Thursday, 5 July 2012
Personal Insolvency Bill 2012: Second Stage
I move: "That the Bill be now read a Second Time."
I am pleased to present the Personal Insolvency Bill to the House. This is a significant Bill which provides for comprehensive reform of insolvency law and practice. It provides for new, more flexible options to address the circumstances of insolvent debtors. It addresses the obligations of debtors and the rights of creditors in a proportionate and balanced way, having regard to the financial reality of individual circumstances.
The development of modern insolvency law is a key commitment in the programme for Government. It was also required by the terms of the EU-IMF-ECB programme of financial support for Ireland. The reform also has regard to the recommendation made in the interdepartmental working group on mortgage arrears report of October 2011, known as the Keane report. The report states: "The early introduction of new judicial and non-judicial bankruptcy options is vital" and "Without effective bankruptcy legislation the mortgage arrears problem will not be resolved". It would be remiss of me not to mention the significant contribution made by the Law Reform Commission in its December 2010 report on personal debt management and debt enforcement. This report and earlier work were of considerable assistance in the formulation of the Bill.
The general scheme of the Bill was published for consultation by the Government on 25 January. Several important submissions, in particular the report of the Joint Committee on Justice, Defence and Equality, were received in response and taken into account in the finalisation of the Bill. I thank all those who responded in such a positive way. While the primary architecture remains the same, considerable development of the individual provisions in terms of legal and technical detail has taken place to provide for a more coherent approach in the Bill.
Essentially, the Bill provides for the reform of personal insolvency law and will introduce three new non-judicial debt resolution processes, the first of which is the debt relief notice which will allow for the write-off of qualifying unsecured debt up to €20,000, subject to a three year supervision period. Second, the Bill provides for a debt settlement arrangement for the agreed settlement of unsecured debt over five years. Third, the personal insolvency arrangement will enable the agreed settlement of secured debt up to €3 million, although this cap can be increased with the consent of all secured creditors, and unsecured debt over six years.
To protect the constitutional rights of all concerned and prevent potential actions for judicial review, the Bill makes provision for enhanced oversight by the Circuit Court, or the High Court where the debts concerned are in excess of €2.5 million, of the three new debt resolution procedures. In response to some misguided comments it will be useful to set out in some more detail the process involved. I expect to see an enhanced role for County Registrars. The Circuit Court will receive the debtors case file from the insolvency service with an application for a debt relief notice or a protective certificate in respect of a debt settlement arrangement or personal insolvency arrangement. The court's consideration or hearing will take place on an ex parte basis, neither debtor nor creditor will be required to be present and thus no time delays or costs are incurred. This efficient procedural approach is repeated at the conclusion of the three year supervision period for the debt relief notice or on the conclusion by the parties concerned of a successful debt settlement arrangement or personal insolvency arrangement proposal prior to its formal registration. I hope this proposed scenario will help to calm the fears of Members who have expressed concern that persons would become tied up in expensive and time consuming court hearings. That will not be so. A court hearing will only be necessary subsequently where a creditor objects on one of the grounds specified in the legislation. This is consistent with the approach recommended by the Law Reform Commission.
This enhancement of court involvement has the significant benefit to the debtor of providing protection from enforcement actions by creditors, either during the negotiation period or during the lifetime of the arrangement. It is likely that debtors would be the subject of judgments obtained by creditors. Such protection from enforcement action could not be provided by a non-judicial agency. I am surprised that this point seems to have been overlooked. In addition, the involvement of the court also ensures our new processes will be capable of meeting the criteria in regard to the European Union insolvency regulations and will recognise cross-border insolvency procedures. This is a matter of particular importance.
The Bill will continue the reform of the Bankruptcy Act 1988 which I began in the Civil Law (Miscellaneous Provisions) Act 2011. The critical new provision is the introduction of automatic discharge from bankruptcy, subject to certain conditions, after three years in place of the current 12 year arrangement.
The Insolvency Service of Ireland will be established to operate the new insolvency processes and provide a focal point for development of insolvency policy. I am advancing the organisational planning for the new service and the director designate will likely be appointed during the summer. However, as the new service will administer a completely new approach to insolvency in the State, with new and complex legal provisions, it will require time to become operation ready. It is my expectation that the service will be in a position to commence operation in January 2013, or very shortly thereafter. We cannot rush the proper and necessary preparation; there is too much at stake for too many people to get it wrong. While I recognise the concerns of those who want an immediate introduction, I will not sacrifice getting the service right for an undue haste. We are all aware of the consequences when technology fails in a financial management context, as in the past few weeks.
As to the number of persons who may seek to avail of the new or reformed insolvency processes, it is difficult to be precise. It will very much depend on individual circumstances and the nature and extent of the debts involved. However, for broad planning purposes, there is a tentative estimate, based on a rough extrapolation from the comparable UK and Northern Ireland circumstances, of the following applications for the first full year of operation of the new law and systems: 15,000 applications for non-judicial debt resolution – debt settlement arrangement and personal insolvency arrangement; 3,000 to 4,000 applications for debt relief notices; and 3,000-plus bankruptcy applications. There were about 30 bankruptcy adjudications in 2011. This number gives an insight into the contrasting increase in work that will arise on the implementation of this Bill.
These estimates are tentative. Not all insolvencies will require to be dealt with under the new statutory debt resolution processes or bankruptcy. I would expect that the certainty brought to the future legal landscape by this Bill will encourage debtors and creditors to agree bilaterally on alternative solutions, including in respect of mortgage debt under the mortgage arrears resolution process operated by mortgage lenders under the supervision of the Central Bank.
The provisions of this Bill will require careful consideration by all potentially concerned therewith. However, individual circumstances vary and the solutions found within the context of the debt settlement arrangement and personal insolvency arrangement processes will also vary. I must continue to emphasise that the Bill makes it clear that those persons experiencing difficulties in regard to debt should, primarily, engage with their lenders so as to negotiate an appropriate settlement.
Lenders should also engage properly with customers. Now that the architecture of our new insolvency legislation is clear, it is my hope that financial institutions that have not to date engaged constructively or realistically with borrowers who are overwhelmed by unsustainable debt and unable to discharge their monthly outgoings will now do so with greater flexibility and insight and apply a broader range of common-sense options based on financial reality.
There is no question of the Government forcing settlements on either debtors or creditors. Such an approach would invariably run into legal and constitutional difficulties. It would also not be an optimal way to decide the performance of a contract by one or other of the parties bound by it. The new debt settlement arrangement and personal insolvency arrangement processes described in this Bill facilitate a voluntary deal between a debtor and a specified majority of his or her creditors.
We should not forget that there are many different creditors who may be potentially involved in the new processes. Many persons or companies may be both debtors and creditors. While I can understand the somewhat visceral feelings towards financial institutions and their contribution to our current economic difficulties, we must not lose sight of our objective, which is to introduce reformed, workable and balanced insolvency legislation. Such legislation is a required feature of any properly functioning economy. It will assist not only debtors and financial institutions, but also corner shops, tradespersons, local co-operatives, etc. All debtors and creditors are concerned by this reform. For their sake and the sake of the wider economy, all must be treated fairly. Many individuals are currently in personal financial difficulty because of the failure of other individuals to pay for work properly completed or goods or services supplied to them.
This approach, which seeks balance and fairness, has been criticised by some commentators as suggesting that creditors, particularly mortgage creditors, will exercise a veto. Such a contention is based on an odd view of how normal commercial contractual issues may be resolved. Where one borrows, one must repay where one can. If, for example, an individual paints one's home or retail outlet or does essential electrical repairs, that individual is entitled to be paid. If the debtor is genuinely unable to pay, negotiation with creditors may resolve the difficulty, and this Bill provides the new framework for sensible negotiation.
The underlying philosophy of the debt settlement arrangement and personal insolvency arrangement is that the insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward what the debtor considers to be a realistic offer to his creditors, one that will restore the debtor to solvency within a reasonable period while at the same time giving creditors a better financial outcome than the alternatives of debt enforcement or bankruptcy. The creditors will need to consider carefully the debtor's offer, conscious that if they refuse, the debtor has another option - the standard debt discharge procedure available under the reformed bankruptcy laws. That is the ultimate appeal mechanism of the debtor. However, in that eventuality, which is best avoided, control is effectively lost by both sides. It would make sense for the debtor and creditor, especially where there is only one main creditor, to seek to conclude a bilateral agreement. The reform I am introducing will, in addition to providing new legal remedies, provide a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers.
I was surprised to read articles by Members of this House whom one imagined had a modicum of financial knowledge calling for some form of enforced arbitration by a third party. How this would be imposed, we were not told. Having regard to the legal and constitutional rights involved, a common-sense rather than a coercive approach is taken, as expressed in the creditor voting process provided for in the Bill. The approval process for the debt settlement arrangement and personal insolvency arrangement is consistent with practices in comparable jurisdictions. Under the individual voluntary arrangement procedure in England, Wales and Northern Ireland, the approval of over 75%, in value terms, of creditors voting at the creditors' meeting is required. Similarly, in Australia and Canada, there are debt settlement processes that involve majority approval by creditors.
The provisions relating to a debt settlement arrangement or a personal insolvency arrangement are specifically designed, as far as is practicable, to facilitate a debtor's continued ownership and occupation of his or her principal private residence unless the debtor does not wish to do so, or the costs of the debtor continuing to reside in it are disproportionately large.
The Bill provides that an application for a debt settlement arrangement or personal insolvency arrangement must be made by a debtor through a personal insolvency practitioner, PIP. The debtor is entitled to appoint any authorised PIP of his or her choosing. The time available to finalise the text of the Bill for publication has not permitted the development of a definite approach for the regulation of persons to act as PIPs in the debt settlement arrangement and personal insolvency arrangement processes. Thus, the Bill essentially provides for an enabling section in regard to the regulation of PIPs. I will continue to examine all of the relevant issues in order to bring forward proposals on Committee Stage. I expect that those persons who come forward to seek regulation as insolvency practitioners will likely be drawn from the legal and accountancy professions. However, other suitably qualified persons who are not members of those professions may also be interested. This has proved to be the case in other jurisdictions.
The Bill requires that the terms of the arrangement proposal make provision for the fees and outlays of the PIP and specify the manner in which they will be paid. Those terms are subject to the approval of both the debtor and the requisite majority of creditors. Generally speaking, the costs of personal insolvency practitioners involved in the management of any form of insolvency are met by the product of that insolvency. There are no provisions under the Bill for the State to pay the fees of personal insolvency practitioners.
The provision in regard to PIPs has attracted considerable attention from potential applicants. I am thus conscious of the need to develop swiftly the requisite legislative provisions. However, my Department is not maintaining a register of persons interested in becoming personal insolvency practitioners. Neither will my Department or the proposed insolvency service of Ireland be involved in the recruiting of PIPs.
In regard to dealing with insolvency, the role of the Money Advice and Budgeting Service, MABS, has been raised. MABS will continue in its valuable role of assisting and advising people with debt problems. MABS has agreed to operate as an approved intermediary in regard to processing applications for debt relief notices where it is likely to be the main such intermediary. Other organisations have also indicated an interest in becoming involved in the processing of debt relief notice applications. These would most likely be non-profit organisations rather than personal insolvency practitioners.
Determination of appropriate guidelines with regard to the reasonable expenses that may be allowed to or negotiated by debtors in an insolvency process will require further consideration. There are no such guidelines readily available or agreed at this point. Different organisations, both public and private, will have their own views and proposals in this regard. This is an area of work with which MABS is particularly familiar in the context of its current operations.
The issue of reasonable living expenses is of particular importance in the application process for the debt relief notices. Where the applicant has a disposable income of less than €60 per month after allowing for reasonable living expenses and assets and savings of less than €400, with exemptions for essential household or work items and a vehicle worth up to €1,200, he or she will be entitled to a presumption of qualifying for the debt relief notice by the insolvency service in making its determination.
The completion of the prescribed financial statement in the case of each debt relief notice, debt settlement arrangement and personal insolvency arrangement will assess in detail lifestyle expenditures. The approved intermediary or the personal insolvency practitioner, as the case may be, will take account of the obvious basic necessities of living, for example, food, heat and light, etc. However, he or she will question the continuation by the debtor of certain other lifestyle expenditures. Persons who are insolvent cannot realistically expect either creditors or the taxpayer to fund a lifestyle that has been based on credit. This approach is not intended to be ungenerous, but we must be realistic to prevent possible misuse.
It is my hope the provisions contained in the Bill will act as a catalyst for honest, open and constructive engagement between both unsecured and secured creditors and those in genuine substantial financial difficulty. The Bill provides concrete options for those genuinely unable to discharge their financial obligations as opposed to those who can but will not do so.
I was somewhat disappointed with the negative reaction of the financial institutions to publication of the Bill. I can understand their desire to have a much greater deciding role in the new arrangements. However, they will ultimately acknowledge the need for the correct balance and the maximum flexibility and to come to terms with the concerns of debtors. I recognise that they are seized of the importance of addressing the problem of accumulated debt. Our shared objective must be to assist the greatest possible number of borrowers who are experiencing genuine mortgage arrears problems to be restored to sustainability. For this to occur, the financial institutions will have to provide a larger and more imaginative range of financial debt resolution options to address individual customers' financial reality and acquire staff with the expertise to properly engage with customers labouring under the weight of unsustainable debt. Existing staff will also have to be properly trained in that regard. If the financial institutions fail to do so, they will unnecessarily drive indebted customers into bankruptcy to the detriment of the financial institutions which may ultimately recover less of the debt owed than could be recovered under a personal insolvency arrangement.
