Wednesday, 21 November 2012
Personal Insolvency Bill 2012: Second Stage
I am pleased to present to the House the Personal lnsolvency Bill 2012, a very significant Bill which provides for comprehensive reform of insolvency law and practice. It provides for new, more flexible options to address the circumstances of insolvent debtors. It will provide for alternatives to and a reform of judicial bankruptcy. It addresses the obligations of debtors and the rights of creditors in a proportionate and balanced way, having regard to the financial reality of individual circumstances.
The development of modern insolvency law is a key commitment in the programme for Government. It was also required by the terms of the EU-IMF-ECB programme of financial support for Ireland. I refer to a significant contribution made by the Law Reform Commission in its report of December 2010 on personal debt management and debt enforcement. This report and earlier work were of considerable assistance in the formulation of the Bill. The reform has regard to the recommendation made in the October 2011 report of the interdepartmental working group on mortgage arrears, known as the Keane report.
The Government published the general scheme of the Bill for consultation on 25 January. Several important submissions, in particular, the report of the Joint Committee on Justice, Defence and Equality, were received in response and taken into account in the finalisation of the Bill. I thank all those persons and organisations that provided my Department with valuable comments and insights. While the primary architecture of the Bill remains the same, considerable development of the legal and technical detail of individual provisions has taken place.
The Bill provides for the comprehensive reform of personal insolvency law and the introduction of three new non-judicial debt resolution processes. The debt relief notice will allow for the write-off of qualifying unsecured debt up to ¤20,000, subject to a three year supervision period. The debt settlement arrangement provides for the agreed settlement of unsecured debt, with no limit involved, normally over five years. The personal insolvency arrangement will enable the agreed settlement of secured debt up to ¤3 million, although this cap may be increased with the consent of all secured creditors, and unsecured debt without limit, normally over six years.
To protect the constitutional rights of all parties concerned and prevent potential actions for judicial review, the Bill makes provision for enhanced oversight by the Circuit Court or the High Court of the three new debt resolution processes where the debts concerned are in excess of ¤2.5 million. The Circuit Court will receive the debtor's case file from the insolvency service with an application for a debt relief notice or a protective certificate in the case of a debt settlement arrangement or personal insolvency arrangement. The court's consideration or hearing will take place on an ex-parte basis. Neither debtor nor creditor will be required to be present and thus, no time delays or costs are incurred. This efficient procedural approach is repeated at the conclusion of the three year supervision period for the debt relief notice or on the conclusion by the parties concerned of a successful debt settlement arrangement or personal insolvency arrangement proposal, prior to its formal registration. I expect this proposed scenario will allay any fear that persons would become tied up in expensive and time-consuming court hearings. That should not be so. However, a court hearing could be necessary where a creditor objected on one of the grounds specified in the legislation. This approach is consistent with that recommended by the Law Reform Commission. This enhancement of court involvement in the new debt resolution processes will have the significant benefit to the debtor of providing protection from enforcement actions by creditors, either during the negotiation period when a protective certificate will be in place or during the lifetime of an arrangement. It is likely that a number of debtors would be the subject of judgments obtained by creditors. Such protection from enforcement action could not be provided by a non-judicial agency alone. In addition, the involvement of the court also ensures the new processes will be capable of meeting the criteria in the European Union insolvency regulations. This is a matter of some importance where cross-border debts are involved.
The Bill will continue the reform of the Bankruptcy Act 1988 which I began in the Civil Law (Miscellaneous Provisions) Act 2011. The critical new provision is the introduction of automatic discharge from bankruptcy after three years, subject to certain conditions, in place of the current 12 year arrangement.
The insolvency service of Ireland is in the process of being established to operate the new insolvency processes and to provide a focal point for the future development of insolvency policy. Organisational planning for the new service is well under way in my Department. The director-designate of the service, Mr. Lorcan O'Connor, was appointed last month. However, as the service will administer a completely new approach to insolvency in the State with innovative and complex legal provisions, it will require time to become operationally ready. I expect that the service will be in a position to commence operation in the first quarter of 2013. While I recognise the concerns of those who want an immediate introduction, I must ensure that all necessary procedures are in place for the service to commence operations. I expect a significant number of persons to seek to avail of the new or reformed insolvency processes.
It is difficult to be precise as it will very much depend on individual circumstances and the nature and extent of the debts involved. However, for broad planning purposes for the first full year of operation of the new law and systems, our tentative estimate, based on a rough extrapolation from the comparable UK and Northern Ireland circumstances, is as follows - 15,000 applications for the two main non-judicial debt resolution processes - the debt settlement and personal insolvency arrangements; 3,000 to 4,000 applications for debt relief notices; and 3,000 bankruptcy applications. There were approximately 30 bankruptcy adjudications in 2011. This number gives an insight into the contrasting increase in work that will arise on the implementation of this Bill. Senators will appreciate that these estimates for debtors seeking to avail of the new arrangements are tentative. Not all insolvencies will require to be dealt with under the new statutory debt resolution processes or bankruptcy. I expect that the certainty brought to the future legal landscape by this Bill will encourage debtors and creditors to agree bilaterally on alternative solutions. These solutions could involve settlement of mortgage debt under the mortgage arrears resolution process operated by mortgage lenders under the supervision of the Central Bank or otherwise.
The provisions of this Bill will require careful consideration by all potentially concerned therewith. However, individual circumstances vary and the solutions found within the context of the debt settlement and personal insolvency arrangement processes will also vary. I must continue to emphasise that the Bill makes it clear that those persons experiencing difficulties in regard to debt should primarily engage with their lenders to negotiate an appropriate settlement or engage with their creditors generally. Lenders must engage properly with customers. In this context, we are talking about financial institutions.
Now that the architecture of our new insolvency legislation is settled I have made it clear that I expect financial institutions to better engage with debtors. Financial institutions, in most cases, I believe, have been reluctant to date to engage in a definitive or realistic manner with borrowers who may be overwhelmed by unsustainable debt and unable to discharge their monthly outgoings. This realistic engagement will have to include, where circumstances warrant, some debt forgiveness. Undoubtedly, over the past two to three years, there has been substantial debt forbearance but the issue of debt forgiveness seriously needs to be addressed in circumstances in which it is appropriate and practically the only solution. If our financial institutions refuse to engage, then we will in the future have to refine our approach to debt resolution. I realise that banks must have regard to commercial considerations but they must behave with greater flexibility and insight and apply a broader range of common-sense options based on financial reality.
The new debt settlement and personal insolvency arrangement processes described in this Bill facilitate a voluntary deal between a debtor and a specified majority of his or her creditors. A common-sense rather than a coercive approach will be taken, as expressed in the creditor voting process provided for in the Bill. It is also an approach designed to avoid, in so far as is possible within constitutional constraints, the necessity for contentious court hearings and adjudications together with the substantial delay and inevitable legal costs inherent in such process. It is important to delimit expenditure incurred in legal costs in so far as possible in order that the funds available can be better used in contributing to the discharge of moneys due to creditors. The approval process for the debt settlement and personal insolvency arrangements is consistent with practices in comparable jurisdictions. For example, under the individual voluntary arrangement procedure in England, Wales and Northern Ireland, the approval of more than 75%, in value terms, of creditors voting at the creditors' meeting is required. Similarly, in Australia and Canada, there are debt settlement processes that involve majority approval by creditors.
Could the Acting Leader clarify if all Senators are unable to contribute this afternoon, whether Second Stage could be adjourned and resumed on another day? I have to attend a meeting of the Joint Committee on Foreign Affairs and Trade and other Senators are in the same position.
On a point of order, that is my point exactly. We cannot respond in ten minutes. I have no objection to the Minister having as long as it takes. It is a long and important Bill but Opposition spokespersons should have a similar time to respond.
If the Senator contained himself, we all might have more time.
I have emphasised on more than one occasion that we should not forget that there are many different types of creditors who may be potentially involved in the new processes. Many persons or companies may be both debtors and creditors. While I can understand the somewhat visceral feelings towards financial institutions and their contribution to our current economic difficulties and the economic disaster that hit this country, we must not lose sight of our current objective, which is to introduce reformed, workable and balanced insolvency legislation. Such legislation is a required feature of a properly functioning economy. It will assist not only debtors and financial institutions, but also corner shops, tradespersons, local co-operatives, credit unions etc. All debtors and creditors are concerned by this reform. For their sake and the sake of the wider economy, all must be treated fairly. Many individuals are currently in personal financial difficulty because of the failure of other individuals to pay for work properly completed or goods or services supplied to them. This approach, which seeks balance and fairness, has been criticised by some commentators as suggesting that creditors, particularly mortgage creditors, will exercise a veto. Such a contention is based on an incorrect view of how normal commercial contractual issues are resolved. Where one borrows, one must repay where one can. If, for example, an individual carries out electrical work at one's home or retail outlet or does essential plumbing repairs, that individual is entitled to be paid. If the debtor is genuinely unable to pay, negotiation with creditors may resolve the difficult, and this Bill provides the new framework for sensible negotiation.
The approach in the proposed debt settlement and personal insolvency arrangements is that the insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward what the debtor considers to be a realistic offer to his creditors that will restore the debtor to solvency within a reasonable period while, at the same time, giving creditors a better financial outcome than the alternatives of debt enforcement or bankruptcy. The creditors will need to consider carefully the debtor's offer, conscious that if they refuse, the debtor has another option - the standard debt discharge procedure available under the reformed bankruptcy laws. Bankruptcy may be considered the ultimate appeal mechanism of the debtor. However, in that eventuality which I still believe is best avoided, control is effectively lost by both sides. It would make sense for the debtor and creditor, especially where there is only one main creditor, to seek to conclude a bilateral agreement.
The reform I am introducing will, in addition to providing new legal remedies, provide a significant incentive for financial institutions to develop and implement realistic agreements to resolve debt issues with their customers.
The Bill's provisions relating to a debt settlement arrangement or a personal insolvency arrangement are specifically designed, as far as is practicable, to facilitate a debtor's continued ownership and occupation of his or her principal private residence, unless the debtor does not wish to do so. The personal insolvency practitioner, in preparing a personal insolvency arrangement, shall not, in so far as is practicable, include a proposal that the debtor dispose of an interest in or cease to occupy their principal private residence and is required to consider any appropriate alternatives with regard to addressing an individual's level of indebtedness. The personal insolvency practitioner must have regard to a variety of matters in this context including the likely costs to the debtor of remaining in occupation of a principal private residence, whether such costs would be disproportionately large and the overall background financial circumstances. Consideration must also be given to the reasonable accommodation needs of a debtor, and his or her dependants, and to the cost of alternative accommodation. It may be appropriate in particular circumstances having regard to the value of a family home that it be sold and a proportion of the funds realised used to fully or partial discharge debt.
An application for a debt settlement arrangement or personal insolvency arrangement must be made by a debtor through a personal insolvency practitioner, PIP. The debtor is entitled to appoint a licensed PIP of his or her choosing. The development of an appropriate architecture for the regulation of persons to act as PIPs in the debt settlement arrangement and personal insolvency arrangement processes has been ongoing since publication of the Bill. It has now been decided by the Government that the insolvency service will be the organisation to provide direct regulation of PIPs with any necessary technical assistance provided by the Central Bank. This approach will provide a unified focus on the insolvency area.
These provisions are being drafted by the Parliamentary Counsel and I hope to be in a position to introduce the necessary amendments here on Committee Stage. However, the Bill, as it currently stands in Part 5, essentially provides for an enabling section in regard to the regulation of PIPs. I expect those persons who come forward to seek regulation as insolvency practitioners will likely be drawn from the legal and accountancy professions. However, applications will also be welcome from other suitably qualified persons in the broad financial advisory sector who are not members of those professions. Neither, my Department nor the proposed insolvency service will be involved in the recruiting of practitioners.
The Bill requires the terms of the proposed arrangement make provision for the fees and outlays of the PIP, as well as specifying the manner in which they will be paid. Those terms are subject to the approval of both the debtor and the requisite majority of creditors. Generally speaking, the costs of personal insolvency practitioners involved in the management of any form of insolvency are met by the product of that insolvency. There are no provisions under the Bill for the State to pay the fees of personal insolvency practitioners.
The Money Advice and Budgeting Service, MABS, will continue its valuable role of assisting and advising people with debt problems. In that regard, MABS has agreed to operate as an approved intermediary in regard to processing applications for debt relief notices where it is likely to be the primary such intermediary. Other organisations have also indicated an interest in becoming involved in the processing of debt relief notice applications. These would most likely be non-profit organisations rather than personal insolvency practitioners. Determination of appropriate guidelines with regard to the reasonable expenses that may be allowed to or negotiated by debtors in an insolvency process will require further consideration. There are no such guidelines readily available or agreed at this point. Different organisations, both public and private, will have their own views and proposals in this context. This is an area of work with which MABS is particularly familiar in the context of its current operations. The issue of reasonable living expenses is of particular importance in the qualifying criteria for the debt relief notices.
The completion of the prescribed financial statement in the case of each debt relief notice, debt settlement arrangement and personal insolvency arrangement will assess in detail the lifestyle expenditures of the debtor. The approved intermediary, or the PIP, as the case may be, will take account of the obvious basic necessities of living, for example, food, heat and light, etc. However, he or she will question the continuation by the debtor of certain other lifestyle expenditures. Persons who are insolvent cannot realistically expect either creditors or the taxpayer to fund a lifestyle that has been based on credit. This approach is not intended to be ungenerous but we must be realistic to prevent possible misuse.
It is my hope the provisions contained in the Bill will act as a catalyst for honest, open and constructive engagement between both unsecured and secured creditors and those in genuine substantial financial difficulty. The Bill provides concrete options for those genuinely unable to discharge their financial obligations as opposed to those who can but will not do so.
Our shared objective must be to assist the greatest possible number of borrowers who are experiencing genuine debt problems, in particular with mortgage arrears, to be restored to sustainability. For this to occur, financial institutions will have to provide a larger and more imaginative range of financial debt resolution options to address individual customers' financial reality and deploy staff with the expertise to properly engage with customers labouring under the weight of unsustainable debt. If the financial institutions fail to do so, they will unnecessarily drive indebted customers into bankruptcy to the detriment of the financial institutions which may ultimately recover less of the debt owed than could be recovered under a personal insolvency arrangement.
