Michael McGrath (Cork South Central, Fianna Fail)

I move: "That the Bill be now read a Second Time."

I wish to share time with Deputies Calleary and Kirk. I am pleased to commence the debate the Debt Settlement and Mortgage Resolution Office Bill 2011. Essentially, the Bill proposes the establishment of an independent, non-judicial debt settlement system for persons experiencing severe problems with personal and mortgage debt. I acknowledge it is based on the recommendations of the Law Reform Commission's report on personal debt management and debt enforcement, which was published on 16 December 2010, and the associated draft personal insolvency Bill, which the Commission published at the time. We have decided to extend the scope of the draft personal insolvency Bill to include the growing problem of mortgage debt by using a separate process established under the legislation. The Law Reform Commission is to be commended for its excellent work in this area and we believe the Oireachtas should be favourably disposed to accepting the broad thrust of the recommendations the commission put forward. For anyone with an interest in this area, the Law Reform Commission's report is well worth reading. It is appropriate that the commission's recommendations form a central part of the Bill before the House.

The need for a reform of Ireland's personal insolvency regime and, as part thereof, the establishment of a non-judicial debt settlement system has been advocated by a range of organisations and persons with expertise and experience in this area. This is a truly landmark item of legislation. I hope it will receive the support of this House and will be allowed to proceed to Committee Stage for more detailed consideration. I wish to emphasise strongly that the Bill is being put forward by Fianna Fáil on a non-partisan basis. This issue should not be about the Government versus the Opposition. We all have a stake in ensuring this issue should be addressed in a considered and comprehensive way. I have no doubt the Bill can be improved by the collective wisdom and experience of members of this House. My party is open to amending it on Committee Stage in order to ensure we achieve the best possible system for dealing with personal indebtedness.

Those who are members of all political parties and none have a duty to come up with solutions which can assist those struggling with high levels of personal debt and people experiencing difficulties in making mortgage repayments on their family homes. I sincerely hope the Government will consider the Bill in the spirit in which it is being offered. The Bill can form the basis of a radical overhaul of Ireland's personal insolvency regime and can allow thousands of distressed borrowers to see some light at the end of the tunnel. That is what lies at the heart of this legislation. There are thousands of people for whom personal and mortgage debt is making daily life a misery. They can see no light at the end of the tunnel. The nuclear option of bankruptcy is not appropriate in the great majority of cases. Having a debt settlement system which is transparent, fair and can result in definitive solutions tailored for individuals lies at the core of the Bill. I look forward to a full and constructive debate on the Bill.

I wish to make clear that the Bill does not provide an easy way out for anyone. It contains strict checks and balances which are designed to ensure that responsibilities as well as rights will be imposed on borrowers. The priority with this Bill is to assist those who are in genuine difficulty and who will not be able to meet their commitments as they are currently structured. It is appropriate that consideration of the Bill should coincide with the debate on the Keane report, to which I contributed earlier. The Cooney report, the Keane report and organisations such as the Free Legal Advice Centres, FLAC, have all called for a system of non-judicial debt settlement to be put in place. The Keane report, which was published last week, states "Early introduction of reformed bankruptcy law and new non-judicial debt settlement arrangements is vital ... the group does not see a resolution to the mortgage problem without it". The Cooney report, which was published last November, states:

The Group is of the view that significant reform is now required in regard to Ireland's personal insolvency regime. Such reform must have the broad objective of bringing about an efficient and cost-effective process for the settlement of arrears of personal debt.

On Friday last, I had the pleasure to attend a financial services conference in UCC at which the head of financial regulation at the Central Bank, Mr. Matthew Elderfield, made a speech. On a number of occasions during his contribution, Mr. Elderfield indicated that resolving the mortgage arrears crisis is not possible without the implementation of fundamental reforms to Ireland's personal insolvency regime and the establishment of a statutory, non-judicial debt settlement system.

It is time to update this nation's insolvency law to make it comprehensive, effective, and cost efficient. This has already been done in countries such as Germany and Sweden. Those who are in debt or who have mortgage arrears do not have to feel alone or helpless when facing the banks or their creditors. The system which the Bill proposes to create would ensure that all debtors and mortgage holders will be treated fairly and consistently by these entities. Assisting people to move towards paying their debts and their mortgages in a restructured manner will not only help the position of individual borrowers, it will also be a crucial step towards reinvigorating the social and economic well-being of the State.

I propose to comment on the main elements of the Bill, which make provision for the creation of the debt settlement and mortgage resolution office. The latter would be situated within a newly formed debt enforcement office, which would be responsible for the general oversight and management of debt enforcement procedures carried out by newly appointed debt enforcement officers, including putting in place an internal mechanism to handle appeals. A creditor would be able to apply to the debt enforcement office to seek an enforcement mechanism and the officers would seek to obtain information that would be as comprehensive as possible in order to adjudicate on the application. The office would then determine whether enforcement was possible and appropriate. A creditor or debtor could then appeal this decision to the office.

Under the Bill, an individual debtor could apply to the debt settlement and mortgage resolution office for a debt settlement arrangement or a debt relief order and a financially restricted mortgage holder could apply for a mortgage resolution order. This means there are three key processes catered for in the Bill, namely: a debt settlement arrangement, where a borrower's personal debts could be restructured following negotiation with creditors; a debt relief order, where an insolvent debtor could apply to have a personal debt rescinded; and a mortgage resolution order, where a mortgage holder could apply to the office to have his or her mortgage restructured and a binding order issued.

