In the United States, it’s common knowledge that sending someone to debtors’ prison for nonpayment of a debt is out of the question. This has not been the case in Ireland, however.

Until as recently as June 18, 2009, creditors in Ireland could obtain an Installment Order from a court. The Order stated the terms of payment required of the debtor. If the debtor did not pay per the Installment Order, an attorney could seek the arrest (Committal Summons) of the debtor.

The article below from one of our Irish attorneys explains a substantial change in the Irish law. A High Court has ruled that imprisonment for failure to adhere to an Installment Order is unconstitutional.

It’s a game changer and we wonder about the long-term implications.

David Greenberg, AVP International
ABC-Amega Inc.

Change in the Irish Law re Committals

In a judgment handed down by Judge Laffoy of the High Court [of Ireland] on 18 June 2009, the applicant Caroline McCann obtained, in judicial review proceedings, an order quashing a Committal Order issued by Monaghan District Court. The order provided for Ms. McCann’s arrest and imprisonment for installments that were in arrears and not paid.

Judge Laffoy ruled that the legislation that allowed the District Court to issue such an order – Section 6 of the Enforcement of Court Orders Act 1940 – was unconstitutional on a number of grounds. Chiefly, that the legislation breached Ms. McCann’s rights to fair procedures and personal liberty under the [Irish] Constitution.

The decision was given in judicial review proceedings taken by Ms. McCann against a number of State organs, including the District Court Judge, the Garda Commissioner, the Prison Service, the Minister of Justice and the Attorney General.

FLAC (Free Legal Advice Centres), an independent Irish human rights organization, suggests that among the factors that led to this finding are:

The Section reverses the onus of proof, even though a prison sentence is the likely outcome.
The attendance of the debtor in court is not compulsory, allowing the process to go forward in the debtor’s absence.
Legal aid (civil or criminal) is not available from the State for debtors to defend their position.

In the absence of a stay on the judgment, which does not seem to have been given – or of a successful appeal to the Supreme Court – the declaration of unconstitutionality of Section 6 appears to amount to a judicial death certificate for the provision itself.

It should be noted that Section 6 deals with the Committal Order only. The Court’s decision will presumably not affect a creditor’s entitlement to obtain an Installment Order, for what one is worth, on its own.

Implications

The implications of this declaration of unconstitutionality may be far-reaching. There are currently people serving time in prison for contempt of court, arising from their failure to meet the requirements of court issued Installment Orders.

Moreover, it seems clear that as a result of this judgment, District Court Offices will no longer issue Committal Orders in the absence of fresh legislation. District Judges are also likely to strike out any committal applications currently before them. In the absence of any legal alternative, one can only conclude that creditors have one less option than they had before June 18th for the collection of money due to them by Irish debtors.

We are not yet aware as to whether this judgment will be or has been appealed. The judgment itself does not provide guidance as to what should now happen with currently pending committal applications.

FLAC suggests that the effect of the judgment is as follows:

Section 6 applications to seek the arrest and imprisonment of a debtor defaulting on an Installment Order will not be entertained.
Existing Committal Orders already granted under Section 6 can no longer be executed.
Persons in jail due to Committal Orders already granted under Section 6 may have to be released.

This does not mean that debtors should now ignore the terms of Installment Orders, as the McCann judgment only impugns the committal process. It does not wipe out debts themselves or invalidate Installment Orders.

In any event, under current Irish law, a debtor can apply for a variation of an Installment Order at any time. In particular, when the debtor has not attended the original hearing to set the installment, and an order has been made for an amount he cannot afford. Installments should be made to reflect the debtor’s real financial situation. Debtors can also apply for legal aid (advice and representation) from the Civil Legal Aid Board and can seek the assistance of the Money Advice and Budgeting Service (MABS).

Alternatives for Creditors

There seems to be an implication in Judge Laffoy’s judgment (though the text is not yet available) that an alternative scheme with appropriate safeguards might be called for – one which would not have the net result of the imprisonment of a debtor unable to pay the arrears ordered. It is unclear if Judge Laffoy was considering attachment of earnings/social welfare payments, or draft legislation which has previously been before the Oireachtas (the National Parliament or legislature of Ireland). At any rate, even when striking down legislation they hold to be unconstitutional, High Court Judges are not allowed to propose an alternative.

Potential Outcomes of the High Court Ruling on Committals

Ireland’s Minister for Justice has indicated that legislation amending the law found unconstitutional by Judge Laffoy will be introduced before the end of July 2009.

The Minister has stated that the new legislation will have the effect of ensuring that, if a debtor does not appear in court, a summons can be issued. If he still fails to appear, an arrest warrant will be issued in order to bring him before the court. This will enable the court to hear the debtor; satisfy itself that he has willfully refused to pay; and that all other possible steps, including installment payments and mediation, have been taken to recover the debt.

The court will not imprison the debtor unless it is satisfied that he has the means to pay but has failed or refuses to do so. This should provide creditors with a remedy against debtors who refuse to pay, while still protecting the rights to liberty and fair procedures of those who simply cannot pay.

As with all legislation though, the devil is in the details and we await publication of the text of any forthcoming legislation.

*****

Jason Harte is a senior associate in the debt recovery department of Mason Hayes+Currant, a leading business law firm with offices in Dublin, London and New York, and the Irish member of the global network of independent collection professionals, TCM Group.

The content of this article is provided for information purposes only and does not constitute legal or other advice.

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This information is provided by ABC-Amega Inc. -- providing 1st and 3rd party commercial collection services since 1929, and collecting in more than 200 countries worldwide. For further information, contact info@abc-amega.com.