What is a Personal Repayment Scheme?

Due to the 2012 economic crisis, the government introduced a series of measures to protect the persons that were most affected by it and were rendered unable to service their debts.

The Insolvency of Natural Persons (Personal Repayment Schemes and Debt Relief Orders) Law 65(I)/2015 (hereinafter «the Law») provides the Debtor with the ability to agree or impose a Personal Repayment Scheme (hereinafter «PRS») on a Creditor. PRSs have recently been increasingly used by Debtors as a tool to save their main residence, avoid bankruptcy, and to ultimately discharge all or part of their unsecured debts gaining the ability to become solvent.

How is an Insolvency Practitioner being appointed?

The Debtor initially gets in contact with an Insolvency Practitioner and provides him with all the necessary documentation, personal information and updated financial status so that the Insolvency Practitioner can assess his current financial situation and determine if he is eligible for a PRS, under the provisions of the Law.

How is a Protective Court Order issued?

If the Insolvency Practitioner determines that the Debtor is eligible for a PRS, he then proceeds with the filing of an application to the Insolvency Department (governmental) in order for the latter to examine the application and to verify if the conditions of the Law are fully met. If the Insolvency Department decides that the conditions are met, the Insolvency Department then proceeds with the filing of a court application for the issuance of a Protective Court Order.

A Protective Court Order, once issued, prohibits any creditors from proceeding with any legal actions or initiating any enforcement or execution proceedings against the Debtor. There is a 14-day time limit from the day a notice of the Protective Court Order is duly served on the creditor during which the creditor has the opportunity to apply for the annulment of such Protective Court Order, but such annulment is generally difficult to achieve. The Protective Court Order remains in force for 95 days and can be extended by court application for 40 days and again for a further 40 days, but this second extension is only available in case of a change in the Insolvency Practitioner involved.

What does the process of making a proposal for a PRS involve?

Where a Protective Court Order is issued, the Insolvency Practitioner will thereafter give written notice to the creditors concerned that he has been appointed by the Debtor for the purpose of making a proposal for a PRS and invite the creditors to make submissions to the Insolvency Practitioner regarding the debts concerned and the manner in which the debts could be dealt with as part of a PRS.

When the creditor receives the abovementioned notice by the Insolvency Practitioner, he is obligated to proceed within 20 days with the submission of a valuation of the debtor’s assets that constitute securities for the debt owed. The valuation may be challenged and then an independent valuation is instructed and is binding on the parties. The creditor proceeds with an affidavit of proof of debt within 35 days of the notice for the Protective Court Order.

Based on the information above, the Insolvency Practitioner drafts a proposal for a PRS which states explicitly the secured and unsecured amount of debt, as well as comply with certain requirements set out in the Law.

Based on the Debtor’s financial status and the remaining amount available for monthly repayments after deducting the Debtor’s monthly expenses, the Insolvency Practitioner proposes a PRS for the secured and unsecured debt’s repayment. The repayment can either be payment arrangements with the creditor, transfer of the proceeds to the creditor coming from the sale of the Debtor’s certain assets that secure the debt or any other assets of the Debtor, transfer of the secured assets to the Creditor or divestment of such assets that secure the debt by the creditor. Secured debts must be repaid as a priority. In case there is no available amount for the repayment of the unsecured debt, the Debtor will ultimately be discharged of their unsecured debt, upon successful completion of the PRS.

The maximum duration of a PRS shall be 60 months but a PRS may provide that this period may be extended for a further period of 12 months in such circumstances as are specified in the terms of the PRS. The PRS shall not contain any terms which would require the Debtor to make payments of such amount that result in the Debtor not having sufficient income to maintain a reasonable standard of living for him and his dependants. The Debtor will be discharged of his unsecured debt by the end of the 60-month period and the successful fulfilment of the terms set forth in the PRS.

What is the scope of a creditors’ meeting?

After the proposal for the PRS and whilst the Protective Court Order is still in force, the Insolvency Practitioner convenes a Creditors’ Meeting, during which all the Debtor’s creditors examine the proposal and vote for its approval or rejection. Where a Creditors’ Meeting does not take place before the expiry of the Protective Court Order, the PRS procedure is deemed to have come to an end.

When is a PRS considered as consensual and when as non consensual?

If a PRS is approved by the Creditors’ Meeting, the Insolvency Practitioner notifies the Insolvency Department in order for the latter to proceed with the filing of a court application for the ratification of the PRS. The Insolvency Practitioner will also send a notice to each creditor indicating that they may file an objection to the entry into force of the PRS by lodging a notice of objection with the competent court, within 14 days of the date of the sending of that notice.

In case the PRS is rejected by the Creditors’ Meeting, the Protective Court Order is deemed to have come to an end. In more limited cases and if specific criteria and requirements set out in the Law are met, the Debtor may proceed with the filing of an ex-parte court application for the issuance of an order imposing the PRS on the creditors. An example of such requirements concerns the value of the Debtor’s main residence that has to be under €350.000 for the Debtor to be eligible for a non consensual PRS. There is also a criterion that the Debtor’s income must have been decreased by more than 25% from the day he concluded the credit agreement with the creditor, compared to his income immediately before the issuance of the initial Protective Court Order.

A creditor has the opportunity to apply for the annulment of such order within 15 days from the day the order imposing the PRS was duly served on the creditor. The main grounds for annulment relate to non fulfillment of the criteria for a non consensual PRS or non compliance of the mandatory requirements under the Law. The creditor may also apply for an annulment in case a material inaccuracy or omission exists in the Debtor’s personal information and financial status which causes material detriment to the creditor.

When is a PRS entered into and when is terminated?

In the event that the PRS is either ratified or imposed, its provisions are effective from the day of issuance of either the ratification order or the order imposing the PRS.

If the Debtor fails to comply with the provisions of the PRS, the creditor can file a court application for the termination of the PRS. There are even provisions under which a PRS is deemed as automatically terminated for non compliance by the debtor.

Vassilis Papadopoulos
Advocate

Disclaimer: The above is offered as a simplified general outline for the purpose of this Article and does not constitute legal advice.