While my focus today must be on outlining to the House the provisions contained in the Bill, it is important to reiterate what is not in it. The Bill does not provide for the automatic writing-off of debt, either secured or unsecured, in the debt settlement arrangement or personal insolvency arrangement processes. An agreement that is reasonable and workable for all parties must be concluded on a case by case basis. Where a debtor is not insolvent and can meet obligations to service his or her mortgage or other debt obligations, he or she must continue to do so. The Bill does not provide for any process, whereby negative equity can be written-off for solvent debtors able to meet their repayment obligations. Such a phenomenon is a reflection of the current market value of the asset concerned. It does not exclusively relate to residential property. It could, for example, concern shares or art. Negative equity is not an issue of insolvency for the purposes of the Bill; it is a consideration of whether the debtor can pay his or her bills as they fall due. Of course, where an individual's debts are unsustainable, negative equity may form part of his or her overall financial burden. It is important to emphasise the Bill does not relieve solvent debtors of their responsibility to meet their contractual obligations.
I now turn to the detail of the main provisions of the Bill. Part 2, containing sections 7 to 21, inclusive, provides for the establishment of a new Insolvency Service of Ireland to operate the new non-judicial debt resolution processes. It sets out the functions and powers of the new service and its governance arrangements. The Insolvency Service of Ireland will have the structures, functions and powers consistent with an effective, independent body.
The new service will have a role in certifying applications for a debt relief notice or a debt settlement arrangement and a personal insolvency arrangement and, thereafter, referring the relevant documentation to the Circuit Court or the High Court in the context of arrangements relating to assets which exceed a value of €2.5 million. The Insolvency Service of Ireland has no role in the negotiation and agreement of the terms of either a debt settlement arrangement or a personal insolvency arrangement.
The central core of the Bill is Part 3 which provides in its six chapters for the three new non-judicial debt resolution processes, the appointment of personal insolvency practitioners, offences and some miscellaneous provisions. Chapter 1 provides for the issue of a debt relief notice. This will permit the write-off of qualifying debts totalling not more than €20,000 for persons with no income and no assets, who are insolvent and have no realistic prospect of being able to pay their debts within the next five years. The intention is to create an efficient non-judicial process for allowing such persons to solve unmanageable debt problems. The process is akin to bankruptcy in its broad approach, including a three year supervision period, but provides for a low cost insolvency option, having regard to the quantum of debt involved.
Section 23 provides that an application for a debt relief notice will be subject to certain eligibility criteria. First, the debtor must have qualifying debts of €20,000 or less. Debts qualifying for inclusion in a debt relief notice are most likely to be unsecured debts such as credit card, personal loans or catalogue payments. A debtor will not be eligible to apply for a debt relief notice where 25% or more of the qualifying debts were incurred in the six months preceding the application. Among the debts that will be excluded from a debt relief notice are taxes, court fines, family maintenance payments and service charges arrears. A debtor will only be eligible for a debt relief notice if he or she has a net monthly disposable income of €60 or less after making provision for reasonable living expenses and payments in respect of excluded debts.
The value of any assets held by the debtor, whether individually or jointly with another person, must be €400 or less. There will be an exemption for essential household appliances, tools or equipment required for employment or business and one motor vehicle up to value of €1,200. There has been some comment that personal items of jewellery should also be exempt from the asset test for the debt relief notice. I am mindful of the sentimental, as much as actual, value of items such as engagement rings, etc. However, given the potential for misuse of such a possible exemption, I would need to hear very convincing arguments as to why a person applying for a full debt write-off of up to €20,000 from his or her creditors should be allowed to retain expensive items of jewellery which might be sold to repay some of the debt incurred. Only one debt relief notice per lifetime will be permitted and it cannot be applied for within five years of completion of a debt settlement arrangement or a personal insolvency arrangement.
Section 24 sets out how the debt relief notice process is initiated by the debtor. An application for a debt relief notice must be submitted on behalf of the debtor by an approved intermediary, for example, the Money Advice and Budgeting Service. The approved intermediary will advise the debtor on his or her options and the qualifying requirements. The intermediary will assist the debtor in preparing the necessary prescribed financial statement which must be verified by means of a statutory declaration and any other required documentation. A debtor who participates in the debt relief notice process is at all times under an obligation to act in good faith and co-operate fully in the process. If the qualifying criteria for the debt relief notice are met, the authorised intermediary will transmit the debtor's application, under section 25, to the Insolvency Service of Ireland.
Section 26 provides that on receipt of a completed application for a debt relief notice, the Insolvency Service of Ireland must consider it and make such inquiries as it considers appropriate to verify the information, including inquiries with the Department of Social Protection, the Revenue Commissioners and local authorities. The service will be entitled to presume that the eligibility criteria for the debt relief notice have been met if it has no reason to believe the information is incomplete or inaccurate.
Section 27 provides that if the Insolvency Service of Ireland is satisfied that the application is in order, it shall issue a certificate to that effect and furnish the certificate and supporting documentation to the appropriate court. The court will consider the application and, if satisfied, issue the debt relief notice and notify the service.
Section 29 requires the Insolvency Service of Ireland to notify the approved intermediary and the creditors of the issue of the debt relief notice and register it in the Register of Debt Relief Notices. Under section 30, the effect of the issue of a debt relief notice is that the debtor is subject to a supervision period of three years from the date of issue, unless the court has ordered it to be terminated before then. During that period section 31 provides that creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods or contact the debtor.
Section 32 requires the debtor to inform the authorised intermediary and the insolvency service of any material change in financial circumstances. So as not to reduce the incentive to seek and obtain employment following approval of a debt relief notice, there is provision for debtors to repay a portion of the debts in circumstances where their financial position improves. These circumstances include receipt of gifts or windfalls of more than €500 or where the debtor's income has increased by more than €250 per month. There is a restriction on the debtor applying for credit of more than €650 during the debt relief notice supervision period without informing the person of his or her status.
Section 33 provides that should a debtor make repayments totalling 50% of the original debt, the debtor will be deemed to have satisfied the debts in full. In such a case, the debt relief notice will cease to have effect, the debtor will be removed from the register and all of the debts concerned will be discharged.
Under section 34, funds transmitted by the debtor to the insolvency service are to be paid on a pari passu or proportionate basis to the listed creditors. After the three year supervision period has come to an end, section 42 provides that the qualifying debts will be discharged and the debtor will be removed from the register of debt relief notices.
Chapter 2 of Part 3 makes provision for the appointment of personal insolvency practitioners for the purposes of applying for a debt settlement arrangement or personal insolvency arrangement. Sections 44 to 49, inclusive, provide for a range of practical matters in regard to the appointment of a personal insolvency practitioner, the duties and obligations on such a practitioner and the documents to be prepared for an application for a debt settlement arrangement or personal insolvency arrangement.
A key requirement, provided for in section 46, is the completion of the prescribed financial statement by the debtor with the assistance of the personal insolvency practitioner. The prescribed financial statement, which must be verified by means of a statutory declaration, is the critical element in an application for a debt resolution process. The details required to be included in the prescribed financial statement may be prescribed by ministerial regulation under section 130.
Chapter 3 of Part 3 provides for a system of debt settlement arrangements between a debtor and one or more creditors to repay an amount of unsecured debt over a period of up to five years, with a possible agreed extension to six years. The debt settlement arrangement would assist persons who have such income and assets and debts that they would fall outside the eligibility criteria for a debt relief notice. Sections 50 to 83, inclusive, provide for all aspects of the eligibility, application, determination, duties and obligations arising, court approval, objection by creditors and discharge from qualifying debts under the debt settlement arrangement process.
Section 50 provides that the application for a debt settlement arrangement must be made through a personal insolvency practitioner appointed by the debtor. The personal insolvency practitioner must advise the debtor as to their options in regard to insolvency processes. The practitioner will assist the debtor in the preparation of the necessary prescribed financial statement, which must be verified by means of a statutory declaration, and any other required documentation. A joint application by two or more debtors is permitted where the particular circumstances may warrant such approach.
Section 51 provides that only one application for a debt settlement arrangement in a lifetime is permitted. Section 52 sets out the eligibility criteria for a debt settlement arrangement. The debtor must normally be resident in the State or have a close connection. Section 53 provides that if the debtor satisfies the eligibility criteria, the personal insolvency practitioner will apply to the insolvency service for a protective certificate in respect of the preparation of a debt settlement arrangement.
Under section 55, if the insolvency service is satisfied that an application for a debt settlement arrangement is in order, it must issue a certificate to that effect and furnish the certificate and supporting documentation to the appropriate court. The court will consider the application and, subject to the creditor's right to appeal, if satisfied, issue the protective certificate and notify the insolvency service. In considering the application, the court will be entitled to treat the insolvency service certificate as evidence of the matters certified in relation to the application. The insolvency service will register the protective certificate in the register of protective certificates. The personal insolvency practitioner will inform the creditors of the issue of the protective certificate. When the protective certificate is issued, a "standstill" period of 70 days will apply to permit the personal insolvency practitioner to propose a debt settlement arrangement to the listed creditors. That period, on application to the court, may be extended for not more than 40 days.
Section 56 provides that the effect of the issue of the protective certificate is that creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods or contact the debtor. The rights of secured creditors are unaffected.
Section 59 provides that certain debts are excluded from a debt settlement arrangement, including court fines in respect of criminal offences. In addition, certain other debts are also excluded, such as family maintenance payments, taxes, local authority charges and service charges.
While there is provision for a wide range of repayment options, the default position under section 60, unless otherwise agreed, is that creditors be paid on a pari passu or proportionate basis. Under section 61, any debt that would have a preferential status in bankruptcy will also have a preferential status in a debt settlement arrangement. Under section 63, a debt settlement arrangement proposal will generally not require the debtor to dispose of or cease to occupy his or her principal private residence unless the debtor does not wish to continue to occupy it or the costs of the debtor continuing to reside in it are disproportionately large.
Section 67 provides that if the debt settlement arrangement proposal is accepted by 65% in value of the creditors present and voting at the creditors' meeting, it will be binding on all creditors. Under section 69, the personal insolvency practitioner must inform the insolvency service of the approval of a proposed debt settlement arrangement. The insolvency service will then transmit the arrangement in accordance with section 70 to the appropriate court for approval.
Section 72 provides that if the court is satisfied with the proposed arrangement and if no objection is received by it within ten days, the court shall approve the debt settlement arrangement and notify the insolvency service. The arrangement will come into effect when it is registered by the insolvency service in the register of debt settlement arrangements. The personal insolvency practitioner will then administer the debt settlement arrangement for its duration. For section 72 to be consistent with section 69, it should refer to a period of 21 days rather than ten days. This drafting error will be corrected on Committee Stage.
There is provision for an annual review of the financial circumstances of the debtor under section 74. Section 75 sets out the conditions that attach to the conduct of the debtor during the debt settlement arrangement. The arrangement can, if necessary, be varied under section 76 or terminated under sections 77, 78 or 79. On the termination or failure of the debt settlement arrangement, section 81 provides that a debtor could risk an application for adjudication in bankruptcy. Section 82 provides that at the satisfactory conclusion of the debt settlement arrangement, all debts covered by it are discharged.
Chapter 4 of Part 3 provides for a system of personal insolvency arrangements between a debtor and one or more creditors to repay an amount of both secured and unsecured debt over a period of six years, with a possible agreed extension to seven years.
The personal insolvency arrangement will assist those persons who have difficulty in the repayment of both secured debt, such as mortgage arrears and unsecured debt. Sections 84 to 119, inclusive, provide for all aspects of the eligibility, application, determination, duties and obligations arising, court approval, objection by creditors and discharge from qualifying debts under the personal insolvency arrangement process.
Section 85 provides that the application for a personal insolvency arrangement must be made through a personal insolvency practitioner or PIP appointed by the debtor. The personal insolvency practitioner must advise the debtor as to his or her options in regard to insolvency processes. A joint application by two or more debtors or an interlocking personal insolvency arrangement is permitted where the particular circumstances might warrant such approach. Section 86 provides that only one application for a personal insolvency arrangement in a lifetime will be permitted.
Under section 87, a debtor may propose a personal insolvency arrangement only if he or she is cashflow insolvent, meaning that the debtor is unable to pay his or her debts in full as they fall due, and there is no likelihood within a period of five years that the debtor will become solvent. The personal insolvency practitioner will assist the debtor in the preparation of the necessary prescribed financial statement, which must be verified by means of a statutory declaration, and any other required documentation.
The eligibility criteria for a personal insolvency arrangement under section 87 include co-operation with the secured creditor in respect of the debtor's principal private residence under a mortgage arrears process approved or required by the Central Bank. The debtor must be normally resident in the State or have a close connection. If the debtor satisfies the eligibility criteria, the personal insolvency practitioner may apply to the insolvency service under section 88 for a protective certificate in respect of the preparation of a personal insolvency arrangement.
Section 90 provides that if the insolvency service is satisfied as to the application, it must issue a certificate to that effect and furnish the certificate and supporting documentation to the appropriate court. The court will consider the application and, subject to the creditor's right to appeal, if satisfied, issue the protective certificate and notify the insolvency service. The insolvency service will register the protective certificate in the register of protective certificates. When the protective certificate is issued a "standstill" period of 70 days will apply to permit the personal insolvency practitioner to propose a personal insolvency arrangement to the listed creditors. That period, on application to the court, may be extended for not more than 40 days. The personal insolvency practitioner will inform the creditors of the issue of the protective certificate.
