17 thoughts on “Draft Insolvency Bill”

  1. My first thought son this bill are that the non-judicial arrangements effectively constitute the legal enforcement of exisiting, individual private agreements between mortgage holders and their banks. In effect, the government is throwing mortgage holders wholesale to the banking wolves. These are the “Personal Insolvency Arrangements”. I’ll cover them in the next post.

    Some specific comments beforehand:

    Head 7 – Establishment of Insolvency Service.

    In before “new quangos”.

    Head 8 – Functions of Insolvency Service.


    –process notices of intention to seek a Debt Settlement Arrangement as
    provided in Part 4 of this Act

    Eh what!? The new quango can seek these “Debt Settlement Arrangements”? Do they have to get the debtors go ahead first? The draft bill isn’t very clear on this, even later on in part 4.

    What the hell is a Debt settlement arrangement you say?

    Head 55 -Debt Settlement Arrangement: General Conditions
    ….
    — In proposing a debt settlement arrangement, the debtor commits an act of bankruptcy within the meaning of section 7 of the Bankruptcy Act 1988.

    OK, that clears that up. DSA is just a plain old bankruptcy, with some snazzy new rules. Most importantly among them it seems

    Head 66 – Mandatory requirements concerning Debt Settlement Arrangement

    (a) the maximum duration where a Debt Settlement Arrangement shall provide
    for the performance of its obligations shall be 60 months, save by the express
    agreement of the creditors where it shall last no longer than 72 months.
    (b) subject to paragraphs (c) and (d), on completion of the obligations specified in a Debt Settlement Arrangement the debtor shall be discharged from the remainder of the debts covered by the arrangement;

    …Divide by 12 makes, 6 years. Yes, 5 and 6 years of bankruptcy. Not sure where all this talk of 3 years is coming from.

    Also, paragraph (c) has a lovely little addition.

    (c) a Debt Settlement Arrangement shall not release the debtor from any of the following debts or liabilities….
    ….
    (iii) any debt or liability arising from a loan (or forbearance of a loan) obtained through fraud, misappropriation, embezzlement or fraudulent breach of trust;

    This does not bode well for border businessmen, or their families it would seem.

    The Debt relief certificate part of the legislation is baffling to me.

    PART 3
    DEBT RELIEF CERTIFICATES

    Now, these only apply to those having debts of less than €20,000, so you may think this whole section is a bit of a waste of time. However, check out the sting on the tail of this scorpion

    Head 50 – Limit on debtor’s monthly surplus income
    Head 51 – Limit on value of debtor’s property

    Ouch. Now, there are some limits to these. A car worth less than €1,200 for example doesn’t count. I’m not sure if the tender mercies of this debt relief certificates are quite worth it for the sake of €20,000.

    There are no such limits proposed for those entering into DSAs, so I’m not really sure what the point of DRCs is really given the hassle they are worth. Are people with small debts little juicy fruits of credit, waiting to be squeezed or something?

  2. OK, let’s talk about the real deal of this bill

    ————–
    PART 5
    PERSONAL INSOLVENCY ARRANGEMENTS

    ————–
    OK, what are these exactly. Well,
    ————–
    Head 81 – Purposes of Part 5
    ….
    (a) to address the serious and continuing disruption to society and the economy in the State as a result of widespread insolvency amongst debtors with secured debt and to provide for a realistic alternative to bankruptcy to those debtors in appropriate circumstances;
    ————–
    OK, so the purpose of PIAs to to deal with people who can’t pay their debts without making them bankrupt. What is this I don’t even?

    Apparently PIAs are also designed to be “consistent with principles of social justice and the exigencies of the common good”. I seem to recall these phrase from the constitution somewhere….

    Let’s just go through some of the terms and conditions of PIAs

    ————–
    Head 84 – Personal Insolvency Arrangement: only one permitted in lifetime
    ————–
    Self explanatory really….except under subhead (2) you can apply for another one if you really need it.

