Insolvency Service of Ireland: Discussion

I welcome Mr. Lorcan O'Connor, director of the Insolvency Service of Ireland. The format of the meeting will be that Mr. O'Connor will make some opening remarks which will be followed by a question and answer session. I remind members, delegates and those in the gallery that mobile phones must be switched off, particularly in this room where the phone signal is very pronounced as opposed to the other committee rooms.

By virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the joint committee. If they are directed by it to cease giving evidence on a particular matter and continue to do so, they will be entitled thereafter only to qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against a person, persons or an entity by name or in such a way as to make him, her or it identifiable. Members are reminded of the long-standing ruling of the Chair to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official by name or in such a way as to make him or her identifiable.

I understand this is the first time Mr. O'Connor and the Insolvency Service of Ireland have had a public engagement, although I know Mr. O'Connor has been speaking at a series of seminars and conferences across the country, promoting and explaining what the Insolvency Service of Ireland will be doing. I particularly welcome Mr. O'Connor in his official capacity as head of the service and invite him to make his opening comments.

Mr. Lorcan O'Connor

I thank the Chairman and members of the joint committee for inviting me. I look forward to the opportunity to answer as many questions as I can from members, but before doing so, I wish to give them a brief overview of the work undertaken following the establishment of the Insolvency Service of Ireland, otherwise known as the ISI, including an update on our current targets and when we believe we will be in a position to accept initial applications for relief as part of the new debt solutions introduced under the Personal Insolvency Act. Having done so, I will highlight a number of points on why these new reliefs introduced under the Act are both necessary and have the potential to be a very important response in addressing the overall problem of personal debt that we as a country face.

Since my appointment as director designate of the ISI at the end of October last year, a number of key milestones have been passed. These include the enactment of the Personal Insolvency Bill at the end of December last year; the formal establishment of the ISI in March this year by the Minister for Justice and Equality; the launch of the ISI information campaign in April this year; and the publication in June this year of regulations governing the authorisation of personal insolvency practitioners and approved intermediaries - the people who will actually offer face-to-face advice and assistance to insolvent debtors.

In addition to these key milestones, in establishing itself the ISI has also met a number of organisational targets which I have set out in some detail in my statement and which I will summarise for the committee. They include the following: the development of a business plan; the recruitment of staff; the identification of offices for the organisation; the identification of necessary amendments to the legislation; the putting in place of the corporate governance structures one would expect an organisation of this type to have in place; the development of ongoing stakeholder engagement, given that it is important we speak with all stakeholders, of which there are many, to try to ensure as best we can that these new arrangements will work; the development of guides for members of the public in order that they understand what is involved; the development of a website and information line; and the roll-out of various courses for personal insolvency practitioners and approved intermediaries.

We have also carried out in-depth research and published guidelines on reasonable living expenses, as required under the legislation. In addition, we have scoped out what will ultimately be a very significant IT system to ensure we operate the new arrangements in an efficient and effective manner. We have been working on the development of an extensive list of the documentation required of us under the Personal Insolvency Act which, for example, includes the prescribed financial statements and various application forms. In doing our best to meet all of these targets my team and I are acutely aware of the importance of being in a position to accept applications for these new debt reliefs as soon as possible. I have no doubt that there are very many cases across the country in which people find themselves unable to pay their debts, often through no fault of their own, and are waiting for the ISI to open its doors in order that they can finally deal with their debt problems which until now may have appeared insurmountable to them.

When I speak to my counterparts in the Insolvency Service of England and Wales, the Insolvency Service of Northern Ireland or other organisations in other jurisdictions, they speak to me in terms of years when referring to their experiences in setting up an organisation such as this, or even in rolling out a new service within their existing business. I have a somewhat similar conversation with those involved in the regulation of persons practising in the financial services area who, again, talk in terms of years rather than months. However, notwithstanding these facts, I am pleased to confirm that the ISI, following its establishment in March, hopes to be in a position to accept applications in mid-August. For that to happen, however, three things need to occur before then. First, the ISI needs to begin authorising practitioners and approved intermediaries. We hope to begin this process by the end of July. Insolvent debtors will then be able to meet authorised practitioners straightaway. However, I do not want to create false expectations. It is likely to take a number of weeks before we reach a critical mass of practitioners throughout the country.

Second, the ISI needs to have its IT system fully operational. This system has been developed by the IT division of the Department of Justice and Equality and I have been assured that the entire system will be handed over to the ISI by the end of this week for complete end-to-end testing which will involve the assistance of the MABS, potential practitioners and the Courts Service. Any delay in the hand-over of the system will have a knock-on effect on the date on which we can begin to accept applications.

Third, we need the remaining provisions of the Personal Insolvency Act to be commenced, together with the passing and commencement of various amendments contained within the Courts and Civil Law (Miscellaneous Provisions) Bill. I understand these amendments should be commenced shortly. I also understand the Courts and Civil Law (Miscellaneous Provisions) Bill passed all Stages in the Dáil this morning.

All of this should mean that the first debt relief notices will begin to issue in early September this year, as will the first protective certificates that will cover those applying for a debt settlement arrangement or personal insolvency arrangement. As the committee will be aware, the debt settlement arrangement and the personal insolvency arrangement process is a two-stage process. At stage one the protective certificate offers a 70-day window for practitioners to develop a proposal to the satisfaction of the debtor and creditors. This should mean that the first debt settlement arrangement or personal insolvency arrangement will issue during November this year, approximately 70 days after the first protective certificate is issued.

It is worth pointing out that when the protective certificate is issued at the beginning of September, debtors will be protected from any action creditors subject to the protective certificate may be inclined to take about the arrears they are owed.

I wish to turn to the debt reliefs and why they should play an important role in helping insolvent debtors to deal with their difficulties. The first arrangement is a debt relief notice which will allow for the write-off of qualifying debt up to €20,000, subject to a three year supervision period. This is primarily designed for those with very little income and very few assets. Approved intermediaries will advise debtors applying for a debt relief notice and will primarily be available through MABS offices throughout the country. The features of the debt relief notice are very similar to those which apply to debt relief orders which have operated successfully in the United Kingdom for several years.

The second arrangement introduced by the new Act is the debt settlement arrangement which provides for the agreed settlement of unsecured debt, with no maximum or minimum limits involved over a period normally expected to be five years. Once again, similar solutions are available to insolvent debtors in other jurisdictions which work efficiently in addressing debtor and creditor issues. The success of the individual voluntary arrangement schemes in the United Kingdom which are broadly similar to the debt settlement arrangement here gives me confidence that it will be a success.

The third and final arrangement, the personal insolvency arrangement, will facilitate the restructuring or settlement of secured debt of up to €3 million, a cap which can be increased with the consent of all secured creditors, and the settlement of unsecured debts without limits, over a period normally expected to be six years. To my knowledge, this arrangement goes further than those available in other jurisdictions in that it addresses secured debt. Given the difficulties the country faces with property debt, such a feature is essential.

There has been much speculation as to whether this arrangement will be a success or whether banks shall choose to vote against many proposals developed through the process. I stress that the debt settlement arrangement and the personal insolvency arrangement are voluntary, designed to take into account the interests of a debtor and his or her creditors. It is likely that in the vast majority of cases a practitioner will be able to make a proposal that is in the interests of the debtor and the creditor. The reality is that these new arrangements offer an efficient and an effective means to tackle problem debt in a controlled manner short of bankruptcy. While security is recognised in bankruptcy, the reality is that in the vast majority of cases bankruptcy is bad news for the creditor. It is costly and, in almost all cases, likely to crystallise negative equity in full.

With regard to bankruptcy, as the committee is aware, the Personal Insolvency Act contains provisions to amend certain elements of the Bankruptcy Act 1988, the main change being the introduction of an automatic discharge from bankruptcy after three years rather than the 12 years which applies at present. I expect these provisions to be commenced shortly.

The committee is also aware that the Courts and Civil Law (Miscellaneous Provisions) Bill contains provisions for the transfer of the Office of the Official Assignee who, in effect, manages all bankruptcies to the Insolvency Service of Ireland. The official assignee has been working closely with the ISI in recent months to ensure his office, once transferred, will have sufficient resources to deal with the significant increase in bankruptcies envisaged in the coming months and years. More than one third of all ISI staff will work for the official assignee, which will result in an almost fourfold increase in its current staffing levels. The ISI will issue a tender by the end of this week for the development of a specific IT system to support the needs of the official assignee, given the anticipated increase in the number of cases.

We are only a number of weeks away from the Insolvency Service of Ireland being in a position to accept applications for the new debt reliefs. Insolvent debtors will be in a position to begin meeting authorised personal insolvency practitioners, or PIPs, and approved intermediaries at the end of this month. The new debt reliefs are not just good for debtors; they are also in the interests of creditors, by offering an efficient and fair means to tackle what is a very large problem for everyone. Ultimately, it is in all of our interests to return insolvent debtors to solvency to ensure their well-being and give them the second chance they deserve.

I am happy to take questions committee members may have.

I propose a series of 12 minute slots for the first round of questions. Is that agreed? Agreed.

It was remiss of me not to congratulate Deputy Paschal Donohoe who, within one week of being appointed to the committee, found himself as a Minister of State. I did not know this committee was a fast track to promotion, but perhaps great things also await our newest member, Deputy Regina Doherty, in the coming days.

One never knows.

On behalf of the committee, I congratulate Deputy Paschal Donohoe on his appointment and wish him well.

I thank Mr. O'Connor for coming before the committee. I note from his final comments that he expects the service to be up and running by mid-August and doing exactly what it is supposed to do by that time. How many PIPs does he envisage being registered, trained and in place by the end of July or the start of August?

Mr. Lorcan O'Connor

It is difficult to give a definitive figure. It is also difficult to give an estimate of the final number of practitioners, although it is likely to be several hundred. In my opening address I stated it would take a number of weeks before we reached critical mass. On the information available to me at this time, I can confirm that the applications process to seek authorisation of practitioners has commenced and that we have received more than 100 applications.

Does Mr. O'Connor have a breakdown of the profiles of the people concerned? Are they barristers or accountants?

Mr. Lorcan O'Connor

I do not have a breakdown of their profiles.

Are applicants being profiled?

Mr. Lorcan O'Connor

We have not done so, but we could consider doing it once we have a sufficient number to guarantee anonymity.

The reason I ask is that a concern committee members, the general public and I have is that a host of poachers may now become gamekeepers. A number of people involved in financial services at the height of the property bubble made mortgages more than accessible. Particular mortgage broker firms were giving 100% mortgages and, in some cases, gave mortgages to people who should not have received them. Might we now see the people in question as insolvency practitioners? This would give them two bites at the cherry, as they will now be paid to run an insolvency service for people who have ended up insolvent. Is it possible such persons are among the applicants?

