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Trends and Issues for Personal Insolvency in 2016 - By Jim Stafford, Dublin APIP Member (PIP)

Date added: 10 Dec 2015


On Tuesday (8th December 2015), Chartered Accountants Ireland held a Corporate Recovery and Insolvency CPD day, at which Grant Thornton, Duignan Carthy O’Neill, ourselves (Friel Stafford) and Deloitte made presentations. Listening to the presentations, and speaking with delegates over the coffee breaks and lunch break, I thought it would be useful if I set out below what were considered to be the key trends and issues for 2016 in the area of personal insolvency.

Personal Insolvency

Against the background of the recent legislative change in removing the banks’ veto in certain personal insolvency arrangements (PIAs), and given the proposed changes in reducing the bankruptcy term from 3 years to 1 year, it is predicted that the following will be the key trends and issues in 2016:

  • The number of bankruptcies will increase.
  • The number of personal insolvency arrangements (PIAs) will substantially increase.
  • The number of informal arrangements will also increase as debtors (people in debt) will now find it easier to negotiate with the banks.
  • Some settlement agreements that have been entered into by debtors and the banks over the past number of years will be revisited on the grounds that the payment terms  were unsustainable. Some debtors may be able to use the recent amendments to the personal insolvency legislation to negotiate better deals. 
  • Some of the American funds are not being as decisive as they indicated they would be, and it is taking them longer to “get their feet under the table” than they thought.
  • It will continue to be difficult to raise mezzanine finance to “buy out” the loans purchased by the American funds. It is particularly difficult to raise mezz finance for smaller deals (i.e. less than €1 million) due to the costly due diligence required.
  • Some “White Knights” are emerging i.e. individuals who are prepared to purchase income producing assets such as pubs, and enter an option agreement with the original owner allowing the original owner to purchase back the property in, say, 3 years at a “modest” profit for the white knight. In the 3 year period, the original owner continues to operate the business and pay 10% interest to the white knight. [Any White Knights out there should feel free to contact me to discuss further, as we have a number of clients who are seeking such finance.]
  • Borrowers are unable to use capital losses crystallised by receivers selling their assets. In certain cases, it might actually benefit the borrower to “pay” the bank to discharge the receiver so that the borrower may “receive” the capital loss to offset against his own future capital gains.
  • There is uncertainty over who may use historical "taxable losses" against rental income when a receiver is appointed.  Can a borrower prevent a receiver from utilising such losses as a negotiating chip with the bank in order to reach a full and final settlement?
  • The €3 million cap on secured debt in respect of PIA’s will continue to be a restraining factor for many individuals.
  • Borrowers who are treated as “property dealers” by the Revenue may continue to become liable for substantial tax liabilities if they go bankrupt i.e. bankruptcy will not write-off all of their debts. Under Revenue legislation, the borrower may “walk away” from the bank debt, but any bank debt written-off after bankruptcy is deemed to be taxable income. [The obvious way to avoid such a tax liability is to have a third-party purchase the bank debt.]

Contact Jim Stafford, Dublin APIP Member (PIP)

Jim Stafford is a partner at Friel Stafford, which is one of Ireland's leading corporate recovery and insolvency firms.  With a team of 2 partners and 15 staff, Jim Stafford and the team at Friel Stafford can handle cases ranging from just a single mortgage on a family home to complex multi-jurisdictional cases.

For further information view Jim Stafford’s APIP profile here.

Phone: 01 661 4066
Email: jim.stafford@frielstafford.ie
Address: 44 Fitzwilliam Place, Dublin 2