merrion street

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 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 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:

· An extension of the existing scope to include the recognition of

restructuring of a company at a pre-insolvency stage and to permit

hybrid proceedings where these processes exist in a Member State.

· A new approach to the coordination of the insolvency of cross-border

groups of companies.

· Greater cooperation between courts and liquidators involved in

cross-border insolvency proceedings and the development of standard,

multilingual insolvency registers so as to improve the information on

and lodging of insolvency claims.

· Clarification and modification of the Centre of Main Interest (COMI)

test, to reflect European Court of Justice judgments, in regard to

the opening of insolvency proceedings where the location of the COMI

of the debtor may be in contention.

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.