Mr. Lorcan O'Connor

I will explain the qualifying criteria for someone who wishes to become a PIP. At the outset, we set out what we believed to be important for practitioners. We set out the requisite skill sets for somebody to become a PIP. We identified the qualifications, experience and skills required. If a person already had a base level of legal or accounting qualifications, he or she was higher up the ladder than others without such qualifications. We also identified other skill sets such as the ability to negotiate, given that the person concerned would ultimately be trying to reach a voluntary arrangement between parties, and the ability to deal with people in what could often be very distressing situations. Through our regulations we set out what somebody had to be able to bring to the table to be a practitioner. Qualifications and experience are set out, as are other requirements with regard to professional indemnity insurance, having client accounts which were clearly separate from the accounts of the firm or individual and various other matters one would typically expect to find in an area which was regulated. We also required anyone who would be a PIP or an approved intermediary to attend a course-----

What is the difference between a PIP and an approved intermediary?

Mr. Lorcan O'Connor

I will be happy to clarify the difference, but I will finish the point on the requirement to attend a course. We considered that it was extremely important to ensure people knew the Act and all related areas inside out in order that they would be able to give the right advice in their role as a PIP.

This may not have been expected. It is certainly not the norm, but we felt strongly that it was necessary for people to attend the courses for the reason mentioned - that is, in the absence of courses, people could act in the space of PIPs without providing the advice and attention required by the role.

Regarding the distinction between a PIP and an approved intermediary, the latter will advise someone applying for a debt relief notice. His or her role is to assess the situation of the debtor who comes in through the door and recommend whether applying for a debt relief notice is a good idea. If it is, the intermediary will hold the debtor's hand through the process, explain its various stages and make an application on his or her behalf. After the application is made, however, and assuming the debt relief notice is granted, the intermediary's role ceases and the Insolvency Service of Ireland, ISI, kicks in with a three-year supervision period for the debt relief notice.

This process is different from the other two reliefs, which are dealt with by a PIP. The initial stage is similar, in that the practitioner advises the debtor of his or her options and helps him or her through the application process, but the practitioner sticks with the arrangement for the five, six or seven years that it lasts. They will carry out annual reviews and handle client moneys. For example, if a debtor can put €100 aside every month for the next seven years, that money goes to the practitioner unless otherwise provided for in the proposal and he or she distributes it to the creditors. Practitioners have a more extensive role than approved intermediaries.

As opposed to an individual, can an agency or not-for-profit organisation register as an approved intermediary?

Mr. Lorcan O'Connor

It can be a corporate or an individual. The working assumption at this time is that the majority of approved intermediaries will come from within the Money Advice & Budgeting Service, MABS, network.

Let us say there will be 200 registered PIPs by the third week in August when the ISI is operational and people in debt will approach them seeking personal insolvency arrangements. One question that will arise is that of fees. Has the ISI worked out an overarching system so that people in similar situations are charged similar fees? Will fees be paid up front or as part of the resolution process?

Mr. Lorcan O'Connor

The ISI does not have the power to set limits on fees or anything along those lines. Rather, it has the power to ensure that the way in which fees are charged by authorised PIPs is transparent. We anticipate that the practitioner will be paid from the funds available to the creditors. Clearly, someone who applies for one of these new arrangements is insolvent and, therefore, will not necessarily have the wherewithal to pay the practitioner's fees. This is also the practice in other jurisdictions, such as the UK, or in comparable situations in Ireland, where liquidators, receivers and examiners are paid out of the funds available to the creditors.

The fees would be factored into the resolution period, be that three, four or more years. Mr. O'Connor stated that other aspects of the legislation have yet to be implemented. The Courts and Civil Law (Miscellaneous Provisions) Bill 2013 is another element. If unforeseen circumstances arise, can the ISI communicate them to the Department of Justice and Equality so that legislation can be added to further down the line?

Mr. Lorcan O'Connor

Yes. That communication is mentioned in the Act and the Minister has been vocal in saying that he is open to ensuring that any deficiency or possible enhancement that is identified will be addressed as soon as possible. I am satisfied the amendments contained within the Courts and Civil Law (Miscellaneous Provisions) Bill go a long way towards addressing the operational changes that will be required if the service is to operate efficiently and effectively. These changes are of a technical nature rather than being broader.

A difficulty will arise even if the system works well. There has been a great deal of misreporting - for example, the suggestion that it would be difficult for a single person with no dependants to live on an allowance of €1,200 per month. I know families that are still meeting their mortgages and would bite one's hand off to get €1,200 per month.

Although how every cent is to be spent by someone in a four or five-year insolvency arrangement is not prescribed, there is a certain degree of expenditure control. Modest credit emergency situations can arise. For example, a car might be written off or might need to be taxed and insured, a daughter might have a first Holy Communion or a son might have a confirmation. People need to access €500 to €2,000 that they do not have, as they are in insolvency arrangements and are consequently locked out of the credit market. Has the ISI given consideration to facilitating such circumstances?

Mr. Lorcan O'Connor

I must make a couple of points. The reasonable living expenses make provisions for savings, contingencies and items of expenditure that have not been specifically identified. These amount to €200 per month. However, there may be situations in which even these allowances are insufficient to deal with the unforeseen. The legislation provides for variations to arrangements with the assistance of practitioners. If the situation is temporary - for example, fixing something that has broken down - the variation may be a straightforward postponement of two or three months of payments until the end of the arrangement. If an unforeseen expense will continue into the future, a more fundamental change will be made to the arrangement.

I call Deputy Byrne. My apologies - Senator Byrne.

Someone might think I was getting above myself.

The Chairman asked pertinent questions and got to the nub of several issues. I thank Mr. O'Connor for the work he will be doing. He is setting up a new State agency. Many people with whom I have spoken and who are in serious debt problems are waiting to see what will happen. They view the system as hope. They know its faults and failings as we see them, but Mr. O'Connor can do nothing about those as a public servant. I will not question him on the politics, policies or mistakes in the legislation. He mentioned the bank veto. I may refer to that matter, but it is a political point and Mr. O'Connor must work with what is in front of him.

What are the chances of the ISI opening for business in mid-August and what publicity campaigns will it undertake to let people know of its services? People, including many of us, are wondering what is happening.

Mr. Lorcan O'Connor

As soon as we are in a position to open, we will make it known through various media channels, politicians and whatever other means are necessary. When we are in a position to open, we will have practitioners on the ground. The fact that they will be available throughout the country to meet people face to face is probably the best means by which the information will get out.

As the Senator will be aware, we have set up an information line and a website since the launch of our information campaign in April. More than 3,000 people have contacted the information line in recent months and our site has seen close to 40,000 visits, but these numbers will probably decrease in the coming months as the practitioners step into their roles as the people who must impart the information to debtors. I hope that debtors will be able to get any information they require through that process, but the ISI will be present as well.

With regard to meeting the August deadline, as I said in my statement, we are acutely aware that every day and week that passes before we open causes distress and difficulties for many people who have debt problems. We are doing everything we can do to bring the opening forward.

I have set out the three preconditions for our being open in mid-August. As I sit here today, I believe that we will meet them. First, I understand that the various legislative provisions should be commenced by the end of the month. Second, the authorisation of practitioners is within our direct control, so it is within our gift to begin the process. Third, the Department is developing the IT system and has given an assurance that it will hand the system over to us this week.

Mr. O'Connor touched on the IT system but seemed to hedge his bets. Does he expect the Department to fulfil its assurances?

Mr. Lorcan O'Connor

The Department gave an absolute assurance. I simply marked everyone's cards, although perhaps that is an inappropriate phrase, to highlight that if its assurances were not met - or equally, if the legislation were not commenced at the end of July or we did not begin authorising practitioners - the overall target would not be met. As of today we are confident that its assurances will be met.

Has IT delays on the part of the Department of Justice and Equality been a feature of the ISI's reign so far?

Mr. Lorcan O'Connor

Let me explain the complex IT system that we are trying to put in place and the reason we are trying to ensure that the system is right from day one. We are in the fortunate position of being a new organisation. Therefore, we do not have to change work practices and have an opportunity to install the right system on day one.

ISI is trying to ensure that when a practitioner advises a debtor and submits an application to us, it is done electronically through an online portal system. Then we access the case, verify it and ask questions, if any, through an automated system that will talk through the ISI's and the practitioner's online account. When we are satisfied that an application has met the necessary conditions contained in the legislation we will electronically pass it to the Courts Service. I understand that it is not common for judges to assess cases in an electronic fashion. We are designing it in such a way that that will happen; in other words, the first time a judge examines a case it will be on his or her computer screen. All of that traffic will move from the courts to the ISI and back through the practitioner. It will not simply be a one-line e-mail in every case. We will deal with scans of documents, detailed application forms, prescribed financial statements and various documents. It is an extremely complex IT system, and it is worth ensuring it is right from day one. There is only one opportunity to set up an organisation. Its important to try to get it right and efficient from day one rather than trying to retrospectively change things if one needs to adopt another approach.

The threat of bankruptcy is often quoted as the last line of defence for a heavily indebted person vis-à-vis the banks and the bank veto debate. Is it a realistic threat for an indebted person?

Mr. Lorcan O'Connor

I believe that it is realistic. Let us examine the situation. Up to now, if a debtor said to a bank, "If you don't sit down and try to come to an arrangement with me then I will seek to declare myself bankrupt," the threat may not have been given much weight, simply because bankruptcy would have lasted for 12 years and was not an attractive option for a debtor. Once the reform of the Bankruptcy Act is passed, which is envisaged by the end of the month, the automatic discharge period will decrease from 12 years to three years, so a bankruptcy threat will be far more real. The three-year period for bankruptcy is in line with European norms. To me, if a bank approached the matter in a commercially logical way it would consider that bankruptcy was not good news, that the threat was real, and that, therefore, it should give negotiations a chance and try to reach an arrangement.

Will bankruptcy applications still be dealt with by the courts system?

Mr. Lorcan O'Connor

An application for bankruptcy is done through the courts system. Once the application has been made, the financial affairs of the person declared bankrupt are vested with the official signee. The courts Bill that is before the Oireachtas and will be taken by the Seanad tomorrow contains provisions for the transfer of the office of the official signee to the ISI. I welcome the move for a couple of reasons. First, there is a natural fit in terms of what we are doing under these new arrangements and what the official signee does on the bankruptcy side. We can also work efficiently together. For example, if it transpires that there are more bankruptcy cases with these new arrangements, we can move staff to the official signee side of the house and vice versa. We can focus resources where demand is the greatest.

Let us say I am a person in debt who is in severe straits and has dealt with the Personal Insolvency Act and its procedures. What if the bank exercises its veto? Many of us have predicted that will happen. What are the prospects of my approaching a solicitor, hiring a barrister and drafting pleadings? Will help be provided to people to whom bankruptcy has been touted as an attractive alternative?

Mr. Lorcan O'Connor

As the Senator has correctly said, there are voting mechanisms contained within these arrangements. There will be instances in which creditors vote down an arrangement and the debtor will be faced with deciding what to do next. On the day he or she applies for bankruptcy the only direct cost he or she will pay is a €650 application fee to the courts and a stamp duty fee of what I believe will be €90 or €100. He or she does not require a barrister or a solicitor to carry out any lengthy submissions.

Can someone who wants to declare him- or herself bankrupt walk into the central office in the High Court to fill out the form?

That is what the man said.

Mr. Lorcan O'Connor

I cannot give the Senator the precise steps. He or she needs to go somewhere in the Courts Service that is in the High Court structure and apply on that basis.

