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. This shows a welcome willingness for change. This will involve reducing the size of the paper work from 40 pages to 14, the elimination of meetings by the bankrupted person with the official assignees office where debts are below €1m. This is very refreshing.
However with so many crippled by debt the insolvency regime was to be our national saviour, the saviour of the ordinary person. This has proven not to be the case. The government as part of their review of the program for government are looking at the insolvency service currently 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 have been given a veto on this. Two of the main four banks, Ulster Bank and Bank Of Ireland, went before the Oireachtas Finance Committee and told the Committee that they would veto any personal insolvency arrangement that involved a debt write down on a family home or any property. The banks veto must be removed or diluted to allow an independent third party arbitrator assess the reasonableness of any veto exercised by the bank.
To have two of the main banks give our Finance Committee the two fingers in this way would not instil confidence in many debtors. Why would anyone make such an insolvency application to such a creditor?
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, crazy given we are talking about people who are in financial difficulty. One of the changes needed is access to public insolvency practitioners. The system where PIPS won’t put cases forward for fear they won’t be successful or that they might not get paid has to be removed from the equation. PIPS should only be allowed 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 no reflection on PIPS, this is the landscape they have been given, but 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 Holder Organisation has just applied to the Insolvency Service to be authorised as an Approved Intermediary to deal with debt relief notices on a pro bono basis.
If we really want to kick creditors in the rear-end, sorry 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 by the state a total of €924 for the pleasure. This excludes any fee charged by “advocates” which can range from €1000- €10,000, oh and don’t forget the VAT at 23%.
The UK 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 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 €25k from the sale of any property?
Amazingly the Revenue which is the state have been given preferential status as a creditor. This must be changed so Revenue can be treated as an ordinary creditor. Having an arm of the state take such a position is a significant disincentive for debtors, especially entrepreneurs, 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 of Ireland 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 off the Official Assignees fees in the event of the debtor going bankrupt.
We all want those crippled by debt to have a fair and equitable path out of debt. The current system is a start but needs to be changed. In February this year Minister 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
CEO Irish Mortgage Holders Organisation
www.mortgageholders.ie
