Thursday, 17 December 2015
Bankruptcy (Amendment) Bill 2015: Second Stage
On behalf of the Minister for Justice and Equality, Deputy Fitzgerald, who regrets that she cannot be here, I am very pleased to present the Bankruptcy (Amendment) Bill to the House, and I look forward to hearing Senators' contributions. It is a very significant reforming Bill, and I will highlight its main objectives.
The Bill proposes three key changes to bankruptcy law in Ireland, as follows: the normal duration of bankruptcy is reduced from three years to one year; the normal duration of a bankruptcy payment order - the payments a court may direct the bankrupt person to make towards his or her creditors - is reduced from five years to three years; and a bankrupt person's legal interest of his or her home will, in general, transfer back to him or her automatically three years after bankruptcy adjudication, if the official assignee in bankruptcy has not taken steps to sell it before that date.
These are important changes. They recognise that bankruptcy is not an easy option and that the large majority of bankrupt people never intended to end up in bankruptcy, and have already co-operated in an open manner with the bankruptcy process and handed over their income and assets towards repayment of their debts. For these people, the reforms contained in this Bill offer a second chance. They will be able to exit bankruptcy and return to normal economic activity much more quickly, in line with the position in England, Wales and Northern Ireland. It is good for them and good for our economy.
The Bill ensures significant sanctions to deter and penalise anyone who tries to abuse the bankruptcy process or to conceal his or her income or assets from creditors. In such cases, the High Court will retain the power to extend the bankruptcy term to up to eight years, and to extend the duration of a bankruptcy payment order to up to five years. A new provision will allow the High Court to extend the bankruptcy term to up to 15 years, where it is satisfied that there has been particularly serious non-co-operation or concealment.
The Bill modernises key aspects of bankruptcy procedures. It will achieve the following: abolish the outdated requirement for an extra High Court hearing, the so-called statutory sitting, in all bankruptcy cases; enable the official assignee to disclaim onerous properties, which would effectively impose net costs on the taxpayer; and ensure that the official assignee has clear powers to demand and investigate electronic records relating to a bankrupt's assets and affairs. While these changes are procedural, they are, nevertheless, vital, given that they will remove unnecessary costs and delays, free up court time and resources, and allow more efficient and effective bankruptcy administration. The Bill provides for appropriate transitional arrangements, so people already in bankruptcy will also get the benefit of these reforms subject, at maximum, to a six-month transitional period.
The Minister for Justice and Equality has already acknowledged in the Dáil two major contributions to the thinking behind this Bill. One was the Private Members' Bill, sponsored by Deputy Willie Penrose, which was published in March this year and whose provisions have been incorporated into this Bill, subject to some necessary amendments. The other was the report on bankruptcy reform by the Oireachtas Joint Committee on Justice, Defence and Equality, which was undertaken last summer at the Minister's request. The joint committee held a public consultation and examined over 100 submissions before providing the Minister with its report in July which, likewise, recommended reducing the bankruptcy term to one year. The Minister wishes to again express her appreciation to the joint committee for its extensive work, as well as the Oireachtas joint committee on finance and the many stakeholders and individuals who made valuable submissions.
This Bill to reform bankruptcy law will not operate in isolation, but will complement the significant reforms the Minister has already introduced to personal insolvency law, with the enactment earlier this year of the Personal Insolvency (Amendment) Act and the commencement in recent weeks of its new independent court review of the so-called “bank veto”, where creditors reject a personal insolvency proposal. A number of review cases have already been lodged with the courts. The Government has also taken important steps in recent months to reduce costs and increase accessibility of insolvency and bankruptcy procedures. This includes the Minister's decision to waive court and insolvency service fees for insolvency cases, and to substantially reduce bankruptcy costs. It also includes the implementation of a nationwide network of dedicated mortgage arrears services in Money Advice & Budgeting Service, MABS, centres. MABS and the Insolvency Service of Ireland, with the co-operation of the Courts Service, are already ensuring a presence at all Circuit Court hearings around the country for repossession, to provide information and support for those in mortgage arrears on their homes. This is a very important initiative. On behalf of the Minister, I urge anyone worried about debts, particularly anyone at risk of repossession, to contact MABS which will put them in touch with the help they need.
I will outline the thematic provisions of the Bill. Under section 10(a) of the Bill, the normal duration of bankruptcy will be reduced from three years to one year, as recommended by the joint committee in its report. This will also correspond to the position in England, Wales and Northern Ireland. The joint committee report expressed concern that reducing the bankruptcy term should not benefit bankruptcies which appeared to be deliberate or fraudulent. The Bill responds to this concern by retaining provision for a considerably longer bankruptcy term of up to eight years where the court is satisfied that the bankrupt is not co-operating with the bankruptcy, or has tried to conceal assets or income. The Bill also allows for longer extension in particularly serious cases of non-co-operation or concealment.
Bankruptcy payment orders are court orders made on the application of the official assignee which require a bankrupt to make payments for the benefit of his or her creditors from any surplus income or assets after reasonable living expenses for the bankrupt and any dependents. Section 12 of the Bill will reduce the normal maximum duration of a bankruptcy payment order from five years to three years. However, the maximum five-year duration will still apply in cases where the court is satisfied that the bankrupt has not co-operated with the bankruptcy, or has tried to conceal assets or income. When a person becomes bankrupt, his or her interest in any property he or she owns, including his or her home, passes automatically to the official assignee, whose duty is to sell it, if feasible, to repay creditors.
