Terms of Arrangement and Discharge
A personal insolvency arrangement must specify which debts are secured and which are unsecured. The maximum duration is 72 months. A further period of 12 months may be permitted under the agreement itself.
Where the debtor performs all of his obligations under the arrangement, he shall stand discharged from the specified debts. He is discharged from secured debts, only to the extent provided in the Personal Insolvency Arrangement.
The personal insolvency arrangement shall not release “excluded” and “excludable” debts”; family maintenance and domestic support obligations, taxes, household charges and debts to the HSE under the nursing home scheme, service charges in multi-unit developments. Excludable debts may be included with individual consent.
Personal injury awards and wrongful death awards to a third party are also excluded. The arrangement does not release debts arising from fraud, misappropriation, embezzlement or breach of trust nor liabilities in respect of disgorging proceeds of crime.
Terms of Arrangement Requirements I
The arrangement shall not require the debtor to sell assets reasonably necessary for his employment or business unless he consents. It shall not contain terms which will require him to make payments of such an amount that he would not have sufficient income to maintain a reasonable standard of living for himself and his dependents.
The arrangement must make provision for costs and outlays incurred by the insolvency practitioner. It must indicate the costs or the basis of charge and specify the persons by whom these costs and charges are payable. It shall specify how the debts are to be treated in the event of death or mental incapacity.
It shall make provision for the payment of all tax liabilities incurred by the debtor, or by the personal insolvency practitioner, under the Taxes Consolidation Act 1997 during the administration of the Arrangement such tax liabilities of the personal insolvency practitioner shall be payable in priority to any payments to creditors, and any failure by the debtor to comply with the terms of the provision shall be a breach of the Arrangement such that the Collector-General may withdraw his or her agreement to accept the compromise contained in the Arrangement.
Terms of Arrangement Requirements II
A personal insolvency arrangement shall not require the debtor to dispose of his interest in his principal private dwelling house or cease to occupy it, other than in the circumstances mentioned below.
It shall provide that the circumstances are to be reviewed at regular intervals, not greater than 12 months. The review shall provide for the preparation of a new prescribed financial statement. This, together with the personal insolvency practitioner’s statement as to whether he considers it complete and accurate, shall be sent to each creditor. The arrangement shall specify the circumstances in which the practitioner is obliged to seek a variation.
In considering the level of reserved income, and the requirement for a debtor requires to have a reasonable standard of living, the insolvency practitioner must have regard to guidelines on reasonable expenditure and essential income published by the Insolvency Service.
The Code of Practice published by the Insolvency Service shall be considered in relation to the above matters.
Terms of Arrangement; Some Possible Provisions
Other non-mandatory provisions which may be included, are equivalent to those for debt settlement agreements. There may be, for example,
- lump sum payments from the debtor or a third party;
- arrangements to transfer assets to a third party on trust for the creditors;
- transfers of assets to creditors, generally or to a specified creditor.
- a sale of specified assets under the supervision of the practitioner in respect of secured debts,
- an arrangement for the treatment of security and satisfaction or restructuring of the secured debt.
Unless provision is made otherwise, the creditors must be repaid pari-passu, rateably, in proportion to their debt. Where it otherwise provides, it shall state the reasons for such divergent treatment.
The payment of money or the performance of obligations provided for by a Personal Insolvency Arrangement may be secured by a charge given by the debtor or a charge or guarantee given by a person other than the debtor.
Preferential and Secured Creditors
Preferential debts are to be paid in full unless the creditor concerned agrees otherwise. Preferential creditors must prove that their debt is preferential. If they fail to do so, they may be treated as ordinary creditors.
The arrangement shall deal with how the security held by a secured creditor is to be treated. Where a secured creditor is notified of a protective certificate by the insolvency practitioner, he shall furnish an estimate in good faith of the market value of the security held. He may indicate a preference as to how he wishes to have the security dealt with, under the personal insolvency arrangement.
In formulating the arrangement, the insolvency practitioner is to have regard to the below-mentioned provisions. To the extent that he considers it reasonable to do so, the practitioner must have regard to the preference of the secured creditor, as to the treatment of the security and the secured debt.
The arrangement may provide for the sale of the secured asset, surrender of the security to the debtor or the retention by the secured creditor of the secured asset. If the secured creditor fails to furnish a valuation and indication of preference within the period specified, the personal insolvency practitioner may proceed to make a proposal notwithstanding.
