Slide Title

EDUCATING

SUPPORTING

REPRESENTING

title goes here

Recent Developments in Personal Insolvency

Presented by

Jim Stafford and Tom Murray

Friel Stafford

January 2016

This seminar has been written in general terms and

therefore can not be relied upon to cover specific

situations. Application of the principles set out will depend

on particular circumstances involved and we recommend

that you obtain professional advice before acting or

refraining from action on any of the contents of this

seminar.

The presenters accept no duty of care or liability for any

loss occasioned to any person acting or refraining from

action as a result of any material in this seminar.

Disclaimer!

Seminar Content

• Removal of Veto in PIAs: Jim Stafford

• Bankruptcy Developments: Tom Murray

• Bankruptcy and Pensions: Bill Holohan

Developments in 2015

• DRN threshold increased to €35,000

• PIA appeal mechanism introduced

• Bankruptcy term reduced to 1 year

• Official Assignee must now deal with family home within 3

years

• Waiver of ISI fees for PIAs/DSAs

• Mortgage arrears falling

• StepChange in the market place

• More informal deals being done

Court Review of PIA (i.e. the “Appeal” Mechanism)

2 Conditions:

1) Applies to “Relevant Debt”, defined as Debt secured on family

home, where the mortgage was in arrears as at 1 January 2015, or the

debtor, having been before 1 January 2015 was in arrears, has

entered into an alternative repayment arrangement at 1 January 2015

2) Applies to PIA which is not approved:

• at creditors’ meeting (Note: “Normal” creditors meeting requires

65% of total debt, 50% of secured debt and 50% of unsecured debt)

But at least one “class” of creditor voted in favour of the PIA or

• Not approved by sole creditor under S. 111A

Application to Court

PIP may apply to Court for confirmation of a PIA within 14

days after creditors’ meeting

• If instructed in writing by the debtor

• If he considers that there are “reasonable grounds”

Provides notice to the debtor, ISI and each creditor

Protective Certificates

• Protection continues until review completed

• No need to apply for extension once review commenced

Notice of Motion

• Various essential documents to be attached

• Issued by relevant court office

• Hearing date at least 21 days from date of issue

• Sent by PIP to the debtor, ISI and each creditor within 4

days

Creditor Response

A creditor lodges a notice in court

• Should specify his reasons for support or objection

• Send a copy to the ISI, the PIP and each other creditor

Not a cheap process! Will a creditor need “Independent”

Report from another PIP?

Essential Requirements to pass “Review”

Court must be satisfied that:

• Eligibility criteria satisfied

• 12 mandatory parts of S. 99 complied with

• PIA does not affect excluded and excludable debt (where consent not given)

• Grounds for objection (S. 120) do not apply to the debtor

• PIA is compliant re. family home (S. 104 affordable etc.)

• Reasonable prospect that PIA will:

• Enable creditors to recover as much as they can given circumstances

• Enable debtor to retain family home

• Cost of retaining family home not disproportionate

• Debtor reasonably likely to comply with PIA

• PIA is fair and equitable to each class of creditor that has not approved PIA

• PIA is not unfairly prejudicial to any interested party

• At least one class of creditors has approved by 50% in value (other than where

there is only one creditor)

Court’s Discretion

When considering, Court will have regard to, within the

previous 2 years,:

• debtor’s attempts to meet his debts

• creditor’s conduct in seeking to recover

Where submitted to Court by secured creditor, the Court

will also consider:

• submission by secured creditor (focus on S. 98

submission)

• alternative recovery options open to a creditor

Classes of Creditors

• Creditors with interests or claims of similar nature (Extensive

case law available from cases on Corporate Schemes of

Arrangement and Examinerships: in essence, legal rights

should be similar )

• May include only 1 creditor

• Court to have regard to circumstances of case including

statement of grounds, number and composition of creditors

who voted

• Court will consider proportion of overall debts represented

by the creditors

Classes of Creditors

A PIA could have more “classes” of creditors than an Examinership.

• PPR lender is a distinct “class”: due to extensive legislation on family homes

• Other classes of creditors could be:

• Rates (guaranteed payment within 2 years)

• Income Tax/VAT/RCT/CGT/CAT

• Judgement Mortgage

• Hire Purchase

• Contingent Debt

• Retention of Title Creditors

• Unquantified Legal Claim

• Connected Person (cannot vote in favour)

• Trade Creditor

• Secured Loan

• Landlord

• Property Management Charges

Issues for Creditors

• First issue: establish if the PIA is a “veto” type.

