Alan Shatter (Dublin South, Fine Gael)

I commend Deputy Michael McGrath for bringing forward the Debt Settlement and Mortgage Resolution Office Bill 2011. The Government will not be opposing it on Second Stage because, as I previously pointed out to Deputy Calleary, this is the approach I tend to adopt with constructive proposals when they come before the House. While I thank Deputy Michael McGrath for promoting reform of our insolvency laws and practice, the Government is in the final stages of preparing its own legislation in the form of a personal insolvency Bill which will address the matter in a more coherent and comprehensive fashion, taking into account all the significant issues involved.

There is a commitment in the Government legislative programme published on 14 September to publish a personal insolvency Bill which includes provision for debt settlement arrangements by the end of March 2012. Preparation of that Bill is at an advanced stage. I noted with interest Deputy Calleary's remarks regarding the timeframe. This is the timeframe to which the previous Government agreed in the memorandum of understanding concluded with the troika. It is my objective, if possible, to do better than that timeframe.

Deputy Michael McGrath's Bill has two distinct elements. His proposals in regard to debt settlement and enforcement faithfully reproduce the text of the draft scheme of a Bill contained in the December 2010 report of the Law Reform Commission entitled, Personal Debt Management and Debt Enforcement. His proposals in regard to the debt settlement and mortgage resolution office which would grant mortgage resolution orders appear to be a continuation of the thinking contained in the Private Members' Bill entitled, Family Home Bill 2011, which his party brought forward in the Seanad. That Bill was debated on 27 July.

Let me, first, address the issue of the reform of personal insolvency laws. The recommendations of the Law Reform Commission in regard to reform of bankruptcy law and the creation of new non-judicial debt settlement systems are being taken into consideration in my own proposals and will contribute to shaping the general direction of the reform of our personal insolvency regime. I am sure Deputies will concur when I say we are grateful to the commission for its work in this area, including the consultation process in which it engaged and the consultation paper it produced. The commission also provided an interim report on certain matters and it fell to me as Minister to consider that report.

I am glad to say I was in a position to implement the key recommendations made by the Law Reform Commission. The Civil Law (Miscellaneous Provisions) Act 2011 made a number of important technical improvements to bankruptcy law to benefit the operation of the Office of the Official Assignee in Bankruptcy. More significantly, the Act began the process of reforming the discharge periods applying to bankruptcy. For the first time in our law an adjudication of bankruptcy is now automatically discharged after 12 years. In addition, the period for application to the court for discharge of bankruptcy is reduced from 12 years to five. However, discharge remains subject to the existing conditions: payment in full of all expenses, fees and costs of the bankruptcy and all preferential payments, primarily to the Revenue Commissioners and former employees. The costs and preferential debts involved may amount to large sums. In a significant number of cases the debtor will be unable to meet these amounts at any stage and thus may remain bankrupt for some time. The amendment will, however, give some a chance to recover and begin anew.

The introduction of automatic discharge of bankruptcies on the 12th anniversary of the adjudication order has allowed the Official Assignee in Bankruptcy to bring closure to 365 so-called legacy bankruptcies that were, in effect, clogging up the system. These are bankruptcies which have continued for longer than 12 years and where the persons involved could not satisfy the discharge conditions under the 1988 Act. The new discharge provisions will allow the people concerned to move on with their lives and permit them to fully engage in society without the stigma of bankruptcy. I hope it has brought some peace of mind to those who now stand discharged. These changes to section 85 of the Bankruptcy Act 1988 came into effect on 10 October.

It is also worth mentioning that the official assignee has, by virtue of the introduction of the new law, already managed to recover significant sums in the final resolution of bankruptcies to the benefit of creditors. These recent reforms to bankruptcy law are but the first step in the overall reform of our personal insolvency regime.

I do not propose to enter into a section by section discussion of the Bill but will instead address certain broad themes in regard to insolvency regime reform. The commitment in the programme for Government and the EU-IMF programme of financial support for Ireland is to publish a personal insolvency Bill by the end of March 2012. I have indicated to the House that I will, if possible, publish the Bill before that date. It is planned to furnish a copy of the heads of the Bill, when they are complete, to the Joint Committee on Justice, Defence and Equality for its consideration and comment. That was always my intention and I hope Deputy Calleary will welcome the fact that I am dealing with the matter.