Under section 91, the effect of the issue of the certificate is that the creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods, enforce security or contact the debtor. Section 94 provides that certain debts are excluded from the personal insolvency arrangement, including court fines in respect of criminal offences. In addition, certain other debts are excluded, such as family maintenance payments, taxes, local authority charges and service charges, unless the relevant creditor agrees otherwise. Under section 96, any debt that would have a preferential status in bankruptcy also will have a preferential status in a personal insolvency arrangement.
There are certain specific protections for secured creditors under sections 97 and 98, including a claw-back in the event of a subsequent sale of a mortgaged property where the mortgage has been written down. Under section 99, a personal insolvency arrangement proposal will in general not require the debtor to dispose of or cease to occupy his or her principal private residence unless the debtor does not wish to continue to occupy it or the costs of the debtor continuing to reside therein are disproportionately large. This provision is of particular importance to assist those with unsustainable debt in concluding realistic and common sense arrangements that facilitate the debtor continuing to reside in his or her family home.
Under section 105, a personal insolvency arrangement must be supported in the first instance by a majority of creditors representing at least 65% in value of the total of both secured and unsecured debt due to the creditors voting at the meeting and second, more than 50% of secured creditors voting, based on the lesser of value of the security underpinning the secured debt or the amount of that debt and third, by 50% of unsecured creditors based on the amount of the debt. If the personal insolvency arrangement proposal is accepted at the creditors' meeting and approved by the court, it is binding on all creditors.
Under section 107, the personal insolvency practitioner must inform the insolvency service of the approval of the proposed arrangement by the creditors' meeting. The service will then transmit the arrangement in accordance with section 108 to the appropriate court for approval. Section 110 provides that if the court is satisfied with the proposed arrangement and if no objection is received by it within ten days, the court shall approve the personal insolvency arrangement and notify the insolvency service. The arrangement will come into effect when it is registered by the service in the register of personal insolvency arrangements. The personal insolvency practitioner will then administer the personal insolvency arrangement for its duration. Again, I note that section 110, to be consistent with section 107, should in fact refer to 21 days and not ten days and this drafting error will be corrected on Committee Stage.
There is provision for an annual review of the financial circumstances of the debtor under section 112. Section 113 sets out the conditions that attach to the conduct of the debtor during the personal insolvency arrangement. The arrangement can, if necessary, be varied under section 114 or terminated under sections 116 or 117. Section 119 provides that at the satisfactory conclusion of the personal insolvency arrangement, all unsecured debts covered by it are discharged. Secured debts are only discharged at the conclusion of the personal insolvency arrangement if, and to the extent, specified in the arrangement.
Chapter 5 of Part 3 provides for offences relating to all of the non-judicial debt resolution processes. Sections 120 to 125, inclusive, provide for offences including false representations, falsification of documents and fraudulent disposal of property. The offences may be prosecuted either summarily or on indictment. Section 126 provides for penalties, following conviction on indictment, of fines of up to €100,000 or imprisonment for up to five years or both. Chapter 6 of Part 3 contains provisions that apply generally to Part 3. Among other things, it provides in section 127 for the creation and maintenance by the insolvency service of the insolvency registers to record details of persons concerned with the various debt resolution processes. The registers will be in electronic form and members of the public may inspect a register and may take copies of or extracts from entries in a register.
Part 4 of the Bill provides for a number of amendments to the Bankruptcy Act 1988 to provide for a more enlightened and modern approach to bankruptcy. These amendments will continue the reform of bankruptcy law begun in the Civil Law (Miscellaneous Provisions) Act 2011.
I will now outline the main new provisions. Section 132 provides that the minimum amount for a petition for bankruptcy by a creditor or combined non-partner creditors will be increased to €20,000. The current limits are €1,900 for a creditor and €1,300 for combined non-partner creditors. In addition, there will be a new requirement for 14 days' notice of the petition to be provided. This is to ensure that a bankruptcy summons is not brought prematurely by a creditor, so as to allow the debtor to consider other options such as a debt settlement arrangement or a personal insolvency arrangement. Section 133 provides that in presenting a petition for bankruptcy, the creditor will be required to prove for a debt of more than €20,000, a significant increase from the current limit of €1,900. Where a debtor presents a petition for bankruptcy, he or she must swear an affidavit that he or she has made reasonable efforts to make use of alternatives to bankruptcy, such as a debt settlement arrangement or personal insolvency arrangement. The debtor must also present a statement of affairs, which must disclose that his or her debts exceed his or her assets by more than €20,000.
Section 134 will require the court, when considering a petition from a creditor, to have regard to whether that creditor may have unreasonably refused a proposal for a debt settlement arrangement or personal insolvency arrangement. In adjudication of a creditor's petition for bankruptcy, under section 135 the court will be required to consider the assets and liabilities of the debtor and assess whether it should adjourn proceedings to allow the debtor to attempt to enter into a debt settlement arrangement or personal insolvency arrangement. A bankrupt is permitted to retain certain excepted articles, such as household furniture or tools or equipment required for a trade or occupation. Section 138 will increase the maximum value of those excepted articles from the current level of €3,100 to €6,000. As regards avoidance of fraudulent preferences and certain transactions made before adjudication in bankruptcy, the current applicable time periods of one year will be extended to three years by sections 139 and 140. The time periods in regard to the avoidance of certain voluntary settlements of property made before adjudication in bankruptcy will be extended from two years to three years by section 141.
Section 143 contains extensive new provisions regarding discharge from bankruptcy. First, provision is made for the automatic discharge from bankruptcy after three years from the date of adjudication, which is reduced from the current 12 years. Second, bankruptcies existing for three years or more at the time of commencement of the Act will be automatically discharged after a further six months have elapsed. This latter time is to allow for any possible creditor objection. Third, the bankrupt's unrealised property will remain vested in the official assignee in bankruptcy after discharge from bankruptcy. The discharged bankrupt will be under a duty to co-operate with the official assignee in the realisation and distribution of such of his or her property as is vested in the official assignee. Fourth, the official assignee or a creditor will be permitted to apply to the court to object to the discharge of a person from bankruptcy. The grounds for such an objection are that the debtor has failed to co-operate with the official assignee or has hidden or failed to disclose income or assets. The court may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt to a date not later than the eighth anniversary of the making of the adjudication order. Finally, the court may order a bankrupt to make payments from his or her income or other assets to the official assignee or the trustee in bankruptcy for the benefit of his or her creditors. In making such an order, the court must have regard to the reasonable living expenses of the bankrupt and his or her family. The court may vary a bankruptcy payment order where there has been a material change in the circumstances of the discharged bankrupt. Such an order must be applied for before the discharge from bankruptcy and may operate for no more than five years.
Part 5 of the Bill contains an enabling provision in regard to the regulation of personal insolvency practitioners. However, a definitive approach to the regulation of personal insolvency practitioners awaits final decision and will be the subject of a legislative proposal at a later stage. I am conscious that further development of the text of the Bill is necessary in regard to a number of issues. This work will continue and it is my intention to bring forward further relevant proposals and amendments during the progress of the Bill through the Oireachtas in the autumn.
No one should underestimate the complex legal issues involved in this very large-scale reform of Ireland's personal insolvency law and practice. The consequences and implications of new debt resolution processes must be very carefully assessed. There is a delicate balance to be struck between the various legal rights and obligations of the parties involved. The outcome must be both fair and workable for creditors and debtors alike. Not to do so would make worse a situation that already is difficult for the parties concerned. The development of any new laws, particularly those which are without legal precedent in any other jurisdiction, namely, the personal insolvency arrangement element of the Bill, which provides for the settlement of secured debt as such, required very careful legal drafting. My Department has worked closely with the Office of the Attorney General and Parliamentary Counsel, as well as the Department of Finance to develop the Bill. It is a significant part of the Government's reform agenda. It will create a modern and fairer approach to dealing with unsustainable debt, which is in the best interests of the debtor and the wider society and economy and in is line with international best practice.
It will change the relationship between insolvent borrowers and their lenders. It will give a greater balance to the rights of the borrower and the lender and incentivise both parties to come to an agreed solution. The new legislation will carefully distinguish between individuals who cannot pay as opposed to those who will not pay, so as to ensure there is no suggestion that borrowers can easily leave outstanding debts behind them. This will be achieved through the necessity of the borrowers declaring honestly and openly their financial affairs, the strict eligibility criteria and the anti-abuse provisions resulting in criminal prosecution.
For individuals who are insolvent without any reasonable prospect of being able to repay their debts, the new legislation will allow them to rehabilitate their unsustainable financial situation over a defined period. The introduction of the legislation should serve to support greater stability in the financial sector, as the introduction of the Personal Insolvency Bill 2012 will incentivise banks to reach an agreed solution with individual borrowers in resolving mortgage arrears cases. These non-judicial mechanisms are premised on both debtors and creditors obtaining a better outcome than under the reformed bankruptcy regime.
I hope the provisions of this Bill will receive careful consideration by all potentially affected by it. However, I stress that individual circumstances vary and that the solutions found within the context of the debt settlement arrangement and personal insolvency arrangement processes will also vary, depending on individual circumstances and the nature of indebtedness that exists. The Bill is a major milestone on the road to the development of a modern insolvency process in Ireland. It is a long over-due step. Much remains to be done, but the journey to real reform, of benefit to our citizens, has begun and will be completed by the end of the year. I commend the Bill to the House and I hope it has the general support of all Members.
I thank the Minister for his very detailed speech and I compliment him and his officials on the huge amount of work that has gone into the preparation of this incredibly detailed legislation. We agree with the broad thrust of the Bill and we will be supporting it on Second Stage, but we will table quite a number of amendments on Committee Stage. I welcome the fact that the Minister is committed to getting this through the legislative process by the end of the year. We will endeavour to facilitate him in that as far as we can, while hoping to work with him in improving the provisions of the Bill. I also wish to acknowledge the role of the Law Reform Commission and the many organisations that have worked on this issue for so many years. I acknowledge the presence in the Chamber of Deputy Stanton who, as Chairman of the Joint Committee on Justice, Defence and Equality, was manager of many hearings earlier this year. The provision of the heads of the Bill at an early stage has enhanced the debate and enhanced our ability to take part in that debate. I recommend that any Deputy proposing to speak on this over the next few weeks would take a look at the report prepared by the all-party committee and the submissions made that will guide them through the many intricacies in this area.
The fact that there will be 21,000 applications under the different streams outlined in the Minister's speech highlights the gravity of the problem we are addressing. It shows how real this is. We often discuss legislation in this House and one wonders what impact or relevance it has on people's lives. This will clearly impact directly on many lives. Those looking in on this debate and looking for a solution need to engage in this process early. The Minister gave a health warning towards the end of his speech on people's individual circumstances, and that is incredibly important. I am concerned about the management of the process and the issue of personal insolvency practitioners, but I will come back to that later.
While the focus in the committee hearings was often understandably on mortgage debt as a result of the property crash, the extent of general personal debt is not fully understood in this country. The challenge people face on personal loans, credit card debt and other loans is an area that really has not had full and proper debate, especially in the restructuring of the banking sector. If this process allows us to highlight that, then it will be of further benefit to the various people involved.
The Minister referred to an ultimate appeals mechanism whereby if people do not use common sense and do not agree, then the various bankruptcy provisions kick in at that stage, and that this will be there as an incentive to encourage debtors and creditors to come to some sort of sustainable arrangement. While he is introducing welcome fundamental reforms to the bankruptcy area that come on top of the legislation introduced this time last year, the reality is that there will still be a huge cost attached to going into bankruptcy. It is not something that will be entered into lightly. People with a fear of going into bankruptcy are still concerned that the threshold in terms of creditors is still incredibly high. I know the Minister has said that it is the international norm, but if somebody is dissatisfied with the negotiation process, there is no appeals mechanism and that was a consistent theme of many of the groups that attended the committee. We need some sort of appeals mechanism. If there is dissatisfaction with the service provided by the personal insolvency practitioners, will the insolvency service have some role in that?
The key weakness in the Bill is the lack of some kind of third party arbitration process. We will be tabling a number of solutions to this on Committee Stage. We have brought forward legislation on the establishment of a debt settlement agency and this was accepted on Second Stage in advance of this Bill. We are looking for some kind of MABS agency that will arbitrate on the issues. Our legislation provides for an independent arbitration role to allow people access another channel if their interaction with this service was unhelpful.
The Minister indicated in his remarks that it was his intention that it would be the legal and accountancy services which would take up the area of personal insolvency practice. That is welcome, but it needs to be backed up early on with some element of regulation. I am concerned that some of the people who, under different guises, guided many people into the arrangements for which we are now legislating will reinvent themselves as personal insolvency practitioners. Those involved in financial services and property over the years suddenly see a niche in the market where they can, like Superman, step into a telephone box and come out as the champion of those in difficulty. The danger in this area is very clear unless we have very strict regulations. These people will be dealing with very confidential information pertaining to other people's money, so there is an intention in the legislation of putting some bonding arrangement in place. There needs to be some sort of role for people who have a difficulty with their personal insolvency practitioner. There needs to be a mechanism where such a practitioner can be controlled and cautioned. Then there is the question of the fees and the management of the process. Potentially somebody could be involved as a personal insolvency practitioner for between five and eight years. What will such a practitioner's fee be? What guidelines will be available to those thinking of going into this process? People enter into this process under a huge burden of debt. They are looking for some sort of solution and this process is being held up as a potential solution, so it is important that those who guide them through that solution do not add to that ongoing debt issue and are properly qualified and regulated.
