Since this is the resumption of the Second Stage and the Minister introduced it originally, I do not know whether the Minister wants to speak again at this stage or wait until later. Perhaps that could be clarified.
Bankruptcy Bill, 1982: Second Stage (Resumed).
Question again proposed: "That the Bill be now read a Second Time".
Acting Chairman
Deputy Allen was in possession when the debate was adjourned.
Limerick East): I am ready to conclude at any point in the debate but I do not want to exclude Deputies who want to contribute. If Deputy Woods wants to contribute, that is fine.
Acting Chairman
If Deputy Woods has not spoken he may do so now.
I do not have a lot to say in that this is a most complex Bill and one in respect of which there is general agreement. Indeed, it represents a consolidation of bankruptcy legislation and has taken some time to reach this stage.
As we are all aware, bankruptcy is a feature of business life, perhaps one of the most unpleasant features that must be faced. Once private individuals or partners set out to conduct business they are taking a risk. While we are not inclined to think about the risk element, very often in some instances that risk leads to people becoming insolvent and bankrupt.
This Bill attempts to organise and modernise legislation in relation to bankruptcy. Of course bankruptcy can have harrowing consequences. I am sure we have all come across cases from time to time. I have personally come across cases in which people have killed or shot themselves on finding themselves unable to handle the situation when they became bankrupt, could not meet their creditors, when faced with the shame of bankruptcy, when perhaps they had got themselves into a corner, did not turn to anybody at the time and instead just opted out totally.
There are two sides to this question. On the other side there are the creditors who suffer in case of bankruptcy and who can in certain instances be much abused by hardened business people, or criminal people really, prepared to abuse them in that situation. Nowadays it is not so common to have bankruptcies since over the years individuals on going into business have ensured that they provided themselves with limited liability. The normal procedure then is to limit liability, protect the home, family and whatever personal possessions an individual may have. We have seen from the history of events that the rigours of the law can be particularly severe.
In the conduct of the business of bankruptcy it is necessary to order and arrange legislation so that a potential bankrupt and those who provide him with credit have reasonable protection provided in so far as it should go in both instances.
This Bill covers both sole traders and partnerships. It is concerned particularly with the equitable distribution of the assets and property of a bankrupt. Its provisions seek to distribute as equitably as possible the remaining assets. That is perhaps its first object. The second object is to release the bankrupt — and this is an important feature — from his debts and obligations, giving him a means whereby he can have the slate cleaned, if you like, in a formal way, allowing him to rehabilitate himself within society. I understand that there are only of the order of 25 to 30 bankruptcies per annum nowadays, but of course in individual cases the amounts of money can be very great. Consequently, in some cases creditors can suffer enormously.
We realise that this Bill arose from work carried out as far back as 1962 when the then Minister for Justice, now Leader of our party, Deputy Haughey, set up a committee under Mr. Justice Budd to review the law in respect of the administration of bankruptcies and to make recommendations about legislation. That committee reported in 1972. The principal recommendations with which we are dealing here refer to preferential payments. They include one which covers wages, taxes and PRSI payments, ensuring that they will be given priority in claims. Strangely enough, while that committee favoured abolishing that priority for reasons of equity the provisions of this Bill will ensure the retention of that priority in regard to wages, taxes and PRSI payments. I believe that is the right thing to do especially since there is not another mechanism to deal with wages in particular. Therefore, contrary to what that committee recommended, we are, under the provisions of this Bill, retaining the preferential payments system in respect of wages, taxes and PRSI payments. These will continue to have priority in claims.
Secondly, the minimum amount of an individual creditor's debts in bankruptcy petition is being raised from £40 to £500. This is a most reasonable measure because to petition in bankruptcy on the basis of a figure of £40 is not realistic. Indeed, I believe it has been done repeatedly in the case of a particular bank by one of its creditors who felt aggrieved and kept petitioning for a sum of that order. This tidying up is timely and the increased figure would appear to be a suitable one at this stage.