I will not go into the pros and cons of bankruptcy because I do not have time, but there are many cons. If a heavily indebted person wishes to fight the banks and start the process of bankruptcy he or she will need €740 at the very minimum.

Mr. Lorcan O'Connor

Yes.

I do not know where the person will get the money from. That is the sum without using solicitors and barristers. Most people do not know where the general office is. When I was a solicitor one of my clients received a summons or whatever instructing him or her to enter an appearance at the general office. The person did not know what that meant, but I knew it was a form. People do not know how to operate in the courts system.

Mr. Lorcan O'Connor

Somebody who has been involved in trying to get a personal insolvency arrangement or debt settlement arrangement passed will have a personal insolvency practitioner to explain what his or her options are in the event of an arrangement failure. The practitioner will be able to point a person in the right direction as to who he or she needs to talk to in the Courts Service in order to apply for bankruptcy.

If a person wants to counteract a bank's veto he or she needs €740 immediately in order to get bankruptcy.

Mr. Lorcan O'Connor

That is the endpoint fee that would be charged to somebody declaring him- or herself bankrupt.

That is unfortunate. The committee should examine ways of reducing the fee.

I have another brief question.

Mr. Lorcan O'Connor

Obviously fees are a policy matter. The fees charged in the UK are slightly higher and the same applies to other jurisdictions. When one examines another jurisdiction where the number of bankruptcies are high, such as the UK, the fee does not appear to be a stumbling block.

The Chairman is going to cut me off, but I admire his efficiency. Mr. O'Connor answered my question, but I do not know him. Can he outline his professional background? He will be an important figure in Irish society for the next few years.

Mr. Lorcan O'Connor

I do not know about that. I am a chartered accountant by training, having completed a course in business and legal studies in UCD. Prior to taking up this role I was director of restructuring services at Deloitte and worked primarily on the corporate side of insolvency up to this point.

I thank Mr. O'Connor.

I wish Mr. O'Connor well with his extremely important job. As a politicians, we all know of people who are waiting to see how this plays out. There are a couple of areas about which I would like to ask Mr. O'Connor. I refer to the issue of publications, judgments and so on. How does Mr. O'Connor see that happening? When the process kicks in, at what point will people be able to opt into any of the three options, or can they look at them and walk away?

The voting arrangements are quite complex. Many people will have arrangements with some of the people to whom they owe money and no arrangements with others. When we talk about secured debt, there may be a tendency for banks or larger institutions which are already receiving money to vote against an arrangement, to the disadvantage of other creditors who may be receiving nothing at all. If creditors vote against the arrangement, is the process without prejudice or can it be used subsequently in court cases? In other words, can a person say he or she came to the process in good faith and tried to settle with his or her creditors but they refused and the only reason he or she is there is because of the creditors' unwillingness to engage? In regard to secured debt and the family home, how, in terms of insolvency and settlement, does Mr. O'Connor see a benefit for someone whose ultimate ambition is to get the burden of debt off his or her shoulders over a number of years and stay in his or her family home?

Mr. Lorcan O'Connor

Deputy Murphy's first question was how a person would know which arrangement was best for him or her and what was the point of no return. In terms of which is the best solution, we have published guides, together with some sample cases, which are on our website and which, hopefully, will help to inform debtors broadly at a high level about what is involved. However, it is the advice he or she will get on a face-to-face basis with the practitioner that will be very specific to his or her circumstances, identifying the options open to him or her and, ultimately, what option in the opinion of the practitioner is in his or her best interest.

Let us say it is recommended to a person that a personal insolvency arrangement is the best way forward. The person always has the option to pull out of that process at any point prior to the establishment of the personal insolvency arrangement, which could be a period of 70 to 100 days. If he or she does so, he or she will not have the option of applying again for a period of 12 months, but beyond that there are no consequences.

The Deputy mentioned that a person entering into one of these arrangements may have pre-existing arrangements with one bank but not with another body. In effect, what these arrangements do is supersede any other arrangement or deal one might have entered into with creditors. Once the practitioner is appointed, the protective certificate is issued, the slate is wiped clean and the practitioner starts again to identify what is in the best interest of the debtor and what is in the best interest of the creditor. If any creditor believes he or she is being unfairly prejudiced, there is the option for him or her to go to court and to make that point to the judge. In terms of that unfair prejudice test, I would see that as being very similar to what exists currently in examinership on the corporate side, under which one looks at what one would get in a liquidation. In this case, what the unfair prejudice test amounts to is what would one get in bankruptcy. In the vast majority of cases, bankruptcy would always be worse for the creditor than what a practitioner might propose. In fact, a practitioner should not propose anything that would not meet that test.

The Deputy mentioned secured debt and the family home. The personal insolvency arrangement itself has very specific protections in regard to the principal private residence to the point that a practitioner is not required to put a proposal together which requires the debtor to sell or move away from the principal private residence unless the running costs of that home are disproportionately large. There is in-built protection in the actual arrangement in regard to the principal private residence.

Will Mr. O'Connor give us a summary of the whole area of publication, the Credit Bureau and so on? Will he give us an assessment of whether that should change further?

Mr. Lorcan O'Connor

Assuming the amendments to the courts legislation are passed at the end of this month, in effect, when somebody applies and gets a debt relief note or when somebody gets a protective certificate, he or he will go on a register which will be updated depending on the status of his or her case. Let us say one begins as a protective certificate candidate, and then there is a PIA in one's name and one is running down from year seven to year six to year five and so on. Ultimately, when one has successfully completed one's debt relief notice, debt settlement arrangement or personal insolvency arrangement, one's details are taken off that register three months later. In terms of what details will be on that register, it will be the name, address and year of birth of the debtor.

Would Mr. O'Connor see this being covered extensively in newspapers in the same way as other lists are covered?

Mr. Lorcan O'Connor

I would not. The reason I say that is that if one looks at international precedent, such as the UK, where the register is available, there is not much focus on it. Equally, there is a register for bankruptcy in Ireland - in effect, a public register for people who get judgments registered against them - but it does not receive the kind of attention the Deputy suggests. However, we will have to see how it plays out.

One of the things we are hearing a lot from people in financial difficulty is that debts are being sold. A reasonably well-established institution with a good reputation may sell the debt to an agency at 25%, 50% or whatever. That agency then comes looking for the full amount. What will be the amount under these three arrangements, bearing in mind there are two different amounts - the original debt and the new negotiated debt?

Mr. Lorcan O'Connor

It very much depends on the circumstances of a particular case. A practitioner might be doing a very good deal for creditors in making a proposal which sees a 5% return to them. Equally, a proposal that offers an 80% return might not be in the best interest of creditors if, were the practitioner doing his or her job, they would be getting more. There is no rule to say it should always be more than 30% or 40%. It very much depends on the circumstances of the case. It is down to the practitioner to look at the balance sheet of the individual and what he or she can supply to creditors through-----

Let us say a person believes he or she owes AIB €10,000, but it turns out AIB has sold the debt to one of these agencies for €2,000. Is it within the guidelines that it is now €2,000 and that AIB is no longer owed the money because it has sold the debt?

Mr. Lorcan O'Connor

The loan or the claim would be whatever it is on the face of the statement. In the Deputy's example, it would be €10,000. What I would say - this is more a comment based on my experiences in the corporate insolvency world rather than in personal insolvency - is that where loans have been passed on to a third party at a discount, it is far more efficient and easier to get deals done in that context because usually those third parties are banks which specialise in this area and are used to these types of process. Indeed, one only has to look at the UK, where such third parties play an important role in supporting the equivalent, which is known in the UK as an individual voluntary arrangement.

Go raibh maith agat. I welcome Mr. O'Connor to the committee. First, in regard to the appointment of personal insolvency practitioners, the Minister for Justice and Equality, in response to my parliamentary question yesterday, stated that the ISI had received more than 90 applications to date. Both the Minister and Mr. O'Connor are on record on the expected number of cases that will come before the ISI - some 15,000 cases in the first 12 months, ranging from personal insolvency arrangements and debt relief notices to bankruptcy. Not all of the 90 practitioners who applied for positions as personal insolvency practitioners may be sanctioned, but with a staff of approximately 90 to deal with 15,000 cases, each practitioner will have a caseload of 166 cases. Is there sufficient interest among practitioners in working on cases for the Insolvency Service of Ireland? Will the service be fit for purpose? Is there a sufficient geographical spread of applicants? How many personal insolvency practitioners would be required to meet the expected caseload of 15,000 cases? Will Mr. O'Connor be able to ensure there is a geographical spread so that the practitioners are not concentrated in one area and are spread throughout the regions?

We have a rough idea that the service will start in mid-August. We have discussed the potential flaws and setbacks. The heads of the Bill were published 18 months ago and the enactment of legislation is in the political domain. People are anxious to know when the Insolvency Service of Ireland will be up and running. Mr. O'Connor was appointed in October last year. Will he give an indicative date of when applications can be made? Will the ISI be operational on 7, 14 or 20 August? Is there any certainty about the commencement date?

The Insolvency Service of Ireland is tendering for legal services. The applications for tender are open until 7 August. How certain can the ISI be of having a service up and running when the applications only close on 7 August and it will take time to scrutinise and award the contract and put the successful tender in place?

Mr. Lorcan O'Connor

I will answer the questions in the order they were asked. The Deputy's first question relates to the number and geographic spread of personal insolvency practitioners. I think it is important to understand where we are in the process of receiving applications. The regulation setting out the qualitative requirements of a practitioner were published at the end of June. The regulations in terms of what is required in terms of handling client moneys and other areas were only published last week. While there was the ability for some to apply while waiting to see the final piece of the jigsaw, others may well have waited until this week to apply. The number of applicants in the Minister's reply to the question tabled by the Deputy was probably true 24 hours ago, but I can now say the number has risen to over 100. As the Deputy can see, we are starting to get to a certain volume in the number of applications.

I referred earlier to the courses that we have looked to the various professional bodies to provide. They have told me that several hundred people attended the first tranche of courses. I also asked them how many of those who attended went to the further stage of sitting the exam, and again, several hundred did so. I would be confident of the numbers over time, but I would like to manage expectations. We will not have the critical mass on 1 August, but over a number of weeks I believe we will get to the point at which we have a good geographic spread and a sufficient number of practitioners.

I should also state that the headline number of authorised practitioners may not necessarily give an accurate reflection of the capacity within the personal insolvency practitioner industry. The reason is that some practitioners may be sole practitioners, in its truest form, and they are likely to be dealing with a couple of dozen cases in a given year, but other practitioners are likely to invest heavily in this area in order to deal with a higher volume of cases while maintaining fees at a low level and so on. Therefore, if one is not aware of the mix of practitioners, it does not give a good guide as to the actual capacity.

The reason I cannot give the Deputy a definitive date is that the moment I have confidence that everything has been lined up and we are ready, we will go. We will not wait a further day. In my opening statement I said we would be ready in mid-August, which to me means within the first couple of weeks of August. I will do everything to ensure it is as early as possible; however, because everything is in flux and we are trying to do it all as quickly as possible, I do not have a specific date.