    ————–
    Head 85 – Eligibility Criteria for a Personal Insolvency Arrangement

    (a) the debtor’s liabilities are €20,001 or more but do not exceed
    €3,000,000;

    (c) the debtor owes a debt to at least one secured creditor holding
    security over or in an asset or property situate in the State;
    (d) the debtor is insolvent;

    ————–
    It takes two to tango. You’ve got to have a debtor and a creditor with security over you. You’ve also got to be unable to pay your debts (i.e. functionally bankrupt). Ordinarily at this point, we’d simply make you bankrupt, but now we’re putting you in a PIA.

    Oh, and lest I forget
    ————–
    Head 98 – Creditors’ meeting required to approve Personal Insolvency Arrangement
    ————–
    Yeah…., the bank has to vote as to whether to let you into this particular web or not.

    But if you get in, you’re not bankrupt right?! Weeeelllll….
    ————–
    Head 103 – General Duties of debtor to whom a Personal Insolvency Arrangement applies

    (b) to inform the personal insolvency trustee as soon as reasonably practicable
    of any material change in the debtor’s circumstances, particularly an
    increase or decrease in the level of the debtor’s assets, liabilities or income,
    which would affect the debtor’s ability to make repayments under the
    Personal Insolvency Arrangement;
    (c) not to obtain credit above a prescribed amount unless the debtor discloses
    to the creditor the fact that he is party to a Personal Insolvency
    Arrangement;
    (d) not to engage directly or indirectly in any business under a name other
    than that in which the Personal Insolvency Arrangement has been
    registered in the Insolvency Service in accordance with [Head 101]
    without disclosing the name in which the Personal Insolvency
    Arrangement was registered to all persons with whom the debtor enters
    into a business transaction;
    (k) not to obtain credit above a prescribed amount or transfer, lease, grant
    security over, or otherwise dispose of any interest in property above a
    prescribed value other that in accordance with the terms of the Personal
    Insolvency Arrangement;
    ————–
    So it walks and squawks and quacks like a duck, but this little ugly duckling PIA is apparently really a beautiful swan. For example, unlike a bankruptcy, there doesn’t appear to be an actual time limit for how long you can remain in a PIA. So, it might just take a very…long…time for the real beauty of this scheme to shine through.

    Lest I forget
    ————–
    Head 108 – Application for adjudication in bankruptcy on ending, termination or failure of Personal Insolvency Arrangement

    (1) Where a Personal Insolvency Arrangement has been deemed to come to an end,
    has failed or has terminated under this Part, a creditor or the debtor may apply to court
    for an adjudication in bankruptcy against the debtor in accordance with the
    requirements of the Bankruptcy Act 1988
    .
    (2) For the avoidance of doubt, a creditor or the debtor may apply to court for an
    adjudication in bankruptcy against the debtor involved in the same proceedings as an
    application for termination of the Personal Insolvency Arrangement.
    ————–
    So if they feel like it, the banks can just take assets off you in a PIA and then declare you bankrupt anyway.

    This about sums PIAs up really. Instead of being declared bankrupt like in any sane country, debtors are put into legally lop-sided relationships with their banks. They are in a bankruptcy in all but name, and one which is moreover controlled and supervised by the banks.

    PIAs are simply a formalization of the existing system of private agreements between mortgage holders and their banks. There is no additional protect provided for mortgage holders, apart from the fig leaf of the Insolvency Service, which frankly isn’t very comforting.

    Most importantly nothing in the PIAs legislation recognizes the principle of shared responsibility between borrowers and lenders. The Irish banks are getting their ability to squeeze, harass and bankrupt mortgage holders at will enshrined in law, and haven’t had to give a single concession in return.

    PIAs are useless; worse than useless even. Any protections they purport to offer are rendered void by the ability of creditors to simply end the agreement more of less at will anyway. People are far, far better off either doing nothing or just declaring themselves bankrupt instead of placing themselves in legally binding thralldom to their creditors with none of the protections of a proper bankruptcy arrangement.

    This isn’t going to deal with the mortgage crisis. Not without making it worse anyway. We’re catering to landlords over tenants, banks over people, creditors over debtors, and our economy is being slowly suffocated as a result. No shared responsibility, no forward thinking, no innovation, just the logic of 19th century values at the beginning of the 21st. We deserve to go back to poverty if this is how we govern ourselves.

  3. @OMF

    add to that the fact that still 84,000 businesses in Ireland have no access to the financial services ombudsman in case they are in a dispute with their bank.

