Michael McDowell (Independent) | Oireachtas source

I move amendment No. 7:

In page 9, between lines 7 and 8, to insert the following:

“Amendment of section 91 of Principal Act

11.Section 91 of the Principal Act is amended— (a) in subsection (1)(e) by the insertion of “or a confirmation of truth” after “statutory declaration”,

(b) in subsection (1)(g) by the deletion of “has made a declaration in writing declaring that he or she”, and

(c) by the substitution of the following for subsection (2):

“(2) The criterion referred to in subsection (1)(g) shall not apply where it has been established that, having regard to the financial circumstances of the debtor as disclosed in the Prescribed Financial Statement completed by the debtor, if the debtor were to have entered into an alternative repayment arrangement with the secured creditor concerned of a type provided for in any process relating to mortgage arrears operated by that secured creditor (being a process approved or required by the Central Bank of Ireland) the debtor would be unlikely to become solvent within the period of five years commencing on the date of completion of the Prescribed Financial Statement by the debtor.”.”.

I move this amendment in the context of the changes being made by section 11. I want to make a few points. Personal insolvency arrangements, PIAs, which were first introduced in 2012, were a valuable innovation because they offered individuals in financial difficulties a way of addressing their debts without recourse to bankruptcy. I fully accept that. The introduction in 2015 of a court review, where creditors had failed to honour a personal insolvency arrangement proposal, further strengthened the regime by incentivising banks and other creditors to agree sustainable long-term solutions to mortgage arrears cases that would enable borrowers to stay in their own homes. All regimes that offer to write off a borrower's debt need to strike a careful balance. Those who truly cannot afford to pay off their debts should be treated with compassion and assistance. At the same time, there should always be some safeguards to ensure that the system is not abused by individuals who have the means to repay debts but are looking for a chance to avoid doing so.

Currently, a key safeguard is that to be eligible to seek a court review, a debtor has to have been in mortgage arrears as of a particular date, 1 January 2015. That cut-off date was borne in mind by the courts in the past. Having a cut-off date of that kind was a matter which the courts had regard to as limiting the scope for abuse by what could be called strategic defaulters, because debtors could not arrange their affairs to make themselves eligible for a PIA. In two cases, the JD case in 2017 and the Parkin case in 2019, the High Court specifically identified the cut-off date mentioned in section 115A(18) as underpinning what it said was the proportionality of the regime from a constitutional perspective. I am not arguing that the cut-off date has to be kept just because it has been mentioned by the High Court as a proportionate counterbalance.I agree that the removal of the 2015 date is necessary if borrowers who are in mortgage arrears because of the pandemic are to be allowed to avail of the section 115A court review process. However, I ask the Minister of State to bear in mind that if we are going to remove one safeguard, we may have to add an additional safeguard somewhere else to ensure the Act is not made more vulnerable to being opened up to abuse or a constitutional challenge as disproportionate.

That is why I am proposing this amendment, which was prepared for me by insolvency practitioners. I want to make clear that it is not something I thought up at my kitchen table. It relates to the eligibility criteria for seeking a personal insolvency arrangement, which are set out in section 91 of the 2012 Act. I am proposing that to be eligible to apply for such an arrangement, borrowers should have to prove that they engaged first with their lender but were unable to secure a sustainable alternative arrangement. They would have to demonstrate, in order to be eligible to be exempt from the 2015 cut-off date, that they attempted to engage with the lender. There is no point in having an expensive system whereby court debtors receive legal aid funded by the State under the Abhaile scheme, which uses up a lot of the limited court resources, if creditors would have been willing to offer a restructure voluntarily or if debtors did not bother to seek one.

As things stand, debtors and their personal insolvency practitioners merely have to declare that they co-operated with creditors. In the Ali case in 2019, the High Court found that such a declaration was enough to make a debtor eligible, even if the declaration was untrue and the debtor had not, in fact, co-operated with the lender. It is a bit odd that a declaration would be taken as sufficient to make a debtor eligible, even if a court decided the declaration was untrue and the debtor had not co-operated with the lender. The amendment I am proposing provides that, to be eligible for a PIA, debtors should have to prove where the matter comes before a court that they had, in fact, co-operated with their lender. They cannot just put in a declaration that is afterwards found to be incorrect in order to get them across the threshold of eligibility.

The reason this proposal is justified is that it will deter strategic defaulters but will not discriminate at all against genuine cases. Going back to the Ali case, it is, arguably, ludicrous that it should be sufficient that a declaration is made, whether or not it is correct or substantially true. The purpose of this amendment is to bring some fairness to the operation of section 115A of the 2012 Act and have regard to the fact that the original cut-off date was regarded by the courts as a balancing factor in respect of proportionality. It will make it a requirement that those who apply to the court for review do not simply comply on paper with the eligibility criteria for making a declaration but will have to establish, as a matter of fact, that they made efforts to deal with their lenders. The courts should be in a position to ask such debtors whether there is substance in their declaration or if it has just been put in to delay the whole process, waste more court time and throw another log across the roadway by availing of legal technicalities.It is in that spirit that I offer this amendment to the House.