• As Courts will review creditors’ “engagement” with the PIP and

the debtor, creditors should “positively” engage.

• Watch out for Section 111A(6): If the creditor is the only

creditor and does not say “yes or no” to the proposal, then the

proposal is deemed to be passed.

• The threat of debtors going bankrupt is now more realistic =

consider settlement proposals carefully.

• Engage with PIPs on “veto” type proposals to avoid costly legal

fees. (Costs may be awarded against “unreasonable”

creditors.)

• Will debtors start “managing” their “classes of creditors”? Battle

between the PPR lender and other creditors?

Main Bankruptcy Changes

• Automatic discharge period reduced from 3 to 1 year

• Income payment order period reduced from 5 to 3 years

• Where a bankrupt does not co-operate with the Official Assignee or tries to

conceal his/her income or assets, the High Court will retain the power to extend

the bankruptcy term up to 8 years and the bankruptcy payment order up to 5

years

• High Court may extend the term to up to 15 years where it is satisfied that there

has been particularly serious non-co-operation or concealment

• People already in bankruptcy will be able to avail of these reforms subject at

maximum to a six-month transitional period

• The home of a bankrupt will re-vest in the bankrupt (subject to any mortgage)

after 3 years if it has not been sold as part of the bankruptcy process (previously

there was no time limit on re-vesting). This change may encourage more

bankruptcies, as there is now more certainty on family homes.

Official Assignee must decide on PPR within 3 years

• Double edged sword as far as the debtor is concerned!

• Before the amendment was made, the Official Assignee could "sit" on

the family home for years before deciding to obtain a court order for

its sale. The longest period we have heard of was 17 years!

• However, the Official Assignee now only has 3 years to make up his

mind. In previous "extended cases", the financial circumstances of

the debtor might have improved after his discharge and he could

raise monies to buy out the equity etc.

• On the plus side for the debtor, the amendment may encourage more

people to go bankrupt whilst retaining their family home!

• How can this happen? Take the case study on the following slide.

Case Study

A couple decide to go bankrupt. Their combined take home pay is €4,000 per month. 2 children

in primary school. PPR valued at €300,000.

Mortgage of €350,00. Interest rate @ 4%. Current monthly payments of €2,121.

Other residual debt from buy-to-lets, credit cards, Revenue etc. of €200,000. One vehicle

required only. Reasonable Living Expenses allowed would be €1,825. Rental value of

"suitable" house in same locality is €1,500 per month.

The Solution

The OA will allow the couple to make monthly mortgage payments of €1,500 to the mortgage

company. Accordingly, the mortgage company would have to restructure its payments but for 3

years only rather than 5 years as previously required. After the 3 years, the mortgage would

revert to normal payments.

After 1 year, the couple emerge from bankruptcy, and continue making payments to the OA for

a further 2 years to comply with the 3 year Income Payment Order. The monthly IPO would be

for €675 (i.e. €4,000 - 1,825 - €1,500).

Case Study to show couple going bankrupt but retaining family home

Case Study illustrating why PIA’s now much more attractive

Income based PIA versus Bankruptcy

Expected Developments/Issues in 2016 (1 OF 2)

• Possible ISI debtor support package to pay PIP fees

• ISI fees for administration of bankruptcies to be increased. The ISI will

not continue to act as an “unpaid receiver” for creditors. Accordingly,

PIAs will become even more attractive to creditors

• PIA/DSA Protocols will continue to be reviewed

• “Process efficiencies” to be implemented by ISI (as PIP’s financial model

is “fragile”)

• Judicial precedents will provide guidance

• Central Bank to tighten grip on “Debt Management Firms”

• More informal deals

• More PIAs/DSAs/Bankruptcies

• The funds who purchased debt will become more aggressive

Expected Developments/Issues in 2016 (2 OF 2)

• Some debtors may "re-negotiate" old settlements with the banks on

the basis that the new amendments provide more options.

• It will continue to be difficult to raise Mezzanine finance, particularly

for deals less than €1 million.

• The €3 million cap on secured debt for entering a PIA will continue to

be a major obstacle for many debtors.

