Absence of insolvency referee is major flaw in system

The Insolvency Service of Ireland is not yet up and running but it has already sprung more leaks than a colander and many vulnerable and distressed people who may be forced to use the service in the months ahead are being scared witless about what the process may mean for them.

Reading the guidelines as they are, it would appear the service is suggesting anyone who has the temerity to lose their way financially will also be forced to lose their health insurance, their holidays, their cars and – in some circumstances – their job.

Kite-flying exercise
It now seems clear, however, that the picture being presented is little more than a kite-flying exercise – who is flying that kite remains unclear – and unless the Government is particularly anxious to see its support collapse it will not countenance these prescriptive and restrictive guidelines to form part of its arsenal when dealing with people who are insolvent.

One frightening prospect, however, was raised by Fianna Fáil’s finance spokesman Michael McGrath yesterday. He pointed out whatever form the guidelines take they will be used by the banks as an opening gambit in any negotiations they have with distressed borrowers – both those who chose to enter the insolvency process and those who find themselves in arrears on their mortgages.

The banks already feel they have been given the moral authority by the State to launch home repossessions on a scale not seen for more than a century and may now see the income guidelines as another stick with which to beat those they view as feckless borrowers.

The Government would be very foolish to allow this to happen. And well it might be. So far in the process of untangling the personal debt knot which has tied up the futures of more than 100,000 homeowners, it has failed to learn the lessons from other jurisdictions and seems intent on giving the banks all the power in debt-resolution negotiations.

Oversight body
Unlike Norway, France and Sweden – to name just three countries that have been down this road already – it has failed to establish an independent body which can determine what solutions are fair and sustainable for borrowers as well as lenders .

It has also failed to give the Central Bank, as the most important regulatory authority in our financial sector, a sufficiently large stick with which to beat the banks if they refuse to play ball with distressed borrowers.

Now we are looking at a situation that could see the banks given the authority to micromanage the finances of the State’s citizens at a level that would have been considered intrusive in Mao’s China. Is that really the road we want to go down? The Government would want to think long and hard before it takes the next step.