Section 61 of the Bankruptcy Act protects any spouse or civil partner of the bankrupt, by requiring the official assignee to apply to court for leave to sell the home if it is a family home under the Family Home Protection Act 1976, or a shared home under the Civil Partnership Act 2010. The official assignee will try to dispose of the bankrupt's interest in the property, preferably to the spouse or civil partner. However, in many cases, and particularly where the property is in negative equity, no purchaser can be found. Section 10(c) of the Bill proposes a practical solution in such cases, by providing that the bankrupt's interest in the home will automatically revest in him or her three years after the bankruptcy adjudication, unless the court orders otherwise, the bankrupt and the official assignee agree otherwise, or the official assignee has sold it or applied for a court order authorising sale before that date. A similar provision already applies in England and Wales. This applies to the bankrupt's home at the date of bankruptcy adjudication, whether it is his or her family home, shared, civil partnership, home, or principal private residence as a single person. This will also allow for more efficient and cost-effective administration of bankruptcy cases, particularly those with very limited resources. Given that the bankrupt's interest in his or her home remains subject to any mortgage, the position of the mortgage lender is not affected.
The Bill introduces at section 11 a new power for the court to extend the bankruptcy term up to a total of 15 years on application by the official assignee, where the court considers it just to do so in cases of particularly serious non-co-operation or concealment by the bankrupt. This arises because a relatively small number of bankruptcy cases feature particularly serious and flagrant levels of such conduct by the bankrupt, for which there is currently no adequate deterrent.The new 15-year maximum term is modelled on the approach in the US and UK. In the USA, a bankrupt's debts are only discharged if he or she has co-operated with the bankruptcy trustee, which is equivalent to our official assignee. In the UK, legislation allows the bankrupt to remain subject to a bankruptcy restriction order in cases of non co-operation, which continues bankruptcy restrictions for up to 15 years.
Section 4 of the Bill will abolish the requirement under the Bankruptcy Act to hold an additional sitting of the High Court in every bankruptcy case some weeks after adjudication, which must be attended by the bankrupt, the creditors and the official assignee.The original purposes of the statutory sitting are now superseded. It is widely seen as an outdated formality which is a major strain on court resources. It also creates unnecessary legal costs and workload for creditors and the official assignee, and further stress to debtors, who are largely unrepresented and have already gone through a public adjudication hearing. Its abolition will free up considerable time for the courts and the official assignee and will also benefit the parties involved.
Sections 6, 7, and 15 of the Bill will clarify the wording of several provisions in the Bankruptcy Act to put it beyond doubt that electronic as well as paper records are covered by the powers of the court or the official assignee to demand accounts and records for the purposes of investigating a bankrupt's affairs. This is important to assist the official assignee in investigating a small number of high-asset cases in which a bankrupt may have concealed assets.
The next item is the power of the official assignee to disclaim onerous assets, which is an important provision. Section 8 of the Bill will allow the official assignee effective power to refuse to accept responsibility for any property of the bankrupt which is likely to generate substantial costs and where there are no funds in the bankruptcy estate to cover these costs. When the official assignee takes over a bankrupt's property, he becomes legally responsible for any costs and liabilities arising from it. These can include unpaid rates, property tax, management charges, essential repairs, ongoing security and insurance for properties which may not be generating any revenue. At the same time, the official assignee has no power to compel any contribution from the secured lender who is entitled to receive any proceeds from the sale of these properties. Consequently, these costs risk being imposed on the State and the taxpayer. The current provision for disclaim in the Bankruptcy Act effectively only applies to liabilities arising under a lease, which does not cover the many types of liability mentioned above. In the UK this problem was addressed by the Insolvency Act 1986, which gives the official assignee a broad power to disclaim any onerous property. It means that such costs are, more appropriately, the responsibility of the secured creditor who will receive the benefit of the property concerned. The proposed amendment in this Bill follows the same approach. It will generate considerable savings for the State and the taxpayer, as well as improving the overall efficiency of bankruptcy administration.
In terms of transitional arrangements, any bankruptcy already existing when the Bill comes into effect will also benefit from the changes introduced by this Bill, subject to a six-month transitional period. This reflects the six-month transition period that was provided previously when the bankruptcy term was reduced from 12 years to 3 years by the Personal Insolvency Act 2012. It is needed to ensure a smooth transition and to enable the official assignee to make any necessary applications to the court for extension of time in cases which raise issues of non-co-operation or attempted concealment.
Under the transitional provisions, and assuming that there are no grounds for extension, the following occurs. First, an existing bankruptcy which is to terminate three years after adjudication and is due to terminate less than six months after the commencement date of the Bill will terminate on its due date. Other existing bankruptcies will now terminate one year after adjudication or six months after commencement, if that is the later date. Second, an existing bankruptcy payment order due to expire five years after it was made by the court, if it is already due to expire less than six months after the commencement date, will terminate on its due date. Other existing bankruptcy payment orders will now expire three years after they were made or six months after commencement, if that is a later date.
The provision for re-vesting of the bankrupt's interest in his or her home applies to a bankruptcy which exists at the date the Bill comes into effect. Re-vesting would take place, subject to the exceptions that I have already outlined, either on the third anniversary of adjudication or six months after the commencement date, whichever is the later.
