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
[email protected] [email protected]
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: [email protected]
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
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