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Sean Fitzpatrick’s efforts to avoid bankruptcy came to an end on Monday the 12^th of July, 2010.  The former head of Anglo Irish Bank faced a shortfall of about €80 million between his assets and liabilities and appeared in court on that date to ask creditors to accept a scheme aimed at dealing with his debts. The logic behind the deal was that a private scheme of arrangement would generate more money for creditors in the long term.

Arranging Debtors

A court approved scheme of arrangement is a rarely implemented provision of Irish Law. Back in March, Fitzpatrick applied to the Courts to become an arranging debtor.  The procedure is an alternative to traditional bankruptcy and akin to a type of personal examinership.  The 1988 Bankruptcy Act allows a debtor to seek the protection of the Court while a scheme of arrangement is being drawn up.

Scheme of Arrangement

The next step for arranging debtors is to propose a scheme of arrangement which outlines how the debtor will repay creditors.  The debtor must provide the Court’s Official Assignee with a statement of assets and liabilities and a preliminary meeting of creditors is held.  A private sitting then takes place and the debtor pitches his proposals to his Creditors.  For the scheme to proceed, 60% of Creditors, both in number and value must approve of the scheme.  In the case of Sean Fitzpatrick, Anglo held 40% of his debts and so the scheme failed without the Bank’s approval.

Personal schemes of arrangement have hit the headlines recently because of Fitzpatrick’s actions but the procedure has not been popular in Ireland.  Last year only seven people entered Court supervised arrangements for the payment of their creditors. There are downsides to Court supervised schemes of arrangement for creditors and debtors alike.  It is hard to arrange debtors unless there are a number of unsecured assets available to the creditors.  If all assets are charged to Banks then there are no assets for other creditors.

Instead informal schemes of arrangements are often being favoured by many indebted individuals.

Informal Schemes of Arrangement for those seeking to avoid the time and costs involved in Court approved schemes of arrangement, informal schemes allow creditors to restructure or reduce debts owed. While there are no official figures for the number of informal schemes of arrangement which have been negotiated in Ireland, the procedure is very much on the up. Creditors are often receptive to the procedure as long as individuals enter into honest and open dialogue with creditors an appoint an independent firm of Accountants to work out the arrangements.

But what happens if Creditors do not agree to a formal or informal scheme of arrangement?  Bankruptcy is likely.

Bankruptcy

It is little wonder that Fitzpatrick did his utmost to avoid bankruptcy.  Ireland has some of the strictest Bankruptcy Laws in Europe, laws which stifle entrepreneurialism and prevent fresh starts, according to critics.

Under Irish Law anyone who becomes bankrupt is effectively barred from running a Company for twelve years and their property is transferred to the Court Official Assignee. A bankrupt person is also prohibited from becoming a member of the Dail or local authority during that twelve year period. It is not much better for creditors either and it can cost about €15,000.00 to make someone bankrupt.

Bankruptcy is a relatively rare phenomenon in Ireland with just seventeen bankruptcies recorded in 2009 but moves are afoot to overhaul Ireland’s personal debt regime. In May, the Law Reform Commission published an interim report on personal debt management and debt enforcement recommending the reduction of the Bankruptcy period from the current twelve years to a period of six years as an “initial first step in the process of modernisation and liberalisation of Irish Bankruptcy Law”.

At the moment it takes twelve years before someone can be discharged from bankruptcy and the Law Reform Commission wants this changed to six years before a new low cost, non-Court process for dealing with the rescheduling of debts is established.  A more detailed investigation of reform or personal insolvency will be addressed in the final report, due out by the end of the year.

But it may be too late for some….

The change in the Law affects principally easements acquired by prescription.  An easement acquired by prescription is one which has been used for a period of time without interruption or dispute.  Until now the period of time that was necessary to establish such a right was taken as twenty years.  The new law changes this.  It states that where a landowner has rights over other land which have been acquired by prescription i.e. by long use the landowner must apply to the Court (usually the Circuit Court) for a Court Order that the landowner has this right and must after this register it in the Land Registry or the Registry of Deeds.  The application to the Court must be made on or before the 1^st of December, 2012.  Such a claim is based on the Law before the new Act came into effect i.e. use of the property for twenty years.