Where the arrangement provides for the sale of the property, the subject of the security for the secured debt and the value is less than the amount due on the secured debt, the balance due is to abate in proportion to the unsecured debts covered by the arrangement. It shall be discharged with them on completion of the obligations in the personal insolvency arrangement.
Provisions re Secured Debt
A personal insolvency arrangement may include one or more of the following terms, in relation to secured debts.
- that the debtor pays interest or part only of the capital for a period, which shall not exceed the duration of the arrangement;
- that the debtor pays interest only on the secured debt for a period which shall not exceed the duration of the arrangement;
- that the period over which the debt is to be paid or the times at which it is to be paid be extended;
- that secured debt payments are deferred for a time, which shall not exceed the duration of the arrangement;
- that the interest rate charged be changed;
- that the principal be reduced provided that the secured creditor is granted a share of the debtor’s equity in the secured property
- that the principal sum be reduced, but subject to the condition that if the secured property is subsequently sold for an amount greater than that attributed to the property, for the purpose of the arrangement, the security will continue to cover all or part of the difference between the attributed value and the amount for which it is sold;
- that arrears of payments at the commencement and arsing during the period, be added to the secured debt,
- that the principal debt be reduced to a specified amount.
A secured creditor may be required to prove the nature of its security. Where the market value of security held by a secured creditor in relation to a secured debt is less than 10 percent of the debt, the secured creditor may elect to be treated as an unsecured creditor. A Where judgment mortgage is registered three months before the protective certificate issues, it is dealt with as a secured creditor.
Sale of Secured Asset
Where a personal insolvency arrangement provides for sale or disposal of security, the amount to be paid to the secured creditor shall be at least the value of the security or the amount of the debt, whichever is less. An arrangement which includes terms providing for retention by the secured creditor of the security and the reduction of the loan principal to a specified amount, may not specify an amount of the reduced principle below the value of the security. The mortgagee may agree otherwise.
Where the personal insolvency arrangement provides for the sale of the property secured and the realised value is less than the secured debt, the balance shall abate in equal proportion to the unsecured debts covered by the personal insolvency arrangement and shall be discharged with them on completion of the obligations in the arrangement.
An arrangement which includes terms for retention of the secured creditor of the security and the reduction of the principal shall not, unless the secured creditor consents, specify a reduction below the value of the security as determined in accordance with the below provisions.
Non-Sale of Security and Additional Sum
An insolvency arrangement which includes retention of the security and reduction of the debt shall unless the secured creditor otherwise agrees, also include terms providing that any such reduction of the principal sum is subject to the condition that, where the property the subject of the security is sold or otherwise disposed of for an amount or at a value greater than the value attributed to the security, the debtor shall pay to the secured creditor an amount additional to the reduced principal sum calculated as below or such greater amount as is provided for under the terms of the Personal Insolvency Arrangement.
The additional amount is either the lesser of the difference between the value of the property on the transfer and the value attributed to the security under the arrangement and the amount of reduction in the principal, whichever is less. Any proportion of the increase in value attributable to improvements or other measures taken which are a material contribution to the increase in the value of the property subsequent to the valuation shall be disregarded in calculating the additional amount payable by the debtor. This is provided that the secured creditor has consented in writing to the improvement or measures
The additional sum is to be charged in the same manner as the principal sum. The obligation to pay the additional sum ceases 20 years after the insolvency arrangement comes into effect or the date when the debtor is scheduled to fully discharge the amount secured by the security or such later date as may be specified in the arrangement and does so discharge the indebtedness, whichever first occurs.
Additional Sum Issues I
The obligation to pay an additional amount shall not apply where the value of the property on its sale or other disposal is less than the amount of the debt secured by the security (other than any additional amount deemed secured) immediately prior to such sale or other disposition of the property. Any additional amount payable shall stand secured in the same manner and with the same priority as the principal sum.
The obligation to pay an additional amount arising shall cease—
- on the expiry of the period of 20 years commencing on the date on which the Personal Insolvency Arrangement comes into effect, or
- on the day on which the debtor is scheduled or permitted to fully discharge the amount secured by the security (or such later date as may be specified for so doing in the Personal Insolvency Arrangement) and does so discharge his or her indebtedness, whichever first occurs.
