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President (Tom Murray)
Distinguished Guests
Ladies and gentlemen
I am very honoured to be invited as guest speaker at your Annual President’s Dinner this evening. This is a rather special occasion as the Association of Certified Chartered Accountants Ireland, or ACCA, is this year celebrating its 40th anniversary as a separate entity from the UK organisation. During those forty years the Association has gone from strength to strength and now has some 20,000 members and students in Ireland, north and south. I would like to congratulate you on this achievement and to wish you and your many members continued success.
I also believe that another important milestone is being celebrated here tonight as your President, Tom Murray, has also reached the grand old age of forty! I would like to congratulate him on his special birthday and wish him the very best.
It is somewhat fitting that I am addressing ACCA Ireland this evening as today also marks the formal establishment of the Insolvency Service of Ireland. I am also pleased to be joined by the Director of the Service, Lorcan O’Connor, this evening.
As indeed most of you may already be aware, the Personal Insolvency Act 2012 was signed into law by the President on 26 December, 2012. The Act will be fully commenced as soon as all of the necessary preparations for administration of its provisions are finalised.
The Act represents the most comprehensive reform of our insolvency and bankruptcy law and practice since the foundation of the State and is a key element of the Government’s strategy to return this country to stability and economic growth. Given the extent of the reform involved, the Act is an extensive and legally complex piece of legislation. It introduces new concepts to Irish law. Indeed, the new Personal Insolvency Arrangement introduces a concept which I understand to be unique in international insolvency law in providing for the negotiated resolution of secured debt in a court sanctioned process that provides certainty for creditors and, if I may say so, hope for debtors.
It is difficult to ascertain the likely demand in regard to the new debt resolution processes. However, in our planning for the first full year of operation of the Insolvency Service, we have used the tentative estimate of applications for the two main debt resolution processes - the Debt Settlement Arrangement and Personal Insolvency Arrangement – of roughly 15,000 applications. There could be a further 3,000 to 4,000 applications for Debt Relief Notices. We would also have to expect about 3,000 bankruptcy applications during this time. This would be very significant bearing in mind that there were approximately 33 bankruptcy adjudications in 2011 and 35 in 2012.
The Personal Insolvency Act fulfils both a key commitment in the Programme for Government and also a requirement of the EU-IMF-ECB Programme of Financial Support for Ireland. The Act provides for the introduction of three new debt resolution processes, which though requiring approval by the court, are essentially non-judicial in nature:
· The Debt Relief Notice (DRN) will allow for the full write-off of qualifying unsecured debt up to €20,000, subject to a three year supervision period.
· The Debt Settlement Arrangement (DSA) provides for the agreed settlement of unsecured debt, with no limit involved, normally over five years.
· The Personal Insolvency Arrangement (PIA) will enable the agreed settlement of secured debt up to €3 million, although this cap may be increased with the consent of all secured creditors, and unsecured debt without limit, normally over six years.
The Act also provides for reform of the Bankruptcy Act 1988. The critical change here is to provide for the automatic discharge from bankruptcy, subject to certain conditions, after 3 years. While it has been much noted in recent times that this is shorter than the 1 year discharge period in our neighbouring jurisdiction, it is in line with the European norm in regard to insolvency proceedings. I am of the view that a 3 year period represents, at this point, a reasonable balance of the legitimate interests and expectations of both debtors and creditors.
And, as I mentioned earlier, the Act also provides for the establishment of a new Insolvency Service to operate the new non-judicial insolvency arrangements. It is my intention to transfer the functions of the Official Assignee in Bankruptcy to the Service to provide for the maximum administrative coherence. The Director of the Insolvency Service of Ireland Lorcan O’Connor commenced in his role on 22 October, 2012.
The Director is working with all possible speed to ensure that the full operation of the provisions of the Personal Insolvency Act 2012 can begin as soon as possible. This work includes: the fitting out of office accommodation on Conyngham Road in preparation for a move-in date in early April; the producing of guidebooks for the public; developing the Regulatory Framework for insolvency practitioners; developing a suitable IT system and recruiting the necessary staff for the Insolvency Service.
The Insolvency Service will launch an information campaign later this month which will include launching its website, the issuing of publications and relevant guidelines, the opening of an information line for people to call and the announcement of the regulatory framework for personal insolvency practitioners.