If the landowner does not bring the claim within the period of three years from the 1^st of December, 2009 the landowner’s rights are dealt with by the new Law relating to prescription rights.  This changes the required period of user from twenty years down to twelve years.  However the new law states that the time runs only from the coming into effect of the above Act and this effectively means that the landowner if he fails to bring a Court Application on or before the 1^st of December, 2012 may not bring a fresh application before the 1^st of December, 2021 i.e. twelve years from the coming into effect of the new law.

The new law does not affect rights, which have been granted by one landowner to another or by Court Order but only where such rights arise from long user.

It is particularly important that landowners especially those contemplating sales or mortgages of property are aware of the new law for example owners of lands locked property i.e. property surrounded by property in the ownership of a third party where right of access has been gained as a result of long user unless the landowner brings a claim to obtain a Court Order that the right exists before the 1^st of December, 2012.

Prior to the passing of the Act, unmarried couples had no legal rights or entitlements to lay claim to the assets or estate of their partner. The phrase “common law spouse” had also given many couples the wrong impression that certain entitlements might accrue from their relationship. However, the Act will now introduce very significant changes to the legal status of unmarried couples, both same-sex and opposite-sex.

The Act deals separately with both the civil registration of same-sex partnerships (Civil Partnership) and the rights and duties of cohabiting couples.

Civil Partnership

The largest part of the Act deals with the introduction of Civil Partnership for same-sex couples and sets out the rights and obligations which will arise once a civil partnership has been properly registered. The Act also sets out the manner in which civil partnerships may be dissolved and under what conditions.

The main effects of the Act are:

• To create a new legal relationship of civil partnership for same-sex couples who choose to register their relationship, which may end only on the death of a partner or dissolution by a court;
• To make detailed provision for the formalities and procedures for registration of civil partnerships; and
• To give legal effect to a range of property, financial and other rights and entitlements consequent on civil partnership to include provision for maintenance, protection of shared homes, inheritance entitlements and pension provision.

The Act also introduces inheritance rights for civil partners which are equivalent to those of spouses, with regard to both a legal right share on testate succession and rules for distribution on intestacy. The Act, as passed, is silent on the tax and social welfare treatment of civil partners. Any reliefs which may accompany the registration of a civil partnership are unknown as yet. However, it is envisaged that these provisions will feature in future Finance and Social Welfare legislation.

Cohabiting Couples

The Act introduces significant changes to the current law relating to cohabiting couples and introduces various rights and obligations for these couples.

For cohabiting couples (both opposite-sex or same-sex couples who are either unmarried or not registered in a civil partnership), the Act will now impose certain rights and obligations upon these individuals, unless the couple specifically choose to opt out of these protections.

The Act establishes a “redress” or “safety net” scheme for cohabiting couples. The aim of the redress scheme is to protect an economically dependent or vulnerable party at the end of a long-term cohabiting relationship, whether arising on relationship breakdown or on death. It allows “qualified” cohabitants to apply to court for certain reliefs, including property adjustment orders, compensatory maintenance orders, pension adjustment orders and orders for provision from the estate of a deceased cohabitant. No tax or social welfare reliefs have been made for cohabiting couples under the Act, as passed.

The Act has defined “qualified cohabitants” as cohabitants residing together as an unmarried couple in an intimate relationship for a period of five years, or two years where there is a child or children of the relationship. In determining what orders, if any, might be made, the economic dependency of the claiming partner is the key factor, although other criteria must also be taken into account, to include the rights of other parties (including any spouses or civil partners in existence), the duration of the relationship and the contributions made by each cohabitant, whether financial or otherwise.

The Act also makes express provision for the recognition of Cohabitant Agreements enabling (and encouraging) cohabitants to regulate their joint financial affairs and also enabling couples, where they may so decide, to specifically opt out of the redress scheme in their particular circumstances. The Act provides that a Cohabitant Agreement will be valid and enforceable if it is in writing and signed by both cohabitants with the benefit of independent legal advice, in accordance with the standard principles of Contract Law.