    Shatter & Noonan saw fit to do nothing about it to date.

    Even the FSO himself considers this situation to be extremely unfair.

    While businesses with no more than 3 million turnover per annum, as well as non business related entities have access to the FSO, and for the sake of an example, if you are a little company, home business, taxi driver, what have you not who operates as a sole trader, you are excluded from access to the FSO, doors closed, that’s it.

    I am not even sure why I post that here anymore. I posted letters to the Independent and IT after researching the facts and speaking with the FSO office to get confirmation on the legal situation, needless to say, not one would pick it up.

    shrugs

  4. Perhaps someone ‘in the know’ can answer this question: did the government seek input from MABS, SVP, ISME, ICTU, etc. before drawing up this bill? It seems to dovetail too neatly with a banking agenda. And as for the UK becoming less attractive…

  5. “The Irish Banking Federation said it would carefully examine the proposed legislation over the coming days and raised concerns about striking ‘the appropriate balance’ between the interests of debtors and creditors….” (IT)

    That is such a hoot. Their members practically wrote it. But hey that’s PR for you. Always mistrust anything that smacks of a trade body making out that they could be some kind of victim or that the scales are tipped against them. That’s what we call a ‘holding pattern’- to make sure things stay as they are by saying it’s all terribly unfair and there should be more concessions from the other side.

    @The Alchemist

    “did the government seek input from MABS, SVP, ISME, ICTU, etc.”

    I’m surprised Noeline Blackwell at FLAC hasn’t been a bit more strident. The IT this evening seem to be making out that she’s gushing about what a wonderful thing this is.

    http://www.irishtimes.com/newspaper/breaking/2012/0125/breaking70.html

  6. ‘Vested interests’ – this time discredited banking and bankers – win again.
    So, what’s new?
    Utterly useless……useless….

  7. OMF’s analysis of how the system is being put int he hands of banks is terrifying. The Govt is being swayed by the Central Bank in this matter imho. This is politically, socially, and democratically wrong.

    I cannot forgive The Central Bank for impinging on the Governments democratic and constitutional mandate by making media announcements undercutting the Government in the IMF negotiations. It seems to me that we are being subjected to the same bank-centric logic in theese bankruptcy proposals.

    After the massive undermining of the political legitimacy of the capitalist system through bank bail outs and socialisaion of debts, the banks are now to be given legislative power to treat people as their slaves and to change their mind at their whim. The legitimacy of the state is corroded by these short sighted proposals.

    Why should institutions which have shown themselves to be the most economically and socially irresponsible institutions and people in the state now be put in charge of the lives of the citizens.

    Also, what is the economic, social or political rationale for limiting PIAs to people whose debts are less than €3m? I expect to see more people heading to the UK as a result of this particular proposal.

  8. “I cannot forgive The Central Bank for impinging on the Governments democratic and constitutional mandate by making media announcements undercutting the Government in the IMF negotiations.”
    In fairness to Patrick Honahan he was acting in the best interests of his employers. The ECB.

  9. This piece of legislation is likely to be one of the most important pieces passed during this government’s term in office with lasting implications for SMEs and personal borrowers. I understand that by and large insolvency does not affect or arise among PS employees, but by comparison with ‘Big Ticket’ spectacles such as bondholder ‘burning’ it is attracting little comment. That isn’t a criticism of personages or occupations, but more of an observation on the dire thinness of a developed Irish business culture, even thinner after the depredations if the past few years. Worrying prognosis.

  10. Zhou,
    methinks you doth protest too much. What percentage of the population owe more than 3m?.

    You are clearly still sore over Dr P cutting the ground from under the late lamented BL and the unlamented BC.

  11. Tull – I am not into immature political bickering. I think Alan Shatter is more capable than Dermot Ahern. However, it is clear that the legislation as proposed gives banks too much control over debtors.

    I don’t know what percentage of the population owe more than €3m or what percentage of income tax they are liable for, or what losses they will be carrying forward to benefit of their banks at the expense of the exchequer. However, I am sure that the banks all know what percentage by value of their loan books are to people who owe them more than €3m.

    In any event I think it is repugnant to define people’s rights as compared with their fellow citizens based on what percentage of the population it affects.