The Deputy is correct that the legal service went to tender. That has no bearing on when we will be in a position to accept applications. Our role in terms of assessing a case that comes into the ISI is to ensure it is in compliance with the legislation. That is very much an operational challenge for the ISI. There is no legal input into that. We would require a legal adviser, as any organisation would, in terms of our ongoing business. It would have no bearing on the applications.

A number of statutory instruments went before the Joint committee on Justice, Defence and Equality, but unfortunately they did not come before this committee. I am sure Mr. O'Connor is aware of their contents. An issue raised time and again by the Free Legal Advice Centres is the issue of fees and the potential for personal insolvency practitioners to cherry-pick clients based on the potential payment. I am not sure if there is anything in the statutory instruments which would prevent a personal insolvency practitioner from charging a potential client an assessment fee at the very start. Will Mr. O'Connor talk me through the scenario in which the personal insolvency practitioner makes a suggestion to creditors which is rejected? In such a case, how does the practitioner get paid?

Mr. Lorcan O'Connor

I will go through an example. Let us say that on 1 August a debtor states that he wants to consider his options, including whether to avail of a personal insolvency arrangement or a debt settlement arrangement. The person will go to the ISI website and see a list of authorised practitioners. That list should grow day by day throughout August. He or she will contact a practitioner by telephone and arrange to meet. The practitioner may contact the person in advance to advise him or her to bring certain supporting documentation in order to ensure the meeting is efficient. The practitioner will have a statutory duty to go through various stages in the process of assessing the situation. In effect, the practitioner will carry out a financial health check on the debtor's position. Having done that, the practitioner will go through the various options that may be available to the debtor, one of which might be to try to do a deal directly with the bank. That would be most likely if all the amount the debtor owes is to a single bank. It may be achievable to go down that route. In other situations, the practitioner might simply say that if the person adjusts his or her expenditure, he or she may be able to meet a rescheduled set of repayments, and so on.

I am aware of the process, but as time is limited, can Mr. O'Connor deal with the case in which the practitioner's proposal is rejected?

Mr. Lorcan O'Connor

Let us fast forward to the point at which it is rejected. In that situation, the practitioner would not get paid because the proposal would have involved his or her fees being paid out of the scheme. However, when I speak to operators in the United Kingdom, they explain to me that it is in effect a cost of sale. Because practitioners must ensure that when they develop a proposal it is in the interests of both debtors and creditors, they do so with confidence that it is sufficiently attractive for both to vote "Yes" to. The practitioners I have spoken to in the United Kingdom have told me that they are confident that 90% of their cases will get past with that type of vote, and that the 10% that do not may fail for other reasons beyond the standard case.

There is a suggestion that personal insolvency practitioners will levy an assessment charge because of the vetoes that creditors have. Is there a way of ruling out an assessment charge?

Mr. Lorcan O'Connor

The ISI does not have the power to set any rules specifically with regard to fees, with the exception of ensuring they are charged in a transparent manner. A number of large operators have stated publicly that it is not their intention to charge a fee; however, there may be situations in which a case is very complex.

Let us say somebody who is considering a PIA has a number of buy-to-let properties, debts with several banks and a number of other debts in the form of credit union loans, personal loans, personal guarantees, utility bills and so on. In such a situation, a practitioner might charge an up-front fee to manage in part the risk that the PIA might not be successfully passed. So long as that is charged in a transparent manner, I do not have an issue with it, but I would like to give an assurance that the vast majority of debtors, who are not in such a complex situation, will not be asked to pay an up-front fee.

There are different types of debtor, including those with few assets. For example, in the case of debt relief notices, there are people with over €400 worth of assets so they have to fall into one of the other two arrangements, upon which a PIP gets involved. Not only is there a potential up-front fee for the complex cases but, as Mr. O'Connor points out, there is nothing his service can do to stop an up-front fee from being charged so that the PIP gets paid at all times. There is also an additional application charge which the service has laid down. I think it is €100 for the debt relief notice, €200 for the debt settlement arrangement and €500 for the personal insolvency arrangement. We could potentially see a debtor being out a couple of thousand euro, even if the arrangement is rejected, as a result of this process.

Mr. Lorcan O'Connor

I would point to the experience in other jurisdictions where those situations arise, but the consequences described by the Deputy are not encountered, simply because there will be always be a sufficient number of practitioners to deal with such cases. The large operators will be able to deal with the high-volume, low-margin work and still make it efficient. Creditors, equally, need to support this process. What is the alternative for the creditor? It is a lot of costs and nothing by way of dividend. The support for fees should be there.

We support the argument that there should be a public insolvency process, and that it should not be left to people who are going to cherry-pick those that are the most profitable for them. Will the service ensure there is a monitoring process so that people are not left out of the loop?

I know the following is in the legislation, and that is not Mr. O'Connor's field, but what advice would he give to somebody who is looking for a debt relief notice, and who has an engagement ring and wedding ring, as to which piece of jewellery he or she should sell to avail of the notice? Under the legislation, the person is allowed only one piece of jewellery. Will that cause problems? Mr. O'Connor estimates that he expects up to 4,000 applications. There are other areas about which we have concerns. While educational materials for primary and secondary school are excluded, the books and materials for a debtor in third level education will be taken into account in his or her asset test. Where a person has less than €60 in income at the end of the month and has assets of less than €400, the legislation will require him or her to dispose of either a wedding ring or an engagement ring. How will the service deal with that?

Mr. Lorcan O'Connor

In answer to the first question, we will be carrying out significant monitoring in the initial stages to see whether the system plays out as envisaged. If we identify anything that needs to be changed, we will do our best to ensure this happens.

The Deputy is correct in referring to the various policy issues that are reflected through the legislation and the qualifying criteria for the debt relief note. The qualifying criteria for the debt relief note are particularly stringent, because what is offered for those who do qualify is a complete write-off of all debt in return for nothing. There is no requirement to make a dividend payment or to sell any assets as such. For those that do not qualify, there are alternative options open to them, including the debt settlement arrangement and the PIA.

Will the service report on the number of vetoes that have been used by the banks?

The Deputy's two minutes are up. I will bring him back in later. I call on Deputy Spring.

I am of the opinion that this is the most significant Act for the people of my generation who are currently in financial distress. I do not think there is anything else the Government can do to give people more hope that they can resolve their personal indebtedness. Mr. O'Connor has been entrusted by the State with an enormous task, and I wish him the very best of luck in his job. We have trusted many institutions in the past - such as the Central Bank, which licences the banks - that have let this country down. Does Mr. O'Connor think the mechanisms in place are appropriate to ensure that the personal insolvency practitioners will have the appropriate skill set? How will the service monitor that? Can we get some feedback on the process in a while?

Mr. Lorcan O'Connor

I agree that the personal insolvency practitioner is completely central to the success of these new arrangements, more so than the ISI or any other stakeholder. It is for that reason, given the time constraints we have faced, that we have put in place what we believe to be the most stringent means by which we can ensure that the quality of service that the practitioner offers to debtors is appropriate. We will have a supervisory role in monitoring that. For example, we will be visiting practitioners on an annual basis, and these visits will be announced and unannounced. We will be looking at their working papers to ensure that what is required of them in carrying out their statutory duty is done correctly. We will then identify those that warrant specific visits. For example, if our statistics show an anomaly on where a practitioner's proposals sit vis-à-vis the bell curve that one might expect, we will ensure that such a practitioner is visited to see whether there is anything of concern.

The Act itself allows for a complaints mechanism to assess the situation. We will take on a complaint we receive from anybody, be it somebody from within the Oireachtas, a creditor or a debtor. Anybody who makes a complaint to the ISI can be confident that we will follow it up straight away. We do this because it is so important to protect the integrity of the role of the practitioner. If we do not do that, then very soon we could have creditors saying that they have no faith in the practitioner and asking how we could expect them to vote in favour of a proposal, or we could have debtors asking how we could expect them to ask a PIP to help them through a difficult time in their lives if they do not have faith in the integrity of the practitioner.

I believe that the salient skill a personal insolvency practitioner will need is the ability to broker a deal. Barristers, solicitors, accountants and mortgage providers are often the kinds of people who have not been making deals at this level and may not have the required level of financial nous, and I am worried that people could end up with a personal insolvency practitioner who might not have the appropriate skill set. How can the debtor then move to a different personal insolvency practitioner, and who will incur the cost at that stage? If a debtor ends up with the wrong person, it could have detrimental effects. What is the solution to that?

Mr. Lorcan O'Connor

I would agree with the Deputy that the required skill set includes negotiation skills. It is for that very reason that we have put in place the various courses. The agendas for those courses show that there are a good deal of case studies being worked through, as well as the provision of negotiating skills to ensure that those who act in this role are familiar with what is required of them. There are provisions within the Act itself for changing a practitioner for whatever reason, including those reasons set out by the Deputy.

Most of the people who access our offices ask us to help them with appeals mechanisms, or look to leverage off the State. As one of my colleagues pointed out earlier on, there is a lack of awareness of how the State mechanisms genuinely work.

There is no appeals mechanism in the Personal Insolvency Act. Why is that the case and does Mr. O’Connor think that is appropriate?

Mr. Lorcan O'Connor

It is not my role to comment on a policy issue.

If Mr. O'Connor cannot comment on it, can he paint a picture for the public of how to get around that problem?

Mr. Lorcan O'Connor

I will put it in context: these arrangements replicate what works successfully in many other jurisdictions. The ultimate appeal to the courts is open to anyone in the country in any situation in which they believe they have been hard done by. There is no appeals mechanism in the legislation.

If a person believes the personal insolvency route is not working he or she can go to the courts with the creditor and try to thrash out a solution at that point.

Mr. Lorcan O'Connor

That may well be an option but it is important also to remember that at their heart these arrangements are voluntary in nature, to try to reach an agreement between two opposing sides, hence the way in which they have been developed.

I am of the opinion that the biggest threat to people is that the banks do not need to have any more bad debts. They would prefer to have a contingent liability than a bad debt. People who take out a mortgage have some level of knowledge but ultimately they trust in the provider. Likewise, in this situation they will trust the personal insolvency practitioner. A level of discretion will be applied because one will enter into an agreement not to talk publicly so each individual will have to school himself or herself. It is the responsibility of the State to tell people that the ultimate weapon they have is the court, whether to go in there to fight their cases or tell the banks they need to be very aware of the bankruptcy route so they are not left with just the three cases we have pointed out here. They need to know they can go bankrupt and it will take three years to come out of that and the banks will end up in the precarious position of-----

The Deputy has four minutes left and I advise him to move to a question.

I will be the judge of that.

That is fair enough, but the Deputy is going to run out of time.

The next thing to be aware of is that if one chooses the bankruptcy route the banks will be sold and anyone looking to buy them will do due diligence on their mortgage accounts and if that is the case they will not want to be left with any unsustainable mortgages. It is important that Mr. O’Connor’s institution tells people they have the bargaining chip of the bankruptcy route. The bankruptcy route takes three years but there is a contingent further period. Why?

Mr. Lorcan O'Connor

I think the Deputy is referring to the income payments order. Is that correct?

Mr. Lorcan O'Connor

That is a policy matter and it would not be appropriate for me to comment on it but I would be happy to talk about how that might work.

Is it best practice internationally?

Mr. Lorcan O'Connor

To my knowledge there are income payments orders in almost all similar jurisdictions that have bankruptcy provisions.