I will briefly mention the specific provisions of the Bill. The technical content and effect of each section is set out in the Explanatory Memorandum.Sections 3 to 5, inclusive, abolish the mandatory requirement for a statutory sitting. They replace references to the statutory sitting in other sections of the Bankruptcy Act. Sections 6 and 7 amend sections 19 and 21 of the Bankruptcy Act. They clarify that the powers of the official assignee and the High Court to require the production of a bankrupt person's accounts and records extend to electronic records. Section 8 is the provision for the official assignee to disclaim onerous properties.
Section 9 clarifies section 61 of the Bankruptcy Act regarding the protection of a family home under the Family Home Protection Act or a shared home under the Civil Partnership Act 2010. These changes will aid the interpretation of section 10 of the Bill regarding the re-vesting of the bankrupt's home. Section 10 is the important provision for reduction of the bankruptcy term and re-vesting of the bankrupt person's home with the relevant transitional arrangements. Section 11 provides the new power for the court to extend the bankruptcy term for up to 15 years in cases of particularly serious non co-operation or concealment.
Section 12 reduces the normal duration of a bankruptcy payment order from five years to three years, with the relevant transitional arrangements. If the court is satisfied that there has been non-co-operation or concealment by the bankrupt, however, the maximum duration remains at five years. Sections 13 and 14 are consequential amendments and both replace references to the statutory sitting. Section 15 is a further amendment to clarify that electronic records are included in section 123 of the Bankruptcy Act, which provides that it is an offence for a bankrupt person to withhold, conceal or falsify records of their affairs.
As every Senator in this House is aware, the background of our economic crisis means that those now entering bankruptcy, or already in bankruptcy, have already struggled with unsustainable debt and managed on very restricted incomes for several years. The measures in this Bill will provide these people with a much-needed light at the end of the tunnel and an earlier return to normal economic activity. As the Small Firms Association underlined in its submission to the joint committee's bankruptcy review, reducing the term to one year will, in particular, provide that vital second chance for a small entrepreneur to restart in business.
At the same time, the Bill includes strong provisions to ensure that any bankrupt person who tries to conceal his or her resources from creditors or evade his or her obligations will end up with a longer bankruptcy term and a longer bankruptcy payment order. The Bill makes important changes to modernise bankruptcy procedures, reduce unnecessary costs and ensure that the official assignee has effective powers to focus on the small minority of bankruptcies in which there may be issues of fraud and concealment. This Bill is a further example of the Government's commitment to bringing forward reforms to ensure a more enlightened, less punitive and less costly approach to addressing intractable debt, and a fair balance between the interests of debtors and creditors. I commend this Bill to the House.
I welcome the Minister of State. I can confirm that Fianna Fáil supports the Bill, but we have certain reservations. I remember debating the original Act of 2012 when the then Minister, Deputy Alan Shatter, was before the House. At the time, myself and other Senators argued strongly that the bankruptcy term should be reduced to one year, primarily because at the time one had a significant number of people travelling to the United Kingdom. It seemed at the time - and still seems to be the case, which has now been recognised by the Government - that enormous difficulties are created by having two separate terms of bankruptcy when two jurisdictions are located close together. I commend Deputy Willie Penrose-----
The Deputy initiated this process through his Labour Party. Such endeavour proves that even a backbencher in Government can have an influence far beyond what his or her humble backbench status might suggest.
I have been surprised by three things. First, I am astonished at how fast this change has taken place in legislative terms, because the process usually grinds very slowly. Second, the matter was accepted by the two parties in Government. Third, they moved very quickly to put the Bill before both Houses and have the legislation signed into law.
I wish to put on the record my view that bankruptcy is not a panacea. In fact, from the debtor's perspective, while a reduction of the bankruptcy discharge term to one year might seem attractive, bankruptcy retains some very severe disadvantages and restrictions and is not to be entered into lightly. Proponents of a reduced discharge period cite the increased probability of the bankrupt retaining the family home, but that view flies against the facts. Some 75% of bankrupts end up losing the family home. The bankrupt is persona non grata with banks, will lose his or her bank account and credit cards and is disbarred from seeking credit in excess of €600. The bankrupt's credit rating is effectively destroyed. The bankrupt may lose his or her job due to bankruptcy status and may well be disbarred from seeking certain forms of employment. The bankrupt may not become a company director for the period of bankruptcy. That is the reality.
We on the Fianna Fáil side of the House take some issue with the Government's foot-dragging in certain areas, particularly over the past four years, in terms of taking action to remove the bank veto.It was only as a result of questioning last month by Fianna Fáil in the Dáil that the Minister for Justice and Equality signed the commencement order this week for the remaining provisions of the Personal Insolvency (Amendment) Act 2015. Not one family has, as yet, benefited from this provision owing to Government delays in this regard.
There is also the prospect of EU harmonisation of bankruptcy arrangements. Perhaps the Minister might a view on this issue. In its recommendation of 12 March 2014 on a new approach to business failure and insolvency the European Commission suggested entrepreneurs be discharged after three years. I support this recommendation. At the time I contributed to the debate on the original Bill I argued in favour of a reduction to one year. I wonder whether a future Government might get caught if European Union harmonisation was to proceed? Would it mean another change in the law or would subsidiarity come into it or are we master in our own house?
