Thursday, 17 December 2015
Bankruptcy (Amendment) Bill 2015: Second Stage
On behalf of the Minister for Justice and Equality, Deputy Fitzgerald, who regrets that she cannot be here, I am very pleased to present the Bankruptcy (Amendment) Bill to the House, and I look forward to hearing Senators' contributions. It is a very significant reforming Bill, and I will highlight its main objectives.
The Bill proposes three key changes to bankruptcy law in Ireland, as follows: the normal duration of bankruptcy is reduced from three years to one year; the normal duration of a bankruptcy payment order - the payments a court may direct the bankrupt person to make towards his or her creditors - is reduced from five years to three years; and a bankrupt person's legal interest of his or her home will, in general, transfer back to him or her automatically three years after bankruptcy adjudication, if the official assignee in bankruptcy has not taken steps to sell it before that date.
These are important changes. They recognise that bankruptcy is not an easy option and that the large majority of bankrupt people never intended to end up in bankruptcy, and have already co-operated in an open manner with the bankruptcy process and handed over their income and assets towards repayment of their debts. For these people, the reforms contained in this Bill offer a second chance. They will be able to exit bankruptcy and return to normal economic activity much more quickly, in line with the position in England, Wales and Northern Ireland. It is good for them and good for our economy.
The Bill ensures significant sanctions to deter and penalise anyone who tries to abuse the bankruptcy process or to conceal his or her income or assets from creditors. In such cases, the High Court will retain the power to extend the bankruptcy term to up to eight years, and to extend the duration of a bankruptcy payment order to up to five years. A new provision will allow the High Court to extend the bankruptcy term to up to 15 years, where it is satisfied that there has been particularly serious non-co-operation or concealment.
The Bill modernises key aspects of bankruptcy procedures. It will achieve the following: abolish the outdated requirement for an extra High Court hearing, the so-called statutory sitting, in all bankruptcy cases; enable the official assignee to disclaim onerous properties, which would effectively impose net costs on the taxpayer; and ensure that the official assignee has clear powers to demand and investigate electronic records relating to a bankrupt's assets and affairs. While these changes are procedural, they are, nevertheless, vital, given that they will remove unnecessary costs and delays, free up court time and resources, and allow more efficient and effective bankruptcy administration. The Bill provides for appropriate transitional arrangements, so people already in bankruptcy will also get the benefit of these reforms subject, at maximum, to a six-month transitional period.
The Minister for Justice and Equality has already acknowledged in the Dáil two major contributions to the thinking behind this Bill. One was the Private Members' Bill, sponsored by Deputy Willie Penrose, which was published in March this year and whose provisions have been incorporated into this Bill, subject to some necessary amendments. The other was the report on bankruptcy reform by the Oireachtas Joint Committee on Justice, Defence and Equality, which was undertaken last summer at the Minister's request. The joint committee held a public consultation and examined over 100 submissions before providing the Minister with its report in July which, likewise, recommended reducing the bankruptcy term to one year. The Minister wishes to again express her appreciation to the joint committee for its extensive work, as well as the Oireachtas joint committee on finance and the many stakeholders and individuals who made valuable submissions.
This Bill to reform bankruptcy law will not operate in isolation, but will complement the significant reforms the Minister has already introduced to personal insolvency law, with the enactment earlier this year of the Personal Insolvency (Amendment) Act and the commencement in recent weeks of its new independent court review of the so-called “bank veto”, where creditors reject a personal insolvency proposal. A number of review cases have already been lodged with the courts. The Government has also taken important steps in recent months to reduce costs and increase accessibility of insolvency and bankruptcy procedures. This includes the Minister's decision to waive court and insolvency service fees for insolvency cases, and to substantially reduce bankruptcy costs. It also includes the implementation of a nationwide network of dedicated mortgage arrears services in Money Advice & Budgeting Service, MABS, centres. MABS and the Insolvency Service of Ireland, with the co-operation of the Courts Service, are already ensuring a presence at all Circuit Court hearings around the country for repossession, to provide information and support for those in mortgage arrears on their homes. This is a very important initiative. On behalf of the Minister, I urge anyone worried about debts, particularly anyone at risk of repossession, to contact MABS which will put them in touch with the help they need.
