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

Part 1, section 2, provides for a wide range of interpretations in regard to the Bill. Part 2, containing sections 7 to 22, inclusive, provides for several standard provisions in the establishment of a new insolvency service to operate the new non-judicial debt resolution processes. It sets out the functions and power of the new service and its governance arrangements. The insolvency service will have the structures, functions and powers consistent with an effective, independent body. Section 23 restricts the provisions of the Freedom of Information Acts to records relating to the general administration of the insolvency service, thereby protecting the sensitive personal information held on the financial affairs of debtors. 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 will have no role in the negotiation and agreement of the terms of either a debt settlement arrangement or a personal insolvency arrangement.

Part 3 is the central core of the Bill. It provides, in 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 who have no realistic prospect of being able to pay their debts within the next three years. 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 24 provides that an application for a debt relief notice will be subject to certain eligibility criteria. 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 debt such as credit cards, personal loans or catalogue payments. However, debts that do not qualify for a debt relief notice include taxes, court fines and family maintenance 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. A debtor will only be eligible to apply 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, holds assets - whether individually or jointly with another person - to a value of ¤400 or less and owns only one motor vehicle, which must be of a value of ¤1,200 or less. These provisions are similar to those of the debt relief order process in operation in England and Wales since 2009 and in Northern Ireland since 2011. However, the Bill goes further in that there are additional exemptions of ¤6,000 for essential household appliances, tools or equipment required for the employment or business of the debtor or materials necessary for the education of the debtor's children at primary and secondary level. These latter provisions are significant exemptions in regard to the qualifying criteria. I should emphasise that the qualifying criteria for a debt relief notice are exactly that - qualifying criteria for the process. These criteria of themselves do not guarantee a debt write-off for a debtor or protect him or her from enforcement action by creditors outside the process. This basic fact has often been overlooked in the debates on this process. Only one debt relief notice per lifetime will be permitted. Also, a notice cannot be applied for within five years of the completion of a debt settlement arrangement or a personal insolvency arrangement.

Section 25 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. The approved intermediary will advise the debtor on his or her options and the qualifying requirements and will assist him or her 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 to 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 26, to the Insolvency Service of Ireland.

Section 27 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 28 provides that if the Insolvency Service of Ireland is satisfied that the application is in order, it will issue a certificate to that effect and furnish that 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 30 requires the lnsolvency 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 31, with the issue of a debt relief notice, 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 32 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 33 requires the debtor to inform the approved intermediary and the lnsolvency Service of Ireland 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 in which their financial position improves. These circumstances include the receipt of gifts or windfalls of more than ¤500 or where the debtor's net income has increased by more than ¤400 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 creditor of his or her status.

Section 34 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 35, any funds transmitted by the debtor to the lnsolvency Service of Ireland are to be paid on a pari passu or proportionate basis to the specified creditors. After the three-year supervision period has come to an end, section 43 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 purpose of applying for a debt settlement arrangement or personal insolvency arrangement. Sections 45 to 50, inclusive, provide for a range of practical matters in regard to the appointment of a personal insolvency practitioner, the duties of 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 47 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 131.

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, assets and debts that they would fall outside the eligibility criteria for a debt relief notice. Sections 51 to 84, 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 51 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 his or her 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 an approach.

Section 52 provides that only one application for a debt settlement arrangement in a lifetime is permitted. Section 53 sets out the eligibility criteria for a debt settlement arrangement. The debtor must normally be resident in the State or have a close connection with the State. Section 54 provides that if the debtor satisfies the eligibility criteria, the personal insolvency practitioner will apply to the lnsolvency Service of Ireland for a protective certificate in respect of the preparation of a debt settlement arrangement.

Under section 55, if the lnsolvency Service of Ireland 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 lnsolvency Service of Ireland. In considering the application, the court will be entitled to treat the lnsolvency Service of Ireland certificate as evidence of the matters certified in the application. The lnsolvency Service of Ireland will register the protective certificate in the register of protective certificates, and 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 listed creditors. That period, on application to the court, may be extended for not more than 40 days.

Section 57 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 60 provides that certain debts are excluded from a debt settlement arrangement, including court fines in respect of criminal offences. Certain other debts are also excluded, such as family maintenance payments, taxes, local authority charges and arrears of service charges owed to apartment management companies. While there is provision for a wide range of repayment options, the default posit on under section 61, unless otherwise agreed, is that creditors be paid on a pari passuor proportionate basis. Under section 62 any debt that would have a preferential status in bankruptcy will also have a preferential status in a debt settlement arrangement. Under section 64, 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 68 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 70 the personal insolvency practitioner must inform the insolvency service of the approval of a proposed debt settlement arrangement. The service will then transmit the arrangement in accordance with section 71 to the appropriate court for approval.

