Personal Insolvency Bill 2012: Second Stage (Continued)

(Speaker Continuing)

[Deputy Alan Shatter:  ]  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.

Senator Thomas Byrne:   On a point of order, the Minister's script is 20 pages long. We are 15 minutes into the debate and he is only on page 4.

An Cathaoirleach:   That is not a point of order.

Senator Thomas Byrne:   I have no objection to the Minister speaking at length but the duration of the debate is fixed and Senators will not have much time to contribute. I have only eight minutes to reply.

An Cathaoirleach:   Spokespersons have ten minutes to reply. The allocation of time was agreed on the Order of Business.

Senator David Norris:   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.

An Cathaoirleach:   According to the Order of the House, Second Stage must conclude at 5 p.m. and that was agreed by the House.

Senator Paul Bradford:   I trust we may be in a position to speak to our political betters when they become available. Should the need arise to seek further time, the case can certainly be considered.

Deputy Alan Shatter:   I emphasise this an extremely complex and important Bill and its provisions cannot be explained in ten minutes.

Senator David Norris:   We all understand that, nor would we expect that.

Senator Thomas Byrne:   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.

An Cathaoirleach:   The House agreed the allocation of time on the Order of Business.

Senator Thomas Byrne:   It is unsatisfactory that we do not have the same rights as Government Members in this context.

An Cathaoirleach:   The Senator will have to take that up with the leader of his own group.

Deputy Alan Shatter:   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.