merrion street

Cathaoirleach,

I move Amendment No. 1 to the motion.

I have listened to the Senator opposite introducing his motion with a sense

of growing disbelief. Where has he been for the past number of years? Has

he and his party forgotten that we are still dealing with the mess in which

his Government left this country? Their legacy included huge increases in

unemployment and consequent family indebtedness and inability to meet

financial obligations. That Government, in which the Senator’s party was

the main element, bears a significant responsibility for the financial

difficulties now being experienced by tens of thousands of our people.

This Government, in stark contrast to its predecessor, has made

considerable progress across a number of sectors in addressing the very

significant and severe mortgage arrears crisis which it inherited. This

crisis is directly linked to the economic situation presided over by

members of the previous Government.

There was a total failure of the part of the previous Government, though in

office for a considerable period, to propose or introduce relevant

insolvency or bankruptcy reform legislation. The consequences of that

failure are clearly apparent. Unfortunately, the motion before the House

this evening shows the same mind-set which they displayed down through the

years while causing the economic collapse of this country. They pretended

the good times would always roll, that the property bubble would never

burst, that a bailout would never be necessary. And now they seek to

pretend, to those whose financial lives they were responsible for ruining,

that there is some painless way of resolving their problems.

Each motion on financial and economic matters which Fianna Fáil brings

before this House or the Dáil appears to be informed by the same amnesia.

There is little or no recollection of their failed policies that resulted

in an economic, fiscal and banking collapse. Thousands of people have lost

their jobs. Living standards were substantially reduced for families across

the country. Ultimately, this country lost our economic sovereignty.

The party opposite did nothing to reform the law on bankruptcy and personal

insolvency. Any response was piecemeal with short term solutions. It did

not seek to address the problem in a real way. Nor did it require banks to

start addressing the problem. They did not provide any statutory debt

resolution mechanisms or structures to facilitate individuals in financial

difficulty. Nowhere was the problem more acute than the area of mortgage

arrears.

Against that background, a useful consequence of the motion tonight is to

provide an opportunity for a suitable apology from the party opposite for

all they did to contribute to the mortgage difficulties in which so many

people, regrettably now find themselves.

As the counter motion in Amendment No. 1 makes clear, this Government since

coming into office has taken a number of significant steps to address the

personal insolvency situation, including the mortgage arrears problem, and

also to stabilise the banking and wider economic situation. Such steps can

be contrasted with the inactivity of the previous Government in regard to

updating our ancient and ineffective personal insolvency law.

The Government has two overall key strategic objectives in this area.

First, there is a need to ensure that mortgage holders who were

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.

This Government, on assuming office in 2011, established the Inter

Departmental Mortgage Arrears Working Group (also known as the Keane

Report) and are now implementing the key recommendations of the Report

published in October 2011. Based on its recommendations, the Government

established the Mortgage Arrears Steering Group to co-ordinate the

responses of the Departments and agencies centrally involved. Since March

2012, the Steering Group has reported to the Cabinet Committee on Mortgage

Arrears.

In contrast to the inactivity of our predecessors, let us consider some of

the important initiatives taken by this Government.

For example, the mortgage-to-rent scheme, available since June 2012, is a

mainstream social housing solution for the most acute cases of mortgage

arrears. Lenders are now engaging with the process and substantial progress

has been made. Over 800 cases have been put forward for the scheme.

Development of a mortgage to lease scheme is also progressing. Under this

scheme, the lender would become the long term owner of the property after

voluntary repossession had taken place. The household would become a social

housing tenant of the relevant local authority and the local authority

would, in turn, lease the property from the financial institution for the

period of the lease.

An information and advice service has been established to help people in

mortgage arrears through the website www.keepingyourhome.ie; an information

helpline and the availability of independent financial advice for people

being offered long term restructuring proposals by the banks.

The most significant development in addressing the area of personal

over-indebtedness including mortgage arrears has been the development and

enactment of our new personal insolvency legislation. The Personal

Insolvency Bill was published in June 2012, passed by both Houses on

December and signed into law in December.