When we talk about bankruptcies normally we assume that there are assets to distribute. Sometimes people have the notion that there are very great assets, but when it comes down to their examination it is found that in present-day terms their value is not as great as may have been thought. In many cases nowadays we find that the assets are very slim and may just consist of rented accommodation like offices. If it is a service business there may just be an office and equipment leased and there may be very little by way of assets to provide even for wages and PRSI. It is important to provide protection for employees in situations like that.
The Minister for Labour should consider the 1980 EEC directive which relates to providing protection for employees in the case of bankruptcy. I understand this directive may be brought in fairly soon and under it employees' wages, salaries, holiday pay and pension contributions, which are due to private pension schemes, would be included in an extended redundancy fund. The redundancy fund concept would apply in the case of employees where bankruptcy is involved. This would be a very worthwhile development. It is very important nowadays, since, in the event of a bankruptcy, assets in many instances may not be very great and in service companies and other such companies, may only consist of leased assets and there may be very little to cover the employees, especially if there are pension contributions involved for private pension schemes. I urge, in conjunction with this Bill going through, that this directive be implemented and that the long promised Bill be brought in to ensure this protection for employees in the case of bankruptcy. If that protection is there then some of the measures in relation to priorities in the event of bankruptcy, the preferential payments, would not be as necessary.
The Finance Bill, which is due to come up for debate tomorrow, has a section in it which will make directors responsible for PRSI and PAYE payments. It is interesting to note, in conjunction with the Bankruptcy Bill, that in the case of potential bankruptcies, directors of companies will be liable under this new Bill. What will the position of directors be in the case of companies like Waterford Glass if they are individually liable for PAYE and PRSI? I understand they would be liable under section 83 for the maximum penalty of £10,000 and five years in jail. In the heel of the hunt we might find individuals who are directors of other companies becoming bankrupt because of their liability in that event. They would need to watch that PAYE and PRSI were paid in time because the repercussions would be fairly serious for them.
That presumably would also apply to worker directors and the less pecunious board members who might be involved. The liability which would be incurred there could be substantial for them.
This Bill is essentially a consolidation Bill. It is a very extensive one with many sections in it. It brings together all this legislation and updates the language. I would like to congratulate the staff involved in what must have been a very tedious job. I was involved in updating the social welfare legislation which was quite a big undertaking. The work done by the civil servants involved was extremely precise and valuable. It must have been very tedious for them because of the great detail which had to be covered. We are dealing with a fairly similar Bill here which has many provisions in it. This is a very technical and specialised Bill. I suggest it is a very suitable Bill to refer to a special committee. This would mean that too much time would not be taken up in the House with the detail involved in it, secondly, it is the kind of Bill particularly suitable to have the Committee Stage discussed in a special committee but, most important, in going through the Bill in a committee it is possible to get a concurrence of ideas with the officials present, which can be very valuable in finalising any of the smaller points in the Bill. I found that very helpful and I believe all the members of the committee who dealt with the Consolidation Bill on Social Welfare found that process very helpful because the officials were present to give views on why exactly particular measures were taken at particular stages. I suggest that this Bill might be removed from the floor of the House for Committee Stage and dealt with in a special committee. The Special Committee on Consolidation Bills is supposed to be standing at the moment. I do not know what has happened it since the change of Government but I am sure that can be overcome fairly quickly. As far as the Committee Stage is concerned I will certainly give the Minister every assistance in getting the Bill through that stage as quickly as possible.
Tá cúpla focal le rá agam mar gheall ar an mBille seo.
(Limerick East): Críochnoídh mé mar sin.
Más mian leat. Níl ach cúpla focal le rá agam. The Bill is not really contentious in any way. I understand it is intended to consolidate, with amendments, the law in relation to bankruptcy and to provide for other related matters. It is an Act to consolidate the legislation and this is long overdue. I understand the previous one was in 1860 and there was another Act going back to the sixteenth century. It also specifies procedures whereby bankruptcy will proceed more expeditiously. We look forward to this and we are happy to give our support to it.
