David Stanton (Cork East, Fine Gael)
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Apologies have been received from Deputies Anne Ferris and Gabrielle McFadden. The purpose of this meeting is to receive a briefing from the Insolvency Service of Ireland on the operation of the Personal Insolvency Act 2012 since it has come into force and the role of the service in ensuring insolvency cases are resolved in a timely and cost-efficient fashion, without recourse to the courts system. The briefing has been circulated.

I welcome Mr. Lorcan O'Connor, Mr. Christopher Lehane, Ms Mary Murphy and Ms Breda Horgan to the meeting. I apologise for the delay as we had some private business to discuss. The format of the meeting is that I will invite the witnesses to make an opening statement of five or ten minutes and that will be followed by a question and answer session with members. Deputy Finian McGrath has suggested that members could ask three questions and we can always come back to a member later if he or she so wishes.

Before beginning, I draw the witnesses' attention to the fact that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to this committee. If they are directed by the Chair to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. Witnesses are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable. Members should also be aware that under the salient rulings of the Chair, members should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable. I ask everybody to turn off mobile phones, put them on flight mode or ensure they will not impact the sound recording system in the House.

We did much work on this issue prior to the insolvency service being established, including a report in February 2012 on the scheme of the Bill before us at that time. Members made a number of recommendations at that time, and that is one of the reasons we are revisiting the issue.

Mr. Lorcan O'Connor:

Before I make my contribution, I will introduce my colleagues. Mr. Christopher Lehane is the official assignee and head of our bankruptcy division. On my far left is Ms Breda Horgan from our regulation division. In our submission, we indicated that Mr. Kevin Kirwan from our case management division would be here but, unfortunately, he is ill. Ms Mary Murphy is the deputy official assignee and is also working with the Courts Service in trying to ensure the messaging for those faced with repossession and other debt difficulties is clear with respect to options. I hope that between us we will be able to answer as best we can any questions that the committee has. After my opening remarks, I will ask Mr. Lehane to make some points on the current debate about the bankruptcy term and whether a change from the current three-year term might take place.

Our first full year of operation was 2014. During that year, we were able to show that the new, innovative and complex legislation that the committee helped produce worked in practice. We saw our first successful debt relief note, or DRN, which is for people with very few assets and income; the first debt settlement arrangement, DSA, which is for unsecured debt; and the first successful personal insolvency arrangement, PIA, which is for those involved with difficulties arising from mortgage debt. By now, we have over 1,000 such solutions in place. In comparison with the time taken to establish similar regimes abroad, we did this in record time.

Together with the Courts Service, we also oversaw the successful introduction of an electronic case management system, which I believe is groundbreaking in terms of how judges deal with cases before them. No longer do we have boxes of paperwork in court but instead reliance is placed on electronic documentation. This project was a significant challenge in itself but certainly necessary for us to operate in an efficient manner. We have circulated to committee members testimonials from debtors who have availed of our services in the first appendix to our submission. We have also circulated the most common examples of cases we deal with in the second appendix. I have previously stated that I would have expected activity levels to be higher than they are, I could not overstate the value of our service to those that have availed of it and the personal relief it has brought to debtors.

Representatives of the Insolvency Service of Ireland appeared before the Joint Oireachtas Committee on Finance, Public Expenditure and Reform just over a year ago. At that time, we acknowledged that more needed to be done to increase activity levels. Shortly after our appearance, that committee issued its report on mortgage arrears matters, with the committee making four recommendations in respect of the insolvency service. We have implemented all four of them.

First, the committee recommended that efforts around communicating to debtors be stepped up. Within a month of our appearance we began consulting with a number of stakeholders and conducted focus group research during the summer that led to the launch of our "Back on Track" information campaign last October. Key elements of the campaign included a new dedicated website for insolvent debtors, simplified information guides, almost two dozen town hall events across the country and associated advertising. Our new guides were distributed widely to include the offices of all Deputies and Senators, all Money Advice and Budgeting Service offices, citizen information and family resource centres and the full network of libraries around the country.

Second, the committee recommended that the costs associated with applying for insolvency and bankruptcy solutions be reduced. In October, the service waived all application fees and the Courts Service also reduced fees that it applies to applications at that time. Bankruptcy application costs are now €270, down from almost €1,500 a couple of years ago. This also compares with almost €1,000 in the UK.

Third, the committee recommended that personal insolvency practitioners be readily available to all debtors. We introduced an initiative last October whereby the service would effectively underwrite costs up to €750 per case to ensure debtors would have access in all cases where a practitioner could help them. Fourth, the committee recommended a general review of existing - albeit new - legislation. One of the principal functions of the service under section 9 of the Personal Insolvency Act 2012 is to monitor the operation of the arrangements and contribute to the development of policy in the area of personal insolvency. The committee is aware that one of the commitments in the current statement of Government priorities was to complete a review of the operation of the Insolvency Service of Ireland to ensure it has the powers needed to support families willing to work their way through their debt problems. The service took an active part in this review.

