Thursday, 17 December 2015
Bankruptcy (Amendment) Bill 2015: Second Stage
The Deputy initiated this process through his Labour Party. Such endeavour proves that even a backbencher in Government can have an influence far beyond what his or her humble backbench status might suggest.
I have been surprised by three things. First, I am astonished at how fast this change has taken place in legislative terms, because the process usually grinds very slowly. Second, the matter was accepted by the two parties in Government. Third, they moved very quickly to put the Bill before both Houses and have the legislation signed into law.
I wish to put on the record my view that bankruptcy is not a panacea. In fact, from the debtor's perspective, while a reduction of the bankruptcy discharge term to one year might seem attractive, bankruptcy retains some very severe disadvantages and restrictions and is not to be entered into lightly. Proponents of a reduced discharge period cite the increased probability of the bankrupt retaining the family home, but that view flies against the facts. Some 75% of bankrupts end up losing the family home. The bankrupt is persona non grata with banks, will lose his or her bank account and credit cards and is disbarred from seeking credit in excess of €600. The bankrupt's credit rating is effectively destroyed. The bankrupt may lose his or her job due to bankruptcy status and may well be disbarred from seeking certain forms of employment. The bankrupt may not become a company director for the period of bankruptcy. That is the reality.
We on the Fianna Fáil side of the House take some issue with the Government's foot-dragging in certain areas, particularly over the past four years, in terms of taking action to remove the bank veto.It was only as a result of questioning last month by Fianna Fáil in the Dáil that the Minister for Justice and Equality signed the commencement order this week for the remaining provisions of the Personal Insolvency (Amendment) Act 2015. Not one family has, as yet, benefited from this provision owing to Government delays in this regard.
There is also the prospect of EU harmonisation of bankruptcy arrangements. Perhaps the Minister might a view on this issue. In its recommendation of 12 March 2014 on a new approach to business failure and insolvency the European Commission suggested entrepreneurs be discharged after three years. I support this recommendation. At the time I contributed to the debate on the original Bill I argued in favour of a reduction to one year. I wonder whether a future Government might get caught if European Union harmonisation was to proceed? Would it mean another change in the law or would subsidiarity come into it or are we master in our own house?
A one year term would make the financial institutions engage more with debtors in reaching meaningful solutions and encourage further engagement with the debt settlement arrangement or personal insolvency arrangement processes. From that point of view, it would be welcome. Also, as suggested, the benefits of economic recovery would be passed on to all citizens by allowing those with crippling levels of debt associated with credit obtained during the economic boom to move on from that debt. This would allow the debtor to return to economic normality much faster. I am sure all sides of the House agree that it is necessary to aid the economic recovery of the State and enable many of those caught up in bankruptcy to become positive contributors to the economy as quickly as possible. In fact, there is a long-standing view in the United States that one is not a success in business unless one has been bankrupted at least once. I am not suggesting for one moment that that is the route people should take, but there has not been the same stigma attached to bankruptcy or liquidations in the United States with its strong pro-enterprise culture as, perhaps, there might be in Ireland or elsewhere in Europe. It is the one aspect of the legislation that I welcome in that it allows an opportunity for those who were imaginative, creative and entrepreneurial-minded and failed to get back up again. There should be no stigma attached to it. One should applaud those who have been defeated in their initial attempts in the world of business and been made bankrupt. That they can now get out of bankruptcy after a relatively short period is welcome.
The other aspect is the mortgage arrears crisis. We suggest that reducing the bankruptcy term will not solve the mortgage arrears crisis. Reducing the bankruptcy term is one element of a far wider programme of measures needed to deal with families and businesses in financial difficulty. There are more than 38,000 families in mortgage arrears for more than two years. The reality is that bankruptcy will not be a silver bullet for most of them. The Minister for Finance said earlier this year that those declared bankrupt could lose the family home. The people concerned then become homeless and have to seek social housing from local authorities as a result, which constitutes another crisis. Bankruptcy may be suitable in certain circumstances, but it is not a solution for the vast majority of households the primary financial difficulty of which relates to being in arrears on their mortgage. We provided the Government with a template in the Family Home Mortgage Settlement Arrangement Bill 2014 which would have adapted the under-utilised Insolvency Service of Ireland to allow a dedicated mechanism to be put in place to deal with the issue of the family home.
A new Central Bank report which looks at the causes of long-term mortgage arrears shows that the amounts by which those in long-term arrears have fallen behind in their repayments are increasing in more than 80% of cases. This indicates that there is a large cohort of mortgage borrowers who have not had an adequate repayment restructuring plan in place. The timely research from the Central Bank highlights very clearly that the current approach taken in dealing with serious arrears cases has not worked and is not going to work. It is not surprising that high variable interest rates have driven many families into long-term arrears as they typically end up with a mortgage repayment several hundred euro higher each month. It is unacceptable that such high mortgage interest rates are charged at a time when the economy is trying to recover. It is a penal measure by the banks. The public has never been able to understand why when the State practically owns all of AIB and has a 15% share in Bank of Ireland the banks have been thumbing their noses at the Government in recent years on the issue variable interest rates.
Overall, we welcome the Bill which will go some way towards making life a little easier for those who are anxious to get back into business and make a contribution to an expanding economy.