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I move: That the Bill be now read a Second Time.

Cathaoirleach,

I am pleased to present the Personal Insolvency Bill 2012 to the House. This is 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 both provides alternatives to and reforms judicial bankruptcy. The Bill 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. 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 also has regard to the recommendation made in the Interdepartmental Working Group on Mortgage Arrears report of October 2011, known as the Keane Report.

The general scheme of the Bill was published for consultation by the Government on 25 January on this year. 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 of those persons and organisations who provided my Department with valuable comments and insights. While the primary architecture of the Bill remains the same, considerable development of the individual provisions in terms of legal and technical detail has taken place.

The Bill provides for the comprehensive reform of personal insolvency law and will introduce three new effectively non-judicial debt resolution processes. The Debt Relief Notice which 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, no limit is involved, normally over five years. The Personal Insolvency Arrangement will enable the agreed settlement of secured debt up to €3 million, although this cap can 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 where the debts concerned are in excess of €2.5 million, of the three new debt resolution processes.

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 that this proposed scenario will allay any fears 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 objects 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 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 our new processes will be capable of meeting the criteria in regard to the European Union insolvency regulations. This is a matter of some importance where cross-border debts are involved.

The Bill will very much 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, subject to certain conditions, after three years 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 now 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. However, 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: 15,000 applications for the two main non-judicial debt resolution processes – the Debt Settlement Arrangement and Personal Insolvency Arrangement; 3,000 to 4,000 applications for Debt Relief Notices; and 3,000 bankruptcy applications. There were about 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 would 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 Arrangement 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 so as to negotiate an appropriate settlement.

Lenders must engage properly with customers. 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.

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 Arrangement 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 is taken, as expressed in the creditor voting process provided for in the Bill. It is also an approach designed to avoid, insofar 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 that could be better used in contributing to the discharge of monies due to creditors.

The approval process for the Debt Settlement Arrangement and Personal Insolvency Arrangement is consistent with practices in comparable jurisdictions. For example, under the individual voluntary arrangement procedure in England, Wales and Northern Ireland, the approval of over 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.

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, we must not lose sight of our objective, which is to introduce reformed, workable and balanced insolvency legislation. Such legislation is a required feature of any properly functioning economy. It will assist not only debtors and financial institutions, but also corner shops, tradespersons, local co-operatives, 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 may be 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 difficulty, and this Bill provides the new framework for sensible negotiation.

The approach in the proposed Debt Settlement Arrangement and Personal Insolvency Arrangement 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, one 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 provisions in the Bill 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, insofar 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 individuals 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 dependents 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 or 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 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 currently being drafted by Parliamentary Counsel and I hope to be in a position to introduce the necessary amendments here at 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 that 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 who are not members of those professions. Neither, my Department nor the proposed Insolvency Service of Ireland will be involved in the recruiting of practioners.

The Bill requires that the terms of the proposed arrangement make provision for the fees and outlays of the PIP and specify 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 regard. 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 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. 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, Irish 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 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.

Cathaoirleach,

I now turn to the detail of the main provisions of the Bill.

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 a number of standard provisions in the establishment of a new Insolvency Service of Ireland to operate the new non-judicial debt resolution processes. It sets out the functions and powers of the new service and its governance arrangements. The Insolvency Service of Ireland 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 in relation to 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 of Ireland has no role in the negotiation and agreement of the terms of either a Debt Settlement Arrangement or a Personal Insolvency Arrangement.

Part 3 provides the central core of the Bill. It provides in its 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 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 debts such as credit card, personal loans or catalogue payments. However, debts that do not qualify include for a Debt Relief Notice include taxes, court fines, family maintenance payments, etc 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 be €400 or less, and

- one motor vehicle up to value of €1,200.

These provisions are similar to the Debt Relief Order process in operation in England and Wales since 2009 and 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 not of themselves guarantee a debt write-off for a debtor or protect them outside of the process from enforcement action by creditors. This basic fact has often been overlooked in the debate on this process.

Only one Debt Relief Notice per lifetime will be permitted. Also a DRN cannot be applied for within five years of 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 them 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 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 enquiries as it considers appropriate to verify the information, including enquiries 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 shall issue a certificate to that effect and furnish the 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 Insolvency 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 Insolvency Service 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 where their financial position improves. These circumstances include 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 person 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 Insolvency Service are to be paid on a pari passu or proportionate basis to the specified. 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 purposes 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 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 and 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 their 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 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. Section 54 provides that if the debtor satisfies the eligibility criteria, the personal insolvency practitioner will apply to the Insolvency Service for a protective certificate in respect of the preparation of a Debt Settlement Arrangement.

Under section 55, if the Insolvency Service 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 Insolvency Service. In considering the application, the court will be entitled to treat the Insolvency Service certificate as evidence of the matters certified in relation to the application. The Insolvency Service will register the protective certificate in the register of protective certificates. 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 the 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. In addition, 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 position under section 61, unless otherwise agreed, is that creditors be paid on a pari passu or 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 Insolvency 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 seven 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 or PIP 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 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 cash flow 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. 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 insofar as is reasonably practicable, be formulated in such a way that 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 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 is of importance to assist 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 and 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 a register and may take copies of or extracts from entries in a register.

Part 4 of the Bill 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 that 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 Arrangement or a 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 Arrangement 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 now 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 Arrangement or Personal Insolvency Arrangement. In the adjudication of a debtor’s petition for bankruptcy under section 139, the court will now 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 Arrangement 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 those excepted articles from the current level of €3,100 to €6,000. In regard to avoidance of fraudulent preferences and certain transactions designed to frustrate the legitimate interests of creditors, made before adjudication in bankruptcy, the current time periods of one year are extended to three years by 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 years to three years by 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 Act will be automatically discharged after a further six months have elapsed. This latter time is to allow for any 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.

·     Finally, 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 earlier, it is my intention to bring forward comprehensive proposals on this matter at Committee Stage.  There will be a new Part 5 to replace the current Part 5. It will provide extensive provisions for the regulation by the Insolvency Service of the new personal insolvency practitioners. There will be 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 already exist in other contexts. It is a question of adapting them to the insolvency legislation. A substantial amount of work has been done on this already and it should be completed very shortly.

Cathaoirleach,

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 both fair and workable for creditors and debtors alike.

The development of any 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 and Parliamentary Counsel, as well as the Department of Finance and other Departments and organisations to develop the Bill

The provisions in this Bill 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 won’t pay. The Bill offers no suggestion that borrowers can easily leave outstanding debts behind them. This will be achieved through the necessity of the borrowers declaring honestly and openly their financial affairs, the strict eligibility criteria and the anti-abuse provisions resulting in criminal prosecution.

For individuals who are insolvent without any reasonable prospect of being able to repay their debts, the new legislation will allow them to rehabilitate their unsustainable financial situation over a defined period. The introduction of the legislation 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 this 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 Arrangement and Personal Insolvency Arrangement processes will also vary, depending on individual circumstances and the nature of indebtedness that exists. The Bill is a very 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 our citizens, is now well underway and, I expect to complete it before the end of the year.

As I have noted earlier, I will be bringing forward extensive amendments to the Bill at 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 this Bill.

I commend the Bill to the House and I hope it has the general support of all Senators.

Thank you.

ENDS