The main criticism I have in relation to the Bill is that one could reasonably argue that it does not get the balance right between the protection of commerce and good trading on the one hand and fairness to the individual on the other. This is suggested particularly in relation to section 7, which creates two new Acts on bankruptcy. One of these proposed new Acts is somewhat unfair and that is why I am raising it this evening. When the debtor's goods are seized by the sheriff and where there is a return of no goods made by the sheriff on foot of the execution order, a creditor will be proceeding against the individual to make him a bankrupt where the creditor has already obtained a judgment against him in court and where he has sent an execution order to the sheriff on foot of that judgment. In such circumstances, there are at least five options open to the creditor, other than the bankruptcy route, which should be the last resort.
The options are to send the execution order to the sheriff again, to threaten publication of the judgment by way of registering the judgment and having it appear in Stubbs Gazette, to proceed in the District Court by way of enforcement, to proceed in the High Court by way of a guarantee order whereby the creditor would seek to attach moneys which might be due to the debtor bankrupt from a third party in satisfaction of the debt due to the creditor and to secure the amount of the judgment by way of a judgment mortgage against the property of the debtor bankrupt. On balance, it is unfair to the individual debtor that the mere act of the sheriff seizing his goods on foot of a judgment of the sheriff making a return of no goods should be an act of bankruptcy. This effectively means that the creditor does not have to go through the due process of bankruptcy in these circumstances. This process should be lengthened to two months after the judgment has been obtained against the debtor and with liberty for the creditor to apply to the court to abridge the time of the bankruptcy proceedings in certain circumstances.
Section 7 of the Bill should be deleted as inequitable and unfair. Perhaps, as Deputy Woods suggested, that matter might be considered on Committee Stage.
Limerick East): I should like to pay tribute to the work of the Bankruptcy Law Committee which was set up in August 1962 and submitted its report in March 1972. The process which we are proceeding with today began 21 years ago and I am sure the officials who have been working on it will be very happy if we proceed to Committee Stage and get this necessary legislation on the Statute Book.
During that period the committee held 102 meetings and, in addition, a sub-committee consisting of various members held 141 meetings to deal with matters of special complexity. In 1964 an interim report, which dealt with certain aspects of bankruptcy administration, as well as with the winding up in bankruptcy of insolvent estates of deceased persons, was submitted to the Minister for Justice. Their recommendations were superseded by those in the 1972 report which represents a most comprehensive analysis of practically every aspect of the law and practice of bankruptcy. It indicates the enormous amount of work and research which the committee devoted to this very complex and technical branch of the law.
As the House is aware, work on this Bill was completed before I took office as Minister for Justice and I should like to record my acknowledgment of the work of my predecessors in bringing this very important legislation before the House. One might wonder why it has taken so long, but on our entry into the EEC, we had to make our bankruptcy laws compatible with those of other EEC countries. Even though the report came out in 1972, there was a necessary delay until that position was established. I think the present Leader of the Opposition initiated the process in 1962. I hope we can have it passed in both Houses of the Oireachtas and into the Statute Books as soon as possible.
I am glad the House is agreeable, in general terms, to my suggestion that Committee Stage should be entrusted to a special committee. As the Deputies observed, this is a technical Bill in which detailed comment would perhaps be more appropriate on Committee Stage. For that reason, I do not propose to go through all the points raised by Deputies but I will mention a few. I agree with Deputy Lenihan when he spoke about the undesirability of repeated adjournments to show cause and the resulting delays. However, we are talking here about the exercise by the High Court of their equitable jurisdiction and it is questionable if any substantial restrictions could be placed on it by the Legislature. Obviously, there will be a great variety of individual circumstances in which it might be unjust to advertise the adjudication of a trader and to compel him to cease carrying on his business. For example, it could cause disproportionate hardship to third parties such as employees. It seems only right that it should be left to a judge to decide where the interests of justice lie. The extra-statutory procedure has the advantage of protecting the bankrupt from the full effects of the bankruptcy procedure and of expediting his rehabilitation. It can also be of benefit to creditors who may receive better dividends and have their claims settled more speedily than if the estates were administered in bankruptcy. The Bill ensures that the court, in deciding to adjourn a show cause case, will be specifically required to have regard to the interest not only of the bankrupt but also of persons, especially creditors, who might be unaware of the insolvency of the person made bankrupt.
