Corporate and Insolvency Law Developments in the Republic of Ireland
Personal Insolvency - the current position:
Personal Insolvency in this jurisdiction is currently governed by the 1988 Bankruptcy Act. On the 24th of June, 2011 the Government introduced the Civil Law (Miscellaneous Provisions) Bill 2011 which includes amongst its provisions certain proposed amendments to the current Bankruptcy regime.
The Memorandum of Understanding which the Irish Government has entered into with the EU/IMF states that legislation reforming the area of Personal Insolvency in this Jurisdiction must be published before the end of March, 2012. The June, 2011 Bill is the first step towards reform in this area.
The June 2011, Bill introduces, for the first time, an entitlement for a Bankrupt to be automatically discharged after 12 years. Whilst the introduction of an automatic discharge from Bankruptcy is to be welcomed, the 12 year period is still excessive and considerably longer than in other Jurisdictions, most notably the UK.
The Bill also introduces a new “5 Year Rule” which provides that a Bankrupt may be discharged from his Bankruptcy after a period of 5 years however, the finer detail of the text confirms that in order for a Bankrupt to avail of this 5 year discharge, he must have firstly:-
- Realised his Estate in full;
- Paid the costs, fees and expenses of the Official Assignee (OA);
- Paid his Preferential Creditors in full;
- Disclosed all of his after acquired property;
- The Court must also have confirmed that it was reasonable and proper to discharge the Bankrupt.
In reality therefore, the likelihood of an individual debtor emerging from Bankruptcy under the proposed 5 Year Rule remains limited. Many individuals currently facing bankruptcy, particularly property developers who have availed of significant capital allowances which will be clawed back if they are to be declared bankrupt, will have significant Preferential Revenue debts. In the current climate, even if their Estates are fully realised, sufficient funds may not be generated to discharge the costs, fees and expenses of the OA together with the preferential debt.
It is to be remembered that the June, 2011 Bill is only an interim measure and it is acknowledged by the Government that a more radical reform of the area of Personal Insolvency (Bankruptcy) is required. The required major reform in this area will be effected through the Personal Insolvency Bill which is expected to be published in the first three months of 2012. There are suggestions that such further Legislation may follow the Recommendations of the Law Reform Commission (LRC) which published its proposals for Reform in December 2010.
The main reforms proposed by the LRC were
1) An automatic discharge from Bankruptcy after 3 years subject to :-
a) Leaving the Bankrupts full Estate ( including any house) in the Bankruptcy and
b) Allowing the Official Assignee in Bankruptcy to order the Bankrupt to make repayments for up to 5 years.
An increase in the minimum debt level necessary to bring forth a Creditors Bankruptcy Petition from €1,900.00 to €50,000.00
Revenue to lose its preferential status in the Bankruptcy process.
The introduction of a system in Personal Insolvency similar to Section 150 / Section 160 of the Companies Acts ( Restriction/Disqualification of Company Directors).
While the amendments contained in the June, 2011 Bill are to be welcomed, Personal Insolvency Legislation in this Jurisdiction requires a complete overhaul. In 2009 there were 74,000 Bankruptcy Orders made in the United Kingdom. This is to be compared with 17 Orders made in Ireland during the same period and the slightly increased figure of 29 Orders in 2010. 15 Bankruptcy Orders have been made so far this year. The level of Bankruptcy Orders remains extremely low despite the enormous level of personal debt in this Jurisdiction and reflects the stark contrast between the philosophy surrounding Personal Insolvency in the UK and in Ireland. Personal Insolvency in this jurisdiction is still perceived as a form of punishment whereas the philosophy behind the UK model is that of rehabilitation and encouragement of entrepreneurship. It is not surprising therefore that many individuals facing Bankruptcy in this Jurisdiction have moved their Centres of Main Interest (COMI) to the UK to avail of a more debtor friendly Bankruptcy regime. This has become known as Forum Shopping / Bankruptcy Tourism.
It is to be hoped therefore that, when introducing further legislation in this area, the Government will take the opportunity to introduce the reforms necessary to bring Ireland into line with its European Partners and closest neighbours.
Up until 2009 Examinership was a much utilised tool amongst Insolvency Practitioners. However, as a result of various Supreme Court Decisions it has become clear that in the current economic climate Examinership is not an appropriate restructuring option for many Companies and in particular large Construction Companies. Examinership applications by Trading Companies have also reduced dramatically due to a lack of access to new capital which makes it difficult for some Companies to find the new Investor required in an Examinership Scheme. However, there have been some important Examinerships in the last 12 months which have led to the successful Corporate Re-structuring of such major Companies as Vera Moda Retail Stores, Irish Car Rentals Group, Jackie Skelly Fitness and the Aer Arann Airline.
Publication of Pillar A of the Draft Companies Bill:
The Government plans to introduce a new Companies Bill to simplify existing Company Law in this jurisdiction. On the 30th May, 2011 the Minister for Enterprise Trade and Employment published a draft of Pillar A of the proposed Bill. This will represent two thirds of the future Companies Bill and contains all of the law relating to private companies limited by shares. The remainder of the proposed draft is expected to be published in 2012.
The draft Companies Bill proposes the following changes to current Company Law.
- Private Companies to hold written Annual General Meetings in place of the current requirement to hold AGM’s in person.
- A Private Company will now have the option to appoint only one Director in place of the current requirement to appoint a minimum of two Directors.
- The current Memorandum and Articles of Association will be replaced by one document and the requirement to have specific internal regulations, currently in the form of Articles of Association will be removed as companies will be required to abide by the Regulations contained in the proposed law.
Succeeding during recessionary times:
Receivership, Liquidation, Examinership should always be a last resort for a business and there are now many innovative options available to trading business and individuals in the form of Informal Restructuring. There have also been major tax changes which if utilised correctly will assist in the preparations of an informal restructuring such as to avoid Insolvency and, at the same time, achieve a higher yield for Creditors.
High Profile Engagements:
O'Gradys, have been involved in a number of complex and unique assignments, National, International and Cross Border. In particular we have acted for four of the ten largest cases that have been transferred from the Irish Banks to the National Asset Management Agency (“NAMA”). We have also advised in respect of the two highest profile Personal Insolvency Cases in this jurisdiction and we are currently advising a number of clients in respect of the preparation of Informal and Formal Schemes of Arrangements, Insolvency Procedures, Bankruptcy, Corporate Re-structuring and Tax Planning.
Since establishment in 1987 O’Gradys Solicitors has concentrated upon delivering our skills in Commercial Law and the Firm now occupies a significant niche position in this area of practice. We provide a personalised service offering Corporate, Commercial, Taxation, Banking, Financial and Private Client advice.
We are dedicated to finding fast and efficient solutions to our clients' needs with an emphasis on problem solving from first consultation. In today's competitive and demanding commercial environment, speed of response is essential and this is what we strive to achieve for our clients. We recognise that we are an important service provider and that our clients appreciate sound, uncomplicated and prompt advice without the necessity of spending long hours in unproductive consultation.
Our key 'areas of practice' include:
• Banking/Financial Services
• Commercial Litigation
• Corporate Insolvency/Bankruptcy/Restructuring
• Wealth Management/Estate Planning