Introduction
We are Ireland's leading firm in advising individuals who are facing personal bankruptcy. We do not deal with consumer debt cases, and we would refer such cases to the Money Advice & Budgeting Service (www.mabs.ie).
Our services are principally targeted at Directors of collapsed companies who have given personal bank guarantees, personal guarantees to creditors in respect of trade credit, landlords in respect of leases, bondsmen in respect of performance bonds and leasing companies in respect of lease. We also advise sole traders and partnerships who are facing bankruptcy, or investors who are facing calls on personal guarantees in respect of their investments in property syndicates. Our philosophy is that there is “always a deal to be done”.
Informal Schemes of Arrangement for Individuals
In some cases, an individual just needs time to sell assets in order to discharge his creditors in full. In such cases, it is relatively easy to obtain the creditors’ consent not to take legal action to allow time for assets to be sold. In other cases, the Director concerned would not have sufficient assets to discharge all of his creditors. Our approach to such cases is to propose an “Informal Scheme of Arrangement”, under which creditors agree to accept just a portion of their debt in full and final settlement. Our experience is that creditors are receptive to such schemes provided the following criteria are met:
- The Director enters into an honest and open dialogue about his current financial circumstances with his creditors.
- The Director is pro-active with his creditors, and does not wait for them to initiate legal action.
- The Director appoints an independent firm of accountants to prepare and agree the Informal Scheme of Arrangement with his creditors.
In preparing an informal scheme of arrangement we consider all issues, including tax opportunities. For example, disposal of assets may be structured in such a way that Capital Gains are off set by Capital Losses etc.
If a director is involved with a group of companies, we can advise if other companies should be place into Liquidation, Receivership or Examinership
We also consider if any Personal Guarantees given are legally binding on the Director. In respect of investors who are facing significant cash calls as a result of their involvement in a property syndicate, we also carefully consider whether the investor might have a claim for negligence, breach of a bank's facility letter, misrepresentation or abuse of a Power of Attorney.
Creditors will generally support a scheme of arrangement, as they will receive a greater return, over a much shorter period of time, than under a formal bankruptcy.
Arrangements under Control of Court
Nearly all Schemes of Arrangement done with creditors are done on an informal basis in this country. However, it is possible to organise a formal arrangement under the 1988 Bankruptcy Act. Essentially, if 60% of creditors approve a Scheme of Arrangement, then it will be binding on all creditors. Such arrangements have not been popular in Ireland, due to the costs involved. Indeed, in the period 2000-2006, there were only three such applications to the High Court.
BANKRUPTCY PROCESS
To be adjudicated Bankrupt the Debtor must have committed an “act of Bankruptcy”. These are defined in Section 7 subsection (1) of the Act. The act of Bankruptcy most commonly cited in Bankruptcy proceedings is Section 7(1) (f) which provides that a debtor has committed an act of Bankruptcy:
“if execution against him has been levied by the seizure of his goods under an order of any court or if a return of no goods has been made by the sheriff or county registrar whether by endorsement on the order or otherwise”
The High Court did have a "rule of practice" which stated that a "return of no goods" (nulla bona) was required to be obtained by a creditor before the High Court would grant the creditor leave to issue a bankruptcy summons. However, the Supreme Court held in Febraury 2009 (Gerard Harahill -v- Eugene Cuddy) that there should be no rule of practice which requires a return of no ggods in order for a bankruptcy summons to issue.
1. Bankruptcy Summons
This demands payment of the sum due within 14 days in default of which the debtor will have committed an act of Bankruptcy (Section 7 (1) (g))
2. Petition for arrangement
The debtor can Petition the Court for protection from Bankruptcy proceedings so that he can put an offer of composition to his creditors. If the offer is accepted by three-fifths in number and value of his creditors and approved by the Court then it is binding on all his creditors. If the offer is not accepted or not approved by the Court then the Court itself may adjudicate the debtor Bankrupt.
Formal Insolvency Proceedings:
These proceed by way of Petition (which must issue within three months of the commission of the act of Bankruptcy) grounded on Affidavit.
The Petition, Affidavit and all other forms required in Bankruptcy proceedings can be found in appendix O of the Rules of the Superior Courts Statutory Instrument no. 79 of 1989
Who can request the opening of Bankruptcy proceedings?
Either a creditor, or the debtor, may commence bankruptcy proceedings.
Publicity Requirements :
The Petition must be served personally on the Debtor. In practice, this can be very difficult if the debtor choses to be evasive.
