bankruptcy would have expired.

In more serious cases, this term may be extended to 15 years where the court considers it just to do so.

Term of bankruptcy payment orders

Bankruptcy payment orders now have a default term of three years, although this can be increased to five years.

Recognition of civil partnerships and cohabitants

The 1988 Act has been amended so that a court order is required before the Official Assignee can sell:

  • a family home (ie a dwelling in which a married couple ordinarily reside) of the bankrupt or the bankrupt’s spouse (ie a property in which the bankrupt’s spouse resides which is owned wholly or partly by the bankrupt), or
  • a shared home (ie a dwelling in which the civil partners ordinarily reside)

Re-vesting of family homes/shared homes/principal private residences

The default position is that, unless the Official Assignee applies to court within three years of the date of adjudication, the bankrupt’s interest in family homes, shared homes and principal private residences will re-vest in the bankrupt on the third anniversary of the date of adjudication without the need for any conveyance, assignment, or transfer.

This re-vested estate or interest remains subject to any mortgage.

Why have these changes been brought in?

There has been a concerted campaign to reduce the term of bankruptcy by insolvency practitioners, non-governmental organisations, and politicians. In July 2015, a parliamentary committee, having considered over 100 submissions, recommended reducing the term to one year.

Willie Penrose, a member of the Irish Parliament, had previously introduced a private member’s bill to do just this. Mr Penrose is a member of the Labour party, the smaller party in the coalition that formed the government, until Parliament was dissolved on 3 February 2016. The Labour party has long campaigned for a reduction in the bankruptcy period and there are media reports that suggest that the timing may be related to wooing voters.

While the possible extension of the term of bankruptcy for those who hide assets, or do not co-operate, to up to 15 years was not widely predicted, the Official Assignee had raised concerns that a one-year bankruptcy period might result in inbound bankruptcy tourism into Ireland and the Official Assignee is currently dealing with a small number of very public bankruptcies where it appears that assets may have been concealed, or attempts have been made to put them beyond his reach.

When did these changes take effect, and do they impact on existing bankruptcy proceedings?

Most of the provisions of the 2015 Act (excluding those that require new rules of court) commenced on 29 January 2016.

Existing bankruptcies due to expire within six months of the commencement date are not affected.

Existing bankruptcies due to expire more than six months of the commencement date, will expire on the later of:

  • six months after the commencement date, and
  • one year from the date of the adjudication

Transitional provisions are also provided for bankruptcy payment orders that would have expired more than six months after the commencement date expiring on that date.

How have these changes been received by the insolvency profession?

The 2015 Act has been broadly welcomed but the public response from the insolvency profession has been somewhat muted.

Has the 2015 Act made any changes to any other personal insolvency procedures?

No, the Personal Insolvency (Amendment) Act 2015, made amendments to those procedures earlier in the year.

To what extent do you think the 2015 Act will impact on bankruptcy tourism?

Bankruptcy tourism, which, in recent times, has increased in popularity among Irish citizens seeking to avail of the more attractive regime in other countries, should largely become a thing of the past.

In this regard, the 2015 Act is balanced in its approach—it assists co-operative debtors while also providing sanctions with significantly extended terms where debtors seek to abuse the process.

Consequently, future attempts by Irish citizens to declare bankruptcy in other jurisdictions may in certain cases be cause for suspicion amongst creditors.

There have been suggestions that Ireland could become a destination for bankruptcy tourism. However, there appears to be little reason to believe that the regime in Ireland is now more attractive than that in England and Wales.

Interviewed by Susan Ghaiwal.

The views of our Legal Analysis interviewees are not necessarily those of the proprietor.

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