I will outline the thematic provisions of the Bill. Under section 10(a) of the Bill, the normal duration of bankruptcy will be reduced from three years to one year, as recommended by the joint committee in its report. This will also correspond to the position in England, Wales and Northern Ireland. The joint committee report expressed concern that reducing the bankruptcy term should not benefit bankruptcies which appeared to be deliberate or fraudulent. The Bill responds to this concern by retaining provision for a considerably longer bankruptcy term of up to eight years where the court is satisfied that the bankrupt is not co-operating with the bankruptcy, or has tried to conceal assets or income. The Bill also allows for longer extension in particularly serious cases of non-co-operation or concealment.
Bankruptcy payment orders are court orders made on the application of the official assignee which require a bankrupt to make payments for the benefit of his or her creditors from any surplus income or assets after reasonable living expenses for the bankrupt and any dependents. Section 12 of the Bill will reduce the normal maximum duration of a bankruptcy payment order from five years to three years. However, the maximum five-year duration will still apply in cases where the court is satisfied that the bankrupt has not co-operated with the bankruptcy, or has tried to conceal assets or income. When a person becomes bankrupt, his or her interest in any property he or she owns, including his or her home, passes automatically to the official assignee, whose duty is to sell it, if feasible, to repay creditors.
Section 61 of the Bankruptcy Act protects any spouse or civil partner of the bankrupt, by requiring the official assignee to apply to court for leave to sell the home if it is a family home under the Family Home Protection Act 1976, or a shared home under the Civil Partnership Act 2010. The official assignee will try to dispose of the bankrupt's interest in the property, preferably to the spouse or civil partner. However, in many cases, and particularly where the property is in negative equity, no purchaser can be found. Section 10(c) of the Bill proposes a practical solution in such cases, by providing that the bankrupt's interest in the home will automatically revest in him or her three years after the bankruptcy adjudication, unless the court orders otherwise, the bankrupt and the official assignee agree otherwise, or the official assignee has sold it or applied for a court order authorising sale before that date. A similar provision already applies in England and Wales. This applies to the bankrupt's home at the date of bankruptcy adjudication, whether it is his or her family home, shared, civil partnership, home, or principal private residence as a single person. This will also allow for more efficient and cost-effective administration of bankruptcy cases, particularly those with very limited resources. Given that the bankrupt's interest in his or her home remains subject to any mortgage, the position of the mortgage lender is not affected.
The Bill introduces at section 11 a new power for the court to extend the bankruptcy term up to a total of 15 years on application by the official assignee, where the court considers it just to do so in cases of particularly serious non-co-operation or concealment by the bankrupt. This arises because a relatively small number of bankruptcy cases feature particularly serious and flagrant levels of such conduct by the bankrupt, for which there is currently no adequate deterrent.The new 15-year maximum term is modelled on the approach in the US and UK. In the USA, a bankrupt's debts are only discharged if he or she has co-operated with the bankruptcy trustee, which is equivalent to our official assignee. In the UK, legislation allows the bankrupt to remain subject to a bankruptcy restriction order in cases of non co-operation, which continues bankruptcy restrictions for up to 15 years.
Section 4 of the Bill will abolish the requirement under the Bankruptcy Act to hold an additional sitting of the High Court in every bankruptcy case some weeks after adjudication, which must be attended by the bankrupt, the creditors and the official assignee.The original purposes of the statutory sitting are now superseded. It is widely seen as an outdated formality which is a major strain on court resources. It also creates unnecessary legal costs and workload for creditors and the official assignee, and further stress to debtors, who are largely unrepresented and have already gone through a public adjudication hearing. Its abolition will free up considerable time for the courts and the official assignee and will also benefit the parties involved.
Sections 6, 7, and 15 of the Bill will clarify the wording of several provisions in the Bankruptcy Act to put it beyond doubt that electronic as well as paper records are covered by the powers of the court or the official assignee to demand accounts and records for the purposes of investigating a bankrupt's affairs. This is important to assist the official assignee in investigating a small number of high-asset cases in which a bankrupt may have concealed assets.