The organisation was commenting on the enactment of the new consumer credit directive by regulation signed by Minister Brian Lenihan late last week. “This is a very important piece of law that will affect every consumer who plans to avail of credit in this country. Nonetheless, there has been very little forewarning of the proposed changes, nor is there consumer-friendly information available yet on this new law,” said Paul Joyce, Senior Policy Researcher with FLAC.

According to the organisation, the existing 1995 legislation is already complex. The new regulation is being superimposed on this structure, making the law very difficult to decipher.

“To understand their rights, consumers will have to look at the 1995 legislation, which is substantial, alongside the extensive new regulation. The consumer would have been better served by a thorough review of the existing legislation followed by a unified, comprehensive statement of the law. In essence, people will not be able to easily understand what their new rights are when borrowing money. This is not good enough, given recent events in this country,” said Mr Joyce.

Below is a FLAC statement on the new directive which lays out the organisation’s position and calls for specific actions so that consumers will be aware of their new rights and duties:

FLAC statement on the new Consumer Credit directive – Where does it leave consumers?

On Friday 11 June, the revised consumer credit directive of the European Union was transposed into Irish law by way of a regulation. In other words, the new provisions become law without any discussion, debate or explanation in the Dail or Seanad.

What will this mean for consumers of financial services in Ireland?

Precisely because the directive is being transposed in this way, it is very difficult to be sure at this point. What is certain is that the existing Consumer Credit Act 1995 (which itself transposed the original consumer credit directive) will be substantially changed.

How accessible is this legislation?

The existing legislation is already complex and hard to read. It now appears that there are no immediate plans to consolidate the new regulation into the existing Act, i.e., to have one piece of legislation with all the changes incorporated into it so that it can be read as a single text.

How does this affect the average consumer?

Some examples of how the new regulation might affect you as a consumer:

• The next time you apply to borrow money from a bank, finance house or licensed moneylender, the lender will be operating new rules in terms of the information the potential borrower is entitled to receive before the loan is agreed and the information that must be included in the credit agreement when the loan is made.
• New rules will also be in place on your right to withdraw from the agreement where you might change your mind (the ‘cooling off period’).
• It will affect your right to terminate the loan agreement early and pay a very limited amount of future interest to the lender.
• It will also affect how credit unions can lend, although they may have fewer new regulations imposed due to their social lending remit.

But surely nobody is borrowing now anyway?

Financial institutions may not be advancing much credit at the moment but these new rules governing the provision of credit are likely to be in place for quite some time and will affect ordinary people in a very concrete way. They stem from the recognition that both the forms and the marketing of credit have changed and developed in recent years and consumers therefore need enhanced information and protection when borrowing money.

FLAC will appear on Wednesday alongside migrant women’s organisation AkiDwA at a meeting of the Joint Oireachtas Committee on Justice, Equality, Defence & Women’s Rights to inform legislators about the operation of the direct provision system and the state’s human rights obligations in this regard.

FLAC Director General Noeline Blackwell said “apart from personal upset, such mass transfer suggests that consideration has not been given to the circumstances of each person. If their individual needs were assessed, the people being transferred were certainly not consulted as part of that assessment.”

“FLAC is working on direct provision because, as an organisation committed to equal access to justice for all people in Ireland, we use law reform to promote the human rights of those on social welfare. Through this work we became involved in assessing direct provision as an administrative scheme.”

“We published a report in February this year where we examined the direct provision system under a human rights lens and found that it did breach some basic rights of the people it is supposed to protect. As we said at the time, the direct provision system treats those who living in hostels like units to be administered rather than people,” said Ms Blackwell. “We must remember that many of these people will already have experienced forced separation from their loved ones in their countries of origin.”

FLAC’s report spotlighted the social exclusion of direct provision residents and called on the state to treat people awaiting a decision on their status fairly, allowing them to enjoy the basic rights to which all people in Ireland are entitled.

On Saturday it was reported that a spokesperson for the Minister for Justice and Law reform stated that “Ireland has and always will fully comply with its human rights obligations” in relation to asylum seekers. FLAC therefore calls on the Minister for Justice and Law Reform to ensure that the human rights of each individual person in his or her particular circumstance are fully respected and upheld.