Thank You

Jim Stafford Tom Murray

jim.stafford@frielstafford.ie tom.murray@frielstafford.ie

Friel Stafford

44 Fitzwilliam Place

Dublin 2

www.frielstafford.ie

01 6614066

In association with FRP Advisory

Pensions in Insolvency and the

Insolvency Statement of

Estimated Outcome & Pensions

319 THE CAPEL BUILDING, DUBLIN

& 16 SUNDAY’S WELL ROAD, CORK

EMAIL: bill@holohanlaw.ie

Background

The PIP in consultation with the Debtor sets out the assumptions used to calculate the financial outcome were he / she to be adjudicated bankrupt.

.

Personal Insolvency Acts

2012 – 2015

(1) Subject to subsection (4), in DSAs & PIAs, where a debtor has a pension entitlement under a relevant pension arrangement, such interest or entitlement of the debtor shall NOT be treated as an asset of the debtor unless subsection (2) applies.

.

Personal Insolvency Acts

2012 – 2015

(2) Where a debtor has an interest in or entitlement under a relevant pension arrangement which would, if the debtor performed an act which would cause that debtor to receive —

.

Personal Insolvency Acts

2012 – 2015

(a) an income, or

(b) an amount of money other than income,

in accordance with the relevant provisions of the Taxes Consolidation Act 1997, that debtor shall be considered as being in receipt of such income or amount of money.

.

.

Personal Insolvency Acts

2012 – 2015

In short, if the Debtor is entitled to an income or benefit, treat the Debtor as actually receiving the income or benefit!

.

Personal Insolvency Acts

2012 – 2015

30% of the value of Additional Voluntary Contributions (AVCs) made to occupational pension schemes and PRSAs can be drawn down until 27 March 2016.

http://www.pensionsauthority.ie/en/Regulation/Guidance_FAQs/FAQs_on_the_withdrawal_of_Additional_Voluntary_Contributions_AVCs_.pdf

.

Personal Insolvency Acts

2012 – 2015

(3) Subsection (2) applies where

• the debtor is / was entitled to exercise the option on or before the PC application date, or

• will become entitled to exercise the option within 6 years and 6 months of the DSA PC application date, or

.

Personal Insolvency Acts

2012 – 2015

• will become entitled to exercise the option within 7 years and 6 months of the PC Application date in relation to a Personal Insolvency Arrangement.

.

Personal Insolvency Acts

2012 – 2015

(4) Subsection 4 preserves the obligation of a debtor to make disclosure of any interest in or entitlement under a relevant pension arrangement in completing the PFS.

.

Relevant pension

arrangement means:

(a) a retirement

benefits scheme, within

the meaning of section 771 of

the Taxes Consolidation Act

1997, for the time being

approved by Revenue for the purposes of Chapter

1 of Part 30 of that Act;

.

(b) an annuity

contract or a trust

scheme or part of a

trust scheme for the

time being approved

by Revenue under

section 784 of the

Taxes Consolidation

Act 1997;

.

(c) a PRSA contract,*

within the meaning of

section 787A of the

Taxes Consolidation Act

1997, in respect of a

PRSA product, within

the meaning of that

section; * Personal Retirement Savings

Accounts (PRSAs)

(d) a qualifying overseas pension plan within the

meaning of section 787M of the Taxes Consolidation Act 1997;

(e) a public service pension scheme within the meaning of section 1 of the Public 5 Service Superannuation (Miscellaneous Provisions) Act 2004;

.

(f) a statutory scheme, within the

meaning of section 770(1) of the Taxes Consolidation Act 1997, other than a public service pension scheme referred to in

paragraph (e);

• .

(g) such other pension arrangement as may be prescribed by the Minister, following

consultation with the Ministers for Finance, Social Protection and Public Expenditure and Reform.

• .

S. 88 (DSA) / (121) PIA:

Creditor or PIP in a DSA/PIA who considers the Debtor has made excessive pension contributions in the three years preceding the PC application date can apply for an order that contributions (less

tax) be repaid to the PIP for creditors’ benefit.

• .

Factors considered by the Court

(a) whether the debtor made payments to his or her creditors in respect of debts due to

those creditors on a timely basis at or about the time when the debtor made the contribution concerned;

• .

Factors considered:

Creditor or PIP who considers the Debtor has made excessive pension contributions in the three years preceding the PC

application date can apply for an order that contributions (less tax) be repaid to the PIP for creditors’ benefit.

• .

Factors considered

(b) whether the debtor was obliged to make contributions of the amount or percentage of income as the payments

actually made under his or

her terms and conditions of employment and

• .

Factors considered

and if so obliged, whether the debtor or a person who as respects the debtor is a

connected person could have materially influenced the creation of such obligation;

• .

