Frances Fitzgerald (Dublin Mid West, Fine Gael) | Oireachtas source

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

This is a short technical Bill, which makes some prudential and clarifying amendments to a small number of procedural provisions in the Personal Insolvency Act 2012. Before turning to the provisions of the Bill, however, I would like to take this opportunity to update the House on recent developments regarding the 2012 Act and to place these developments in the context of the debate about the interaction between insolvency policy, and the broader question of mortgage arrears and the levels of general indebtedness arising from the economic crisis. Deputies will have seen media coverage of last week's meeting of the Taoiseach, the Tánaiste and myself with the Insolvency Service and insolvency practitioners. I attended part of the meeting and found it very useful. The Taoiseach has spoken publicly in recent days about the need for banks to co-operate effectively with the personal insolvency regime and he has reiterated the Government's determination to ensure that people who are trapped in unsustainable debt can reach satisfactory solutions.

As Deputies will be aware, the Statement of Government Priorities 2014-2016 already underlined that high levels of personal debt continue to threaten to exclude thousands of individuals and families from the economic recovery. The Government is committed to reviewing the implementation of Central Bank mortgage arrears targets and the operation of the insolvency service to ensure that both bodies have the powers needed to support families willing to work their way through their debt problems. The review of the Central Bank mortgage arrears targets is primarily a matter for the Minister for Finance. We welcome the tangible evidence that there has been a significant increase in bilateral engagement between banks and customers in debt distress. Over 89,000 mortgages were permanently restructured by the end of November 2014, which is an increase of almost 10,000 since August. It is a very important figure to note. While there is a huge amount of work still to be done, particularly in the area of long term mortgage arrears, it is now clear that the mortgage arrears resolution strategy is progressing significantly. Of course, it is no coincidence that there has been a significant increase in bilateral deals between the banks and their customers since the establishment of the insolvency service and the reform of the bankruptcy laws. The review of the personal insolvency aspects is nearing completion by my Department and I will be giving particular attention to its outcome over the coming months.

I note at this point the valuable work done by the Joint Committee on Finance, Public Expenditure and Reform in its report on mortgage arrears last July. Most of the report's recommendations relate to the mortgage arrears resolution process and are therefore a matter for the Minister for Finance and the Central Bank. However, there are four recommendations which relate to personal insolvency and bankruptcy. Their focus is on ensuring that fees and costs do not present a barrier to a heavily indebted person who wants to avail of personal insolvency solutions or to access bankruptcy and reviewing the engagement by financial institutions with the insolvency legislation. The recommendation on engagement by financial institutions has been fully taken into account in my Department's review and it will form an important part of the issues which I will be considering. On the issue of costs, which were highlighted with a focus on ensuring that costs are not a barrier to heavily indebted persons, I have taken some immediate measures. Regarding insolvency fees, I have provided for a complete waiver of all fees payable to the ISI and the courts in respect of insolvency applications with effect from last October. It was an important recommendation. In my discussions with the insolvency service and its director it was clear that they felt this measure could make a major difference and improve matters for those who wanted to use the service.

As regards bankruptcy costs, I have provided for a waiver of all fees payable to the courts on bankruptcy applications and for a substantial reduction in the costs of entering bankruptcy. The effect is that the fees and charges payable to the courts and the official assignee in bankruptcy by a debtor entering bankruptcy have been reduced from nearly €1,400 in early 2013 and approximately €935 early last year to approximately €275 since 31 December 2014. That compares to an equivalent cost for entering bankruptcy in England and Wales of approximately €900. Further in response to the joint committee's recommendations, the insolvency service is providing support of €750 on a temporary basis to defray the expense of a personal insolvency practitioner in any case where creditors reject a reasonable DSA or PIA proposal. In this context "reasonable" refers to a proposal which offers a better outcome to creditors than bankruptcy. The ISI will be reporting on the outcome of this initiative over the coming year.