While my focus today must be on outlining to the House the provisions contained in the Bill, it is important to reiterate what is not in it. The Bill does not provide for the automatic writing-off of debt, either secured or unsecured, in the debt settlement arrangement or personal insolvency arrangement processes. An agreement that is reasonable and workable for all parties must be concluded on a case-by-case basis. Where a debtor is not insolvent and can meet obligations to service his or her mortgage or other debt obligations, he or she must continue to do so. Neither does the Bill provide for any process whereby negative equity can be automatically written off for solvent debtors able to meet their repayment obligations. Such a phenomenon is a reflection of the current market value of the asset concerned. It does not exclusively relate to residential property. It could affect all forms of property, for example, shares and investments or art. Negative equity is not an issue of insolvency for the purposes of the Bill. Of course, where an individual's debts are unsustainable, negative equity may form part of his or her overall financial burden. It is important to emphasise the Bill does not relieve solvent debtors of their responsibility to meet their contractual obligations.
I notice there are several discrepancies between what the Minister said and what is in the provided script. I would like to give one example from the paragraph the Minister has just finished reading. The provided script states: "Neither does the Bill provide for any process whereby negative equity can be written off for solvent debtors able to meet their repayment obligations." However, the Minister said: "Neither does the Bill provide for any process whereby negative equity can be automatically written off for solvent debtors able to meet their repayment obligations." This leaves the possibility that it may be written off. I am just curious about this. Is it like the Constitution-----
There is no provision in the Bill for the automatic writing off of debt or for the writing off of debt in circumstances where an individual is clearly in a financial position to discharge debt. They are mutually interchangeable.
Part 1, section 2, provides for a wide range of interpretations in regard to the Bill. Part 2, containing sections 7 to 22, inclusive, provides for several standard provisions in the establishment of a new insolvency service to operate the new non-judicial debt resolution processes. It sets out the functions and power of the new service and its governance arrangements. The insolvency service will have the structures, functions and powers consistent with an effective, independent body. Section 23 restricts the provisions of the Freedom of Information Acts to records relating to the general administration of the insolvency service, thereby protecting the sensitive personal information held on the financial affairs of debtors. The new service will have a role in certifying applications for a debt relief notice or a debt settlement arrangement and a personal insolvency arrangement and, thereafter, referring the relevant documentation to the Circuit Court or the High Court in the context of arrangements relating to assets which exceed a value of ¤2.5 million. The insolvency service will have no role in the negotiation and agreement of the terms of either a debt settlement arrangement or a personal insolvency arrangement.
Part 3 is the central core of the Bill. It provides, in six chapters, for the three new non-judicial debt resolution processes, the appointment of personal insolvency practitioners, offences and some miscellaneous provisions.
Chapter 1 provides for the issue of a debt relief notice. This will permit the write-off of qualifying debts totalling not more than ¤20,000 for persons with no income and no assets, who are insolvent and who have no realistic prospect of being able to pay their debts within the next three years. The process is akin to bankruptcy in its broad approach, including a three-year supervision period, but provides for a low-cost insolvency option, having regard to the quantum of debt involved.
Section 24 provides that an application for a debt relief notice will be subject to certain eligibility criteria. The debtor must have qualifying debts of ¤20,000 or less. Debts qualifying for inclusion in a debt relief notice are most likely to be unsecured debt such as credit cards, personal loans or catalogue payments. However, debts that do not qualify for a debt relief notice include taxes, court fines and family maintenance payments. A debtor will not be eligible to apply for a debt relief notice where 25% or more of the qualifying debts were incurred in the six months preceding the application. A debtor will only be eligible to apply for a debt relief notice if he or she has a net monthly disposable income of ¤60 or less, after making provision for reasonable living expenses and payments in respect of excluded debts, holds assets - whether individually or jointly with another person - to a value of ¤400 or less and owns only one motor vehicle, which must be of a value of ¤1,200 or less. These provisions are similar to those of the debt relief order process in operation in England and Wales since 2009 and in Northern Ireland since 2011. However, the Bill goes further in that there are additional exemptions of ¤6,000 for essential household appliances, tools or equipment required for the employment or business of the debtor or materials necessary for the education of the debtor's children at primary and secondary level. These latter provisions are significant exemptions in regard to the qualifying criteria. I should emphasise that the qualifying criteria for a debt relief notice are exactly that - qualifying criteria for the process. These criteria of themselves do not guarantee a debt write-off for a debtor or protect him or her from enforcement action by creditors outside the process. This basic fact has often been overlooked in the debates on this process. Only one debt relief notice per lifetime will be permitted. Also, a notice cannot be applied for within five years of the completion of a debt settlement arrangement or a personal insolvency arrangement.
Section 25 sets out how the debt relief notice process is initiated by the debtor. An application for a debt relief notice must be submitted on behalf of the debtor by an approved intermediary. The approved intermediary will advise the debtor on his or her options and the qualifying requirements and will assist him or her in preparing the necessary prescribed financial statement, which must be verified by means of a statutory declaration, and any other required documentation. A debtor who participates in the debt relief notice process is at all times under an obligation to act in good faith and to co-operate fully in the process. If the qualifying criteria for the debt relief notice are met, the authorised intermediary will transmit the debtor's application, under section 26, to the Insolvency Service of Ireland.
Section 27 provides that on receipt of a completed application for a debt relief notice the Insolvency Service of Ireland must consider it and make such inquiries as it considers appropriate to verify the information, including inquiries with the Department of Social Protection, the Revenue Commissioners and local authorities. The service will be entitled to presume that the eligibility criteria for the debt relief notice have been met if it has no reason to believe the information is incomplete or inaccurate. Section 28 provides that if the Insolvency Service of Ireland is satisfied that the application is in order, it will issue a certificate to that effect and furnish that certificate and supporting documentation to the appropriate court. The court will consider the application and, if satisfied, issue the debt relief notice and notify the service. Section 30 requires the lnsolvency Service of Ireland to notify the approved intermediary and the creditors of the issue of the debt relief notice and register it in the register of debt relief notices. Under section 31, with the issue of a debt relief notice, the debtor is subject to a supervision period of three years from the date of issue, unless the court has ordered it to be terminated before then. During that period, section 32 provides that creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods or contact the debtor.
Section 33 requires the debtor to inform the approved intermediary and the lnsolvency Service of Ireland of any material change in financial circumstances. So as not to reduce the incentive to seek and obtain employment following approval of a debt relief notice, there is provision for debtors to repay a portion of the debts in circumstances in which their financial position improves. These circumstances include the receipt of gifts or windfalls of more than ¤500 or where the debtor's net income has increased by more than ¤400 per month. There is a restriction on the debtor applying for credit of more than ¤650 during the debt relief notice supervision period without informing the creditor of his or her status.
Section 34 provides that should a debtor make repayments totalling 50% of the original debt, the debtor will be deemed to have satisfied the debts in full. In such a case, the debt relief notice will cease to have effect, the debtor will be removed from the register and all of the debts concerned will be discharged. Under section 35, any funds transmitted by the debtor to the lnsolvency Service of Ireland are to be paid on a pari passu or proportionate basis to the specified creditors. After the three-year supervision period has come to an end, section 43 provides that the qualifying debts will be discharged and the debtor will be removed from the register of debt relief notices.
Chapter 2 of Part 3 makes provision for the appointment of personal insolvency practitioners for the purpose of applying for a debt settlement arrangement or personal insolvency arrangement. Sections 45 to 50, inclusive, provide for a range of practical matters in regard to the appointment of a personal insolvency practitioner, the duties of and obligations on such a practitioner and the documents to be prepared for an application for a debt settlement arrangement or personal insolvency arrangement. A key requirement provided for in section 47 is the completion of the prescribed financial statement by the debtor with the assistance of the personal insolvency practitioner. The prescribed financial statement, which must be verified by means of a statutory declaration, is the critical element in an application for a debt resolution process. The details required to be included in the prescribed financial statement may be prescribed by ministerial regulation under section 131.
Chapter 3 of Part 3 provides for a system of debt settlement arrangements between a debtor and one or more creditors to repay an amount of unsecured debt over a period of up to five years, with a possible agreed extension to six years. The debt settlement arrangement would assist persons who have such income, assets and debts that they would fall outside the eligibility criteria for a debt relief notice. Sections 51 to 84, inclusive, provide for all aspects of the eligibility, application, determination, duties and obligations arising, court approval, objection by creditors and discharge from qualifying debts under the debt settlement arrangement process.
Section 51 provides that the application for a debt settlement arrangement must be made through a personal insolvency practitioner appointed by the debtor. The personal insolvency practitioner must advise the debtor as to his or her options in regard to insolvency processes. The practitioner will assist the debtor in the preparation of the necessary prescribed financial statement, which must be verified by means of a statutory declaration, and any other required documentation. A joint application by two or more debtors is permitted where the particular circumstances may warrant such an approach.
Section 52 provides that only one application for a debt settlement arrangement in a lifetime is permitted. Section 53 sets out the eligibility criteria for a debt settlement arrangement. The debtor must normally be resident in the State or have a close connection with the State. Section 54 provides that if the debtor satisfies the eligibility criteria, the personal insolvency practitioner will apply to the lnsolvency Service of Ireland for a protective certificate in respect of the preparation of a debt settlement arrangement.
Under section 55, if the lnsolvency Service of Ireland is satisfied that an application for a debt settlement arrangement is in order, it must issue a certificate to that effect and furnish the certificate and supporting documentation to the appropriate court. The court will consider the application and, subject to the creditor's right to appeal, if satisfied, issue the protective certificate and notify the lnsolvency Service of Ireland. In considering the application, the court will be entitled to treat the lnsolvency Service of Ireland certificate as evidence of the matters certified in the application. The lnsolvency Service of Ireland will register the protective certificate in the register of protective certificates, and the personal insolvency practitioner will inform the creditors of the issue of the protective certificate. When the protective certificate is issued, a "standstill" period of 70 days will apply to permit the personal insolvency practitioner to propose a debt settlement arrangement to listed creditors. That period, on application to the court, may be extended for not more than 40 days.
Section 57 provides that the effect of the issue of the protective certificate is that creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods or contact the debtor. The rights of secured creditors are unaffected.
Section 60 provides that certain debts are excluded from a debt settlement arrangement, including court fines in respect of criminal offences. Certain other debts are also excluded, such as family maintenance payments, taxes, local authority charges and arrears of service charges owed to apartment management companies. While there is provision for a wide range of repayment options, the default posit on under section 61, unless otherwise agreed, is that creditors be paid on a pari passuor proportionate basis. Under section 62 any debt that would have a preferential status in bankruptcy will also have a preferential status in a debt settlement arrangement. Under section 64, a debt settlement arrangement proposal will generally not require the debtor to dispose of or cease to occupy his or her principal private residence unless the debtor does not wish to continue to occupy it or the costs of the debtor continuing to reside in it are disproportionately large.
Section 68 provides that if the debt settlement arrangement proposal is accepted by 65% in value of the creditors present and voting at the creditors' meeting, it will be binding on all creditors. Under section 70 the personal insolvency practitioner must inform the insolvency service of the approval of a proposed debt settlement arrangement. The service will then transmit the arrangement in accordance with section 71 to the appropriate court for approval.
Section 73 provides that if the court is satisfied with the proposed arrangement and if no objection is received by it within ten days, the court shall approve the debt settlement arrangement and notify the insolvency service. The arrangement will come into effect when it is registered by the insolvency service in the register of debt settlement arrangements. The personal insolvency practitioner will then administer the debt settlement arrangement for its duration.
There is provision for an annual review of the financial circumstances of the debtor under section 75. Section 76 sets out the conditions that attach to the conduct of the debtor during the debt settlement arrangement. The arrangement can, if necessary, be varied under section 77 or terminated under sections 78, 79 or 80. On the termination or failure of the debt settlement arrangement, section 82 provides that a debtor could risk an application for adjudication in bankruptcy. Section 83 provides that at the satisfactory conclusion of the debt settlement arrangement all debts covered by it are discharged.
Chapter 4 of Part 3 provides for a system of personal insolvency arrangements between a debtor and one or more creditors to repay an amount of both secured and unsecured debt over a period of six years, with a possible agreed extension to 11 years. The personal insolvency arrangement will assist those persons who have difficulty in the repayment of both secured debt, such as mortgage arrears, and unsecured debt. Sections 85 to 120, inclusive, provide for all aspects of the eligibility, application, determination, duties and obligations arising, court approval, objection by creditors and discharge from qualifying debts under the personal insolvency arrangement process.
Section 86 provides that the application for a personal insolvency arrangement must be made through a personal insolvency practitioner appointed by the debtor. The personal insolvency practitioner must advise the debtor as to his or her options in regard to insolvency processes. A joint application by two or more debtors or an interlocking personal insolvency arrangement is permitted where the particular circumstances might warrant such an approach. Section 87 provides that only one application for a personal insolvency arrangement in a lifetime will be permitted.
Under section 88, a debtor may propose a personal insolvency arrangement only if he or she is cashflow insolvent, meaning that the debtor is unable to pay his or her debts in full as they fall due, and there is no likelihood within a period of five years that the debtor will become solvent. The personal insolvency practitioner will assist the debtor in the preparation of the necessary prescribed financial statement, which must be verified by means of a statutory declaration, and any other required documentation. The eligibility criteria for a personal insolvency arrangement under section 88 include co-operation with the secured creditor in respect of the debtor's principal private residence under a mortgage arrears process approved or required by the Central Bank. The debtor must be normally resident in the State or have a close connection with it. If the debtor satisfies the eligibility criteria, the personal insolvency practitioner may apply to the insolvency service under section 89 for a protective certificate in respect of the preparation of a personal insolvency arrangement.
Section 91 provides that if the insolvency service is satisfied as to the application, it must issue a certificate to that effect and furnish the certificate and supporting documentation to the appropriate court. The court will consider the application and, subject to the creditor's right to appeal, if satisfied, issue the protective certificate and notify the insolvency service. The insolvency service will register the protective certificate in the register of protective certificates. When the protective certificate is issued a standstill period of 70 days will apply to permit the personal insolvency practitioner to propose a personal insolvency arrangement to the listed creditors. That period, on application to the court, may be extended for not more than 40 days. The personal insolvency practitioner will inform the creditors of the issue of the protective certificate.