Deputy Mervyn Taylor expressed disappointment at the fact that the Bill does not contain a radical review of bankruptcy law. It is important to emphasise that this Bill is concerned with the modernisation and reform of bankruptcy law, that is the law governing individual insolvency. It does not purport to embrace, as is proposed in other jurisdictions, the unification and harmonisation of the entire area of insolvency law, individual as well as corporate. It is a bankruptcy Bill, not an insolvency Bill.
I share the view held by many people in legal and commercial circles that serious consideration should be given to a unified insolvency system in the not too distant future, perhaps when the draft EEC bankruptcy convention, which is at present being negotiated at council level, comes into operation. Meanwhile the Bill will bring bankruptcy law up to date and align it, as far as possible, with the corresponding company law. This should, in due course, facilitate the unification of the system when an appropriate time for such a step occurs. I agree with Deputy Taylor that the system should be made cheaper, quicker and more efficient. The Bill is expressly framed to attain this objective. The suggestion to have the system removed from the High Court to the District Court would be very difficult to implement. The law is too complex and needs someone like an official assignee, who is an expert in solvency administration, to realise and distribute the assets. Nowadays the amounts involved are frequently huge and it is more appropriate that they should be dealt with in the higher court.
Deputy Taylor referred to two other matters which were of concern to most Deputies who spoke. The first point was that the Bill should provide a procedure which would enable a debtor to come to an arrangement with his creditors so as to avoid the indignity of bankruptcy, which should be reserved for fraudulent or dishonest debtors. It is a fact that the procedure for debtors to come to an arrangement under the control of the court with their creditors and so avoid bankruptcy, has not been availed of because the fees involved are too high. The committee recommend that they be reduced in order to encourage debtors to seek protection and I intend to give serious consideration to this recommendation.
Deputy Taylor said that the family home should receive particular attention in the administration of the bankrupt's property. As the House knows, I am at present considering legislation in relation to matrimonial property, the family home and the household chattels, which will enable most spouses to establish a claim to a share of that property, whether or not the spouse in question has made a financial contribution. It will operate on the basis of a strong legal presumption of joint ownership. That will substantially meet Deputy Taylor's point.
Deputy Richard Bruton expressed approval of the Cork committee's recommendation relating to the appointment of administrators who would have power to carry on the business of the debtor with a view to maintaining it or selling it as a going concern. It is quite obvious that many Deputies would share this objective. It appears that the new procedure was recommended primarily for corporate insolvencies and only where there was a business of sufficient substance to justify the expense of an administrator and where there was a real prospect of returning to profitability or selling it as a going concern. At present and under this Bill the official assignee has no power to carry on the business of the bankrupt, but a receiver or manager may be appointed with a view to selling it as a going concern. Moreover, the whole point of granting adjournments and show cause applications is to allow the bankrupt to continue trading and so hopefully to get him out of his difficulties by reaching an arrangement or composition with his creditors. In addition the Bill retains and streamlines the existing system of compositions after bankruptcy whereby the bankrupt can obtain a stay on the realisation of his property so as to enable him to enter into a composition with his creditors. In this instance he is allowed to continue trading—again meeting the point raised by Deputy Bruton.
The same Deputy also suggested that ordinary creditors should have access to a greater proportion of the estate. I sympathise with the dissatisfaction felt by Deputies at the system of preferential payments but the crux of the matter is that bankruptcy law cannot differ in this respect from company law. One of the main objects of the Bill is to align as far as possible these branches of the law and in particular these preferential payments. The preferential status granted to wages and salaries, revenue debts and social welfare contributions is a fact of modern life. The draft EEC Bankruptcy Convention to which I have referred recognises it and its relevant provisions are framed on that basis. To align this Bill with existing company law and to align it with what quite probably will come from the EEC Bankruptcy Convention it is necessary to proceed in this fashion.
