Bankruptcy In The UK - Still Better? The Personal Insolvency Regime So Far

The new personal insolvency regime went live on 9 September 2013, and put into action some important and long overdue changes to our bankruptcy laws. After its first two months in operation, is it a success?

While the introduction of these schemes has set a useful benchmark for many clients when they engage in consensual negotiations with their banks, it is still early days and the simple answer is 'not yet'.

Recent press coverage and the comment from insolvency professionals indicate that the new regime has not opened a floodgate of applications for debt write-downs. Prior to its introduction, some commentators anticipated that in the first 12 months up to 15,000 individuals would apply for the non-judicial processes (Debt Relief Notice (DRN), Debt Settlement Arrangement (DSA) and Personal Insolvency Arrangement (PIA)) and that there would be over 5,000 bankruptcy applications. At Smith & Williamson we felt that these numbers were not realistic and we are not surprised by the relatively slow take-up.

Exact information is not available from the Insolvency Service of Ireland (ISI), although its website states that it "...fully intends to provide quarterly statistics once a statistically meaningful number of applications have been processed". We understand from press comment that to date only three protective certificates have been issued for a PIA and no information is available on the number of cases being processed by the ISI.

Why has the public reaction to the new legislation been so muted? Is the legislation as currently drafted fit for purpose? We have a number of observations.

Bank veto. For debts over20,000, a proposal requires 65% creditor approval. In effect, the banks control the process and the public believe that in many cases the new legislation is not workable. For example, if a debtor has been unsuccessful in reaching a compromise with their bank, why would they feel that by entering into a PIA it would yield a different result? Personal Insolvency Practitioners (PIPs). There are 82 authorised PIPs in Ireland, however many of the recognised insolvency practices are not represented. Many firms are not entering this area because of a mismatch between what they perceive to be the onerous responsibilities...

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