Willie Penrose (Longford-Westmeath, Labour)
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I thank the Ceann Comhairle for selecting this important issue. I welcome the Minister of State, Deputy Ann Phelan, to the House and wish her well on her new and very important role for rural people in particular.

The downturn in the economy has clearly brought to our attention the significant and glaring weakness in the protection of employees who may find themselves very vulnerable in light of various types of insolvency that can now arise. One of the major failings is the restrictive way in which the Protection of Employees (Employers' Insolvency) Acts 1984 to 2006 recognise insolvency. They classify some failures of businesses as insolvency but others do not qualify under the strict criteria laid down. In particular, there has been no recognition of informal insolvencies which have arisen in recent months which are the nub of a problem. These arise where employers stop trading but do not go into liquidation or receivership or have the company wound up officially. In such cases, employees lose jobs but their employers simply walk away, meaning employees are left in the lurch with no wages or entitlements of any kind being paid.

The Irish Congress of Trade Unions has been very active in this area and it submitted comprehensive proposals last February to the Government seeking appropriate amendments to the legislative framework so as to stamp out the occurrence of such insolvency issues. Very often employers dismiss employees, cease trading but do not wind up the company. In doing so they avoid paying employees unpaid wages and other awards made by employment rights bodies. In such cases, the employees would find it impossible to access the Department of Social Protection insolvency payment scheme because of a failure to wind up a company in a proper fashion. This is in contrast to the redundancy payment scheme, which does not bar access to employees in such circumstances.

The purpose of the insolvency payment scheme is to protect pay related entitlements owed to employees who lose employment because of the insolvency of an employer, in accordance with the requirements of the EU directive. Under the scheme, employees may claim arrears of pay, holiday pay, pay in lieu of statutory notice and employment rights awards owed to them by an insolvent employer. The Department of Social Protection would make payments only in circumstances where the employer is legally insolvent and no payments would be made to employees from the insolvency payment scheme in circumstances where the employer has not properly wound up the company.

The Protection of Employees (Employers' Insolvency) Acts provide that an employer is only insolvent for the purpose of accessing this fund when the employer falls within a particular category. These are where a business is in liquidation; when a business is in receivership; when an employer is legally bankrupt; where the employer has died and the estate is being administered under relevant legislation; and where an employer is insolvent under legislation from another EU member state. Informal insolvencies are not covered by this and as a consequence, any affected employees would be barred from accessing a much-needed safety net.

The question arises of whether the Legislature has failed to provide employees in informal insolvency arrangements as I described with appropriate access to the insolvency scheme and whether this failure is in breach of the EU directive on the protection of employee rights in the event of an insolvency by an employer. The answer is unequivocally "Yes" on both counts. The directive provides that to ensure equitable protection for the employee's concern, the state of insolvency should be defined in legislative trends in the member states, and that concept should also include insolvency proceedings other than liquidation. That is Directive 2008/94/EC.

My submission is there should be recognition of deemed insolvency, as I have described it, in order to fulfil the objective of the directive. A deemed insolvency would arise where an employer has ceased trading and payments have de facto been stopped on a permanent basis, with this done for proceedings other than the five categories already in national law. The questions would then arise as to what is meant by "permanent basis" and what forms should be used to determine a scenario of "deemed insolvency".

How do we define permanent basis? The Irish Congress of Trade Unions, ICTU, has suggested that where payments have stopped for six weeks or more that should constitute a permanent basis. We must then ascertain the forum to be used to make the determination that a situation of deemed insolvency exists to protect the insolvency accountant. This could be done by the Department of Social Protection, which is already responsible for deciding payments under the insolvency and redundancy payment schemes. This situation for employees could be easily addressed in this fashion by amending the rules of the insolvency payment scheme to recognise a situation of deemed insolvency, where trading has ceased and payments have de factobeen stopped on a permanent basis defined as a period of six weeks or more. Further amendments will be required to facilitate the Minister for Social Protection assuming responsibility for the payments and so that the Department can continue to pursue the payments from the directors of the company.

Ann Phelan (Carlow-Kilkenny, Labour)
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I thank Deputy Penrose for raising this matter. It is a very difficult situation for any person to be in.

The purpose of the insolvency payments scheme, which operates under the Protection of Employees (Employers' Insolvency) Act 1984, which, in turn, derives from EU Council Directive 987-80, is to protect certain outstanding pay-related entitlements due to employees in the event of the insolvency of their employer. These entitlements include wages, holiday pay, sick pay, payment in lieu of minimum notice due under the Minimum Notice and Terms of Employment Acts 1973-2001, and certain pension contributions. Various other statutory awards made by the Employment Appeals Tribunal, Rights Commissioners, etc., are also covered by the scheme.

