Alan Shatter (Dublin South, Fine Gael) | Oireachtas source

I am pleased to present to the House the Personal lnsolvency Bill 2012, a very 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 will provide for alternatives to and a reform of judicial bankruptcy. 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. I refer to a significant contribution made by the Law Reform Commission in its report of December 2010 on personal debt management and debt enforcement. This report and earlier work were of considerable assistance in the formulation of the Bill. The reform has regard to the recommendation made in the October 2011 report of the interdepartmental working group on mortgage arrears, known as the Keane report.

The Government published the general scheme of the Bill for consultation 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 persons and organisations that provided my Department with valuable comments and insights. While the primary architecture of the Bill remains the same, considerable development of the legal and technical detail of individual provisions has taken place.

The Bill provides for the comprehensive reform of personal insolvency law and the introduction of three new non-judicial debt resolution processes. The debt relief notice will allow for the write-off of qualifying unsecured debt up to ¤20,000, subject to a three year supervision period. The debt settlement arrangement provides for the agreed settlement of unsecured debt, with no limit involved, normally over five years. The personal insolvency arrangement will enable the agreed settlement of secured debt up to ¤3 million, although this cap may be increased with the consent of all secured creditors, and unsecured debt without limit, normally over six years.

To protect the constitutional rights of all parties concerned and prevent potential actions for judicial review, the Bill makes provision for enhanced oversight by the Circuit Court or the High Court of the three new debt resolution processes where the debts concerned are in excess of ¤2.5 million. The Circuit Court will receive the debtor's case file from the insolvency service with an application for a debt relief notice or a protective certificate in the case 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 expect this proposed scenario will allay any fear that persons would become tied up in expensive and time-consuming court hearings. That should not be so. However, a court hearing could be necessary where a creditor objected on one of the grounds specified in the legislation. This approach is consistent with that recommended by the Law Reform Commission. This enhancement of court involvement in the new debt resolution processes will have the significant benefit to the debtor of providing protection from enforcement actions by creditors, either during the negotiation period when a protective certificate will be in place or during the lifetime of an arrangement. It is likely that a number of debtors would be the subject of judgments obtained by creditors. Such protection from enforcement action could not be provided by a non-judicial agency alone. In addition, the involvement of the court also ensures the new processes will be capable of meeting the criteria in the European Union insolvency regulations. This is a matter of some importance where cross-border debts are involved.

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 after three years, subject to certain conditions, in place of the current 12 year arrangement.

The insolvency service of Ireland is in the process of being established to operate the new insolvency processes and to provide a focal point for the future development of insolvency policy. Organisational planning for the new service is well under way in my Department. The director-designate of the service, Mr. Lorcan O'Connor, was appointed last month. However, as the service will administer a completely new approach to insolvency in the State with innovative and complex legal provisions, it will require time to become operationally ready. I expect that the service will be in a position to commence operation in the first quarter of 2013. While I recognise the concerns of those who want an immediate introduction, I must ensure that all necessary procedures are in place for the service to commence operations. I expect a significant number of persons to seek to avail of the new or reformed insolvency processes.

It is difficult to be precise as it will very much depend on individual circumstances and the nature and extent of the debts involved. However, for broad planning purposes for the first full year of operation of the new law and systems, our tentative estimate, based on a rough extrapolation from the comparable UK and Northern Ireland circumstances, is as follows - 15,000 applications for the two main non-judicial debt resolution processes - the debt settlement and personal insolvency arrangements; 3,000 to 4,000 applications for debt relief notices; and 3,000 bankruptcy applications. There were approximately 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. Senators will appreciate that these estimates for debtors seeking to avail of the new arrangements are tentative. Not all insolvencies will require to be dealt with under the new statutory debt resolution processes or bankruptcy. I expect that the certainty brought to the future legal landscape by this Bill will encourage debtors and creditors to agree bilaterally on alternative solutions. These solutions could involve settlement of mortgage debt under the mortgage arrears resolution process operated by mortgage lenders under the supervision of the Central Bank or otherwise.

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 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 to negotiate an appropriate settlement or engage with their creditors generally. Lenders must engage properly with customers. In this context, we are talking about financial institutions.

Now that the architecture of our new insolvency legislation is settled I have made it clear that I expect financial institutions to better engage with debtors. Financial institutions, in most cases, I believe, have been reluctant to date to engage in a definitive or realistic manner with borrowers who may be overwhelmed by unsustainable debt and unable to discharge their monthly outgoings. This realistic engagement will have to include, where circumstances warrant, some debt forgiveness. Undoubtedly, over the past two to three years, there has been substantial debt forbearance but the issue of debt forgiveness seriously needs to be addressed in circumstances in which it is appropriate and practically the only solution. If our financial institutions refuse to engage, then we will in the future have to refine our approach to debt resolution. I realise that banks must have regard to commercial considerations but they must behave with greater flexibility and insight and apply a broader range of common-sense options based on financial reality.

The new debt settlement 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. A common-sense rather than a coercive approach will be taken, as expressed in the creditor voting process provided for in the Bill. It is also an approach designed to avoid, in so far as is possible within constitutional constraints, the necessity for contentious court hearings and adjudications together with the substantial delay and inevitable legal costs inherent in such process. It is important to delimit expenditure incurred in legal costs in so far as possible in order that the funds available can be better used in contributing to the discharge of moneys due to creditors. The approval process for the debt settlement and personal insolvency arrangements is consistent with practices in comparable jurisdictions. For example, under the individual voluntary arrangement procedure in England, Wales and Northern Ireland, the approval of more than 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.