Bankruptcy Law in the Republic of Ireland
Bankruptcy in Irish Law is a legal process, supervised by the High Court whereby the assets of a personal debtor are realised and distributed amongst his or her creditors in cases where the debtor is unable or unwilling to pay his debts. Bankruptcy in Ireland applies only to natural persons. Other insolvency processes including liquidation and examinership are used to deal with corporate insolvency. A bankrupt is somebody who has been adjudicated bankrupt by the High Court. Once a debtor is adjudicated bankrupt, bankruptcy law provides for the mandatory vesting of all of  the bankrupt's assets and property in the Official Assignee (OA). Under the supervision of the Court, the OA will realise the bankrupt's assets and distribute the assets according to law among the bankrupt's creditors. The essence of bankruptcy is that the debtor's assets are transferred to an official who administers and realises them for the benefit of all creditors. The purpose is to release the bankrupt from an unsustainable debt burden and to distribute his assets amongst all creditors equally (although certain types of creditor enjoy priorities). The bankrupt person is subject to restrictions and disabilities  on trading and on obtaining credit while a bankrupt but leaves the process with their debts forgiven. The Official Assignee in bankruptcy can challenge and set aside pre-bankruptcy transactions by the bankrupt to make the assets, the subject of those transactions, available to the creditors. The classic definition of bankruptcy is that: "it is a law for the benefit and relief of creditors and their debtors, in cases in which the latter are unable or unwilling to pay their debts." Irish bankruptcy law has been the subject of significant recent comment, from both government sources and the media, as  being in need of reform. Part 7 of the Civil Law (Miscellaneous Provisions) Act 2011 has started this process and the government has committed to further reform. When bankruptcy arises in Ireland. While bankruptcy is commonly considered to arise where a person is insolvent, in Ireland a person can be adjudicated bankrupt where he has committed any act of bankruptcy. An act of bankruptcy is defined as: ""an act of default, voluntary or involuntary, committed by a debtor, which is either evidence of intent to deprive creditors of their rights through fraudulent assignment or is an implication of insolvency."" Acts  of bankruptcy. The following situations are considered to be acts of bankruptcy pursuant to section 7 of the Bankruptcy Act 1988: The most common act of bankruptcy is where a bankruptcy summons has been served on the debtor and he has failed to pay. Objectives of bankruptcy legislation. Bankruptcy law is aimed at achieving the following.: Legal effects of bankruptcy. When a debtor is adjudicated bankrupt, the most notable effects on his personal situation are as follows: The bankrupt commits a criminal offence if he does not disclose all his property to the Court or conceals any part of his  estate or if he obtains by false representation any property or credit. Offences carry the penalty on summary conviction of a fine not exceeding €634.87 or up to 12 months prison or both and on indictment of a fine not exceeding €1,269.74 or up to 5 years prison or both. Excepted articles. Pursuant to S45 of the Bankruptcy Act (as amended), a bankrupt is permitted to retain as excepted articles: clothing, furniture, bedding, tools or equipment of his trade or occupation or necessary items for himself, his/her spouse or civil partner, children and dependent relatives residing with  him/her, as he may select, not exceeding in value €3,100 or such further amount as the court on an application by the bankrupt may allow. If, having selected items up to the specified value, the bankrupt requests the official assignee not to dispose of items of the kind set out above, the OA may not dispose of such items other than in accordance with an order of the court. On an application by the OA or by the bankrupt under this section the court may postpone the removal and sale; permit the bankrupt to retain the items or  order the sale of the items at any time. Suspension of enforcement. Once a bankruptcy petition issues, all uncompleted legal enforcement against the debtor is stopped. This is to preserve equality among creditors as no enforcement action can be taken against a bankrupt. The proceeds of execution of a Court order must be retained by the Sheriff for 21 days. If a bankruptcy commences in this period, the proceeds are sent to the official assignee rather than the creditors. If the process has not been completed, then bankruptcy will freeze enforcement and the assets collected by the sheriff must be  turned over to the bankruptcy trustee or OA. The OA can apply to have proceedings stopped or restrained. Legal proceedings will generally be stopped on such terms as the court deems appropriate. On adjudication of bankruptcy, creditors may not take action against the bankrupt's person or property without Court consent. However, a secured creditor can realise its security separately from the bankruptcy. Initiating the bankruptcy process. Creditor's petition. A creditor is entitled to present a petition for adjudication against a debtor, without having to give notice to the debtor, if: Service of the petition is effected by serving  a copy of the petition on the debtor and showing him the original. The following additional steps are required prior to presenting a petition: Hearing the petition. If the court is satisfied that all the relevant requirements have been complied with, it will adjudicate the debtor bankrupt. A duplicate copy of this order is given