Alan Shatter (Dublin South, Fine Gael)

I thank all Senators who have contributed to this debate. This is only the start of a debate on a very important issue. I return to what I said on Second Stage, namely, these are two reforms of importance but they are small compared with the very substantial insolvency Bill which is being prepared in my Department and which we are required to publish in the first quarter of 2012 under the EU-IMF agreement. I am optimistically hoping we will be able to publish it before Christmas. While I cannot guarantee we will do so, work on the legislation is advancing. The Bill will introduce some very important and radical changes in this area of the law. What we are doing at the moment is addressing two aspects of it. We are doing so in a careful way and, as one speaker stated, to deal with legacy issues. Speaking from memory, I believe the 12-year rule we will introduce will allow in the region of 350 bankruptcies to be terminated.

We should keep all of this in context. Senator O'Donovan wanted me to predict the future, as to how many people may be rendered bankrupt. I do not know the answer to his question but I have information about the past. Despite the economic tsunami that has hit this country and the major personal difficulties many people have found themselves in, I am advised that in 2010 a total of 27 people were adjudicated bankrupt. Resort is not made to our bankruptcy laws to an enormous extent. Part of the reason for this is, as Senator Quinn fairly noted, that the law is substantially out of date and is not working the way we need it to work.

As a number of Senators stated, it is important to have a balance in this area. We want to ensure that those with entrepreneurial skills who fail through no fault of their own and do not set out to deliberately defraud other individuals are given a second chance to get back into business and extricate themselves from debt. However, we also have to protect the community from those who deliberately trade recklessly and often destroy the lives and businesses of other people who have dealt with them in good faith. There is a balance to be achieved in this respect. As we develop and change our law in this area, I wish to do it in a coherent and comprehensive way through the insolvency Bill. These are just two preliminary steps along that route. I welcome the fact that many of the Senators who spoke on Second Stage, while expressing some concerns about the number of years applicable, generally welcomed the fact that we are introducing changes.

To put the changes in focus, in section 20 I am providing for an automatic discharge, for the first time, of bankruptcies on the 12th anniversary of adjudication, with no conditions. This will deal with people in this country, numbering in excess of 300, who might have been bankrupt for decades. There are people who have gone to their graves bankrupt. It achieves no benefit to society and leaves them with a permanent stigma. The stigma remains even if they became bankrupt through no fault of their own, for example, because others who owed them money got into difficulties and caused unexpected troubles in their lives. It is a very significant reform and would not diminish it in any way. There are issues for the future such as, for example, whether that 12-year period should remain that length. This legislation allows us, through the Office of the Official Assignee in Bankruptcy, to resolve outstanding issues with regard to legacy bankruptcies of long duration and, in a sense, clear the way for implementing the new insolvency legislation when it is introduced.

As I said on Second Stage, I was not happy with the six years in the Bill published by my predecessor. We wrestled over whether it should be three, four or five years. There is no monopoly on wisdom in these matters, and I do not pretend to have such a monopoly. However, as Senator O'Donovan acknowledged, there is now concern in the UK about the effect of the one-year rule. I do not know to what extent research has been carried out in Northern Ireland in that context but there is a concern that it is creating a huge difficulty in facilitating people who have traded recklessly and got other people unfairly into financial difficulties to very easily extricate themselves from debt, wave goodbye to their obligations and start up again. I am anxious to ensure we do not create that type of situation.

The five-year rule allows people to extricate themselves after they have discharged what are described as debts to preferential creditors. Such creditors include the Revenue Commissioners, where taxes and rates are owed. Importantly, where people have been employed in circumstances where the employer is not a limited liability company and where there is a personal liability, the preferential creditors include the former employees who are owed money by the bankrupt. There are issues surrounding that. There is a debate as to whether at the end of a period of less than 12 years one should be discharged from bankruptcy without having to meet what are described as preferential debts. To what extent and at what time does one's liability to the State cease? Based on the new 12-year provision, if there are taxes owing that one cannot pay and if there are genuinely no assets or income out of which they can be paid, essentially one is free of those debts after 12 years.

If one is a compliant taxpayer and one has watched people leading a very high lifestyle, living excessively, buying cars that cost €100,000 or €200,000, going off to the Caribbean five times a year and they suddenly render themselves bankrupt and owe the Revenue Commissioners €400,000 or €500,000, at what point is it morally justifiable that they are released from that debt? That is a serious issue. At what point are ordinary workers who are paying their taxes through the PAYE system required to pick up the tab for somebody else by filling the gap of the tax payment they failed to make? At what point does one recognise the loss of funds to fund essential services that the State provides and that the loss should not be recouped?

One must bear in mind that it is not simply black and white in these areas. At a time when the State is short of money and is borrowing €18 billion per year from the ECB and the IMF, at what point in time does one forgive debt that is owed to the Revenue Commissioners by people who deliberately did not pay taxes and led a foolish, high lifestyle that more responsible people did not lead? This is not a black and white issue. There are grey areas, value judgments to be made and moral hazards. We will have a more comprehensive consideration of these in the context of the insolvency Bill and in the work being done in the Department on that and the recommendations for reform made by the Law Reform Commission. We must examine it not only from the legal perspective but also from the economic and moral hazard perspectives to ensure we do not greatly advantage people who have behaved with gross irresponsibility, to the disadvantage of those who have behaved responsibly.

It is, of course, important that people engaged in business, who genuinely operate their business responsibly but who are the victims of circumstances that are not their fault or where they simply made a poor judgment that anybody else might make, are not pilloried in the future and rendered incapable of starting up a business again. However, there is a balance and in that context the Government decided to opt for the five-year period rather than the three-year period. I appreciate the arguments made by Senators in favour of the three-year period but I cannot accept the amendment they propose in that regard. I am not opposed in principle to a further reduction in the 12-year period concerning automatic discharge. It is an issue to which we will give further consideration. However, I cannot accept the proposed amendments at this time.

This debate is important and it will feed into the work we are doing on the insolvency Bill. I hope Senators will support the provision in the Bill as it stands so we can proceed to implement it. I expect to revisit this issue in the Seanad if not this side of Christmas, certainly in the first part of next year.