Jim Walsh (Fianna Fail)
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Cuirim fáilte roimh an Aire Stáit go dtí an Teach.

I drafted my Adjournment matter about two weeks ago but it has been overtaken by events yesterday. In that regard, I welcome the publication of the heads of the Bill to deal with this fairly intractable problem. The 12 year bankruptcy provisions we have are the most onerous in the EU and are very punitive. They apply to a different era and are badly in need of updating.

I am glad personal insolvency has been included. There is now real urgency about tackling the personal debt issue and this is an attempt to move in the right direction. We are three and a half years into the financial crisis and many people have been struggling during that period. It is time that people saw some light at the end of the tunnel. We have been addressing the question of the banks being bankrupt and it is time we addressed personal indebtedness and bankruptcy.

A presentation was made to us last week, with which the Minister of State might be familiar, by the CSO and Oireachtas Library and Research Service. They showed that there is a huge problem in the 30 to 39 year old age group, which has negative equity of €7.1 billion. The next highest category is those aged between 40 and 49, which has negative equity of €2.1 billion. The figures show where the concentration of this problem lies. The Minister said this is not a negative equity issue, rather it is about indebtedness and the capacity of people to be able to meet it, which is an important point.

I am moving between the mortgage side and the individuals who have given personal guarantees to banks. Many have gone to Britain, where the bankruptcy provisions are more lenient, and dealt with the issue there. That is not good for a number of reasons. We may be losing people to other jurisdictions who in the past have had very good credit and entrepreneurial records and created many jobs in this country. Given our population size, it is important that the coterie of people who found themselves blown away by the current global economic downturn are in a position to re-enter the business market here. We need to concentrate on ensuring that happens.

In doing that we have to be mindful we are balanced because the interests of the taxpayers, who are funding the banks, and moral hazard have to be taken into account. Having said that, if we do not have a proper functioning economy with business leaders who will drive we will not have growth or be able to deal with the sovereign debt issues. The issues are interlinked and we have to deal with them in a sensible way.

We have to be cognisant that this is the greatest downturn any of us have ever seen in our lifetimes. To a great degree it replicates what happens during the Wall Street crash and Great Depression in the 1930s. That puts the issue in context. We cannot and should not, from a moral point of view, bail out banks which acted irresponsibly and put all the blame on those who perhaps borrowed irresponsibly.

I welcome the reduction to three years, which is significant. I suggest the period should be between one and three years and that judicial discretion could be exercised because of the unprecedented position we are in this. If we were in normal economic times I might suggest a period of between two and five years but we need to address the current crisis.

There needs to be absolute discharge. One cannot have an overhang where the Revenue Commissioners can look to be paid back or a person is charged for the cost of bankruptcy. I have seen nothing in the heads of the Bill to deal with the exorbitant cost of legal fees.

There is no mention of any debt resolution agency. Such an agency would be the kernel of what we should try to do to ensure there is appropriate balance between individuals and banks. Voluntary schemes will only work if both parties come to an agreement. There needs to be pressure on both to reach that agreement. There is now an imbalance that favours the banks. We need to enable people to recover quickly from the current crisis in the interests of all of us and the economy.

Kathleen Lynch (Cork North Central, Labour)
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I thank Senator Walsh for raising the important issue of reform of our bankruptcy law and practice by way of Adjournment debate today. It gives me an opportunity to inform the House of recent developments, to which the Senator has already referred, regarding the reform of our personal insolvency regime. The Minister, Deputy Shatter, asked me to convey his apologies for not being here today as he is attending a meeting of Justice and Home Affairs Ministers in Denmark.

Senators will be aware that earlier this week the Cabinet gave its approval to the proposals of the Minister, Deputy Shatter, for the drafting of the personal insolvency Bill. On Wednesday, 25 January the Minister launched the comprehensive reform of our insolvency law and practice following the Government's approval of the general scheme of the personal insolvency Bill. The detailed and comprehensive heads of the Bill are available on the Department of Justice and Equality website. I am sure the Senator has already seen them. They are being referred to the Joint Committee on Justice, Defence and Equality with a request for preliminary observations by 1 March next. I agree with the Senator that we cannot hang around in this respect. It has to be done as quickly as possible. The members of the committee, and other Members of the both Houses who wish to attend meetings of the committee, will have time to consider the proposals and to make an input into the substantive provisions the Government will ultimately adopt. A Bill is to be developed on a priority basis so it can be published by the end of April, in line with the revised commitment in the EU-IMF programme of financial support for Ireland. The legislation will also fulfil the relevant commitment in the programme for Government.

The reforms set out in the document that was published yesterday constitute the most radical reform of our insolvency laws since the foundation of the State. The reform of bankruptcy law invariably focuses on the length of the discharge period that will apply to the person adjudicated bankrupt. This point was debated in both Houses during the passage of the Civil Law (Miscellaneous Provisions) Act 2011, which contained some early reforms of bankruptcy law. It provided for a reduction in the period that applies to court applications for discharge from bankruptcy from 12 years to five, subject to the conditions that currently exist. For the first time in Irish law, a system of automatic discharge of bankruptcies has been introduced, to take effect on the 12th anniversary of the bankruptcy adjudication order. These provisions were commenced with effect from 10 October 2011.

