merrion street

INTRODUCTION:

I am delighted to be here to address the inaugural conference of the Insolvency Service of Ireland. I want to extend my thanks to Lorcan and to the Insolvency Service of Ireland for inviting me to speak today and to all of you for attending this important event.

WHY WE DID IT:

One of the main priorities of this Government, on taking office, was to put in place the best solutions we could for people living under the burden of unsustainable debt. When I took office as Minister for Justice, Equality and Defence in March 2011, it was immediately clear that little work had been undertaken to introduce or modernise legislation in the areas of personal insolvency and bankruptcy despite the enormous financial troubles being experienced by so many in the State.

My colleagues in Government and I have at all times been acutely aware of the tens of thousands of individuals and families across the country in financial difficulty as a consequence of the economic downturn. I have spoken to a great many people caught in the horrific trap between income collapse and spiralling debt and most often in this situation through no fault of their own. I have listened, in confidence, to their personal experiences and have heard first hand of their despair at not knowing where the money will come from to put food on the table, never mind how they will make the next mortgage repayment.

Up until very recently, tens of thousands of people across the country had been attempting to navigate, without assistance, the tight-rope of their personal finances. The introduction of a modern, practical and humane insolvency and bankruptcy process, through the Personal Insolvency Act, and the establishment of the Insolvency Service of Ireland were necessary priorities in our path to recovery and growth.

It was, is and will continue to be of central importance to this Government that, where possible, people will be able to remain in their homes and have workable, sustainable and voluntary solutions.

WHAT WE DID:

There are some commentators who have been quite vocal in expressing criticism of how long it took to have the legislation passed. This criticism, however, does not stand up to scrutiny. The Keane report concluded that "early introduction of new judicial and non-judicial bankruptcy options is vital" and stated that "without effective bankruptcy legislation the mortgage arrears problem will not be resolved". That report came out in October 2011.

It was quickly followed by publication of Heads of the Insolvency Bill in January 2012 and the Bill itself was published that June and passed by December. The complexity of the legislation, encompassing 199 sections plus schedules should not be underestimated and a great deal of work was completed within a short period of time.

In late 2012, even before the legislation had been passed, an implementation team began to address all of the essential matters necessary for the new Service to become operational. These included sourcing and setting up a new office, recruiting and training specialist staff, preparing informational material, as well as designing and implementing the new regulatory and IT frameworks required to accept applications.

By April 2013, the ISI was in a position to launch an information campaign. Brochures and materials were published and the ISI opened its information telephone line and website to callers and visitors. At this time it also published guidelines on reasonable living expenses which were generally welcomed for removing an area of contention between debtor and creditor. Over July and August of 2013, the ISI began authorising Personal Insolvency Practitioners (PIPS) and approved intermediaries. In order to facilitate the speedy consideration of insolvency applications a new cadre of Specialist Judges of the Circuit Court was appointed.

This expedient activity positioned the ISI to begin accepting applications in September 2013. In that same month expressions of interest were sought for a PIPs Complaints Panel and this Panel has since been established - another important step in the ongoing implementation of the Personal Insolvency Act 2012.

Concurrent with the practical aspects of establishing a new agency, a host of legislative measures such as commencement orders were signed in respect of the Personal Insolvency Act 2012 and the Courts & Civil Law (Miscellaneous Provisions) Act 2013. Amendments were necessitated to the Rules of the Superior Courts and the Circuit Court Rules and over 20 statutory instruments had to be made.

WHAT IS NOW IN PLACE?

We now have three new solutions available in the form of the Debt Relief Notice, the Debt Settlement Arrangement and the Personal Insolvency Arrangement. Indeed, 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 that provides certainty for creditors and, if I may say so, hope for debtors.

In addition, there will now be automatic discharge from bankruptcy after three years from the date of adjudication – a significant reduction from the previous 12 years. Discharge from bankruptcy after three years, subject to certain conditions, 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, indeed I understand that there have been recent calls within the UK for raising the bankruptcy discharge time from one year to three.

We have also reduced the costs of bankruptcy, and it is regrettable that there have been media reports to the contrary. In December 2013, the approximate costs involved in bringing a bankruptcy petition with regard to monies payable to the Official Assignee, stamp duty and advertising were approximately €1,400. Today, as a result of the facility to place the notice of bankruptcy cost free on the ISI website, the costs have been reduced to approximately €900, a saving of €500.