A one year term would make the financial institutions engage more with debtors in reaching meaningful solutions and encourage further engagement with the debt settlement arrangement or personal insolvency arrangement processes. From that point of view, it would be welcome. Also, as suggested, the benefits of economic recovery would be passed on to all citizens by allowing those with crippling levels of debt associated with credit obtained during the economic boom to move on from that debt. This would allow the debtor to return to economic normality much faster. I am sure all sides of the House agree that it is necessary to aid the economic recovery of the State and enable many of those caught up in bankruptcy to become positive contributors to the economy as quickly as possible. In fact, there is a long-standing view in the United States that one is not a success in business unless one has been bankrupted at least once. I am not suggesting for one moment that that is the route people should take, but there has not been the same stigma attached to bankruptcy or liquidations in the United States with its strong pro-enterprise culture as, perhaps, there might be in Ireland or elsewhere in Europe. It is the one aspect of the legislation that I welcome in that it allows an opportunity for those who were imaginative, creative and entrepreneurial-minded and failed to get back up again. There should be no stigma attached to it. One should applaud those who have been defeated in their initial attempts in the world of business and been made bankrupt. That they can now get out of bankruptcy after a relatively short period is welcome.
The other aspect is the mortgage arrears crisis. We suggest that reducing the bankruptcy term will not solve the mortgage arrears crisis. Reducing the bankruptcy term is one element of a far wider programme of measures needed to deal with families and businesses in financial difficulty. There are more than 38,000 families in mortgage arrears for more than two years. The reality is that bankruptcy will not be a silver bullet for most of them. The Minister for Finance said earlier this year that those declared bankrupt could lose the family home. The people concerned then become homeless and have to seek social housing from local authorities as a result, which constitutes another crisis. Bankruptcy may be suitable in certain circumstances, but it is not a solution for the vast majority of households the primary financial difficulty of which relates to being in arrears on their mortgage. We provided the Government with a template in the Family Home Mortgage Settlement Arrangement Bill 2014 which would have adapted the under-utilised Insolvency Service of Ireland to allow a dedicated mechanism to be put in place to deal with the issue of the family home.
A new Central Bank report which looks at the causes of long-term mortgage arrears shows that the amounts by which those in long-term arrears have fallen behind in their repayments are increasing in more than 80% of cases. This indicates that there is a large cohort of mortgage borrowers who have not had an adequate repayment restructuring plan in place. The timely research from the Central Bank highlights very clearly that the current approach taken in dealing with serious arrears cases has not worked and is not going to work. It is not surprising that high variable interest rates have driven many families into long-term arrears as they typically end up with a mortgage repayment several hundred euro higher each month. It is unacceptable that such high mortgage interest rates are charged at a time when the economy is trying to recover. It is a penal measure by the banks. The public has never been able to understand why when the State practically owns all of AIB and has a 15% share in Bank of Ireland the banks have been thumbing their noses at the Government in recent years on the issue variable interest rates.
Overall, we welcome the Bill which will go some way towards making life a little easier for those who are anxious to get back into business and make a contribution to an expanding economy.
On a daily basis I welcome the Minister to the House. He is always welcome because his insight, including into this legislation, is very positive. Senator Pashcal Mooney's contributions are always constructive and it was no different on this occasion.
This legislation is badly needed. I respectfully suggest to all concerned that were it not for the efforts of Deputy Willie Penrose, it would not have been brought forward. Sometimes it requires somebody sitting in the back row at a parliamentary party meeting to continue to raise an issue week in, week out, month in, month out to finally focus people's minds. In many ways, those who find themselves in difficulty are vulnerable. What were we doing to solve the problem? We were exporting it, similar to the way thousands of women who find themselves in a difficult situation have to travel abroad, which is equally unacceptable. If the next Government can follow the example being set in the context of bankruptcy and deal with the Eighth Amendment, that would be positive. Here is wishing and hoping.
The measure proposed is reasonable in that it provides that the time period for bankruptcy will be reduced from three years to one. It is reasonable also that a period of three years will apply if it is identified that people are not signing up to meet the spirit of what has been achieved and that the court will have the power to step in and deal with the matter. We have seen in too many cases that once something is done under company law, there is no way of dealing with the matter and undoing it. In this case, if a person gets a break and a chance but abuses it and does not co-operate in meeting his or her responsibilities, it is only right and proper that the court should be able to intervene. In such cases I always maintain that the family home should be protected, no matter what happens. Senator Paschal Mooney has quoted a figure which indicates that 75% of those who become bankrupt lose the family home. I would much prefer to see the flip side, whereby 75% of those made bankrupt retained the family home. Certainly, nobody with a palace should retain it. However, people deserve to live in a modest home and if their home is modest, I do not believe they should lose it. Obviously, if it is in the leafy suburbs of south Dublin, that is a different discussion and needs to be entered into the equation. It is an issue on which I would like to hear the Minister's thoughts.
I believe no Member of the Dáil - I am not sure how it works for Members of the Seanad - can be declared bankrupt; if that should happen, he or she loses his or her seat. I stand to be corrected on that issue, but perhaps the Minister might shed some light on it. I am not a constitutional law expert, but I believe the issue features somewhere in the Constitution. It is one that should be addressed because I am sure there are Members of the Lower House and possibly in this House who may find themselves in financial difficulty from time to time. It is not the way a democracy should work; just because a person finds himself or herself in financial difficulty and becomes bankrupt should not mean he or she cannot put his or her name on the ballot paper. The people should the judge as to whether he or she is capable of doing the job.
The Bill will help us to deal with the consequences of the financial crisis and the fact that the country was broke until a couple of years ago and that thousands of people found themselves mired in desperate financial difficulties.There can be nothing more lonely or soul-destroying than for a person with a small business, finding themselves going broke, having to spend one year to access bankruptcy either in the city of London, Scotland or Holyhead, as a former Member of the other House had to. If nothing else, this legislation amends the bankruptcy arrangements to allow people opt for the same option in this country as they could by going overseas.