Section 1(3) and Section 4 of the Protection of Employees (Employers' Insolvency) Act 1984, as amended, sets out the circumstances in which an employer is deemed to be insolvent for the purposes of the Act. In summary, section 1(3) provides that for the purposes of the Act, an employer shall be taken to be insolvent only in the following circumstances: liquidation or receivership, where the employer is a company and a winding-up order is made or a resolution for voluntary winding up is passed, or a receiver has been appointed by or for the holder of a debenture secured by a floating charge, or possession taken by or for the debenture holder of company property comprised in or subject to the charge; death of employer, where the employer has died, and the estate is insolvent and being administered in accordance with the rules of Part 1 of the First Schedule to the Succession Act 1965; bankruptcy, where the employer has been adjudicated bankrupt or has filed a petition for or executed a deed of arrangement within section 4 of the Deeds of Arrangement Act 1887; or insolvency of the employer under the legislation of another EU member state and where the employees concerned are habitually employed in insurable employment in Ireland.

To summarise, therefore, where a person's former employer was a limited company, the company must be in liquidation or receivership in order for the person to be eligible to claim under the insolvency payments scheme. In such circumstances, the liquidator or receiver becomes the relevant officer for submitting claims as he or she has access to the company records and can certify that the amounts claimed are in order. I am aware that there are cases where companies have ceased trading without engaging in a formal winding-up process and that in some such cases those employers owe moneys to their employees. Such employees are not eligible for payments under the insolvency payments scheme.

My Department is reviewing the position to establish what, if anything, can be done to progress payments to individuals in these situations. In progressing this review the Department must have regard to the integrity of the social insurance fund, from which insolvency payments are made. Any policy development to deal with this issue must have measures which would contain potential abuse by employers. After all, directors of companies who avail of limited liability have responsibilities under company law to ensure that proper books of accounts are kept and that the appropriate returns are made in a timely manner to relevant authorities. The Department will consult with a range of interested parties in this review including the Office of the Director of Corporate Enforcement, ODCE, the Department of Jobs, Enterprise and Innovation and the Revenue Commissioners. The Department has received submissions from the ICTU on the issue. In its review the Department will also have to have regard to legal issues arising in the general area of insolvency law and the potential impacts that any proposed policy development will have on that area of law.

Willie Penrose (Longford-Westmeath, Labour)
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I thank the Minister of State for her reply. Nobody wants to open up a vista of abuse and the concept of limited liability is jettisoned. I want to ensure that employees who find themselves in this situation, people who have no money and who face dilemmas trying to look after their families when their employer leaves them in limbo has to be addressed. I take account of all the consultation with the Department of Enterprise, Jobs and Innovation, the Revenue Commissioners, the ODCE and the Department of Social Protection but it is no use burying our heads in the sand. It is no use getting into a bureaucratic tangle and setting up reviews and so on.

This is an urgent issue, which is very relevant. In the past six months there were many people out on the streets of Dublin and everywhere else around the country. It is becoming a prominent issue and we have an obligation to help the employees, who are in the weaker position – employers are always more prominent and dominant. Many employees are not unionised. I salute Mandate, the union, and the other unions which have fought vigorously on this issue and advocate strongly for them. My heart and soul and sympathy are with the workers who find themselves in that position which brings dread to people. If one can access funds it carries one over for a few months while seeking alternative employment. It is time for this to be brought forward.

I will indict the Government if I do not see progress on this matter by the end of the year. There is too much pussyfooting, foot-dragging and obfuscation. Let us deal with this issue. The ICTU has presented a very fair and balanced way of dealing with it. There is no need for any further delays. Let us sit down with legal people. The Department could bring in some of the senior boys, such as Mr. Thomas Courtney. He would deal with this in a few weeks. Let us not delay and put it off. I know the Minister of State is faced with the dilemma of dealing with a bureaucratic reply. I do not accept bureaucracy. I generally kick over the traces of bureaucracy if I can.

Michael Kitt (Galway East, Fianna Fail)
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I thank the Deputy.

Willie Penrose (Longford-Westmeath, Labour)
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This is very important. I would like another minute to deal with this. It is time to deal with this matter. The Government could hand it over to Thomas Courtney. Let him bring together the relevant parties. Let us sort it once and for all. I will not rest. I will be back, please God, if I am still alive in October, to raise this again, provided the Leas-Cheann Comhairle allows me.

Michael Kitt (Galway East, Fianna Fail)
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The Deputy got a good innings.

Willie Penrose (Longford-Westmeath, Labour)
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I thank the Leas-Cheann Comhairle for the extra minute. I know he is a west of Ireland man, like the Taoiseach.

Ann Phelan (Carlow-Kilkenny, Labour)
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I thank the Deputy. I understand his passion for this type of situation. The employers in these situations are in extremely difficult circumstances. I will take the Deputy’s concerns to the Minister for Social Protection and hope to respond to him in a timely fashion.