If the debtor is adjudicated Bankrupt notice of Adjudication must be published in the Iris Ofigiuil ,a National Daily and, where applicable, a local Daily.
What is the role of the various participants in the bankruptcy proceedings?
Only the Court can adjudicate someone Bankrupt
For practical purposes, all steps in a Bankruptcy require Court approval.
When someone is adjudicated Bankrupt their property vests in the Official Assignee in Bankruptcy. The Official Assignee deals, subject to the approval of the Court (Section 61 (7)), with all practical aspects of the day to day running of the Bankruptcy - such as disposing of the Bankrupt’s assets and certifying to the Court who the creditors of the Bankrupt are for the purposes of Irish Bankruptcy Law. The powers, duties and functions of the Official Assignee are set out in part III of the Bankruptcy Act, 1988.
Duties of the Debtor
Among other duties, the Bankrupt is required to disclose all property to the court; to deliver up to the Official Assignee all property in his/her custody or control; to deliver up to the Official Assignee all books and papers relating to his/her estate.
Section 123 of the Bankruptcy Act, 1988 sets out 16 separate offences commissable by a Bankrupt all of which fall under the broad heading of failure to co-operate with the Court in the administration of the Bankrupt’s estate.
How are claims against the Debtor categorised?
Creditors of a debtor may be categorised as either Preferential or non-preferential.
The several claims within each of the above categories rank pari passu as between themselves.
Preferential Claims, as a generality, include rates, taxes and social insurance contributions. They are set out in detail in Section 81 et seq. of the Act. It should be noted that the costs of the Bankruptcy rank in priority to all claims pursuant to Section 80 of the Act.
What are the conditions for the lodgement and admission of claims?
Lodgement and admission of Claims are dealt with in the (lengthy) first schedule to the Bankruptcy Act.
Only Creditors who prove their claims in the Bankruptcy can share in any dividend. The Official Assignee can fix the time within which claims must be submitted. Proof of Debt may be furnished by way of a detailed statement of account, an affidavit of debt or other prescribed means.
What are the conditions to be discharged from bankruptcy?
To be discharged from Bankruptcy :
1. The Bankrupt must pay off all debts and costs plus interest – Section 85 (3)(a)(i) or
2. The Bankrupt must pay off all costs and preferential claims and obtain the consent
of all creditors – Section 85 (3) (a) (ii) or
3. The Bankrupt’s estate must be fully realised, all costs and preferential claims must
be paid off and creditors are paid 50 cents in the Euro – Section 85 (4) (a) or
4. The Bankrupt’s estate must be fully realised, all costs and preferential claims must
be paid off , a dividend must have been paid and the Bankrupt and/or friends must
pay such sum to creditors as, when added to the dividend, brings it up to 50 cents in
the Euro – Section 85 (4) (b) or
5. The Bankrupt’s estate must have been fully realised, all costs and preferential
claims must have been paid, all property acquired after the adjudication order
must have been disclosed, the Bankruptcy must have subsisted for 12 years and the
Court must be persuaded that it is reasonable and proper to grant a discharge from
Bankruptcy – Section 85 (4) (c)
FREQUENTLY ASKED QUESTIONS
Q. Will others know that I have been made bankrupt?
A. Following adjudication (the court order making you bankrupt) a notice of this is published by the petitioning creditor or you (if you have made yourself bankrupt) in one national and one local newspaper. This notice will also contain information about the next statutory court sitting. A local newspaper is one which is published in the area where you live or carry on business.
Other creditors may appear at the statutory court sitting and may make a claim under the bankruptcy. Other notices are also published at various stages of the bankruptcy, such as advertising for creditors and notice of discharge of bankruptcy. A Bankruptcy Register in the Office of the Examiner of the High Court and searches can be made against this register.
Q. Can I stop the Bankruptcy?
A. You may apply to the High Court within 3 days of the service of the bankruptcy order on you, giving reasons why you should not have been made bankrupt. This is called a ‘show cause’ application.
Q. What am I required to do when I am made bankrupt?
A. You must co-operate fully with the Official Assignee’s office in all matters relating to your bankruptcy. You must inform the Official Assignee if you change address. Initially you must attend for interview with the Official Assignee. You must also file a Statement of Affairs in the Office of the Examiner of the High Court.