It was decided that the question of a further reduction in the period for automatic discharge of a bankrupt had to be addressed in the consideration of more comprehensive reform. Opinions vary as to the appropriate period. There was reasonable consensus that the one-year period that applies in the UK and Northern Ireland is too short but anything beyond five years is too long, particularly if the bankrupt person has been fully compliant and not behaved fraudulently in anyway. That is Senator Walsh's central point. Given that our neighbouring jurisdictions operate the most liberal bankruptcy discharge regime in the world, the Government has to be conscious of not incentivising forum shopping. As we have seen in certain cases recently, however, such efforts are not always successful.

The Government has decided that a three-year automatic discharge period is the most realistic approach in the circumstances. The approach that has been chosen means a fixed period for applications to the court for discharge of a bankruptcy - at present five years - is no longer required. Senators will agree that the reduced time period for automatic discharge from bankruptcy is a significant reform. To ensure there is no temptation to seek to unjustly exploit this provision, the proposed personal insolvency Bill will provide for a number of other measures. A discharge from bankruptcy could be delayed by the court for a period up to a maximum of eight years - Senator Walsh made this point - for non-compliance or for fraudulent or dishonest behaviour by the bankrupt during the process. A court may make a payment order requiring the discharged bankrupt to make certain payments in favour of creditors, allowing for reasonable living expenses, for a period of up to five years. There will be extended timeframes in regard to possible fraudulent transfers or settlements of assets by the applicant for bankruptcy.

Full disclosure and realisation of all the bankrupt's assets and interests for the benefit of creditors has always been and will continue to be a requirement of our bankruptcy law. If full disclosure and realisation has been made, there is no reason to deny or delay a discharge in respect of any person. I understand the proposed legislation does not refer to "full discharge", but I am sure that is its intent. In developing the scheme of the personal insolvency Bill, the Minister for Justice and Law Reform has taken account not only of the extensive recommendations made by the Law Reform Commission but also of the Cooney report, the Keane report and other relevant reports. He has done this with a view to formulating proposals for the comprehensive reform of bankruptcy law and the creation of a new non-judicial debt settlement scheme, which is another one of the issues raised by the Senator.

The personal insolvency Bill will propose to put in place, for the first time, a non-judicial system for the settlement of debt. Three new non-judicial debt settlement systems are being introduced, subject to relevant conditions in each case. The debt relief certificate system will allow for the full write-off of qualifying unsecured debt concerning debtors with "no assets and no income" up to €20,000 after a one-year moratorium period. The debt settlement arrangement system will allow for the agreed settlement of unsecured debt of €20,001 and over. The personal insolvency arrangement system will allow for the agreed settlement of both secured and unsecured debt of €20,001 and over. The personal insolvency arrangement system provides for a unique and specific mechanism to assist in resolving the difficulties confronting thousands of homeowners in negative equity with mortgage arrears who are genuinely incapable of discharging their monthly mortgage repayments. The use of this mechanism has the potential to allow agreed debt settlement arrangements to be put in place which will enable people to continue residing in their homes and avoid judicial bankruptcy.

The Bill also proposes the establishment of an insolvency service to operate the new non-judicial insolvency arrangements. Senators will appreciate that reform of our personal insolvency regime is not a simple task. It is a very complex area of the law. The consequences and implications of new policies in this area need to be carefully assessed. A delicate balance needs to be struck between the various legal rights of the parties involved. The intention behind the proposed personal insolvency Bill is to design a system which is fair to both creditors and debtors. Any failure to do so would make worse a situation that is already extremely difficult for both parties.

Jim Walsh (Fianna Fail)
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I thank the Minister of State for her reply. I am pleased with it. Many people are suffering as a consequence of the financial circumstances in which they have found themselves. Many people have committed suicide. There is a need for urgency in this respect. I welcome the Minister of State's comments in that regard. She did not mention anything about the debt resolution agency. I urge the Government to consider it as a means of ensuring people have allies when they try to reach settlements with banks. People should not be dealt with in a totally impersonal way by banks that do not recognise the difficulties they are in. The discharge after three years should be absolute. There should be no problems with cost hangovers or preferential creditors, including the Revenue Commissioners. I ask the Minister of State to convey to the Minister for Finance the need for determination in this regard, given the circumstances we are in.

Kathleen Lynch (Cork North Central, Labour)
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I appreciate the leniency of the Chair in allowing me to refer to the additional briefing notes that have been provided to me in support of the comprehensive reply I have read. According to this material, it is intended that the adjudicators or mediators in this respect would be the agencies with which we are familiar, including the Money Advice and Budgeting Service. Those bodies, which have a remit in this area anyway, will be named in the Bill. In addition, I understand it is intended to provide for absolute discharge in the legislation. I do not think the notion that a bankruptcy could be discharged while additional costs arising from the bankruptcy remain is being entertained. I am sure the Minister will clarify all of these matters during the debate on the legislation.