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

I have met individuals who have discussed with me their fear about beginning the process of engagement. That is why the information campaign being run by the Insolvency Service of Ireland is extremely important. People will be offered hope only if they begin to engage.

Following on from the very practical and immediate measures I have outlined, towards the end of last year there was a marked increase in both the number of applications for personal insolvency deals and the number of such deals agreed. The Insolvency Service of Ireland 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 - the first stage in the process - rose by 50% from quarter 3 to quarter 4. The number of personal insolvency arrangements approved during quarter 4 of last year increased by 148% over the number in the third quarter and exceeded the numbers for the previous three quarters of 2014 combined. From the experience in other jurisdictions, we know that it takes time for insolvency services to bed in and begin to work effectively in increasing the numbers of solutions reached.

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 takes effect and the 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 substantial increase in the overall number of solutions reached under the Personal Insolvency Act 2012. I want to see more people engaging with the ISI and I want to see more financial institutions co-operating with the arrangements. People who are struggling with unsustainable debt must be able to benefit directly from the statutory debt solutions already introduced. Saying that however, I do not exclude taking further measures to ensure that this is the case. I am currently considering the outcomes of the review of the personal insolvency legislation promised under the statement of Government priorities 2014-16, with specific attention to ensuring that the legislation can work as effectively as possible to support families who are willing to work their way through their debt problems. Any necessary legislative changes to the 2012 Act will, subject to the views of the Attorney General and the approval of the Government, be designed to address the problems faced by families in mortgage arrears. I accept there are concerns about financial institutions' approaches to personal insolvency arrangements, PIAs. Securing increased and accelerated engagement by financial institution with PIAs is a priority for me and for the Government. This issue was specifically addressed in the recent meeting which the Taoiseach, the Tánaiste and I held with personal insolvency practitioners. I assure the House this general matter is being examined in the context of the review underway. I am engaging with my colleague, the Minister for Finance, on proposals to ensure the insolvency legislation can work effectively to support people trapped in unsustainable debt in arriving at sustainable solutions. The Government and I hope to make further announcements on proposals in the near future. During our debates on Second and Committee Stages of the Personal Insolvency (Amendment) Bill 2014 I updated Deputies on the review and informed them of my intention to bring forward proposals to address this and other personal insolvency issues.

At the heart of Deputy Michael McGrath's Bill is a concern about whether banks are engaging with the personal insolvency arrangements, given the small numbers of applications and approvals to date relative to the number heavily indebted households. There is a view that banks are refusing to enter into PIAs, even regarding family homes. The banks argue that the personal insolvency is still new and all stakeholders need more time for it to bed down. I accept these are very different views. My view is that it will be necessary for the measures which are brought forward by Government following the review completed under the statement of Government priorities to include actions on this issue.

This Bill essentially proposes to introduce what it terms a family home mortgage settlement arrangement into personal insolvency legislation. I have a number of concerns regarding the proposal for this new type of debt solution arrangement. The Bill proposes a fundamental shift in the manner in which debt solutions are formulated from a position where creditors voluntarily enter into an arrangement with debtors, which is the basis for a personal insolvency arrangement or a debt settlement arrangement under the 2012 Act, to a court imposed arrangement. In approaching the problem in this manner, the Bill ignores the fundamental importance of striking a carefully measured balance between the interests of people who are in arrears of mortgage repayments on their family homes and the property rights of secured creditors. It would require the courts to adjudicate on these issues without providing any criteria to guide their decisions, while at the same time introducing sweeping new powers for the courts to impose debt solutions on secured creditors. In addition, there is no provision setting out a right of appeal. I note that the Bill does not define a "family home". This risks a lack of clarity as to whether the home of a single person, a cohabiting couple, siblings or a property which is the family home of a person other than the mortgagor, such as a tenant in private rental accommodation, is covered.

Section 4 outlines proposed criteria which the mortgagor must meet to be eligible for a settlement arrangement. I note that a mortgagor can only be considered eligible for a settlement arrangement where he or she has engaged with a mortgagee under the Central Bank's code of conduct on mortgage arrears, CCMA, and has exhausted all avenues under that code, including appeals processes. It is a fact that the majority of those in long-term mortgage arrears, that is arrears of longer than 720 days, are considered by the Central Bank as unco-operative borrowers in that they have not engaged with their lender in any meaningful way under the CCMA. This means that the proportion of family home borrowers in long-term arrears meeting the criteria advanced by Deputy McGrath would be very low.

Section 7 proposes that a protective certificate issued under the proposed settlement arrangement would subsist for 180 days. This is much longer than the time period provided for under a PIA, which is currently 90 days. No reason for the proposed extension of the time period is advanced and the Bill also provides for a further extension of unspecified duration. Section 9 of the proposed Bill relates to the formulation of a settlement arrangement by the PIP and its subsequent consideration by the mortgagee. It differs quite starkly from the current provisions under a PIA. Under a PIA, the debt solution is voluntary in nature. A PIA must be agreed by both the debtors and creditors and provisions have been put in place in the 2012 Act to enable this process. The Bill as drafted does not provide that the settlement arrangement should be agreed by the mortgagee and would allow the property rights of a secured creditor to be impaired without consent. While this would require a court order, it also places the Circuit Court in the difficult position of performing a highly delicate and sensitive adjudication which may engage constitutionally protected rights without indicating any criteria to guide its decision. The risk also arises that introducing such provisions could incentivise delinquent behaviour by some mortgagors and reduce the numbers of mortgagors engaging with their lenders on mortgage arrears.

It is my belief that the approach proposed in the Bill would discourage lending for house purchase purposes and risks exerting a negative impact on a recovering housing market. I believe further that the Bill would result in legal uncertainty and lead to a high risk of legal challenge. Existing personal insolvency legislation already provides a mechanism whereby mortgage arrears on family homes can be taken into account when formulating a proposal for personal insolvency. A personal insolvency arrangement can include secured debts, such as a mortgage on a family home, as well as unsecured debts. Any of the options proposed for a settlement arrangement under this Bill are already possible under a PIA. The distinction is that a PIA has to be approved by a majority of creditors, while a the proposed settlement arrangement would allow the Circuit Court to impose the arrangement on the mortgagee. I have already outlined my concern that the Bill takes this substantial step without satisfactory definitions of which homes would be protected or of who can apply, without any criteria to guide the court, without hearing other parties or other creditors who might be affected by such a measure and without providing for any right of appeal. Such an approach would, I believe, be open to legal challenge.

The Bill as presented risks creating a range of serious negative effects for borrowers struggling with mortgage arrears, mortgage lending institutions, the courts, the continuing operation of the personal insolvency system and quite possibly for new applicants for mortgages, especially mortgages on a principal private residence. The drafting of the Bill is such that it would not be possible to accept it as it is currently configured. It is in that context that the Government is declining to accept the Bill. However, I appreciate the spirit in which the Bill has been put forward. In that context I propose to refer the matters raised by Deputy Michael McGrath to the Joint Committee on Justice, Equality and Defence for further consideration. I accept that engagement with the insolvency system by some lending institutions needs to be accelerated. I intend to bring proposals to Government in early course which will address the issue in a more appropriate and effective manner.

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