This article was originally published by The Business Post.
Last week, the Insolvency Service of Ireland celebrated its first birthday – albeit probably a very muted celebration when one considers progress to date. In the second quarter of 2014 just 30 debt settlement arrangements (DSAs) and 27 personal insolvency arrangements (PIAs) were completed. These figures were heralded in some circles as representing significant progress – but in the context of more than 100,000 people in mortgage arrears, it is pathetic.
The problem citizens face is too serious to only complain about a failed insolvency system. It requires constructive and workable solutions. Many vested interests predicted an avalanche of bankruptcies and insolvency arrangements.
I welcome the reforms just announced by the Insolvency Service and the official assignee to streamline the bankruptcy process. This is a good move that will help both the process and the debtor, and it shows willingness to change.
Specifically, the reforms reduce the amount of paperwork from 40 pages to 14 and eliminate meetings between the bankrupted person and the official assignee’s office when debts are below €1 million. This is very refreshing. The insolvency regime was to be our national saviour, but this has proven not to be the case. The government, as part of its review of the Programme for Government, is considering changes to the Insolvency Service, and this is also welcomed.
The Irish Mortgage Holders Organisation has submitted a number of suggested changes and in the face of a stalled system our practical improvements are worth sharing. Debt is all-consuming and has paralysed many families, communities, and the economy. Those affected flinch when they hear of the ‘recovery’.
There is no point in any minister celebrating legislation that allows for debt on a family home to be written down without understanding that the banks still have a veto. Two of the main banks, Ulster Bank and Bank of Ireland, went before the Oireachtas Finance Committee and said that they would veto any PIA that involved a debt writedown on a family home or any property. Why would anyone make such an insolvency application to a creditor like that? The bank veto must be diluted to have an independent arbitrator to assess how reasonable a veto is, or removed entirely.
The insolvency system has been designed as a private industry without any access for those who can’t pay. There is no public insolvency service, which is crazy when we are talking about people who are in financial difficulty. Access to public insolvency practitioners (PIPs)is needed. The system where PIPs won’t put cases forward for fear they won’t be successful, or that they might not get paid, must be removed from the equation. PIPs should only be allowed to advertise the number of protective certificates they achieve rather than the number of successful deals they conclude until the market and the creditors mature. This is not a reflection on PIPs but rather the landscape they have been given. Either way, it does not serve the debtor well.
The debt relief notice qualification criteria is far too stringent and the debt level of €20,000 needs to be raised to €35,000. The Irish Mortgage Holders Organisation has just applied to the Insolvency Service to be authorised as an approved intermediary to deal with debt relief notices pro bono. If we really want to kick start the insolvency system, two simple changes to bankruptcy would achieve this. Firstly, a 12-month bankruptcy with a maximum two-year attachment of earnings would achieve such an aim. This is a simple legislative change that would help wake creditors up.
Secondly, it is obscene that insolvent citizens are unable to access the Irish insolvency system and those who have to go bankrupt are charged €924 for the pleasure by the state. This excludes any fees charged by ‘advocates’ which can range from €1,000 to €10,000 – oh, and don’t forget Vat at 23 per cent. Britain provides a discount rate for low-income debtors who apply for bankruptcy, and the same approach should be adopted here.
If we really want to drag creditors to the table, bankruptcy could be given real bite by allowing the official assignee to reduce debtor petitioning fees and, instead, charge creditors large fees from any assets that are realised in the bankruptcy. What bank would be keen to see a person enter bankruptcy if the official assignee got the first €25,000 from the sale of any property?
Revenue has preferential status as a creditor. This must be changed so Revenue can be treated as an ordinary creditor. Having an arm of the state taking such a position scares off debtors, especially entrepreneurs, from entering what might be a much-needed insolvency arrangement.
The application process, in securing a protective certificate, is lengthy and a protective certificate should be issued immediately by the Insolvency Service on confirmation by the PIP that the debtor is insolvent. The protective certificate should be extended from 70 days to 100 days.
A major barrier to debtors availing of the insolvency system is the fees paid to the Insolvency Service. People are being asked to pay €250 for a debt settlement arrangement and €500 for a personal insolvency arrangement just to see if their creditor will agree to a proposal. The fee should only be €50 at the outset and if an agreement is reached then €250 could be added to the arrangement as a fee to the Insolvency Service.
In the event that a personal insolvency arrangement fails, the fees paid to the Insolvency Service should be deducted from the official assignee’s fees if the debtor goes bankrupt.
We all want those crippled by debt to have a fair and equitable way out. The current system is a start, but needs to be changed.
Last February, former justice minister Alan Shatter said: “I have never suggested that our personal insolvency legislation is set in stone. Rather, I have repeatedly and consistently said that if the new measures need improvement, then I will introduce whatever changes are necessary to ensure their success.”
For the sake of those in debt, their families, friends, communities and our national recovery, those changes are needed now.
*David Hall is chief executive of the Irish Mortgage Holders Organisation*