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

Both amendments propose to reduce the indicative limit for the aggregate amount of secured debt that may be proposed in a personal insolvency arrangement, PIA, from ¤3 million to ¤1 million. The Senator's proposals may be based on some comment of the troika in this regard. Such comments were, I feel, based perhaps on an incomplete understanding of the innovative debt resolution proposals contained in the personal insolvency arrangement.

This arrangement essentially provides a rescue approach as opposed to the classic liquidation approach in bankruptcy. This rescue approach is designed not only for whole mortgages but for all types of debt where a security is involved. This will include viable or potentially viable sole trader-type businesses whose continued existence can sustain employment and economic activity.

The limit of ¤3 million is not the critical element here. To a large degree, it is an indicative figure to assist the approach of debtors and creditors in considering their options. We must remember we are providing an alternative option to bankruptcy. Secured creditors can also consent not to apply the ¤3 million limit, by agreement. This is a useful option to those concerned in trying to put together a workable debt resolution. I suspect that if we reduce the amount as suggested by the Senator, it would not be long before I was faced with a request to increase it to ensure the success of the personal insolvency arrangement.

There is an extraordinary misunderstanding as to what this is about. Debt settlement arrangements can be entered into for unsecured debt up to any level. Therefore, if some individual has unsecured debt of ¤6 million, ¤7 million or ¤8 million, and if there are creditors willing to enter into arrangements, they can enter into arrangements under a debt settlement arrangement. What is a debt settlement arrangement about? It is about putting in place a structure that will facilitate the discharge of debts properly due over an extended period of time to the benefit of the creditor and also to the benefit of the debtor. Why is this the case? If the creditor cannot recoup payment because the debtor is practically insolvent, the alternative is that the debtor goes into bankruptcy and the creditor may recover very little because what the debtor is going to earn in the next five or six years becomes substantially irrelevant. Moreover, as the debtor can extricate themselves from the debt, the creditor may not recover as much as they would otherwise recover under the debt settlement arrangement.

The same applies to a personal insolvency arrangement. Let us say someone has a debt of ¤3 million to a financial institution. Let us assume ¤1 million of that is debt relating to property, half of it to the family home and half to the business out of which they trade, and the other ¤2 million is moneys borrowed from the bank for the purpose of that business, which is now secured nominally on property but, due to the collapse of property values, this may no longer be providing adequate security. What is this arrangement about? The debtor cannot pay their debts so there are two choices. First, the debtor may go into bankruptcy, in which case all of the assets may be sold, including the debtor's family home, and the debtor can be rendered homeless. From the perspective of the financial institution, because it can get no benefit from the possible workings of the debtor over future years, it may not recover as much as it would otherwise recover, although, of course, it might get some benefit during the bankruptcy period.

The second choice is the PIA, whereby there will be a benefit for the debtor who has a reasonable family home that is not in the mansion class. "Mansion" seems to be a trendy word to use this week and people are going to be very disappointed if their homes are not classified as mansions, if what we are reading in the newspapers is true. Some homes that could have been regarded as mansions years ago apparently may not be, for all sorts of reasons. We will not go there. In any case, from the debtor's point of view, the benefit is they may retain their home. From the creditor's point of view, they enter into an arrangement which may over a period of years result in them recouping a greater sum of what is due to them.

There is an idea that this is some great concession for wealthy people. What it is, in fact, is the possibility of an arrangement for individuals who are financially bust and who have ¤3 million of nominally secured debt. Somebody seemed to have an idea these are wealthy people who have ¤3 million. If one has a debt of ¤3 million and is financially bust, one is a good deal less wealthy than a debtor whose debt is only ¤1 million. Why would one exclude the possibility of a structured debt settlement arrangement which may, in fact, result in the debtor over a period of years having to pay off more of the debt, where the benefit to them is they may keep their home? The other option is for the debtor to go into bankruptcy in which they may lose their home but the creditors may recoup less. Of course, at the end of the day, where it is secured debt, if the secured creditors are not happy with the nature of the arrangement that could be entered into, or at least a portion of them are not happy, they will not enter into it.

The Oireachtas committee had it right and, much though it pains me to say it, the troika had it entirely wrong because it did not seem to understand the structure. There is a case to be made that there should be no limit, either for debt settlement arrangements or personal insolvency arrangements. At the end of the day, whether one enters into a structured resolution or not will depend on whether one can propose, through a personal insolvency practitioner, arrangements which appear common sense and practical to creditors and which, based on one's full financial disclosure, indicate to creditors they may recoup more of the money owing to them by that structure than going into bankruptcy. There is no particular benefit in having any particular financial limit on this at all. Nevertheless, we put in the figure of ¤3 million in part because there was a concern this might be misunderstood.

For those reasons, I oppose and disagree with the Senator's amendments. I hope the Senator will take in good faith what I am saying. Of course, there is a reality that everyone is forgetting. The strange thing is that in past years and before this legislation comes into force, without individuals going into bankruptcy, debtors and creditors, with the assistance of intermediaries, have on occasion resolved debt issues by entering into settlements without these formal legal structures. When this legislation is enacted, there is nothing to prevent a group of creditors who are owed a very large sum of money by a debtor getting together and, with the assistance of an intermediary or someone representing both sides, entering into a settlement for many millions of euros of debt that may exist. To say the personal insolvency structure should only apply to very limited circumstances but individuals who want to co-operate can do so at any particular level just does not make sense.