to the bankruptcy inspector who serves it on the debtor. The bankruptcy inspector is a civil servant employed in the office of the OA. The bankrupt can appeal the order but if there is no appeal then the adjudication is published in Iris Oifigiúil and  a newspaper as directed by the court and a statutory sitting is held within 3 weeks of the publication. The bankrupt must make a full disclosure of all his property to the court at this hearing. Part 5 of the Bankruptcy Act 1988 makes provision for an application at the statutory sitting for the appointment of a trustee who will carry out the functions normally carried out by the OA in winding up the a bankrupt's estate. These provisions have rarely been invoked. Debtor's petition. Before a debtor may bring bankruptcy proceedings against himself, he must show that  he is unable to pay his debts to his creditors and that his available estate is sufficient to produce at least €1,900.00. Petitions by debtors are relatively rare in Ireland. The most high profile debtor's petition in recent times was that of Seán FitzPatrick, former chairman of Anglo Irish Bank in July 2010. Duties of the bankrupt to the official assignee. The bankrupt is obliged (pursuant to section 19 of the Bankruptcy Act 1998) to: Appointment of an official assignee in bankruptcy. The functions of the OA are to get in and realise the property, to ascertain the  debts and liabilities and to distribute the assets. In the performance of his functions the OA shall, in particular, have powers to: Bankruptcy and the family home. Pursuant to section 61 of the Bankruptcy Act 1988 all of the bankrupt's assets vest in the OA. This includes the bankrupt's interest in the family home. However the OA must apply to court under section 61(5)to permit him to sell a family home. The court has a discretion to postpone a sale under this section ""having regard to the interests of the creditors and of the spouse and dependents of  the bankrupt as well as the circumstances of the case"". In most circumstances the spouse of the bankrupt will assert an interest in the family home. Notwithstanding this interest the court may make an order under section 31 of the Land and Conveyancing Law Reform Act 2009 for partition of land or for sale of the land and distribution of the proceeds as the court directs. Accordingly, the OA may obtain an order for sale subject to distributing a share of the proceeds to the spouse of the bankrupt. The mechanisms by which a spouse's interest in the family  home arise are complex and careful consideration needs to be given to the existence and percentage of such interest in the circumstances of any given case. If a spouse is engaging in behaviour which may lead to the loss of any interest in the family home, with the intention to deprive a spouse of dependent child of such an interest, it is open to the other spouse to apply to court for an order under section 5 of the Family Home Protection Act 1976 to protect such an interest. Centre of main interests. COMI is a concept introduced by the  EU Insolvency Regulation which states that a person's COMI ""should correspond to the place where the debtor conducts the administration of his interests on a regular basis and is therefore ascertainable by third parties"". The essential elements of the COMI principles are set out below. In a significant judgment on 10 January 2012 the High Court in Belfast held that Sean Quinn who had interests on both sides of the border did not have his COMI in Northern Ireland. Accordingly, he now faces a bankruptcy petition in the Republic of Ireland. Secured creditors and bankruptcy. A secured creditor has  3 options available to it where the individual who granted the security is adjudged bankrupt. Discharge and termination of bankruptcy. There are 3 ways to terminate bankruptcy. Discharge/release. Discharge frees the debtor from all pre-bankruptcy liabilities. A bankruptcy is automatically discharged after 12 years. This is a provision introduced in 2011 and historically there was no automatic discharge. Obtaining a discharge earlier than 12 years requires an application to court. A court will order a discharge/release where: Annulment. Annulment involves cancellation of the bankruptcy and supposes that the bankruptcy was granted in error. There are basically two  grounds for annulment. The first applies in any case where in the opinion of the court, the debtor ought not to have been adjudicated bankrupti.e. where the order was made without jurisdiction or where there had been a clear abuse of process; where the mechanisms of the Bankruptcy Act had been improperly used. The second applies where the bankrupt within 3 days or such extended time not exceeding 14 days as the Court thinks fit from the service of the copy of the order of adjudication on him, show cause to the Court against the validity of the adjudication. This  involves the bankrupt showing that the creditor(s) have not complied with any of the Creditor's Petition requirements. Order for annulment. Only the bankrupt can apply to have the bankruptcy annulled. Such an order can be made at any stage during the proceedings. The effect of an order is to put the bankrupt in the position he was in prior to adjudication insofar as that is possible without causing prejudice to the creditors. Recission. The Court may review, rescind or vary an order made by it in the course of a bankruptcy matter other than an order of discharge or  annulment. The Court can rescind an adjudication of bankruptcy where: Arrangements. An arrangement is an agreement between the debtor and his creditors. An arrangement allows a debtor to: Voluntary arrangements. An individual may try to come to a voluntary arrangement by deed