The other difficulty is that while much of this legislation is very strong, it is inconsistent with what is going on in other parts of Government and other Departments. The Minister said he sees MABS as having a key role, which we all accept. As every Deputy and Senator is aware, however, while MABS is doing a fantastic job at present, it is completely under-resourced. I accept that is not Deputy Shatter's Department but the Minister, Deputy Burton, needs to get her act together in regard in to MABS. If there are potentially to be 400 applicants a week, MABS will become one of the first points of contact, as it already is for many who will enter into one of these processes. In order to manage that system and the extra work associated with it, MABS will have to leave aside other people who need its assistance. A specific effort needs to be made, particularly as we move towards budget time, to get the agency up and running by January in order to align resources for MABS in this context.
There is an inconsistency between the Bill and some other Government decisions. For example, the Bill requires six months co-operation, similar to the Central Bank code of conduct in regard to mortgage arrears. That is welcome because one of the big issues and challenges in dealing with this issue is the "can't pay, won't pay" debate. I have to say the Minister has gone a long way in this Bill to addressing that issue. This is not an easy process for anybody. When people see the options laid out in colourful graphs in newspapers, they should not be in any doubt of the demands that will be placed on those getting involved in any of these processes. However, in the changes to mortgage interest supplement introduced by the Minister, Deputy Burton, there is a requirement for a 12-month agreement between those looking for mortgage interest supplement, which many will seek under this legislation, and their banks. The Minister, Deputy Burton, needs to get with the programme to a certain extent and bring her Department into line with the thinking of this legislation and that of many of the groups which are involved at the coalface.
There is also the issue of the demands on the Free Legal Advice Centres, FLAC, and on free legal advice generally at present given the demand that will arise from people looking for advice about their options from that service. They too need to be resourced.
An issue I have often raised is that of an information campaign around this legislation. When we have the Bill passed, the agency should have a budget of some type in order to inform people of what is available, what are their rights and, equally, what are their responsibilities. It is enormously complex. There are so many people who are dependent and so many looking for some sort of solution to very serious problems. They may think such a solution is contained in this Bill, which it undoubtedly is. One of the good things the Minister did last week was to publish various case studies, although, to come back to the Minister's remarks, every individual's circumstances are different. We need a very detailed information campaign to educate and inform people of what is available in this regard.
The Minister outlined figures suggesting there may be 400 applications per week under this process. I welcome the clarification he gave in regard to the Circuit Court and the involvement of the county registrars. However, if we consider the volume of people who will get involved in this process, there will be a huge extra burden on county registrars, who have a relatively quiet existence at present. Will they be resourced and what role will they have in dealing with this in terms of their day-to-day interaction with the new insolvency agency? If somebody has a difficulty with the process, will there be some sort of area to deal with this?
One of the most important points the Minister made was that he intends to recruit a director general designate of the new service. It would be good to think we have somebody in place in a designate role before we come to Report Stage so they could be involved in looking at what is coming through, because this is the person to whom we are going to entrust the running of this agency. That person will obviously bring experience in this field to the job from either within the island or internationally. That experience and background will assist us if the person is in place before we finalise the legislation.
To have the service up and running by 1 January is ambitious although, legislatively, we will do everything that needs to be done. Nonetheless, on the practicalities, I am assuming the Minister has all of this cleared with the Minister, Deputy Howlin, in terms of sanction for the appointments in order that the Minister, Deputy Shatter, can go ahead in a kind of twin-track process and have that team in place. The Minister, Deputy Shatter, knows there is such pent-up demand for solutions that, as soon as that agency goes live, a considerable volume of people will seek its assistance. The worst thing we can do, having offered people innovative solutions, is then to have the delivery mechanism let them down. The Minister referred in his speech to IT failures. If we have a systems failure at the start of what is a whole new era for our management of debt, this will damage people's faith in what is an incredibly important new organisation.
I referred to the various restrictions in place about the "can't pay, won't pay" issue. It is important these are in place to discourage those who would seek to use this to avoid their responsibilities. Most people will not, it is fair to say, but there will be a coterie who will see this as an easy way out of their responsibilities. The danger of this, as we have noted in other debates in the justice field, is that when people go around flashing their wealth and material possessions after having been in one of these processes, it will undermine the entire system and will undermine society's faith in the system being fair.
This again comes back to the role of the insolvency practitioner and the agency. There are criminal sanctions for those who give false information and those sanctions need to be used early on. The message needs to go out early that this is not a solution for those who won't pay. This is not a golden card for those who want to avoid responsibility. It is a solution for those who, for whatever reason, are in a position they currently cannot get out of. The fresh, new start this offers will give them a chance.
The discussion has understandably focused on mortgage debt but the Bill also provides a new platform for enterprise. The change in the bankruptcy culture and the insolvency culture will make it a little easier for those with an idea they think is worth pursuing actually to go down that road. What we need in terms of a change in legislation is a change in culture in this country. If people, for whatever reason, through no fault of their own, end up in this process, that is the way it is. They tried their best not to do so, and people need to respect that and allow people to move on with their lives. The encouragement this will give to the enterprise side and those seeking to promote employment is particularly welcome.
The committee hearings produced many different views on the threshold. I welcome the fact the Minister has reduced it from what was outlined in the heads of the Bill to the 65% mark, although that is still very high. For many people, this will be the owner of their mortgage or credit card, namely, the bank. People need to know beforehand that when they invest or engage in this process, there will be some sort of fairness. This is why we need to flesh out the whole area of independent arbitration. It is the one major weakness in the legislation that there is no independent arbitration. While the Minister has pointed to constitutional and legal issues, surely in the context of what is game-changing legislation, we can look at this and give people the final element of security in terms of having them engage with the system by knowing they will get fair play and a fair hearing. If they do not, there is then a final court of appeal to exhaust.
This is hugely important and hugely detailed legislation and I commend everybody involved in it. As I said, we will not oppose its passage on Second Stage. I hope the Whips will ensure it passes Second Stage ahead of the summer recess and that we can enter into Committee Stage early in September and get that side of it done. Again, I reiterate my suggestion that it would be beneficial for the legislation and, ultimately, for the insolvency service if the agency's recruitment process could be finalised before we finish the legislation so those to whom we will pass the responsibility on 1 January next year will be involved at some stage towards the end of the legislation's passage and may bring additions to it. I look forward to the debate. For those participating in it, it would do them no harm to read the report from the joint committee to see how serious the problem of personal insolvency and debt is and to go through the provisions outlined in the Minister's speech.
I welcome the publication of the Personal Insolvency Bill 2012. It has been long awaited, considering the heads of the Bill were published last January. It was important it was at least published before the summer recess. Hopefully, we can get Second Stage done and dusted before the recess because the sooner we take Committee Stage, the better.
Sinn Féin gives the Bill a cautious welcome. It has to be seen as part of a process. While the Bill itself will not solve the issue of debt in society, it certainly has the potential to help it. There has been much discussion around elements of the Bill and how it will impact. My reading of it is that it is not sufficient enough to do what many people, particularly those in mortgage distress, were hoping it could do. This is a matter that needs to be examined. I have no doubt many families followed the debate about this legislation over the past several months and were hoping for something that would give them a little more hope than what is proposed in the legislation. There will be a certain level of disappointment with the Bill as drafted.
Since the heads of the Bill were published, there has been much discussion at the joint committee with a number of submissions from a broad range of groups and advocates including New Beginnings, MABS, FLAC, the bankers and small businesses. There were detailed discussions at the justice committee but many of the issues pointed out during that process have, unfortunately, not been taken on board with the final draft. This has been a very frustrating part of the process. We pretty much have the same as what was published in the heads, give or take one or two minor additions. This was a missed opportunity to take on board all of these concerns and produce legislation that could really transform how we tackle insolvency and debt in society.
The Bill proposes the establishment of an insolvency service which will provide licensing for and approval of the intermediaries and personal insolvency practitioners. The proposal is that these intermediaries will play a key role in advising debtors, negotiating debt settlements and administering the terms of such settlements. The Bill proposes three arrangements in dealing with insolvency. The first is debt relief notices which are aimed at debtors who possess almost no income or assets. This will be administered by approved intermediaries at no cost to the debtors. The second is debt settlement arrangements which are aimed at those who do not fall within the very strict criteria of debt relief notices. The third is the personal insolvency arrangements which will operate in a similar fashion to the debt settlement arrangements but will allow for the inclusion of secure debt. The Bill will reform existing bankruptcy rules by reducing the period for bankruptcy from 12 years to three years. This is to be welcomed but on Committee Stage we can discuss why we settled on a three-year term and how it will impact on its implementation. In other jurisdictions, the term is less and I would have preferred to see a two-year term.
The functions of the insolvency service will go a long way in determining how effective this legislation will actually be. There is no doubt the Bill, published only last Friday, is complex and lengthy legislation. It would be impossible to touch on all aspects of it today in the time allocated. That is why Sinn Féin will also not be opposing it on Second Stage. The quicker Committee Stage is taken, the quicker we can examine the Bill's detailed aspects and proposed amendments.
The eligibility criteria for debt relief notices are too restrictive. For instance, in addition to being insolvent with no realistic chance of becoming solvent, the specific eligibility criteria includes a debtor having a net disposal income of less than €60 per month after certain expenses are deducted and assets or savings worth €400 or less. What constitutes an asset? Essential household appliances, for instance, would not be taken into account when assessing a person's assets. What is an essential household asset? Is a dishwasher an essential household asset? Will a television, a PC, personal jewellery, a wedding ring or an engagement ring be taken into account when assessing someone's assets? This is an area that will have to be examined in more detail on Committee Stage as I believe the figure in question is too low and restrictive.
The personal insolvency practitioners will propose the DSAs, debt settlement arrangements, and broker their terms. The Bill suggests several ways how they may deal with debt including a lump sum payment to creditors, payment arrangements, transfers of properties and the sale of specific assets for the benefit of creditors. It also outlines creditors of the same class will be paid in proportion to the size of the debt owed, unless otherwise agreed. Certain debts will be considered preferred debt. This is another area which will have to be examined in great detail on Committee Stage.
The personal insolvency arrangements have received the most media attention. We know they will operate in a similar manner to their debt settlement arrangements but it will also allow for the inclusion of secure debt. The whole area around the voting rules which are needed to reach an agreement are difficult to agree with. There is no doubt the criteria need to be reconsidered. The Bill states that a debtor must owe a debt to at least one secured creditor holding security over an asset or property situated within the State and that said debtor must make a statutory declaration to the effect that he or she has co-operated with his or her creditors for at least six months in the context of dealing with any mortgage arrears on his or her principal private residence. In other words, he or she will have had to have engaged with a mortgage arrears resolution process.
My main issue with the Bill relates to the voting rules. There is no getting away from the fact that banks will retain a veto in respect of this matter, that there will be no legal obligation on them to accept what could turn out to be very reasonable applications from customers who are in arrears and that there will be no right of appeal in respect of decisions the banks make. The latter has the potential to leave debtors with no option other than to declare bankruptcy. I have heard quite a number of comments, particularly from Government backbenchers, to the effect that this Bill is radical in nature. If one considers the current framework relating to personal insolvency, then any legislation brought forward would obviously appear radical.
I have no doubt the Bill is going to have an effect. To be honest, however, we do not know how many people it is going to assist. While a great deal of the focus during the discussions on the heads of the Bill concentrated on the technical details, namely, the rights of debtors versus those of creditors, voting rights and the type of debts involved, very little emphasis was placed on the impact to which the Bill might actually give rise. When the Bill was published last week, the Department provided some examples with regard to how it might help certain individuals. However, no real substantive work has been done in respect of the broader implications of the legislation. For example, a regulatory impact analysis has yet to be carried out. In addition, we do not know what will be the Bill's impact on the wider economy. We know how it is going to impact on individuals because the Department provided examples in this regard but there is no indication on how will affect the wider economy. In that context, we do not know how much debt could potentially be written off. Neither do we know how the Bill is going to affect credit institutions, the behaviour of debtors and creditors etc. All of this remains to be seen.
The real test with regard to whether the legislation is going to be effective will come when we are in a position to evaluate if it is going to prove to be of assistance to the hundreds of thousands of people who are struggling with debt. How many of these individuals are going to be able to avail of the provisions contained in the Bill? There is no question that it is going to help a certain number of people. I was not present for the Minister's contribution but I listened to it on the monitor in my office and I am aware that he provided some projections in respect of the number of people who might avail of the Bill's provisions. We must ask whether this is really going to deal with this matter in an adequate fashion.
Account must be take of the fact that some people's circumstances are becoming worse all the time. Other policy initiatives and additional legislation must be introduced by the Government in order to try to ensure that people will not get into situations where they will be obliged to avail of what is being proposed in the Bill. If we do not scrutinise the Bill very closely on both Committee Stage and Report Stage, we will fail to grasp the nettle fully in respect of this matter. Potentially, we could lose out on an opportunity to deal comprehensively with the issue of personal debt once and for all.
As already stated, Sinn Féin will support the Bill on Second Stage. We are eager for it to be referred to the select committee in order that we might draft amendments and have them discussed as soon as possible. On Second Stage, Deputies tend to have their say in respect of legislation but they do not really discuss it in detail. The sooner we begin to tease out the relevant issues the better it will be for everyone.