My Department continues to engage in focused consultations with key stakeholders, including the State, financial institutions, legal and financial experts and advocacy groups, to identify, at minimal cost, the optimum new structures for bringing about reform. This necessary consultation, particularly in the context of the exceptional economic situation in which we find ourselves, is greatly assisting the development of detailed legislative proposals. In considering reform of our insolvency law and practice, we might bear in mind a number of general guiding principles. The overall objective is to permit efficient and effective insolvency proceedings while minimising moral hazard. The resolution of significant personal indebtedness should not be punitive or destroy the enterprise and hopes of a person for the future. All debt settlement arrangements of whatever type should operate on the basis of consistency, clarity and certainty and be arrived at on a case by case basis between the debtor and the creditor. There should be an acceptance that there will be implications for financial institutions and other creditors. Losses are likely to accrue through debt modification and write-down in any debt settlement plan. There is a need to develop all types of debt settlement in tandem to ensure coherence. That was recommended in the Keane report. The development of our personal insolvency law, taking into account international best practice, will lessen the opportunity for forum shopping, something we have seen a considerable amount of over the last two years.

The Government strategy, which is based on these principles, will not be found wanting. It will seek to be as humane as possible, consistent with the need to administer a system that achieves a balance of interests, facilitates resolution between parties and provides for adjudication where necessary. Informal or bilateral agreements to manage or settle debt between debtors and a single creditor can play a significant role in specific circumstances. They can often be the most sensible and cost-effective arrangements, particularly where the issue is one of dealing with repayment difficulties for a single major credit, such as a mortgage. Such agreements can involve both secured and unsecured debt. There is some evidence in the case of mortgage repayment difficulties that financial institutions are often slow to initiate or react to contact from debtors, are inflexible and for the most part refuse to contemplate reasonable proposals. I think the House will agree that the banks must improve their game in this regard.

I agree with the proposal in the Deputy's Bill that we should introduce a debt relief order scheme. This is essentially a mechanism to enable people with no assets and no income to write off unsecured debt, such as credit card debt, personal loans or catalogue debt, within a short period. In effect, a debt relief order applicant would not be a property or asset owner and would have very limited available income to service debts. As I envisage it, on approval of the application for a debt relief order, there would be a moratorium of 12 months, for example, during which debts would be frozen. During this time, creditors would not be able to pursue the debtor for the outstanding debt or add further interest on the balances. If, after that period, the debtor still cannot pay the debts back at a reasonable amount each month, they are written off. Each debt relief order would be publicly registered on an insolvency register.

I am not convinced that a person should be entitled to avail of a debt relief order more than once. I am conscious that potential participation in a debt relief order scheme may involve negative incentives, such as fraudulent behaviour, non-acceptance of employment or involvement in the black economy. A critical feature of the scheme that I am developing will be the setting of appropriate levels in relation to the debt ceiling concerned, the value of assets held and the net disposable income available to the person each month after reasonable living expenses. The Law Reform Commission envisages that the Money Advice and Budgeting Service, MABS, could be the main approved intermediary body with the primary processing role for applications for debt relief orders.

I am sure that Deputies will agree that MABS provides a critical service in assisting people who are over-indebted and need help and advice in coping with debt problems. Some 52 independent MABS companies operate local MABS services from 65 locations throughout the country. The MABS national telephone helpline is available from 9 a.m. to 8 p.m. from Monday to Friday. The MABS website can be accessed 24 hours a day. Some 90% of clients presenting to MABS are assisted through the telephone helpline, which provides assisted help to ensure clients take steps to assess and address their situations. Based on the latest information available from the Citizens Information Board, at the end of June 2011, the average national waiting time from point of contact to first appointment with a MABS money adviser is between five and six weeks. During the waiting period, clients are assessed. Those in need of immediate assistance are given priority appointments. Others are provided with assisted self-help to ensure they have taken steps to assess their situations and, if appropriate, are supported to take holding action with their creditors.

To assist the work of MABS, the Government has made funding of approximately €18.3 million available in 2011. The number of new clients presenting to MABS to the end of September 2011 was 17,536. This represents a 3% increase on the number of new clients presenting in the same period in 2010 and a 19% increase on the 2009 figure. Of those who contacted the MABS to the end of September 2011, some 51.6% were aged between 26 and 40; some 40.2% were aged between 41 and 65; some 19% were single and 15.3% single with children; some 58.3% were in receipt of a social welfare payment; some 26.7% were working; some 40% were single income households; some 20.4% were living in private rented accommodation and some 44.7% of new clients were people with mortgages. The total amount owed to creditors by new MABS clients in September 2011, based on the debt they had when they first came to MABS, amounted to €359.2 million. Of that total, 71,6% was owed to banks or financial institutions and 12.2% was owed to credit unions. I agree that MABS should have an important role to play in debt settlement arrangements. The scope of that role, and the question of other options in addition or as an alternative, are under consideration in the relevant Departments. They will be detailed in my legislative proposals to establish those arrangements. The Bill before the House does not have sufficient detail in that regard.