Mr. O'Connor said he has worked in corporate insolvency. It is very beneficial for us to have met people who are financially distressed, including some of our colleagues, but what level of personal exposure has Mr. O’Connor had to individuals who are financially distressed?

Mr. Lorcan O'Connor

In my current role I came across several situations as I went to various conferences around the country and so on. Even in my experience of dealing with the corporate side in recent years it became more and more apparent how corporate insolvency issues were merging into personal insolvency issues. For whatever reason, over recent years personal guarantees and corporate and personal lives became quite intertwined. It is unfortunately the case that for some years I have been dealing with people in distressed situations.

Mr. O’Connor is very welcome and I thank him for giving his time to the committee.

I ran a four hour session on these issues on a sunny Saturday last week in Bray where I had some of the very useful documentation from the Insolvency Service. There is huge interest in this. People are still trying to negotiate even now on behalf of borrowers and I hear the same thing from all of them - that the banks are not doing any deals. I imagine everyone is waiting for this legislation and for the service to go live. Can borrowers avail of the insolvency route if they are not in arrears on their mortgages?

Mr. Lorcan O'Connor

They can avail of it if they are insolvent. It could be possible that they are up to date on one of their loans but are insolvent in the overall context. The test is whether they are solvent or insolvent.

On that test, one has to make a judgment call as to what is a reasonable percentage of household income to pay against the debts. Two people could look at a case and one might say these people can meet their debt repayments and therefore they are solvent, while another might say they are not solvent as they are paying 40% of their net income, which is an unsustainable portion. Therefore, on the basis that they need money to lead a dignified life, they are insolvent. Is a person who is not in arrears but has struggled too much to stay out of arrears by paying more than a third of household income to service the mortgage, which is the UK guideline, technically insolvent? Would Mr. O’Connor agree with that analysis and say that people in those situations could therefore avail of the insolvency process?

Mr. Lorcan O'Connor

If people are already meeting their obligations, albeit because they have cut their cloth almost too tightly to meet their current situation, it sounds to me as if there is the capacity or potential to do a deal, short of any insolvency process. On the specific question, one would assess the reasonableness of the outgoings with reference to the guide we have produced on a reasonable standard of living and living expenses. That would be the first stage in that process.

If I as a borrower look at the reasonable standard of living guide produced by the Insolvency Service of Ireland and say I could no longer service my debts were I to leave myself and my family the amount in the guide, would Mr. O’Connor be satisfied that I am insolvent and could therefore initiate an insolvency process?

Mr. Lorcan O'Connor

The person would be potentially insolvent but it would appear to me on the face of it, without looking at a specific case, that there is the potential there to do a deal short of any of these arrangements.

Mr. O’Connor mentioned examples used during training. The Insolvency Service produced a small set of case studies some months ago and I was looking for a second round to be produced specifically because the case studies that were produced did not reflect some of the detailed conversations we had when the insolvency Bill went through the Dáil. Has that second set of examples been produced?

Mr. Lorcan O'Connor

We are continuing to work on several examples and we hope to publish them in the coming weeks. We published a further tranche at the end of June but they were primarily designed to show how amounts owed to the Revenue Commissioners are treated in the context of any of these arrangements. We are working on several others. We will keep that under review to ensure that as we get real cases over the line the sample cases on the website reflect what is happening on the ground.

One example I am very keen on, and which I have mentioned before, is that the Minister for Justice, Equality and Defence was very clear in a back and forth with me in the Chamber during the legislative process, that six years was not a target for somebody in a PIA but a maximum. The example I used was of a lady in Wicklow town. The Minister agreed that there was no public benefit in a six-year process and in that situation a three-year process would have been appropriate. Will Mr. O’Connor ensure that whatever examples the service produces reflect the debate that was had in the Oireachtas, because that example is very important? When I hear people talk about the time all I hear is six years. I do not hear them say "up to six years".

The Minister was very clear that it was up to six years. Can Mr. O'Connor ensure this is included and reflected?

Mr. Lorcan O'Connor

We are trying to ensure that the sample cases on our website are as representative as possible within our time constraints. I agree that the kind of situation suggested by the Deputy could potentially exist as a real-life case. We already have one situation within our suite of sample scenarios that envisages a PIA finishing within three months, simply because the disposal of an asset is being offered so that the PIA in question will be for only three months rather than for six years.

Just to be clear, the scenario in question involved the write-down of the mortgage, so at the end of the three years the lady in question was put back on a sustainable footing. I am aware of the example. However, most of the examples I have seen do not include write-downs, and those that do last for six years. I want to highlight that the Minister was very clear that it is possible for a PIA to keep a borrower in his or her house and to include a substantial write-down of the mortgage to a sustainable level, and if there is no public good to be served by this person's being in a process for six years, there is no reason he or she could not exit. Indeed, the Minister suggested that it would be appropriate for that person to exit the process with the write-down intact after just three years.

I ask Mr. O'Connor to give his opinion on why anyone would not continue to use the bankruptcy system in the UK, where the total period for discharge of bankruptcy is one year, with the potential for a payment order for another two years. This compares to three years of bankruptcy here and the potential for an additional five years. My understanding of the UK system is that not only is it one year compared to three years, but if a person has been in arrears for six months, the magistrate will take that into consideration as part of the 12-month period. A person who has been in arrears for six months could move to Belfast, Derry, London or Manchester and be back here, discharged of all debt, in just six months. This is not meant to be a leading question, because I am genuinely interested. Why would people avail of the new bankruptcy regime here if they had the wherewithal to get to Belfast or Derry for six to 12 months?

Mr. Lorcan O'Connor

The Deputy is correct to state that anyone is free to choose whether to travel to the UK to avail of the bankruptcy regime there. From a financial perspective, a person would be no better or worse off. A bankruptcy trustee in the UK should act pretty much in exactly the same way as the official assignee here, and a bankrupt person loses all assets and income streams other than what is required for reasonable living expenses. Equally, the kind of protections that might exist here with regard to a principal private residence or a pension may not extend to the UK. That is a factor to be taken into account. To avail of the UK one-year term of bankruptcy, it must be established that a person's main centre of interest is in the UK, and that will take a number of months, probably around six months. The one year actually becomes 18 months when this is taken into account. One is then comparing 18 months with the three years to see which is more attractive. For people with a family and a home here or with other ties to Ireland, I believe the differential is actually quite small, particularly when the financial outcome is the same whether in the UK or in Ireland. There have been a number of high-profile cases in the UK. In the case of those who apply to become bankrupt in the UK and are adjudicated not to be co-operating with the trustee, the one-year exit from bankruptcy is postponed until that co-operation is deemed to have taken place. Those are the factors at play when a person is comparing the different options.

One of the frequently asked questions at the session in Bray over the weekend was about joint ownership. We had several examples of women who remained in their homes after their husbands were gone, and the husbands were not contributing to the mortgages, which were therefore in arrears. Another example was one in which parents had co-signed for a mortgage, the children had emigrated and the mortgage was in arrears. These are utterly tragic situations in which parents who have paid off their own mortgages and who are in their mid-60s or even mid-70s are now in danger of losing their home. Can the person who is left behind in such situations institute the PIA process? Can the person who is not paying the mortgage veto a PIA for the other partner because he or she is not willing to participate?

Mr. Lorcan O'Connor

A person who has a mortgage in joint names can apply in his or her own right to seek relief under one of these arrangements. If this is successful, the person is free from his or her obligations to that mortgage. The other person who is not party to the application is still liable for his or her part in the mortgage agreement. If those parties remain together they can apply on a joint basis - if their debts are joint - and they will get the relief together. That is an option. I reiterate there is not an obstacle for the remaining person in availing of the relief.

Have I time to ask one further question?

No. I will allow the Deputy to ask a question later.

I welcome Mr. O'Connor. I wish to deal with some practical matters in my questions. How will the intermediaries and the personal insolvency practitioners be regulated? In my view, a lack of proper regulation was a significant cause of the mortgage crisis. I ask Mr. O'Connor to describe the screening process and the regulatory procedure.

Mr. Lorcan O'Connor

We have published three regulations for the authorisation application process. These set out the qualifications a practitioner must possess and other requirements as would be expected in a regulated sector, such as the need for professional indemnity insurance.

Those are standard requirements. My question is how they will be regulated when they are up and running.

Mr. Lorcan O'Connor

We have identified that certain amendments to the primary legislation are required in order to give us an effective supervisory power to monitor the activities of practitioners. Those regulations are contained in the Courts and Civil Law (Miscellaneous Provisions) Bill 2013, which should be passed by the Seanad tomorrow.

Are those powers sufficient?

Mr. Lorcan O'Connor

I believe so. We will issue additional regulations this autumn which will apply to anyone who is an authorised intermediary, an approved intermediary or a personal insolvency practitioner. This will allow us to make visits to a practitioner's office to inspect his or her working papers, to investigate complaints and to deal with any of the issues that might arise along the lines suggested by the Deputy.

Will the practitioners be required to make annual returns?

Mr. Lorcan O'Connor

Yes.

There has been much abstract discussion about costs. I want to boil it down to basics. Those availing of the service include those applying under the debt relief notice scheme. These people will not be property owners, they will probably be in receipt of social welfare payments and they will have unsecured debts. What fees will these applicants incur?

What will be the cost for ordinary people who are considering availing of this?

Mr. Lorcan O'Connor

The cost will be €100.

To whom will that money be paid?

Mr. Lorcan O'Connor

It will be paid to the ISI via An Post or a PayPoint facility.

Will people be able to pay by direct debit? Is there any mechanism in place to allow people who cannot afford the entire amount to space their payments over a period?

Mr. Lorcan O'Connor

No. That payment will be required for an application to be processed.

Given that we are discussing people experiencing hardship, will the ISI be in a position to exercise discretion?

Mr. Lorcan O'Connor

No. However, the reason I have referred to the UK in many of my responses is that many of these arrangements have been developed with reference to the practice that has proved to be a success in that jurisdiction. For example, the charge for a debt relief order in the UK is £100 and debtors have had the ability to meet that fee.

What will be the cost for someone who wants to avail of a debt settlement arrangement?

Mr. Lorcan O'Connor

The cost is €250.

Will that be payable to ISI?

Mr. Lorcan O'Connor

Yes.

Is this also based on the UK model?

Mr. Lorcan O'Connor

They would not be directly comparable but, broadly speaking, that is the approach.

Again, I presume there is no mechanism to allow people to pay over a period.

Mr. Lorcan O'Connor

No.

What will be the cost of a personal insolvency arrangement?

Mr. Lorcan O'Connor

It will be €500.

If someone chooses bankruptcy, he or she will be obliged to pay €740 or €750 immediately?

Mr. Lorcan O'Connor

Correct.

Are the costs relating to personal insolvency arrangements also based on the UK model?

Mr. Lorcan O'Connor

The personal insolvency arrangement is slightly different in that it includes the treatment of secured debt. As a result, it is not directly comparable with other jurisdictions. If we compare the position on bankruptcy, the benchmark in Ireland is €740 or €750 whereas in the UK it is slightly higher than this.

Is there an equivalent of the debt settlement arrangement in the UK? If so, what is the cost involved?

