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President of the Ireland – US Council

Distinguished guests,

Ladies and gentlemen,

 

I am honoured to be invited as guest speaker at the Ireland-US Council’s Spring Lunch today. The Council came into being in advance of that historic and momentous visit to Ireland in 1963 of President John Fitzgerald Kennedy. It is almost hard to believe that the visit was 50 years ago. It still resonates even when we have welcomed other Presidents since then.

 

In the 50 years since its foundation, the Ireland – US Council has carried out its mandate to forge strong links between the business communities in the United States and Ireland. It provides an excellent forum for improved communications and understanding between business leaders in both countries. I would like to congratulate the Council for its work in this regard and also on the very important initiatives which it undertakes in regard to the development of scholarship and student internship programmes.

 

These strong connections between our two countries have always been vital, not least between our business communities. That is even more the case at a time, when the Irish economy is now set on the path to recovery and growth out of the significant difficulties experienced since 2007 and has moved away from the brink of national bankruptcy. Now as we move forward, it is critical that we can continue to avail of those strong Irish - American connections and friendships – via this Council and otherwise - to help each other to create, stimulate and develop business and investment opportunities across a number of sectors.

 

The focus of my address to you today is to update you on recent developments in the area of insolvency at national and at European level. The members of this Council will appreciate more than most, that an efficient insolvency process is in fact, a key requirement of any well ordered market economy. The nature of the US insolvency approach is often remarked on for its capacity to allow a second chance to viable companies and honest entrepreneurs following a business failure.

 

In Ireland, since 1990, we have had an efficient corporate restructuring process, but nothing comparable existed in regard to personal insolvency. We had an antiquated, unforgiving bankruptcy process with little prospect of redemption. The current crisis exposed not only a need for a more forgiving approach to judicial bankruptcy, but also the need to develop other alternative approaches. These approaches were required to deal with debt – whether it was business, trade, investment or residential mortgage or a combination of all three – in a non-liquidation fashion and to minimise the economic disruption.

The matter of mortgage arrears is a very serious issue, currently impacting on a large numbers of our citizens. The Government has two overall key strategic objectives in this area. First, there is a need to ensure that mortgage holders who are experiencing real difficulty should, where appropriate, be assisted in remaining in their own homes. Second, any framework and range of supports for mortgage holders must be able to distinguish between those who cannot afford to pay their mortgage on their primary home and those who choose not to pay.

The principle of a fresh start for people facing genuine difficulty in dealing with their mortgage commitments is a key priority. It is a concept Americans will be long familiar with. We cannot allow the economic recovery to leave capable entrepreneurs behind and not contribute through their talents. We cannot bypass families in mortgage arrears – leaving a significant number of families in limbo - because they have no certainty about their future financial situation. However, neither can we allow situations to arise where people, who have the capacity to repay their debts, renege on their commitments or, if there is a problem, not to meaningfully engage with their lender.

The Personal Insolvency Act 2012, which was signed into law last December, provides for one of the most comprehensive reforms of personal insolvency law and practice anywhere. The Act introduces new concepts to Irish law, designed to address complex personal insolvency cases. It 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 three new debt resolution processes which, though requiring approval by the court, are essentially non-judicial in nature. These are:

The 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 so as to provide certainty for creditors and - if I may say so - hope for debtors. To some degree, if it operates as planned, it can function like a personal examinership. This 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.

 

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 court of the three new debt resolution procedures. This enhancement of court involvement has the 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 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 is being recruited.

A wide range of different creditors may be potentially involved in the new processes. Many persons or companies may be both debtors and creditors. For their sakes and for the sake of the wider economy, all must be treated fairly. It is sometimes the case that businesses are currently in financial difficulty because of the failure of others to pay for work properly completed or goods or services supplied to them.

The insolvent debtor will, for a Debt Settlement Arrangement or Personal Insolvency Arrangement, with the required assistance of a personal insolvency practitioner, put forward a realistic offer to his creditors designed to restore the debtor to solvency within a reasonable period, thus giving creditors a better financial outcome than the alternative, which might be bankruptcy. The role of the personal insolvency practitioner, in this context is vitally important. There are no particular restrictions as to the type of professionals who will be authorised to act as personal insolvency practitioners. However, the entry requirements will be set at a high level to ensure their competence and to promote public confidence in the new framework.

The Insolvency Service of Ireland has been formally established and the Director, Mr. Lorcan O’Connor, is working as quickly as possible to finalise the administrative and technical preparations to ensure the full operation of the provisions of the Personal Insolvency Act can commence in the second quarter of 2013. The Insolvency Service will launch its comprehensive information campaign later this month and will be announcing 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 applicable to a debtor in one of the new insolvency processes. The Director of the Insolvency Service is preparing those guidelines for urgent publication. I would reiterate a point make by the Taoiseach, following erroneous media commentary that the guidelines will not require anyone be forced to give up employment in the context of a debt resolution process.

The Personal Insolvency Act also provides for the automatic discharge from bankruptcy after 3 years subject to certain conditions which I believe represents a reasonable balance of the legitimate interests and expectations of both debtors and creditors. This period is in line with the European norm in regard to insolvency proceedings, if not, perhaps with US or UK approaches.

The Government has very much engaged with the financial institutions in the lead-in to the enactment of this legislation. They understand exactly what our concerns are and what they should do in the context of operating the legislation constructively and sensibly.

Justifiable concerns 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.

Mortgage lenders themselves have the primary responsibility to deal with the customers who are experiencing difficulties with their mortgage repayments. These institutions extended the credit in the first instance and often, we might say, without much in the way of expected oversight or due diligence. Urgent action is now required from the banks to address the problems their customers in genuine difficulty are experiencing. However, each case of mortgage arrears is different and will have to be looked at on its merits on a case by case basis.

