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

I thank the Deputies for their contributions. I propose to respond to amendments Nos. 133 and 138 together. Both amendments propose to reduce the indicative limit for the aggregate amount of secured debt that may be proposed in a personal insolvency arrangement from €3 million to €1 million. It is the preferred approach of the financial institutions so it is rather interesting to see some of the Deputies speaking, who normally excoriate the financial institutions, on their side. I am not saying that as a smart remark because the Deputies may not realise it. There has been a misunderstanding about this mechanism and why it is proposed.

The Deputy's proposals may be based on some comment of the troika, and this was raised. Such comments, in so far as any were made, were based on a complete misunderstanding of the innovative debt resolution proposals contained in the personal insolvency arrangement. This arrangement provides a rescue approach as opposed to the classical liquidation approach in bankruptcy. The Deputy is proposing that someone who has debt exceeding €1 million should be put into bankruptcy, even if using this mechanism would result, over a period of years, in creditors recouping a larger portion of the money due to them.

What we propose is not a simple option. Deputy Boyd Barrett is right. One of the important aspects of the option is to provide a mechanism whereby people who are living in what I describe as reasonable homes based on their family needs and requirements, and not mansions, are given the opportunity, instead of going into bankruptcy, to retain their homes and recalibrate their debts. That is a major objective of this measure.

We are providing an alternative to putting people in bankruptcy. Why is bankruptcy not, necessarily, the best alternative? First, because it means the official assignee will sell all the bankrupt's property to realise value. Consider a business person who has a family home that is worth €400,00 or €500,000, has borrowings of €300,000 or €400,000 and is running a small business that is going reasonably well but requires liquidity from his bank. He borrows of €400,000 or €500,000 from the bank, which brings him above the €1 million limit but he has a viable business and his financial difficulties are the result of the economic collapse, perhaps some customers have not paid him for a product or service. If the business can continue it will preserve the jobs of employees. Are we saying that individual, because the debts are personal and not corporate, should be thrown into bankruptcy, the business terminated and the employees rendered unemployed, or do we use the personal insolvency arrangement, which is a form of personal examinership? A limited liability company in financial difficulty can go into the courts and if it can be proved that with debt restructuring the business can become viable, the indebtedness worked through and some accommodation afforded by creditors, the limited liability company can continue. Why should that arrangement not be available for an individual whose debt exceeds €1 million?

Some Deputies may see this as providing an easy mechanism for speculators, and it has been misunderstood in that way. The word "speculator" is interesting. It means that anyone who has invested in anything, and was fortunate enough to get funding to invest in something worth more than €1 million, is a speculator. It might just be someone who saw a business proposition or, indeed, may have invested in property. The Deputy from Dún Laoghaire will have many constituents who may own a reasonable family home and were persuaded by their bank, in 2003 or 2004, to borrow €750,000 to buy one of the apartments being built up the road to provide a nice pension. Those same people may have a €300,000 mortgage on their own home and suddenly find that the property for which they borrowed €750,000 is now worth €300,000 and their home which was in positive equity is now just about equal to the borrowings on it. They are in financial difficulty because they cannot keep up their mortgage repayments. Are we to say to those people they must go into bankruptcy because they have debts of more than €1 million?

The provision is more sophisticated than that. The Bill provides an alternative mechanism to bankruptcy which should, and I hope will, assist people who are in homes with negative equity, but which are appropriate and not over-elaborate, and who have other indebtedness and just cannot pay, as opposed to will not pay. The measure will help to restructure their positions.

This is insolvency legislation. It does not just deal with mortgage and the family home. It applies across a broad range of areas to put in place facilities whereby recalibrating someone's finances will, over a period of years, make them financially viable and will also assist them in meeting their obligations to pay their debts. That is what it refers to.

Let us consider the buy-to-let sector. Some people borrowed insane sums of money from banks, who were throwing it at them. Deputy Boyd Barrett and I frequently disagree on issues, but I agree with the Deputy that people had choices. Some people bought multiples of apartments, thinking they were going to make a financial killing because prices were going to continue to go up, and many were encouraged by banks to have that view. Others did it because they saw it as a way to generate security for themselves many years in the future without putting money into pension schemes, for example. They were buying things they could not afford to buy. If they had put money into pension schemes arising from their employment they might have put €5,000 or €10,000 a year into a scheme. Suddenly, banks were offering half a million for an apartment and another half a million for another apartment. It did not matter that they were putting nothing into it.