Under section 92, the effect of the issue of the certificate is that the creditors may not initiate or prosecute legal proceedings or seek to recover payment for a debt or recover goods, enforce security or contact the debtor. Section 95 provides that certain debts are excluded from the personal insolvency arrangement, including court fines in respect of criminal offences. In addition, certain other debts are excluded, such as family maintenance payments, taxes, local authority charges and service charges, unless the relevant creditor agrees otherwise. Under section 97 any debt that would have a preferential status in bankruptcy also will have a preferential status in a personal insolvency arrangement.
There are certain specific protections for secured creditors under sections 98 and 99, including a claw back in the event of a subsequent sale of a mortgaged property where the mortgage has been written down. Under section 100, a personal insolvency arrangement proposal shall in so far as is reasonably practicable be formulated in such a way as will not require the debtor to dispose of an interest in or cease to occupy his or her principal private residence. However, this significant protection is necessarily tempered to take into account the possibility that the debtor may not wish to continue to occupy the house or the costs of the debtor continuing to reside therein maybe disproportionately large. This provision offers important assistance to those with unsustainable debt in concluding realistic and common sense arrangements that facilitate the debtor continuing to reside in his or her family home.
Under section 106 a personal insolvency arrangement must be supported in the first instance by a majority of creditors representing at least 65% in value of the total of both secured and unsecured debt due to the creditors voting at the meeting, second, by creditors representing more than 50% of the value of the secured debts due to creditors and, third, by creditors representing more than 50% of the value of the unsecured debts due to creditors. If the personal insolvency arrangement proposal is accepted at the creditors' meeting and approved by the court, it is binding on all creditors.
Under section 108, the personal insolvency practitioner must inform the insolvency service of the approval of the proposed arrangement by the creditors' meeting. The service will then transmit the arrangement in accordance with section 109 to the appropriate court for approval. Section 111 provides that if the court is satisfied with the proposed arrangement and if no objection is received by it within ten days, the court shall approve the personal insolvency arrangement and notify the insolvency service. The arrangement will come into effect when it is registered by the service in the register of personal insolvency arrangements. The personal insolvency practitioner will then administer the personal insolvency arrangement for its duration. There is provision for an annual review of the financial circumstances of the debtor under section 113. Section 114 sets out the conditions that attach to the conduct of the debtor during the personal insolvency arrangement. The arrangement can, if necessary, be varied under section 115 or terminated under sections 117 or 118.
Section 120 provides that at the satisfactory conclusion of the personal insolvency arrangement, all unsecured debts covered by it are discharged. Secured debts are only discharged at the conclusion of the personal insolvency arrangement if, and to the extent, specified in the arrangement.
Chapter 5 of Part 3 provides for offences relating to all of the non-judicial debt resolution processes. Sections 121 to 126, inclusive, provide for offences including false representations, falsification of documents and fraudulent disposal of property. The offences may be prosecuted either summarily or on indictment. Section 127 provides for penalties, following conviction on indictment, of fines of up to ¤100,000 or imprisonment for up to five years or both.
Chapter 6 of Part 3 contains provisions that apply generally to Part 3. Among other things, it provides in section 128 for the creation and maintenance by the insolvency service of the insolvency registers to record details of persons concerned with the various debt resolution processes.
The registers will be in electronic form and members of the public may inspect and take copies of or extracts from entries in a register.
Part 4 provides for a number of amendments to the Bankruptcy Act 1988 to provide for a more enlightened and modern approach to bankruptcy. These amendments will continue the reform of bankruptcy law begun in the Civil Law (Miscellaneous Provisions) Act 2011. I will now outline the main new provisions.
Section 135 provides that the minimum amount for a petition for bankruptcy by a creditor or combined non-partner creditors will be increased to ¤20,000. The current limits are ¤1,900 for a creditor and ¤1,300 for combined non-partner creditors. In addition, there will be a new requirement for 14 days notice of the petition to be provided. This is to ensure a bankruptcy summons is not brought prematurely by a creditor so as to allow the debtor to consider other options such as a debt settlement or personal insolvency arrangement.
Section 136 provides that in presenting a petition for bankruptcy the creditor will be required to prove, for a debt of more than ¤20,000, a significant increase from the current limit of ¤1,900. Where a debtor presents a petition for bankruptcy, he or she must swear an affidavit that he or she has made reasonable efforts to make use of alternatives to bankruptcy such as a debt settlement or personal insolvency arrangement. The debtor must also present a statement of affairs which must disclose that his or her debts exceed his or her assets by more than ¤20,000.
Section 138 will require the court, when considering a petition from a creditor for the debtor's bankruptcy, to consider whether the matter might be more appropriately dealt with by a debt settlement or personal insolvency arrangement. In the adjudication of a debtor's petition for bankruptcy under section 139, the court will be required to consider the assets and liabilities of the debtor and assess whether it should adjourn proceedings to allow the debtor to attempt to enter into a debt settlement or personal insolvency arrangement.
A bankrupt is permitted to retain certain excepted articles such as household furniture or tools or equipment required for a trade or occupation. Section 141 increases the maximum value of these excepted articles from the current level of ¤3,100 to ¤6,000.
In regard to the avoidance of fraudulent preferences and certain transactions designed to frustrate the legitimate interests of creditors made before adjudication in bankruptcy, the current time period of one year is extended to three years in sections 142 and 143. The time periods in regard to the avoidance of certain voluntary settlements of property made before adjudication in bankruptcy are extended from two to three years in section 144.
Section 146 contains extensive new provisions regarding discharge from bankruptcy. First, provision is made for the automatic discharge from bankruptcy after three years from the date of adjudication, which is reduced from the current 12 years. Second, bankruptcies existing for three years or more at the time of commencement of the Bill will be automatically discharged after a further six months have elapsed. This latter time is to allow for a possible creditor objection. Third, the bankrupt's unrealised property will remain vested in the official assignee in bankruptcy after discharge from bankruptcy. The discharged bankrupt will be under a duty to co-operate with the official assignee in the realisation and distribution of such of his or her property as is vested in the official assignee. Fourth, the official assignee or a creditor will be permitted to apply to the court to object to the discharge of a person from bankruptcy. The grounds for such an objection are that the debtor has failed to co-operate with the official assignee or has hidden or failed to disclose income or assets. The court may suspend the discharge pending further investigation or extend the period before discharge of the bankrupt to a date not later than the eighth anniversary of the making of the adjudication order. Fifth, the court may order a bankrupt to make payments from his or her income or other assets to the official assignee or the trustee in bankruptcy for the benefit of his or her creditors. In making such an order the court must have regard to the reasonable living expenses of the bankrupt and his or her family. The court may vary a bankruptcy payment order where there has been a material change in the circumstances of the discharged bankrupt. Such an order must be applied for before the discharge from bankruptcy and may operate for no more than five years.
Part 5 of the Bill contains an enabling provision in regard to the regulation of personal insolvency practitioners. As I mentioned, it is my intention to bring forward comprehensive proposals on this matter on Committee Stage. There will be a new Part 5 to replace the current Part 5, which will provide extensive provisions for the regulation by the lnsolvency Service of the new personal insolvency practitioners and provisions on regulatory and oversight procedures and to ensure there are indemnities to guarantee that funds being dealt with by personal insolvency practitioners are protected. Many of the likely regulatory mechanisms I will be proposing are already in place in other contexts. It is a question of adapting them to the insolvency legislation. A substantial amount of work has been done already and should be completed very shortly.
No one should underestimate the complex legal issues involved in this very large-scale reform of Ireland's personal insolvency law and practice. The consequences and implications of new debt resolution processes have been and continue to be very carefully assessed. There is a delicate balance to be struck between the various legal rights and obligations of the parties involved. The outcome must be fair and workable for creditors and debtors. The development of new laws, particularly those which are without legal precedent in any other jurisdiction, such as the personal insolvency arrangement required very careful legal drafting. My Department has worked closely with the Office of the Attorney General, the Parliamentary Counsel, the Department of Finance and other Departments and organisations to develop the Bill, the provisions in which will change the relationship between insolvent borrowers and their lenders. It will give a greater balance to the rights of both and incentivise both parties to come to an agreed solution. The new legislation will carefully distinguish between individuals who cannot pay as opposed to those who will not pay. It offers no suggestion that borrowers can easily leave outstanding debts behind them. This will be achieved through the necessity for borrowers to declare, honestly and openly, their financial affairs, the strict eligibility criteria and the anti-abuse provisions resulting in criminal prosecution.
This new legislation will allow individuals who are insolvent without any reasonable prospect of being able to repay their debts to rehabilitate their unsustainable financial situation over a defined period. It should serve to support greater stability in the financial sector as it will incentivise banks to reach an agreed solution with individual borrowers in resolving mortgage arrears cases. These non-judicial mechanisms are premised on both debtors and creditors obtaining a better outcome than under the reformed bankruptcy regime. I know the provisions of the Bill will receive careful consideration by all potentially affected by it. However, I stress that individual circumstances vary and that the solutions found within the context of the debt settlement and personal insolvency arrangement processes will also vary depending on individual circumstances and the nature of indebtedness. The Bill is a major milestone on the road to the development of a modern insolvency process in Ireland. It is a long over-due step.
Much remains to be done, but the journey to real legislative reform of benefit to citizens is well under way and I expect to complete it before the end of the year.
As I noted, I will be bringing forward extensive amendments to the Bill on Committee and Report Stages. These will include the regulation of personal insolvency practitioners, provisions in regard to the courts and a range of other amendments, all necessary for the operation of the new debt resolution processes provided for in the Bill which I commend to the House. I hope it will have the general support of all Members.
On the comment I made earlier to which the Minister took offence, it was directed at the procedures of the House rather than him, in terms of the allocation of one hour to him and only ten minutes to the main Opposition spokespersons, which is unsatisfactory, particularly on such an important Bill. The debate is to be guillotined in that it must conclude at 5 p.m., in respect of which a proposal has been dealt with by the House. Already one third of the time allocated has been taken up by the Government, which is completely unsatisfactory.
Fianna Fáil welcomes the introduction of the Bill as a small step towards alleviating the financial pressure on individuals who are unable to make ends meet. However, we have serious concerns around the veto power wielded by the banks in respect of any settlement deal and the regulation of personal insolvency practitioners. I note the Minister's remarks in that regard. Bolder measures are needed to resolve the issue of household debt. However, the Minister has challenged our main criticism of the Bill which relates to the veto power of financial institutions over arrangements to be made under it. In this regard, he referred to normal commercial contractual issues. Unfortunately, the justification of anything on the basis of freedom of contract or normal commercial contractual issues has a chequered past.
It was used in courts in America and across the globe in order to stop the reform of child labour and fair employment laws. The Minister is using that justification to allow the banks to retain a veto over the arrangements covered in the legislation. The debts incurred by Irish people in this instance do not relate to normal commercial agreements. They were not entered into in the normal commercial way. Many individuals were put upon by financial institutions and there was a generalised attack on the property market. I know the Minister will respond to what I am saying but these were not normal commercial arrangements. In such circumstances, it is not fair for him to justify the approach he is taking - which gives the banks and other financial institutions a veto - on the basis that normal contracts are at issue.
There is another aspect of the Minister's contribution which gives rise to serious concern. He said:
The approved intermediary or the personal insolvency practitioner, as the case may be, will take account of the obvious basic necessities of living, for example, food, heat and light, etc. However, he or she will question the continuation by the debtor of certain other lifestyle expenditures.Who came up with that statement? What kind of ivory tower do the Minister and his officials occupy, who see food, heat and light as being the necessities of living? The Minister and his officials are only too well aware of the other necessities of living. Those necessities can be provided for in homeless shelters. Is it to such shelters that the Minister wants the people who will benefit from the legislation to go? What is outlined in this regard is completely unrealistic in the context of what constitutes reasonable living expenses. Even if we give our support to this legislation, I wish to place on record the fact that I and my party do not associate reasonable living expenses with "food, heat and light". There is so much more to an ordinary life than those three things. I wish the Minister to place on record - in the context of the future interpretation of the statute - that reasonable living expenses contemplate much more than mere "food, heat and light, etc."
The Bill makes provision in respect of debt relief notices, debt settlement arrangements and personal insolvency arrangements. It also reforms the period relating to bankruptcy. The latter is probably the only lever available to borrowers. However, it is a difficult one to pull because a period of three years will still apply. It is not going to provide the comfort that indebted persons will require. Under the terms of the Bill, 65% of the creditors involved will be obliged to agree to a personal insolvency arrangement. In practice, this is probably going to mean that one bank will have to agree to the arrangement. This is exactly where the veto for banks and the other financial institutions to which I refer will come into play. The Minister has denied there is such a veto but the facts say otherwise. In addition, there is no scope for appeal and this strengthens the banks' veto further.
There is a major imbalance of power between vulnerable debtors and the creditor banks which pursued them for business during the boom and which are now effectively in the same position as those debtors. There does not appear to be any justice or a rebalancing of the scales in this instance. The Bill my party put forward in the Dáil made provision for an independent authority to provide binding solutions in situations where citizens in serious debt are unable to reach agreement with his or her creditors or where the latter choose not to reach such an agreement. There is a glaring omission in the legislation before the House in this regard.
There are some other issues I would like the Minister to address. In the context of the famous judgment handed down by Ms Justice Elizabeth Dunne, does he propose to amend the position, either by means of this Bill or through the introduction of legislation relating to land conveyancing, to enable the banks to repossess properties more quickly? I understand the banks have been in contact with the Government in respect of this judgment, which may be under appeal. I am seeking to discover the legislative proposals that are being brought forward in respect of this matter.
We look forward to the amendments the Minister intends to introduce. These may lead to the Bill being changed significantly. They may also address some of our concerns in respect of personal insolvency practitioners. It is essential that if the legislation is to be changed in a dramatic fashion on either Committee Stage or Report Stage, then this should not be done following a mere one or two-hour debate. That would be both totally wrong and completely unjustified. We will require at least a week of debate if this legislation is to be changed dramatically.