The committee is also aware that the Government announced a number of initiatives in recent weeks. These go beyond personal insolvency to include areas such as mortgage to rent and general advice to debtors through the MABS network. Three particular points were announced that should increase activity levels for the ISI and help debtors in difficulty. First, when a creditor rejects a proposal made by a debtor and the personal insolvency practitioner, the debtor will have the right to seek an independent court review of the proposal. Subject to meeting certain conditions, the court will have the power to impose the proposed debt solution on all parties if it deems it fair and reasonable. Whereas three out of four cases were already successful, the perception among the public that a bank veto existed played a significant part in preventing debtors taking the necessary steps to seek the help that we can offer.

Second, measures are to be put in place so that court officials can steer borrowers who are involved in repossession proceedings proactively towards the service. This will ensure that the provision contained within the Land and Conveyancing Law Reform Act 2013 that allows for the adjournment of a home repossession case for two months to allow a debtor consult with a personal insolvency practitioner is availed of whenever relevant. Third, linking into a broader information campaign for those in mortgage arrears, the service is to receive funding to launch a sustained awareness campaign of the solutions available to insolvent debtors.

I expect this to commence in the autumn.

Lastly, I would like to draw members' attention to another significant achievement of the ISI in the past year. We published a standard debt settlement arrangement protocol in July of last year and a standard personal insolvency arrangement protocol in March of this year. The two protocols will make it easier for debtors to reach agreement with their creditors. The protocols will help debtors make more informed decisions and ultimately should lead to better outcomes for debtors in protocol-compliant arrangements because they are more likely to succeed. It should now be both faster and easier to form and agree proposals as the standard terms are pre-written. These protocols represent many thousands of hours of work and close collaboration with all key stakeholders. I am confident, as has been the experience in other countries, that these new protocols will result in raising the acceptance rates still further.

The new debt solutions, which offer alternatives to bankruptcy, are not just positive for debtors but are also in the best interests of creditors. There is nothing in the personal insolvency legislation that creates bad debts but the legislation does help to solve them. Ultimately, it is in all of our interests to return an insolvent debtor to solvency, to ensure their wellbeing and participation in normal economic activity and to give them the second chance that they deserve and need.

I do not accept the argument that there can be no writedown of mortgage debt. Sometimes that will be the correct thing to do, not only in order to keep a family in its home but also because it makes financial sense to the creditor. I equally do not accept the argument that if you allow one person a writedown when it is genuinely needed, then everyone else will demand one, including those who have at all times been paying their mortgages. People, in my experience and in the survey work we commissioned, want to pay their debts. Those who can pay them will pay them and there are a number of safeguards built into our legislation to ensure this is the case. I also believe that no reasonable person will resent seeing someone who has fallen on hard times benefit from proportionate debt forgiveness. The ISI has helped almost 2,000 debtors to date. We need to and want to help more. I believe the recent announcement made by the Government will help us do just that.

I will now pass to the official assignee, Mr. Chris Lehane, to make some comments on the current review of the bankruptcy term.

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.

David Stanton (Cork East, Fine Gael)
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Does Mr. O'Connor wish to sum up or will we open for questions?

Mr. Lorcan O'Connor:

I would be happy to take any questions.

Niall Collins (Limerick, Fianna Fail)
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I thank Mr. O'Connor and his team for appearing before us. The ISI sent members a box of information leaflets that were very well written. They are in my office and I have been giving them to people who contact me. I attended the sitting of the Circuit Court in Limerick a couple of weeks ago. A total of 219 cases were being heard by the registrar that day. The registrar asked every one of the people who attended, many of whom represented themselves, whether they had been in touch with the ISI and the answer was "No". In fairness, there was a group of volunteers. I do not know the name of the organisation the volunteers were with but the registrar allowed them to set up a table at the side of the courtroom and they had ISI documentation.

I do not know how the ISI can follow up. Based on my experience in Limerick on that occasion, which I am sure is similar to those around the country, many of the people turning up at the Circuit Court have never heard of the ISI for various reasons that the ISI is aware of. The ISI should try to attend these Circuit Court sitting days and set up its own stand. I do not know if that is something the ISI would have the capacity to do. I am sure the Courts Service would facilitate it because I know it facilitated a voluntary organisation in Limerick.

Can the ISI link in with the financial institutions in that regard? If they are pursuing people for repossession, it is a long process. Could they not be obliged to inform the ISI of the course of action they are pursuing with a particular debtor? In other words, the ISI could then have its direct communication with those people to tell them that it knows they are in a spot of financial bother with the financial institution and is here to help them and point out what it can do for them. The profile of many people who presented in the court on the day was sad in the sense that there were many women with broken marriages and people who had become single as a result of marital breakdown. There were many sad cases and I mean that respectfully. So many other things were happening in their lives in the sense that they were before family law courts, were dealing with children and family issues and were trying to get by from day to day, so they were not aware of the ISI's services. This is something the ISI could follow up on.

