Farmers told PIAs could solve their debt crisis
More farmers are under debt pressure since
The Personal Insolvency Act 2012 has been a “game-changer” for restructuring personal insolvency for farm families, said Gary Digney, accountant and personal insolvency practitioner, during last Thursday’s ICMSA webinar on unmanageable debt.
“The personal insolvency arrangement [PIA] can help farmers to restructure debt and retain the land,” said Mr Digney.
Three new debt resolution mechanisms to help mortgage-holders and other people with unsustainable debt to reach agreements with their creditors resulted after the Act became law in December 2012, and was amended by Part 7 of the Courts and Civil Law (Miscellaneous Provisions) Act 2013.
A series of statutory instruments was made in order to bring the various sections into effect and implement the personal insolvency system.
Further amendments were made by the Companies (Miscellaneous Provisions) Act 2013 and the Personal Insolvency (Amendment) Act 2015.
The new debt resolution mechanisms offer different solutions to people in different situations.
They include a debt relief notice (DRN) to allow for write-off of debt (generally unsecured, and in some cases secured) up to a certain limit, and subject to a three-year supervision period.
Another mechanism is a debt settlement arrangement (DSA) for agreed settlement of unsecured debt, with no limit involved, normally over five years.
And a PIA provides for agreed settlement of secured debt up to €3m (this cap can be increased), and of unsecured debt, with no limit involved, normally over six years.
“I often hear farmers saying to me, ‘my adviser told me not to get into that because it will make me insolvent’ but the fact is, if a farmer is not paying the debt, any debt, as and when it falls due, they are already insolvent,” said Mr Digney.
“Doing a PIA gets a farmer out of insolvency, makes them solvent again, and ensures they can retain the assets.”
Mr Digney said PIAs were established so that people could restructure their debt and retain their homes.
“The legislation”, he said, “has now been adapted for farmers.
“Possible outcomes include write-down of the debt to market value, but if a farmer can afford to pay the debt, then the debt will be paid.
“If the debt can’t be paid, then a write-down becomes a possibility.
“However, in a PIA scenario, you cannot write a debt down below the value of the asset it is secured against.
“A PIA can give an extension to an expired loan or expired mortgage, and restructure it over a period of time that will allow the farmer to pay the debt.
“Most farmers just want time to pay their debt.
“It also allows for reducing or fixing the interest rate for the lifetime of the restructured loan.
The personal insolvency practitioner said loan sales and vulture funds changed the landscape in relation to debt settlement and pressure applied.
“The legislation applies to any lender and, at the moment, it’s vulture funds that are creating the most pressure on farmers in particular.
“The European Central Bank, after the last financial crash, put big pressure on Irish banks to deleverage, and there has been over €45bn of non-performing loan sales in the last three years.
“So, loan sales are here, they are going to be here, and that means the restructuring of debt within the banking landscape has changed. The Personal Insolvency Act has provisions now that do not exist in any other country.”
“Historically, Irish banks have been very reluctant to repossess farms, vulture funds are not at all reluctant to do it.”