I, too, welcome this legislation which is a positive move. It is important we facilitate people whose businesses have collapsed or who have unsustainable personal debts to make a fresh start and to be able to contribute to the economy again. I also note the Bill includes increased penalties in cases of non-co-operation and fraud. It is right to have that balance to support those who are genuinely co-operating and want to rebuild their lives while having disincentives for those who might try to take advantage of the situation. The Bill is in line with the recommendations of the Oireachtas Committee on Justice, Defence and Equality which considered this issue in depth, receiving 122 submissions on it, most of which were in favour of the reduction of the term to one year.
Reducing the bankruptcy term to one year will aid not just the individuals concerned, but the recovery of the State by enabling people caught up in bankruptcy to become positive contributors to the economy again. It is hoped it will encourage financial institutions to engage more with debtors and reach meaningful solutions prior to bankruptcy to ensure people do not have to take the nuclear option. It will bring Ireland into line with other countries such as the UK and Northern Ireland where the bankruptcy term is one year. It has been unfair that some who were in a position to do so were able to go to the UK for one year to have their bankruptcy discharged, while others who were not able to do so were stuck in Ireland, not able to avail of the opportunity. It is only fair everybody should be subject to the same terms.
It is also important to recognise that businesses fail. Senator Paschal Mooney referred to the entrepreneurial culture in the United States with the notion that one is not really a business person unless one has failed once or twice before hitting the big idea. We need to encourage greater entrepreneurship in Ireland and people to take the risk of setting up businesses. We cannot be overly punitive, making people feel they will lose everything and be left in a bankruptcy limbo for years if they fail.
There is much more that needs to be done to increase support for small businesses. We are good as a country at attracting foreign direct investment, bringing in significant job numbers from large multinational companies. While it is great a multinational may bring 500 jobs into the State, if it decides to pull out, that is 500 jobs gone overnight. To build a more sustainable economy and to ensure employment opportunities throughout the State, not just in key hubs, we need to support small and medium-sized enterprises, SMEs. SMEs are already our greatest employers. This is often lost when we talk about foreign direct investment and how good Ireland is at export manufacturing and areas like that. We must remember the backbone of the economy is the SME sector.
We still have punitive tax and social welfare arrangements for small businesses. While there was some movement on this in the budget, there is a need to ensure equalisation. It is unfair that those in small businesses have to pay higher taxes. It is also unfair that they are left with no social welfare entitlements when their businesses go wrong. I have dealt with several cases over recent years of people who had worked hard to build up their businesses. When times got tough, they did everything they could to keep it going and make sure they could pay their staff wages. Often they did not take any income home themselves just to keep on loyal employees who had been with them for years. Ultimately, they could not save the business and it went to the wall. Their employees were entitled to social welfare but they were not. That is unfair and needs to be examined.
The Bill provides that those who are already in the bankruptcy process will have to wait a further six months - a transition period - before they can be discharged. A concern raised with me is that this potentially could lead to 1,000 existing bankrupts falling due for their dates to be discharged on a single date six months after the passing of the legislation. Will the Minister of State clarify if that is the case? Will all these people have to wait the full six months and then will they all fall to be considered at the same time? That would put a significant burden on the Insolvency Service of Ireland, ISI, and I do not know how it would deal with that. Is there a potential for this process to be delayed? Can the ISI use the six-month period to discharge the bankrupts in question on a staggered basis? Can it start immediately bringing some people out of bankruptcy and ensuring all 1,000 people are dealt with in the next six months? If they have to wait, there is the potential of a logjam. This would be unfair on those who have been in the process already for years and have more than passed the one-year requirement while waiting to be discharged. A transitional period of six months was provided previously when the term was reduced to three years but there were not as many people then who were hitting the threshold at one time as there will be when this legislation comes into place.
I welcome this legislation and, in particular, pay tribute to my colleague, Deputy Willie Penrose, who personally and unrelentingly championed this legislation. There are significant benefits to be gained from these changes to the bankruptcy laws, not least that on the island of Ireland there will be one period for bankruptcy. We will not have what can be loosely termed as bankruptcy tourism for certain people who can afford to avail of it.
Many decent people, particularly those in small businesses, put everything on the line. In certain circumstances, unfortunately, they put their family home on the line as well as their other assets to secure their businesses. However, some have found themselves in a position where they have, unfortunately, had to go down the route of insolvency and bankruptcy. Ireland is notoriously a country where the level of debt repayment is exceptionally high. The level of default on mortgages, historically, was especially low. Irish people are noted for paying their debts. We are not a country where people enter into debt or default on debt lightly. It is right and proper that we have taken the bankruptcy and insolvency process to a point where it will work.
Unfortunately, as has been mentioned, this has been slow in coming. The legislation introducing the insolvency process initially was not as effective as it had been hoped. Unfortunately, it took some time to bed down. The changes this Bill will make to the insolvency legislation are welcome. It is a case that more needs to be done, however, particularly when we look at the ongoing situation with mortgage arrears. It is improving in that we have gone from 90,000 cases of mortgages in arrears of more than 90 days in 2014 down to 70,000 cases. What is more disturbing, however, is the significant number of cases in arrears for more than two years, somewhere in the region of 38,000 cases, while 26,000 cases are deemed to be intractable. In other words, we have a long way to go in resolving the situation with mortgage arrears.