The Deputy's Bill sets out proposals, similar to those recommended as he acknowledged by the Law Reform Commission, for the introduction of a new non-judicial debt settlement arrangement. This would be similar to schemes in the UK and Australia which operate on the basis of a legal agreement between a debtor and two or more creditors to repay an agreed amount of debt over a set period of time. At the satisfactory conclusion of the agreement, normally after five years, all debts covered by it would be discharged. The debt settlement arrangement scheme proposed by the Law Reform Commission and the Deputy would be similar to those in the UK, Australia and New Zealand. It would essentially have regard only to unsecured credit. Secured credit, such as mortgage debt, car loans, student loans and certain taxes, would not be debt settled.

The introduction of such a debt settlement arrangement dealing with unsecured debt only is a valid reform approach in itself. In a typical scenario, a debtor might also have difficulties with the repayment of secured or preferential debt. Such a person is normally exhorted to maintain mortgage repayments as fully as possible at the expense of the unsecured creditors. In such circumstances, little if any money may be available from that person to propose a debt settlement arrangement to the unsecured creditors. These creditors would then have little reason to engage with the debt settlement arrangement process and could resort to other enforcement proceedings.

I am concerned that if we introduce a debt settlement arrangement scheme that does not deal with secured credit in some way, it may overly incline debtors or creditors towards bankruptcy as the most practical application for a full resolution of their position. Deputies may wish to note that in Australia, which has very developed non-judicial debt settlement systems, bankruptcy is the option of choice in approximately 70% of insolvency cases. The Government will make decisions in this area based not only on what the Law Reform Commission recommends, but also on the developing situation in the economy, various economic analyses, the Keane report and different approaches in other relevant jurisdictions.

I wish to speak about the last major element of a personal insolvency regime. I refer to bankruptcy, which is a longstanding judicial process that involves the Office of the Official Assignee in Bankruptcy and the High Court. The Bill proposed by Deputy McGrath makes no mention of the reform of our bankruptcy law. As I have said in this House previously, we must strike a balance within our bankruptcy laws where we do not reward those who trade recklessly and destroy other people's lives, while finding a mechanism to facilitate those who may be able to recover, rebuild their lives and have the possibility of re-engaging in business at some stage. We must safeguard against those who seek to manipulate the system and ensure we have appropriate measures to deal with unco-operative or fraudulent bankrupts.

The reform of bankruptcy law will invariably focus on the length of the discharge period that will apply to the person adjudicated bankrupt. We debated this point in the House during the passage of the Civil Law (Miscellaneous Provisions) Act 2011 in July. Opinions varied as to the appropriate period. There was consensus that the one-year period that applies in the UK and Northern Ireland is too short, but anything beyond five years is too long, particularly if the bankrupt person has been fully compliant and not behaved fraudulently in any way. No final decision has been taken by the Government in this regard. I will be happy to hear the views of Deputies on the matter once more. I invite them to address it further during the course of the debate on this Bill.

It is critical in the case of a bankruptcy that the insolvency trustee - the official assignee or a private trustee - should ensure the speedy realisation of the assets of the bankrupt for the benefit of creditors. Given the potential numbers involved, there could be significant recourse to personal insolvency trustees in addition to the role of the official assignee in bankruptcy. These are considerations to be addressed in legislation. I am conscious that a significant expansion of existing State structures will be required to effect properly the reform of personal insolvency. The Office of the Official Assignee in Bankruptcy, which is part of the Courts Service, has nine staff at present. It deals with a small number of applications and adjudications in bankruptcy each year. Under reformed legislation, the prospective caseload for this office or its replacement will be significant and will require staff and funding. As it stands, the Deputy's Bill is unworkable because it avoids the hard questions of the administrative arrangements, organisation, staffing and funding that will be necessary to operate it. As Minister, I do not have that luxury and I must address the matter comprehensively in my own Bill with the backing of my colleagues in Government, particularly on the finance side.