The insolvency service carried out focus group studies and found that people needed more information on the personal insolvency legislation. On foot of those studies, the insolvency service launched a major "Back on Track" information campaign towards the end of last year, which I supported. The campaign is targeted to reach those most in need more effectively and appears to be already delivering results. Following these very practical and immediate measures, there was been a marked increase towards the end of last year in the number of applications for personal insolvency deals and in the numbers agreed. I record some of the relevant figures. The insolvency service concluded almost 1,000 solutions for individuals in unsustainable debt last year; with 547 insolvency deals agreed and 448 bankruptcy adjudications. The number of new applications for protective certificates, which is the first stage in the process, rose by 50% from quarter 3 to quarter 4. This is an important figure. The number of personal insolvency arrangements approved during quarter 4 of 2014 increased by 148% over the third quarter and exceeded the previous three quarters of 2014 combined. It shows that the changes recommended by the insolvency service to make it easier for people to access it have shown results in the last quarter of last year. These substantial increases should continue into 2015 as the cost reductions package continues to take effect and the insolvency service's "Back on Track" information campaign continues with targeted local meetings around the country to inform people about the possibilities open to them. However, I would like to see a more fundamental change in the overall number of solutions reached under the Personal Insolvency Act. People who are struggling with unsustainable debt must be able to benefit directly from the statutory debt solutions already introduced. I do not exclude taking further measures to ensure that this is the case. If that is considered necessary, it will be done in the context of our review under the statement of Government priorities, as I have indicated.

I turn now to the Bill before the House. As the amendments are very technical, I propose to start with a brief overview of the Bill's purpose and to present its overall thematic objectives before coming to specific provisions. The amendments in the Bill relate to the chapters in the Personal Insolvency Act which deal with procedures for approving or varying two of the three statutory debt deals. These are debt settlement arrangements, or DSAs, and personal insolvency arrangements, or PIAs. The Bill is not making any change to the rules on voting in creditors' meetings as they are understood and applied in practice. Its main purpose is a prudential one; to put beyond doubt a possible ambiguity in the wording of two sections which might otherwise make it more difficult for a debtor's DSA or PIA proposal to succeed even where it has the support of the main creditors. The secondary purpose of the Bill is to clarify some aspects of the detailed procedural arrangements for approving or varying a DSA or PIA in two specific scenarios which are already provided for in the Personal Insolvency Act. I remind Deputies that a DSA provides for agreed settlement of unsecured debt only with no upper limit. A PIA provides for agreed settlement of secured debt up to €3 million, or more than that if creditors agree, and can also include unsecured debt with no upper limit. The third type of statutory debt deal is the debt relief notice or DRN, which is not affected by the reasons for the proposed amendments as it does not involve a creditors' meeting. A DRN allows a limited write-off with court approval of unsecured debt up to a maximum of €20,000 for a debtor with very little income or assets.

The main purpose of the Bill relates to a possible ambiguity which has been identified in the wording of sections 73 and 110 of the Personal Insolvency Act 2012. These sections specify the majority of creditors that is required to approve a debtor's proposal for a DSA or PIA. The intention of the legislation and the interpretation that is currently applied by all stakeholders in practice is that such a proposal can be approved by creditors holding 65% or more of the overall debt. The 65% threshold is the only threshold set for creditor approval of a DSA proposal which deals exclusively with unsecured debt. In the case of a PIA proposal, the Act lays down an additional requirement of approval by creditors holding over 50% of the secured debt and by creditors holding over 50% of the unsecured debt. Legal advice has raised the possibility that the wording of sections 73 and 110 could be open to the technical interpretation that, in addition to the requirements I have just mentioned, a proposal must also be agreed by a majority, or over 50% in number, of all creditors both for a DSA and for a PIA.

Such an interpretation would impose an unintended additional hurdle for debtors and make it unnecessarily complicated to secure agreement on a reasonable proposal for a debt deal. It could allow a creditor with a small share of the overall debt to block a debtor's proposal for a DSA or PIA which was agreed by the main creditors. This would be unfair to debtors and would mean a debtor's proposal for a PIA would have to satisfy four separate creditor voting tests, which would be unnecessarily onerous. Nor would it be helpful to debt resolution, given that such creditors' rights are already appropriately protected under the existing provisions of the Act. The issue is being addressed on a precautionary basis only. There has been no legal challenge or court decision on this point. Even if such a challenge were to emerge, the court might uphold the interpretation which is intended and generally applied. However, the Government considers that given the importance of the provisions, the wording should be clarified on a prudential basis, to remove any possible doubt and to avoid any risk of uncertainty or delay for parties to statutory debt deals.

The secondary purpose of the Bill relates to the rules laid down in the Act for the more detailed procedural aspects of decisions on proposed DSAs or PIAs. Normally, the decision to approve or reject a proposal is taken by a vote of creditors at a creditors' meeting. In this standard scenario, the Act sets out precise rules for detailed procedural aspects such as notice periods, time limits and documents to be provided to the creditors. The Act also provides for two less typical decision-making procedures which apply in specific situations. First, if a creditors' meeting is called to decide on a debtor's proposal but no creditor votes, the proposal is deemed under the Act to be approved. This is the "no-vote scenario". Second, if only one creditor is entitled to vote at a creditors' meeting, the decision may be made without the formal need to convene a creditors' meeting. This is the "sole creditor scenario".