The high level of personal debt in Ireland today has been recognised by the European Commission and which will very much be a drag factor for our economy. No one would argue that what has happened in this country over the past decade has not been short of a disaster. It is appropriate that we find a way now to enable people to move on and get their lives back on track. Reducing the period of bankruptcy to one year is a positive and important step in this regard, but we need to consider additional changes. While we have put in the provision that, in theory, allows the Circuit Court to look at an insolvency proposal that has been refused, the difficulty arises in a situation where there is only one class of creditor.Unfortunately, if all creditors refuse the case cannot be reviewed by the Circuit Court. Therefore, we must change the insolvency legislation to allow for a review by the Circuit Court where there is only one creditor. I am personally dealing with a situation at the moment where the individual concerned has all of the debt with one lender. Therefore, the person cannot avail of the insolvency process because the lender has refused to consider an arrangement.
I accept that there are protections in the legislation for scenarios where borrowers hide assets. I believe it is right and proper to have such protections because I do not think that the people need or want to pay for fraud. There is evidence, in certain circumstances, that people have not been entirely truthful about their level of assets. I do not suggest for a moment that this relates to many people because the vast majority of ordinary people have done their absolute best to declare their assets. It is right and proper that the legislation contains safeguards to deal with people who are not open and forthcoming.
I wish to bring to the Minister of State's attention the report compiled by the Oireachtas Joint Committee on Finance, Public Expenditure and Reform on mortgage arrears and a resolution process. A certain number of the proposals in the report need to be considered, particularly in terms of some of the earlier stages of the debt process. In an ideal world bankruptcy should be avoided at all costs. Bankruptcy is not pleasant. The fact remains that most people who have found themselves in a bankrupt situation will never really be able to borrow again. They will also find it enormously difficult to establish businesses and so forth. Therefore, we should ensure that as many people as possible never find themselves in that situation. The report contains a significant number of recommendations that would ensure that more cases are resolved at an earlier point. One of the advantages of reducing the period of bankruptcy will be to ensure that more lenders engage in the process at an earlier stage. Quite clearly, if somebody is declared bankrupt then the lender will ultimately lose out. I accept and acknowledge that an impetus definitely exists.
Other measures need to be considered. In particular, when a lender makes an offer to a borrower in terms of deciding whether a mortgage is sustainable, offers a split mortgage or some other arrangement such as extending the term, there is no independent appeals process for somebody at that stage of the process to submit an application. Therefore, the lender acts as judge and jury over the borrower. We should very much consider looking at the earlier stages of the process. We must also ensure that bankruptcy is always the last resort and that everything that can be dealt with at an earlier stage is dealt with.
I welcome the new role for the Money Advice & Budgeting Service, MABS. One of the difficulties for people is the cost of representation. It has been my experience, as I am sure it has been the experience of many people in this Chamber who have had to deal with people in this situation, that such people have reached the end of their tether as they are without resources. They do not have the resources to engage with personal insolvency practitioners and they do not have money for court representation. It is very important to have a level playing field for the borrower and lender. Without question or doubt, resources should never be an issue for a borrower engaging with a lending institution. We have been a little too slow in coming to the table to try to level the playing field. I ask the Minister to ensure that MABS is properly resourced not just in terms of money but in terms of having people with the expertise to negotiate directly with lenders. Also, we must ensure that people are represented at the court process stage.
To conclude, I welcome the legislation before us. Again, I commend our colleague, Deputy Willie Penrose, and thank him for what he has done. There are many indebted people in this country today who will be very grateful to him for what he has done.
I extend a welcome to the Minister of State and the Bill. I echo all of the accolades that have been bestowed on Deputy Willie Penrose in his promotion of this matter. Bringing the bankruptcy term back to one year is a good move and protecting the family home is commendable. In addition, the provision whereby people who deliberately conceal assets may face a bankruptcy term of up to eight years, means it pays to co-operate.
It is a pity that there are 26,000 intractable cases before us and, therefore, an overhang of debt. This legislation is one of the steps that will help us to get out of this dreadful situation. Another step took place today because interest rates have finally started to rise in the United States. We must also look at matters such as the regulation of banks. During the banking inquiry it was revealed that there was irresponsible lending, by any standards, and heavily concentrated lending for a small number of individuals, and properties did not have proper titles which is why NAMA had to apply such a huge discount. Therefore, we will need to have a far more tightly regulated property sector in future.
I hope that all of us will return after the break. No. 48 on today's Order Paper is the National Mortgage and Housing Corporation Bill 2015. Its aim is to transfer the ability of governments to borrow at low interest rates to below average housing and not rely on the existing financial institutions that have a lot to answer for.
Senator Hayden has always stressed, and I thought that we had made some progress with the then Minister, Deputy Shatter, that in cases involving a buy-to-let property the solution should never be to evict the tenant and that action is taken against the landlord and not the tenant who pays his or her rent. It is an unfortunate consequence that we do not have security of tenure for people in such circumstances. The moral hazard was all in the financial sector, the construction sector and the accountancy sector. The latter will come under stricter regulation next June under the Irish Financial Services Regulatory Authority. Banking will have to be heavily controlled by the current Governor, Professor Philip Lane, as it was by his predecessor, Professor Patrick Honohan. This legislation is a step in the right direction. I do not wish to delay the House and confirm that I shall vote for the Bill. I wish the Minister well and thank Deputy Penrose for his initiative in bringing the legislation forward.