I will deal first with the debt settlement arrangement. If debtors find themselves unable to meet their personal debt commitments but are in a position to make some form of payments, there would be a process under the newly created office which would allow them to apply for a licensed personal insolvency trustee to examine the full picture of their financial affairs in considerable detail and to negotiate with their creditors to put in place an agreed debt settlement arrangement. Such an arrangement is an agreement between a debtor and his or her creditors, facilitated by a personal insolvency trustee, that establishes a set of terms and obligations between the two parties which will improve the position of the debtor to pay his or her debts.

The arrangement process would begin when a debtor applied for a debt settlement arrangement with the new office envisaged under the Bill. A personal insolvency trustee would review the application and the debtor's financial information in detail and confirm that he or she will serve as the debtor's trustee. It would then be the trustee's responsibility to hold a meeting with the debtor to discuss the arrangement and other various options, such as bankruptcy and debt relief order, to determine the best option for the debtor in regard to his or her individual situation. The process would continue with the trustee summoning a creditors' meeting and preparing a proposal on behalf of the debtor to be sent to that meeting. The creditors would then meet to review the proposal and would cast a vote to accept or reject the proposed debt settlement arrangement. The latter would have to be approved by a 60% majority on creditors, in value terms. Once passed, it would then be binding on all creditors who were eligible to vote and would come into effect 30 days later. The debt settlement arrangement essentially involves restructuring a person's personal debts over a period of up to five years. The overall value of a debtor's personal debts can be reduced through this restructuring arrangement. Once a debt settlement arrangement comes into effect a creditor cannot object to the arrangement, present a bankruptcy petition against the debtor or try to commence legal proceedings to recover any debt. Enforcement officers will also be prohibited from enforcing any judgment that seeks the debt owed by the debtor. These are key protections afforded to a debtor under the system. However, if a debtor fails to meet his or her obligations under the arrangement, the arrangement shall be deemed to have failed and will be revoked.

It is important to point out that small business-related debts can form part of the debt settlement arrangement. For example, this provision gives real hope to the thousands of people who were formerly self-employed in the construction sector but are now living with legacy debts after the collapse of their business, and those debts can also be considered as part of this process.

Debtors who are deemed to be an insolvent debtor under regulations to be issued to the office by the Minister may potentially obtain a debt relief order in which they may be relieved of some or all of their debts and liabilities. To do so, a debtor must first seek assistance from the Money Advice and Budgeting Service, MABS, to prepare and complete a comprehensive debt relief order which MABS will communicate to the office. Once an order is granted, a creditor cannot commence any legal proceedings for recovery of a debt in the debt relief order for a period of 12 months after the order has been granted.

At the end of the 12 months, the debts included within the debt relief order will be discharged. The office can amend or terminate the order if it finds that its conditions have been compromised or if the debtor no longer carries out his or her obligations. The debt relief order is not an easy way out for a debtor. Section 38 of this Bill puts an onus on the debtor to engage fully in the process. There is an obligation to co-operate fully, to make available all requested documents and financial information and to inform the office of any material change in his or her circumstances, particularly an increase in the level of the debtor's assets or income. A debtor who knowingly conceals, refuses to produce, or produces falsified documents as part of the process will be guilty of an offence and is liable to penalties under the Bill. This is to ensure that only genuine debtors can avail of this process.

With regard to mortgages, whereas banks and borrowers have successfully renegotiated mortgages in many cases to date, this involves the straightforward options of allowing the borrower to move to interest only payments, extending the term of the mortgage, changing the repayment amount and capitalising arrears. It is necessary to have an independent office which can impose a solution that is binding on both parties and which is tailored to the individual circumstances of the mortgage holder. Therefore, this Bill allows for a mortgage holder to apply for a mortgage resolution order in respect of a family home mortgage. Such an order effectively acts as a binding arrangement between the mortgage holder and the financial institution. The order can only be granted if the mortgage holder is deemed to be 'financially restricted' - the definition of this is to be set out in guidelines issued by the office taking account of reasonable living expenses and so forth. The mortgage holder must be the owner of the mortgaged property, have resided in that property for the two years prior to making the application, have provided written confirmation that they will not sell or lease the property, and have not previously been granted such an order. The office can refuse a mortgage resolution order, as outlined by specifications within the Bill, but must provide the reasons for doing so.

The mortgage resolution order process begins when a debtor applies for a mortgage resolution order in the office. The office will then submit the application to the financial institution that provided the mortgage within 14 days of receiving the application. The financial institution must provide a written a response to the office, stating whether it accepts that the mortgage holder is financially restricted and that the mortgage is unsustainable. If it accepts the mortgage holder's application and the mortgage holder accepts the financial institution's response, the debt settlement and mortgage resolution office can then amend the terms of the mortgage. The office can amend a mortgage under such an order through some specific mechanisms laid out in the Bill, including interest only payments, mortgage extension, repayment holiday, interest rate adjustment in certain circumstances, debt for equity, deferred interest schemes and mortgage to lease. There are other options which can also be incorporated into the Bill, including the split mortgage proposal advanced by New Beginning. The full range of options should be included.

Once a mortgage resolution order has been put in place, a financial institution cannot take any action to secure repayments above and beyond what is in the order or seek repossession of the home that has been included in the order. There are other provisions in the Bill relating to debt enforcement procedures which can be examined at a later stage. It is essential that such a body would have a board comprising people with real experience and expertise in the area. Groups such as FLAC, New Beginning and MABS should be included in the process. I hope the Government will consider this Bill as a constructive proposal on a non-partisan basis and will be open to accepting the Bill in order for it to be fully debated on Committee Stage. I know every Member in the House has an interest in putting forward real solutions in this area to ensure that people with unsustainable levels of personal and mortgage debt can receive assistance.

See this speech in context