Additional Sum Issues II
Unless otherwise provided for under the terms of the Personal Insolvency Arrangement, where a property is the subject of security held by more than one secured creditor any additional amounts payable under these provisions to the secured creditors shall be paid in order of the priority of the security held by each secured creditor.
If the security held by a secured creditor is not ranked first in priority, the obligation to pay an additional amount to that creditor applies only if and to the extent that the sum of the additional amounts payable to secured creditors holding security with higher ranking priority than the secured creditor concerned is less than the additional amount calculated above.
A disposal by a debtor of property the subject of security held by a secured creditor is deemed to include the voluntary grant by the debtor of security over that property to any person other than that secured creditor, including any such grant of security in connection with a refinancing of the existing secured debt. A debtor shall not be considered to dispose of property the subject of security held by a secured creditor where the debtor leases or licenses the property to any person for a term of fewer than 20 years.
Principal Private Residence
There are special provisions in relation to the principal private residence. In formulating a proposal, the personal insolvency practitioner is insofar as reasonably practicable having regard to the below-mentioned manner to formulate the proposal and terms that will not require the debtor to dispose of its interest or cease to occupy the principal private residence, and the insolvency practitioners shall consider alternatives
The insolvency practitioner is to have regard to
- the costs incurred by the debtor in remaining in occupation of his residence including rent, mortgage, insurance, management company, service charge, contributions, taxes, charges and maintenance;
- the debtor’s income and financial circumstances as disclosed in the financial statement;
- the ability of other persons to contribute;
- the ability of other persons to contribute;
- the reasonable living accommodation needs of the debtor and dependents having regard to the cost of alternative accommodation
Where the debtor confirms he does not wish to remain in the principal private residence or the personal insolvency practitioner having discussed the issue with the debtor forms the opinion taking account of the above matters that the cost of continuing in the debtor’s principal private residence are disproportionately large, then the personal insolvency practitioner is not obliged to so formulate the proposal.
A personal insolvency arrangement shall not contain terms providing for the disposal of the debtor’s interest in the principal private residence unless the debtor has obtained independent legal advice in relation to the disposal or having been advised to obtain such advice, he declines. The provisions of the Family Home Protection Act or the civil partnership legislation shall be complied with.
Valuation of Security
The value of the security is to be determined by agreement between the personal insolvency practitioner and the secured creditor. Where the practitioner does not accept the secured creditor’s estimate. They shall in good faith endeavour to agree the market value having regard to the matters set out below.
In the absence of agreement as to the value, the insolvency practitioner and the secured creditor shall appoint an appropriate independent expert to determine the market value having regard to the matters specified below. In default of agreement as to the appointment of the independent expert, the Insolvency Service may appoint the expert as it considers appropriate.
The matters to which regard is to be had include
- the type of property;
- the priority of security;
- the costs of disposal;
- the price of similar property within 12 months;
- the date of the most recent valuation or transaction in relation to the property, the subject of the security;
- the value attributed in the debtor’s accounting records if any;
- the value attributed in the security creditors accounting records if any,
- whether the market for the type of property concerned has been subject to significant changes in condition
- data from the Property Services Regulatory Authority
- relevant statistical index relating to the valuation of similar types of properties.
The open market value is such as the property might reasonably be expected to achieve in a sale in the open market at the date of the issue of the protective certificate.