The most welcome aspect in respect of the Bill is that it has been published and is being debated. It is clear there are issues with it, including some to which the Minister referred, which can be dealt with on Committee Stage. While it is intended to try to conclude the Second Stage debate on the Bill prior to the summer recess, it is going to be extremely important that adequate time should be allocated in respect of Committee Stage. In that context, use of the guillotine should be avoided on Committee Stage which is going to be the most important part of the process relating to this legislation. I am somewhat disappointed that the regulatory impact assessment was not produced in parallel with the Bill. Such assessments are always of assistance to us in our deliberations. As a result of the fact that the Bill was only published on Friday last, we have not really had time to give it the kind of attention it requires in the interim.
We have been waiting a long time for this very complex Bill. Everyone accepts that a great deal of work has been done in the context of its drafting and in terms of considering the various pros and cons relating to including certain provisions. People understand that there is a need for a debt-resolution process. For that reason, I certainly will not be opposing the Bill on Second Stage. I want to see how it will evolve, particularly as there are certain aspects with which I have a difficulty.
The process outlined in the Bill is not going to be an easy one to navigate for those who enter into it. I cannot see people wanting to end up on a register because this will have serious implications for them in the context of how they live their lives, how their credit ratings will be affected etc. This is not going to be an easy process. We must, therefore, consider a range of other options which can be made available to people in order that they will not be obliged to enter into it. One such option relates to accelerating our efforts in respect of job creation. I commissioned a document from TASC, the independent think-tank, on how a stimulus package, if provided, could be job-rich rather than growth-rich in nature. Creating jobs and creating growth do not always involve the same things.
The second option would involve examining the position with regard to things that are linked. I refer here, for example, to mortgage interest supplement. I regret the way in which this matter has been dealt with in social welfare legislation. Under the relevant provisions, a person must be engaged with his or her lender for a period of 12 months before the supplement can be paid. There are people who could manage their debts during specific periods during the year if they were given support in the critical 12-month period to which I refer. The instrument being used in respect of mortgage interest supplement is extremely blunt. I understand from where the Minister is coming in the context of encouraging the banks to engage in respect of mortgage interest supplement, particularly because it is they who ultimately receive it. However, the provision that has been made in terms of the first year is inadequate.
We cannot look at the Bill in isolation. I see the sum of €3 million as large-scale debt. Much of it will relate to family homes, in respect of which there is a huge issue with negative equity in terms of the ability to sell the house and realise the amount required to pay off debts, while having an alternative means of finding accommodation. According to Central Bank figures, 764,138 private residential mortgages in Ireland are worth €112.7 billion, of which some 77,000 are in arrears for 90 days and 53,000 for more than 180 days, amounting to a figure of 6.9%. Total arrears amount to €1.2 billion, which is substantial. Some 79,712 mortgages are subject to restructuring plans, while 961 homes were in the process of repossession in the first quarter of this year.
We must consider whether the Bill will seek to keep people in the family home, if at all possible. If it is not possible to do this, I am concerned about the policies that will be applied to those who find themselves out of the family home. People must be out of the family home in order to qualify for placement on the housing waiting list. This involves a transition period. The local authority has up to three months to decide whether they will be placed on a waiting list and they must be on the waiting list before they qualify to apply for rent assistance, on which it can take up to three months for a decision to be made. These are the practical realities. There is a poverty trap built in because if people are working and trying to pay off their debts, they do not receive rent assistance. People on low incomes will lose their jobs. We must think about these matters because the practical issues will be important in making the resolution system work, even if it is just to put pressure on people to come to a resolution. The nuts and bolts must be cross-governmental and cannot relate to just one item of legislation.
The Insolvency Service of Ireland is to be established, but I would like to see much more information on what is envisaged. I do not know whether this information will be included in the regulatory impact analysis. It would be useful if the Minister addressed the issue in detail. I refer to capacity, funding and fees. We need to receive some indication of the details on these aspects.
Those with a disposable income of less than €60 per month after allowing for living expenses can avail of the first tier of the debt resolution process where the debt does not exceed €20,000. I am thinking about the practical application of this measure. What constitutes living expenses and how is the matter to be decided? The detail in this regard will be important. There could be different interpretations and the measure needs to be evenly applied. It is harsh, but it would be worse if the application was uneven. The MABS does a fantastic job with limited resources and will be asked to take on a heavier workload. If the Bill had been introduced during the good years, when a small number of people were coming through the system, it would have been easier to manage. Potentially, there are many people in the queue and they will all demand a service at the same time. Therefore, there may be a need for front-loading. This should be considered if the measure is to work in a fluid way for those with no option but to take this route.
Many of those involved are in a particular age cohort. They tend to be persons with young families as they have large debts at the beginning of their career paths. One of the two jobs that helped to sustain the mortgage may have been lost.
What constitutes living expenses in the case of key events which are often religious events which put pressure on people? People will be forbidden from accessing particular credit lines and it worries me that illegal moneylending may take place under the table.
Other Members have referred to practitioners. We need to see details of practitioners' fees and consider who has the capacity to deal with this issue. People need to have a good understanding of financial and legal matters. Even if there is not heavy regulation, there must be strong oversight if we are not to have rogue elements operating in this area. The measure is open to being used by such elements and this issue needs consideration on Committee Stage.
Regarding the disposal of the family home in a case of mortgage debt, creditors must agree and are in a strong position to veto the proposed debt settlement. In the case of mortgages, the co-operation of lenders is required. An article this morning in The Irish Examiner suggests that, according to an internal memo, AIB will not offer a write-down of mortgage debt. New Beginnings has stated there is no such thing as a debt write-off, only debt transfer. That is an accurate statement, but there was a large debt transfer from the banks to the taxpayer, to which there were strings attached and now we own AIB. I wonder how appropriate it is for AIB to issue internal memos on what it will do to subvert a means of resolving the cases of individuals who were sold mortgages by the bank. The mortgages were barely sustainable in the good times and are certainly not sustainable now.
The banks are not thrilled about this and the Minister may have to call them in. A debtor must show he has tried to co-operate but there must be a change in culture from the banks so that co-operation is a two-way process.
We must get hope back or there will never be confidence. The debt resolution system is part of that. It will be difficult for anyone who finds himself involved in it but it is how it is applied across Departments that will show whether it works.
The ULA will be supporting this Bill on Second Stage, although with severe reservations. We all know mortgage resolution is a key area for people and the economy. The real issue, however, is not resolved in this Bill - the 90,000 people who find themselves in arrears and in danger of losing the family home. As with the Keane report, their fate is being left in the hands of the banks and mortgage providers. The creditors have a veto and can refuse to acknowledge a debt settlement.
The idea that this can be resolved case by case, with options under Central Bank guidelines such as interest only, lower payments or deferral of payments for a period will not solve the problem. Is it inevitable that repossession, whether agreed mutually by the bank and the mortgagor or by the courts, along with the humiliation of eviction by the sheriff and bailiffs, is to be the fate of tens of thousands of families in the 21st century, a repeat of the 1900s? Do we face that scenario? The only benefit this Bill has at this stage is that people will be able to declare themselves insolvent after three years and the negative equity left over after repossession and disposal of the home will no longer hang over them.
It is time to face reality. I am talking about debts on the average family home. I am not talking about trophy homes or the Quinn family scenario. These people did not behave irresponsibly, they did not go mad, and I would like Enda Kenny to hear that reference. These are people who, to provide a home for themselves and their families, were forced to borrow to buy homes in a market where prices were deliberately inflated as a result of the policies pursued by Government, developers and the bankers. We all remember the advertisements on television appealing to parents to remortgage their homes to get their children on the property ladder. It was madness. The newspapers made huge amounts from their property supplements. Those people did not cause the banking crisis or the collapse in house prices but they now find themselves having lost their incomes through unemployment or a decline of self-employment income and unable to service their mortgage debt. These people are not welchers who are deliberately choosing not to pay; they cannot pay the full monthly payments. There is reality here also for the banks and mortgage providers. If people cannot pay, the debt will not be paid, it is that simple. Repossessing a home now only equates in general to 50% of the loan, meaning banks and mortgage providers will take a loss. There is no way around that.
The banks recapitalisation at the expense of citizens took account of that fact, as Deputy Murphy pointed out. This reality must be made clear to banks and mortgage providers. A high percentage of mortgages that are in arrears are not going to be paid off. We must accept this reality and devise a system that allows people to pay what they can and stay in their homes. It is not difficult and has been done in a number of countries, especially in Northern Europe. I would point to the benefits for both owners and creditors, and to the State, of the approach taken in Norway when it faced a similar crisis in 1990. The Norwegian insolvency legislation specifically dealt with these problems. It established a system of independent insolvency offices - a key point. A person in difficulty can apply to the office for assistance in the formulation of a voluntary agreement with his or her creditors. Where a loan is secured on the family home, the family has a right to stay in it. In the cases where people cannot afford to stay in their home, if their property is sold, they must have enough money from the sale of the house to be able to buy a property that meets their needs in the same area. The mortgage is revalued on the basis of the present value of the security. If a house has a mortgage of €300,000 and is worth €150,000, only the €150,000 portion of the mortgage is secured against the home. The balance, the negative equity, becomes an unsecured debt and is treated like other unsecured debt. The debtor then pays what he can reasonably afford on the reduced mortgage. If he does this for five years, the unsecured debt, including negative equity, is written off. If a voluntary agreement is not reached, the case goes to court for a compulsory arrangement. All of the safeguards to stop abuse can be written into the legislation. Debtors who do not co-operate in providing information on their full financial situation cannot avail of the scheme while false declarations and hiding of assets is a criminal offence.
The United Left Alliance has been working on a Bill along these lines. We will move these ideas as amendments and if they are not accepted, we will introduce a Bill on this topic in the autumn. Our Bill will not be a full solution to the crisis. It will deal with those paying their mortgages but trapped in unsuitable accommodation by negative equity.
There is a crisis that has not been addressed and I would like the Minister to share his ideas on it. Shared ownership schemes, run by local authorities, require a separate solution. These people are in dire circumstances and local authorities have been seeking advice on how to deal with these mortgage debts. Up to 70% of shared ownership properties are in crisis. There is a scandalous shortage of social housing, which was raised this morning by Deputy Richard Boyd Barrett. That is linked to the fact that when people lose their homes, they must go on the local authority list and then are put into private rented accommodation, where we again line the pockets of private interests.
All of these issues must be addressed, along with the mortgage interest supplement issue. The Minister for Social Protection should never have introduced the changes in this area.
I have been trying to represent people who have contacted me from all over the country about their situation with banks. In my experience there are differences between how many of these creditors operate in terms of the spirit and the letter of the guidelines. The key problem is the huge range of families and the distress, ill health and strain on relationships this is causing. There is a real social cost arising from the situation and it is incumbent on us to deal with it and to provide a debt resolution system that people can use in the confidence that they will not be evicted from the family home and will not find themselves paying off unsustainable debts for the next 30 years.
I am also glad to the chance to speak on this Bill. I compliment the Minister, something I do not often do, on bringing it forward, however belatedly.
It is incumbent on all elected public representatives in this House and the Seanad to tease this out and pass it as soon as possible. We are being watched and people are waiting with bated breath to see what we do. They are anxious for this to happen. They want to know how it will improve their lives. There is no doubt that personal indebtedness and mortgage arrears are having a devastating impact on people's lives, family relationships, children and extended families. In some cases parents and grandparents, for reasons of good intent and in an effort to help their children or grandchildren, put their shoulder to the wheel and were ready, willing and able to share the equity they had. All they were doing was helping their family to better themselves. In many cases in rural areas they bought sites, sought planning permission, paid the fees, paid the architects and got the best advice available to build a home for themselves. What more noble objective for any person than to house themselves? We have a proud record in that area in this country. One must bear in mind the Famine and the people who were bullied out of their homes and whose homes were raided. Evictions are an emotive issue given what went on in those penal times. Little did we know since we got independence that we would be back in that situation again. Tragically for many people, we are.
While the Bill has shortcomings, it is, however belatedly, an effort to resolve matters. Many people are affected by stress and trauma. Family life is under extreme pressure. People are being harassed by banks, lending agencies and moneylenders - the scum of the earth, as far as I am concerned, who take advantage of people in trouble and offer them quick money for family events and other needs. Little do people know what to expect when they are driven into the hands of those vultures. That is all one could call them.
I have come from a briefing about the impact of the Coroner's Court on families and the devastating circumstances following death by suicide. The consequences thereafter are tragic. People have to relive the event in the Coroner's Court, and the media are present there also. Sensitivity is required to deal with the issue because of the trauma involved and the danger of copycat deaths.
The debts of the average family are phenomenal. They are overpowering. As a result, people are worn down. I met the troika as a member of the Technical Group, and we tried to get the message across to the people we met. The Government's projected growth rates will not be met. They cannot be met while people are in a state of insolvency, have huge mortgage debts and many other types of debt. People do not have jobs or spending power. Self-employed people do not have proper supports. Many self-employed people had good businesses and built homes for themselves. I do not refer to the people who built mansions. I speak about decent, reasonable homes. Those people had reasonable expectations but their businesses failed. They have a two-pronged problem because they also have business debt which they incurred in good faith.