The development of modern insolvency law was a key commitment in the

Programme for Government. It was also required under the EU-IMF-ECB

programme of financial support for Ireland. It was inspired by the Law

Reform Commission’s significant contribution in its 2010 Report on Personal

Debt Management and Debt Enforcement and by the recommendations of the

Keane Report.

The Personal Insolvency Act 2012 provides for 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 write-off of

qualifying 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 the automatic discharge from bankruptcy after 3

years subject to certain conditions.

The Act introduces new insolvency resolution concepts to Irish law. The new

Personal Insolvency Arrangement, or PIA, is a process, which I understand

is unique in insolvency law anywhere, 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 and relief for debtors.

The “personal examinership” approach in the PIA is designed to be

sufficiently flexible and robust to be able to address complex personal

insolvency cases which may include combinations of trade, consumer and

mortgage debt. It offers a second chance mechanism for talented and capable

individuals and entrepreneurs to return not only to solvency but to make a

contribution to the economic development of our society.

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.

The Insolvency Service of Ireland was established on 1 March 2013 by

Ministerial Order. It will be formally launched tomorrow and will commence

its information campaign which will include its website, the issuing of

publications designed to assist those interested in the new debt resolution

processes and the opening of a public information line. The announcement of

the regulatory framework for personal insolvency practitioners will follow

shortly. The Director of the Insolvency Service, Mr. Lorcan O’Connor, is

working with all speed to complete the administrative and technical

preparations to ensure that the full operation of the provisions of the

Personal Insolvency Act can begin as soon as possible.

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. In

developing these guidelines, the Act required the Insolvency Service to

have regard to a number of criteria. The Insolvency Service has engaged in

extensive consultation with the relevant Departments, Agencies and

organisations. I am informed that these guidelines should be ready for

publication very soon.

It may be expected that a significant number of persons are likely to avail

of the new or reformed insolvency processes. For broad planning purposes

for the first full year of operation of both the law and the Insolvency

Service, the tentative estimate of applications is for about:

· 15,000 applications for the Debt Settlement Arrangement and Personal

Insolvency Arrangement,

· 3,000 to 4,000 applications for Debt Relief Notices, and

· 3,000 bankruptcy petitions may be made.

The critical message – which I wish to reiterate again tonight - to all

those experiencing debt problems is please engage with your lenders and

other creditors so as to negotiate an appropriate settlement. That also

requires that lenders must engage properly with customers. Now that the

architecture of our new insolvency legislation is settled, financial

institutions must now better engage with debtors.

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.

If our financial institutions refuse to constructively and realistically

engage, then the Government has made it very clear, on a number of

occasions, in this House and in the Dáil that it will take any necessary

measures to refine our approach to ensure that the new debt resolution

processes work. I realise that banks must have regard to commercial

considerations, but they must also behave with greater flexibility and

insight and apply a broader range of common-sense options based on

financial reality.

The new Debt Settlement Arrangement and Personal Insolvency Arrangement are

designed to facilitate a workable, sustainable voluntary resolution between

a debtor and his or her creditors. A common-sense rather than a coercive

approach is taken, as can be seen in the creditor voting process provided

for in the Act. It is also an approach designed to avoid, insofar as is

possible within constitutional constraints, the necessity for contentious

court hearings and adjudications together with the substantial delay and

inevitable legal costs inherent in such process.

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.

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.

The Central Bank has also commenced a review of the Code of Conduct on

Mortgage Arrears to ensure that it can facilitate better engagement between

borrowers and lenders about a mortgage problem while also maintaining

important protections for those bowers who do engage with their lender. A

consultation process on the review of the Code ended on 12 April, and the

Bank is now reviewing the submissions received. I understand that the aim

of the Central Bank is to publish the revised CCMA in the first half of

this year.