The Personal Insolvency Act makes provision for the Insolvency Service to draw up guidelines in regard to reasonable living expenses that would be allowed to a debtor in one of the new insolvency processes. In doing this, the Service will have regard to poverty indicators as set out in Government publications on poverty and social inclusion and statistical information collated by the Central Statistics Office on household income and expenditure. The Service will take into consideration individual circumstances such as differences in the size and composition of households, and the differing needs of persons, having regard to matters such as their age, health and whether they have a physical, sensory, mental health or intellectual disability. These guidelines will be published later this month.
It is worth noting, especially for the accountants and other insolvency practitioners present who may be concerned with the new insolvency processes that the Personal Insolvency Act provides for:
· certain excluded debts - primarily relating to Court orders - which cannot be proposed for resolution,
· certain excludable debts - primarily owed to the State - which can be proposed for resolution only with the explicit consent of the creditor,
· the regulation of personal insolvency practitioners (PIPs) by the Insolvency Service.
· the exemption to pension "pots" in all insolvency processes (not of pension contributions or income).
In order to protect the constitutional rights of all concerned, and to prevent potential actions for judicial review, the Act makes provision for enhanced oversight by the Circuit Court of the three new debt resolution procedures, or by the High Court where the debts concerned are in excess of €2.5 million. The Circuit Court will receive the debtor’s case file from the Insolvency Service with an application for a Debt Relief Notice or a Protective Certificate in respect of a Debt Settlement Arrangement or Personal Insolvency Arrangement.
Effectively, the court’s hearing of the application 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. A court hearing would only subsequently be necessary where a creditor objects on one of the grounds specified in the legislation. This is consistent with the approach recommended by the Law Reform Commission.
In order to deal with this anticipated volume of work and to facilitate the speedy consideration of insolvency applications, a new cadre of Specialist Judges of the Circuit Court will be introduced. The Act makes provision for a maximum of eight such specialist judges. The recruitment process is now underway with the Judicial Appointments Advisory Board.
This enhancement of court involvement has the very significant benefit to the debtor of providing protection from enforcement actions by creditors, either during the negotiation period or during the lifetime of the arrangement. In addition, the involvement of the court also ensures that our new processes will be capable of meeting the criteria in regard to the EU Insolvency Regulation’s recognition of cross-border insolvency procedures.
The new Debt Settlement Arrangement and Personal Insolvency Arrangement processes provided for in the Act facilitate a voluntary deal between a debtor and a specified majority of his or her creditors.
We should not forget that there are a range of different 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 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.
Many debtors and creditors are likely to be concerned by this reform. For their sakes and for the sake of the wider economy, all must be treated fairly. It is sometimes the case that 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.
The Government has engaged with the financial institutions in the lead-in to the enactment of this legislation. They understand exactly where the Government is coming from, what our concerns are and what they should do in the context of operating the legislation constructively and sensibly, engaging with personal insolvency practitioners and the circumstances of their customers and ensuring appropriate and sensible arrangements are made.
I say this in response to the concerns that have been raised about the balance of power between banks and debtors. There is talk of what has been commonly referred to as a "bank veto". The reality is that it is in the best interests of both debtors and creditors to seek to conclude an acceptable and workable arrangement under the Act, be it a Debt Settlement Arrangement or Personal Insolvency Arrangement. The latter such Arrangement will be of particular use for those persons experiencing difficulty with repayment of their mortgages and will have to provide, as appropriate, for debt forgiveness.
The insolvent debtor will, with the assistance of a personal insolvency practitioner, put forward a realistic offer to his creditors that will restore the debtor to solvency within a reasonable period, thus giving creditors a better financial outcome than the alternative bankruptcy. The creditors will need to consider carefully the debtor's offer, conscious that if they refuse, the debtor can avail of bankruptcy. Bankruptcy is the ultimate appeal mechanism of the debtor.
The role of the personal insolvency practitioner, or PIP, in the context of Debt Settlement Arrangements and Personal Insolvency Arrangements is vitally important to the success of these schemes. I would imagine that this is a matter of particular interest to your association’s members. Following the passing of the Personal Insolvency Act by the Oireachtas, I said that, while the Insolvency Service would not impose any particular restrictions as to the type of professionals who would be authorised to act as personal insolvency practitioners, the entry requirements would be set at a high level to ensure their competence and to promote public confidence in the new framework. Looking at the experience in other countries, insolvency practitioners very often tend to be accountants. Draft Regulations covering the qualifying criteria, authorisation and ongoing regulation of Personal Insolvency Practitioners are being drawn up and are nearing completion. These regulations will set out the qualifications for individuals to act as personal insolvency practitioners and I am aware that these will include qualifications and experience in business, law or finance, together with demonstrable knowledge of debt relief solutions and the Personal Insolvency Act. Suitable persons meeting the normal fitness to practice and competence criteria, having indemnity insurance, and who meet the other requirements of the legislation, will be able to apply for registration on an individual, not corporate, basis. It is my objective that the qualifying criteria and robust assessment by the Insolvency Service of applications for authorisation will ensure that all personal insolvency practitioners will be capable and knowledgeable.