    I am also conscious that where banks control peoples assets and can veto sales that they can keep indebtedness high.

    You are saying that a person who owes €3,010,000 euros should be prohibited by law from the possibiity of an economic future that somebody who owes €2,990,000 might be allowed?

    I am hopeful that Alan shatter and perhaps the Attorney General will agree with me and will see it as a matter of national importance rather than a Fine Gael matter of pride as it seems to you.

    BTW – still waiting for your “reasoned response” on the deleveraging thread.

  12. @ OMF: Thanks for doing that ‘analysis’. Looks a bit like a Guantanamo job: blindfolds, mitts and muffs – for the debtors!

    I recall my second mortgage. We had to grovel; have 25% cash on deposit with the building society and wait seven weeks for an answer (needed a ‘bridging loan’ @ 14.5%). Paperwork had to have stamps all over it (ones with Harps were especially welcome). Eventually we got a 60% LTV. I still have scars from that racking!

    Fast forward to 2005 (youngest son is buying first home – from elder brother). Had a Tracker ‘thrust’ upon him, also a 25,000 euro ‘credit line’ – to furnish out. Paperwork was – well, lets just say it was economically truthful. 10% deposit was ‘optional’. In fact he could have got almost 110% LTV!!! Fantasy Land.

    I think someone should ask some very hard questions about the lending practices (for res properties) post 2002. They seem to have been, at best unfit for purpose, at worst fraudulent.

  13. zhou,
    My response is as follows
    1. there has to be some change in the bankruptcy law-it is too draconian as it stands. The role of government is to stike a balnce between the owners of the banks (taxpayer) and the beneficiaries of a more liberal regime.
    2. But be under no illusions that is is costless. LEt us be honest about the fact that it involves a wealth transfer to those that have unaffordable debts from those that have no such debts. In the absence of any external debt foregiveness, the cost will be shared internally. The beneficiaries will be some borrowers, the losers-bank equity owners and potentially depositors (i.e the taxpayer)
    4 you put forward what is in efeect a cost benefit analysis that those relieved of debts will start again become more economically productive and foster recovery. Yet not a number ever graces your analysis…ever.

    I contend that the propoents of a liberal bankruptcy regime you come out with a full reckoning of the costs and benefits, and be honest about who benefits, who pays. This stuff about it being good for the economy with no down side for anybody is happy clappy populist nonsense.

  14. Hey Tull: Its Crony Capitalism time, again! How can virtual wealth be transferred? Got me there! Nobody benefits, like nobody. Just some are bigger losers than others.

    The banks shareholders have already been trashed. Deposits have been saved. Bondholders have been protected and repaid (mostly anyway). Taxpayers have been lotted – again, and again, and again.

    Forget the CB analysis bit. The levels of chicanery, deceit and fraud in the lending processes for res properties since 2002 render this a useless exercise.

    A ‘liberal bankruptcy regime’ – whatever the hell that means in practice, will be very, very bad for the economy. Its all downside. But then the upside was driven by administrative incompetence, political chicanery, and regrettably – fraud. These do not sum up to zero. They sum to a negative.

    There is a reality. And lots of folk just do not seem able (or perhaps unwilling) to join up the dots. Its a bad picture. This proposed legislation is pure Calvinist Ideology. It will work in theory: the practice will be grim.

  15. These new procedures have more to do with ” moral hazard” than trying to resolve a real problem. Blackrock last year we are told gave us the real hard situation on the Banks including mortgage and personal debt so that provisions were made against bad loans. We the Taxpayers put in the extra money into the Banks around €62 Billion per the last figures given in the Dail by Baldy Noonan in January 2012. Of that €42 Billion went against the devolopers now in NAMA so the rest is against Busines,mortgage and personal loans. It is time the Banks were told by Baldy to start writing off the unsustainable part of the debt which Blackrock via the CB advised was not collectible. THe Public are being conned again by our Banks and Shatter with his stupid uselees for purpose Insolvency Arrangement Legistlation.

    Another reason for being against this rubbish is the creation of a new Quango with Rolls Royce Salaries and Pensions for New Civil Servants. So do they ever learn these Politicians. They see the Public and Taxpayers as Mugs all of the time……………

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