Association of Certified Chartered Accountants (ACCA) Ireland President’s Annual Dinner Speech by Minister for Justice, Equality and Defence, Alan Shatter TD, 01 March 2013President (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.