Mr. Lorcan O'Connor

The ISI's role in debt settlement arrangements is not replicated in the individual voluntary arrangements, IVAs, which obtain in the UK. This means there is no direct comparator. For other common law jurisdictions such as Australia or Canada, the fees would be somewhat comparable. They are, however, on the low side in Ireland.

If people cannot afford to pay €250 or €500, they cannot avail of these schemes as constituted.

Mr. Lorcan O'Connor

That is correct. Again, I must point to the fact that in our guidelines on reasonable living expenses and a reasonable standard of living, we include provision for savings, contingencies, social inclusion and so on. For a single adult, this amounts to almost €200 a month. Using the guidelines as a reference point, there would hopefully be the capacity for people to put something aside over a short period in order to meet the fees.

What has been the level of interaction by the ISI with the financial institutions in recent times in the context of the operation of this scheme? I am particularly interested in hearing about how the banks are dealing with personal insolvency arrangements, but perhaps Mr. O'Connor could also comment on their approach to debt settlement arrangements.

Mr. Lorcan O'Connor

I certainly believe that the role of the ISI, particularly in this set-up phase, includes ensuring that we deal with all of the various stakeholders in the process. Obviously, we have been discussing matters with the IBF, at representative level, and the bank, on a one-to-one basis, in order to ensure that they are operationally ready for this process. The banks will be obliged to meet various challenges such as training their staff and putting IT systems in place. They must also ensure that they will approach proposals which might arise through PIAs in the way envisaged. The way in which it is envisaged is that they should assess the merits of any case on a stand-alone basis, rather than approaching it with any predetermined misconceptions or-----

If the banks' IT systems are not up to date or they do not have the correct procedures in place, does the ISI have at its disposal any legal tools to force them to co-operate? There could be one bank which might be ready to deal with customers who are in financial difficulties as a result of the crisis, while the other banks might be dragging their heels. There is an inconsistency in this regard. Does the ISI have the tools or the wherewithal to bring on board any banks that do not have the correct procedures, etc.?

Mr. Lorcan O'Connor

Based on the feedback I have received, both from the IBF and - on a one-to-one basis - from the banks, none of the banks are of the view that there are any operational blockages that would prevent them engaging with the process.

So Mr. O'Connor expects them to be operational?

Mr. Lorcan O'Connor

They are waiting for us more than anything else and they are expecting to receive contact from practitioners towards the end of August or early September when protective certificates are issued.

Is that the case for all of the institutions?

Mr. Lorcan O'Connor

Yes.

In the context of monitoring, I am seriously concerned that individuals will not be able to gain access to PIPs as a result of cherry-picking. Is the system as set out under the legislation flexible enough to allow the ISI to appoint public practitioners? How will it be able to monitor matters? For example, will it be in a position to know that someone approached a practitioner and that either he or she did not take up the offer of service or the practitioner did not accept the custom because he or she was of the view that the individual involved did not have sufficient assets and that an adequate return would not be forthcoming? Will Mr. O'Connor comment on that matter?

Will the ISI report on the number of times the banks use the veto in order to refuse solutions proposed by PIPs? Will Mr. O'Connor indicate how the system will apply to people who have left the State? I visited Perth last year during a speaking tour of Australia and I met many Irish people with young families who are extremely angry and who are working there in order to try to part-service their mortgages here. The position is similar in London and elsewhere. There are people who cannot afford to maintain their mortgages but who are trying their best to do so. Will these individuals be able to avail of this service or will they be prevented from doing so because they are living outside the jurisdiction?

My final question relates to MABS. I understand that the ISI will be taking staff on secondment from the latter but I am not sure whether the reports in this regard are accurate. The ISI has 78 staff at present. If it does second staff from MABS, how many will be involved? Yesterday I received a reply to a parliamentary question I tabled to the Minister for Social Protection, Deputy Burton, in respect of MABS. If a person living in County Donegal contacts MABS today, the earliest appointment of which he or she will be able to avail will be in December. If someone in Meath does so, he or she will not get an appointment until after Hallowe'en. People mainly approach MABS in the first instance, but if one cannot get an appointment with it until December, the banks will have ruled one as being uncooperative in the interim. Is the ISI taking staff on secondment from MABS and, if so, how many? What impact will this have on the service?

Mr. Lorcan O'Connor

To give the shortest answer first, in the context of those who are living outside the State, there are requirements within the legislation to the effect that in order to qualify for any of these new arrangements individuals will be obliged to meet certain residency tests. I would not be sufficiently competent to describe what these involve but I understand they are quite complex. People living outside Ireland have the ability to apply. However, I understand that those who live abroad for a long period will, in time, no longer qualify to apply.

We took staff on secondment from MABS in the spring. This was done in the hope that it would benefit us in the same way it would benefit them in order that they could see how we were developing our guides for debt relief notes and contribute to the process. We have not had anyone on secondment from MABS since March. The 78 staff to whom the Deputy refers are full-time employees of the ISI.

On the capacity of MABS, I understand MABS has received sanction to recruit 13 people specifically to work in the area as approved intermediaries. They are already in place and ready to go. I also understand that within the overall network of MABS offices it is envisaged that where there is capacity people within the offices would assist in dealing with these cases. The assurances I have received through Citizens' Information and MABS is that they believe they have sufficient capacity to deal with the level of debt relief notices that they anticipate will arise.

In north Donegal, 160 people are waiting for their first appointment with MABS. The average waiting time for a first appointment is 20.2 weeks.

Mr. Lorcan O'Connor

I do not want to speak for MABS but, as I understand it, the 13 people I mentioned, in effect, will be floating in terms of where they will be based to deal with capacity issues that might exist within individual MABS offices. Where there is capacity they would obviously leave it to the people that are within those offices.

What about the other issues, in terms of the flexibility to look at public-----

Mr. Lorcan O'Connor

In terms of the actual reporting, the fact that a lot of the information that comes to us will be in electronic format does give us the capacity to issue a number of key performance indicators and other data. Realistically, it will be a number of months before we are able to do that because the first debt settlement arrangement or personal insolvency arrangement will be in November, after the 70-day protective certificate period. We will be able to highlight the kind of statistic Deputy Pearse Doherty mentioned, which is how many PIAs were approved by vote and how many were rejected.

That is the crucial point. We must find out how many people seek PIPs but are refused access because their cases are not lucrative enough. Is the system flexible enough to allow for the appointment a number of public PIPs?

Mr. Lorcan O'Connor

There is provision within the legislation itself to do that. As I mentioned earlier, I understand a number of the large firms have stated that it is not their intention to charge an upfront fee. Equally, I would point to the experience in other jurisdictions, but if we do find ourselves in a situation in the autumn in which people are saying they cannot find a PIP for the reasons articulated, we will certainly make that known to the Minister and we will explore what could be done to address it.

I thank Mr. O’Connor and wish him well.

I thank Mr. O’Connor for the valuable information he has shared so far today. He and other colleagues referred to the recruitment process for the PIPs and their quality and qualifications. While not dismissing professional qualifications, the most important quality required should be the person’s ability to deal with people in distressful situations. I can only speak from the experience of my office. People are on their knees. What they need is not a fancy accountant or barrister but a fixer. Of the people who have applied, how many are being vetted for their practical experience? Given what he did previously in the area of corporate insolvency, would this have been something that interested Mr. O’Connor before he took on the role? How many people will have insolvency experience, or will we try to teach accountants and barristers how to deal with lending institutions that are in vulnerable positions? That is the first question.

Mr. O’Connor mentioned a number of-----

For the media and the Deputy, it is better to ask a question and get an answer. That way she will get a better bang for her buck.

Mr. Lorcan O'Connor

I agree with Deputy Regina Doherty that the ability to deal with someone in a difficult situation is an extremely important skill. It is more of an intangible quality than some of the other qualities for which one would look. I have ensured that is the case in terms of what people with that kind of knowledge have imparted to those attending the courses and what it is that they need to bear in mind in the process.

As for those working on the corporate insolvency side up until now, I cannot suggest for a moment that it is identical in terms of the matters they might face, but on the corporate side, for example, one deals with employees who might be losing their jobs and directors of companies where the company has been in the family for a number of generations or where people have put a lot of their own personal family interests into the business. Thus, there is some experience involved in terms of dealing with unfortunate situations.

Mr. O'Connor has mentioned that the reason he is so hopeful with regard to the policies that have been established is that the system works in other jurisdictions. Could he elaborate on that and provide statistics? Could he state how many have had successful outcomes as a proportion of the number of people who applied? In how many cases did lending institutions use their vetoes, forcing people towards either bankruptcy or other options?

Mr. Lorcan O'Connor

I thank the Deputy for providing this opportunity, because focusing on the individual voluntary arrangement, IVA, which is the UK equivalent of our debt settlement arrangement, was helpful to me in learning how the system might work here. As of now, the success rate of IVAs is very high. That is notwithstanding the fact that creditor support of 75% is required, which is far higher than what is required in this country. More than 90% of cases that are put to creditors for a vote are passed. The reason is that over time, creditors have become comfortable with how they operate. Equally, they have made it their business to ensure practitioners know what is acceptable to them. What creditors are ultimately saying is that here is a way in which this problem loan can be dealt with efficiently and effectively. The alternative, which is bankruptcy, will give far less, be more costly and take longer. They are satisfied because they are familiar with the way in which the process works. They are satisfied because they contribute to a representative forum which ensures that practitioners know what they want as creditors. They have faith in the proposals before them and they tick their internal boxes. Therefore, they vote “Yes”. That is what I am trying to achieve in my stakeholder consultations, albeit in a much shorter time. When I go to the Irish Banking Federation, IBF, I encourage it to interact with potential practitioners, setting out what it is from the IBF’s perspective that its members require a practitioner to bring to the table but, equally, that they understand what a PIP can offer vis-à-vis the alternatives. With that in mind, for example, we are facilitating a meeting tomorrow with the IBF and potential practitioners to go through the various issues.

On that basis, has Mr. O'Connor seen what he would consider reasonable offers evolve in the United Kingdom since the practice started? We do not want to recreate the learning curve they have gone through. I appreciate that Mr. O’Connor has said he is trying to teach the PIPs what is best practice in the United Kingdom and what has worked, but was there a learning curve?

Mr. Lorcan O'Connor

There was a learning curve and ultimately a standard protocol was issued with regard to the IVA. That standard protocol was developed between the UK Insolvency Service, the British Bankers’ Association and an association of practitioners. What I have tried to do, for example, with tomorrow’s session is to make that happens in a far shorter period of time.

Finally, I wish to refer to a point raised by Deputy Pearse Doherty. I appreciate that we will all be delighted if we are reporting a success rate in excess of 90% or 95%, but it is equally important to report when we are not successful. Will we report the results by lender or geography? How will the information be presented?

Mr. Lorcan O'Connor

Again, we will have access to a good deal of data and we will consider the most meaningful way in which we can supply that information. Equally, the Central Bank, in publishing various statistics with regard to mortgage arrears and resolution targets, will be able to supply information in terms of creditor-specific performances.

I am sorry I was not present for the entire presentation. If I repeat anything that has been said, someone should draw it to my attention and I will check the Official Report. The Chairman was also absent.