I welcome the Minister of State to the House. I support the Bill but it has been a very long time coming and I do not direct my comment solely at this Government but at many Governments. The issue has lain on the sideline for a long number of years and been thrown from one committee to the next. All of the committees have pretty much made the same recommendations. The general public's support has always been for a one-year bankruptcy period. It is welcome that we are moving to adopting such a term.
A balance must be struck between encouraging entrepreneurship, which is what we want to do, and taking risks. When people take risks it does not always work out. In addition, not everybody is going to be successful in business and because of the nature of business, people will lose their jobs. People, in their personal lives, will also make mistakes with their finances. There are also people who are reckless in business through making bad decisions about borrowing and investments. Many of those decisions were based on greed. During the Celtic tiger period many people borrowed huge amounts of money to purchase lands and properties which ended up being worth a fraction of what their loans were. People will not have the same sympathy for them as for a person who is a mortgage holder or took out a mortgage to buy a home.
Having said that, we cannot look at the minority of cases and, instead, we must look at this matter in the round. We need risk takers and entrepreneurs. We need to encourage people to take a risk and set up businesses. Not all of the businesses will work so a safety net and way out of debt should be provided. The current system certainly did not provide that. The current system and the previous system certainly did not work. In comparison with European countries, the situation here was not good.
I welcome the fact that an Irish person, or someone who is resident in this State, who decides that bankruptcy is his or her best option will now face the same general rules in Cavan as in Fermanagh. The provision is welcome and it is a step forward. The people most likely to benefit from the provision are those with the larger and more diverse debts that I spoke about earlier. This is mainly a solution for the business person or person with many debts, both business and personal, rather than for a homeowner whose debt is concentrated in a mortgage for the family home or even a buy-to-let property.It is mainly a solution for the business person or person with many debts, both business and personal, rather than for the home owner whose debt is concentrated in a mortgage on a family home or buy to let property. The latter are the debtors who will continue to be faced with an unbending bank but who will have no backing from the State. We must join up our policies. I acknowledge the Government has put in place some measures to support those in mortgage distress but they are not working. The banks, by and large, still have a veto. Many of the banks are not playing ball with regard to options like split mortgages or mortgage to rent schemes. It does not take a genius to work that out. The figures show that there were 206 repossessions in the most recent quarter for which data are available. This does not include so-called voluntary surrenders. A total of 422 families lost their homes during this period, the same number as in the previous quarter and four families are losing their homes per day. The banks are not playing ball with all of those in mortgage distress.
I support the Bill but it is not a silver bullet. It will help some people but only a minority. While I welcome that, I note that this legislation is being processed very late in the day, at the very end of this Government's term. That said, anything that helps people is welcome. Many people, however, will still see this as a drop in the ocean in the context of what is required to deal with the overall debt crisis, which is not just about the matters we are dealing with today. We were told that 18,000 people would use the insolvency service in its first year but up to now, only 3,000 people have made applications. That is why we are here; the insolvency system set up by the Government has failed to tackle the crisis. Bankruptcy was supposed to be the last hope for people swimming in debt and the Government said it would provide hope for such people but that element of the Government's policy has not worked.
There is no guarantee that this legislation will keep even one family in its home. Indeed, the Minister of State cannot give such a guarantee. Bankruptcy in the vast majority of cases, whether it is a three year or one year term, means losing the family home. That is the reality and tinkering with the terms does not change that. A system that was supposed to prevent hundreds of thousands of people facing bankruptcy has failed miserably. This Government has backed the banks at all costs and thousands are paying the price for that.
I hope this Bill helps and will work for those for whom it is intended but we have a lot more work to do in this area. In the coming months, we will be having a very interesting conversation on a whole range of issues in the course of the general election campaign. I am sure the issues which are the subject of this debate will feature in that conversation. We will have a new Government, of whatever colour or persuasion, next year and I hope that it will do a lot more to help the majority of those who are in debt, not just those who took business risks and who had considerable assets. The new Government must focus its efforts on those who are in mortgage distress. I hope that during the lifetime of the next Government, more can be done for them. Again, I support the Bill and the intention of its provisions.
I welcome the Minister of State to the House and generally welcome this legislation. We debated the original changes to our bankruptcy laws in this House under the stewardship of the former Minister for Justice and Equality, Deputy Shatter, two or three years ago. We had a very substantive debate on that occasion. Indeed, the record shows that a more substantive debate took place in this Chamber than in the Lower House. The main element of the legislation before us was presented to the then Minister by many Senators at the time as the preferred option, that is, a one year rather than a three year bankruptcy term. In fairness to the former Minister, he presented a very firm and balanced view as to why he felt that the three year option was more desirable. He forced all of us to reflect on the fact that while bankruptcy might be a partial solution for some people, once the bankruptcy process has taken place, there are still creditors who are owed money and that side of the equation should not be ignored.
Bankruptcy is not a lifestyle choice. It is not an option which people taking out loans, engaging in financial transactions or setting up businesses aspire to. It is an option of last resort and if it can change the lives and livelihoods of people in a positive way, then we must support it. Sometimes we can be a bit simplistic when we talk about bankruptcy. We often compare this country and much of western Europe with the United States. It is argued that in the United States, one is not a successful business person until one has failed many times. It is also suggested that in the US people can engage in enterprise, fail, run up huge debts, leave them all behind them and start again. A balance must be struck between flexibility, compassion and humanity on the one hand and personal and business responsibility on the other hand.