My party has put forward a range of measures in respect of the mortgage crisis. These include the Family Home Bill 2011, which Senator MacSharry and I drafted, the Regulation of Debt Management Advisors Bill 2011 and the Personal Insolvency Bill which was introduced on Private Members' time in the Dáil. Some of these measures were accepted by the Government, while others were rejected. We are normally accused of unconstitutionality in this regard. It is funny that we are accused in this way by the Government on a regular basis but when it is accused of unconstitutionality by those who have the power to make such accusations, it rejects what is stated out of hand.
Our legislation in respect of this matter should have been the subject of closer consideration by the Government. The Bill in question advocated the establishment of an independent debt settlement and mortgage resolution office which would provide an independent and non-judicial debt settlement system for people. That would be very different to the system outlined in the Bill before the House, under which the banks will effectively have a right of veto. While we are supporting the Personal Insolvency Bill 2012 as a step on the road towards progress, I really do not hold out much hope for it in the context of how it deals with people. Individuals are already approaching Members in order to discuss what will be its impact. It is difficult to see how it will work and how it will benefit those people in practice.
The Minister and his colleagues in government need to give urgent consideration to the code of conduct relating to mortgage arrears and how this is operating, particularly in view of the fact that the banks have their mortgage arrears resolution procedures up and running. The latter has given rise to a significant change in the context of how the banks interact with customers. It is not always to customers' benefit that banks are working more efficiently. The banks were quite inefficient in this regard in recent years. This meant that there was a delay in the process and that was of benefit to homeowners. However, this is no longer the case. I urge the Government to examine how the code of conduct is operating.
I welcome the Minister. I listened with interest to his contribution on this substantial item of legislation.
Regardless of the nature of the legislation that comes before the House, we would generally wish for more time to debate it. I accept, however, that time is not an endless resource in this instance. Of all the legislation dealt with by this and the Lower House in recent years, none has received more of an airing than that which is before the House. I am sure the Senators opposite who are members of the Joint Committee on Justice, Defence and Equality will be aware that once the heads of the Bill were made available, a very substantial debate took place and that meetings were held with all of the interested parties. The Bill was then the subject of a Second Stage debate in the Dáil. Following that, and uniquely from a parliamentary perspective, the Joint Committee on Justice, Defence and Equality held further hearings in advance of Committee Stage in order to allow more people to have an input. I am obliged, therefore, to give the Minister credit for his wide-ranging engagement to date on this legislation. He has indicated that substantive amendments will be introduced and we will try to ensure that the maximum possible time will be made available in order that we might discuss these. I do not believe that any Oireachtas has ever passed the perfect item of legislation. This is the case because, alas, the necessary time, resources and expertise were never available. In political terms, what is perfect can often be the enemy of good. I am of the view that the Bill before us is a good measure. When the Minister returns with Committee Stage amendments, we will then be veering closer to perfection. However, I do not believe we will ever achieve the latter.
The Minister referred to the genesis of the legislation. He also referred to the political pressure that was exerted two years ago by the IMF and the EU. Political scholars in the future will be asked the question as to what the latter ever did for Ireland. The answers they will give will list both the pluses and the minuses. Forcing the Government to face up to and put in place a mechanism to try to alleviate personal debt will be a plus as far as the IMF and the EU are concerned. We could have kicked the can further down the road and stated that we would deal with this matter next year. However, political pressure was brought to bear on the previous Administration in the dying days of its term of office at the end of 2010. Similar pressure was exerted on the current Government in its early days in order to encourage it to respond to the issue of personal indebtedness. The Bill before the House is part of the solution in this regard and I welcome it.
There is an understanding among the citizens of this country that, in the context of our broken economy and the society to which it has given rise, indebtedness is a major problem.
Indebtedness is a considerable problem across all strata of society. There was a political response to the crisis faced by the bankers and therefore one that impacted on taxpayers. The famous Government bailout of the banks was paid for by the taxpayer. NAMA was created in order to bring a degree of certainty to the situation involving developers. The missing link in the chain is the private citizen. The Bill is part of the solution to fill in the jigsaw and put in place a reasonable, fair and balanced solution for the thousands of people across the country who through no fault of their own but as a result of the breakdown of the economy, find themselves facing unsustainable debt. It is something that is difficult to resolve.
The issue must be approached with common sense and a certain sensitivity is also involved. One can have a situation where people living side by side with the same jobs, income and level of indebtedness could approach their financial problems differently. One might have a mature, reasonable and realistic approach to paying his or her debts but a different approach could be taken by the person next door. We must have a balance to ensure that the solution which is underpinned by the taxpayer is applied in a fair and balanced way. The strategy underpinning the legislation and the three different offerings available are a positive step to resolve the problem in a fair and balanced fashion. The Bill does not claim to solve all of the problems but it attempts to do so in a reasonable, fair and balanced fashion.
Most of the public debate has focused on bankruptcy, which is a difficult, emotive and frightening word for most people. On this part of the island and under the previous regulations and legislation, once bankruptcy was applied it literally ended not just a person?s financial prospects for the future but had a negative connotation and pigeonholed the person concerned into the future. Our aspiration must be that in coming to the aid of people who are suffering financially and are in debt, we apply firm but fair rules but that we do offer light at the end of the tunnel. It is important that people can see a future in which they will again contribute to society rather than be seen as taking from it. The new legislation to provide a three-year rule for bankruptcy is a reasonable and fair solution.
The Minister was in the House previously to talk about bankruptcy, perhaps in response to an initiative proposed by the Fianna Fáil Party. He pointed out that we must be careful about reducing the bankruptcy rules from 12 years downwards because of the knock-on effects. One must take into account a person who is declared bankrupt who owes moneys to a building supplies company or a service provider down the line. It is okay for such a person to have his or her debts written off over a reasonable period but there is also the person to whom he or she owed money. One could ask what happens to that person and the next one down the line. The issue is not as simple as it would sometimes seem. Obviously Britain has a different regulation. We are aware of some high profile cases where people have taken advantage of the slightly more lax rules in Britain and are moving to that jurisdiction to resolve their financial difficulties. We are now moving from a 12-year limit to a three-year limit. That is probably as fair, reasonable and balanced as it can be.
The Minister addressed much of what I intended to say about Part 5 and personal insolvency practitioners. We have received much representation on who and what those people should be. Arguments range over whether the qualifications should be the more traditional accountancy and legal skills or whether there is scope for others such as those with expertise in the property sector. I am pleased the Minister will come back to the House next week on Committee Stage with proposals in that regard. We must try to be as broad as possible in defining who can hold such positions. Personal insolvency practitioners will have a responsible role. The Minister attended committee meetings where he heard discussions on the issue and people expressed the view that practitioners should not be confined to the legal and accountancy areas. I look forward to hearing what the Minister will say next week in that regard.
I commented briefly on the bankruptcy provision. We will have much to say on debt relief notices, debt settlement arrangements and personal insolvency arrangements once we get to Committee Stage. The Minister is striking the right note in terms of fairness and what is realistic and doable. We will discuss those issues in detail next week. I welcome the Bill. It would be impossible for any Minister to introduce the perfect legislation. This is a good effort. It will make a genuine difference to many, which is as much as we can expect from most legislation passed by this House. It will help the economy to recover and to get people back to work.
I welcome the Minister. I also welcome the long-awaited legislation which is desirable for many reasons, some of which the Minister outlined in his speech to us, but in particular as protection of the principal, primary residence in the various new schemes.
There is still room for significant improvement in the Bill. The Minister indicated that was the case, in particular in order that the many people who are over-indebted and in need of relief can get their lives back on track. This is a key opportunity. No doubt the Minister believes that is the case as well. Senator Bradford referred to the potential of the Bill to boost an economy that is gripped by unsustainable debt and also its tangible and positive implications for the many ordinary families, house owners and individuals who have been crippled by personal debt.
The first of the many issues I wish to raise relates to essential income and reasonable expenditure. The Minister referred to it in his speech to some extent. One of the positive aspects of the Bill is its reference to the fact that the new insolvency service will draft guidelines on reasonable expenditure and essential income for debtors to which non-judicial debt settlements must refer and to which the courts must also refer in bankruptcy situations. That will help considerably to having regard to the financial reality of individual circumstances, as the Minister identified in his opening remarks.
I have raised in this House in the past the excellent work of the Vincentian Partnership for Social Justice in the past 12 years to develop and implement a robust methodology to determine a minimum essential standard of living for various household types. More recently, it developed a tool to assist policy makers and others to do that. It is a methodology that has taken into account practice in various EU states. Its work on minimum income standards in this country could be used as a benchmark by the insolvency service when drafting guidelines. However, it would be preferable that such standards would be encompassed in primary legislation.
The question of the minimum income which a household is entitled to retain before payments are made to creditors, is not a matter that can be left to administrative discretion alone. Practitioners will need detailed guidelines and evidence-based tools, which are now available, in order to properly formulate proposals.
I wish to address the issue of qualifying thresholds. These are outlined in each of the new arrangements. Some of them may appear to lack an evidence-based understanding of the needs of individuals for whom debt relief arrangements are essential. As the Minister identified, section 24 sets a maximum limit of ¤20,000 for qualifying debts before a debt relief notice may be granted. FLAC works with many clients of MABS. It has estimated that only 15% of these clients would qualify for a debt relief notice under this threshold. FLAC calls for the Bill to raise the qualifying amount to ¤30,000. Similarly, the legislation should differentiate between essential household equipment and appliances and items of personal property when determining the asset limitation currently set at ¤400. It may also be helpful to include assessment guidelines in this regard. The qualifying threshold of no more than ¤60 net disposable income per month, is problematic, as it leaves little margin for non-household-based expenses and payments. This is particularly significant, given the recent survey by the Irish League of Credit Unions which recorded that up to 47% of Irish adults live on less than ¤100 a month after the bills are paid. The qualifying thresholds set out in the debt relief notice contrast sharply with the threshold of ¤3 million in the personal insolvency arrangements. The high threshold has drawn criticism from many areas, including the troika which advocated a threshold of ¤1 million in order to rebuild what it describes as a viable banking system. The ostensible purpose of this section is to protect families in financial distress and to ensure they do not lose their incomes. However, with the average mortgage being in the region of ¤350,000, this threshold is particularly high. I ask how those thresholds have been determined.
The definition of insolvency may also warrant some amendment, should a person be deemed not to be insolvent and unworthy of a debt relief notice strictly according to the limits on income, debt, property and timeframe to pay back debt, as outlined in the Bill. People may not be able to repay their debts in full as they fall due. They may need more time to pay these debts. Inability to pay in full is over-indebtedness which with the rescheduling of payments, may work itself out over time, but which may fall short of insolvency. For a practitioner to have to certify that there is no likelihood of the debtor becoming solvent within five years of the date of declaration, also seems to involve a forecast of certainty that would appear neither necessary nor desirable. Perhaps a more flexible definition of insolvency could be drafted, such as, the debtor being clearly unable to pay his or her debts as they fall due and it is unlikely that he or she will do so for the duration of the repayment plan as certified by the personal insolvency practitioner.
The Minister and other colleagues have referred to the issue of veto. It seems that in all three new arrangements, creditors may object immediately to the inclusion of debts owed to them in the debt relief agreement, in the case of a debt relief notice through the Circuit Court, in the case of debt settlement arrangements and personal insolvency arrangements. In all three cases, creditors may initially agree but then raise objections during the period of the arrangement. There is no provision for an independent arbiter to assist individuals and banks to reach agreement, nor is there an independent appeals system, to which Senator Byrne has referred, for when a proposal is rejected. Therefore, individuals are left with no option but to resort to bankruptcy in many cases.
The Bill relies far too heavily on a hypothetical and unrealistic assumption that credit institutions will behave rationally and with due care for the well-being of society when involving themselves in credit negotiations with over-indebted clients. There is little evidence at present that they would act in the interest of the taxpayer, the economy and even their shareholders and stakeholders, in acknowledging that in many instances, much personal debt is now substantially irrevocable.
I wish to speak briefly about the resourcing of MABS. As the Minister indicated in this contribution, MABS is intended as one of the main approved intermediaries for advising, assessing and assisting individuals who wish to apply for a debt relief notice. There are considerable training and resource implications for MABS as a result of this role. The staff of MABS will also have an important role in the referral of clients to personal insolvency practitioners and in liaising on behalf of those clients. This comes at a time when MABS is under significant pressure - as the Minister is aware - with an increasing and diverse range of referrals. It is imperative that its new functions are carried out without a consequent reduction in its existing services. The work of assisting people who are over-indebted and need to renegotiate payments but who are not fundamentally insolvent, must also continue. It is, therefore, only logical that MABS will require additional resources to meet these challenges and sufficient additional resources should be available to MABS to ensure that existing crucial money advice and budgeting services continue and can take on this extra role.
I understand that no regulatory impact assessment of the consequences of this new insolvency architecture has been published. Could we expect a publication of this assessment before the Bill reaches Final Stages?
I welcome the Minister to the House. I welcome this Bill which, as the Minister said, is long overdue as a reform of personal insolvency law. As he also said, it is a complex Bill. I thank him for his very comprehensive outline of the detailed provisions of the Bill which is very helpful to have on the record of the House. It is also helpful to have the history of the Bill on the record of the House. It is required under the terms of the EU-IMF-ECB programme and it is also a key commitment in the programme for Government. I refer also the report of the Law Reform Commission on personal debt management and debt enforcement. It has long been accepted that our bankruptcy laws were due for an overhaul. The Bill reflects this desire and also deals with much more general arrangements other than bankruptcy for dealing with the very great problem of personal indebtedness. We are all cognisant of the serious problem and the great heartbreak and distress that this problem is causing to individuals, to families and to households in all parts of the country. This Bill is part of the package of measures required to deal with this serious social and personal problem.
As part of the history of the Bill and the detailed process involved in its drafting, the Joint Committee on Justice, Equality and Defence, held hearings last February. We produced a report which the Minister has taken into account in the drafting of the Bill. I am pleased to note that some issues are reflected in the Bill, although I note some issues are not. FLAC included those issues in its recent and very helpful comments on the Bill. The concerns expressed by FLAC are framed in a constructive manner in that it welcomes the Bill but it expresses some concern. I will return to those concerns shortly.