In his statement, Mr. O'Connor said that he is trying to generate and promote more awareness of the ISI and it seems to be doing that to a degree but it could push the boat out a bit further. I have two suggestions. The ISI could have some kind of protocol with the financial institutions. Mr. O'Connor will probably tell us that this relates to data protection and confidentiality. If that is the case, perhaps we can look at this as legislators to get around it. Second, could the ISI find the wherewithal to attend court days because they happen every month and a half in most counties?

David Stanton (Cork East, Fine Gael)
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The question concerns awareness. Does Mr. O'Connor wish to reply?

Mr. Lorcan O'Connor:

I agree with much of your analysis.

David Stanton (Cork East, Fine Gael)
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Could Mr. O'Connor speak through the Chair?

Mr. Lorcan O'Connor:

I agree with much of the Deputy's analysis. I might ask my colleague, Ms Mary Murphy, to give a bit more detail about what we are hoping to do with the Courts Service over the coming weeks. The Deputy rightly points out that the information the financial institution makes available to debtors is very important. At the moment, the documentation that might issue from a particular bank where a person is facing the threat of repossession is very legalistic and can run to dozens of pages of small print. Therefore, the reference to the help that the ISI can offer is lost in a host of things being referenced in the letter.

We have had dealings with the Central Bank and Banking and Payments Federation Ireland, BPFI, to see what can be done to make that message clearer and whether it should be in a flyer rather than a paragraph in a long letter. I wish to acknowledge that we have had a positive response from both sides and are working with them to see what can be done on this front in weeks rather than months.

We have faced a challenge to ensure that those who need to know about us know about us as opposed to necessarily getting commentary in current affairs programmes or in the broadsheet media and so on. The fact that there has been movement on the perception of the bank veto will help us make that message clearer to people because we will not necessarily have to defend what is often the first response or criticism to anything we might try to do. Through this initiative, we are expecting to see a significant increase in our advertising budget and we will do our best to ensure that this is targeted at the right people and that we get value for money.

However, we also recognised that one of the key places to have our information available is at the repossession case hearings. We had already set up a pilot initiative with the Courts Service and the county registrars earlier this spring but this has grown in momentum as a result of the Government initiative. I will ask Ms Murphy to comment.

Ms Mary Murphy:

I will elaborate. The ISI is currently engaged in a steering group which is also comprised of representatives of the Department of Justice and Equality and the Citizens Information Bureau. We are working with the Courts Service to put in place a co-ordinated system for disseminating our information to ensure that it is available to those people who need it. As Mr. O'Connor mentioned, a pilot programme is run in conjunction with some county registrars who have enabled some ISI staff to be on site on the day the court repossession hearings take place. In addition, there is dissemination of ISI to the court offices so that the information is available to the court staff who encounter debtors in difficulty and they can refer them on.

Niall Collins (Limerick, Fianna Fail)
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I ask for clarification on the proposal around the bank veto which has been described as a type of examinership. Where agreement cannot be reached between the debtor and the creditor they will go to the court. I ask Mr. O'Connor to walk us through the process because it has been described as an examinership-type process. How will it work?

Mr. Lorcan O'Connor:

Ultimately we will have to see what the legislation prescribes as a solution. To the extent that I understand what is being proposed, in effect the current infrastructure will continue to exist so efforts will be made to get the requisite "Yes" votes at the creditors' meeting but in the event that this is not successful, the debtor will have an opportunity to appeal that decision to the Circuit Court judge. The judge will carry out various tests and will take a view as to whether that rejected proposal was fair and reasonable to all parties. If the judge were to come to that view and subject to meeting a number of conditions, then he or she would be in a position to impose that solution.

Niall Collins (Limerick, Fianna Fail)
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The judge can impose a solution that is binding on the creditor and the debtor. What happens if the judge does not agree?

Mr. Lorcan O'Connor:

I think in that case it is the end of the process because not only have creditors said they are not happy with this proposal, but an independent review was also of the opinion that what was being proposed was unreasonable. Obviously that debtor will not have achieved the desired solution. In the event that there was a technical issue with that proposal there are provisions within the existing legislation to allow a resubmission in exceptional cases. There is also the options of bankruptcy or an attempt to re-engage with creditors to find a solution. However, if following an independent review the appeal is turned down, this would in effect be the end of that process.

Niall Collins (Limerick, Fianna Fail)
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Is Mr. O'Connor saying that if the court decides to impose a solution the bank has no right of appeal, there is no other process and the banks must accept the solution?

Mr. Lorcan O'Connor:

I have yet to see the final legislation. However, I would expect that there would always be an appeal option for anyone in a court process. I presume there would be an appeal option in the event that people were unhappy with what the judge had ruled. Hopefully that would be an exception rather than the rule. I would like to think that this development will actually see a lot more cases dealt with upstream. By that I mean meaningful engagement between creditor and practitioner to get the original proposal right so that it is not necessary to go that extra step to look for an appeal and a ruling but rather that the original proposal put to a vote is acceptable to all parties.

David Stanton (Cork East, Fine Gael)
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When we issued our report in February 2012 we suggested that there should be an appeals mechanism built in. I think at the time we suggested the Credit Review Office or even the Insolvency Service of Ireland as being the initial point of contact because some people may be a bit anxious about going to court.