When one strips away the party political broadcast element of Senator Cullinane's comments, one must acknowledge he made a very valid point regarding the fact that the majority of people in serious debt in this country will not come under the provisions of this legislation. People with massive debts across various sectors must be given serious consideration. We must look at other solutions for them. As the country recovers from a profound recession and as we look forward to the outcome of the banking inquiry, we must ask ourselves how such high levels of debt were allowed to be accumulated by so many people. We must ask why massive amounts of credit were extended by financial institutions in such a very carefree and casual fashion. That is part of the problem too.
Hopefully, this legislation will provide a solution for a significant number of people but it will not help everybody whose indebtedness is profound. I commend Deputy Penrose for presenting his legislation and would point out that Deputy Mathews was an almost daily advocate for this type of approach. He made numerous interventions on the Order of Business in the Dáil in that regard. There is a general consensus that the Bill strikes the right balance between the desirability of allowing people to get on with their lives while ensuring that people do not abuse the system. It certainly appears that such a balance is being struck here, although I am not an expert on bankruptcy law. The message that we must send to the public is that there can be a new beginning and a fresh start. However, looking beyond those who will benefit from the new bankruptcy regime, we must debate and then devise a legislative response to the broader issue of debt in this country. Debt is holding back so many people and so many communities at the moment. Such debt includes credit card debt, personal loans and so forth and is of very significant proportions. It must be debated and new solutions brought forward.
Again, I welcome the legislation before us. We had a substantial debate on this issue a number of years ago. The fears and concerns which were expressed so well by the then Minister for Justice and Equality about the broader knock-on effects of bankruptcy on second-level and third-level creditors must not be forgotten. Hopefully, there are sufficient safeguards built into our bankruptcy legislation in that regard.
On behalf of the Minister for Justice and Equality, I thank Senators for their interest in the Bill and for their contributions to this debate. This is a significant, reforming Bill which will complement the reforms already introduced to personal insolvency legislation. The most important element of the legislation is the reduction of the bankruptcy term from three years to one year, a fundamental change which follows the recommendations of the Joint Oireachtas Committee on Justice, Defence and Equality as well as the efforts of my party colleague, Deputy Penrose. This will ease the impact of bankruptcy on people who have already been struggling with unsustainable debt and living on very reduced incomes for several years. The provision for revesting the family home, if steps have not been taken for its sale within three years of bankruptcy, is another practical and humane solution. At this stage, a bankrupt would normally be discharged from bankruptcy and cleared of any unsecured debts which can help in making mortgage repayments more affordable.The High Court's new power to extend the bankruptcy term to 15 years in serious cases of non-co-operation or concealment of assets is significant and will address the small minority of situations where a bankrupt person seeks to hide assets or income from creditors. Another very important change is the new power for the official assignee to disclaim properties to avoid a situation where standing liabilities must be borne by the taxpayer when any proceeds of sale are retained by secured creditors. There are also the traditional provisions which ensure people already in bankruptcy can benefit directly from the changes introduced by the Bill with a transitional period of up to six months.
It is essential to underline that bankruptcy is never an easy option and is not the right solution for everyone. Bankruptcy does not wipe out mortgage arrears. Personal insolvency solutions may work better for some households which is why section 14 of the Bankruptcy Act requires the High Court to consider whether a personal insolvency solution would be more appropriate to a debtor's circumstances before agreeing to the application to be adjudged bankrupt.
Senator Hayden asked about personal insolvency reviews. The court review contains an express provision exempting a case from the requirement to show consent of a class of creditor if there is only one creditor. This is an important features of the review. Where there is only one creditor, the court passes directly to considering the fairness criteria of the review and does not need proof of consent from one class of creditor.
I appreciate Senator Power's support of the Bill. As I indicated earlier, with regard to her question on the transitional arrangements and the risk of backlogs, the Bill will put in place arrangements for a smooth transition for all existing bankruptcies. The official assignee and the insolvency service have been fully consulted on the transitional arrangements and we are satisfied the provisions of the Bill are manageable. Additional measures in the Bill to reform and streamline bankruptcy procedures will also free up resources in the courts and for the official assignee and will further ensure no backlogs arise.
Senator Mooney raised a number of issues but he is no longer in the House.
I know what that feels like. On the points Senator Mooney raised, and the statistics he quoted on those in bankruptcy losing their family homes, a small study was carried out by official assignees in respect of initial cases in bankruptcy. It is important to note many of the families had surrendered their homes to the banks before they entered bankruptcy. Certainly, personal insolvency solutions protect the family home better than bankruptcy. The Government has always emphasised the home is at risk in bankruptcy but the 70% statistic needs to be seen in context and may overstate the risks.
With regard to measures taken on mortgage arrears, there is a decline in mortgage arrears exceeding 90 days and 180 days, which is to be welcomed. The most serious category of home mortgage arrears are those which exceed two years, and while arrears remain far higher than we would wish to see there is a clear positive trend. This group of arrears has stopped increasing and the latest quarterly statistics show even the most difficult category of arrears is reducing, which is a welcome indicator. I accept the points made to the effect that more needs to be done.
I appreciate the efforts of individual Senators and Deputies and I thank Senators for their contributions. The Bill is a very important and far-reaching piece of reforming legislation. It is well balanced and will bring immediate practical advantages to many households which have gone through some very dark and difficult years. I welcome the general support of the Bill expressed by Senators.
I again apologise to Senator Mooney for not realising he is sitting behind me. I might have a very short life in politics if I do not realise who is behind me.