It was helpful that the Minister set out that there will be a three-tier, non-judicial debt resolution process beginning with the debt relief notices for the more minor debts - albeit still significant sums involved of up to ¤20,000. The debt settlement arrangements will deal with unsecured debt over a five-year period. The personal insolvency arrangement will enable the agreed settlement of secured debt up to ¤3 million. I wish to make a point about the levels of debt under each of those three tiers and which were dealt with in the joint committee report. We heard from various groups, in particular, from groups representing debtors, that the thresholds provided were generally too low. We recommended that the limit of ¤20,000 for debt relief certificates might be raised to ¤50,000 and that the limit for the personal insolvency arrangement should be raised to ¤10 million. I note that FLAC in its recent report has suggested an increase in the threshold of the debt relief notices to ¤30,000. I ask if the Minister envisages any change in those thresholds. I say this in the knowledge that since the joint committee issued its report, there has been quite a strong critique made of raising the limit for the personal insolvency arrangement, that a sum currently allowed for of ¤3 million is sufficiently high.
I was quite persuaded by that, even though it is at odds with what we recommended as a joint committee. However, the point was made forcefully that the ¤3 million limit more than covers the vast majority of people with personal debt arising from a mortgage on a family home and to raise the threshold for the personal insolvency arrangements any higher would mean dealing with people who had borrowed large amounts to take out loans on investment property. That should not be the purpose of this legislation. As the Minister said, it should not be about rewarding irresponsible lending or borrowing and we also made this point in our submission. I accept, therefore, a fine balance must be struck in this regard. I am satisfied now with the threshold for the personal insolvency arrangements, despite the submissions made to the joint committee.
However, I wonder about the threshold of ¤20,000 for debt relief notices. That is low, given people have run up significant debts on credit cards and so on for their households and this could be acknowledged. The joint committee raised a critical issue in any debate on insolvency, which is that the family home should be handled separately from investment properties or holiday homes and should be protected in an insolvency arrangement. Irresponsible lending should not undermine the reality that people are devastated at the prospect of losing their homes and that is causing distress. We emphasised this point in the justice committee report.
We also emphasised the appeals issue raised in the FLAC submission. I acknowledge the Minister stated bankruptcy is the ultimate appeal mechanism for debtors and we all accept that but concerns were raised with us by groups such as FLAC and New Beginning that there were insufficient mechanisms in the Bill to deal with creditors resistant to making arrangements. I am glad the Minister stated the legislation will have to be refined if the financial institutions refuse to co-operate or engage with these mechanisms. The Bill requires lenders to engage properly with customers. The architecture of the legislation will place more pressure on them, which is welcome. Everyone commenting on it has welcomed that but, as the Minister acknowledged, the approach to debt resolution will have to be refined if financial institutions refuse to engage.
I am glad personal insolvency practitioners, PIPs, will be regulated by the new insolvency service and new proposals will be brought forward on Committee Stage to provide for this. They have a key role in ensuring the legislation operates effectively. A new Part V will contain provisions for regulatory and oversight procedures. What mechanisms will be used to ensure regulation of these practitioners? FLAC is concerned that the current proposed structure will fail to attract sufficiently qualified PIPs and, therefore, may make the cost of arrangements prohibitive. This is interesting because I did not think there would be a difficulty attracting PIPs. Has the Minister a view on that?
He stated the personal insolvency arrangement is without precedent but there are precedents that resemble it. We heard about the models in Norway, Greece and elsewhere at the joint committee hearings but we are adopting a different model and whether it is effective depends in large measure on the mechanisms in place such as PIPs, which is why the regulatory and oversight provisions are critical.
It is helpful that the Minister has given us an estimate of the numbers who may apply for debt relief notices and debt settlement and personal insolvency arrangements. Clearly, at this stage we cannot be sure how many people are likely to apply but there were only 30 bankruptcy adjudications in 2011, partly because of the hugely cumbersome procedure currently in place. During the joint committee hearings, we heard a great deal about bankruptcy tourism, about which the Minister is conscious, where people travel to other jurisdictions to avail of more lenient bankruptcy regimes. We had a comprehensive debate in the House on the Civil Law (Miscellaneous Provisions) Bill 2011 on the bankruptcy law and I recall Senator Quinn making a forceful point about not making bankruptcy laws too lenient. The one-year timeframe in Britain, for example, may be too low a threshold. Three years may well strike the correct balance. The joint committee expressed concern that the timeframe in the Bill was too long, given an additional period is envisaged beyond the three years prescribed. We suggested the overall effective period should be five years rather than the current proposal of eight years.
I am concerned that FLAC is suggesting the three-tier procedure will be overly cumbersome. I am not sure, as I am hopeful that a better perspective on it is it is more targeted at different levels and type of debt. As the Minister said, there are many individual scenarios and a one-size-fits-all approach may not work. We all very much welcome the Bill and the new models for dealing with the huge problem of personal indebtedness. I look forward to working with the Minister to improve the legislation as it progresses through the House.
I welcome the Minister who has the zeal of a reformer, which is always welcome, and I commend him on his attempt to improve the unsatisfactory regime in place for people with difficulties in their personal finances. With goodwill, good legislation will emerge, which will generally improve the climate. There is a cultural backdrop to what is going on. Our society historically did not like to see itself incurring large debts. We frown on this culturally and deep in their core people did not like going heavily into debt. We generally took out one large loan in our lifetimes to buy a house in accordance with prudent guidelines, which had been passed on to us and articulated to us by the debt professionals with whom we dealt. Thankfully we have somebody who has the will and the parliamentary muscle to effect reform but he is faced with a colossal problem, which is that we are witnessing insolvency on a scale that ten or 15 years ago people would have not dreamt remotely possible in our country. Some people become insolvent because of personal irresponsibility in making bad decisions but they are a minority. Some people become insolvent because they were unwise. Wisdom is easy to define in retrospect and people whom we would not necessarily thought of as particularly foolish made decisions in the context of the advice they received at the time that did not seem foolish but they now seem catastrophically bad.
We can never let this get off the radar screen when we consider legislation such as this, which tries to strike a delicate balance between the needs and responsibilities of those who took out loans they cannot service and those who gave them, that there is a specific reason for the high insolvency rate in Ireland, which is that highly self-interested banks, brokers and debt sellers of all strips pushed debt onto people in varying degrees of knowledge that they would be unable to sustain it. These professionals, who historically had been characterised by prudence, responsibility, conservatism and wisdom - they were often stereotyped as dullards who said "No" on every occasion - replaced these traits with highly bonus-incentivised, irresponsible actions.
Instead what we have are people who were routinely told that those old rules had changed. They were not financial experts; they may have been teachers, nurses, lawyers, skilled workers or taxi drivers. People who were not particularly attuned to macro-economics and the world of finance were told, "No, don't worry about that. It's important to get on the property ladder at all costs." At the time, rather few of them understood when they were stepping onto that ladder, that the advice they were taking was being provided by people who had a dog in the fight - people who were deliberately giving them unwise advice because they were making money from that advice being acted upon.
For that reason, it is critically important in looking at this that the default position should be to acknowledge the fact that on one side of this equation were people who generally acted perhaps naively. On the other side of the equation, the other people who we are seeking to protect - and I understand they need their protections - in many cases acted deliberately irresponsibly and did it for profit. This needs to be borne in mind in assessing the matter.
I have just noticed, on a constitutional crisis point, that the Acting Chairman nodded when I said something. She is supposed to be tremendously impartial. I may well have to report her to the Supreme Court for that.
During my brief contribution, I have made a couple of points that are probably not germane to the legislation, although I will be making a few editorial comments on it. As regards those who find themselves facing catastrophic, unsustainable, house-losing, bankruptcy-threatening debt, but who have money locked in pension funds that they cannot touch for many years until they are retired, long after the damage is done, and they have lost their homes and been forced into bankruptcy, one wonders if there is not some way they could be enabled to access that money to try to discharge their debt and restart their lives. I know that is not something the Minister can legislate for here, although I have mentioned it on a number of occasions to his Cabinet colleagues with financial responsibility.
Similarly, the Minister will be aware that in some jurisdictions they have non-recourse mortgages. The deal basically is that a person buys a house which is collateral, and if the person cannot service the debt they throw the keys at the bank and it is the bank's house. The bank thought that this house was sufficient collateral for the loan. While I understand that it is retrospectively hard to impose something like that on people who have entered into contracts, one wonders if the enforced prudence that that kind of restriction would place on people who sell debt in future might not be a wise strategy.
In addition, is there any way, even within the confines of the current Bill, to look at that aliquot of the money owed, which represents the amount borrowed in excess of what would have been prudent guidelines, namely, in excess of 2.5 times the salary or in excess of 80% of the value of the house, so that there could be some consideration of a degree of non-recourse for people who find themselves in that situation?
I will now get on to some of the more specific, technical amendments. In the interests of fairness, I must acknowledge my friend and colleague from the Lower House, Deputy Stephen Donnelly, who provided invaluable assistance to me in trying to come to grips with some aspects of this complex and very necessary Bill. As regards the issue of referring to the bankruptcy payment orders, one section of the Bill seems to allow that after the three years of bankruptcy protection has passed, the banks can still - in response to changed circumstances perhaps - come after people for up to five years following completion of the bankruptcy date. In truth, this goes against the spirit of what the Minister is trying to do with this Bill, which is to limit the period of bankruptcy liability. Perhaps the Minister could reconsider that.
It has been brought to my attention that there are people in various jobs in the country, many of whom work for multinationals we are so desperately trying to incentivise to come here. Some of them work in different parts of our public service and they are prospectively barred from taking employment if they are engaged with any part of the legal insolvency process. As regards those who are not in the bankruptcy phase, but in the protection phases early on - who are going through the insolvency arrangements with or without the personal insolvency professionals - can we have a specification in the Bill that those persons could not be in any sense handicapped in their attempts to get employment of this type?
There are a few other practical issues. Over the years, nearly Dickensian strictures were applied to those who could not face their debts. When we got rid of debtors' prisons and brought in bankruptcy laws, the issue arose concerning people who lost many of what were then considered to be the luxuries of financial services, like credit cards and bank accounts. It is essentially impossible to live in our modern society without access to financial instruments such as bank cards and credit cards. Should we state that in bankruptcy cases it would not be permissible to deny people access to a bank account, although perhaps not to an overdraft, as well as ensuring they can have a debit card, if not a credit card? In the absence of such facilities, it is difficult if not impossible to pay some bills and meet some current ongoing household exposure.
Another rather more complicated issue is at stake which concerns those in the insolvency protection process who are making payments to people who are not bankrupted. It appears that it is entirely possible for some individuals in the low or middle income groups, who are going through rescheduling as part of this process and who are having mandatory transfers made to their banks, to end up having less than 20% of their income available to them as disposable income when one factors in tax plus the bank transfer.
For many of the most important, productive and socially worthwhile sectors of our employment economy, including nurses, teachers, social workers and business people - in many cases, disproportionately, women who also have child care responsibilities - it begins to approach a stage where there is an actual disincentive to work if that little of one's income is retained for one's own use. It is in no one's interest if these people decide that it is better for them not to work. It is not in the bank's interest, their own interest or society's interest.
I agree with some of the concerns that have been raised by my colleagues on the Fianna Fáil benches. I hope we will have ample opportunity to tease through a number of amendments we will be proposing on Committee Stage. I thank the Minister for his attention.
The Minister is very welcome. I am grateful that he and the Government are grasping this nettle because we know there has been a lot of fallout from personal indebtedness as a result of the crisis that has befallen our country. What struck me hard recently is that while our public debt is at a ratio of 120% debt to GDP, our personal and household debt is at 130%. That really shows the scale of the problem. Taking all the figures together, one in five mortgages were in difficulty at the end of June, which involves 20% of our people. We still have no Central Bank figures on unsecured loans at this point. The available figures only represent mortgage debt, which involves 168,000 householders, not including personal or credit card loans.
I welcome the Bill but as Minister Bradford said-----
Absolutely. The Senator did say that it was not a perfect life, nor can it be a perfect Bill. Between now and next week when the Bill returns to the House, however, there is one group I would like the Minister to think about. They are a unique group of mortgage holders who are not being taken into account by anybody. They are people who are making their repayments but it is costing them a large amount of their net income. They are paying more than 35% of net income on their mortgages, while struggling to meet overall commitments. They should not be overlooked.
In the course of campaigning for the children's referendum, I met three families that are paying up to 70% of their net income on household mortgages. When electricity, food and school bills are added in, how long more can they sustain that? I want to emphasise that these people are paying their mortgages. In page 4 of his speech, the Minister said that some debt forgiveness should be examined. I believe that some debt forgiveness should be considered for these people. They are paying their mortgages and if they were freed up a little bit it would be good for the domestic economy.
In America, legislation has been passed so that only up to 37% of a person's net income can be spent on a mortgage. I contacted the Central Bank about this.
It has no figures since 2007, which is incredible, regarding what proportion of people's income goes on paying off their mortgage. How can it plan for the problem we face at present and how can it advise us? What does the Minister believe is available for these people? They are not really interested in a split mortgage or in giving back some equity in their house. These are people who are prioritising the home.
Overall, I welcome the Bill as it is critical that we respond to personal indebtedness. However, I wish to examine some of its elements. Who will pay the personal insolvency person? Will it be the debtor and how much are they likely to cost? With regard to the range of judicial and non-judicial solutions in the Bill, I understood that the debt relief notice and the debt settlement arrangement mechanisms were to be non-judicial arrangements. If that is the case, why is it necessary to go to the Circuit Court to apply for that? Will the Circuit Court be a public setting? If so, will that not make it even more difficult for people to apply? It is bad enough to have these levels of debt, although some of them could be quite small, but will it be a public forum that can be reported on in the media?
