New insolvency regime: a windfall or a headache for professionals?
Success of scheme will depend on integrity of PIPs, says insolvency chief
Central to the Government’s plan to deal with the legacy of personal debt is the creation of a new brand of insolvency professional, due to be registered from next summer. Depending on who you talk to, the Personal Insolvency Practitioner (PIP) will be jumping on the greatest legal gravy train for years, or embarking on a journey that will be far more hassle than it’s worth.
What’s certain, according to Lorcan O’Connor, director of the Insolvency Service of Ireland (ISI), is that “if we don’t get the practitioner bit right the system won’t work”. His agency is due to start registering the first PIPs from next June, and while “we will not have several hundred authorised by June… we will start to create the list [THEN]and that will increase during the summer”.
To be a PIP, you must be a solicitor, a barrister, a qualified accountant or financial advisor, or otherwise hold a relevant qualification. As important, said Mr O’Connor, were “intangible” qualities, like communications skills and an ability to deal sensitively with people in crisis.
“If the court does not have confidence in the PIP the court is not going to proceed.” While he would “put as much pressure as possible on [creditors] to engage in this process”, he couldn’t legitimately do so “if the PIP is untrustworthy or has no experience in this area”, he added.
It’s not the only challenge his office is taking on, having begun “from a standing start in November”. The ISI is designing a new IT system that would allow the insolvency process be “primarily electronic”. Ideally, he said, “the judges will be assessing it primarily on a computer screen rather than looking at the documentation supporting that application.”
Mr O’Connor was speaking in Dublin at an information seminar organised by Free Legal Advice Centres (Flac) last week on the new insolvency regime. The event brought together leading practitioners in the field, including Tom Murray, a partner in Friel Stafford and self-proclaimed “wannabe PIP”.
He dismissed the notion that lawyers would be rushing to become registered, asking with a touch of mischief: “How many solicitors are good at totting up stuff except for the bill?” As for mortgage brokers, “they have no sense of irony to become PIPs.”
He said the experience in the UK was that many professions initially got involved in insolvency work but later withdrew after realities hit home. He believed the business here would go to “a relatively small number of law firms” because only they would be able to put the necessary systems in place.
The cost of registering - €1,500 initially, with a €1,000 renewal fee - combined with training costs, and increased liability insurance were further disincentives. There was also the risk of stress and burnout from dealing with people in crisis situations.
Vouching for this in his capacity as Official Assignee in Bankruptcy was Christopher Lehane, who said: “It’s amazing how stressed I become and how distressed the bankrupts become after bankruptcy.” It was a “huge relief” for debtors to find the threatening letters had stopped but their residual problems often transferred to his office.
Mr Lehane, whose expanded office was relocated at the weekend to the ISI’s headquarters near Dublin’s Phoenix Park, said many misconceptions surrounded bankruptcy, including the idea that going to the UK was a softer option for bankrupts. While there was an advantage of coming out of the process in just one year, rather than three years, it was “totally untrue that trustees were not ruthless in looking for value from the debtor’s assets.
Professional fees for dealing with debt have been the subject of controversy. However, Mr Lehane suggested the cost of bankruptcy at €650 was not unreasonable if it helped “to end the huge strain” on a family.
As for PIPs, Mr Murray said the market would decide the level of fees charged but he predicted an initial consultation would be an average of €300. To negotiate a deal with a bank would require substantial work, costing anything from €1,000 to €3,000 or “it could be €10,000 for a significant entrepreneur with significant debts”, while there might be further fees of around €500-€700 a year for reviewing a settlement.
Also speaking at the conference was Colette Bennett of MABS, which is acting as an Approved Intermediary for people seeking debt relief notices, which typically apply to smaller liabilities, under ISI. She admitted it was “going to be a challenge” to manage the system. While four additional posts had been created at MABS, Flac has called for further resources to ensure there were no waiting lists for the scheme.
About 150,000 mortgages are in arrears of more than 90 days, affecting up to 500,000 people, according to ISI.
The Government has estimated about 18,000 people will apply for personal insolvency schemes in the first year but StubbsGazette puts the figure at 25,000, excluding up to 7,000 bankrupts.
In a bullish report earlier this month, it said “the evaporation of the stigma of debt, coupled with the stark financial reality faced by thousands of Irish households, indicates the demand could be off the scale previously imagined”.
l Flac has posted extensive materials on the insolvency process, along with video clips of the seminar, at www.flac.ie