Discussion of developments in Irish Personal Insolvency & Bankruptcy legislation with a particular focus on Personal Insolvency Arrangements and the treatment of pensions.

1. EDUCATING
SUPPORTING
REPRESENTING
Recent Developments in Personal Insolvency
Presented by
Jim Stafford and Tom Murray
Friel Stafford
January 2016

2. 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!

3. Seminar Content
• Removal of Veto in PIAs: Jim Stafford
• Bankruptcy Developments: Tom Murray
• Bankruptcy and Pensions: Bill Holohan

4. 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

5. 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

6. 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

7. Protective Certificates
• Protection continues until review completed
• No need to apply for extension once review commenced

8. 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

9. 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?

10. 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)

11. 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

12. 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

13. 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

14. 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?

15. 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.

16. 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.

17. 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

18. Case Study illustrating why PIA’s now much more attractive
Income based PIA versus Bankruptcy

19. 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

20. 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.

21. 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

22. 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

23. 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.
.

24. 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.
.

25. 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 —
.

26. 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.
.
.

27. 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!
.

28. 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/Guidanc
e_FAQs/FAQs_on_the_withdrawal_of_Additional_Volunta
ry_Contributions_AVCs_.pdf
.

29. 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
.

30. 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.
.

31. 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.
.

32. 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;
.

33. (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;
.

34. (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)

35. (d) a qualifying
overseas pension
plan within the
meaning of section
787M of the Taxes
Consolidation Act
1997;

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

37. (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);
• .

38. (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.
• .

39. 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.
• .

40. 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;
• .

41. 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.
• .

42. 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
• .

43. 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;
• .

44. 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;
• .

45. 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;
• .

46. 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.
• .

47. • 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
.

48. (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

49. (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

50. (c) will become
entitled within 5 years
of adjudication to
perform the act or
exercise the subsection
(2) option.

51. (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.

52. 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

53. (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,

54. …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.

55. (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:

56. (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;

57. (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;

58. (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;

59. (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

60. (g) the extent of
provision made by the
bankrupt in relation to any
relevant pension arrangement
prior to the making of
the contributions
concerned.
.

61. Case Study illustrating why PIA’s now much more attractive
Income based PIA versus Bankruptcy