In addressing the mortgage arrears problem, we cannot, however, ignore the

fact that the issue of repossession 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.

The Minister for Justice and Equality has 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 the opinion of the court that the matter could

be resolved by recourse to the Personal Insolvency Act 2012 and to examine

whether a Personal Insolvency Arrangement would be a more appropriate

course of action.

Where the court is of such an opinion, it may adjourn the hearing for no

more than two months. What the Minister is seeking to provide, by way of

this provision, is a transparent, final, time limited safety net for a

homeowner where repossession is being pursued without the PIA possibility

having been fully explored by the parties.

However, it may be the case that, as a last resort, the best interests of

the borrower may be served if repossession does take place. This could

arise, for example, if there are substantial arrears and there is no

prospect that the borrower will be in a position to address these arrears

or to restore some stability to the mortgage situation. This is in fact

recognised in some cases and currently the majority of repossessions arise

on a voluntary basis, or there is some other voluntary arrangement to

address the unsustainable mortgage.

In circumstances in which individuals borrow money to acquire a home and

that home is security for borrowing, it has been the law of this State

going back over the centuries that ultimately the financial institution

that provides the loan can apply to the courts for possession of the

property where the borrower fails to discharge mortgage repayment. In the

absence of such a law no financial institution would lend money for house

purchases as their security would be meaningless.

Modern insolvency legislation is a required feature of any properly

functioning market economy. It will assist not only debtors and financial

institutions, but also business of all types and sizes, tradespersons,

local co-operatives, etc. All debtors and creditors are concerned by this

reform. All must be treated fairly. Many persons or companies may be both

debtors and creditors. While I can understand and indeed, share, some of

the very negative 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.

This approach, which seeks balance and fairness, has been criticised as

suggesting that creditors, particularly mortgage creditors, will exercise a

veto. That criticism is reflected in the ill thought out Motion this

evening. Such a contention is based on an incorrect view of how normal

commercial contractual issues may be resolved. If you borrow, you must

repay where you can. If you receive a good or service, the provider is

entitled to be paid. If the debtor is genuinely unable to pay, negotiation

with creditors may resolve the difficulty, and this Act provides the new

framework for sensible negotiation.

The approach in the proposed Debt Settlement Arrangement and Personal

Insolvency Arrangement is that the insolvent debtor will, with the

assistance of a personal insolvency practitioner, put forward what the

debtor considers to be a realistic offer to his creditors, one that will

restore the debtor to solvency within a reasonable period while at the same

time giving creditors a better financial outcome than the alternatives of

debt enforcement or bankruptcy. The creditors will need to consider

carefully the debtor’s offer, conscious that if they refuse, the debtor has

another option - the standard debt discharge procedure available under the

reformed bankruptcy laws.

The motion from the Opposition Senators tonight also makes reference to

developing some form of non-judicial independent agency or process to

arbitrate and impose solutions on creditors and debtors. However, the new

debt resolution processes which this Government has introduced, and in

particular the Personal Insolvency Arrangement, are designed to operate on

a voluntary basis with common sense and enlightened self-interest in mind

rather than coercion of any of the parties. There is no example of the type

of body that appears to be demanded by the Senators in their Motion

existing in any jurisdiction. During the debate on the passage of the

Personal Insolvency Bill last year, no Senator, nor indeed no member of the

other House, could give an example of such a body. There is good reason for

that. Such a body would be struck down by the courts as a gross

interference in the rights of parties to conduct their affairs.

The State cannot impose a settlement on parties to a private contract

involving the provision of goods, services or capital.

On behalf of the Government and the Minister for Justice and Equality, I

oppose this quite cynical and badly informed motion which does not seek to

inform or educate or indeed to improve matters by offering constructive and

objective proposals. It has no particular purpose. Rather, it serves to

again highlight the inaction of the previous Government.

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.

We cannot allow the emerging economic recovery to bypass families in

mortgage arrears or leave 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.

This Government, unlike its predecessor, 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.

Thank you.