Bankruptcy - Ireland

TABLE OF CONTENTS 1. What are the different types and aims of insolvency proceedings?  2. What are the conditions for opening each type of insolvency proceedings?  3. What is the role of the various participants in each type of proceedings?  4. What are the effects of the opening of proceedings?  5. What are the specific rules related to certain categories of claims?  6. What are the rules relating to detrimental acts?  7. What are the conditions for the lodgement and admission of claims?  8. What are the rules relating to reorganisation proceedings?  9. What are the rules relating to the winding-up proceeding?  10. What are the conditions for the closure of the proceeding?

 

1. What are the different types and aims of insolvency proceedings?

Definition : “Bankruptcy is a law for the benefit and the relief of Creditors and their debtors , in cases in which the latter are unable or unwilling to pay their debts”

- Re Reiman 20 Fed Cas 490 (1874)

Bankruptcy Law applies only to debtors who are individuals. It is contained in the

Bankruptcy Act, 1988. To be adjudicated Bankrupt the Debtor must have committed an “act of Bankruptcy”. These are defined in Section 7 subsection (1) of the Act. The act of Bankruptcy most commonly cited in Bankruptcy proceedings is

Section 7(1) (f) which provides that a debtor has committed an act of Bankruptcy

“if execution against him has been levied by the seizure of his goods under an order of any court or if a return of no goods has been made by the sheriff or county registrar whether by endorsement on the order or otherwise”

Pre insolvency proceedings:

1. Bankruptcy Summons

This demands payment of the sum due within 14 days in default of which the debtor will have committed an act of Bankruptcy (Section 7 (1) (g))

2. Petition for arrangement

The debtor can Petition the Court for protection from Bankruptcy proceedings so that he can put an offer of composition to his creditors. If the offer is accepted by three-fifths in number and value of his creditors and approved by the Court then it is binding on all his creditors. If the offer is not accepted or not approved by the Court then the Court itself may adjudicate the debtor Bankrupt.

Formal Insolvency Proceedings:

These proceed by way of Petition (which must issue within three months of the commission of the act of Bankruptcy) grounded on Affidavit.

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The Petition, Affidavit and all other forms required in Bankruptcy proceedings can be found in appendix O of the Rules of the Superior Courts Statutory Instrument no. 79 of 1989

2. What are the conditions for opening each type of insolvency proceedings?

Substantive Conditions:

Commission of an Act of Bankruptcy as set out in Section 7 (1) of the Bankruptcy Act, 1988

The Debt must be a liquidated amount and not less that €2,000-00

There are conditions as to domicile/residence within the State (Section 11 of the Act)

Who can request the opening of Bankruptcy proceedings?

A creditor

The Debtor

Publicity Requirements :

The Petition must be served personally on the Debtor.

If the debtor is adjudicated Bankrupt notice of Adjudication must be published in the Iris Ofigiuil (The Official Gazette), A National Daily and, where applicable, a local Daily.

3. What is the role of the various participants in each type of proceedings?

The Court

Only the Court can adjudicate someone Bankrupt

For practical purposes, all steps in a Bankruptcy require Court approval

The Official Assignee in Bankruptcy

When someone is adjudicated Bankrupt their property vests in the Official Assignee in Bankruptcy. The Official Assignee deals, subject to the approval of the Court (Section 61 (7)), with all practical aspects of the day to day running of the Bankruptcy - such as disposing of the Bankrupt’s assets and certifying to the Court who the creditors of the Bankrupt are for the purposes of Irish Bankruptcy Law. The powers, duties and functions of the Official Assignee are set out in part III of the Bankruptcy Act, 1988.

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Duties of the Debtor

Among other duties, the Bankrupt is required to disclose all property to the court; to deliver up to the Official Assignee all property in his/her custody or control; to deliver up to the Official Assignee all books and papers relating to his/her estate.

Section 123 of the Bankruptcy Act, 1988 sets out 16 separate offences commissable by a Bankrupt all of which fall under the broad heading of failure to co-operate with the Court in the administration of the Bankrupt’s estate.