In so far as those matters are concerned, I am considering the establishment of an Irish insolvency service to be the prime motor and focus of non-judicial debt settlement activity. Insolvency and trustee services have been established in the UK, Northern Ireland, Australia and New Zealand. While the insolvency services in those other states combine the administration of judicial bankruptcy and non-judicial debt settlement, it is a matter for consideration as to whether that would be feasible in our jurisdiction. An insolvency service would require some form of quasi-judicial status. It would determine the applications for the proposed debt relief orders. It would critically maintain and update the registers of all non-judicial debt agreements to ensure compliance and to provide information to potential creditors. I am in consultation with my colleagues in Government and the Attorney General with a view to establishing the best and most economic model for our jurisdiction.

Deputy Michael McGrath's Bill also makes certain proposals in regard to mortgages. He envisages there should be a debt settlement and mortgage resolution office to administer mortgage resolution orders. I have commented on the incomplete nature of the administrative arrangements proposed in the Deputy's Bill. The treatment of mortgage arrears requires careful consideration and needs to be set in the context of all of the potential debt settlement and insolvency measures. My colleague, the Minister for Finance, will set out in detail to the House this week the report of the interdepartmental working group on mortgage arrears, better known as the Keane group. I do not propose, therefore, to go into much detail on the report. It is important to note, however, that the Keane group concluded that those who can pay their mortgages should do so and that blanket debt or negative equity forgiveness is not appropriate. It would be a costly response and an inefficient way to make mortgages more affordable for those experiencing most difficulty.

The report sets out a range of possible solutions, including trade-down mortgages, which could be suitable where owners of higher value or larger properties trade down to a more affordable mortgage; split mortgages, which could be suitable where a household is not currently in a position to meet the commitments of the full mortgage but could meet the commitments on a reduced amount and perhaps repay the remainder over time from income or capital increases; and sale by agreement, where in the event that an alternative solution cannot be reached, the borrower and lender would agree to sell the property and resolve the shortfall in the mortgage in an appropriate and reasonable manner after sale, considering the borrower's circumstances.

The State also has a significant role to play, especially where a person with a distressed mortgage will qualify for social housing support. The group proposes the introduction of two new mortgage-to-rent schemes by the Department of the Environment, Community and Local Government utilising approved housing bodies and leasing to local authorities. The key criterion to qualify in each case is that the person with the distressed mortgage and the person's house both qualify for social housing.

My Department contributed significantly to the work of the Keane group. I acknowledge the considerable effort made by Mr. Declan Keane and the members of the working group in bringing forward their proposals in such a short timeframe. Given the complexity of the problem, theirs was a very challenging task and I am pleased it was possible to come up with a range of solutions which, when implemented, will enhance the possible options available to those in difficulty with their mortgage repayments. I was disappointed to note comments in the media, including by Members of this House, casting aspersions on the bona fides of the members of the group.

I am sure the House would agree with me that we need to be realistic in how we approach this problem. The spectrum of mortgage difficulties which people are experiencing is quite wide, ranging from those who are in temporary difficulty to those at the most severe levels of indebtedness. There is no one-size-fits-all solution, and this is reflected in the recommendations of the working group which are aimed at providing measures which will augment the existing menu of options available.

In so far as my own Department is concerned, the reform of the bankruptcy and personal insolvency regime will play a significant part in how we deal with the problem of personal indebtedness generally. Indeed, this reform was identified by the Keane group as being fundamental in underpinning the range of solutions to the mortgage problem. At the best of times, this is a complex area of the law where a careful calibration is required between the rights of debtors and creditors. The task is perhaps even more difficult when one attempts to introduce such reform during times of severe economic difficulty.

The difficult decisions will be taken by Government in regard to this matter. The economic and financial effects of certain of the new arrangements that are being contemplated are being carefully assessed to ensure all relevant issues are addressed and their impact and economic and social consequences are fully anticipated and understood. Our personal indebtedness problem differs from many other countries in that such a significant proportion of personal indebtedness in Ireland is linked to property ownership. Any new insolvency systems must take this into account in their design.

Deputy Michael McGrath in his proposed Bill also raises the issue of debt enforcement practices and mechanisms. Apart from the well-publicised lists relating to applications for possession orders in regard to property, issues relating to debt come before our courts in several guises. Many involve small creditors, for example, family law maintenance, hire purchase agreements or creditor loans, as well as failure to pay loan repayments to financial institutions. Generally, the courts take the view that, where possible, such disputes are best resolved through mediation between the parties involved, avoiding court intervention unless absolutely necessary. There will inevitably be circumstances where it will be necessary for people to be able to rely on the offices of the State to enforce the terms of a contract. It would be undesirable to rush to legislate to make enforcing these rights more difficult. It would leave Ireland in a most unfavourable light internationally if our law prevented people from exercising and relying on their contractual rights.