The changes we have made represent the most comprehensive reform of our insolvency and bankruptcy law and practice since the foundation of the State and they are a key element of the Government’s strategy to return this country to stability and economic growth. The new approach, led by this Government, avoids contentious court hearings, long delays and substantial legal costs inherent in earlier approaches.

In other jurisdictions, it has taken between two and four years to have comparable necessary legislation enacted and an insolvency service up and running. Given the scale and complexity of the work involved, it is a remarkable achievement that the Insolvency Service of Ireland had the first Protective Certificate issued in the Circuit Court in October 2013, just 10 months on from the enactment of the legislation. I am happy to see the first Debt Relief Notices, Debt Settlement Arrangements and Personal Insolvency Arrangements already in place and I look forward to seeing many more before long.

In addition to providing mechanisms to address individual cases of unsustainable debt, the enactment and operation of the new insolvency legislation has an even broader impact, by redefining the overall framework within which lenders and debtors assess their options for dealing with insolvent debtors. We can see already very concrete examples that, as a result of the enactment and coming into operation of the Insolvency Act, financial institutions are taking more active and constructive steps to move towards long term sustainable debt resolution, rather than short term debt amelioration.

This would not have happened without the new legislation. I welcome the recognition by some financial institutions that, in particular circumstances, it can be in the interest of both debtors and creditors to write off a portion of secured debt. Regrettably, in at least one major institution, it seems that this has not yet been fully recognised.

The broader impact of the insolvency legislation is also relevant to the issue of bulk mortgage debt derived from failed financial institutions being sold on to funds, which has been the subject in recent days of some media reports and comment. The sale of any such debt and its acquisition by a hedge fund or external financial body cannot unilaterally vary an individual secured debtors contractual rights relating to the mortgage nor undermine their statutory rights under the Insolvency Act if in major financial difficulty to seek to effect a Personal Insolvency Arrangement. The sale of such mortgage debt also cannot act as a barrier to a secured home debtor seeking the facility to enter into a Personal Insolvency Arrangement following court proceedings being initiated to repossess a family home.

I want to underline the importance of the new provisions contained in the Land and Conveyancing Law Reform Act 2013, which will help people who are trying to deal with large arrears on their home mortgages. This Act provides that if proceedings are brought to repossess a borrower’s principal private residence, the court has the power to adjourn the proceedings, in order to ensure that a Personal Insolvency Arrangement can be fully explored as an alternative to repossession. This measure is designed to ensure that home repossession is a last resort, and in recent commentary on the sale of bulk mortgage debt relating to family homes, it seems to have been overlooked.

Ireland is fully engaged in a programme of insolvency reforms both at national and European level. The 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, when we held the EU Presidency last year, facilitated the "political" launch here in Dublin of the Commission’s proposal for a revised and modernised Insolvency Regulation intended to make proceedings more efficient and effective with a view to ensuring a smooth functioning of the internal market and its resilience in economic crises.

Now Greece, as the current President, has expressed the Presidency's readiness to continue efforts on the amending Insolvency Regulation and has indicated that insolvency will be one of its priorities. We must continue to work on removing the so called "stigma" of bankruptcy or business failure by modernising our approach to insolvency. In this respect, it is gratifying to note the comments two weeks ago of the Managing Director of the IMF, Ms. Christine Lagarde, that "[t]he restructuring of bankruptcy law in Ireland … is a good example of what can be done".

WIDER CONTEXT:

In tandem with the introduction of new insolvency solutions and the reform of bankruptcy the Government has also been pursuing other measures for tackling over-indebtedness. There are no easy and no quick answers to the difficulties of mortgage arrears and personal indebtedness facing our country today. No one particular measure can provide an answer. This makes co-ordinated action in a number of areas all the more important.

The Central Bank last year set firm targets for the resolution of mortgage arrears and these require lenders to move away from the temporary measures which had been favoured up until then and towards longer-term solutions. The ongoing targets for proposed solutions required 50% of mortgages in arrears to be offered a solution by the end of 2013 and this will reach 70% by the end of next month. The Central Bank has also concluded a multi-debt pilot initiative.

The mortgage-to-rent scheme established on foot of the October 2011 report of the Inter-Departmental Working Group on Mortgage Arrears (the Keane Report), and overseen by the Department of Social Protection, offers a workable solution for those in mortgage difficulties where specific criteria applicable to the scheme are met.

The Department of Social Protection through the MABS offices, the keepingyourhome.ie website and the mortgage arrears information helpline continues to provide support and help for those in arrears.

