RECENT DEVELOPMENTS IN IRELAND
Despite sustained economic growth and a consumer credit boom over fifteen odd years, successive Irish governments have failed to update and modernise the debt enforcement infrastructure in line with the more progressive systems in operation across most of the European Union. The focus instead has been to gradually increase the funding for the Money Advice and Budgeting Service (MABS). Whilst MABS has by and large done a very good job on behalf of over-indebted people in negotiating with creditors outside the confines of the legal system, its work has been hampered by outdated legislation that belongs to another era. It is also a service that has come under huge pressure as the boom recedes rapidly and in its place comes a deepening recession.
The most extreme illustration of this outdated approach lies in the Enforcement of Court Orders Acts 1926 – 1940. This legislation allowed for the potential imprisonment of a debtor who fails to meet the terms of an Instalment Order made by his/her local (District) court to repay a judgment debt and who does not prove that this failure to pay was not due to his/her wilful refusal or culpable neglect. According to figures supplied by the Department of Justice, Equality and Law Reform in January of this year, 276 persons spent time in Irish prisons in 2008 for so called ‘debt offences’. Not all of these are related to civil debt as some of them may be maintenance (or alimony) cases. An exact breakdown is not available. However, we do know that the average length of sentence was 27 days and the average length of time served was 20 days. Quite apart from the gross violation of human rights standards, this is a scandalous waste of taxpayer’s money at a time when cuts in public spending are accelerating. It does not help creditors to get paid either and many of the creditor representative groups are also in favour of reform.
The ‘McCann’ case
On a positive note, events so far in 2009 have seen the beginning of some badly needed changes. On June 18th 2009, judgment was delivered by Laffoy J in the ‘McCann’ case in the High Court, an action that challenged the constitutionality of Section 6 of the Enforcement of Court Orders Act 1940 and its compatibility with the European Convention on Human Rights and Fundamental Freedoms. Ms McCann, a single parent with two children, had been sentenced to one month in prison in her absence by her local District Court following debt enforcement proceedings brought against her by a credit union. It had obtained a judgment for just over €18,000 on a loan that Ms McCann had failed to pay due to financial, family and personal difficulties. This was followed by an application for the debt to be repaid by instalments. An Instalment Order was made for €82 per month. Ms McCann did not attend this hearing, as she did not sufficiently understand the nature of the proceedings given her limited educational background and did not (at the time) have access to legal or financial advice. Surviving on a social security payment and living with her mother in local authority accommodation, Ms McCann could not pay the Instalment Order amount and arrears quickly developed. The credit union applied for her arrest and imprisonment and an order to serve one month was granted.
By that time, Ms McCann had become a client of a MABS service who in turn had sought legal advice from our colleagues in Northside Community Law Centre (NCLC) on her behalf. NCLC looked to extend the 14 day time period to appeal the order to the Circuit Court which had elapsed. This application was denied in the District Court and the constitutional challenge followed. The judgment of the court is critical of the continuance of a scheme of enforcement of debt that is described a vague and lacking in guidance for either creditor or debtor. In summary, the judgment finds Section 6 of the 1940 Act deficient on three grounds. Firstly, it allows for the imprisonment of the debtor in his/her absence. Secondly, the onus of proof is on the debtor to show that his/her failure to pay the instalments is not due to ‘wilful refusal’ or ‘culpable neglect’. Thirdly, the State does not provide legal representation for the debtor to defend him or herself. Given that the sanction that can be imposed at such a hearing is a term of imprisonment, these were found to be unacceptable infringements on a debtor’s right to liberty and fair trial procedures. Having found the section unconstitutional, the Court did not find it necessary to deal with the question of its compatibility with the European Convention.
The publication of the judgment sparked applications for the release of debtors who had been imprisoned under the terms of this section and the adjournment of other cases where committal applications were pending. The Minister for Justice, Equality and Law Reform, Dermot Ahern, T.D. ordered the release of a number of debtors and by 10 July it was reported by the Minister that ‘there were no loan defaulters in Irish prisons’. On 29 June, the government approved the drafting of the Enforcement of Court Orders (Amendment) Bill 2009, signalling its intention to shore up the committal procedure in relation to debt with emergency legislation. The press release that accompanied this announcement left no doubt that the Department still valued the potential option of imprisonment as it stated that the procedure ‘is used sparingly by the courts, even prior to the High Court judgment. However, its value is its persuasive power – people tend to settle up when they know they are at risk of prison.’
In summary, the Bill attempts only to rectify the defects identified in McCann and no more, with the press release specifically referring to the upcoming publication of the Law Reform Commission’s consultation paper on debt enforcement in September as a possible source of future changes. However, at least the imprisonment of a debtor without establishing his or her capacity to make instalment payments should immediately become a thing of the past, as the Bill basically makes attendance at the committal hearing compulsory. It also provides that the onus from now on will be on the creditor to establish that the debtor’s failure to pay instalments was due to wilful refusal or culpable neglect and finally, it provides for the debtor’s right to criminal legal aid where s/he cannot afford a solicitor.
