James Browne (Wexford, Fianna Fail) | Oireachtas source

This amendment refers to section 91 of the principal Act, which sets out the main criteria for persons to be eligible to propose a personal insolvency arrangement for creditors in order to resolve their debts. Among those criteria, section 91(1)(g) states that debtors must have made a declaration in writing confirming that they have co-operated with the secured creditors for a period of at least six months in respect of their principal private residence in accordance with the mortgage arrears resolution process, MARP, or another relevant Central Bank-approved process.

Section 91(2) then provides that such a declaration by debtors is not required if the debtor's personal insolvency practitioner, PIP, confirms in writing that, given the debtor's detailed financial circumstances as set out in his or her financial statement, the PIP believes that, even if the debtor had entered an alternative repayment arrangement of a type offered by the secured creditors under the MARP, it is unlikely that doing so would have returned the debtor to solvency within a five-year period.

This amendment essentially proposes to delete the proofs provided for in those two subsections, namely, a written declaration from the debtor and a confirmation in writing by the personal insolvency practitioner. The debtor would still be obliged to show that he or she had fulfilled the condition of co-operating with the principal private residence secured lender under the MARP for at least six months and the PIP would still be required, in the alternative, to establish that the debtor was unlikely to have been returned to solvency within a five-year period if he or she had entered an alternative repayment arrangement offered by his or her secured lender. However, it would not be specified how those proofs were to be established.

As I understand it, the concerns underlying the proposed amendment appear to be that debtors might falsely declare that they had co-operated with their secured lender when they had not, in fact, done so and that the abolition of the cut-off date in section 115A of the principal Act under section 14(c) of this Bill carries a risk that debtors might prospectively go into arrears with a view to obtaining a personal insolvency arrangement.

Having considered this amendment very carefully, the Minister is not satisfied that these amendments are, in practice, necessary or desirable. Having consulted with the Insolvency Service of Ireland, the Minister considers that the risk that debtors would prospectively go into arrears with a view to obtaining a personal insolvency arrangement is very low. This was a concern held by some when the Personal Insolvency Act 2012 first came into operation but, based on the experience to date, this concern was not warranted.

Further, under the principal Act, the insolvency service and the court must be satisfied that the debtor meets the eligibility criteria. This is determined by way of their having regard to the documents provided with an application. As mentioned earlier, the application must be accompanied by either a declaration by the debtor under section 91(1)(g) or the PIP's confirmation under section 91(2), the MARP override letter. The proposed amendments delete the reference to such documentation but do not suggest alternative documentation to be used in their stead. The requirement for the PIP debtor to establish that either the debtor has co-operated or, in the absence of that proof, that the potential alternative repayment arrangement available from the secured creditor would not enable the debtor to achieve solvency within five years could overcomplicate the eligibility requirements and make the process far more adversarial and documentation heavy. The secured creditor would have full records of all contacts and payments made by the debtor and so is well placed to challenge any apparent inconsistency.Although the proposed amendment might be intended to ensure that engagement is more likely, this uncertainty could result in a negative unintended consequence and might actually reduce engagement and participation in the process on the part of some debtors. On that basis, perhaps it is not the type of amendment that should be made at this stage.

It must be borne in mind that, under the personal insolvency framework, it is very much in the interest of the debtor to exhaust the process of engagement with the secured creditor before going down the personal insolvency route. The debtor needs the consent of a majority of creditors under the Act in order to secure their agreement to his or her proposal for a personal insolvency arrangement at the creditors' meeting. He or she has every incentive, even at that stage, to co-operate with the secured creditor. Failure to co-operate would make it much more difficult to obtain the consent of the secured lender. It is true that should the creditors refuse consent, the debtor has the option of applying for a court review under section 115A on condition that his or her home mortgage arrears are included in the proposed personal insolvency arrangement. Under section 115A(10)(a), the mandatory requirement to be considered and applied by the court in considering the debtor's application for a review expressly include the quality of the debtor's engagement with the secured lender. There is, therefore, a renewed and specific focus on that issue and the courts can and do question the quality of this engagement under section 115A, especially if this is raised by the creditor.

A further concern is that the proposed amendment to section 91(2) could be seen as undermining the independence and integrity of the personal insolvency practitioner. In view of these considerations, the Minister is not in a position to agree to the amendment and I ask the Senator to consider withdrawing it.