We had a briefing this morning from FLAC. I was alarmed to discover that people in hire purchase agreements have no recourse to any justice. I have entered into many such agreements myself in the past and I was not aware of that. However, it is a bad day that one does not learn something. We again see the vultures - the banks that we bailed out - advertising on a daily basis hire purchase agreements for cars and other items. It is the one area in which they can do so under the radar, put people under huge pressure and still have all the cards on their side of the table. One of my criticisms of the Bill is that the banks are not being addressed. I question whatever power they had over the previous Government, of which I was a member, and have over this Government, official Ireland and the troika. The banks are playing funny money games with everyone. They are not stepping up to the plate and lending the money they were supposed to lend.
In the context of today's debate, from which I do not wish to stray, banks are not being sensitive in their dealings with ordinary people. Many staff members in banks do a tremendous job - I refer to people who work on the front line or are local managers - but, unfortunately, they have no say anymore. They are not being listened to and they were not listened to either when the money was being fired out. Many of them were conscientious and had an understanding of families and what money could be repaid but nobody listened to them. It was all about shovelling money out as fast as they could to make commission for the whizz kids who were going up the ladder fast. In many cases, reasonable managers who are still in place were thrown to one side because they were out of fashion. They were considered to be old fogeys who did not know what they were talking about and they were told to move aside. It was said that time moves on and that we were in modern-day Ireland. People were offered car loans or holiday loans with the mortgage. Many of those working in the banks have now moved on to debt collection - a horrible practice, with repossessions and intimidation. It is as if they did not get enough of it the first time around. They are getting huge remuneration in that area as well. People are being pressurised and intimidated. They are subjected to late-night telephone calls, dawn raids and calls to the house. In many cases, the same people who made money by lending money on a commission basis have become nothing short of terrorists. They are terrorising the lifeblood out of ordinary people. In many cases the result is that, tragically, people take their own lives and leave their families and loved ones to deal with the trauma.
The debt of the average family is unbelievable. I invited the troika yesterday to come to this country or send an independent agent to walk through any rural town or any city, including this one. They will see there is footfall but people are not spending money because they do not have it. One cannot spend what one does not have and credit has dried up. Shopkeepers and small businesses cannot get credit so they cannot give credit. We are in an awful situation.
I lived through the previous economic crisis in this country and, in the main, the only people who had huge borrowings with excessive interest were the farmers. They suffered but they are resilient and they came through it. They had an asset which has varied in value since then. Currently, almost everyone has large borrowings. In fairness to young people, those under 30 saw no other example than to spend, spend, spend. Money came out of the hole in the wall as if it was a type of factory. People did not understand the value of a pound or a shilling. Then there was all the pressure, with advisers and advertisements setting out what one could have. There were no limits to what one could have. One could ask where those advisers are now. Organisations such as FLAC and other support groups are trying to help people. They are standing by those unfortunate people who did their damnedest in a noble effort to house themselves and who are being punished for it. They are being thrown to the wolves. It is time that stopped. That is why the Bill must deal with the issue.
The parents, and in some cases grandparents, who secured the mortgages have lost everything as well. Having worked their way up since the inception of the State, housed themselves, reared and educated their families with dignity and pride, and given them a hand-out to provide them with security, they cannot sleep in their beds because they are faced with threats from the sheriff and the bailiff. I appeal to the Minister to reform the legislation on sheriffs. It is an outdated bastion of the British Empire. We must get rid of the office because sheriffs are insensitive. The tactics they employ involve bullying. We thought we had got rid of all of those people when we got our freedom and independence but we had not. They call to the homes of people who do not have enough food on the table demanding money for cars or other things. In some cases they call to small business people who have equipment, most of which they have paid for, with only small bills involved. Every time a sheriff calls or writes a letter, there is a fee. One can deal with Revenue - I have dealt with it as an elected Deputy and I compliment it, as it has realised that people do not have money and is doing deals with them - but one cannot deal with the sheriffs. They will not even talk to a person. If one rings, the sheriff will accuse one of making threats or upsetting staff. Sheriffs are like paper shredders. The minute they get a beck from Revenue, they are off. Every time a sheriff makes a call, writes a letter or sends an agent, it is more money.
Intimidating tactics are being used against households in which children do not have enough to eat. Sheriffs have a job to do, but even if they are not coming to a person's door relentlessly, the threat of them doing so makes people wait for them day in, day out. Someone will be killed. It will be another tragedy. People are distraught. They have told me that, if a sheriff comes again, they will not be able to control themselves. I have tried to talk them out of it. The dignity of the home and family must be respected. One's home is one's castle, but these vultures are knocking on doors, threatening people, waiting for them to bring their kids home from school and taking their cars away. Unfortunately, sheriffs have the power to enter a house to remove personal belongings.
This system needs to be reformed because it is outdated. I will not support anyone who does not pay or try to pay his or her way, but some people are in serious situations. If a person still has a television or has paid the licence fee, he or she can watch the night's news about bankers, advisers and former politicians and public servants on pensions of €140,000 or €150,000. I found out from an answer to a question submitted by Deputy Tom Fleming that some of those people have been re-hired. It is not as widespread a practice as I had expected, but it is still disheartening. That they took early retirements, are in receipt of pensions and have been re-hired is despicable. It beggars belief that we as politicians allow the institutions of the State to do this.
People are being arrested. On Sunday evening, a man showed me the mark on his finger left by his wedding ring, which he had pawned the day before to pay for his child to go on a school trip. The sheriff is following him around. Bankers have gone to football matches in Poland and so on and are being called to present at Bray Garda station by appointment. In the case of a former Deputy, a misappropriation of funds amounting to €1,400 or €1,800 has been alleged. His house was visited by three car-loads of detectives, who raided and plundered before taking him away like a common criminal. He is innocent until proven guilty, which is a matter for the courts, but the media was tipped off first. That is the most despicable part of it. Will the Minister check on who told the media? Doing that to anyone, a politician or otherwise, is disgraceful. What of the bankers, the gangsters and the chancers? Senior advisers bought the voting machines. The former Minister made the decision, but what of the smart people who knew all about them, went on junkets to see them, claimed they were fit for purpose and bought a pig in a poke? I would not know the inside of a computer from the outside, but these experts and so-called advisers were well paid. Now we have a mess. The Minister received €70,000 for the whole lot. People in mortgage arrears are living in fear and cannot endure any more of this. It is past time that we made an effort to deal with it.
According to the Minister's documentation, the Bill's principles are an insolvency service, insolvency professionals, voluntary debt settlement and bankruptcy. It is a strange description, but we all know that there has been bankruptcy tourism in recent years, with people going abroad to be declared bankrupt. This morning, we received a presentation from road hauliers. Unfortunately, people are being forced to buy laundered diesel to try to keep their businesses alive. Where will Ireland be without a road haulage service? Where will it be without the people who are ready, willing and able to work towards rebuilding it if they are downtrodden and kept on social welfare and have their dignity taken away?
I welcome the proposed reduction in the bankruptcy period from 12 years to three years, but I am concerned about some aspects of the change. For example, one could be bankrupt for eight years. Personal debt is a major problem for the economy. A recent IMF study found that household debt restructuring programmes help economic recovery. I told the troika as much yesterday. If people have money, they will spend it. We must make cuts, but many of them have been made in the wrong places. We need to allow people enough money to live. We cannot have a situation in which they are hungry, desperate and driven to moneylenders. If they do not have money, the cutbacks and austerity will not work. It is time that our so-called friends understood this and examined what is happening. They should not believe everything they are told by Ministers or special advisers. Many of the latter group advised the previous Government and were present on the night of the bank guarantee. When it was put to us, we had no option but to vote for it, yet they are still in their jobs. A minority has retired and been re-hired. Many of the advisers do not seem to know, understand or, even worse, care. This situation cannot continue. We need to deal with the issues and root out the permanent government. Regardless of what happens, the people involved cannot be reprimanded, let alone dismissed. With the Government of the day, they got us into this mess, but they are not taking any flak for it. I do not want recriminations, but changes and new ideas. We should involve people with business brains who can understand how to deal with bank debts and what can and cannot be repaid.
I compliment my local authority in North and South Tipperary, which will be combined, and its housing officials, for example, Mr. Aidan Fennessey, Councillor Seanie Lonergan and Ms Catherine Meade. Day in, day out, they must listen to the tragic stories, occasionally in my company, of people in shared ownership arrangements or who are renting local authority housing. I took a female applicant who I did not know to the housing officer. Little did I know that she had gone into business. When the housing officer asked her about her debt, she said €10 million. The officer and I nearly fell off our chairs, but we needed to deal with her. She got involved in a situation and borrowed money she should never have been loaned. I am not laughing at the idea. The extent of it was funny, although it was no laughing matter. The ordinary people who I like to represent only borrow enough to house and work for themselves.
The rent allowance has been cut back. I have been a critic of the system. For years, I have called for local councils to deal with it, as they understand the matter. When a budget froze rent allowance, rents went up on the same night, which should not have been allowed. The onus is being put on people to negotiate with their landlords. In many cases they cannot, as their landlords are not compassionate, are only interested in money and will not reduce rents despite the Department telling them to do so.
We must examine how other countries dealt with questions of insolvency and bank debts. The system must be independent. The banks and lending agencies cannot have a veto. As we know from business and elsewhere, banks and the like have no interest other than recovering money for their books. It would be fine if they admitted that they did not have money to lend. The so-called pillar banks in which the public owns a large stake submitted a lending plan to the late Brian Lenihan in which each would lend €3 billion. He sent it back to them. The plan was cobbled together and the banks sent back a more detailed one. They did not measure up to the task and they are not doing it for this Government, in spite of what is being said. I am tired of saying how people in business are being called in to have their overdrafts withdrawn. These business people go to banks and come out with a term loan instead of an overdraft. they cannot run a business without an overdraft. That is forced lending and it is being included as bank lending, which is a big con job. This is happening on a significant scale.
We must have an independent arbitrator and the Bill will not be worth the paper it is written on if there is not to be an independent and well-resourced body to take on these mobsters, gangsters and chancers. We cannot let them out from the wing again, court them or be nice to them. I do not know why there is an obsession to save these bankers. We got rid of the kings and queens in this country but the bankers have replaced them.
Of course I was. We have moved on. She would be welcome again. She visited Coolmore to see our bloodstock industry. I heard the Deputy visited recently as well. I hope he had a good trip to the sunny south east and the Golden Vale.
This House should not be beholden to these desperadoes in the banks, the vast majority of whom are only interested in filling their boots. The whizz kids are only interested in getting their jobs back but are currently happy to be employed as terrorists in making repossessions and making a commission on that basis. It is blood money. Although this Bill does not go far enough, I will support it.
I welcome the publication of the Personal Insolvency Bill. Rarely has legislation been so eagerly awaited not just by the political class but by the ordinary man on the street, if I can use the term, particularly those people struggling under a mountain of debt. It is understandable, given that it was promised in the programme for Government, that it has taken so long because it is extremely complex legislation, running to more than 120 pages, with 144 sections and a 27 page memorandum. It cross-references hundreds of pieces of legislation and it is unsurprising it has taken as long as it has to get to Second Stage.
I welcome the fact the Government saw fit to publish the heads of the Bill in draft format and the justice committee, of which I am a member, had an opportunity under the chairmanship of Deputy Stanton to engage in a constructive fashion with interest groups. They included representatives from the banks, which will be a major player in any debt resolution process, the legal profession, the free legal aid centres, the money advice and budgeting service and the Department of Social Protection. This cross-section of people have expertise that will need to be brought to bear in achieving an effective resolution to a complex and difficult problem faced by people.
In its report, the committee highlighted a number of areas of concern, with some taken on board. I am sure the Minister is open to reasonable and constructive proposals for amendment but it is interesting to see that from the speakers I have heard to date, across all shades of political opinion, there is a broad welcome for the Bill on Second Stage. The sooner we get to Committee Stage to examine the nuts and bolts of putting together effective legislation, the better. We should make haste slowly and effectively in that direction.
There is a critical point that must be made as everybody speaks about the thousands of mortgage holders - it may be 10% of them or more - who are in some form of difficulty with repayments. A very significant number of mortgage holders are struggling, with enormous personal and family sacrifice, to continue to pay their monthly mortgage. It is critical the banks do not seek to screw those compliant mortgage holders in an effort to balance what they will forgo as this legislation will inevitably lead to individual cases of debt write-down. It is interesting and we should be cognisant of that problem.
On the front page of a newspaper today there is a story concerning an internal memo from the AIB which indicated that debt write-down would not be countenanced at this stage in the mortgage resolution process. That flies in the face of the spirit of this legislation. There is no blanket proposal to write down mortgage debt but there is a process. In certain circumstances, where individuals are incapable of meeting mortgage repayments, there is a provision for write-down. There is the question of whether the banks have a veto on this personal insolvency arrangement as it applies to secured debt and, primarily, mortgages. Will they come to the table with clean hands and examine each individual case?
There will be a variety of different arrangements for different levels of debt as they relate to mortgages but it is inevitable there will be debt write-down in certain cases. The emergence of the internal memo from AIB today clearly demonstrates the battle which lies ahead, and the Minister will have to consider seriously whether the banks in which the State is a substantial shareholder - we essentially own AIB - will come to the table with clean hands. As I noted earlier, there is also the issue of the mortgage holders who are meeting repayments and whether they will be screwed to make up what the banks might lose on the other side with the provisions of this Bill. It would not be an acceptable outcome. The idea of "can't pay, won't pay" has been aired repeatedly, and a position might be engineered where people will ask why they should continue to struggle to make the monthly repayments if they are being screwed by the banks.