References and Sources
Burke & Comyn Personal Insolvency Law 2014
Bracken Practioner’s Personal Insolvency Handbook 2013
Law Society (Wright) Insolvency Law 2009
Sanfey & Holohan Bankruptcy Law & Practice2nd Ed 2010
Farry, Holohan Consolidated Bankruptcy & Personal Insolvency Legislation2013
Forde, Kennedy & Simms Company Insolvency 2015
Forde & Simms Bankruptcy Law 2nd Ed 2009
Insolvency Law and Practice (Report of the review committee chaired by Sir Kenneth Cork CBE, 1982, Cmnd 8558) (the Cork report)
V Finch, Corporate Insolvency Law: Perspectives and Principles 3rd Ed 2017
RM Goode, Principles of Corporate Insolvency Law (4th Ed, 2011)
A Keay and P Walton, Insolvency law: corporate and personal (4rd Ed, 2017)
Marsh Bankruptcy Insolvency and the Law 2016
WW McBryde, Bankruptcy 2nd Ed, 1995
Butterworths Insolvency Law Handbook 14th Ed 2012
Core Statutes on Insolvency Law and Corporate Rescue (annual editions)
Personal Insolvency Legislation
Personal Insolvency Act 2012
Personal Insolvency (Amendment) Act 2015
Personal Insolvency Act 2012 (Part 6) (Commencement) Order 2013, S.I. No. 14 of 2013
Personal Insolvency Act 2012 (Commencement) (No. 2) Order 2013, S.I. No. 63 of 2013
Personal Insolvency Act 2012 (Establishment Day) Order 2013, S.I. No. 64 of 2013
Personal Insolvency Act 2012 (Authorisation and Supervision of Personal Insolvency Practitioners) Regulations 2013, S.I. No. 209 of 2013
Personal Insolvency Act 2012 (Authorisation of Approved Intermediaries) Regulations 2013, S.I. No. 216 of 2013
Personal Insolvency Act 2012 (Personal Insolvency Practitioner Authorisation and Renewal of Authorisation Prescribed Fees) Regulations 2013, S.I. No. 246 of 2013
Personal Insolvency Act 2012 (Accounts and Related Matters) Regulations 2013, S.I. No. 247 of 2013
Personal Insolvency Act 2012 (Commencement) (No. 3) Order 2013, S.I. No. 285 of 2013
Personal Insolvency Act 2012 (Value of interest in property) Regulations 2013, S.I. No. 330 of 2013
Personal Insolvency Act 2012 (Prescribed Protective Certificate Personal Insolvency Arrangement Application Form) Regulations 2013, S.I. No. 331 of 2013
Personal Insolvency Act 2012 (Prescribed Protective Certificate Debt Settlement Arrangement Application Form) Regulations 2013, S.I. No. 332 of 2013
Personal Insolvency Act 2012 (Prescribed Debt Relief Notice Application Form) Regulations 2013, S.I. No. 333 of 2013
Personal Insolvency Act 2012 (Schedule of Creditors) Regulations 2013, S.I. No. 334 of 2013
Personal Insolvency Act 2012 (Procedures for the Conduct of Creditors’ Meetings) Regulations 2013, S.I. No. 335 of 2013
Personal Insolvency Act 2012 (Notification in relation to Excludable Debt) Regulations 2013, S.I. No. 337 of 2013
Personal Insolvency Act 2012 (Additional Information to be contained in the Registers) Regulations 2013, S.I. No. 356 of 2013
Personal Insolvency Act 2012 (Part 4) (Commencement) Order 2013, S.I. No. 462 of 2013
Personal Insolvency Act 2012 (Prescribed Fees in Bankruptcy Matters) Regulations 2013, S.I. No. 465 of 2013
Personal Insolvency Act 2012 (Prescribed Financial Statement) Regulations 2014, S.I. No. 259 of 2014
Personal Insolvency Act 2012 (Regulatory Disclosure Statement of a Personal Insolvency Practitioner) Regulations 2014, S.I. No.319 of 2014
Personal Insolvency Act 2012 (Written Statement Disclosing All of the Debtor’s Financial Affairs) Regulations 2015, S.I. No. 416 of 2015
Personal Insolvency Act 2012 (Prescribed Fees) Regulations 2015, S.I. No. 620 of 2015
Personal Insolvency Act 2012 (Renewal of Authorisation of Personal Insolvency Practitioners) Regulations 2016, S.I. No.226 of 2016
Justice Courts and Civil Law (Miscellaneous Provisions) Act 2013
Courts and Civil Law (Miscellaneous Provisions) Act 2013 (Part8) (Commencement) Order 2013, S.I. No. 286 of 2013
Courts and Civil Law (Miscellaneous Provisions) Act 2013 (Part 7) (Commencement) Order 2013, S.I. No. 463 of 2013
Courts and Civil Law (Miscellaneous Provisions) Act 2013 (Section 2) (Commencement) Order 2014, S.I. No. 334 of 2014
Personal Insolvency (Amendment) Act 2015 (Commencement) Order 2015, S.I. No. 414 of 2015
Personal Insolvency (Amendment) Act 2015 (Commencement) (No. 2) Order 2015, S.I. No. 514 of 2015