The Insolvency Service will be responsible for the direct regulation of PIPs. It will make regulations to provide for matters such as procedures governing the authorisation of persons to carry on practice as PIPs, the standards to be observed by PIPs, qualifications and requirements as to competence, information to be provided to the Insolvency Service by PIPs and the circumstances and purposes for which a PIP may charge fees or costs.
As we are all aware, business activity is not without risk and this is true not just where it takes place in one country, but across borders. In the EU Internal Market, it is important, where cross-border insolvency proceedings are concerned, that we have the most effective procedures in place. Not only should such procedures be effective, but they should, where appropriate, assist in the rescue of viable businesses and honest entrepreneurs and to alleviate crushing debt burdens on persons arising from mortgage, trade or personal debt.
It is in that regard, that I particularly welcome the proposal last December from the European Commission for a modernised Regulation on cross-border insolvency proceedings. The proposal emphasises the need to move away, where possible and appropriate, from a liquidation approach to insolvency to that of rescue and restructuring.
The modernisation of cross-border insolvency procedures will assist in putting economic growth at the heart of our civil justice agenda and in strengthening the Internal Market. The proposal in regard to the EU Insolvency Regulation is a priority of the Irish Presidency and we will seek to make real progress. I was heartened by the very positive response to it of my EU Justice Ministerial colleagues at the informal JHA Council in Dublin in January.
Of course, one particular aspect of the insolvency Regulation that has become well known and commented on over the past few years is that of the location of the centre of main interest of the debtor. In determining an application for the opening of an insolvency proceeding, of a company or of a natural person, the Regulation requires that the court concerned should determine the centre of main interest of the applicant.
It is a matter for the court to satisfy itself that the provisions in its national law in this regard have been observed. For example, the UK Courts can and have refused or revoked insolvency proceedings where an abuse has been detected. Indeed, this has occurred with certain individuals, who were subsequently subject to insolvency proceedings in this jurisdiction.
I very much support the development of a more uniform approach across the EU in regard to the establishment of the centre of main interest so as to combat potential abuses in this regard. The proposed revised Regulation makes certain proposals in that regard. However, we must remember, that a company or natural person is entitled to change a centre of main interest. This entitlement arises under the broad rubric of freedom of movement in the Internal Market and such freedom has been enforced by decisions of the European Court of Justice.
The members of this Association will appreciate more than most that we must allow the new legislation and the various debt resolution processes some months at least to work. One point which has struck me during the debate in this area is the frequency of requests to me to predict, in exact terms, all of the possible outcomes in all possible cases. That, I think you will realise, I cannot do. Each case is individual in its own particular context and as I reiterate, must be approached for resolution in negotiation between the concerned debtor and creditors.
It is also not for me to speculate as to the future conduct of any of the participants in an insolvency process. However, I remain convinced that the new personal insolvency laws, including the bankruptcy law reform, should provide a significant incentive for financial institutions to develop and implement realistic agreements to manage or settle debt with their customers.
It is important that financial institutions constructively engage under this new personal insolvency legislation in the public interest, the interest of those in financial difficulties and the interest of their own institutions and credibility.
It is vital that creditors, provided with a full and honest picture of a debtor’s financial resources and income, assets and liabilities apply a degree of common sense and realism to the situation. I believe that there is evidence now emerging of that new realism on the part of financial institutions. That is positive, but it is an unnecessarily long delayed start to truly and fully addressing the extent of the problem of unsustainable debt.
I made it clear on a number of occasions during the debates on the insolvency legislation in the Oireachtas and since its enactment that if I find, within a short period during the operation of this legislation, that all or some of the financial institutions are intent on not engaging constructively with the personal insolvency arrangement provisions for whatever reason, I will not be slow to bring proposals to Government to amend the legislation.
An issue which has gained some public attention in recent months is the commitment contained in the latest agreement with the Troika in regard to the introduction of legislation remedying the issues identified by case law in the 2009 Land and Conveyancing Law Reform Act, so as to remove unintended constraints on banks to realise the value of loan collateral under certain circumstances. Essentially this concerns repossession applications to the courts.