Niall Collins (Limerick, Fianna Fail)
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On a further point of clarification, is a time limit envisaged on that leg of the process? I presume it will not be dragged out forever.

Mr. Lorcan O'Connor:

I would hope that it would not be dragged out. We will need to wait for the final provisions proposed by the Government. I would like to think that debtors would have timely access to judges to consider those appeals. Specialist judges are available in the Circuit Court for dealing with personal insolvency cases. I would like to think it would be done with a good turnaround.

Niall Collins (Limerick, Fianna Fail)
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I have a final question about bankruptcy. Mr. Lehane is like Mr. Justice Kevin Cross in that he outlined quite eloquently the case for and against the three-year term. In his view what would be the effect of dropping it?

Mr. Christopher Lehane:

As the regulator on bankruptcy I would not like to come out with my personal view. My role should be to simply bring the arguments to the attention of the committee and everyone else. It is a policy matter for the Legislature rather than having the regulator explaining what he thinks should happen.

David Stanton (Cork East, Fine Gael)
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I call Deputy Finian McGrath with three questions, please.

Finian McGrath (Dublin North Central, Independent)
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I promise I will not ask six questions like Deputy Collins.

Niall Collins (Limerick, Fianna Fail)
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I can get away with it.

David Stanton (Cork East, Fine Gael)
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We can come back to Deputy McGrath.

Niall Collins (Limerick, Fianna Fail)
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He has three simple questions.

Finian McGrath (Dublin North Central, Independent)
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I have three short simple questions. The delegates are very welcome to the committee and I commend them for their work. A very important part of the work and the ISI report are the case stories presented in its submission to the committee. I refer to Siobhán's story who is a widow living on her own, in ill-health and with debts of €19,000. She turned to the approved intermediary for help. She received the DRN which has written off her debt and she is now living life to the full. At the end of that personal story she advised people to get up and talk to MABS and to ISI. That is a very effective example because it tells a real story about a real woman with a crisis and a debt issue. What percentage of people are not engaging with anyone? Is there a percentage of cases that are not engaging in any way with institutions or with ISI?

Mr. Lorcan O'Connor:

I do not have a definite answer to that question in terms of firm numbers. However, when one considers the fact that there are still 100,000 mortgages in arrears and there may well be a large number of additional people who do not have a mortgage but still have financial difficulties, there is certainly a large cohort of people who still need help. I am grateful to the Deputy for highlighting that case study. We felt that notwithstanding the legitimate criticism and commentary around the low levels of cases we have dealt with, the feedback we have received from those who have availed is overwhelmingly positive. It is interesting that in very many cases - as in the case highlighted by the Deputy - when people speak to us they never once mention how much they might have had written off or the numbers in terms of what they owed and what they now owe but rather what it has meant to them in terms of their mental and physical health and so on. It has been a focus for us in recent times and as part of the back and track campaign to try to publicise those case studies and those messages. We have had debtors on both national and local radio and national television talking about what it has meant to them. The case study referred to by the Deputy is available as an audio file on our website. It is hoped that message will spread to those in need of help to say that there is help and it is now time to engage.

Finian McGrath (Dublin North Central, Independent)
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I am concerned because we get different figures in the House. There are 100,000 families in mortgage arrears and ISI has helped in the region of 2,000 debtors. What I am trying to figure out is whether it is 5,000, 6,000, 10,000, 20,000 or 50,000 people who are not engaging. I hear different figures in the Dáil and nobody seems to have a handle on it.

Mr. Lorcan O'Connor:

What I can point to is the fact that we know there are about 37,000 mortgages in more than 720 days arrears. By all accounts that equates to about 30,000 families or borrowers as some borrowers may have two mortgages on the same property. The banks would say that in a large number of those cases there is a lack of engagement and that is the only reason it has got to 720 days of arrears. Clearly, there is a cohort within that number, probably a large cohort, where engagement is an issue and there is, obviously, the difference between those numbers and the 100,000 or so. I am not suggesting that those 100,000 need an insolvency solution to fix their problems. They may well be able to solve their problems far short of that but certainly those people do need to engage. The primary message should be to engage with one's creditors, those to whom one owes the money in the first instance. If that does not work or if one is not in a position to do that or one owes money to several different creditors so that it is not feasible, then that is exactly when the personal insolvency practitioner, through the ISI, can come to the fore and help the individual.

Finian McGrath (Dublin North Central, Independent)
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The third question is this. I am trying to figure out where there is a large number of people doing private deals with the banks, people who are off the radar and not engaged with MABS or the ISI. Every now and again I receive a letter from an individual. Last week I had a letter from a customer of the AIB who has a major problem as it was trying to kick the person out of the house. I intervened by writing a letter to the senior people in AIB and, all of sudden, it is engaging. I do not want to do this but I do it for a constituent. As soon as the Deputy wrote the letter, AIB started to engage with the family again. This was a man who got into difficulties with his daughter. He was paying something back every month. He was making an effort. He was laid off during the recession. He would have a job. When he has a job he would want to pay back everything. He is an honest, hard working person. Yet it was trying to take the house off him.