One of the other welcome aspects of the Bill as published is its holistic approach to debt. This is not just legislation for people with mortgage debt; it is much more comprehensive than that. That point came across repeatedly in the meetings held by the justice committee. There was no point in examining mortgage arrears in isolation and we had to consider all household debt, including credit union loans, credit card debt, car loans, hire-purchase agreements and loans for holidays or house building. The approach in the legislation for debt relief notices, debt settlement and personal insolvency arrangements is a good start, and although much detail has yet to be considered, there is a broad outline for how to proceed. It is a welcome roadmap.
I have concerns about the insolvency arrangements in our nearest neighbour and comparison with our proposals. It is a significant improvement on the existing arrangements requiring 12 years to discharge a person from bankruptcy, and we are proposing a three-year regime. We have seen high and low profile cases of bankruptcy tourism, with people leaving the country and travelling to the UK or Northern Ireland to have their bankruptcy and insolvency arrangements adjudicated in those courts, with the proceedings recognised here. There is a question of what consultation, if any, has taken place with the United Kingdom authorities about putting in place throughout the European Union a single arrangement for insolvency timeframes. That way either the rest of the European Union, including Ireland, could move to the UK model of 12 months or the United Kingdom could move to a three year model. Still, people will face a choice that could undermine the provisions of the Bill if they can discharge themselves from bankruptcy in the UK sooner. I am keen to hear the Minister tease out that issue in greater detail and outline any consultation he has had with the UK authorities. There have been cases in the United Kingdom in which the original bankruptcy arrangements, when contested, have been overturned because of a lack of appropriate information. We need to examine that issue.
The legislation should be as user-friendly as possible when it comes to court jurisdiction. As we go up the ladder of court arrangements from the District Court to the Circuit Court, to the High Court and to the Supreme Court, the complexity and costs involved accrue significantly. I am not interested in solicitor, barrister or accountant bashing, but we should make this as user-friendly as possible for the person in financial difficulty. This means using the lowest possible level of court jurisdiction. We should examine the arrangements for debt relief notices in the Circuit Court and other arrangements in the Bill to determine whether they are the most appropriate levels at which to address the problems.
We should consider the position of agents who will act on behalf of people also. The Money Advice and Budgeting Service has a significant reach in communities and those working for it have significant experience in handling issues and negotiating on behalf of clients in financial difficulties. I am not arguing for exclusivity, but it is important that the MABS is enabled to continue to act on behalf of persons with debt problems.
This is complex legislation and I welcome its publication. There is much work to do, but this is a welcome start. There is a broad welcome for the Bill and I look forward to working with the Minister and my colleagues to fine-tune the legislation which aims to serve the public.
I compliment the Minister on this substantial body of legislation which runs to almost 120 pages. It is comprehensive in nature, but it comes from a simple, threefold premise: first, bankruptcy is a measure of last resort; second, it relates to people who are unable to pay as distinct from those who will not pay; and, third, every effort should be made to ensure people remain in their homes.
The legislation on debt settlement arrangements has three tools: first, a debt relief notice for unsecured debt of less than €20,000; second, a debt settlement arrangement for unsecured debt greater than €20,000; and, third, personal insolvency arrangements for an agreed settlement of secured debt up to €3 million and for unsecured debt. There are bankruptcy arrangements also, but they are seen as a measure of last resort. There will be considerable reform of the bankruptcy laws. Up until now, the period has been for 12 years, but it will be reduced to three. I welcome this change. The Bill strikes the right balance. It deals with the issue of personal debt but in a way that is fair and structured.
It is welcome that the Minister will set up the Insolvency Service of Ireland which will be an over-arching body to deal with debt relief notices, debt settlement arrangements and personal insolvency arrangements. Members will be aware from meeting people when out and about and in their constituency clinics - certainly it is the case in Limerick - that ordinary people are under considerable pressure with unsecured debt, including credit card debt and small loans, and secured debt, including mortgages. There is a need to put in place an arrangement, whereby people will be able to access the service. An advisory service will be set up also. This will serve to take away the taboo of tackling debt. People will have to be able to access the service in a relatively straightforward fashion and there should not be a perception that this measure is only for the elite; the ordinary person on the street should be able to access the service.
It is welcome that the MABS will be involved in dealing with debt relief notices, as it carries out admirable work. We all deal with it on a daily basis. It has a good approach to dealing with people. The process will involve it dealing with debt relief notices for unsecured debt of less than €20,000. Personal insolvency practitioners will be appointed for debt settlement arrangements which relate to unsecured debt of greater than €20,000 and for personal insolvency arrangements for secured debt of up to €3 million and other unsecured debt. It is important that the personal insolvency practitioner will be appointed by the borrower. The practitioner will be able to apply to get up to 70 days protection, similar to the examinership arrangements in place, and pursue arrangements involving the agreement of both parties on behalf of the borrower.
The Bill provides for a protection period and arrangements to be put in place to bring people back to solvency and deal with their affairs. When the Bill reaches Committee Stage, it will be important to consider the matter of how insolvency practitioners are paid. It is important that this process be transparent and that there be a flat rate fee for work done, like any other work. I have no wish to see payment as a percentage of the amount of money involved. We must get something that will work and these arrangements will work.
As issues arise, they will be discussed on Committee Stage. The process should be seen to be transparent and, above all, fair. The key point of the legislation is to strike the fine balance between the requirements of the borrower and the lender. Whether it is the reality, there is at least a perception among borrowers that, to a certain extent, the power lies with the financial institutions. This legislation goes a long way to redress that imbalance. I am keen to see this operating in practice in such a way that the institutions realise that they must work with people to try to restructure loans. If institutions are unwilling to do so, people have recourse elsewhere. Many people on low incomes or with limited means will have debts of less than €20,000. They should be able to apply for a debt relief notice and the legislation should ensure the financial institutions will deal with them in a constructive way. Following a three year period they will be discharged from their debts.
The debt settlement arrangement entails a five-year period. It is more structured and is for loans greater than €20,000. The position of director of the insolvency service has already been advertised, which I welcome because it shows intent on the part of the Government.
As a politician who deals with people on the ground, and having been a chartered accountant for many years and having dealt with people with debt problems, I discovered it is important that people realise the extent of their debts and that there is a way out. This legislation provides a road map. Ultimately, if one must opt for a measure of last resort, one will, within a three-year period, be out of the bankruptcy process. One must realise there is a way out.
The banks must realise they ought to play their part. Some €64 billion in taxpayers' money has gone into the banks through no fault of the ordinary taxpayer. The banks must realise that what is good for the borrowers is good for the banks. The banks must not operate in a silo and solely look after their own interests. I hope that when the new service is up and running, ordinary people, when sitting at home at night, will be able to turn to each other and say there is a way out of their debt problem such that they can return to solvency and resume their normal lives.
I very much welcome this legislation. It is a credit to the Minister and his staff. I look forward to Committee Stage because I have no doubt there will be much discussion thereon. This is a proactive, strong and welcome measure that deals with the issues of ordinary people. It will allow them to tackle their debts so they can resume their normal lives and return to solvency.
I wish to share my time with Deputy Sean Fleming.
I am thankful for the opportunity to contribute on this important Bill, one of the most important to have come before this House for some time. It aims to amend Ireland's antiquated bankruptcy laws. That we are using the phrase "antiquated bankruptcy laws" while welcoming the Bill is telling. Perhaps the devil in the detail will be teased out when we reach Committee Stage. None the less, the Bill serves as recognition of the serious difficulties many individuals and businesses face at present.
That we are using the phrase "antiquated bankruptcy laws" indicates this is a legislative area that did not have to be addressed previously. When we entered the euro area in 2002, the regulatory framework that should have been an essential ingredient was not in place. Consequently, we face our current dilemma, with relatively cheap credit being available both here and in other member states.
Let us compare our regulatory framework with that in the United States. In the dollar area, where the Federal Reserve effectively controls matters, there is also a very significant sovereign debt issue. It has been suggested recently that the per capita sovereign debt level in the United States may be higher than that in the eurozone. The absence of a regulatory framework led to lending delinquency on the part of financial institutions, particularly in Ireland. This has caused the problems we face today.
There are European jurisdictions outside the euro area that experienced property bubbles and financial difficulties. It is important to remember that they dealt with them over time such that they experienced economic recovery, albeit slow. Clearly, therefore, there are grounds for optimism and hope. If this Bill works for those who are directly affected by it, it will help to establish the foundations of the economic recovery we all wish to see. I sincerely hope it will be successful because many people are affected by mortgage, business and personal debt. Members have outlined the exact problems being experienced by their constituents.
Fianna Fáil introduced a number of Private Members' Bills recently. It may be useful for the House and people in general to consider these proposals. There was family home legislation, regulation of debt management advisers legislation and the debt settlement and mortgage resolution office legislation. It is a great pity the Government did not examine more closely the proposed concept of the debt settlement and mortgage resolution office and its basic structures. It offered genuine prospects of tackling the problem.
A process of arbitration is needed. Personal insolvency practitioners will be between the individual borrower and the financial institution. We need to have a non-statutory arbitration arrangement. Our proposal on the debt settlement and mortgage resolution office met this requirement adequately. It is a pity the Government has not embraced it and incorporated it into the legislation.
Let us consider some of the proposals Fianna Fáil made: interest-only payments for up to four years; extending the period of the mortgage by up to 20 years; a repayment holiday for up to 12 months; an adjustment to the interest rate to bring it in line with market rates; a debt-for-equity swap; participation in the deferred interest scheme; in the event of voluntary surrender, that the financial institution lease the family home to the borrower at a market rent in particular circumstances; and the establishment of a debt enforcement office to oversee the implementation of debt enforcement procedures nationally.
The reality is that personal debt is a major challenge economically. Unless we can address this satisfactorily and adequately, it will remain an albatross around the neck of the national economy and slow the process of economic recovery. In every community, people know individuals who have mortgage debt and personal debt. While sympathy on its own is fine, many individuals need assistance as they are financially stressed dealing with their mortgage repayment challenges and problems.
The old meitheal principle stood people in very good stead in rural areas. An amendment to the taxation system should be considered to allow family members to help one another out, if only temporarily, in order to get through a difficult period with mortgage or debt repayments. This should be reflected in their tax allowances. Apparently there is a difficulty with this, which is a great pity because, ultimately, we must think about community and family. Family members may be in a position to help out.
In parallel, economists state there is a significant savings level. There is an inevitability about that. People are concerned that the rain day is just around the corner for themselves and feel the need to squirrel away all spare resources that previously were spent in the local economy. We lament now that the consequent impact of the stimulation, development and contraction has been a considerable loss of employment. The jobs are not being created because on one level there may be too much saving being done whereas on another level there is a significant problem with personal, mortgage and business debt.
All in all, we as a party welcome the Bill even though it contains significant inadequacies. I do not know how disposed the Minister will be to accept amendments from this side of the House when we get to Committee Stage but I sincerely hope he will be willing to do so. Of any legislation that has come before the House, there is a consensus on and good will towards the Bill and a realisation it is urgently needed and that we need to be responsible about it. We need to get it on the Statute Book so that it may be implemented as quickly as possible.
The Bill provides for personal insolvency practitioners and I am sure there will be significant interest in these appointments. It is important that dependable trustworthy individuals get those appointments, licence arrangement or whatever it might be. There may well have been persons who were involved in decisions on indiscriminate lending to those who now find themselves in trouble. It would be important we draw a distinction in order that those who receive these appointments will reflect common sense, understand the needs of the distressed borrower and also understand the needs of the credit institutions.
At a time when the taxpayer has put a great deal of money into the banks, it is important the banks realise they have a responsibility in all of this. There may well be the seriously distressed circumstances where individual borrowings are at such a level that recovery, as we all would like to see, where persons can return to their position prior to our financial difficulties, is not possible. Like every other problem, there will be degrees of distress and I hope this legislation will be able to take account of those degrees of distress.
At the end of the day, everybody who has borrowings, severe or otherwise, are members of the community in Ireland. We must have sympathetic consideration of their individual circumstances because their lives must continue and their support for their families needs to continue. We, as a community and as a country, must have that degree of compassion that will ensure we provide a supportive hand to them in their hour of need.
I wish the legislation well. Despite my party's misgivings, it is important at this time that it will provide the framework to resolve what are serious difficulties. I am sure that those who framed the legislation looked at what happened in other jurisdictions where there was excessive borrowing, property bubbles and ensuing insolvency difficulties and that all the best practice achieved through the test of experience in those jurisdictions is reflected in the legislation.
I welcome the opportunity of contributing to this debate on the Personal Insolvency Bill 2012. People generally will welcome that the Bill has been published and we have something concrete to work on.
Generally, the shape of the Bill is quite good but there are a number of issues that will have to be dealt with and teased out on Committee Stage. I am sure that will be a theme from both sides of the House, from Government backbenchers and members of the Opposition, on Second Stage. Like all major legislation, it needs improvement and refining as it goes through the House. I hope there will be a considerable amount of time available for Second Stage, Committee Stage and Report and Final Stages in terms of detailed amendments because it is major legislation which one would expect will be with us for many years to come.
The key headline issue of concern is the issue of a veto which could be used by the banks. The banks and some pragmatists have a different view on that. Definitely, there is an issue that the banks must give their consent. The other side of the coin is that the borrower must give his consent. Therefore, the borrower has a veto as well. We must look at it equally from both sides but we need to refine that particular issue in the wording.