The issue of framing an appropriate legislative response has been the subject of ongoing consultation between my Department and the Office of the Attorney General. I would be anxious that such a response would also include any necessary additional safeguards for the debtor who is facing repossession of his or her home. For example, this might require a court, when considering any application for repossession of a principal private residence, whether it would be appropriate given the debtor’s circumstances to consider whether a Personal Insolvency Arrangement under the Personal Insolvency Act 2012 would be a more appropriate and better course of action in all of the circumstances.
The court, where it was of such opinion, might adjourn the hearing to see if the debtor and the financial institution could attempt to conclude a Personal Insolvency Arrangement. To require such a consideration of the court in this instance would be no different to that already required in a court consideration of a bankruptcy petition under the Act. Its success would, of course, depend on the financial circumstances of the individual debtor and his or her capacity to discharge all or a portion of outstanding debt over time out of income or realisable assets.
The new Personal Insolvency Act is of substantial importance in the current economic climate where so many citizens find themselves in serious financial difficulty, many through no fault of their own. The new debt resolution mechanisms provided for in the Bill give rise to a possibility of people working through their debt issues with real hope for the future.
I look forward to and hope the objectives of the Bill will be fulfilled and that it will facilitate individuals who genuinely cannot pay their debts and are in major financial difficulty entering into constructive and appropriate arrangements with creditors, including financial institutions.
We must achieve fair and certain outcomes in dealing with indebtedness. At this stage we are past the finger pointing and blame, it is time for solutions. If we can achieve this, we achieve great progress. If we do not, we will gain only bitter stagnation which will be of no use to our citizens, financial institutions or to the State.
In conclusion, if I might move away from my main topic of personal insolvency reform, to briefly address the issue of the State’s finances. Significant progress has been made and continues to be made, since this Government came into office, in regard to putting Ireland’s finances on a sustainable footing. This progress has been acknowledged and rewarded by the international investment community.
Only two years ago Ireland was locked out of the capital markets. However in 2012 Ireland issued conventional bonds, Irish Amortising Bonds, short-term treasury bills and bond switches. Evidence of returning confidence in the Irish economy is not limited to sovereign debt issuance, with investors returning to purchase Irish semi-state and domestic bank issuance. There has been a dramatic reduction in Irish sovereign yields. The yield on Ireland’s benchmark 2020 bond fell from over 8% to 4.4% in 2012 and has continued this trend to 3.6% as of last week, back to pre-crisis levels.
The State’s successful disposal of our ownership of Irish Life is further evidence of investors’ confidence in Ireland and demonstrates that there is a market appetite for Irish assets. These transactions are a very positive outcome for the State on a number of levels. They will enable us to reduce our indebtedness, they have had a positive impact on investor sentiment and they also help to underpin the value of our remaining banks investments.
The Government has reached agreement with the European Central Bank on the IBRC promissory notes. This represents another important step in progress to restore public finances and instil confidence in the solidity and future of the Irish Economy. The promissory notes are now replaced with long term, low interest Government bonds.
This outcome means that:
· IBRC (formerly Anglo Irish Bank & Irish Nationwide) is currently being liquidated,
· €3.1 billion will not be paid as due this March,
· A cash-flow benefit of €20 billion over next 10 years will arise to the Exchequer,
· The deficit will be reduced by €1 billion per annum over the coming years,
· There will be significant efficiency benefits from moving assets to NAMA, and
· It marks a key milestone on Ireland’s road to recovery and significantly enhances our debt sustainability.
Exit by the State over time from its investments in the financial sector is Government policy and the eventual separation of the State from its banks is an objective for which there is strong support political and otherwise. This month will see the end of the State’s guarantee of bank deposits and liabilities which dates back to that famous or infamous – depending on your perspective – night in late September 2008.
This week has also marked the successful outcome of talks under the aegis of the Labour Relations Commission to bring about an extension of Croke Park and achieve crucial reductions in the public sector wages and expenditure. While we should be under no illusion as to the difficulties ahead and the need in particular, for real and substantial sustainable growth in our domestic economy and a major reduction in the numbers unemployed we have, I believe, in our first two years in office taken substantial strides towards recovering our economic sovereignty and getting the State back on the road to recovery. There remain difficult hurdles to jump but the Government is resolute in its determination to get things right and, in the national interest, to make and implement the decisions required. We are also determined during the course of our six month presidency of the European Union to leaving a lasting positive footprint of real value across a broad range of issues and in particular with regard to growth, fiscal stability, banking reform and unemployment. We are committed to leaving a lasting and visible legacy of real benefit to our own citizens and citizens of all member states across the European Union.
Thank you.
ENDS