The first concern I would like to mention relates to the creditor thresholds. We are also worried about the lack of an independent review mechanism. No provision seems to have been made for allowing a debtor to appeal against an unreasonable refusal to accept a repayment plan. It seems that thresholds of 55%, 65% or 75% of creditors will be imposed under both the debt settlement and personal insolvency arrangements. There is no way of telling whether creditors will act reasonably and pragmatically when they are asked to accept proposals from trustees. As the scheme is presently constituted, we are simply being asked to suck it and see.
Under the out of court options, apart from the debt relief certificate option, the level of indebtedness may vary between €20,000 and €3 million. Many different cases will fall within those thresholds. We are concerned that a two-tier insolvency scheme will emerge. Some people will have some of their assets sold to reduce their overall level of indebtedness at the outset. They might be able to make a reasonable proposal through an accountant or a solicitor acting as a trustee. Many other people will have few assets to sell and will only be able to offer their surplus income. Such applicants will be able to produce very little dividend for their creditors. If institutions refuse to accept the arrangements that are proposed in these circumstances, many applicants will be failed by this legislation.
Up to now, we have heard in this session about banks. It is important to remind members that there is more to the credit industry than banks. People are indebted to a host of institutions apart from banks, including credit unions, utility companies, money lenders, store card, charge card and credit card companies, local authorities and providers of goods and services. In many cases, the creditor threshold will have to apply across a range of creditors. We submit that the insolvency service should be given the power, on the application of the personal insolvency trustee who submitted the proposal on behalf of the debtor that has been refused, to re-examine the proposal. We suggest that the service should be able to over-ride such a refusal by a creditor, if that is deemed reasonable on the basis of the financial circumstances of the debtor. If creditors are not happy with that adjudication, they should appeal to the courts, as is their constitutional right.
Essentially, a privatised system of insolvency trustees is being proposed. We have significant concerns about the potential quality of some of the applicants. Obviously, accountants and solicitors will be involved. It is probable that former mortgage brokers will be involved too. During the boom, thousands of mortgage brokers were subjected to a very light authorisation regime under the consumer credit legislation. We expect that debt management companies will also apply for trusteeship. As we know, such companies have not been regulated in any shape or form, despite some suggestions to the contrary. An alternative under this scheme would be for the State to establish a system of public trusteeship. Such a system applies in Sweden, where a state-sponsored debt enforcement office, with its own recruited debt enforcement officers, examines cases and makes proposals to creditors on the basis of the financial information that is provided.
The scheme, as proposed, does not set out what will happen to rejected applicants. If these thresholds are not met, the arrangements will simply fall. Where will a debtor go if his or her application is rejected? Many contributors have mentioned that the bankruptcy regime potentially allows for a five-year income payments order after the three-year discharge. That would mean eight years of bankruptcy, in effect. No criteria have been set with regard to how an official assignee might grant an income payments order or refuse to do so. It seems to be completely arbitrary and unfair. This proposal should be withdrawn or substantially diluted.
One of our biggest concerns is the question of the minimum protected income that any debtor applicant should be allowed to retain, free from creditor distribution. I would like to draw the committee's attention to a study, A Minimum Income Standard for Ireland, which was published last week by the policy institute in Trinity College and the Vincentian Partnership. The legislation is vague on this matter at the moment. It refers to applicants being allowed to maintain a reasonable standard of living. Work needs to be done on this hugely complex and complicated issue immediately. We do not want this legislation to come into operation without proper minimum income standards having been put in place. This is not just a social justice issue - it is also an effectiveness issue. It seems that debtors and their families will be asked to consecrate their income to their creditors for five, six or seven years. That is a very long time for people to exist on subsistence moneys. It is very important that proper income standards are put in place. This is not about the application of a slide rule. People's circumstances can vary regionally. They can depend on the number of family members, etc.
One of the most innovative parts of the scheme is the personal insolvency arrangement. Potentially, it allows for the retention of the family home even where the debtor is adjudicated to be insolvent, or likely to remain insolvent over the five-year period. However, the debtor and the trustee will be forced to jump many hurdles. Some commentators have referred to personal insolvency arrangements as revolutionary. In fact, the 1993 legislation in Norway and the 2010 Greek legislation both provide for the retention of the family home even when mortgage debt is factored into the personal insolvency equation. However, the thresholds apply again in this instance. Some 75% of secured creditors, who include the holders of judgment mortgages, must agree.
To respond to an earlier question, there are creditors, for example, credit unions, which are rushing to obtain judgments to allow them to become secured creditors holding judgment mortgages in advance of the legislation being enacted. The 75% threshold must be reached, after which 55% of the unsecured creditors must also accept the proposal. The danger, therefore, is that far from being too radical the proposal is not radical enough. However, it is innovative. The idea that a person could reschedule or write down part of the mortgage principal and reschedule the mortgage for the duration of the personal insolvency arrangement is novel. The danger is that the applications would be universally rejected and the system would not work.
Having spoken to a number of our colleagues in non-governmental organisations, for example, the Society of St. Vincent de Paul, Threshold and Focus Ireland, we know that there are many unsustainable mortgages. Our fear is that the introduction of a proper personal insolvency regime will throw out a number of these unsustainable mortgages. Where would people go if their mortgage was not deemed sustainable? While a mortgage to rent scheme has just started, it is operating at a very low scale. With approximately 100,000 households on social housing lists, it is a matter of serious concern that so few social houses are being provided through the processes of the National Asset Management Agency.
We share Mr. Holohan's belief the debt relief certificate thresholds are much too low. Many clients of the Money Advice and Budgeting Service will not qualify with the debt relief certificate. The issue of those with secured debt and those with indebtedness above €20,000 needs to be addressed. The repayment periods of five, six and seven years are far above the current European norm which for new debt settlement and debt adjustment schemes is around three years.
On the review of the scheme's effectiveness, head 82 suggests the scheme should be reviewed ten years after it has been established. This is a farcical proposal. The system needs to be tested to determine how it is working and reviewed from the get-go. In other words, a review process must be in place from the beginning and what is not working must be changed. This is an issue of effectiveness.
The Law Reform Commission suggested in its 2010 report that the debt enforcement mechanisms in the courts should be reformed. The instalment order procedure, the procedure for execution against goods and so forth are not included in the legislation and should be included in any scheme put in place.