I also have concerns about there being no right of appeal. With regard to the debt settlement arrangement and the personal insolvency arrangement, is there a right of appeal for debtors if the creditors veto the proposal put forward by the personal insolvency professional? The application and negotiation could be a long and expensive process which could be shut down by a rejection at the end. What recourse, therefore, is there for the debtor if this happens? Most people will not have more than one creditor for any single debt. Will each debt be considered separately or, for the purposes of the voting mechanism, are all debts of a single debtor considered together? If there are three creditors and two vote "Yes" and one votes "No", is the third creditor forced to go into the deal?
With the Bill providing for a basic discharge period of three years, while it is just 12 months in Northern Ireland and Britain, what incentive is there for people to declare bankruptcy here rather than move their residency to the North? I know of people living in Galway who have done this. How will we manage that?
I beg the Chair's indulgence, but this is an important Bill. With regard to the split mortgages, I understand there is a disagreement between Bank of Ireland and AIB on whether the mortgage holder should pay some interest on the warehoused portion. My proposal is that it should be, at worst, a nominal amount of, perhaps, 0.25% of simple interest on the warehoused portion so it does not become a bad debt on the bank's books.
I look forward to the Minister's answers to my questions.
As my colleague, Senator Byrne, said earlier, we support this Bill. I acknowledge the complexity of the situation and there was no way that the Minister, with the best will in the world, could have drafted legislation that would have been a silver bullet for everybody's debt issues. It does not cover everything and I am disappointed with some areas in it, but I believe the Oireachtas can work on it to get to a stage where we will have something meaningful. That is not to say that the Bill and what the Minister is proposing to do are not meaningful. They are meaningful.
I endorse much of what Senator Healy Eames said. I will not go over old ground but we cannot talk about this personal insolvency legislation without considering the people who are just about surviving, the mortgage resolution measures that have been submitted to the Central Bank - I accept the Minister is not the Minister for Finance - and trying to move our lenders to a situation where they ease the debt burden on people. I am not necessarily referring to debt write-down but to proposals that I and others have suggested here previously. One is zeroisation of interest. What is the point of charging people penalty interest when they already cannot pay the mortgage? It makes the situation far worse. There is also the option of extending the mortgage term.
The Government brought forward initial measures through the Department of the Environment, Community and Local Government to deal with housing and, for example, buy-to-let mortgages. I do not like the idea of handing over a house to a local authority but that is the position. The Government passed the measure with broad support, but most local authorities will not operate it. I realise this is not within the Minister's jurisdiction but I simply offer it as an example. Should this legislation be passed, the issue is what oversight the Minister will have. When it is passed in whatever guise, a very hands-on approach will be required from the Government.
I echo the comments on what we thought would be non-judicial arrangements being required to go to the Circuit Court. Will the Minister clarify why somebody with a debt relief notice for unsecured debt of up to ¤20,000 might have to go to court to get that notice? We could work on improving that. Will it be in public? That question was asked previously. I have grave concerns about the creditor's veto. The Minister has stated previously that he might be open in the future to considering an independent appeals mechanism. I suggest, and we will table an amendment in this regard on Committee Stage, that there should be an independent appeals mechanism. Even if the Minister states now that he will do that but it does not form part of this legislation, that will be fine. The reason is the 70% veto of creditors. The only person who can appeal is a creditor. A debtor cannot appeal under the Bill. If more than 70% of the creditors do not agree, that is the end. The next step is bankruptcy. The Minister has stated that this is the stick one would hold over the financial institutions. However, bankruptcy is the nuclear option and most people do not wish to reach that stage. It is striking, nevertheless, that the only person who can appeal is the creditor where it does not agree. Perhaps the Minister would clarify that.
The regulation of personal insolvency practitioners has already been mentioned. I worked in the financial services sector before I became a Member of the Oireachtas in 2007. Regulation is crucial with regard to independent financial advice. Will the practitioners be insurance brokers, accountants and solicitors and will they be regulated by the Central Bank? We must also remember that if it is a mortgage broker, for example, it will probably be the same individual who organised the mortgage in the first instance. There is work to be done in this area as regards potential conflicts of interest where an independent broker, who might have been one of the best performers for a mortgage company, is now trying to cut a deal with the same mortgage holder for whom it wrote the mortgage in the first instance. We will have to consider providing that a personal insolvency practitioner cannot be the same person who introduced the loan in the first place. Perhaps the Minister would clarify that as well.
I have examined the debt relief notices and the limits set for subsistence in so far as what disposable income somebody can have at the end of the month. The sum of ¤60 is far too low. The asset amount of ¤1,200 as the maximum value of the debtor's vehicle in order to qualify is also too low. I have no wish to see somebody driving around in a BMW X5 jeep but one would be hard pressed to find somebody who has a vehicle that is worth less than ¤1,200. There must be flexibility in that regard.
This Bill is welcome and is a step in the right direction. The independent appeals mechanism must be a part of personal insolvency legislation, although perhaps not at this stage. However, if the Minister would give a clear indication that if the banks are not playing ball he would have no difficulty with bringing forward an independent mechanism or independent debt settlement office by way of arbitration, that would send a signal. We will have to watch this very carefully into the future. The appeals mechanism is the crux issue in respect of the creditors' veto.
If the institutions do not play ball, well-meaning legislation such as this may not have the impact the Government wants. I ask the Minister to encourage the banks to expedite mortgage resolution measures. The more we can do for people who are not yet in a grave financial situation, through getting banks to be reasonable, to extend mortgage terms and to introduce the zeroisation of interest rates and split mortgages, the better. We need to see it happen.
I commend the Minister and the Government for moving to put measures in place to alleviate the debt burden the Irish people have been drowning in over the past number of years. The Celtic tiger situation was most regrettable in that some people were engaged in an orgy of spending, which was encouraged by aggressive marketing by banks and light touch regulation. Times have now changed and the Government is now bringing the country and its people back from the brink, which must be welcomed. We find ourselves in an era in sharp contrast to the boom years and many people are concerned about debt management.
The introduction of this legislation will radically reform our insolvency legislation and must be welcomed. Three non-judicial debt resolution systems have been introduced to deal with unsustainable secured and unsecured debt. To avail of any one of these processes, an individual must be insolvent. Each proposal for dealing with an indebted situation must be done through a personal insolvency practitioner and one can only apply for relief under either procedure once in a lifetime. A debt relief notice will allow the write-off of qualifying debt up to ¤20,000. I join Senator Bacik in suggesting the amount should be increased. The provisions relating to debt settlement and personal insolvency arrangements have been addressed by the Minister in his speech. I do not propose to deal with it again. The absence of any real and direct involvement of the courts in these procedures is most welcome, as people who are indebted will not have to face the ignominy of having their private finances thrashed out in open court. It is a welcome new support for those genuinely experiencing severe financial difficulties.
However, those facing bankruptcy will get some considerable reprieve from the former legislation, where previously they were severely curtailed for a 12-year period. The Bill provides for a number of amendments to the Bankruptcy Act to include a new minimum amount for a creditor to petition for bankruptcy, ¤20,000, and the automatic discharge from bankruptcy three years from the date of adjudication. While I have no truck with individuals who recklessly borrowed and whose only pursuit was greed during the Celtic tiger era, it is important that some people get a second chance in life. It would be wrong for us as a country to give a message to some of the brightest and best entrepreneurs that they cannot realistically reinvent themselves in the country of their birth. I want to see these people encouraged back and to see their entrepreneurial spark and verve relit. I am glad the legislation goes no small way to supporting it. Through this encouragement, Irish entrepreneurs, particularly those living in rural Ireland, will help to create jobs in the country. Ultimately, the Exchequer tills will start to ring again.
While I warmly welcome the provisions in the Bill and the effort made by the Government to alleviate the debt burden some people are immersed in, it would be remiss of me not to mention the financial brokers who contacted me about their feelings of displacement from the marketplace. I refer to the appointment of members of the accountancy profession, who will now provide advisory services to mortgage holders in difficulty. There is a strong feeling that the service should be open to those operating as mortgage brokers, along with accountants, as they already undertake the role and are familiar with issues relating to personal debt. They have the qualifications, experience, professional indemnity insurance and independence to do so. In the interest of fairness and equity, it is important for the market to dictate the involvement of professions in this advisory capacity. An urgent review needs to be considered. I also request that we ensure a similar situation does not arise in respect of the appointment of personal insolvency practitioners under the Personal Insolvency Bill.
Further questions about the legislation remain. There is continued concern about the balance of power between creditors and debtors. This revolves specifically around the question of veto and whether the creditors retain a veto. The views on this are mixed and some argue that the existence of the personal insolvency process means banks will be more likely to reach informal agreements with debtors at an earlier stage than when they are engaged with the personal insolvency practitioner. They will be wary of triggering bankruptcy at that point. This, it is argued, strengthens the hand of debtors and addresses the concern of creditors that some, who will not pay, could freeload on those who genuinely cannot pay. However, FLAC, SIPTU and other business leaders continue to express concern that the banks have an effective veto because of the thresholds, at 60% and 50%, and the lack of a legal obligation on the banks to accept the personal insolvency practitioner's recommendation and the certificates of the court. Perhaps the Minister can address these concerns and provide a rationale for the thresholds.
I refer to the concerns expressed about the fees and costs and the residency requirement. That might affect emigrants with unsustainable debt in Ireland. What are the proposals for merging or keeping separate the mortgage information and advice service and MABS? Perhaps the Minister can shine some light on the topic. I thank the Minister for listening to the debate on the Bill and I look forward to the Bill becoming law so that those in financial difficulty can avail of its measures.
I welcome the Minister and I appreciate the detailed explanation in his speech. There has not been enough recognition of entrepreneurship in Ireland. Senator Lorraine Higgins touched on that point. If Lord Alan Sugar lived in Ireland, he would not have been able to get out of bankruptcy. F.W. Woolworth went bankrupt three times before he built up his huge empire. There is a need for entrepreneurship and to recognise that, on occasion, people fail. We must get a balance between the two.
There are some improvements that could be made to the Bill. I am concerned about the lack of an independent arbitrator. Let us suppose a homeowner and a bank cannot come to agreement. Should they simply have the choice between the bank's will and bankruptcy? We must find a balance somewhere along the line. The Bill allows banks to reapply, through the courts, to add an extra five years to the initial three year bankruptcy term. That will mean an effective eight year term, which is far too long. It is only 12 months across the Border. We must bring this in line. Others have made the important point that people in businesses are closing down and moving across the Border, which is bizarre. The issue of resolving the mortgage crisis is not addressed fully in the Bill. We must find a way to get over the problem.
The problem of mortgage arrears must be resolved. Unsustainable mortgages must be addressed through loan modification, bankruptcy or non-judicial debt resolution. Debt settlement arrangements will be of little use to many families in trouble. Mr. Eoin Collins, writing in The Sunday Business Post, stated "a major flaw in the new legislation is that it will make it harder for people to go bankrupt because debtors will have to prove to the court that they've been engaged in a six month personal insolvency arrangement process with the bank before declaring bankruptcy". Can the Minister comment on that point?
Senator Crown raised an interesting point about bank accounts. One possible improvement which has been overlooked is to guarantee the right to operate a bank account. Surprisingly, this is a difficulty for many undischarged bankruptcies in the Republic, unlike in Britain and in the North. Life without a bank account in the modern world goes beyond mere inconvenience. One wonders at the public policy logic for compelling people, known to be in financial difficulty, to operate on a cash only basis. Senator Crown referred to having a debit card, if not a credit card. There must be some logical improvement in the Bill on that basis and I suggest the Bill be amended on Committee Stage.
There are many other areas we could cover. For instance, the Minister referred to Australia's bankruptcy system during the debate in the other House. There are concerns in Australia that the system is sometimes used by those who enter into agreements without proper consideration. They turn around and ask for relief. Can the Minister comment on the protection we have against such cases? I hope the legislation can make a real difference to businesses and individuals.
It is evident that we need to stem the tide of people crossing the Border to the United Kingdom to avail of a bankruptcy system. The Sunday Timesreported that confidential figures from the Bank of Ireland showed the harsh lifestyles it expected from home owners in return for leniency on their mortgage repayments. For instance, private health insurance is permitted, although the maximum budget is ¤166 a month. That would not even cover the cost of even VHI's most basic plan for families. How are the banks still calling the shots? How do they have a veto in this vital area?
The Bill provides that distressed borrowers should be left with enough to provide for a reasonable living. That seems to be a vague definition. Surely, it should be decided by an independent body. In Greece individuals have to prove in court that their income is not sufficient to continue paying their debts. Setting aside living expenses, equal repayments are made to both secured and unsecured creditors from remaining funds for several years. The Minister has seen what is happening in other countries and taken on board some ideas. However, he is coming up with an Irish solution to an Irish problem. The Bill can be improved in several areas on Committee Stage. The Minister has put his heart and soul into this legislation and I know he wants it to last a long time, to prove itself worthy and, when looking back, to have solved a problem.
I welcome the Minister. This legislation is a significant step forward in dealing with the financial difficulties of many thousands of people. The programme for Government set out clearly that this issue needed to be addressed through legislative measures to ensure a fair and realistic deal could be procured on behalf of persons in financial difficulties, many of them have been suffering physically, emotionally and mentally. Their quality of life has been affected. Little did the country think seven years ago that ordinary decent people would find themselves at the mercy of banks and financial institutions. Few people ever set out in life to end up bordering on being insolvent.
The legislation is timely. While we were concerned and frustrated at the delay in its introduction, it was necessary to ensure the Department and stakeholders could come up with a Bill that would result in the maximum benefit to as many people as possible. While I welcome the Bill as a genuine effort to get it right, I caution that we may need to do more. As a member of the Joint Committee on Justice, Defence and Equality, I was delighted to have an input at the consultation stage of the legislation. Many groups gave evidence to the committee on the legislation which was condensed into a report. The Minister used some of the report's recommendations and suggestions when framing the legislation.
The Bill will provide a chart of resolution for many people in financial difficulties. I hope it will be cost effective and not involve expensive legal costs. It will ensure those at the end of their tether over financial difficulties will be able to see a future in their homes, as well as having some financial freedom. The Bill is realistic in its measures in that people who can afford to pay will have to pay. For those who cannot afford to pay, at least there will be a structure into which they will be able to buy. The State, of which we are so proud and for which our forefathers fought to create a republic, will stand with them shoulder to shoulder.
