The Personal Insolvency (Amendment) Act 2015 was signed into law on 28 July 2015. The new Act will give the Irish Courts the ability to overturn a secured creditor’s decision to reject a borrower’s proposal for a Personal Insolvency Arrangement (PIA) under the Personal Insolvency Act 2012 (the 2012 Act). The new Act is expected to be commenced shortly.
The new Act follows the Government’s announcement on 13 May 2015 of a series of measures intended to further assist those in mortgage arrears. The attached article summarises the new Act and discusses its potential implications.
Background
In light of the continuing high levels of mortgage arrears and concerns that the 2012 Act gave secured creditors an effective veto over a PIA proposal, the Government announced on 13 May 2015 that, among other initiatives, it intended to amend the 2012 Act to provide for an independent review by the Courts of a secured creditor’s decision to reject a PIA.
Court Review
Under the new Act, if a PIA is not approved the personal insolvency practitioner (PIP) may, where so instructed by the debtor and where the PIP considers that there are reasonable grounds to do so, apply to the appropriate Court for an order confirming the coming into effect of the PIA. The relevant creditor(s) must be notified and may lodge a notice of objection with the Court. The Court must hold a hearing “with all due expedition” and may confirm the PIA where it is satisfied as to various matters. The Court will be entitled to take into consideration:
- the conduct of the debtor and creditor(s) within the 2 years preceding the issuing of the relevant protective certificate;
- submissions by the creditor(s); and
- any alternative option available to the creditor(s) for recovery of the debt. The Court may also make such orders as to the costs of the application “as it deems appropriate”. It is expected that most Court reviews will take place in the Circuit Court. Only cases where the debts exceed €2.5 million will be heard in the High Court.
Important Conditions
Certain conditions must be met for the Court review process to be available:
- 1 January 2015: The Court review procedure only applies where the debt is secured on the debtor’s principal private residence and the debtor either:
- was in arrears on 1 January 2015; or
- having been in arrears before 1 January 2015, had entered into an alternative repayment arrangement with the secured creditor.
- Creditor Support: For a PIP and debtor to be allowed to apply to Court, they must be able to demonstrate that the majority of at least one class of creditors voted in favour of the PIA at the creditors’ meeting. As regards this requirement for creditor support, the following should be noted:
- that class of creditor need not be a secured creditor;
- the class of creditor can consist of one creditor, or more than one creditor with similar interests; and
- where the borrower only has one creditor (it is often the case that a debtor has consolidated its debts with one financial institution) and that sole creditor rejected the PIA proposal, the debtor does not have to demonstrate creditor support when applying for the Court review.
Likely effects
The new provisions may lead to increased levels of applications for PIAs. It may also reduce the number of PIA proposals voted against by secured creditors if the possibility of a Court review is seen as an incentive to reach agreement. It is hoped the Courts will take a different view to the vetoing secured creditor if asked to reconsider a rejected PIA.