The current legislation upholds these rights with specific safeguards. For example, a person cannot be imprisoned merely on the grounds of inability to fulfil a contractual or debt obligation. Committal orders are granted only where a person fails to comply with a court order. The law provides that the judge shall only make a committal order where the debtor shows that the failure to pay was due to his wilful refusal or culpable neglect. This provision is intended to ensure that if a debtor is genuinely unable to meet the repayments under an instalment order, steps can be taken to ensure that such a debtor is not deprived of his or her liberty. A debtor may apply for legal aid or the judge can refer the parties for alternative dispute resolution. Since the introduction of the 2009 amendment to the Enforcement of Court Orders Act, only 162 persons have been imprisoned in regard to a debt matter in 2009 and five in 2010.

It is worth recalling that when a judgment for the payment of money is obtained from a court, the primary method of enforcement of such a judgment is for the judgment creditor to obtain from the court an order directed to the sheriff commanding him to seize goods belonging to the judgment debtor and to produce the sum due out of their sale. It should be borne in mind that the execution of money judgments by a sheriff is only one of a number of methods of enforcing such judgments. These other methods require an application to court and do not come within the scope of sheriff law. These other methods include registration of a judgment mortgage which entitles a creditor to institute proceedings for the sale of the debtor's land; a garnishee order, requiring a person who owes money to the debtor, including a bank, to pay the money involved to the creditor; a charging order, which can make available to the creditor stocks and shares belonging to the debtor; the appointment of a receiver by way of equitable execution, making other assets of the debtor available to the creditor; and an order requiring the debtor to pay his debt by instalments under pain of imprisonment where the failure to pay is, as I said, due to wilful refusal or culpable neglect. The proposals contained in Deputy Michael McGrath's Bill, which are taken from the Law Reform Commission's draft scheme, would involve a significant change in regard to debt enforcement procedures. I am of the opinion that this particular area requires further and careful consideration.

As I said at the beginning of my speech, the Government will, in its own Bill, provide for a comprehensive new framework for settlement and enforcement of debt and for personal insolvency. The Government will not shirk from its own responsibilities in this area and we will develop the legislation as rapidly as possible. As already stated, Deputy McGrath's Bill unfortunately falls substantially short in scope and detail as well as policy. In the spirit of encouraging the fullest possible debate on all options and of encouraging Deputies opposite to produce constructive legislative proposals for this House, the Government is not opposing the Bill which in its own right attempts to establish certain principles in support of necessary reform. In the circumstances, upon the completion of debate on the Bill tomorrow evening, it will pass Second Stage and move on to Committee Stage.

It is anticipated that within a short few weeks the heads of the insolvency Bill under preparation within my Department will come to Cabinet. It is my intention, with Cabinet agreement, to furnish the heads of the Bill to the Joint Committee on Justice, Defence and Equality. As the Bill is further developed by the Attorney General, it would be particularly helpful were the joint committee to receive observations and hold such public hearings as it deemed appropriate on both Deputy Michael McGrath's Bill and the heads of the Government Bill furnished to it.

It is not my intention, contrary to Deputy Calleary's suggestion, that Deputy McGrath's Bill be put into some form of cold storage. It is my intent to ensure that at the end of this process, Members will produce the most comprehensive legislation possible to address all the relevant areas. It is my hope that the Oireachtas joint committee would then produce a report to contribute to the development of the Government Bill and its finalisation by the Parliamentary Counsel. By such approach, Members can ensure they produce the very best legislation in a manner which facilitates a meaningful contribution to its development being made at an early stage by all sides in the House.

I hope the Government's approach to the Bill and to the proposals contained therein will be perceived as genuine and constructive in the manner in which it intends to deal with legislation and Private Members' Bills produced by Deputies on the other side of the House. I hope Members will be able to work together across the Chamber to produce the best possible legislation to address the very real needs and difficulties that so many thousands of people in this State are in as a consequence of the economic tsunami with which we have been hit, the fiscal difficulties that have occurred, the dreadful negative equity in which so many people find themselves and the difficulties that many are experiencing in making mortgage repayments due to job losses.

While I do not wish to be uncharitable in any way in respect of this legislation, it is appropriate that Members are addressing this issue. Perhaps it is appropriate the Deputies opposite produced this Bill, the present Government having inherited the worst fiscal and economic legacy-----

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