David Stanton (Cork East, Fine Gael)
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I ask the Deputy to remember my initial words at the start of the meeting about naming entities.

Finian McGrath (Dublin North Central, Independent)
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Okay but I am praising this particular person but I am having a go at the banks because they engage when somebody intervenes. The question I am asking is whether there is engagement under the radar for which there appear to be no accurate figures.

Mr. Lorcan O'Connor:

There are a lot of informal deals being done. They are, perhaps, below the radar but that is not a criticism of them. Department of Finance and Central Bank statistics show that while there are 110,000 mortgage accounts still in arrears, slightly more than that have been restructured in the past couple of years. The Central Bank has set out the kind of restructures that one sees within that group of cases. It is equally worth noting that those informal deals were not being done prior to the personal insolvency legislation being put in place because there was no carrot or stick for either side to get to the table and try to do a deal short of a statutory process whereas that changed once the Bill was enacted and our organisation had opened. A large number of restructurings and solutions are being put in place below the radar, as would be the case in any banking environment. So long as they are sustainable, certainly from the insolvency services perspective we would have no issue with those.

David Stanton (Cork East, Fine Gael)
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Has Deputy McGrath finished?

Finian McGrath (Dublin North Central, Independent)
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My final point is on the increase in the number of repossessions by the banks. To what extent have banks engaged with the process where there is a family home involved?

Mr. Lorcan O'Connor:

Our statistics show that about 400 personal insolvency arrangements have been put in place. They are the solutions for those with secure debt. They are the ones with family homes. That is 400 people who have kept a roof over the heads.

Finian McGrath (Dublin North Central, Independent)
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I thank Mr. O'Connor.

David Stanton (Cork East, Fine Gael)
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I call Deputy Alan Farrell

Alan Farrell (Dublin North, Fine Gael)
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I welcome the representatives. I wish to follow up on a point raised by Deputy Finian McGrath, as Deputies we all have had dozens of individuals contact us in the past 12 to 18 months, particularly since the establishing of the ISI. I find it extraordinary that after this period - this is not a criticism - I am repeating to individuals that they go and to talk to the ISI, MABS or to get some independent advice as to their predicament because they are not doing that. That applies to at least 50% of the families or individuals who have contacted me. I find that surprising at this stage of the post-economic collapse for no reason other than they were unable to get a job and found themselves in awful scenarios, which is very stressful for families and particularly children who are the innocent victims. I am sure the ISI has come across many such individuals whose situation is way beyond their control.

The point made by Mr. Christopher Lehane in appendix 3 was interesting. It concerned the automatic discharge period so the discussion on the one year changed to the bankruptcy term. I saw one of the arguments in favour of a reduction as being a negative as it would increase the willingness of individuals to hand back their keys. I know he has qualified that by saying this might result in an increased number of lending institutions actually engaging with them in a meaningful way and, presumably, either arrive at an arrangement to extend the terms or write down part of the debt. However, in a later paragraph, 3.3, as an argument against the reduction in the bankruptcy term, he stated that there is no certainty that a reduction in the bankruptcy term will improve the prospects of a bankrupt retaining their family home. Perhaps I misunderstand, but I would have thought that those two points, one in favour and one against, resulting in the same outcome of the prospect of losing one's family home, and the basis upon which it is the ambition of every Deputy and Senator to keep as many people as possible in their homes, are not necessarily mutually exclusive. For that reason I was slightly confused as to that approach. I appreciate it is the job of the ISI to attempt to get the best possible outcome for the families. I am aware it was mentioned that 70% of people who enter into arrangements lose the family home but he qualified that again by saying that they did not necessarily have to lose the family home but it was a decision that was in the process. I would like Mr. Lehane's view on that issue.

Mr. Christopher Lehane:

If a person is seeking to try to get the best deal, it is effectively a doomsday situation to a bank if they are, effectively dangling the keys. To the bank, that means an instant crystallisation of the negative equity. If a person is part of a negotiation of a PIA, there is always the prospect of the person saying that if the deal is not done he or she will hand back the keys and crystallise the negative equity. Some 70% of people who go into bankruptcy are in a situation where they will not be in a position to pay the mortgage and 15% of people who have the capacity to pay the mortgage will be otherwise insolvent and will not be entitled to bankruptcy. They do not want to pay the mortgage. If the strategic defaulters are crystallising the negative equity they would obviously have other debt that would enable them to go bankrupt. There is a situation where, effectively within a PIA, people are using it as a lever to get the best deal they can. That a person uses the keys to get the best deal, is one argument. What was the converse argument the Deputy made?

Alan Farrell (Dublin North, Fine Gael)
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The argument made by the ISI in its correspondence with the committee was that there is no basis for an assertion that a reduction in the bankruptcy period will improve the prospects of the bankrupt keeping the family home. Put that against the statement just made.

