Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

I thank the committee for making time available to discuss the motion. It relates to the exercise by the State of the option to adopt and apply the proposal for a regulation of the European Parliament and of the Council amending Council Regulation (EC) No. 1346/2000 on insolvency proceedings. The legal basis for the Commission proposal is to be found in Title V of Part Three of the Treaty on the Functioning of the European Union. Consequent to the terms of the proposal, we have three months to exercise the option, which we share with the United Kingdom, to take part in the adoption and application of relevant measures. We have been informed that the three-month period will expire on 10 April 2013. Accordingly, if we are to exercise our option, it is necessary to obtain the prior approval of both Houses of the Oireachtas before that date.

Members will be familiar with the procedure on protocol measures as a large volume of proposals which attract the provisions of the protocol have come before the Oireachtas in recent years. The proposal under consideration today is designed to revise the current EU insolvency regulation which entered into force on 31 May 2002 and to streamline cross-border insolvency proceedings whether they apply to a single company, a group of several companies or a natural person engaged in trade or professional activities or acting as a consumer. The current EU insolvency regulation provides a framework to determine in which member state insolvency proceedings should be commenced where a debtor has assets or creditors in more than one member state. It also provides for the EU-wide recognition of proceedings. The regulation determines which court has jurisdiction for opening insolvency proceedings.

The Commission's proposal for a revised and modernised regulation was published on 12 December 2012 and forms part of a wider response to the economic downturn being experienced across Europe. Modernised, cross-border insolvency law to make proceedings more efficient can benefit debtors and creditors throughout the EU. The debt crisis of the past number of years has had a direct effect on many EU citizens, their jobs and business activities. As current President of the EU, Ireland was pleased to facilitate the political launch of the proposed regulation. The initial discussion of the proposal took place at the informal meeting of the Justice and Home Affairs Council which took place in Dublin on 18 January 2013. The Council engaged in a lengthy and constructive discussion of the proposals and their broad thrust received a very positive political welcome from Ministers.

A major new focus of the regulation is that it facilitates a move away from the traditional liquidation approach to insolvency to a second chance approach for viable businesses and honest entrepreneurs in financial difficulties where cross-border insolvency proceedings are involved. The regulation does not apply in strictly domestic insolvency proceedings. The key features of the revised regulation include: new procedures in regard to pre-insolvency or hybrid insolvency proceedings which were not in the original scope; greater co-operation between courts and liquidators involved in cross-border main and secondary insolvency proceedings; clarification of the centre of main interest, COMI, test, to reflect European Court of Justice judgments in regard to the opening of insolvency proceedings where the location of the COMI of the debtor may be in contention; a new approach to the co-ordination of the insolvency of cross-border groups of companies; an enhanced approach to the treatment of secondary proceedings opened for the same debtor as in the primary proceedings; and the development of standard, multilingual insolvency registers so as to improve the information on and lodging of insolvency claims.

The Commission’s proposal extends the scope of the regulation by revising the definition of "insolvency proceedings" to include the restructuring of a company at a pre-insolvency stage and permit hybrid proceedings which may leave the existing management in place as well as debt discharge and other insolvency proceedings for natural persons where these processes exist in a member state. This is a critical and important extension of the scope of the regulation, one which we feel is a desirable objective and is in tune with Ireland’s domestic approach to seek, where possible, to provide a mechanism to restructure potential economically viable debtors, as detailed in the Personal Insolvency Act 2012.

The proposal also includes a new rule in respect of secondary insolvency proceedings. The current insolvency regulation allowed secondary insolvency proceedings to be opened in a member state where the main proceedings had been opened in another member state by court in accordance with the COMI test. However, these secondary proceedings could only be winding-up proceedings. This stipulation has now been dropped, primarily to facilitate the second-chance approach. It is proposed that there be a requirement on the court seized of a request to open secondary insolvency proceedings - to consult with the liquidator or the court in the main proceedings and to postpone or refuse the secondary proceedings where they are not necessary to protect the interests of local creditors. In either postponing or refusing to open secondary proceedings, the court will have to consider what undertakings the main liquidator in the main proceedings has made to the creditors in the secondary proceedings. These undertakings would likely be along the lines of providing at least as good a return to those creditors as they would obtain if they sought to open secondary proceedings. There is also to be a greater requirement for co-operation and communication by the courtsinvolved in insolvency proceedings relating to two or more members of a group of companies.