We can see in the figures on mortgage arrears now published monthly by the Department of Finance a gradual move towards greater numbers of long term agreements between debtors and secured creditors and, as of late last year, the first signs that the mortgage arrears numbers have peaked and are now starting to decline. There is still no cause for celebration and there is much still to be done but the signs are hopeful at last.

POINT OF THE CONFERENCE:

Some media coverage last month sought to portray this conference as some sort of u-turn, or to make out that there is some embarrassing necessity to change the legislation recently introduced. Let me say two things in response to that.

Firstly, we would be foolish to think we have nothing to learn from other countries. I am glad to see the ISI being proactive in attempting to build on what has already been done in terms of the Individual Voluntary Arrangements (IVA) protocol in England and Wales and the precedent of the IVA protocol in terms of improving acceptance rates in those jurisdictions is highly encouraging.

Secondly, this is a major legislative reform which, as I have noted, contains some unique features, particularly in relation to secured debt. It was inevitable, therefore, that some changes would be required, as we built up experience of its implementation in practice.

I have never suggested that our personal insolvency legislation is set in stone. Rather, I have repeatedly and consistently said that if the new measures need improvement, then I will introduce whatever changes are necessary to ensure their success. As you know, we have responded swiftly where any desirable technical changes have been identified, and already introduced a number of useful amendments during last year.

Whilst I see no immediate need to make further legislative amendments, both the ISI and my Department will keep the operation of the legislation under review. I think it is important now that everyone gives the new measures some time and space and that we evaluate the efficacy of the changes only after an appropriate interval of time.

I understand that today’s conference aims to facilitate open, honest and constructive engagement amongst those working with the issues of debt solutions. It will be essential that there be confidence and trust if we are to arrive at solutions that strike a fair balance between debtor and creditor. The measures provided for by the Personal Insolvency Act 2012 depend in no small part 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.

I know that later this morning you will be discussing the development of a protocol involving practitioners and creditors. Such a protocol would ensure, to the greatest extent possible, a streamlined process surrounding debt solutions under the Personal Insolvency Act.

In some ways having a protocol would be analogous to what already happens when a person goes to buy or sell a house. Rather than each of the transacting parties and their legal representatives starting from scratch and writing the terms and conditions to attach to the transaction, they can draw upon a standard contract for sale. The result is a contract with standard terms and conditions which are already familiar to solicitors doing conveyancing work meaning there is no need to examine and negotiate each clause. In this way the process is made faster, simpler and less expensive.

A protocol of this kind for personal insolvency is in line with best practice in other jurisdictions and does not require amendments to existing legislation. A similar protocol was developed in the UK for their Individual Voluntary Arrangement which is comparable to the Debt Settlement Arrangement here. The UK protocol, once it was agreed and adopted, resulted in faster decisions and significantly improved acceptance rates. Creditors there accept in excess of 90% of protocol-compliant agreements put to them.

CONCLUSION:

In conclusion, I would like to say the following - Our objective in everything we have done in relation to debt resolution mechanisms is to help people who are in genuine financial distress, to facilitate their return to solvency, and to allow individuals and families who are presently sinking under the weight of unsustainable debt, to restart their lives.

But it must also be remembered that 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. This means that in resolving one individual’s debt problems, we must be conscious that measures proposed on behalf of debtors can create genuine and unexpected debt difficulties for others. Media attention in this case is, perhaps understandably, focused on financial institutions. However, little attention is given to the impact on individuals and business, when money properly due for services given or products supplied goes unpaid. Failure to receive such monies due can be the last straw which can send companies to the wall , or result in individual traders losing their livelihood or threaten the financial stability of a creditor and his family to the extent of placing their family home at risk..

I would also like to emphasise that the very significant changes we made recently have introduced a radically different personal insolvency landscape here. It may take some adjustment on the part of everyone to get used to the changes, but it is in the interests of all to fully engage with the new processes, and to work together to streamline them.

The work you are embarking upon here today may be new in this jurisdiction, but we are not the first to ever confront these problems. The Hammurabi Code, now housed in the Louvre Museum in Paris and thought to date from 1762 BC, deals extensively with issues of debt: and we know that King Hammurabi began his reign in Babylon by decreeing the forgiveness of agrarian and taxation arrears, to relieve the burden of debt on the land.

We should not fail to draw on the experiences of others, though it may be that today the IVA protocol is more relevant to our situation. I hope you have an excellent and informative day and that your efforts to streamline the workings of the Personal Insolvency Act produce worthwhile and early results: and I look forward to seeing those results before long.