Houses of the Oireachtas

All parliamentary debates are now being published on our new website. The publication of debates on this website will cease in December 2018.

Go to oireachtas.ie

Personal Insolvency Bil 2012: From the Seanad (Resumed) (Continued)

Wednesday, 19 December 2012

Dáil Éireann Debate
Vol. 787 No. 4

First Page Previous Page Page of 79 Next Page Last Page

(Speaker Continuing)

[Deputy Alan Shatter: Information on Alan Shatter Zoom on Alan Shatter] There is no doubt that there are thousands of individuals for whom debt forbearance under the concept of the personal insolvency arrangement will not resolve the issue. It will not resolve it for either the debtors or the financial institution. There needs to be a constructive engagement by financial institutions with individuals based on their circumstances to recognise that in some instances, debt forgiveness or write off is appropriate. Deputy Donnelly and I have, for the sake of simplicity, regularly used the example of the homeowner who has borrowed €400,000 to acquire a home but whose home is today worth €200,000; is in negative equity by €200,000; his or her personal circumstances and income are depleted; and he or she can no longer make the mortgage repayments and has no other assets. It may be a married couple who are trapped in an apartment with two children - a home that was never constructed to accommodate two children.

For individuals in those circumstances where there is no reasonable prospect in the medium term of their financial position changing, debt write off is crucial for their personal circumstances and to enable them to participate again in the economy of this State and contribute to domestic economic growth. For selfish reasons, the State has an interest in these people exiting from debt. From the financial institution's perspective, it is important that where that is the position, losses are crystallised and an artificial value is not attached to the loan in the bank accounts. Financial institutions have been recapitalised to facilitate addressing this issue, not just in other areas but in the mortgage debt area. They have been stress tested and the time has come for them to recognise that there is a need to deal with this in the manner that is appropriate based on the individual circumstances of someone in serious debt and having regard to the level of that debt in the context of the structure of the personal insolvency arrangement.

As Deputies will be aware, AIB made a very helpful comment about this issue about a week or ten days ago. It made it clear that for some individuals in serious debt of this nature who are engaging with it, debt forgiveness is the only route to travel. That does not mean writing off the debt in its totality but writing off a portion of the capital due to recognise the reality based on current values and where an individual stands. We know of a small number of instances where financial institutions have engaged in some level of debt forgiveness that has not been publicised. One or two cases were publicised in recent months. It is not clear what scale it has happened on because clearly the financial institutions, taking Deputy Donnelly's approach, have their own interest in trying to ensure they do not encourage people who can pay not to do so in the hope they may get capital write off. The State cannot afford for that to happen either. Public comment indicates that if there is to be capital write off, it will not happen easily. AIB in recent days has been up-front and said publicly it recognises the need to do this. There is a need to do it for the health of AIB as well in order to get this bank out from under the yoke of uncertainty with regard to the true value of the mortgages they hold.

What about Bank of Ireland and the comments made by Ray MacSharry? I did not hear what he said but I would be of the view that if any public interest director of a financial institution publicly or privately states that his or her institution will not constructively engage with this legislation and in no circumstances will anyone will be afforded the possibility of a capital write off, regardless of the financial difficulties he or she is in, that individual is not acting in the public interest, never mind the private interest of the debtor. It is untenable to publicly state this in the circumstances of this Oireachtas coming together in a united fashion to enact a piece of insolvency legislation intent on trying to assist people in debt difficulties in a constructive way while at the same time, facilitating creditors to recoup at least a portion of what is due to them in a manner that does not involve the expense and complexity of bankruptcy proceedings.

I know Deputy Donnelly would not do this deliberately so I do not want him to take offence but I hope he either mis-reported in some sense what Ray MacSharry said or that what Mr. MacSharry said was not adequately thought out in the context of the insolvency legislation going through the House this evening. Perhaps we need to remember that this is a position that those on the boards of financial institutions or chief executives have taken up pending the enactment of the legislation and that when the legislation is enacted, they will have to review their position.

Let there be no doubt about it. Regardless of whether it is Bank of Ireland, Richie Boucher or Ray MacSharry, they must ensure their institutions constructively engage under this legislation in the public interest, the interest of those caught in financial difficulties and the interest of their own institutions and credibility. Without putting a tooth in it, we all know and it is no secret that the level of indebtedness people incurred and the property bubble and collapse were dramatically and substantially contributed to by the financial institutions of this State. They failed to undertake appropriate due diligence on individuals' capacity to repay loans they acquired, failed to have any regard to the sustainability of the increase in property values, threw money like confetti at developers to purchase land at inflated prices and contributed to a significant degree to the property bubble and the difficulties many young people are in. Too many young people thought they were being responsible and purchased homes at inflated prices for fear that if they did not purchase when they did, they would never be able to own a home in this State and banks helped to fuel that. None of that solves where we are today but I will be very clear about one thing I keep repeating. 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. Let there be no doubt of any description about that. Again, I thank Deputy Donnelly for raising the issue.

I keep saying that we must be careful with this legislation. I am very conscious of its importance to people with family homes in negative equity who are in significant financial difficulty. However, it is insolvency legislation that goes beyond those circumstances and applies to the broad gamut of circumstances in which individuals can get into financial trouble and which do not all relate to family homes. The great benefit of the personal insolvency arrangement is that it affords people in financial difficulty not just the possibility over a period of years of working out of those financial difficulties but the possibility of retaining ownership and occupation of their family homes, which will not occur if they have to resort to bankruptcy.

All I can say to the Deputy is that I am very disappointed to learn of comments made today in a committee of this House. I hope the individual who made them will reflect on them. Once the legislation is enacted, I would expect the fullest co-operation from financial institutions in working carefully and sensibly and with intelligence in respect of the legislation.


Last Updated: 06/05/2020 12:02:21 First Page Previous Page Page of 79 Next Page Last Page