Although the legislation has not been tested, we will see people going to personal insolvency agencies, engaging with financial institutions and ensuring they create a future for themselves. I hope all parties, particularly financial institutions, will engage with this process in the same spirit in which the Minster has. It needs all stakeholders to buy into it to ensure it will not become bogged down. If it is necessary to amend the legislation to pin down problems that emerge in its application, the House will be amenable to doing so.
The Bill is a genuine effort to cover as many bases as possible. The time delay was necessary to ensure the appropriate consultations took place with as many stakeholders as possible and loopholes were closed off for the sake of the thousands who find themselves in financial difficulties. What happened in this country was not the fault of the thousands who took advice to purchase houses at a certain time. The majority want to pay their debts and engage in a process in which they consider they are addressing their financial difficulties.
I wish the Minister well in the passage of the legislation and thank him for listening to the debate. Many suggestions have been made so far and I am sure many more will be as the Bill goes through its various Stages. It is a positive start and I look forward to the legislation being implemented in full by the middle of next year.
Tá céad fáilte roimh an Aire, mar is Bille iontach tábhachtach é seo agus is mór agam deis a fháil labhairt air, mar go bhfuil an oiread daoine sin ins an bpobal atá faoi chruachás airgeadais de bharr an méid a tharla sa tír le roinnt blianta anuas.
The publication of the Bill was much anticipated both by legislators and the public at large. I have come across quite a number of people struggling with distressed mortgages who were anxious about what this legislation would contain. In my time in the House I can recall few other examples of legislation which attracted as much interest. The Bill has attracted such interest naturally because it could materially affect so very many people. There are tens of thousands struggling with distressed mortgages and the situation is likely to remain serious for several years. Many people extended themselves and borrowed more than they could afford for houses which were extravagantly overpriced out of the fear that if they did not, they would never get on the property ladder. Many of them are now on lower incomes because of job losses and wage cuts and paying off a mortgage on a house which is only worth a fraction of its original price. People are being brought to the brink.
The legislation will, however, come as a disappointment to many of those who were eagerly awaiting it and the primary reason is simple. The Bill provides for the banks having complete power over personal insolvency arrangements.
Regrettably, I fear that when the bank has the whip hand, resolutions which might have worked otherwise will now not be contemplated. However, we will not be voting against the legislation. Sinn Féin welcomed its publication and the need for some action to be taken in this area is long overdue. While we believe it is deficient, we welcome its publication as a starting point but, in itself, it does not achieve what the debtors of Ireland need it to. Anyway, we will be supporting the legislation and submitting amendments on Committee Stage, just as my colleague, Deputy Pádraig Mac Lochlainn, did in the Dáil to try to remedy the deficiencies as we see them.
We have engaged with this legislation constructively from the outset. We warned against the banks having a veto. When the scheme was published we stated that it was essential for the proposed insolvency service to be independent, that a more humane approach to bankruptcy was needed and that the banks would have to compromise as well. I regret that this has not been taken on board and that the Bill provides for the banks to have complete power in respect of personal insolvency arrangements. We will table amendments to remove the bank veto capacity. While the debt settlement proposals will help some, they will not help large numbers of families who are struggling with high levels of personal debt. We will also table an amendment to reduce the amount in the eligibility criteria for a personal insolvency arrangement from ¤3 million to ¤1 million. The Bill should not cater for those who were reckless commercial buy-to-let landlords or those who took excessive risks; it should protect those who are struggling with debts with regard to the family home. We have called for an independent agency to be empowered to enforce legally binding settlements on debtor and creditor. The only other option open to people in serious arrears is bankruptcy. There are changes in this regard and it is welcome that the bankruptcy term has been shortened from 12 years to three years. Given the drastic effect it can have on people's lives, bankruptcy should be the last resort. Anyone entering bankruptcy stands to lose all of his or her assets, including the home, and we must do what we can to prevent people from being forced into that situation unnecessarily. People should be helped to remain in their homes and the independent agency should examine how to make mortgage debt sustainable on a case-by-case basis.
Other speakers have alluded to the three new forms of voluntary debt settlement arrangement that will be brought about by the Bill. Debt relief notices are aimed at debtors who possess almost no income or assets. They aim to provide a low-cost alternative to bankruptcy and would involve the eventual write-off of debt after a three-year moratorium. Debt settlement arrangements are aimed at those who do not fall within the strict eligibility criteria of the debt relief notices but cover only unsecured debt. A debt settlement arrangement is proposed by a personal insolvency practitioner and voted on at a creditors' meeting. It involves the periodic distribution of payments to creditors and a write-off of the remaining debt after a maximum period of five years. The personal insolvency arrangements are related to the debt settlement arrangements, but these allow for the inclusion of secured debt. Once there is agreement from a majority of both secured and unsecured creditors the arrangement is capped at ¤3 million unless otherwise agreed by the secured creditors.
These new formulae are positive and we hope they can assist families who are under pressure. Like the Free Legal Advice Centres, we share concerns that the five-year period for review of personal insolvency arrangements is too long and we are inclined to agree that there is a need for an annual review. At any rate, the primary difficulty of the bank veto remains. The reality is that there will be no legal obligation upon the banks to accept reasonable applications from customers in arrears, nor will there be a legal obligation upon any bank to accept an application for one of these resolution options for customers in arrears. Further, there will be no right to appeal a bank's decision, potentially leaving a debtor with no option but to apply for bankruptcy.
It is those who stand to lose their homes whom we need to protect most. We are not in the business of facilitating buy-to-let landlords who made foolish investments. We believe that an independent body, properly appointed and set up, would be in a position to distinguish in this regard and could make it a priority to ensure that the backs of ordinary homeowners are not broken in trying to repay mortgages that were never fair or realistic in the first place and were in any case merely a function of the banks' reckless lending and of the property boom. The Government is in control of several of the banks but it has failed to put them in their place. There is no recognition that it should be the creditors rather the banks who call the shots on these issues. We believe there should be an independent body which can deal with mortgage arrears and debt resolution and we call on the Government to recognise this.
Sin ráite, táimid ag fáiltiú roimh an méid atá déanta go dtí seo. Tá súil againn, nuair a bhéas na leasaithe á thabhairt chun cinn ar an chéad chéim eile go mbeidh an t-Aire sásta éisteacht leo sin.
I welcome the Minister to the House and I thank him and his Department for the work and commitment they have put into this Bill, which is a key commitment in the programme for Government. I hope the Bill will simplify and destigmatise many aspects of debt settlement, result in practical solutions for the personal and mortgage debt problems that many people face and allow many to become active participants in the economy and the recovery of the country. The Bill addresses the sad reality that there are people who have reached unmanageable levels of debt. Many of these people are on low incomes, have relatively small amounts of debt, do not own any assets and have no real prospect of repaying their debts. The Bill addresses all levels of debt, reflecting the fact that what may be a worrying debt for one person may represent small change for another.
I welcome the regard for the family home expressed as part of the ethos of the Bill. Consideration will be given to debtors' continued ownership and occupation of their principal private residences. No doubt these provisions will be welcomed by many people. Further relief may be drawn from the prominence of non-judicial procedures in the Bill, because court costs often simply become another financial burden to people.
Often, stigma attaches to individuals who have become insolvent or require debt settlement arrangements. Some of these individuals may have genuinely found themselves unable to make repayments on outstanding debts due to non-payment of goods or services, or due to difficult trading conditions which have propelled them into debt that might previously have been avoidable. These people have a genuine need and may be restored to solvency and become vital contributors to the Exchequer again or go on to develop new businesses. We cannot simply write people off, leaving them to struggle with repayments that they could never realistically make.
I welcome the reform of the bankruptcy legislation and the reduction of automatic discharge from debt from the current 12 years to three years. However, I acknowledge the balance contained in the Bill, which provides flexible options for debtors while addressing the rights of creditors. The Bill does not seek to allow solvent debtors to relinquish their responsibilities to creditors. I hope the range of measures will encourage those in financial difficulties to engage more readily and at an earlier opportunity with creditors to put in place debt management solutions. The issue of debt has isolated many individuals. This legislation and the debt management process to be introduced subsequent to the enactment of the Bill will assist those in genuine difficulties to find workable solutions. They will be given options to work their way out of debt. The aim of the Bill is not to benefit those who simply wish to avoid their obligations. Again, I thank the Minister and his Department for their work on the introduction of the Bill.
The Bill is a step in the right direction, although it is not complete. The first thing I have to say following my compliment is that it is complex, as the Minister has noted, and this is why he has dealt with it in considerable and helpful detail. It is cumbersome and it is also astonishingly incomplete. The Minister stated:
That is one lacuna in the legislation. The Minister also stated:
Determination of appropriate guidelines with regard to the reasonable expenses that may be allowed to or negotiated by debtors in an insolvency process will require further consideration. There are no such guidelines readily available or agreed at this point. ... This is an area of work with which MABS is particularly familiar in the context of its current operations.
[I]t is my intention to bring forward comprehensive proposals on this matter on Committee Stage. There will be a new Part 5 to replace the current Part 5 ...
Although he does say that a substantial amount of work has been done on it - and I accept that - it is very curious to bring a Bill before the Seanad, particularly after it has passed through the Dáil, which is so substantially incomplete. The Minister speaks of introducing amendments on Committee and Report Stages. I hope that some of those may be amendments that have been suggested during discussion of the Bill in this House. Again, however, I maintain that Report Stage is very late and if we disagree with the Minister all we can do, instead of amending his legislation on Report Stage, is accept or reject amendments. The Bill is cumbersome, complex and incomplete in the sense that there is a considerable number of lacunae in it.
I have some concerns regarding the personal insolvency measures and the inclusion in the Bill of personnel who will assist and advise people. These will be professionals who will be licensed and so forth but I wonder if there will be enough of such people. I wonder also if provision is being made in the courts because the courts are part of this whole process. The debtor first goes through the Money Advice and Budgeting Service, MABS, then the Insolvency Service of Ireland and then the courts. It is a tripartite system, like Gaul - Omnia Gallia in tres partes divisa est. Everything is done in triplicate which seems extraordinarily bureaucratic. In Sweden they go straight for the money. They go straight into the State assistance service and I wonder if that approach was considered by the Minister.
I raised this whole issue, in a general sense, in this House about four years ago. At that time I suggested the development of a department of home security - not, I must stress, homeland security - so that the citizens of this State could be secure in their homes. This Bill may go some way towards this but I point out to the Minister that in very recent times one of the large UK banks has exited this country and sold its portfolio of mortgages at a 90% haircut. Why, in the name of God, was no mechanism provided whereby the bank could sell those homes to the people who are endangered by their mortgages? That seems to me to have been a logical thing to do.
I ask the Minister to explain to the House why the supervisory period is three years here, when it is one year in the United Kingdom. While I would think that even though there would be a lesser incentive for Irish people to obtain residency in the United Kingdom now that the period has been so reduced, a difference still exists. I have some difficulties and problems with the Bill. The Minister and I had a little joust about the fact that he said the Bill does not provide for any process whereby negative equity can be "automatically" written off. There is a substantial difference, in my opinion, perhaps not in the Bill but in the Minister's speech, between being written off, full stop and being written off automatically. If the negative equity is written off automatically it does not leave any room for manoeuvre.
As much information as possible should be provided on how the personal insolvency practitioner will work, on the funding available to make the process manageable and on whether there will be sufficient personnel in the courts. There has been no regulatory impact assessment provided by the Minister. I respectfully request such an assessment, which is a statutory requirement, because without it the debate is incomplete.
I am concerned that upfront fees must be paid by debtors before they submit an application and receive a judgment. If they are in financial difficulties already, presumably the fees paid to the personal insolvency practitioner will make that situation considerably worse, particularly if the debtor is not eventually granted a debt relief notice. The limit of ¤20,000 means that only 15% of the clients of MABS would qualify and in that context I suggest, in line with the recommendations of the Free Legal Advice Centres, FLAC, that the limit be raised to ¤30,000 to make it more realistic. The question of the net disposable income limit of ¤60 or less and the items that are excluded from that, also worries me. Reference is made to household items and equipment necessary for work but such items are not listed and the provision is very vague. We do not know categorically what can be excluded. We must examine that section of the Bill closely and ask the Minister to provide a list of the items concerned, which he has not done to date. The asset limitation of ¤400 needs to be increased because it is very miserly. The value of a debtor's motor car is set at ¤1,200 which seems extraordinarily low. My own car might just qualify but I am hoping not to become insolvent just yet. The Bill provides that if a car - or other goods - is part of a hire purchase agreement, it is affected by the application for debt relief. The treatment of hire purchase agreements should be flexible enough to allow MABS to apply to the Insolvency Service of Ireland to have the hire purchase agreement continued, notwithstanding the application for a debt relief notice. Under the legislation as drafted, the hire purchase agreement must be terminated and in that case, the debtor would then be without a car.
There are many aspects of this complicated legislation that require a good deal of teasing out. I do not always agree with my colleague, Senator Byrne, who, like myself sometimes has an abrasive manner but I agree with him that this is a very significant Bill. I have not had time to put anything like the degree of reservations or questions I have on it to the Minister. I look forward to further discussion of the legislation and I hope the Minister will be open to suggestions from all side of the House in terms of amending the Bill. I have put forward some of my reservations and I welcome the fact the Minister has stayed in the House for this discussion. I hope this House will be used to fill the lacunae that the Minister has acknowledged exist in the legislation. The Minister can make use of the Senate as a place where valuable ideas can be obtained and incorporated into the Bill to the benefit of everyone.
I thank the Minister for attending and particularly for staying for the entire debate, given that he could have nominated someone in his place and have his officials take notes.
There are two sentences in the Minister's speech which sum it all up for me. The first is: "Lenders must engage properly with customers.". The second is: "If our financial institutions refuse to engage, then we will in the future, have to refine our approach to debt resolution". That says it all. The financial institutions have been given the opportunity to come to the table and make an agreement with parties. There has been much comment on the issue of a bank veto but there is no bank veto here. A veto cannot operate if an agreement has been made. If the financial institutions do not agree, we may have to revisit this legislation. If they are not prepared to work with the relevant parties to try to ensure that debtors are given the opportunity to come out of their insolvency, then our approach may change.