4. What are the effects of the opening of proceedings?

Definition of Assets

““Property” includes money, goods, things in action, land and every description of property, whether real or personal and whether situate in the State or elsewhere; also obligations, easements, and every description of estate, interest, and profit, present or future, vested or contingent, arising out of or incident to property as above defined”

- Section 3 of the Bankruptcy Act, 1988.

Nature of Divestment of the Debtor

The Debtor’s property vests in the Official Assignee on adjudication – Section 44 (1) of the Act.

5. What are the specific rules related to certain categories of claims?

Categories of Claims to be lodged

1. Preferential Claims

2. Non Preferential Claims

The several claims within each of the above categories rank pari passu as between themselves.

Preferential Claims, as a generality, include rates, taxes and social insurance contributions. They are set out in detail in Section 81 et seq. of the Act. It should be noted that the costs of the Bankruptcy rank in priority to all claims pursuant to Section 80 of the Act.

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Third Parties’ Rights

These are quite limited and are dealt with in part III of the Act. Particular reference is made to property held by the Bankrupt as a Trustee and there are certain limitations on the Official Assignee’s powers in relation to copyright.

6. What are the rules relating to detrimental acts?

Annulment of a Bankruptcy

Section 16 of the Act sets out a procedure whereby a Bankrupt may “show cause” against the validity of the Adjudication Order. Showing cause basically consists of asserting to the satisfaction of the Court that one or more of the requirements set out under the heading “ Substantive Conditions” at Question 2. abovehave not been met. If a Bankrupt succeeds in showing cause then the Court is required to annul the Bankruptcy. If the Bankrupt fails in an application to show cause there is a right of appeal to the Supreme Court.

7. What are the conditions for the lodgement and admission of claims?

Lodgement and admission of Claims:

This is dealt with in the (lengthy) first schedule to the Bankruptcy Act.

Only Creditors who prove their claims in the Bankruptcy can share in any dividend. The Official Assignee can fix the time within which claims must be submitted. Proof of Debt may be furnished by way of a detailed statement of account, an affidavit of debt or other prescribed means.

8. What are the rules relating to reorganisation proceedings?

Not relevant to Bankruptcy except for the Petition for Arrangement referred to under

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“Pre Insolvency Proceedings” at Question 1. above.

9. What are the rules relating to the winding-up proceeding?

Winding up in Irish Law is a term of art relating to the Liquidation of Companies and therefore not relevant to Bankruptcy. Realisation of assets and distribution of proceeds in a Bankruptcy are dealt with in part III of the Bankruptcy Act, 1988 already referred to.

10. What are the conditions for the closure of the proceeding?

To be discharged from Bankruptcy :

1. The Bankrupt must pay off all debts and costs plus interest – Section 85 (3)(a)(i) or

2. The Bankrupt must pay off all costs and preferential claims and obtain the consent

of all creditors – Section 85 (3) (a) (ii) or

3. The Bankrupt’s estate must be fully realised, all costs and preferential claims must

be paid off and creditors are paid 50 cents in the Euro – Section 85 (4) (a) or

4. The Bankrupt’s estate must be fully realised, all costs and preferential claims must

be paid off , a dividend must have been paid and the Bankrupt and/or friends must

pay such sum to creditors as, when added to the dividend, brings it up to 50 cents in

the Euro – Section 85 (4) (b) or

5. The Bankrupt’s estate must have been fully realised, all costs and preferential

claims must have been paid, all property acquired after the adjudication order

must have been disclosed, the Bankruptcy must have subsisted for 12 years and the

Court must be persuaded that it is reasonable and proper to grant a discharge from

Bankruptcy – Section 85 (4) (c)

Stigma

An undischarged Bankrupt suffers certain statutory disabilities such as not being entitled to operate a Bank Account ; being prohibited from being a Company Director or in any way concerned with the management of a company – Companies Act, 1963 Section 183 ; being prohibited from being a member of Parliament or of a local authority.

On discharge, any property remaining in the hands of the Official Assignee automatically revests in the discharged Bankrupt. A discharged Bankrupt can set up a business in the same way as anybody else.

At a commercial level a discharged Bankrupt will presumably have difficulty getting any kind of credit.

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Last update: 15-02-2005