Factors considered

(c) the amount of the contributions paid, including the percentage of total income of the debtor in each tax year concerned which such contributions represent;

• .

Factors considered

(d) the amount of the contributions paid, in each of the 6 years prior to the PC application including the percentage of total income of the debtor concerned which such contributions represent in each of those years;

• .

Factors considered

(e) the age of the debtor at the relevant times;

(f) & limits for tax relief on pension contributions in each of the 6 years prior to the making of the PC application; and

(g) previous contributions.

• .

• 44A.—(1) Subject to subsection (2), where a person is adjudicated bankrupt, and he or she is, or may become entitled to, payments under a relevant pension arrangement, assets relating to the arrangement (other than payments already received by the bankrupt, or that the bankrupt was entitled to receive, under the arrangement), shall not vest in the Official Assignee for the benefit of the creditors of the bankrupt.

• (New section, inserted by section 150, 2012 Act)

Pensions in Bankruptcy

.

(2) Where a bankrupt has an interest

in or entitlement under a relevant

pension arrangement which would,

if the bankrupt performed an act or

exercised an option, cause that debtor

to receive from or at the request of the

person administering that relevant pension

arrangement— (a) an income, or (b)

an amount of money other than

income,* that bankrupt shall be considered as being in receipt

of such income, and such amount of money shall vest

in the Official Assignee or the trustee

(3) Subsection (2) applies

where - (a) the bankrupt is entitled at the date of being adjudicated a

bankrupt to perform the act

or exercise the subsection (2) option,

(b) was entitled at any time

before the date of the adjudication, to perform the

act or exercise the subsection (2) option, but had not performed the act or exercised the option, or

(c) will become

entitled within 5 years

of adjudication to

perform the act or

exercise the subsection

(2) option.

(4) Where subsection (2)

applies, the Official

Assignee or the trustee in

bankruptcy may where he

or she considers that it

would be beneficial to the

creditors of the bankrupt to

do so, perform an act or

exercise an option referred to in subsection (2)

in place of the bankrupt.

44B.—(1) Where, on application by

the Official Assignee or the trustee in

bankruptcy, the Court is satisfied that

the bankrupt, or a person on his or

her behalf, has within the 3

years prior to adjudication

made contributions to a

relevant pension arrangement under which the bankrupt is, or may

become entitled to, payments and which

contributions—

Excessive Pension

Contributions

(a) were excessive in view of

the bankrupt’s financial

circumstances when those

contributions were made, and

(b) had the effect of

(i) materially contributing

to the bankrupt’s inability to

pay his or her debts, or (ii) substantially

reducing the sum available for distribution to

the creditors,

the Court may make such order in

relation to the relevant pension

arrangement as it considers

appropriate…

…for the purpose of ensuring

that the contributions which

the Court considers to be

excessive or any part of such

contributions can be vested in

the Official Assignee or the

trustee in bankruptcy to be

made available for

distribution to the creditors.

(2) In considering an application under subsection (1) and

in determining whether or not

the contributions made by the

bankrupt to a relevant pension

arrangement were excessive

the Court may have

regard to all the financial

circumstances of the

bankrupt and in particular:

(a)whether the

bankrupt made payments to his or her creditors in respect of debts due to those

creditors on a timely basis at or about the time when the bankrupt made the contribution concerned;

(b) whether the bankrupt was obliged to make

contributions of the amount or

percentage of income as the

payments actually made under

his or her terms and conditions

of employment and if so obliged,

whether the bankrupt or a

person who as respects the

bankrupt is a relative who could have materially

influenced the creation of such obligation;

(c) the amount of contributions

paid, including the percentage

of total income of the bankrupt

in each tax year concerned which such

contributions represent; (d) the amount of

the contributions paid, in each of the 6 years

prior to the making of the adjudication

including the percentage of total

income of the Bankrupt which

such contributions represent in

each of those years;

(e) the age of the bankrupt at the relevant times;

(f) the % limits which

applied to the bankrupt in

relation to relief from income

tax for the purposes of contributions

to a relevant pension arrangement in

each of the 6 years before adjudication;

and

(g) the extent of provision

made by the bankrupt in relation to

any relevant pension arrangement prior to the making of

the contributions

concerned.

(g) the extent of

provision made by the

bankrupt in relation to any

relevant pension arrangement

prior to the making of

the contributions

concerned.

.

Case Study illustrating why PIA’s now much more attractive

Income based PIA versus Bankruptcy