The proposed insolvency regulation also includes a requirement for member states to establish an insolvency register available to the public containing information on the debtor and the liquidator, as well as information relating to the insolvency proceedings. These insolvency registers are to be interconnected and accessible via the European e-justice portal. The European Commission has been conducting a pilot project in this regard with certain member states.

The Commission’s most newsworthy proposal is, perhaps, the retention, with some modification, of the now established concept of centre of main interest, COMI. The modifications proposed are designed to ensure that the COMI test is consistent with the body of case law from the European Court of Justice and elsewhere that has developed since 2002 in regard to the operation of the regulation. The COMI test is now extended to private individuals or natural persons in cross-border insolvency proceedings. There will be a duty on the court that is requested to open the insolvency proceedings to examine the COMI of the debtor and specify the ground on which the court’s jurisdiction is decided. Creditors from other member states will have a right to challenge the court’s decision. It is a matter for the court concerned to satisfy itself that the provisions in its national law in this regard have been observed.

In this area of jurisdiction, we must be conscious of the need to avoid abuses in this regard, often described as forum shopping or bankruptcy tourism. At the informal EU Justice and Home Affairs Council meeting in Dublin on 18 January last, Ministers were concerned as to the need for a more uniform approach to the establishment of the centre of main interest so as to combat potential abuses. However, on the other hand, it must be acknowledged that a company or natural person is entitled to change a COMI and could do so for a number of purposes. This entitlement arises under the broad rubric of freedom of movement in the Internal Market and such freedom has been enforced by decisions of the European Court of Justice. Thus, it is likely that despite our reform, we may continue to see a number of Irish people establishing a COMI in the UK, with the ultimate intention of taking advantage of the lower discharge period for bankruptcy there. However, we have also seen in regard to several Irish applicants, some of them very notable persons, that the UK courts can and have refused to accept or have revoked jurisdiction in insolvency proceedings where an abuse has been detected.

As President of the Council, I have made it clear that I want to facilitate a comprehensive and intensive examination of the regulation during the Irish Presidency. This priority is reflected in the current scheduling of eight meeting days of the relevant Council working group. This approach is shared by my colleague, the Minister for Enterprise, Jobs and Innovation, whose Department is centrally involved, given its responsibility in regard to corporate insolvency. Thus, it is important that Ireland responds positively to the proposal by exercising its right to opt into discussions on the regulation. This will maximise our ability to influence the shape of the final outcome. However, it should be emphasised that exercise of our opt-in does not necessarily mean that all elements of the Commission’s proposal are acceptable. During the continuing negotiation of the regulation, the Departments concerned will, of course, seek any necessary legal advice from the Office of the Attorney General as required.

By way of background, the proposal which we are discussing today has been initiated by the European Commission as part of its response to the economic downturn across Europe. The objective of the proposed reform is to modernise cross-border insolvency law to make cross-border insolvency proceedings more efficient, benefiting debtors and creditors throughout the EU. The new regulation is designed to give potentially viable companies and entrepreneurs a second chance before being declared insolvent and is seen as part of the justice for growth agenda. The proposed regulation reflects a high political priority at European level to take measures aimed at creating sustainable growth and prosperity in Europe. The economic crisis has led to an increase in the number of failing businesses across member states. Statistics published by the European Commission in December last show that in the period from 2009 to 2011, an average of 200,000 firms per year in the EU became insolvent. Approximately one quarter of these corporate insolvencies have a cross-border element and 50% of all new businesses do not survive the first five years. It is estimated that 1.7 million jobs per year are lost throughout Europe due to insolvencies.

Growth has been put at the heart of the Commission’s agenda on justice in line with the growth strategy Europe 2020, the annual growth survey and recently adopted Single Market Act II. Modernising the EU’s insolvency rules to facilitate the survival of viable businesses and to present a second chance for entrepreneurs has been identified as a key action to improve the functioning of the Internal Market and of key relevance to the justice for growth agenda on which we are focusing during the course of our Presidency. The 2009 Stockholm programme for the European area of justice highlighted the importance of insolvency rules in supporting economic activity. The effective handling of insolvency cases is an important issue for the European economy and sustainable growth, including for Ireland. Ireland and all other member states will continue their own internal examination of the detail of the proposals contained in the regulation. However, it is not yet possible to offer definitive national comments beyond our broad initial welcome of the stated objectives of bringing greater clarity to cross-border insolvencies and expanding the scope of the existing regulation.