The Statement of Affairs must set out all of your financial details including assets held and all amounts owed by you. The statutory court sitting will only be passed in the High Court when your Statement of Affairs has been filed. You also have other legal obligations in connection with the administration of your estate and assets. This includes: the delivery of your accounts or papers to the Official Assignee when requested, the delivery of your title deeds to property and any other possessions to the Official Assignee, assisting the Official Assignee in the administration of your estate, and disclosing any property acquired by you since the date of your bankruptcy Order to the Official Assignee. Where you fail to co-operate with the Official Assignee, the High Court may summon you to examine you under oath. Q. What happens to my property when I am made bankrupt?
A. All property held by you when you are made bankrupt vests in the Official Assignee for the benefit of your creditors. The role of the Official Assignee is to sell or otherwise dispose of this property (called realisation) and distribute the proceeds to your creditors. A vesting certificate is lodged in the Office of the Examiner of the High Court and with the Property Registration Authority. This document records the interest of the Official Assignee in any property held by you at the date of adjudication. It means that you cannot sell or use this interest in the property as security to take out a loan.The only property that does not vest in the Official Assignee is essentials up to a value of
€3,100.00 (or more if the High Court allows). Any property you acquire after you are made bankrupt, transfers to the Official Assignee, if and when the Official Assignee claims it. Q. What about property I own abroad?
A. Under EU legislation, (EU Insolvency Regulations 2002) bankruptcy proceedings in Ireland may be recognised as proceedings in most other EU member states. In most cases, this should allow the Official Assignee to realise such property for the benefit of your creditors.
Q. Does it have implications for my salary and pension?
A. Yes, the High Court may appropriate your salary or pension for the benefit of your creditors. However this is subject to any provision the High Court may make to meet your family responsibilities and your personal situation.
Q. Can I operate a bank account while I am bankrupt?
A. Yes, you can operate a bank account. However if you obtain credit of
€ 650.00 or more without disclosing your bankruptcy, you are guilty of an offence. Q. Can I still trade while I am bankrupt?
A. Yes, as long as you trade in your own name. If you trade in a name other than that in which you were made bankrupt without disclosing this name, you are guilty of an offence. You must notify the Official Assignee of any business or trade in which you engage.
Q. Can I manage a company or become a director of a company?
A. No, under the Companies Acts it is an offence for a bankrupt to act in various capacities in relation to a company. These include director,auditor, manager, liquidator or receiver of a company.
Q. Can I seek employment while bankrupt?
A. Yes, and you can continue in current employment or seek employment.
Q. Can I travel outside the jurisdiction?
A. There is no outright prohibition on you travelling abroad but you should inform the Official Assignee if you intend to do so. You may be arrested if it appears to the High Court that you may be leaving the State in order to avoid the consequences of your bankruptcy. Q. Are there other consequences?
A. Yes, bankrupt persons are not entitled to hold elected representative office, in local authorities, in the Dáil or the Seanad.
Q. Are there alternatives to being made a bankrupt?
A. Yes, a debtor may enter a voluntary arrangement with their creditors to settle debts due to them and to avoid bankruptcy or other proceedings against them. Arrangements made outside of the control of the High Court tend to be less costly in the long run. Alternatively, a debtor can apply for an arrangement under the protection of the High Court. This is where a debtor asks the High Court for protection against proceedings to give them time to present a proposal to their creditors. This proposal could be to pay a dividend (normally a percentage of the amount owed) on their debts or to transfer property to the Official Assignee to be sold and the proceeds distributed among their creditors. The proposal must receive the support of at least sixty per cent in number and value of the unsecured creditors voting on it to succeed. The costs, court fees, expenses and preferential debts must also be paid in full.
Q. I have been discharged from bankruptcy; will my name be removed from the Register?
A. No, the Register is a record of all bankruptcies, including those that have been discharged. A person searching the Register is told the status of the bankruptcy (discharged) and the date it was discharged. No information is given about the address of the former bankrupt.
Q. Can the family home be sold?
A. The bankrupt’s interest in the family home vests in the Official Assignee as with all other property. However the Official Assignee may not sell the family home without obtaining permission from the High Court. Where the Official Assignee seeks this permission, the High Court may postpone the sale of the family home having regard to the interests of the creditors and of any spouse and dependants of the bankrupt.
Q. What if we already have a mortgage or have borrowed against this home?
A. Then this is a secured loan against the property and the Official Assignee’s interest only relates to the equity remaining in the property.