The next item is the power of the official assignee to disclaim onerous assets, which is an important provision. Section 8 of the Bill will allow the official assignee effective power to refuse to accept responsibility for any property of the bankrupt which is likely to generate substantial costs and where there are no funds in the bankruptcy estate to cover these costs. When the official assignee takes over a bankrupt's property, he becomes legally responsible for any costs and liabilities arising from it. These can include unpaid rates, property tax, management charges, essential repairs, ongoing security and insurance for properties which may not be generating any revenue. At the same time, the official assignee has no power to compel any contribution from the secured lender who is entitled to receive any proceeds from the sale of these properties. Consequently, these costs risk being imposed on the State and the taxpayer. The current provision for disclaim in the Bankruptcy Act effectively only applies to liabilities arising under a lease, which does not cover the many types of liability mentioned above. In the UK this problem was addressed by the Insolvency Act 1986, which gives the official assignee a broad power to disclaim any onerous property. It means that such costs are, more appropriately, the responsibility of the secured creditor who will receive the benefit of the property concerned. The proposed amendment in this Bill follows the same approach. It will generate considerable savings for the State and the taxpayer, as well as improving the overall efficiency of bankruptcy administration.
In terms of transitional arrangements, any bankruptcy already existing when the Bill comes into effect will also benefit from the changes introduced by this Bill, subject to a six-month transitional period. This reflects the six-month transition period that was provided previously when the bankruptcy term was reduced from 12 years to 3 years by the Personal Insolvency Act 2012. It is needed to ensure a smooth transition and to enable the official assignee to make any necessary applications to the court for extension of time in cases which raise issues of non-co-operation or attempted concealment.
Under the transitional provisions, and assuming that there are no grounds for extension, the following occurs. First, an existing bankruptcy which is to terminate three years after adjudication and is due to terminate less than six months after the commencement date of the Bill will terminate on its due date. Other existing bankruptcies will now terminate one year after adjudication or six months after commencement, if that is the later date. Second, an existing bankruptcy payment order due to expire five years after it was made by the court, if it is already due to expire less than six months after the commencement date, will terminate on its due date. Other existing bankruptcy payment orders will now expire three years after they were made or six months after commencement, if that is a later date.
The provision for re-vesting of the bankrupt's interest in his or her home applies to a bankruptcy which exists at the date the Bill comes into effect. Re-vesting would take place, subject to the exceptions that I have already outlined, either on the third anniversary of adjudication or six months after the commencement date, whichever is the later.
I will briefly mention the specific provisions of the Bill. The technical content and effect of each section is set out in the Explanatory Memorandum.Sections 3 to 5, inclusive, abolish the mandatory requirement for a statutory sitting. They replace references to the statutory sitting in other sections of the Bankruptcy Act. Sections 6 and 7 amend sections 19 and 21 of the Bankruptcy Act. They clarify that the powers of the official assignee and the High Court to require the production of a bankrupt person's accounts and records extend to electronic records. Section 8 is the provision for the official assignee to disclaim onerous properties.
Section 9 clarifies section 61 of the Bankruptcy Act regarding the protection of a family home under the Family Home Protection Act or a shared home under the Civil Partnership Act 2010. These changes will aid the interpretation of section 10 of the Bill regarding the re-vesting of the bankrupt's home. Section 10 is the important provision for reduction of the bankruptcy term and re-vesting of the bankrupt person's home with the relevant transitional arrangements. Section 11 provides the new power for the court to extend the bankruptcy term for up to 15 years in cases of particularly serious non co-operation or concealment.
Section 12 reduces the normal duration of a bankruptcy payment order from five years to three years, with the relevant transitional arrangements. If the court is satisfied that there has been non-co-operation or concealment by the bankrupt, however, the maximum duration remains at five years. Sections 13 and 14 are consequential amendments and both replace references to the statutory sitting. Section 15 is a further amendment to clarify that electronic records are included in section 123 of the Bankruptcy Act, which provides that it is an offence for a bankrupt person to withhold, conceal or falsify records of their affairs.
As every Senator in this House is aware, the background of our economic crisis means that those now entering bankruptcy, or already in bankruptcy, have already struggled with unsustainable debt and managed on very restricted incomes for several years. The measures in this Bill will provide these people with a much-needed light at the end of the tunnel and an earlier return to normal economic activity. As the Small Firms Association underlined in its submission to the joint committee's bankruptcy review, reducing the term to one year will, in particular, provide that vital second chance for a small entrepreneur to restart in business.