The question of regulation of the practitioners is an important area. We do not want a situation whereby those who were formerly working either in or closely with the financial services sector end up earning in this area, given that they would have advised the other side of the house in previous years and helped to contribute to the problem. That said, it is important that the practitioners have knowledge of the area and are able to stand up and mediate between a person and the bank.
At present, the problem is that the banks have a strong hand. Most customers are afraid to go into their banks. They are in debt and are receiving these letters. They are in difficulty where one or other of the household has lost their job, and they are afraid. They are crying, they are on Valium, and they are not sleeping. The prospect of going in to the bank manager is akin to that of a child being brought to the dentist; they would do anything to avoid it. In saying so, I mean no disrespect.
It goes back to the basic problem. Those young couples who took out the loans relied on the banks. The banks, who were established in the country for 100 years or more, should have had the expertise and people relied on them. We now know they should not have relied on them but people cannot be blamed for relying on institutions that were operating here for many years. It is important that there be a fair balance between the borrower and the lender in these situations because that balance has not existed up to now.
I want to refer to a few aspects of the Bill. The Minister will have done that to an extent but it is important we outline the factual position of what is in the Bill because we all get caught up in the nitty-gritty of particular aspects, and when one asks somebody at the end of the debate what the Bill is all about, nobody has a proper objective view of the overall scheme.
The Oireachtas Library and Research Service was helpful in providing an information note on this. The three schemes involved in the Bill are voluntary, both for the lender and the bank. Both must agree to this. There is the debt settlement notice, the debt settlement arrangement and personal insolvency arrangement.
The major issue is that the law on the judicial process of bankruptcy is also being changed. The key reform is to reduce the period of bankruptcy from 12 to three years and to increase the minimum level of debt required to €20,000 before a person can go that way. That is an important issue because across the water, in England, the period is one year. Many are already saying it should be down to one year. Being declared a bankrupt is not an issue for some, but many have a bit of their own pride and do not want to be adjudicated a bankrupt. The issue of it being three years versus one year is an issue that will come up time and time again, and there will be amendments on that on Committee Stage.
I have come from the Committee of Public Accounts where we were dealing with NAMA. I asked whether this legislation will affect that agency's ability to collect debt because some of the debtors might opt for this three year bankruptcy arrangement as compared with the 12 year arrangement now applying. NAMA took a pragmatic view. I think the chief executive was more optimistic than pragmatic. He stated he did not think it would affect NAMA. However, he made it clear that there is a misconception here that one can be declared a bankrupt in England for a year and it is all over. It is not. There is a period of probation after the year of bankruptcy in England - I am not sure whether he said it is three or six years. He made clear, first, that if there is not full and honest disclosure in that hearing, there is a 12 year sentence of imprisonment in England. What is more, in managing one's way out of that process, one is under the watchful eye of the service concerned. I would say there are a number of years where such a person would be on probation after coming out of the process and it is not over, done and dusted, in one year. It is important that one would fully understand that. The proposed insolvency service will be a new State body. The Government informs us daily it will reduce the number of quangos but then decides to establish a new one every other day. It may be that a new insolvency service is necessary. Alternatively, its functions could be incorporated into the Office of the Financial Ombudsman. The Government says one thing about quangos but does the opposite, as in this case. I ask the Minister to address this issue. While I do not object to the provision of an insolvency service, it will become another self-perpetuating agency.
The need for an insolvency service may decline in the decades ahead. Representatives of Allied Irish Banks, in which the State has a 99% stake, provided briefings to the political parties recently. They informed the members of my party of the bank's view that the mortgage market is changing utterly. The AIB spokesman argued that Ireland will become like continental countries, with most people renting and fewer people purchasing homes. He pointed out that young people have observed the damage done to their parents by purchasing a home with a large mortgage. A 20 year old who sees such damage will not wish to take the mortgage route in future. According to AIB, the property crash, insolvency, mortgage debt and negative equity will fundamentally change the approach to purchasing property and homes. I am not saying the spokesman was right or wrong but it is the business of banks to find out how their customers are behaving.
At the same meeting, the AIB spokesperson indicated that while the bank is advancing mortgages - not enough of them in our view - its mortgage book has declined because the value of repayments exceeds the value of new mortgages. This decline in the mortgage business will continue, he said. His comments, whether they prove to be right or wrong, are certainly noteworthy. I hope the generation of people who have been caught up in the current problems will be able to see light at the end of the tunnel. It is to be hoped the legislation, with some improvements, will help in this regard.
The fact that the arrangements provided for in the Bill must be entered into voluntarily by both sides has been missed by some people. The debt relief notice is a straightforward mechanism which may be used for amounts of less than €20,000. The approval of the insolvency service and Circuit Court will be required for a debt relief notice to proceed. We can make a great deal or very little out of the involvement of the Circuit Court. Some people have argued that personal insolvency arrangements should be dealt with in a non-judicial fashion. I hope no one will go before the court without first having secured an agreement. If there is mutual agreement between the parties, the Circuit Court's role will be essentially to rubber-stamp the debt relief notices.
Agreements should not be revisited or disentangled subsequently in the courts. If it transpires that judges open up cases or allow people to revise agreements at the last moment, thus making the procedures of the court an issue, the role of the courts will have to be reassessed. While no one likes going before the courts, court approval for an agreement will provide a degree of certainty and official recognition. While I accept that the Circuit Court is the appropriate court for dealing with debt relief notices given the sums involved, it should be noted that some Circuit Courts only sit every three or four months. I hope a mechanism will be found to enable people to go before the Circuit Court without incurring the costs normally associated with court appearances, for example, barristers' fees. If the Minister sees the legal profession coming, my party will support any steps he may take to change the legislation. We do not want any savings made through write-offs and so forth to go into the pockets of the legal profession.
The debt settlement agreement is provided for larger amounts in excess of €20,000. The approval of the Circuit Court will also be required for such an agreement and a five year moratorium will apply.
I am pleased the legislation has come before the House. My party will table a number of amendments on Committee and Report Stages and I hope the Minister will be amenable to accepting them.
If there is one issue with which every Member of the House should be familiar, it is mortgage arrears and insolvency. Every Deputy has had occasion, especially in the past four or five years, to advise people with mortgage debt who are unable to make repayments. In some cases, the advice we gave was not heeded by the lending institutions or members of the borrowing public.
Some years ago, a report was published which was heavily in favour of promoting the concept of renting and leasing as opposed to the purchase of property. This was the beginning of the end because the emphasis subsequently shifted to property speculation and investment in properties by speculators. The result was significant price inflation in the property market at a time when interest rates had never been lower. Personal indebtedness increased considerably and given that the problem will not go away of its own accord, we must face up to it in one way or another.
In recent weeks, some Deputies have argued for debt to be written off or written down. While I do not know how such an approach would work, what can and would work and should be an essential prerequisite to any debate or discussion is a review of the penalties applied to debts, namely, interest and compound interest. Where such penalties are applied, as they have been by certain institutions, the borrower can never get out of debt and the institution in question can never have its borrowings repaid. In such cases, the debt may double in value every three years. It is common nowadays to meet householders who are in arrears of up to €150,000, depending on the value of their property loan. Many of them will have borrowed the amounts in question on the basis of advice received from financial advisers. These experts, who set up shop in towns and villages throughout the country and gave people the wrong advice, are now re-establishing themselves as debt advisers as they set out to advise people on how to get out of debts they incurred as a result of bad advice they may have received from the same adviser in a different guise.
While the Bill provides a means of addressing a number of issues, we cannot allow further problems to befall unfortunate borrowers. If we do so, we will try for the next 100 years to repay debt we do not understand. I ask the Minister, in any discussions that may take place, to take account of the requirement that lenders recognise that their customers will not survive if penalties and compound interest are imposed on the principal.
The three relevant areas are private mortgages, the business sector and the speculative sector, the latter being the cause of most of our problems. Simplification is required. The Bill is extremely complicated as it sets out to dot every "i" and cross every "t". While I understand what it sets out to achieve, that does not necessarily mean it will meet its objectives. Simplicity is vital for this reason. Certain parameters need to be agreed and set down before experts or practitioners become involved in the process. Borrowers will seek to ascertain how the legislation will affect them and the lending institution will do the same, albeit from a different perspective. If we want to avoid moral hazard, we must be seen to be balanced. We must be able to assist those who are overstretched and unable to meet repayments while recognising the position of those who are able to continue to meet their debts and borrowings. It is only right, proper and fitting that they should not be penalised for what has happened to others, regardless of the circumstances. No one can object to a write-down or removal of penalties or compound interest because it affects no one who has not fallen into that position. Consequently, it is of fundamental importance that this be recognised and examined.
I have dealt with many lending institutions over the past four or five years and they all recognise a problem exists in this regard. Many of them are willing to help and to try new methods. Incidentally, some of them are not, but in general they are. Those institutions that are willing to help are looking forward to this legislation but the system should not be of a nature that is complicated or inaccessible such as, for instance, the legal aid system, which has ground to a halt. A public representative elected by the people who wishes to inquire about when a person might have his or her case taken is told that the public representative cannot get involved and the staff cannot talk to him or her. I sincerely hope the same will not apply in respect of debt resolution. I would find it extremely inhibiting and restrictive were I to contact a financial practitioner or arbitrator only to find out that such individuals could not talk to me because debt resolution was beyond me or above politics or similar kinds of nonsense. Members have heard enough of that in recent years and the country has found itself in an extremely difficult financial position on foot of similar secrecy. Moreover, I defer to no one on this issue. In common with the Acting Chairman, the Minister and many other Members, I have dealt on a one-to-one basis with those who are directly affected and I intend to continue so doing for as long as I am in this House, while being in a position to know the regulations put in place and the agreements entered into are being fairly and honestly applied at all times.
Special mention must be made of those lending institutions that have withdrawn from the Irish market. A number of banking interests that set up shop in this country eight, nine or ten years ago were extremely predatory, did a great deal of damage to this economy and contributed hugely to debt. However, they then withdrew from the marketplace to safe havens offshore. They accept very little responsibility, have entertained very little by way of submissions and do not wish to listen to any option other than to cut their losses and leave. Those entities were given licences to operate here and my point is applicable to anyone who was given such a licence to operate in the banking sector in Ireland under whatever circumstances and regardless of whether the rules were applied, which is a job for the institutions. The point is the public of this country should not be penalised forever because of their activities or because of the lack of action by regulators or people in authority at the time. This should be borne in mind, particularly in the context of the legislation under discussion.
In addition, I wish to make the point that the family home is sacrosanct as far as mortgage debt is concerned. It is of critical importance that there be put in place a clear and unequivocal statement to the effect that everything that can be done will be done to ensure the borrower is able to hold onto his or her household. It is not that such people wish to circumvent the system or to gain or profit by it, which they cannot do in any event, but that they entered into their debts in good faith at a time when they were advised by many financial advisers to take that route. Although some of us were advising something completely different, that is the way it was. Consequently, it is of huge importance to be able to explain to members of the public who find themselves in this position that they were not responsible for all the problems and, in many cases, they were not responsible for any of them.
It should be borne in mind among the lending institutions, advisory services and those involved in encouraging people to go into debt that now is the time from which the burden must be shared equally. I make this point in the knowledge that whenever I have suggested to banks or lending institutions that they might write off compound interest or penalties, they have been prepared to listen. However, they also have been quick to respond that their bondholders might not agree or would have difficulty. My response to that is quite simple: the bondholders, the lending institutions and the public, unfortunately, are in this together. Each of the aforementioned component bodies must carry some share of responsibility and no one can walk away from it. Borrowers cannot walk away having decided they cannot afford to or do not wish to pay and therefore will not pay, because on what basis was the loan then extended in the first place?
By the same token, it is not acceptable for a lending institution to tell borrowers that in order to satisfy the institution, they must pay, penalties will be imposed and the debt will be extracted over a longer period with greater penalties and more interest piled on of a compound nature. It will not be acceptable; one must ask under what circumstances do such lending institutions expect the rules were made for them and them alone. It does not work that way. Business, enterprise and marketplaces do not work that way. Moreover, it should never have been thought that it would work in that fashion, any more than the concept of upward-only rental leases, to which Members have referred previously. I do not know from where the latter idea emerged and, as I have stated previously, I cannot understand how it has come to be accepted as being within the realms of the Constitution. It was and is a major contributory factor to undermining the entire sovereignty of the State.
I wish to make another point with regard to insolvency, and I acknowledge this Bill breaks new ground in this respect. The activities of some banks are forcing small businesses in particular into insolvency and ultimately into bankruptcy by virtue of the slow withdrawal of working capital. This has been done by imposing various penalties, replacing overdrafts with term loans and gradually tightening the noose on the business sector. This is not creating an improvement but is exacerbating what is already a serious problem, and it neither will nor can work. While I particularly wish to mention the issue of offences, I wish to refer to the person appointed as an authorised intermediary or personal insolvency practitioner. Deputy Kirk mentioned this issue a few minutes ago and other Members have great concerns in this regard. I also have concerns because of the cost to the borrower. In the case of a borrower who already is in financial difficulty, I fail to discern the benefit of the exercise if it requires further debt to extricate that borrower from such a position. We are in a particularly serious position and in such circumstances, borrowers may find themselves between a rock and a hard place. In other words, they may be obliged to incur further debt to pay the practitioner, whoever that may be, only to end up being obliged to have debt resolution applied to the costs and fees arising from that visit to the practitioner. Consequently, this issue must be examined carefully and some upper limits must be placed on the possible cost involved. One should avoid a scenario in the near future in which the public respond to this legislation by saying it was a good idea but its costs were excessive.