Q. I jointly own the family home with the bankrupt, what about my interest?
A. Where the bankrupt owns property jointly with a spouse or partner,the bankruptcy causes the joint ownership to be split. The Official Assignee and the non-bankrupt co-owner then hold separate interests in the property.
Q. Is it possible to "ring fence" my assets from creditors?
A. In a bankruptcy all your assets will be taken by The Official Assignee. If you are presently insolvent, but not yet bankrupt, you may take certain steps to protect "future" assets such as expected inheritances, or pension entitlements.
Q. As a bankrupt can still earn a living, what about our income?
A. The Official Assignee may apply to court for the appropriation of part of the bankrupt’s salary, income or pension. If the High Court directs any deduction to be made, it may have regard to the bankrupt’s family responsibilities and personal situation. Social welfare and unemployment payments are not liable to appropriation.
Disadvantages of being made bankrupt
An undischarged Bankrupt suffers certain statutory disabilities such as being prohibited from being a Company Director or in any way concerned with the management of a company – Companies Act, 1963 Section 183 ; being prohibited from being a member of the Dail or of a local authority.
On discharge, any property remaining in the hands of the Official Assignee automatically revests in the discharged Bankrupt. A discharged Bankrupt can set up a business in the same way as anybody else.
At a commercial level a discharged Bankrupt may have difficulty getting any kind of credit.
Forum Shopping for bankruptcy
Forum shopping (or "bankruptcy tourism")is the term given to the debtor determining the best jurisdiction to be made bankrupt in. In many cases it is clear which jurisdiction the debtor should be made bankrupt in. However, in practice, it may be possible to change a person's Residence and Domicile from, say, Ireland to that of, say England, where the bankruptcy regime is much more favourable to the bankrupt debtor in terms of the length of the bankruptcy. A "simple" Irish bankruptcy could last at least 12 years, whilst a "simple" UK bankruptcy could last just one year, with very straightforward cases just lasting 6/7 months. A faster bankruptcy process may have significant benefits for a bankrupt in areas such as pensions and expected inheritances.
In the United Kingdom, the position of your pension may depend on:
- the date you were made bankrupt;
- whether you have been discharged from bankruptcy or not;
- whether your pension is an occupational pension or a personal pension.
The United Kingdom Welfare Reform and Pensions Act 1999 protects all pensions arising from tax-approved pension schemes against being part of a bankrupt's estate, for anyone made bankrupt after 29 May 2000. So, the Trustee in Bankruptcy cannot control the pension to pay off creditors.
The Trustee in Bankruptcy can apply to the Court, however, to receive a pension in payment for a period, under an Income Payments Order. But the United Kingdom Enterprise Act 2002 has reduced the automatic discharge period for people made bankrupt after 1 April 2004 to one year, so it is anticipated that a Trustee in Bankruptcy will have little time to apply for an Income Payments Order. Also, the bankrupt can make an out-of-court agreement with the Trustee in Bankruptcy to pay over a part of the pension for a specified period.
However, the discharge period can be extended if the bankrupt fails to comply with the obligations of the bankruptcy order. This can happen if the bankrupt for example had made what are deemed to be “excessive” contributions to a pension policy before bankruptcy.
While the United Kigndom has general bankruptcy rules, the specific rules vary between between England & Wales, Northern Ireland and Scotland.
While forum shopping might reduce the length of the bankruptcy period, the end result is the same i.e. all of the bankrupt's existing assets are taken away and distributed amongst the creditors.
The United Kingdom offers Individual Voluntary Arrangements (IVA's), which allows individuals to enter into a Scheme of arrangement with their creditors. Such schemes avoid the stigma of bankruptcy. The Irish Government announced in October 2009 that it was planning to introduce similar arragements in Ireland.
If a bankrupt debtor is prepared to change their place of Residence and Domicile, we can provide advice on the best jurisdiction to select and put them in contact with a reputable Insolvency Practitioner to ensure that the bankruptcy process is completed in the fastest possible time, or, alternatively, to carry out an Individual Voluntary Arrangement.
As Jim Stafford is the only Irish Insolvency Practitioner to have had direct practical experience of bankruptcy procedures in the US and the United Kingdom (having worked in New York for 2 years and London for 5 years) he is uniquely placed to advise bankrupt debtors on forum shopping.
We treat all cases with the utmost confidentiality.
For further information please contact Jim Stafford or Tom Murray on 01 661 4066 or stafford@liquidation.ieor murray@liquidation.ie