Section 73 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.

There is provision for an annual review of the financial circumstances of the debtor under section 75. Section 76 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 77 or terminated under sections 78, 79 or 80. On the termination or failure of the debt settlement arrangement, section 82 provides that a debtor could risk an application for adjudication in bankruptcy. Section 83 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 11 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 85 to 120, 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 86 provides that the application for a personal insolvency arrangement must be made through a personal insolvency practitioner 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 an approach. Section 87 provides that only one application for a personal insolvency arrangement in a lifetime will be permitted.

Under section 88, 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 88 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 with it. If the debtor satisfies the eligibility criteria, the personal insolvency practitioner may apply to the insolvency service under section 89 for a protective certificate in respect of the preparation of a personal insolvency arrangement.

Section 91 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 92, 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 95 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 97 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 98 and 99, including a claw back in the event of a subsequent sale of a mortgaged property where the mortgage has been written down. Under section 100, a personal insolvency arrangement proposal shall in so far as is reasonably practicable be formulated in such a way as will not require the debtor to dispose of an interest in or cease to occupy his or her principal private residence. However, this significant protection is necessarily tempered to take into account the possibility that the debtor may not wish to continue to occupy the house or the costs of the debtor continuing to reside therein maybe disproportionately large. This provision offers important assistance to 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 106 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, second, by creditors representing more than 50% of the value of the secured debts due to creditors and, third, by creditors representing more than 50% of the value of the unsecured debts due to creditors. 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 108, 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 109 to the appropriate court for approval. Section 111 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. There is provision for an annual review of the financial circumstances of the debtor under section 113. Section 114 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 115 or terminated under sections 117 or 118.

Section 120 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 121 to 126, 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 127 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 128 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 and take copies of or extracts from entries in a register.

Part 4 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 135 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 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 or personal insolvency arrangement.

Section 136 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 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 138 will require the court, when considering a petition from a creditor for the debtor's bankruptcy, to consider whether the matter might be more appropriately dealt with by a debt settlement or personal insolvency arrangement. In the adjudication of a debtor's petition for bankruptcy under section 139, 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 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 141 increases the maximum value of these excepted articles from the current level of ¤3,100 to ¤6,000.

In regard to the avoidance of fraudulent preferences and certain transactions designed to frustrate the legitimate interests of creditors made before adjudication in bankruptcy, the current time period of one year is extended to three years in sections 142 and 143. The time periods in regard to the avoidance of certain voluntary settlements of property made before adjudication in bankruptcy are extended from two to three years in section 144.

Section 146 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 Bill will be automatically discharged after a further six months have elapsed. This latter time is to allow for a 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. Fifth, 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. As I mentioned, it is my intention to bring forward comprehensive proposals on this matter on Committee Stage. There will be a new Part 5 to replace the current Part 5, which will provide extensive provisions for the regulation by the lnsolvency Service of the new personal insolvency practitioners and provisions on regulatory and oversight procedures and to ensure there are indemnities to guarantee that funds being dealt with by personal insolvency practitioners are protected. Many of the likely regulatory mechanisms I will be proposing are already in place in other contexts. It is a question of adapting them to the insolvency legislation. A substantial amount of work has been done already and should be completed very shortly.

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 have been and continue to 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 fair and workable for creditors and debtors. The development of new laws, particularly those which are without legal precedent in any other jurisdiction, such as the personal insolvency arrangement required very careful legal drafting. My Department has worked closely with the Office of the Attorney General, the Parliamentary Counsel, the Department of Finance and other Departments and organisations to develop the Bill, the provisions in which will change the relationship between insolvent borrowers and their lenders. It will give a greater balance to the rights of both 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. It offers no suggestion that borrowers can easily leave outstanding debts behind them. This will be achieved through the necessity for borrowers to declare, honestly and openly, their financial affairs, the strict eligibility criteria and the anti-abuse provisions resulting in criminal prosecution.

This new legislation will allow individuals who are insolvent without any reasonable prospect of being able to repay their debts to rehabilitate their unsustainable financial situation over a defined period. It should serve to support greater stability in the financial sector as it 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 know the provisions of the 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 and personal insolvency arrangement processes will also vary depending on individual circumstances and the nature of indebtedness. 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 legislative reform of benefit to citizens is well under way and I expect to complete it before the end of the year.

As I noted, I will be bringing forward extensive amendments to the Bill on Committee and Report Stages. These will include the regulation of personal insolvency practitioners, provisions in regard to the courts and a range of other amendments, all necessary for the operation of the new debt resolution processes provided for in the Bill which I commend to the House. I hope it will have the general support of all Members.