with his creditors outside the control of the court with a view to agreeing a part-payment of his debts in settlement of the claims. This arrangement does not require court approval and avoids a bankruptcy. Reasons for considering this option include: Any arrangement made between the debtor and creditor out of court is a matter of contract  between them with there being no involvement by the bankruptcy jurisdiction of the High Court. A deed of arrangement must be registered with the High Court offices. Failure to register within seven days, will make it void. Effect of the arrangement on the creditor. The agreement is binding on the participating creditor regardless of whether the other creditors have assented to the offer or not. Arrangements under court control. The requirements for a debtor to come to an arrangement with his creditors which is under the control of the court are as follows: The role of the OA is to  present to the Court for approval: The court may make such order as it thinks fit for the distribution of the estate or any part thereof by payment of the expenses, fees, costs and preferential payments as well as the relevant dividend. The court's grounds for refusal of consent for such an arrangement are broad. The court can refuse consent if: and may refuse to approve on certain other grounds. Post-Bankruptcy arrangements. It is also possible to have an arrangement with creditors after bankruptcy commences. This is known as a composition in bankruptcy. It commences with an application  to court which if granted, suspends bankruptcy proceedings. The features of a post-bankruptcy arrangement are as follows: The bankruptcy may be discharged when: Statistics. Bankruptcy is, at present, relatively rarely used in Ireland. This can be partly explained by the prevalence of Bankruptcy tourism which allows people to avail of less stringent bankruptcy laws outside Ireland. Recent reform and further proposals. Irish Bankruptcy laws have been the subject of sustained criticism both regarding the complexity of the process and the minimum length of time (12 years, until amended in 2011) taken to purge bankruptcy where all of the debts  of the bankrupt have not been discharged. In the wake of the bursting of the Irish property bubble, commentators have noted the appearance of bankruptcy tourism where Irish debtors move to other jurisdictions to avail of more lenient bankruptcy laws. The most prominent cases of alleged bankruptcy tourism are perhaps those of David Drumm former chief executive of Anglo Irish Bank and property developer John Fleming. Fleming, who had personally guaranteed much of the €1 billion debt of Tivway and associated companies in Ireland, was discharged from bankruptcy in the UK on 10 November 2011, the anniversary of the  date on which he was declared bankrupt there. Former government minister Ivan Yates, who has described the Irish bankruptcy regime as "purgatory", has publicly announced that he is contemplating moving to the UK to avail of its bankruptcy regime. One UK-based insolvency solicitor, Steve Thatcher, claimed in 2012 that he had recently written off €1bn in Irish debt for his Irish clients in the UK in only eighteen months. The high level of Irish debt being written off in the UK has prompted the government there to seek to have EU law amended to make it harder for  Irish residents to move to the UK and take advantage of more lenient bankruptcy laws there where bankruptcy lasts for a period of twelve months as opposed to twelve years in the Bankruptcy in Ireland. Though Thatcher dismisses the validity of the term 'bankruptcy tourism' and instead calls it 'bankruptcy emigration' as he says people have to emigrate to the UK to go bankrupt, with the majority of his clients remaining in the UK once their bankruptcy is complete. The Law Reform Commission published an interim report on Personal Debt Management and Debt Enforcement (LRC 96-2010). From the perspective  of bankruptcy law the main recommendations of this report include an automatic discharge from bankruptcy after 3 years (subject to debtor's assets remaining in the bankruptcy and the Official Assignee being permitted to require the bankrupt to make payments for up to 5 years), an increase in the level of debt required to bring a creditor's petition to €50,000 and a reduction in the range of priority debts in bankruptcy. The government committed to reform personal insolvency law in a memorandum of understanding with the EU and the International Monetary Fund. Commentators have expressed the view that  there is a risk that this will not be completed on the agreed timetable. The government has stated that it intends to publish a bill in this regard by Easter 2012. Part 7 of the Civil Law (Miscellaneous Provisions) Act 2011 while not going as far as proposed in the Law Reform Commission Report, has made substantial amendments to the Bankruptcy Act 1988 including: New Personal Insolvency Act. On 24 January 2012 the Department of Justice and Equality published the Draft General Scheme of a new personal insolvency bill. The proposed bill would, among other things, reduce the period of  bankruptcy to 3 years and introduce three different non-judicial mechanisms to deal with debt. The full bill was expected to be published by the end of April 2012. On 29 June 2012 the Irish Government published the text of the bill. The bill provides for, amongst other things: The Personal Insolvency Act 2012 was signed by the President on 26 December 2012 and the Minister indicated that he expects licensing of personal insolvency practitioners to take place in April/May 2012 but did not indicate when he expected the first debtors would utilise the new insolvency mechanisms. Bankruptcy Law