In the course of the past two years, when the banks came before the committee, they were, to say the least, very bolshy. They said they did not do debt write-downs and that they would not disregard debt. They want every pound of flesh they can get from their creditors. That was the impression the majority of the banks gave when they came before the committee, but that is not the case on the ground, as the banks are making deals with people, some of them significant. To some degree the attitude of the banks was based on the fact that they felt the legislation was skewed more in their favour rather than towards the protection of creditors.

In terms of the way the legislation is being presented and what he has seen happening in the United Kingdom, which is the nearest legal and banking system with which he is working, is Mr. O’Connor satisfied that the legislation will work to get people out of the distress in which they find themselves? He said that in the UK the banks, his organisation's sister organisation and the insolvency practitioners work together to make this process work. Mr. O'Connor appeared to indicate it is working in the UK and he wants to fast-track it to ensure it works here. Does he believe the legislation to give his office the power it requires is satisfactory and up to the job?

Mr. Lorcan O'Connor

I am satisfied that this legislation is sufficient to put in place the type of solutions needed to tackle these personal insolvency difficulties. If I was not satisfied I would not have taken up the job because effectively I would have been signing up to something that would be set up for failure. Equally, it is not skewed, to use the Deputy's phrase, either in favour of the debtor or the creditor because what we are dealing with here is a voluntary arrangement to try to bring together two opposing sides to reach a compromise that is in the interest of all parties.

Regarding debt write-off, I understand the reason banks would publicly state that they will not write off debt in any large manner. Equally, I would point out that in very many cases problem loans currently in arrears could be dealt with short of any debt write-off. That might mean terms are extended, interest rates are reduced or other measures are put in place. However, situations will arise where somebody is insolvent and the only solution to his or her problem involves debt being written off, and a practitioner is only doing his or her job if the proposal in those circumstances includes debt being written off. If the bank or any other creditor votes down that arrangement for the reason that debt is being written off, in all likelihood the person will go to bankruptcy and in bankruptcy all the negative equity is written off, which could be much more substantial than what a practitioner is proposing. Whatever about statements that might be made, when they have a proposal from a practitioner in front of them they must look at what the alternative might be, and in bankruptcy it is likely that far more debt will be written off. I would be confident, therefore, that these arrangements would be passed.

Is Mr. O'Connor in regular contact with, say, the Department of Finance, the Central Bank and the banks? The Minister, Deputy Noonan, stated in the Dáil Chamber that he is very anxious to make sure this process works appropriately and quickly for people and that, if necessary, he will make the necessary changes to make it happen.

Mr. Lorcan O'Connor

As I stated earlier, particularly in our set-up phase I identified that it was important for the Insolvency Service of Ireland, ISI, to keep close to all stakeholders, not just the Irish Banking Federation, IBF, creditors and banks but also credit unions, the Money Advice and Budgeting Service, MABS, but also the Department of Finance, the Central Bank and others. We are doing our best to keep close to all those organisations that have a role in dealing with what is a very large problem in terms of personal debt. The ISI is just one element of what it is hoped will be a comprehensive solution.

I have seen the terms of settlement the banks have made with some creditors at a local level and they have been fair and generous to some people. I would like to see that become the norm rather than people being pushed around the place, so to speak, and subject to receiving telephone calls 15 times over a weekend. It is in the interests of the banks to make sure their creditors are looked after in a fair and equitable manner. I wish Mr. O'Connor the very best of luck in achieving that.

Mr. Lorcan O'Connor

I thank the Deputy.

I will conclude by asking some questions, following which I will call Deputy Donnelly again. To follow up on Deputy Twomey's comment, there has been much media commentary with regard to the banks now being able to telephone people several times a month. I understand that once somebody commences an insolvency process the telephone calls stop.

Mr. Lorcan O'Connor

Correct. All communications would be through the practitioner.

Is there a six-month period or other determined period in which all creditors and so on are frozen out while the personal insolvency practitioner puts together the-----

Mr. Lorcan O'Connor

Seventy days, and there is the potential to extend that in certain circumstances to a further 40 or 80 days.

So it is incorrect to say the telephone calls continue while somebody is in an insolvency process.

Mr. Lorcan O'Connor

Correct.

In terms of consistency of approach with regard to personal insolvency arrangements, who has the oversight function for that? Is it the insolvency service or the Central Bank?

Mr. Lorcan O'Connor

The ISI has identified that.

It is like "Who Wants To Be A Millionaire?" here. Is somebody phoning a friend with the answers? Will the person whose phone is ringing please turn it off?

It is the NSA.

We will go for 50/50 or phone-a-friend, if Mr. O'Connor does not mind.

Mr. Lorcan O'Connor

I will try to answer directly.

Do not contact the embassy.

Mr. Lorcan O'Connor

The Chairman asked about the consistency of arrangements. I have identified that as something that would assist practitioners so that they know what is expected of them. I have encouraged professional bodies whose members might be involved in this area to consider issuing sample templates and sample arrangements, and I have mentioned it to the IBF also. For various reasons the Chairman will no doubt appreciate that such things take time. Given that they will take time the ISI is working on developing a template of our own. We hope to publish it in the coming weeks and it will outline, for a sample personal insolvency arrangement, PIA, the suite of documents that are generated, what one might expect to see in a proposal, and the terms and conditions one would expect in a proposal. It will be published simply for information purposes because it is for the creditors and the practitioner to decide what terms and conditions are included but in the absence of that kind of template and to get to a point of consistency coming from anywhere else, it is incumbent on the ISI to put in place something to at least encourage that process.

That brings me to the issue of confidentiality clauses, information coming into the public domain and so forth. We are arriving at a situation since the end of quarter two where 25% of the distressed mortgage books must be dealt with by October, which is the next deadline. We need to get up to 50% and I imagine that will create a good deal of work in Mr. O'Connor's area as the banks have to reach those figures because potentially it will put people into insolvency mode. The banks currently are applying confidentiality clauses but they are not taking a consistent approach. Some banks are using them while others use them only in the arena of a business and so on. If somebody enters into a confidentiality arrangement at the beginning of the process, which some of the banks are requiring, and a resolution is not forthcoming they must enter an insolvency process. Has Mr. O'Connor expressed concern to the banks about people being locked into a confidentiality process at the start of their negotiations with them, and how does that square up when they enter insolvency? If I were on that route and I could not square a deal with the banks, that should be grounds for my approaching Mr. O'Connor's service but I am locked into a situation where the banks are saying I cannot use that information because I signed a confidentiality clause.

Mr. Lorcan O'Connor

To go back to an answer I gave earlier, in effect, once a practitioner comes onto the scene anything that might have been agreed prior to that in terms of a repayment plan or other arrangements are put to one side and a practitioner-----

To be negotiated.

Mr. Lorcan O'Connor

Yes.

The confidentiality clause covers negotiation, not what has been agreed.

Mr. Lorcan O'Connor

Yes, but it is now for the practitioner to put together a new proposal, irrespective of what had been offered previously; that is by the by. They now need to focus on what they believe to be the best solution for all creditors in that process.

In that regard we move on to arrangements for people going to Mr. O'Connor's service. What is the state of play with regard to naming people who avail of the insolvency service? The ISI will be up and running by the start of August. If individuals engage with the service will they find, having gone through the process, that by Christmas their names will be on some register?

Mr. Lorcan O'Connor

In accordance with the requirements of the legislation the ISI will be placing those in receipt of a debt relief notice, a debt settlement arrangement or a personal insolvency arrangement on a register. It is similar for somebody who receives a protective certificate.

Subject to the Courts and Civil Law (Miscellaneous Provisions) Bill going through, hopefully by the end of this week, those details will be removed three months after the ending of the debt relief notice, debt settlement arrangement or PIA.

I understand that the Revenue Commissioners prints a list of people who engage in tax evasion. It is a name-and-shame process, but there is nothing to be ashamed of if somebody becomes insolvent. People go broke every day of the week, so why do we need a public register?

Mr. Lorcan O'Connor

I would certainly agree with the Chairman's first comment that there is nothing to be ashamed of in availing of one of these arrangements. Indeed, in the vast majority of cases candidates are likely to be there as a victim of circumstance rather than anything they would necessarily have done themselves. I would not see being on a register or availing of any of these arrangements as a reason for being ashamed. People certainly should not be ashamed of availing of one of these solutions. Rather, they are going to creditors and giving a clear message to say that they have put up their hands and accepted that they have a difficulty with their debts, but with the advice of a practitioner, they are seeing what they can do to repay as much as possible and, beyond that, to have their financial difficulties dealt with.

In terms of the operation of the registers, ultimately that will be a policy matter. The ISI's role is to do what is required of us by the legislation, but those registers exist in other jurisdictions. They exist now in terms of somebody who is declared bankrupt or has a judgment registered against him or her.

I worked in adult education for about 20 years, specifically in the area of adult literacy. A peculiar aspect of the Irish psyche is that people will talk openly on television about being an addict or having a dysfunctional life, but the level of confidentiality people have with regard to literacy problems is incredible. The type of confidentiality one must give people to get into the service is incredible, more so than with an addiction service. We were successful in providing a free and confidential service, either individually or in group form. There is also a psyche in Ireland, which may go back to the Famine, concerning people who are broke and insolvent and who may be repossessed or dispossessed. Is there a serious danger that the existence of such a register may act as a disincentive or be detrimental to people engaging with the insolvency service, which does very good work, because they do not want to be named as having used the service?

Mr. Lorcan O'Connor

I would not believe so, primarily because somebody who is insolvent needs a fix for his or her situation.

People with reading and writing difficulties need help as well, but they do not want the world to know they are getting it.

Mr. Lorcan O'Connor

It is a requirement of the legislation that the registers are operated, but it does offer a solution to their financial problems.

I feel very strongly about this legislation.

Mr. Lorcan O'Connor

I appreciate the question. I can set the context, but it is not my role to provide any specific policy comment in terms of the registers themselves.

If it is a policy issue it rests with us, as opposed to the Insolvency Service of Ireland.

Policy is a legislative issue, but does Mr. O'Connor know what the justification is for giving it?

Mr. Lorcan O'Connor

I do not know the specifics, but as regards the context, it applies to Australia, Canada, the UK and all other common law jurisdictions. There are registers here already for bankruptcy judgments and so on.

I want to move on to some other points. Earlier this year, I spoke at a seminar that was also addressed by Mr. O'Connor. I drew a comparison in that when the Private Residential Tenancies Board, PRTB, was being established under the Residential Tenancies Act 2004 there were questions about how mediated problems in the private rental sector would be dealt with. While thousands of people might make complaints, in effect, there may be a dozen or two dozen tenancy difficulties. Similarly, while there may be thousands of people with debt difficulties, they fall into particular categories. If someone walked into my office in the morning with a residential complaint - be they a landlord, a tenant or a third party - I could nearly say what the outcome would be. Four or five years ago, it would have gone through a long process. The PRTB was dealing with one case per day, but it is now dealing with three cases a day because the board is familiar with the matters involved.

Is Mr. O'Connor seeking to have assessments done far more quickly, with the fees for such assessments being reduced as a result? People are not reinventing the wheel and after a while experience will tell them what the formula for the difficulty is.