Mr. Christopher Lehane:

The argument there relates to the Government being minded to reduce the bankruptcy term on the basis that it believes that the reduction of the term will make it easier for people to stay in the family home. I have elaborated in the summary on that argument, pointing out that this is not what happens in reality. The reduction period going to one year, but with a three year income payment period, will not help that person at that moment in time. The moment in time for a person who is going to lose the family home will be when they go bankrupt. Then, they will ask me, to allow a set mortgage payment within the bankruptcy. If that mortgage payment is €4,000, I will not allow it when making my assessment. They and the bank will have effectively agreed a deal and I must assess that €4,000 mortgage payment. The person's entitlement to stay in the house will be based on my assessment of the reasonable living expense and an accommodation expense that is reasonable for the family. If the mortgage payment they are proposing to me is way above what I know they can secure in getting a rental of a property in that area, I will not allow it. Therefore, it would be wrong to think that the mere reduction in the bankruptcy period in itself would assist a person to stay in the family home.

Alan Farrell (Dublin North, Fine Gael)
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It is interesting that Mr. Lehane points that out so directly. I would have assumed the basis of the push towards the bankruptcy period from three years to one year was that it would assist families to stay in their family homes.

Mr. Christopher Lehane:

In regard to the reduction of the bankruptcy term, even Deputy Penrose's Bill talks about a three-year period when the bankrupt will still be subject to the conditions.

Alan Farrell (Dublin North, Fine Gael)
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The period is currently five years.

Mr. Christopher Lehane:

Yes, the income payment period is currently five years. Therefore, there is not an instant relief. Look back for example at point 3.2 on page 25 of our document. I point out in my summary the benefits that accrue to a debtor when he is released from bankruptcy. If the period he will be subject to these bankruptcy restrictions is reduced from three years to one, then if considering if the removal of restrictions will help his capacity to pay his mortgage, none of them will. He cannot be a company director or manager, he cannot seek credit above €600 without notifying a credit institution, he cannot change his name or address without notifying the official assignee and he must disclose the acquisition of property. These are not factors that will increase his capacity to pay his mortgage.

Alan Farrell (Dublin North, Fine Gael)
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Thank you. My initial remarks are based on personal experience of constituents and the unwillingness of both the public and the banks to engage with mortgage holders in distress. Public representatives like myself and others have had to try to engage with the banks on their behalf. I have had to do this twice in four years and have done so reluctantly. I should not have to do that. The banks should be the ones knocking politely on doors and asking if they can talk about the issue. They need to get to that level of a personal conversation. No doubt, across the membership of this committee alone, we could provide hundreds of examples of cases where the banks are failing in this regard.

I was interested in Mr. O'Connor's remarks about the awareness campaign ISI is launching and the budget set aside for that. It is good to know that is happening. Target marketing is important. Like politicians, the ISI will target its market to draw the attention of the public to it. I am interested in hearing how it proposes to do that. Regarding the level of engagement the banks are being cajoled into, I am interested in hearing the views of the ISI on the removal of the veto.

Mr. Lorcan O'Connor:

On targeting, advertising and the efforts to reach people who need to hear about us, we took this issue on board as we designed our "Back on Track" campaign last October. It was interesting that among focus groups involving debtors who had either historically dealt with financial difficulties or were currently in financial difficulties, there was a very low knowledge base of what it is we provide. Even when our service was explained to them, there were certain sensitivities around the word "insolvency" and it was not necessarily recognised that it could apply to an individual rather than a company. People preferred to hear "ISI" rather than the word "insolvency". As a result, we moved to using "ISI" in our advertising rather than using the word "insolvency".

It was worthwhile holding those sessions to learn that people were not all using print media or current affairs programmes as their main source of information. Therefore, it became clear to us that we needed to reach into the community, to groups such as St. Vincent de Paul, local constituency offices of politicians and other organisations. We also consulted with over 20 representative bodies, from trade unions to other national networks, to ensure we could impart our message through them and by virtue of these efforts, we have reached over half a million people. We have reached out, for example, through articles in trade union magazines and other such publications. We did not take the traditional routes, primarily because of budgetary constraints, but also because our feedback was that this was not the way to go. We also had an advertising campaign on public transport vehicles. That was how we designed our campaign last year and we plan on doing something similar with our budget this year.

Did the Deputy have another question or have I addressed the issues?

Alan Farrell (Dublin North, Fine Gael)
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I am not sure. Perhaps I will come back in later.

David Stanton (Cork East, Fine Gael)
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I call Deputy Mac Lochlainn to ask a few short, sharp questions.

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
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No problem Chairman, but I will take as long as everybody else.

I have correspondence from a personal insolvency practitioner regarding the issue of split mortgages. Many of the banks seem to have gone down the road of the split mortgage, but when the borrower reaches 70 years of age, they then try to recoup the warehoused section of it. However, it is a concern that they expect people to live on these "reasonable living expenses" over that period of time. It was imagined that this would only be for a short period of time in terms of bankruptcy. What is the view of the ISI on that?

