THE GOVERNMENT needs to change the bankruptcy laws for a variety of reasons and, belatedly, it is about to do so, with Minister for Justice Alan Shatter set to publish a Bill that will reduce the insolvency period for bankrupts to not more than five years.
The 12-year bankruptcy term that now operates is more onerous than that applying in the rest of the European Union. And this has resulted in very few people filing for bankruptcy in this State, with more relocating to Northern Ireland and Britain to apply there.
Earlier this month, one of Ireland’s biggest property developers, Ray Grehan, was declared bankrupt in the UK, with debts of €312 million owing to the National Treasury Management Agency. This week Seán Quinn, in recent times regarded as Ireland’s richest man, whose bankruptcy in Northern Ireland was annulled, was declared bankrupt in this State. In Britain, bankruptcy procedures are speedy and inexpensive, and the bankruptcy term is one year. In Ireland, legal costs are higher, the process is slower and the 12-year term is far longer. In Britain, bankruptcy has become a routine matter, enabling people to recover quickly from a major financial setback. In Ireland, it remains a punitive exercise from which it is difficult to recover, and to resume a normal career and business life.
The need for major reform in this area has been apparent for many years. What should have been done sooner has – under duress and in difficult economic circumstances – become a necessary and immediate requirement. There is a legal necessity to offer certainty and some hope to those in serious financial difficulties, and a requirement to meet the terms of the EU-IMF-ECB bailout package, with a tight deadline for publication of a bankruptcy reform and personal debt regime by next March. There is also a need to stem the rise in “bankruptcy tourism”, where those heavily in debt now have an incentive to relocate to Britain to file for bankruptcy and thereby secure an early release from their debt burden.
Mr Shatter has said that Cabinet has yet to decide on the precise detail of how to handle mortgage debt, with provision being made both for non-judicial (out-of -court settlements ) and for judicial mechanisms (bankruptcy procedures) in dealing with the matter. But for Government, there is an obvious concern to avoid moral hazard, where bad financial behaviour is rewarded and where debt recklessly contracted is relieved too easily.
As Mr Shatter observed: “Some individuals who now are trying to wash their hands of personal responsibility for borrowings at levels that were verging on the insane, deserve little sympathy.” The challenge for Government in framing the legislation must be to provide those who cannot repay their debts a way of securing an equitable settlement, and to ensure that those who can pay – but refuse to do so – are made to pay.
The concerns of debtors and in particular distressed mortgage holders need to be addressed. But equally, the interests of taxpayers, who have put some €64 billion into rescuing the banks, also need to be protected.