I will not go back over issues that have been raised already but I am concerned about the personal insolvency practitioners. Many of the people who are in a financial black hole and who could potentially benefit from this legislation are there because of unwise financial decisions. In that context, I am concerned that the legislation does not spell out who the personal insolvency practitioners will be. I know there is an insolvency group in the State but it is primarily made up of lawyers. I understand that the Minister is trying to be flexible within the legislation so that personal insolvency practitioners are not pigeonholed but there is a gap that may allow people to set themselves up as practitioners, with knowledge, experience and ability, to advance a deal or arrangement with banks on behalf of their clients.
This is something we should consider. I do not know if there is a minimum requirement or the position internationally but I am concerned that people may be hoodwinked by individuals who set themselves up as insolvency practitioners. I do not think the issue has been addressed thus far in this debate, although it may have been addressed in the other House.
I am loth to say so, but I agree with Senator Ó Clochartaigh regarding homeowners. I hope they are the principal beneficiaries of this legislation, although I doubt it will be possible to offer them a higher level of protection. I do not have sympathy for those who gambled on buy-to-let properties or borrowed irresponsibly on commercial units.
When I met with representatives from the Irish Banking Federation, they appeared reluctant to negotiate capital. While I am not old enough to remember the last boom and bust cycle of the 1970s and 1980s, I know that interest rates were very high during that period. The banks did not find it difficult then to write down compound interest but they have always found it difficult to remove capital. I am concerned they will be slow to come to an agreement on capital in the context of the current low interest rates.
I thank the Minister for remaining in the Chamber. He has shown respect for the House by staying for the entire debate.
I join my colleagues in welcoming this Bill as a major step forward for the many thousands of homeowners with mortgage difficulties. Many are feeling hopeless and they do not see light at the end of the tunnel. I agree wholeheartedly with the Minister that people must be treated fairly. They should be able to enter into sensible negotiations with the financial institutions and common sense must prevail.
Small and medium enterprises are a hobby horse of mine. There is a lack of knowledge about what is happening to this sector. I know of businesspeople who have lost their homes or are deep in debt yet have invested their last euro in keeping their employees in jobs.
Financial institutions have been recapitalised to the tune of ¤60 billion despite their mismanagement of their affairs. They are now being given a veto over whether an individual or business should qualify for a personal insolvency arrangement. These same institutions encouraged borrowers to take out 100% loans. Most of the businesspeople I know want to negotiate with their banks in order to pay whatever is possible and reasonable but the Bill gives the banks the casting vote on whether a deal can be agreed. Debtors can threaten bankruptcy but most people do not want to go down this route. They want to rebuild their lives and dreams but is this Bill sufficiently balanced to provide equality of outcomes?
The regeneration of small and medium enterprises will aid in the recovery of our economy. I am confident that the Minister will encourage the entrepreneurial spirit of our people. When people have lost everything they need hope. This Bill offers hope to many people throughout the country.
I thank Senators for the detailed consideration they have given to the Bill. This is a complex piece of legislation that seeks to achieve a balance between the difficulties of debtors and the rights of creditors. It seeks to ensure that assistance is provided to people who are truly insolvent and genuinely cannot pay their debts while not allowing those who can pay a mechanism to either defraud creditors or evade payment. It also has to achieve a balance in a broad range of other areas.
Some Senators were rightly critical of the conduct of financial institutions during the boom years, when they were throwing money at people like confetti at a wedding without undertaking sensible due diligence or assessments of individuals' capacity to pay. They were frequently conflicted in their interests. Some of the financial institutions were throwing large sums of money at mortgage applicants to purchase homes or properties for investment and rental purposes while also funding the developers who were constructing the homes and apartments for which the mortgages were being created. There was never a declaration of interest on the part of financial institutions in those circumstances. They never explained to the individuals who were making decisions to purchase that they had a vested interest in, for example, the sale of a block of flats in order to recoup from developers the funds they lent for the acquisition of the land and the cost of construction. During the boom nothing was a flat and everything was an apartment, regardless of how minuscule the property may have been. However, many people also borrowed money on the assumption that property values always increase. They borrowed sums which they did not have a realistic capacity to repay in monthly payments because they hoped to make a capital killing. Those who bought early and sold early were successful. Those who bought wisely and carefully, and stayed away from boom prices, may also have been successful. A great many others are now in financial difficulties.
I listened to Senators who spoke generally. The legislation has, rightly, specific provisions aimed at protecting those who are in financial difficulties in their family homes by use of the personal insolvency arrangement. A provision allows for a debt settlement arrangement to be agreed with the assistance of a personal insolvency practitioner to allow individuals, either on their own or with families, to retain reasonably sized homes, be they apartments or family homes for themselves and their spouses or partners and children. The Bill also envisages that where a home is of substantial value or particularly expensive to run and where there are creditors, the arrangements entered into would ultimately provide for the sale of the home and some of the money would be used for discharge of creditors.
Where there are creditors, the arrangements that are entered into will provide for the ultimate sale of the home and for some of the money involved to be used to discharge debts relating to those creditors.
A question was posed about what would be the benefit of a personal insolvency arrangement and the suggestion was made that banks and financial institutions have some sort of veto. The benefit of the arrangement to a debtor who is truly insolvent is that instead of going into bankruptcy, he or she will have the opportunity to retain his or her home. It also provides light at the end of the tunnel and the possibility, over a period of years, that the individual involved can work through a portion of his or her indebtedness and that some of this will ultimately be written off. In such circumstances, the person will emerge from the arrangement after five or six years with his or her home still intact. Furthermore, these arrangements will provide people with protection by preventing the financial institutions to which they are indebted from obtaining orders for repossession before the courts and forcing the sale of homes. They also allow people to avoid the necessity of bankruptcy. These are particular, unique and direct arrangements which are designed to provide protection for the possibly many thousands of people throughout the country who are truly insolvent and experiencing real difficulties but who have an income stream and who, if arrangements are entered into with their creditors, have real hope for the future, without their families being unduly disrupted. Those are the benefits of the mechanism in question.
The banks do not have a veto. Senators must bear in mind the context of this. Both creditors and debtors have rights. Financial institutions are not singly and solely the only creditors in this instance. Most individuals who are in difficulty with their mortgages - some of whom are in negative equity and genuinely cannot meet their debts - are not in a position to make their repayments, but they may also be indebted to a variety of other creditors. There must be balance and fairness. As I explained in the context of the PIA, a weighted majority vote can take place among creditors in order to agree to a debt realignment or rearrangement. A financial institution or institutions must have the right to vote in those circumstances. Where someone's position may become viable after a period of years, thereby creating the possibility of some of their debts being repaid, not only would it be to their advantage to retain their home, it would also be an advantage to the financial institution involved. On entering an accommodation, a financial institution will have the advantage of not being obliged to deal with a bankruptcy situation or of not being obliged to watch the property involved being sold at a very low price. In addition, there will be a possibility that it will be able to recoup, over a period of years, a greater proportion of the loan than would otherwise be the case. If an individual exits a PIA in circumstances in which he or she is more financially sound and retains his or her home, mortgage repayments may go on for a considerable number of years. Those of us who have had mortgages have paid them over similar periods.
The key to all of this is that where people are genuinely insolvent and cannot make repayments, where they are in negative equity and where there is a substantial capital loan on a property, the value of which is significantly greater than that of the property and the person's other assets, banks will be obliged to put clear arrangements in place. The banks will finally have to accept that there are individuals in respect of whom there must be capital write-off of a portion of their loans.
One of the aspects we tend not to notice when debating this matter is that despite the fact that many people throughout the State are in financial difficulties and that any family confronted by a court order for repossession is a family in distress, extraordinarily few repossessions have taken place in the four years of the current crisis. There have been in region of 200 to 300 repossessions each year. If we examine the figures from the United States in proportionate terms, it is clear there have been many thousands of repossessions over the same period. The one thing the financial institutions in Ireland have done is to enter into debt forbearance and other arrangements with tens of thousands of people in order to try to keep them in their homes and to give them space to come to terms with rearranging their financial circumstances. One cannot permanently kick the can up the road. There will be arrangements under the PIA process which will involve debt forbearance. Arrangements involving debt forgiveness or some level thereof will also have to be put in place in respect of certain individuals because such arrangements will offer the only way to bring about change.
The financial institutions must realise that if they do not deal with this matter in a reasonable and considered way, some individuals may choose bankruptcy in order that they might exit all of their debts after three years. A question was asked with regard to why an appeals system is not being put in place. There is a good reason for that. In effect, what we are concerned with here are non-judicial debt settlement arrangements. What is the nature of such an arrangement? It is an agreed arrangement between debtors and creditors. There are constitutional constraints in the context of simply writing off debt arbitrarily. What we are trying to do is to create a mechanism that will not result in thousands of unnecessary court hearings which will give rise to the possibility of debtors and creditors spending tens of thousands of euro on legal representation in their pursuit of some form of court-ordered resolution. The mechanism we are putting in place is designed to provide an agreed arrangement. Such an arrangement will be brought about with the assistance of an intermediary, namely, the personal insolvency practitioner. It has been suggested that those who will act as personal insolvency practitioners will be drawn from the ranks of accountants and solicitors only. Clearly, there will be accountants and solicitors who will engage in this sort of work. However, a broad range of financial intermediaries have the skills to work in this area. There are people who work in mediation who would also possess such skills. I am loath to say it for fear of creating undue excitement but there are probably some retired bank managers who could move from being poachers to being gamekeepers in this regard. Having a knowledge of what they are dealing with could allow the latter to operate skilfully in this area.
Senator Norris said the Bill was not complete. I have always been of the view that both this House and the Dáil are engaged in a legislative process. The Bill has undergone a complex developmental stage. When they were published, the heads of the Bill were submitted to the Joint Committee on Justice, Defence and Equality. When the Bill was introduced, it was the subject of a Second Stage debate in the Dáil before being referred to the joint committee for further hearings. As we have proceeded, it has been developed further. With regard to personal insolvency practitioners, substantial regulatory provisions will be put in place. We have been engaged in a wide-ranging consultation process in respect of the different modalities which obtain. The amendments relating to that matter will - out of respect for it - be dealt with in this House. The Seanad is well equipped to deal with those amendments. When we have dealt with them, that part of the Bill to which they refer will have to be referred back to the Dáil.
A question was posed as to why the courts are involved. The courts are only tangentially involved. If, for example, a personal insolvency practitioner secures agreement among the proportionate number of creditors and the debtor and if the insolvency agency has checked all the paperwork and found everything to be in order, the matter will then go before the courts, which will have sign-off in respect of whether it is a debt relief notice, debt settlement arrangement or personal insolvency arrangement. These arrangements will have the authority of the courts and this will ensure that those who enter into them will not - in the years during which they are a party to them - be capable of being sued for any outstanding debts. These arrangements give debtors that protection. This will ensure that when the new regulatory framework is put in place in the European Union, the insolvency resolution process in Ireland will be a recognised court resolution process. In so far as it provides protection, a debtor will never need to appeal to the courts in the context of one of these new resolutions because he or she will have agreed to it. Protection will be provided for creditors who may have been excluded from or not notified of the process. A creditor who believes a debtor has concealed all sorts of financial assets and resources may go before the courts. By and large, the majority of these applications will be dealt with relatively speedily within the courts system and a protective mechanism will be provided.
Senator Quinn referred to a particular issue in the context of bankruptcy and I want to respond to this because it also involves the courts. This is the possibility that after three years, a person could have a further five years imposed on him or her. The legislation involves recognising that people make bad business decisions on occasion, that they get things wrong and that they get themselves into debt. When I became Minister, a person could be bankrupt for the remainder of his or her lifetime. In the 2011 Act, the term of bankruptcy was reduced to 12 years.
It is now coming down to three years. It is to give people an opportunity, because if one is an entrepreneur and one gets it wrong, one can eventually get one's life back on track again. There are very discrete circumstances in which bankruptcy can be extended for an extra five years. It is probably the only section to which I will have time to refer, namely, section 146, which inserts a new section 85A into the Bankruptcy Act. The circumstances in which that will happen is where an individual who has been made bankrupt either failed to co-operate with the official assignee on bankruptcy in the realisation of assets or hid from or failed to disclose to the official assignee income or assets which could be realised for the benefit of creditors. That is where it can be extended. It cannot be generally extended simply on a whim or discretion.
I am conscious that I have not had an opportunity to deal with a myriad of issues that have been raised. I apologise to Senators for not getting to some of them. I have no doubt that we will get an opportunity to address many of them as we take Committee Stage of the Bill and I would be very happy to do that.
I will conclude in a single sentence. This is complex legislation. It deals not simply with home mortgages and difficulties in that area but with insolvency generally. It is designed to bring our insolvency architecture into the 21st century. It is designed to give real hope to people who are currently mired in debt, that there is a structure through which they can work to resolve their indebtedness issues. It is designed to provide a mechanism to bring debtors and creditors together in circumstances where frequently they would normally be at arm?s length and many of them would end doing battle in the courts with each other. It is designed to do it in circumstances in which the costs are kept to a minimum.
The final point to be made, because it answers a question raised by a number of Senators, is that personal insolvency practitioners will not be paid simply by the person who is indebted. The personal insolvency practitioners may not get paid at all, unless they succeed in bringing about a debt resolution. Their payment will basically be appropriate fees for work done, as agreed by the debtor and creditor, because if there is a debt resolution, be it a debt settlement arrangement or personal insolvency arrangement, their fees will come out of the pool of money from which creditors themselves hope to benefit in recovering some of the debt due to them. There is going to be not just a debtor who has an interest in ensuring that fees are reasonable, there is going to be a creditor or perhaps a series of them, who are anxious to ensure they are kept reasonable. There is a similar procedure in place in the United Kingdom for our equivalent of the debt settlement arrangement. They do not have a personal insolvency arrangement equivalent in the United Kingdom. In the UK where they have been working this and now also in Northern Ireland the fees have reached a level that is reasonable and appropriate because basically they are under the microscope every time there is a meeting between debtors and creditors. It will find its own level but there will be some regulation and oversight. As Members will see when we get to Committee Stage there will be a substantial additional Part to be put into the Bill to deal specifically with the regulation of personal insolvency practitioners.