Deputy Oliver Flanagan suggested that the word "bankrupt" should be deleted from our law and replaced by the word "insolvent". I regret that any attempt to do this would lead to major difficulty. People who are in fact solvent are very often adjudicated bankrupt because they have neglected to pay a debt or simply refused to pay it. Insolvency is not a prerequisite to being adjudicated bankrupt. There will always be people, be they be called bankrupts or insolvents, who are in financial trouble through no fault of their own and others who are in trouble through fraudulent dealings or transactions. There is no definitive way of establishing before adjudication whether one falls into one category or the other. Consequently it would be very difficult to meet the Deputy's point. The term "insolvent", if we simply talk of the semantics of it, would very quickly become as derogatory as the word "bankrupt" as soon as the public realised that the notices in Irish Oifigiúil and the press had the same effect as advertisements of bankruptcy at present.
Deputy Flanagan and some other Deputies emphasised the importance of distinguishing between honest and fraudulent debtors. The Bill takes a step in this direction in Part IV, where the new provisions governing arrangements under the control of the court extend the circumstances in which arranging debtors may be adjudicated bankrupt — section 105 — and also in Part IV which modernises the law relating to bankruptcy offences. A number of offences are created and heavy penalties are imposed on those who before or after adjudication commit them.
Deputy Flanagan had a suggestion that bankruptcy administration should be localised. It is difficult to disagree with this principle. However in practice decentralisation would be difficult to justify. The total number of bankruptcies is comparatively small. The committee recommended the abolition of the Cork local bankruptcy court and that was primarily because its services are very rarely availed of. To localise something which is reasonably rare in our community would not have any advantage and can be dealt with much more expeditiously on a centralised basis.
Deputy Flanagan talked of an effort being made to sort things out before a person is driven into bankruptcy. The show cause procedure that has developed in recent times does give people who have been adjudicated an opportunity to get themselves out of trouble and while this procedure is pending there will be no advertisement in Iris Oifigiúil of the fact that the debtor has become bankrupt. All the debtor has to do is apply to the court to show cause against the adjudication in bankruptcy. The court has full discretion to adjourn the case to give the debtor a chance to rehabilitate himself financially.
Creditors have rights, too, and section 16 (2) of the Bill imposes on the court a specific duty to have regard not only to the bankrupt's interest but also to those of his creditors and anyone else who might give him credit.
Deputy Bernard Allen expressed disagreement with provisions relating to preferential payments, in particular with the position which allows a preferential creditor to force a person into bankruptcy. I have already mentioned the difficulty which would arise if different provisions existed in bankruptcy law from those prevailing in company law. As regards the figure of £2,500 in respect of wages and salaries, this is identical to that agreed to by this House when passing the Companies (Amendment) Act, 1982. It is absolutely essential that the two are compatible.
Section 81 of the Bill is designed to bring preferential payments in bankruptcy and the winding up of companies into accord. So far as wages and salaries are concerned, the ceilings suggested in the Bill and the Companies (Amendment) Act will in all probability be a matter of further discussion by the House when the legislation giving effect to the EEC directive on the protection of employees and the insolvency of their employer comes before the House later in the year.
I am very grateful to Deputy Woods for his indication of co-operation in processing this very important piece of legislation. I was delighted to hear him compliment the staff involved. The staff of the Department and their predecessors have done an enormous amount of work in this area. As the report was commissioned back in the 1962, obviously frustration might have grown among the people involved, who might have wondered if the fruits of their labour would ever see legislative light. I endorse everything Deputy Woods said.
Deputy Flynn raised an interesting point and we will be prepared to discuss it on Committee Stage.
I would like to get the agreement of the House to this Second Stage. I think there is general agreement that the Committee Stage would be taken by a Committee of the House, so the way to proceed would probably be to agree to the Second Stage now and we can make the arrangements for the Committee later.
Question put and agreed to.