The FLAC report
On July 6th in Buswells Hotel in Dublin, singer and songwriter, Mary Coughlan, launched FLAC’s report ‘To No One’s Credit’, a study of the debtor’s experience of Instalment and Committal Orders in the Irish legal system. The publication of this report is the culmination of three years research work that commenced with a series of 38 in-depth interviews with clients of the Money Advice and Budgeting Service (MABS) through the course of 2006. The main purpose of this study was to hear the views of those affected by debt enforcement procedures and indebtedness generally. In the course of a detailed questionnaire, a wide ranging series of observations are made by those interviewed that emphasise, in some cases very poignantly, the fear, stress, confusion and sense of helplessness and hopelessness felt by some in debt who find themselves on the receiving end of legal proceedings and the consequences for them and their dependants.
The key findings of what is a lengthy report include:
- Two-thirds of debtors were social security recipients at the time legal and debt enforcement proceedings were brought against them and the remainder were on limited incomes, having suffered an adverse change in their financial circumstances.
- A significant majority of those interviewed said they did not understand much of the legal documentation and their options at various stages of the procedure.
- A number claimed not to have received documents served by registered post that others had signed for and had not passed on to them.
- Many were unaware of where to get assistance and looked for help from MABS or other sources far too late in the process. Informal offers of payment by debtors were generally refused by creditors but similar offers made by MABS money advisors were usually accepted.
- There was great reluctance to appear at debt enforcement hearings in open court unless MABS advice had been received. Of 27 applications for Instalment Orders, 23 failed to send in details of their finances or attend the hearing so that the Court set instalments with out-of-date or no financial information. This resulted in only one out of 27 Instalment Orders being fully paid.
- Of 22 applications for arrest and imprisonment, 16 resulted in Committal Orders being granted. Not one of these 16 debtors was in court to defend his/her position. Three successfully appealed to the Circuit Court, two paid the arrears with borrowings and five served terms of imprisonment. The remaining six creditors eventually declined to follow through on the execution of the committal when it became apparent (usually through MABS) that there was inability as opposed to unwillingness to pay, clear proof of an inefficient system that allowed matters to progress so far.
A brief summary of some recommendations includes:
- Court documents should be simplified and explanatory booklets should be available which would include details of where those in debt can get help at the earliest opportunity.
- The money advice approach of presenting verifiable financial information should be the basis upon which assessments should be made of those with limited capacity to pay, ideally prior to any legal proceedings being brought. All debts should be taken into account on a pro rata basis.
- Advice should be available from the Legal Aid Board to verify debts and where appropriate, legal representation should be available to defend claims.
- The Instalment Order procedure should be completely reformed. Hearings should take place in private and the attendance of the debtor should be compulsory.
- Far more extensive information should be available on participation in debt enforcement proceedings, in order to frame future policy. Creditors too should have access to more comprehensive information in order to prevent pointless applications.
- Imprisonment should be removed as an option for those unable to pay their debts and non-penal remedies such as attachment of earnings should be examined.
- A Debt Rescheduling Service operating in private could be set up as an alternative to deal with debt enforcement cases. It could have a debt settlement role in consumer bankruptcy cases where a person’s debt situation is chronic and unlikely to be resolved in the long term.
It is regrettable that the government did not seize the opportunity in better economic times to reform the laws in relation to debt enforcement in Ireland, in particular because a downturn was inevitable and the casualties of that downturn are growing. However, the recent High Court judgement in the McCann case has resulted in new legislation that takes out the more extreme outcomes of our outdated procedures. There is now a chance to build on that progress and to haul our debt enforcement system into the 21st century.
The Law Reform Commission’s (LRC) forthcoming Consultation Paper on debt enforcement, due to be published before the end of September, presents the ideal opportunity to achieve that goal. The LRC has consulted widely in preparation for this publication and the indications are that it will take a broad rather than a narrow approach to the subject. It is encouraging that the Minister for Justice, Equality and Law Reform, Dermot Ahern, T.D., during the course of a Parliament debate on the Enforcement of Court Orders (Amendment) Bill on 10 July, has flagged his support for this work. Specifically, he said that ‘it will lead to the publication of a major paper next year in which it (the LRC) will make recommendations for any in-depth reform of this area, which undoubtedly is overdue. The Commission has lengthy experience of broad consultation and produces excellent, workable solutions in complex areas. I have no doubt that it will take into account the jurisprudence, as well as the detailed and helpful research produced this week by FLAC. Any other issues arising in this area can and will be considered in that context’.
For hard-pressed borrowers facing an uncertain future, many of whom have found their financial situation deteriorating beyond their control, it cannot come quick enough.
You can download FLAC's report and executive summary in PDF format at www.flac.ie/publications
Paul Joyce is Senior Policy Researcher at the Free Legal Advice Centres in Dublin.