In the two scenarios, where there is either a creditors' meeting but no vote, or no creditors' meeting because there is a sole creditor, the Act does not fully specify how the detailed procedural arrangements, which are laid down in the context of decision by vote at a creditors' meeting, will operate. The Bill, therefore, provides amendments to clarify, where necessary, the detailed procedural arrangements which will apply in the two scenarios. They are designed to be closely equivalent to those applicable in the standard scenario. No legal doubts or challenges have been raised in regard to this secondary objective. The changes are being made simply for the convenience of the main stakeholders, namely, the parties, the Insolvency Service of Ireland and the courts. They have been requested by the Insolvency Service, and can readily be made along with the main changes proposed by the Bill, as they relate to the same chapters of the Act.

I turn now to the specific provisions of the Bill. The technical context and effect of each provision is set out in the detailed explanatory memorandum accompanying the Bill, which has been published. Following the structure of the Personal Insolvency Act, sections 2 to 9, inclusive, of the Bill propose amendments to the procedures for proposed DSAs. Sections 10 to 17, inclusive, propose equivalent changes to the procedures for proposed PIAs, as I have outlined. Sections 2 and 3 follow the secondary purpose of the Bill. Section 2 is designed to clarify the documents which should be provided in advance to a creditor asked to decide on a DSA proposal, in a sole creditor scenario. Section 3 deletes the existing provision for the sole creditor scenario at section 72(8) of the Act, so that it may be replaced under section 5 of the Bill with a more detailed and comprehensive provision. Section 3 also clarifies, for the avoidance of doubt, that in a no-vote scenario, where the debtor's proposal is automatically deemed to be accepted by creditors under the existing provisions of the Act, the protective certificate issued by the court continues to have effect until after the court has decided whether to approve the proposed DSA.

Section 4(a) implements the main purpose of this Bill regarding DSA proposals. It amends the existing wording to put beyond doubt that such a proposal may be agreed by creditors representing 65% of the total amount of the debt, in line with the intention of the legislation, without any further requirement. Sections 4(b) to 9, inclusive, continue the secondary purpose of the Bill regarding DSAs, by specifying notice, documentation and variation requirements for the no-vote scenario and for the sole creditor scenario, in a more precise and comprehensive manner.

With regard to the provisions relating to personal insolvency arrangements, sections 10 and 11 follow the secondary purpose of the Bill. Section 10 is designed to clarify documentation requirements where a PIA proposal is made, in a sole creditor scenario. Section 11 deletes the existing provision for the sole creditor scenario, so that it may be replaced under section 13 of the Bill with a more detailed and comprehensive provision. Section 11 also clarifies, for the avoidance of doubt, that in a no-vote scenario, where the debtor's proposal is automatically deemed to be accepted by creditors under the existing provisions of the Act, the protective certificate issued by the court continues to have effect until after the court has decided whether to approve the proposed PIA. Section 12 implements the main purpose of the Bill regarding PIA proposals. It amends the existing wording to put it beyond doubt that such a proposal may be agreed by creditors representing 65% of the total amount of the debt, plus agreement by creditors representing over 50% of the secured debt and by creditors representing over 50% of the unsecured debt, in line with the intention of the legislation, without any further requirement. Sections 13 to 17, inclusive, continue the secondary purpose of the Bill regarding PIAs, by specifying notice, documentation and variation requirements for the no-vote scenario and for the sole creditor scenario, in a more precise and comprehensive manner.

I have gone into some detail on these technical changes, which are designed to make a prudential amendment to avoid any possible uncertainty arising in future on the correct interpretation of sections 73 and 110 of the Personal Insolvency Act, and to clarify some issues of detail regarding the procedural arrangements which apply in the specific circumstances of the sole creditor and no-vote scenarios already provided by the Act. Despite their technical nature, these amendments are important to clarify situations and avoid doubt in the future. They will support the smooth operation of the personal insolvency legislation. Following the changes to the fees and some other changes we made last year, the number of people accessing the Insolvency Service of Ireland services for people in this very difficult situation began to increase from the last quarter of last year. I look forward to hearing the views of Deputies on the proposals in the Bill and I commend this Bill to the House.

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