Insolvency Bill bankrupt of ideas for debtors
Mortgage holders have been let down by the lack of leadership from both Government parties. We were assured that the challenges of mortgage arrears and personal debt would be addressed during the last election, promises that helped secure election to government, giving a clear mandate to Fine Gael and Labour – a mandate on which they have failed to deliver.
When the Government took office and when it promised to assist the thousands of people in mortgage difficulty, the percentage of those in arrears was 5 per cent. The current percentage is 11.3 per cent. When you take into account those below 90 days, the figure is 20 per cent of those with a residential mortgage in Ireland are in arrears. These figures have been staring government and banks in the face for five years.
Mortgage holders have not only the challenge of their mortgage debt but also unsecured debt that is weighing them down and preventing any chance of dealing effectively with their mortgage debt as many of the decisions being taken by banks are influenced by the number of unsecured creditors one has.
Many reports over the past eight years have recommended the introduction of modern insolvency legislation. After the Troika/IMF required it, the Government introduced the current Bill.
In its submission in September 2012 (see flac.iefor details), Free Legal Advice Centres suggested that the Bill takes a traditional approach to debt resolution by leaving the ultimate decision-making power in the hands of creditors, rather than imposing settlements where it may be in the interests of our society generally.
It pointed out that this is out of step with more recent progressive developments in European insolvency law summarised by Prof Jason Kilborn in his 2010 paper Expert recommendations and the Evolution of European Best Practices for the Treatment of Overindebtedness, 1984-2010.
Kilborn cited Sweden as a case in point where the system was simplified in 2007 to allow a state enforcement agency to decide on the appropriate debtor repayment plan, rather than to waste time on obtaining creditor approval. Creditors unhappy with the outcome may appeal to the court against the enforcement agency’s decisions.
In France, the debt adjustment process generally begins with the filing of a petition to a regionally-based commission on individual over-indebtedness, administered by the Banque de France (France’s central bank – a fact in itself considered to be a powerful incentive for creditors to co-operate with the procedure).
The commission acts, in Kilborn’s words, as a “sort of hybrid between debt counsellor and administrative tribunal”, drawing up a repayment plan for presentation to creditors. Formerly, where the commission’s plan involved a proposal for part-payment and the proposal was rejected by creditor/s, it would have to have been subsequently examined by a court which could impose a settlement.
However, with the rate of success for the acceptance of such voluntary plans falling from 70 per cent in 2000 to 55 per cent in 2008 and 2009, from November 2010, the commission is entitled to impose its own plan, again subject to a creditor’s right of appeal into the courts.
Contrast this with the Irish Insolvency Bill and, regardless of whether you call it a veto or not, in practice voting thresholds will allow applications to be blocked with no comeback for debtors.
This is an intentional strategy chosen by Government. No one knows what private discussions have taken place with creditors around assurances given about them being pragmatic. So no one can predict how realistic creditors will be in their dealings under the legislation.
However if the current experience of the main banks’ effectiveness in dealing with their customers on mortgage difficulties is anything to go by, then this will be a disaster.
Now passed into law, the system is complex, broadly unworkable and expensive. The process is designed with more hurdles that an Olympic race track. The Bill is designed to frustrate further debtors and might actually discriminate against those who cannot afford to pay for professional insolvency advice and services. The Government spin about the bankruptcy period being reduced to three years from 12 is simply that, spin. The fact that a creditor can apply to have the three-year period extended by a five-year payment order makes a mockery of this provision.
The veto given to creditors and the lack of an appeals mechanism will effectively make this Bill fail. There is too much power vested in the creditor, and the debtor is thrown without a life jacket into a sea of professional sharks.
Creditors have not acquitted themselves well and cannot be trusted. They have broken this country and its people, and cannot be allowed control and destroy our chance to recover.
David Hall is director of the Irish Mortgage Holders Organisation, mortgageholders.ie