Mr. Lorcan O'Connor:

We are aware that the split mortgages are a commonplace solution that many practitioners are identifying as being sustainable. While we were setting ourselves up, we tried to put in place a number of case studies, in consultation with both creditors and other representative groups, to try to convey the kind of solutions that might be viable for somebody in difficulties. One of the solutions we had most difficulty with was the issue of split mortgages. Two years ago, for example, the concept of a split mortgage was far less refined than it is now. Back then if a person owed €100,000 and could service €50,000, the mortgage would reduce to €50,000 and the balance or a large part of it would be warehoused. That would have been it and there would have been no clarification on what would happen in regard to the warehoused €50,000 in the future.

What we said was that this would not be in compliance with our legislation, because for somebody availing of a personal insolvency arrangement, PIA, - the one involving mortgages - the practitioner must certify the person is solvent again. If this €50,000 is warehoused, with no clarification as to what happens in the future, how can that certification be made?

It took us some time to work with creditors, the Central Bank and others to identify what could be done to reconcile those issues.

We now have a case study on what happens when, to take the example given earlier, an individual who could service €50,000 of a mortgage worth €100,000 has the remainder warehoused. What happens to the warehoused amount is clear. The solution we have identified involves an incentive to pay it down at an early opportunity. While the individual's current circumstances may not extend to making payments on the warehoused amount, he or she may get a better job in future and would get a discount by paying it down early. This is an incentive for the debtor to stay with the process. There will also be clarity on what happens to the warehoused amount when the individual reaches retirement age or a certain point in the future. If, for example, the property is large because it needs to accommodate a large family, by the time the individual reaches retirement the children are likely to have moved out and there might be provision to trade down. The individual would retain what he or she needs to purchase an appropriate dwelling. In the event that the individual cannot pay off the warehoused amount on retirement, he or she will get a lifelong interest in the property and, in effect, the charge will sit on the property until he or she dies, at which point the family will have first refusal on purchasing it. Ultimately, the bank gets out but there is clarity for the debtor, who can sign up to the proposal in the knowledge that he or she will be solvent and can retain the roof over his or her head for as long as necessary.

Mr. Christopher Lehane:

Deputy Mac Lochlainn also asked whether it is envisaged that people will be restricted to reasonable living expenses until they repay their mortgages at the age of 70 years. That is clearly not the position. Reasonable living expenses provide for a sufficient amount of money but the debtor is under a regime in which he or she is being analysed and checked. We make sure the regime is fair but we do not believe anybody should be subject to the guidelines for reasonable living expenses until they are 70 years old.

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
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When did the Government first approach the ISI regarding its opinion on the bank veto? I understand the service voiced its unhappiness about the veto. What was the Government's response to the issues raised?

Mr. Lorcan O'Connor:

I will begin by dealing with the Deputy's questions in general terms. He was close to the development of the legislation, which is probably unique in that it has been reviewed and amended on several occasions already. That demonstrates a willingness across all parties to make it work. We are equally committed to making it work.

While we identified the perceived bank veto as an issue, it was in terms of communications with debtors rather than a meaningful statistical sample that would allow us to state the reason for the problem. We do not have a sufficient number of cases to gather such data but it has been my experience whenever I have been interviewed on radio or for newspapers, or spoke at town hall meetings and in other settings about what we can offer to people who are in financial distress, the response is that none of it matters when the banks have a veto. That was the roadblock I believed we needed to move aside, rather than necessarily having the statistical analysis that would allow us to stand over anything beyond it. In respect of timing, the Government review was announced last autumn and intensive efforts have been made over the months prior to the more recent announcement.

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
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Deputy Niall Collins referred to the issues arising in Limerick. In terms of the number of people who might have consulted a personal insolvency practitioner, what impact does Mr. O'Connor believe the service has made? The numbers who availed of the personal insolvency route were much lower than anticipated in the year since the legislation was introduced. In fairness, that is reflected in the proposed amendments. How many people might have decided against pursuing the personal insolvency route because of the bank veto?

Mr. Lorcan O'Connor:

It is not an exact science and I cannot give a definitive figure. We never set out targets for the number of cases we expect to deal with in a particular period. However, we have carried out an analysis of cases in England and Wales which indicates that Mr. Christopher Lehane, as official assignee should be dealing with between 2,000 and 2,500 bankruptcies per year on a pro ratabasis and the number of alternatives to bankruptcy should be between 6,000 to 7,000 per year. England and Wales are, of course, at a different point in the economic cycle and one could argue the figures up or down. However, they none the less suggest the ballpark level for a long-term equilibrium.

Pádraig Mac Lochlainn (Donegal North East, Sinn Fein)
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Is there merit in publishing a list of insolvency practitioners in a similar manner to the civil legal aid board?

Mr. Lorcan O'Connor:

We publish a register of all licensed personal insolvency practitioners on our website. We also include those who partake in the back on track campaign. There are approximately 150 licensed practitioners across the country and they are willing and able to deal with any debtors who may present.

David Stanton (Cork East, Fine Gael)
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People are watching this discussion at home or in their workplace, and others will watch it on television tonight. If some of these people are experiencing debt problems, what should they do?

