Kathleen Lynch (Cork North Central, Labour)

I thank Senator Walsh for raising the important issue of reform of our bankruptcy law and practice by way of Adjournment debate today. It gives me an opportunity to inform the House of recent developments, to which the Senator has already referred, regarding the reform of our personal insolvency regime. The Minister, Deputy Shatter, asked me to convey his apologies for not being here today as he is attending a meeting of Justice and Home Affairs Ministers in Denmark.

Senators will be aware that earlier this week the Cabinet gave its approval to the proposals of the Minister, Deputy Shatter, for the drafting of the personal insolvency Bill. On Wednesday, 25 January the Minister launched the comprehensive reform of our insolvency law and practice following the Government's approval of the general scheme of the personal insolvency Bill. The detailed and comprehensive heads of the Bill are available on the Department of Justice and Equality website. I am sure the Senator has already seen them. They are being referred to the Joint Committee on Justice, Defence and Equality with a request for preliminary observations by 1 March next. I agree with the Senator that we cannot hang around in this respect. It has to be done as quickly as possible. The members of the committee, and other Members of the both Houses who wish to attend meetings of the committee, will have time to consider the proposals and to make an input into the substantive provisions the Government will ultimately adopt. A Bill is to be developed on a priority basis so it can be published by the end of April, in line with the revised commitment in the EU-IMF programme of financial support for Ireland. The legislation will also fulfil the relevant commitment in the programme for Government.

The reforms set out in the document that was published yesterday constitute the most radical reform of our insolvency laws since the foundation of the State. The reform of bankruptcy law invariably focuses on the length of the discharge period that will apply to the person adjudicated bankrupt. This point was debated in both Houses during the passage of the Civil Law (Miscellaneous Provisions) Act 2011, which contained some early reforms of bankruptcy law. It provided for a reduction in the period that applies to court applications for discharge from bankruptcy from 12 years to five, subject to the conditions that currently exist. For the first time in Irish law, a system of automatic discharge of bankruptcies has been introduced, to take effect on the 12th anniversary of the bankruptcy adjudication order. These provisions were commenced with effect from 10 October 2011.

It was decided that the question of a further reduction in the period for automatic discharge of a bankrupt had to be addressed in the consideration of more comprehensive reform. Opinions vary as to the appropriate period. There was reasonable consensus that the one-year period that applies in the UK and Northern Ireland is too short but anything beyond five years is too long, particularly if the bankrupt person has been fully compliant and not behaved fraudulently in anyway. That is Senator Walsh's central point. Given that our neighbouring jurisdictions operate the most liberal bankruptcy discharge regime in the world, the Government has to be conscious of not incentivising forum shopping. As we have seen in certain cases recently, however, such efforts are not always successful.

The Government has decided that a three-year automatic discharge period is the most realistic approach in the circumstances. The approach that has been chosen means a fixed period for applications to the court for discharge of a bankruptcy - at present five years - is no longer required. Senators will agree that the reduced time period for automatic discharge from bankruptcy is a significant reform. To ensure there is no temptation to seek to unjustly exploit this provision, the proposed personal insolvency Bill will provide for a number of other measures. A discharge from bankruptcy could be delayed by the court for a period up to a maximum of eight years - Senator Walsh made this point - for non-compliance or for fraudulent or dishonest behaviour by the bankrupt during the process. A court may make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses, for a period of up to five years. There will be extended timeframes in regard to possible fraudulent transfers or settlements of assets by the applicant for bankruptcy.

Full disclosure and realisation of all the bankrupt's assets and interests for the benefit of creditors has always been and will continue to be a requirement of our bankruptcy law. If full disclosure and realisation has been made, there is no reason to deny or delay a discharge in respect of any person. I understand the proposed legislation does not refer to "full discharge", but I am sure that is its intent. In developing the scheme of the personal insolvency Bill, the Minister for Justice and Law Reform has taken account not only of the extensive recommendations made by the Law Reform Commission but also of the Cooney report, the Keane report and other relevant reports. He has done this with a view to formulating proposals for the comprehensive reform of bankruptcy law and the creation of a new non-judicial debt settlement scheme, which is another one of the issues raised by the Senator.

The personal insolvency Bill will propose to put in place, for the first time, a non-judicial system for the settlement of debt. Three new non-judicial debt settlement systems are being introduced, subject to relevant conditions in each case. The debt relief certificate system will allow for the full write-off of qualifying unsecured debt concerning debtors with "no assets and no income" up to €20,000 after a one-year moratorium period. The debt settlement arrangement system will allow for the agreed settlement of unsecured debt of €20,001 and over. The personal insolvency arrangement system will allow for the agreed settlement of both secured and unsecured debt of €20,001 and over. The personal insolvency arrangement system provides for a unique and specific mechanism to assist in resolving the difficulties confronting thousands of homeowners in negative equity with mortgage arrears who are genuinely incapable of discharging their monthly mortgage repayments. The use of this mechanism has the potential to allow agreed debt settlement arrangements to be put in place which will enable people to continue residing in their homes and avoid judicial bankruptcy.

The Bill also proposes the establishment of an insolvency service to operate the new non-judicial insolvency arrangements. Senators will appreciate that reform of our personal insolvency regime is not a simple task. It is a very complex area of the law. The consequences and implications of new policies in this area need to be carefully assessed. A delicate balance needs to be struck between the various legal rights of the parties involved. The intention behind the proposed personal insolvency Bill is to design a system which is fair to both creditors and debtors. Any failure to do so would make worse a situation that is already extremely difficult for both parties.