Debt issues and self-employed people
Small businesses can find themselves with cash flow problems because they are unable to get money owed to them by other individuals or businesses. In turn they may have difficulties meeting their obligations. This document looks briefly at debt from the perspective of the debtor (or the person who owes the money). If you are owed money the procedures are similar.
If you operate as a sole trader, you are personally liable for your debts. This means that your personal assets can be targeted by your creditors. If you form a company, then the company is responsible for its debts and your personal assets cannot be targeted unless you have given personal guarantees for the company debts. It is very important to ensure that you keep separate accounts for your business and personal money.
Most debts arise because you have failed to meet the terms of a contract. For example, you enter into an agreement to buy equipment by instalments and you fail to pay. It is a breach of contract to fail to pay such debts; it is not generally a criminal offence. It is a criminal offence to fail to pay certain debts. For example, it is an offence not to pay your taxes, second home charge or TV licence fee. You may be charged and convicted for failure to pay such debts. Even if you are charged, convicted and fined, you still owe the debt and can be sued for it in the normal way.
How are debts recovered in the courts?
The procedures and the documents that are used are different depending on which court is involved and sometimes on which kind of debt is involved. The proceedings are started by the person to whom you owe money. That person (or group of people or company) is the creditor and the plaintiff in the case. You are the debtor and the defendant in the case.
- If you owe less than €6,350, the court proceedings must be brought in the District Court. Proceedings are started when the creditor issues you with a Civil Summons.
- If you owe between €6,350 and €38,091, the court proceedings must be brought in the Circuit Court. Proceedings are started when the creditor serves you with an Ordinary Civil Bill.
- If you owe more than €38,091, the court proceedings must be brought in the High Court. Proceedings are started when you are served with a Summary Summons by the creditor.
You can find out more about court procedures on the website of the Courts Service.
If the creditor gets a judgment against you, this means they are entitled to use various mechanisms to get the money from you. Read more in our document on enforcement of judgments.
What is bankruptcy?
Bankruptcy means that you legally declare that you are insolvent and unable to pay your debts. Bankruptcy proceedings are carried out in the High Court and can be very expensive and time-consuming. Declaring yourself bankrupt is a very serious step. Read more about bankruptcy.
Bankruptcy happens to an insolvent individual or partnership not a company. In the case of a partnership, all the partners are made bankrupt. If your business is a company which is insolvent it may be wound up or put into receivership or administration. You can read more about closing your business.
Three new debt resolution mechanisms are being introduced in 2013 for people who cannot afford to pay their personal and mortgage debts. The Insolvency Service of Ireland will oversee these debt resolution processes. The new system is being set up under the Personal Insolvency Act 2012 (pdf)
The rules on bankruptcy will also change when the Personal Insolvency Act is fully in effect.
The Money Advice and Budgeting Service (MABS) recommends that you should try to negotiate an affordable and sustainable arrangement with your creditors before considering bankruptcy. Another option is to apply for an arrangement under the protection of the High Court. This means that you ask the High Court for protection against proceedings to give you time to present a proposal to your creditors – perhaps to pay them a proportion of the debts. Contact your local MABS office.
Where can I get help with problem debt?
If you are a sole trader and are having difficulties with managing your personal finances the Money Advice and Budgeting Service (MABS) is a free and confidential service for people in Ireland with debt and money management problems. Although MABS does not deal with business debts, money advisors can help with your personal debts and with household money management.
The Chartered Accountants Voluntary Advice service (CAVA) can give free advice and assistance on your business affairs such as bookkeeping, business debts, VAT or payroll issues. Contact your local Citizens Information Service Service or MABS office to see if they offer the service. You can also call (01) 6377218 or email firstname.lastname@example.org.
I'm having difficulties getting credit. Is there anywhere I can get help?
Many small businesses have difficulty getting credit. Your Business Your Bank (pdf) is a guide on getting funding for small and medium businesses. It includes information on how to prepare a bank credit application.
If you have a small or medium business and your application for credit is refused by one of the participating banks you may apply to the Credit Review Office to have your case reviewed. To be eligible for a review your application must have been in writing. There is a bank lending application form on the website of the Credit Review Office. The fee for the review ranges from €100 up to a maximum of €250.
The Credit Guarantee Scheme, which started on 24 October 2012, is part of the Action Plan on Jobs. It aims to encourage additional lending to small and medium businesses who are commercially viable but have difficulty in accessing credit. Under the Scheme eligible applicants will be assisted in obtaining a loan and in establishing a favourable credit history. You can find out more in the information booklet about the Scheme (pdf). There are also Customer Frequently Asked Questions (pdf) as well as details of eligibility criteria (pdf).
In February 2009 the Financial Regulator published a Code of Conduct for Business Lending to Small and Medium Enterprises (pdf). The Central Bank has published a revised Code of Conduct for Business Lending to Small and Medium Enterprises (pdf) which came into effect on 1 January 2012.