Mr. Christopher Lehane:

I thank members for the opportunity to appear here today. The main point of my address will be to deal with the current review relating to the reduction of the bankruptcy term from three years to one year. In doing this I will refer members to appendix 3, where we set out our position in greater detail than I will in this paper, which will just be a summary of our position on the reduction from three years to one year and other issues relating to Deputy Penrose's Bill. I also refer members to appendix 4 where we provide a paper on the impact on family homes when a person is in bankruptcy. The appendix includes a survey which has some interesting findings on persons in bankruptcy who have issues relating to their family homes. Because a lot of the detail is in the papers, I am willing to answer questions not just on the summary but any issue arising on appendices 3 and 4.

There are a number of arguments in favour of reducing the current bankruptcy term from three years. The biggest argument would be the effect on the individual. A reduction would provide an enhanced opportunity for economic rehabilitation and, specifically, a quicker-earned fresh start. The Bill proposes that the bankruptcy period would go from three years to one year and another proposal is that the payment period in which a bankrupt would be asked to make a contribution to his debts would go down from five to three years. As well as helping the individual it would help economic revival in that persons who are overburdened with debt will be released back into the economy, to the benefit of society as a whole.

A third argument in favour of reducing the period is the fear factor. By reducing the bankruptcy period we will encourage banks and other creditors to do deals either with debt forgiveness or debt restructuring, given that with the reduction it is anticipated that there will be more people seeking bankruptcy. A fourth argument would be that it would end bankruptcy tourism, where Irish debtors travel to the UK and US. In my office I have a register of persons who, having bankrupted themselves abroad, come back to Ireland with the trustees to enforce their foreign bankruptcies. We do not believe there have been significant numbers of people who have sought bankruptcy abroad but the high profile of some has raised the perception in the media.

There are also a number of arguments against reducing the bankruptcy term to one year. These include the moral hazard issue, whereby the easier one makes bankruptcy the more people there will be who will avail of the solution and the fewer there will be who will seek to pay their debts in full or seek informal or formal debt solutions with their creditors, who are not only banks but credit unions, trade creditors and the Revenue Commissioners.

A second argument against is that the designers of the process had in mind debt settlement agreements and personal insolvency agreements when making the bankruptcy term three years and the income payment term five years. A third argument against a reduction is that the average bankruptcy term internationally is three years, with only the UK, the US and Canada having a one-year term. When the Law Reform Commission considered this it recommended a three-year term, having carried out its own international research. Equally, the European Commission recently came to the view that a three-year term was recommended as an upper limit.

Another argument is the question as to whether a reduction in the bankruptcy term would necessarily help people going into bankruptcy to keep their family home. In my view no such argument can be made. There is no basis for asserting that the reduction in the bankruptcy term will improve the prospect of a bankrupt person retaining his or her family home. As none of the benefits a bankrupt person derives from the reduction in the bankruptcy period produces any value for the mortgagee, namely, the bank, its position on adjudication is not affected by the length of the bankruptcy period. What does matter is whether the bankrupt person can pay his or her mortgage at a level that would be acceptable to the financial institution. Once that is agreed, when the bankrupt person puts it to me I am in a position to agree that as a reasonable living expense. When a person goes into bankruptcy it is primarily for him or her to reach an agreement with the bank. If he or she has reached an agreement it is for me to agree that as a reasonable living expense. If, as under the Penrose Bill, the payment term is reduced from five years to three years there will still be a three-year period when that person will be subject to the bankruptcy terms.

When the person goes into bankruptcy, the decision on whether they are in a position to pay their mortgage takes place at that moment. Yet even under the proposal, they will subject to a three-year bankruptcy term.

Another argument in favour of a bankruptcy term is that it might encourage bankruptcy tourism into Ireland. Many of these cases will be very difficult to investigate with foreign language difficulties, lack of funds in estates, lack of knowledge of processes relating to registration of title of properties outside this jurisdiction and dealing with companies outside the jurisdiction, etc. Even in the course of administering estates where the person is bankrupt, it can be difficult when I must go and find where they have assets abroad. Having spoken to our colleagues in the UK about this, I can see that if we were to move and if we became a centre where people from across the EU or beyond were seeking bankrupt themselves, it would cause greater difficulties for my office seeking to administer those estates, particularly with the associated language difficulties. The last argument against it is that if more time was allowed for the processes that have been made, and the term has been reduced since December 2013, there would be more informal and formal deals. Members may wish to question me about the survey.

I will provide a very quick high-level view of the survey's findings. In respect of family homes and bankruptcy, it found that 70% of people who go into bankruptcy leave their family home. In analysing that we looked at that 70% to find out how many of that group would be in a position to pay their mortgage if they chose to stay on in the family home. We found that 15% of them would. There is a summary in the charts, particularly the two pie charts setting out the simplest high-level view of the findings. The breakdown is that 15% of people would have had the capacity to stay in their home but chose not to and 55% of those who go into bankruptcy simply do not have the capacity to pay their mortgages. Even though they may not have the capacity to pay their mortgages, a proposed or enhanced mortgage-to-rent scheme might increase the possibility of their staying in the family home. Finally, the survey found that 30% of people who go into bankruptcy stay in the family home. They have the capacity to the extent required by the bank to enable them to stay in the family home. I will pass over to Mr. O'Connor.