BANKRUPTCY

Redundancy is on the increase and employment opportunities are scarce on the ground. Pay cuts are common in the private sector, pensions levies have been imposed on civil servants, tax and levy increases came into effect in May and cuts have been made to the Early Child Care Supplement and Child Benefit. In addition house prices have decreased, as have car values, together with the ease with which people can dispose of such assets in the event they need to for financial reasons. In addition to basic living expenses, for people with mortgages, car loans, business expenses, loans and overdrafts (where the individual is liable whether as a sole trader or by way of a guarantor for a company), credit cards and other debts the implications of these financial restrictions result in many people being unable to meet their debts.

Increasingly, creditors may seek the remedy of the bankruptcy of the debtor to obtain all or some of the money owed to them. It is also open for the debtor itself to apply to be adjudicated a bankrupt.

Bankruptcy is dealt with by the High Court. The High Court transfers the property of an individual who is unwilling or unable to pay their debts to a trustee, usually the Official Assignee in Bankruptcy, to be sold. Proceedings are commenced by way of a creditor or the debtor filing a bankruptcy petition in the Office of the Examiner of the High Court. The person filing the petition must agree to pay all costs and expenses of the trustee, court fees and newspaper advertisement costs giving notice of the hearings and the bankruptcy order. An initial €650 must be lodged towards the trustee’s costs in addition to the court and advertisement costs. In addition, the debtor must have money or assets of sufficient value to produce at least €1900 in order to petition for Bankruptcy. A creditor must show that the debtor has committed an act of bankruptcy within the previous 3 months (such as the inability to comply with a bankruptcy summons requesting payment of a sum of over €1900 or the sheriff or county registrar making a return of no goods in respect of the debtor.).

The benefit to the creditor in seeking bankruptcy of the debtor is that after preferential costs and debts (such as those of the trustee, any Revenue debts, secured loans or monies owed to employees) have been paid, the proceeds of sale of the bankrupt’s assets will be divided between the remaining creditors who have given notice to the trustee of their debt. Creditors may also recoup further funds through the remainder of the bankruptcy where the trustee takes some of the bankrupt’s income or assets.

For the bankrupt there are many implications. All the bankrupt’s property vests in the trustee (including any property held abroad), save for essentials of a value of up to €3100 (or more if the High Court allows). Essentials may include bedding, tools of trade, cooking ware and clothing. The bankrupt must fully co-operate with the trustee and provide and disclose all financial information to the trustee. Pensions and salaries may be appropriated by the trustee. An allowance will be left with the bankrupt to meet family responsibilities and personal living costs which the High Court deems appropriate. Bankrupts can still retain, seek and gain employment, operate a bank account and trade as a sole trader in their own name. The trustee must be informed by the bankrupt if he intends to travel abroad as it is an offence to leave the county in order to avoid the consequences of bankruptcy. It is an offence to obtain credit of over €650 without disclosing the bankruptcy. It is an offence under the Companies Act to act as a director, manager, liquidator or receiver of a company. Bankrupts are not entitled to hold elected representative office in local authorities or in the Dáil or Seanad. An official register of all bankrupts is kept and names will never be removed from the register even after being discharged.

Bankruptcy lasts until the death of the bankrupt or until it is discharged by the High Court. There is no automatic right to be discharged. In all cases there will be no discharge unless there are sufficient funds to pay the costs of the trustee, the High Court fees, the costs of the petitioning creditor (unless the debtor applied for his own bankruptcy) and the preferential debts of the bankrupt. Upon discharge the trustee will return any funds or property remaining with the trustee after these costs have been paid.

Discharge can be applied for by the bankrupt on the basis of one of the following:-

• Payment of debts has been made in full

• All of the creditors consent to the discharge

• 60% of creditors agree to accept a payment of an agreed percentage of their debt (Offer of Composition)

• Fifty cent in the euro of all debts has been received by the creditors.

• 12 years have elapsed since the bankruptcy order was made, all property and assets have been disposed of by the trustee and the bankrupt has made full disclosure of all property acquired since the bankruptcy.

After discharge the bankrupt will have to live with the effects of the registered bankruptcy on their credit rating.

Alternatives to bankruptcy include entering into a voluntary arrangement with creditors to settle debts due or applying for an arrangement under the protection of the court to provide time to present proposals to creditors without proceedings being issued for recovery.

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Aoife Walsh is a solicitor in the Litigation and Dispute Resolution Unit of Holmes O’Malley Sexton solicitors.She can be contacted at 061-445546 or by e-mail at aoife.walsh@homs.ie

Holmes O’Malley Sexton solicitors will not accept any responsibility for loss or damage arising to any person as a result of acting or failing to act as a result of the information contained in this article.Legal advice should always be sought before acting upon any matter covered in this article.

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