The committee will appreciate that it would be inappropriate for Ireland, as current holder of the Presidency of the European Union to seek to express, on behalf of the Council and the member states, a firm opinion on the detail of the Commission proposals at this early point of the consideration of the proposal in the Council working group. In Ireland, we have a very effective corporate restructuring mechanism introduced by the Companies (Amendment) Act 1990. This is the examinership process, whereby a company experiencing difficulties can seek the protection of the High Court to appoint an examiner to attempt to work out a rescue approach.

The Minister for Jobs, Enterprise and Innovation, Deputy Bruton, will shortly introduce proposals to allow examinership applications to be considered by the Circuit Court, so as to reduce the costs involved. The Companies Bill, published in December 2012, contains proposals to allow small private companies access the examinership process through the Circuit Court, rather than the High Court. The rationale for this proposal, which was included in a report by the Company Law Review Group to the Minister, Deputy Bruton, in September 2012, is to reduce costs for this cohort of companies and to make the examinership process more accessible to it.

The group had been asked to recommend on whether a legally binding non-judicial process for commercial debt settlement was feasible. However, it found that the Constitution requires that any compulsory write-down of debts for less than market value requires compensation for the loss, consent of the creditors or a court order whether by substantive approval of a scheme of arrangement or a right of objection to the court for dissenting creditors.

The revised insolvency regulation does not deal exclusively with corporate insolvency, it also updates the approach to cross-border proceedings on personal insolvency. This is an area of the law which has recently undergone significant reform in this country and in other member states. As members will be aware, the Personal Insolvency Bill 2012 was passed by both Houses of the Oireachtas on 19 December 2012 and signed into law by the President on 26 December 2012.

The Personal Insolvency Act will be fully commenced as soon as all of the necessary preparations for administration of its provisions are finalised. It represents the most comprehensive reform of our insolvency law and practice since the foundation of the State and is a key element of the Government's strategy to return this country to stability and economic growth. The Act is extensive and legally complex. It introduces new concepts to Irish law. Indeed, the new personal insolvency arrangement, PIA, introduces a concept which I understand to be unique in international insolvency law, in providing for the negotiated resolution of secured debt in a court sanctioned process that provides certainty for creditors and, if I may say so, hope and relief for debtors. The Act fulfils both a key commitment in the programme for Government and also a requirement of the EU-IMF-ECB programme of financial support for Ireland. It introduces three new procedures for debt resolution which though requiring approval by the court, are essentially non-judicial in nature. I know members have a copy of the script so I will merely mention the procedures. These are: the debt relief notice, DRN; the debt settlement arrangement, DSA; and the personal insolvency arrangement, PIA, which we have discussed at great length and to which I referred again last night in the Dáil.

The Act also provides for significant reform of the Bankruptcy Act 1988. The critical change is to provide for the automatic discharge from bankruptcy, subject to certain conditions, after three years, which I believe represents a reasonable balance of the legitimate interests and expectations of both debtors and creditors. This period is in line with the European norm in regard to insolvency proceedings.

The Act also provides for the establishment of a new Insolvency Service to operate the new non-judicial insolvency arrangements. The director of the Insolvency Service of Ireland, Mr. Lorcan O'Connor, is working with all possible speed to ensure the full operation of the provisions of the Personal Insolvency Act 2012 can begin as soon as possible.

In conclusion, the proposed EU regulation to modernise cross-border insolvency proceedings, while undoubtedly somewhat technical and legally complex in nature, is a significant proposal. I reiterate my view that it is important that Ireland responds positively to the proposal by exercising our right to opt in to the negotiations from an early stage. This positive signal is particularly important at a time when we are the current holders of the Presidency and have chaired the first meetings of the Council working group.

I hope the committee will support the motion to exercise the opt-in. I need hardly add that any points raised by members of the committee on the European Commission proposal will be noted and will be taken into account during the negotiation process. I look forward to any comments or questions members of the committee might have on this important matter.