A number of individuals in that situation are, I presume, engaging with the banks and meeting their obligation to pay. Inevitably, there are some who will go to into bankruptcy. What happens when they go into bankruptcy? Possession is taken of their property and of their family home, the bank sells it off and, because of the collapse in property prices, realises only a portion of what is due to it.

In the process we are putting in place, there are judgments to be made. A financial institution may take the view that a personal insolvency arrangement may not recoup as much as it should but it might, over a period of years, recoup some of what it lent. Bankruptcy might be easier for some people in those circumstances. There is a perception that the personal insolvency arrangement is some sort of lifeboat for people in that position. It certainly allows restructuring. However, for someone in that position with those sort of properties, bankruptcy may be the probable route. First, it may not be possible to recalibrate their finances in a way that would result in reasonable repayments. Second, if they go into bankruptcy they will exit eventually from the indebtedness which they might have to continue to meet through a personal insolvency arrangement.

This arrangement provides for a rescue approach, as opposed to the classical liquidation approach in bankruptcy. The rescue approach is designed not only for home mortgages, no matter how important that is and it is hugely important, but for all types of debt where a security is involved. It will include viable or potentially viable small trader type businesses whose continued existence can sustain employment and economic activity.

The limit of €3 million is not the critical element here. When the Select Committee on Justice, Defence and Equality dealt with the Bill and gave consideration to the true implications of how it would work, members suggested that if there had to be a limit it should be €10 million, because this was seen as a way of working through debt and not evading it, which bankruptcy can be to those who simply cannot meet their obligations. To a large degree, the figure of €3 million is an indicative figure to assist the approach of debtors and creditors in considering their options. There is the alternative option of bankruptcy. Secured creditors can consent not to apply the €3 million limit, by agreement. Why would a secured creditor do that? It is because they would see it as advantageous to recoup money due to them as opposed to the alternative option of a debtor going into bankruptcy.

This is not an easy option. I was asked one morning on Newstalk to explain the €3 million provision in one line. The interviewer got very stressed when I said it could not be explained in one line because a one line explanation is impossible. We are providing an alternative to the liquidation approach of bankruptcy. This is a useful option for those trying to put together workable debt resolution. If 65% of creditors do not agree to a proposal, however, it cannot be put in place. If we reduced the amount, as the Deputy suggests, it would not be long before I would be faced with requests to increase the amount to ensure personal insolvency arrangements actually work.

The sad reality is there are many individuals who might have personal indebtedness of more than €1 million who would not fall into the caricature category of the property speculator, an evil incarnate equivalent to the banking institutions. This issue has been misunderstood and the nature of the mechanism has been misunderstood. The €3 million is like a headline figure that appears to mean someone who has borrowed that amount is getting off easily so it must be bad. That is the depth of analysis that has been done when the reality is much more sophisticated. There are individuals in debt to that extent who, provided they are not concerned about the family home, would prefer the bankruptcy option. That is the reality.

At European Union level a new instrument is being considered to deal with insolvency and bankruptcy and to look at non-judicial debate alternatives to bankruptcy. There has been substantial European engagement with the Department on what we are doing in this area. I do not know to what extent what we are doing here might be taken on board by the European Commission in its proposals for insolvency that will apply across the European Union but in either December or January it will announce proposals and I know the Commission is interested in the non-judicial debt restructuring alternatives to bankruptcy that we are proposing.

I appreciate that looked at superficially a person would wonder what we are doing and where the €3 million figure came from. I was working on the assumption that this would be misunderstood from the start and it would be difficult to explain. There is an argument for this to be completely open-ended. If we take a company that is insolvent, under company law, it might be wound up or there might be a voluntary or creditors' liquidation, it might go into receivership or the company might reply to the courts for examinership. This is an attempt at an agreed examinership process. It is not court imposed and it will facilitate an individual in debt difficulty to avoid bankruptcy and will give creditors reason to engage and consider if the mechanism will offer a greater possibility of recouping some of what is owed that would otherwise be the case.

For people in difficulties with the family home, this has the added advantage that in bankruptcy, the home is sold while under this mechanism it is not. With this mechanism, however, if a home is an elaborate mansion that is substantially beyond a reasonable property to live in by way of a family home, creditors will not agree that it will not be sold and the protections provided under the legislation do not apply because of how we have addressed the family home issue.

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