The Central Bank has had ongoing and detailed engagement with the lenders on their mortgage arrears situation and has explored possible options that could be applied to cases where more than a temporary forbearance response would be required. These are well known at this stage and include split mortgages, trade down mortgages and sale by agreement options which would allow families to move to homes more suited to their current needs; whether it is to obtain employment or to move to a more appropriately sized home for their family. There will also be cases in which debt forgiveness is the only practical solution and will also, in the medium to long term, benefit both debtors and creditors and the write off of a portion of the capital debt outstanding on a family home is a further option. Where appropriate, the mortgage to rent scheme will also be available for consideration.

The Central Bank is now satisfied that the tools are now in place to accelerate the work-out of the mortgage crisis. Banks and borrowers now need to use these tools to reach fair and sustainable solutions to mortgage arrears on a case-by-case basis. Of course, progress by the banks in providing durable solutions had not been sufficient. Thus, the Central Bank has set targets for the conclusion of sustainable agreements and for the durability of such solutions and will audit each bank’s performance against the targets and where necessary apply sanctions.

In addressing the mortgage arrears problem, we cannot ignore the fact that the issue of repossession will must be addressed in some cases. Ireland, for a

number of reasons, has had a very low level of repossessions. Currently the majority of repossessions arise on a voluntary basis. However, nobody can be unaware of the issues that arise where repossession proceedings relate to family homes. It is an emotive and sensitive topic.

I have recently published legislation - the Land and Conveyancing Law Reform Bill 2013 - designed to address issues arising from case law in various repossession proceedings which have created uncertainty relating to the exercise by lending institutions of their repossession rights. The consequences of this case law were unintended at the time of enactment of the Land and Conveyancing Law Reform Act 2009 and the purpose of the Bill is to restore the intended position. The new legislation also fulfils a commitment to remedy these issues in the context of the Quarter 3 2012 Review of the EU/IMF Programme of Financial Support for Ireland.

Essentially, this Bill is designed to restore the law that has existed over the centuries which enables a lending institution to rely on its security in relation to a mortgage, as intended by the Oireachtas when enacting the Act of 2009. The Bill also provides for the adjournment of actions for repossession in certain cases relating to the principal private residence of the borrower where it is considered by the court that the matter could be resolved by recourse to the Personal Insolvency Act 2012.

In Ireland, as I noted previously, we have had since 1990, a very effective corporate restructuring mechanism introduced by the Companies (Amendment) Act 1990. This is the examinership process, whereby a company experiencing difficulties can seek the protection of the High Court to appoint an Examiner to attempt to work out a rescue approach. The examinership process is essentially akin to the Chapter 11 approach in the United States.

My colleague, the Minister for Jobs, Enterprise and Innovation, will shortly introduce proposals to allow examinership applications to be considered by the Circuit Court, so as to reduce the costs involved. The Companies Bill, published in December 2012, contains proposals to allow small private companies access the examinership process through the Circuit, rather than the High Court. The rationale for this proposal, which was included in a report by the Company Law Review Group to Minister Bruton in September 2012, is to reduce costs for this cohort of companies and to make the examinership process more accessible to them.

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. Such procedures 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.

The EU Insolvency Regulation 2000 provides a framework for determining in which Member State insolvency proceedings should be commenced where a debtor has assets or creditors in more than one Member State. It also provides for EU-wide recognition of those proceedings.

Last December, the European Commission issued a proposed revised Regulation to modernise the current Regulation. The new EU Regulation on Insolvency reflects a high political priority at European level to take measures aimed at creating sustainable growth and prosperity. The economic crisis has led to an increase in the number of failing businesses across the European Union. Ireland, as the current President, facilitated the "political" launch of the proposed Regulation at the informal Justice and Home Affairs Council meeting held in Dublin on 18 January last.

The new proposal is designed to further streamline cross-border insolvency proceedings, whether they apply to a single company, several companies as a group, or a natural person whether they are engaged in trade or professional activity or as a consumer. A major new focus is that it seeks to facilitate a move away from a traditional liquidation approach to insolvency to a "second chance approach" for viable businesses and "honest" entrepreneurs in financial difficulties when cross-border insolvency proceedings are involved.

The key features of the new revised Regulation include:

This later is perhaps the Commission’s most newsworthy proposal. There will be a duty on the court requested to open the insolvency proceedings to examine the COMI of the debtor and specify the ground on which its jurisdiction is decided. It is for the court concerned to satisfy itself that the provisions in its national law in this regard have been observed. Creditors from other Member States will have a right to challenge the court’s decision. The COMI test is now extended to private individuals or natural persons in cross-border insolvency proceedings.

On the other hand, however, it must be acknowledged that a company or natural person is entitled to change a COMI and could do so for a number of purposes. 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.

In conclusion, Ireland is fully engaged in a programme of insolvency reforms both at national and European level. We are working to remove the so called "stigma" of bankruptcy or business failure by modernising our approach to insolvency. We are conscious of the critical need to stimulate and sustain economic activity and to create a business environment which is attractive to both domestic and foreign investors.

The Personal Insolvency Act 2012 is one of the key elements of the Government’s strategy to return this country to stability and economic growth. Its success will depend on the goodwill and determination of both debtors and creditors to agree workable arrangements that can be sustained over a number of years to a successful outcome.

This Government is delivering the reform process and the real solutions needed by our citizens so that they can engage constructively with financial institutions and creditors to bring about certainty, hope and relief.

 

The work of the Ireland-US Council is enormously beneficial in facilitating dialogue and networking opportunities between leaders in business and Government in both countries. The Council’s achievements to date in this area have been impressive and I wish you continued success in your endeavours.

Thank you.

ENDS