Mr. Lorcan O'Connor:

In the first instance they should engage with their creditors to reach a solution directly. If that is not possible or if they have a multitude of creditors, they should make contact with the ISI. They can get information about what we provide from backontrack.ieor through our helpline and if they are comfortable with what we can do they should make an appointment with a personal insolvency practitioner.

David Stanton (Cork East, Fine Gael)
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How do they go about getting in contact with a personal insolvency practitioner? Should they identify somebody in their locality?

Mr. Lorcan O'Connor:

As I noted, there are approximately 150 practitioners and we maintain a register with contact details. They are free to choose any practitioner they wish. Some people will avail of a local practitioner to get a personalised service from someone they know, while others prefer to deal with a practitioner from a different town or county. A number of practitioners also have national practices. It is a matter of horses for courses. Practitioners are available in different parts of the country to assist debtors in difficulty.

David Stanton (Cork East, Fine Gael)
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What role does stigma and embarrassment play? During our hearings in 2012, a number of witnesses spoke about the embarrassment and stigma attached to debt and personal insolvency. Is it the case that people delay engaging until late in the day because of these issues?

Mr. Lorcan O'Connor:

The issue of stigma has influenced people over the years. One should bear in mind that there were only four bankruptcies in 2007. While the number has grown substantially since then, we are still in small numbers.

We are doing the best we can to ensure there is no stigma. The vast majority of people are there as victims of circumstance. They may have bought properties during the boom, which is not what makes them insolvent, but building on that they may have lost their jobs or come into some other difficulty. That can then make them insolvent notwithstanding that they have not necessarily done anything reckless. Those individuals availing of our services should not fear any stigma. They should hold their heads up high because the experience in other countries is that even in terms of people's future credit ratings, where they have put up their hands and said "I have a difficulty and am now going to work with my creditors to solve it", they are given credit for that into the future. They have not just walked away, but have tried to solve it. Anyone in difficulty should look at the case studies Deputy Finian McGrath referred to earlier in terms of what it has meant for the physical and mental health of individuals and families to take that step and resolve matters for once and for all.

David Stanton (Cork East, Fine Gael)
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There are three different levels - debt relief notices, DSAs and PIAs. Can Mr. O'Connor give the joint committee an idea of the numbers involved in each?

Mr. Lorcan O'Connor:

Roughly speaking, we have had just over 1,000 alternatives to bankruptcy put in place. At this stage, we have approximately 500 DRNs, which are the ones done through MABS offices for those with debts below €20,000 notwithstanding which the people are insolvent and in difficulty and these are a huge relief to them. Personal insolvency arrangements are those involving mortgages, of which we have had just over 400. There have been just over 200 debt settlement arrangements. We are just over 1,000 at this stage. If one adds on those going through a bankruptcy, one gets close to the 2,000 figure.

David Stanton (Cork East, Fine Gael)
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One of the questions that keeps coming up here is on the awareness of the work of the service. Can Mr. O'Connor talk to me about social media? Does the service have a social media presence and, if so, is it effective?

Mr. Lorcan O'Connor:

We have a limited social media presence in that our Back on Track campaign has a Facebook page. What we have really done is a great deal of electronic or online advertising. We have had over 4 million page views on our website and almost 500,000 individual website visits. We have had online advertising in terms of video on demand and advertising on thejournal.ie, independent.ie, rte.ieand similar websites. We have been tracking the follow through as a result of those advertising placements and whether we are gaining traction. Certainly, we will use that feedback in anything we do in the autumn.

David Stanton (Cork East, Fine Gael)
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I would be interested to see a development on Facebook, Twitter and other platforms. They are extraordinarily powerful and their reach can be very great. Can Mr. O'Connor talk to me about those people who engage with the various services? Are there patterns with respect to ABC categories and social demographics?

Mr. Lorcan O'Connor:

We have set out in quite a bit of detail in our statistics report demographics on a county-by-county basis, age profiles, and whether people are public or private sector workers or social welfare clients. Depending on one's perspective, one might pick one point rather than another to focus on, but there is no real stand-out statistic. There are difficulties in every county and there are difficulties in all cohorts; young, old, female, male, families, individuals, and so on.

David Stanton (Cork East, Fine Gael)
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Can we publish on our website the document Mr. O'Connor made available to the joint committee?

Mr. Lorcan O'Connor:

I am very happy for the committee to do so.

David Stanton (Cork East, Fine Gael)
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We will do that. Has the service engaged with post offices? Many people visit post offices to make payments and for other services. An Post has a network across the country. Mr. O'Connor has mentioned banks and courts, but post offices are very widespread public venues.

Mr. Lorcan O'Connor:

That is one we will certainly be looking at for the autumn. We looked at that kind of opportunity on a smaller scale in recent times in that we now have our guides in hundreds of GP surgeries nationally. That was identified to us as a potentially appropriate location to place guides. I am happy to take the Chairman's suggestion on board. We will bear it in mind.

David Stanton (Cork East, Fine Gael)
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Unless Mr. O'Connor has any further comments, that is it. I thank the witnesses for attending today. We will be engaging with them again as this is the committee that was involved in the initiation of these insolvency measures.