Mr. Lorcan O'Connor

Indeed, and given that we are not inventing the wheel from scratch, we can examine the way in which similar arrangements are operated in other jurisdictions. I would envisage, for example, that when somebody makes an appointment to meet a practitioner he or she is likely to be given a checklist, by e-mail or post, of what to bring to ensure that almost everything is addressed in that one meeting. In that way, things will be done quickly rather than through an elongated process that is not in anybody's interest.

Returning to the PRTB, I believe the adjudicators are paid €600 per day to deal with one case. When I was on the environment committee we called in the PRTB to find out what was going on. We asked them to deal with three cases a day, which the board is now doing, for €700 because of familiarity. In future, should a ceiling be placed on the assessment fee? As I understand it, there is currently no cap on it.

Mr. Lorcan O'Connor

As I stated earlier, the ISI does not have the power to set a cap on fees. However, the service does have the power to inform members of the public that they should expect to pay a fee of X euro for a standard debt settlement arrangement or PIA. We should be able to do that over time. It is ultimately for the market to decide the level of fees, but we will certainly keep a close eye on them.

Will the ISI be setting fee guidelines for practitioners?

Mr. Lorcan O'Connor

We will do that as matters evolve over the coming months.

I wish to pick up on two things that were discussed. First, who can avail of the insolvency arrangement process? Some 240,000 mortgages are currently either in arrears or restructured and not in arrears, most of which are on temporary forbearance measures. They have not been restructured in a sustainable manner. There are an awful lot more people - but we do not know how many - who are paying too much of their income to stay out of that group.

If I understood Mr. O'Connor's earlier answer correctly, he said that if, after paying debts, a person has less money left than is specified in the ISI's reasonable standard of living guidelines, then it is accepted that he or she is insolvent and can therefore initiate an insolvency process.

Mr. Lorcan O'Connor

I did point out that in that in such a situation it would appear to me there is the potential or capacity to do a deal, short of any insolvency process, which would be in the interests of the debtor, rather than going through this formal process. Technically, however, I would not expect people to be living below the level specified in the reasonable living expenses.

I understand that a voluntary pre-insolvency restructuring would be in their interests, but it would not necessarily be in the interests of the bank. Therefore, the bank will quite happily sit there and say "We're not really worried about what your standard of living is. If you are paying your debts, and continue to do so, then that's fine."

Mr. Lorcan O'Connor

It would be in the interests of the bank to ensure its loan is sustainable. If a debtor tells a bank that it is just not possible for him or her to continue on this basis, the bank needs to be mindful of what the consequences might be if it does not engage. It would appear - based on the scenario the Deputy painted - that it is a marginal case. It would strike me that the ability should be there for both parties to come to a reasonable solution, short of any formal process.

I agree with the theory, but in practice one may find that at least some of the lenders - some of the sub-prime lenders, for example - will not engage in the spirit of what Mr. O'Connor is saying. Much research has been done on what a reasonable standard of living is, but basically the legislation takes the approach of the Vincentian Partnership for Social Justice, but with some stuff taken out. It is therefore the Vincentian approach but with no holidays and potentially one or two other things. I do not want to get into that, but to me it does not represent a reasonable standard of living.

To me, it is a standard of living that one can tolerate for, hopefully, a short time, after which one’s debt is restructured and one no longer has to live on it. I do not see it as a sustainable long-term standard of living. Does Mr. O’Connor agree?

Mr. Lorcan O'Connor

I agree with that. Our guidelines make it clear that they are designed solely for the purpose of availing of one of these insolvency arrangements. Those arrangements should last typically for five, six or seven years. It would not be reasonable to expect somebody to live on those guidelines for a longer period.

Good. Take the case of a family which can pay its debts and has enough left that it is above the threshold in those guidelines. What if the sub-prime lender says it does not care and tells the family to continue servicing the debt? Is there a danger the Insolvency Service of Ireland will not deal with families in such cases? I do not believe this is the legislation’s intention. However, could many people stuck just above this temporary standard of living be denied a solution by their banks and denied access to the insolvency service?

Mr. Lorcan O'Connor

Inevitably, there will be issues that arise at the cut-off point in any kind of a system. In the case described by the Deputy, the debtor’s circumstances could change in a year’s time. It could go either way. They may lose their job or get a cut in pay. In such a case it would be clear they are insolvent. Equally, they may encounter a pay increase or another positive development in their financial situation. It needs to be kept under review. It would be down to the practitioner to assess the situation and see what options are open to the debtor.

Will Mr. O'Connor come back to the committee to discuss any developments in this regard, so we can bring them to the attention of the Minister?

Mr. Lorcan O'Connor

I would certainly be happy to do so.

Mr. O'Connor said he was confident the insolvency legislation would lead to the solutions needed. I believe the reduction in arrears is welcome, but this is not the problem. In fact, it is a symptom of the problem. It is over-indebtedness among households that is the problem. I am concerned that some of the banks will minimise the restructuring in personal insolvency arrangements so that by the end of the period, the borrower might be slightly better off. It may be more forbearance and not the kind of restructuring where no more than one third of net income goes on debt, as is international practice.

Can we have a question rather than a commentary?

How can the insolvency service monitor the quality of arrangements to ensure they are not just more sophisticated types of forbearance by the banks?

Mr. Lorcan O'Connor

We are required to ensure proposals are in compliance with the legislation. One of the qualifying criteria, which is pertinent to the Deputy’s example, is that the PIP must be satisfied that the proposal returns the borrower to solvency. If there is any grey issue around forbearance - kicking the can further down the road - it does not allow the PIP, personal insolvency practitioner, to come to the opinion that the person is truly solvent again. There has to be clarity as to how the debt is dealt with so the practitioner can satisfy himself - or herself that the person has truly returned to solvency. Beyond that, it is about ensuring both the debtor and the practitioner are fully informed of what is required of them to ensure the proposal is sustainable. It must be remembered that the debtor must also vote in favour of a proposal. If a debtor is not satisfied with the plan because it is only temporary forbearance, he or she can say “No” to the proposal.

How is the service going to monitor agreements?

Mr. Lorcan O'Connor

From our perspective, it is not for us to say what is a good or a bad proposal. From a regulatory perspective, it is our role to look at sample cases to ensure they are sustainable. That is the test for the PIP - to establish that the person will return to solvency. It is not the role of the Insolvency Service of Ireland to say whether a particular proposal is good or bad. It is about the proposal having the support of creditors and debtors while meeting the legislative requirements.

I thank Mr. O'Connor for a very interesting afternoon. There are many questions around the area of fees. There is a sense that liquidators and receivers get their fees first.

Based on the experience in the United Kingdom, as banks and creditors became more aware of solutions, was the role for PIP intermediaries or their equivalent reduced?

Mr. Lorcan O'Connor

The role of the practitioner is still central in the UK in the same way it will be here, in that they have a statutory duty to carry out various tasks. However, the Deputy is correct that the roadmap is pretty clear in the UK as to what a practitioner needs to do to get creditors to vote for a proposal. I want to get to that point here as well. I do not want to have to go through the full learning curve as was experienced in the UK.

Did the number of practitioners decrease as creditors became more aware of the types of solution needed?

Mr. Lorcan O'Connor

There is a sufficient number of practitioners in the UK to meet demand. As to whether it has increased or decreased over the years, I do not have that information to hand. There are certainly no capacity issues within the industry.

As this rolls out, some cases will be suited to going down the insolvency route. I suppose one welcomes the development of an insolvency service in the same way one welcomes the development of a cancer treatment centre. One does not want people to be in difficulty, but one welcomes the response to that difficulty.

There will be people who, when they go through that assessment, will not be insolvent. In fact, they may not even require debt write-down. What they may require is debt restructuring. I am not too sure I agree with Deputy Donnelly's comment about 30% of income going towards debt and nothing else. If one is living in a €2 million house and 30% of one's income is going to service the mortgage, one must look at living in a different type of house. I think the blanket approach of 30% across the board is a very simplified one and does not stand up. The vast majority of people who are meeting sustainable mortgages are not in that 30% category and are probably over it, but they are still meeting their bills.

There is a group of people who would have what one might call significant unsecured debt. It is a legacy of the Celtic tiger period, when a person would go to the credit union after a wage increase, be it through benchmarking or overtime, and use this to borrow more money instead of paring down debt. Because of the extra couple of grand a year, their credit union debt went from €5,000 up to maybe €25,000 or €30,000. The same person could have a credit card debt that went up because the ceiling on his or her credit card was increased from €5,000 to €15,000. Likewise, he or she probably got a holiday loan from a bank and a car loan for finance through a car agency. They have the bones of €50,000 or €60,000 out there. The difficulty with that debt is that it is short-term and high-interest debt that must be dealt with alongside mortgage debt. The real difficulty is the interest rate that applies to it in many cases. If that €50,000 could be put on an interest rate of 4.5% or 5%, people would be in a very steady position. In terms of insolvency packages, is any consideration given to using that approach, so that €50,000 could be restructured into an existing debt and some sort of purge could take place?

Mr. Lorcan O'Connor

While there is an ability to restructure unsecured debt within the lifetime of a debt settlement arrangement, there is no ability to restructure beyond the lifetime of the debt settlement arrangement, which is typically five years. It is important to make the point that of all the loans that are in arrears, many of them can be solved without any insolvency process. The kind of scenario the Chairman is referring to is precisely the scenario I understand is being addressed through the recently published Central Bank protocol on multiple debts, under which the bank precisely identifies an overdraft, term loan or credit union loan that has a high interest rate but could be restructured to 2%, 3% or 4% over a longer term. Immediately, the obligations are now sustainable. It is important to emphasise that there are many debts that could be repaid in full subject to restructuring, without any insolvency process.

Who determines that? Is it the Insolvency Service of Ireland, the Central Bank, the banks or the personal insolvency practitioner?

Mr. Lorcan O'Connor

In that situation, the personal insolvency practitioner would, in setting out all the options, clearly show that there is a potential solution here short of an insolvency event and, therefore, would point the borrower in the direction of what will be a formal protocol if the current pilot goes to plan, or some other solution that is available to the borrower.

I thank Mr. O'Connor for coming before the committee this afternoon for what was a very comprehensive presentation. I very much appreciate the way in which he engaged with the committee members with a very open and frank position that was not overstated in terms of his own goals and how he will achieve them. It is important that people hear the measured tones with which he engaged with us this afternoon. He has a huge task ahead of him. On behalf of the committee, I wish him every success with it. It is in everyone's interest that his agency is a huge success, because making sure the Insolvency Service of Ireland operates well is very much part of the recovery of this country. I wish him the best of luck for the future. Today was Mr. O'Connor's first time before the committee. I am sure there will be other opportunities for seeing him again and we may invite him to appear before us towards the end of the year or at the start of 2014 to see how things are progressing. His invitation today was very much in the context of the 25% target for the banks at the end of the second quarter of this year, so it is critical that the service is up and running over the summer period, as we approach quarter 3, for the target of 15%. I again thank Mr. O'Connor for the briefing and discussion this afternoon.

The joint committee adjourned at 4.35 p.m. until 2 p.m. on Tuesday, 3 September 2013.