Insolvency trustees need to be vetted, says legal advice body

Accountants, solicitors or even mortgage brokers could be the people responsible for negotiating debt settlement plans under new laws proposed this week.

Paul Joyce, senior policy advisor with the Free Legal Advice Centres organisation (Flac), said that personal insolvency trustees would need to be strictly vetted and held to the highest standards as they would hold people’s futures in their hands.

The work will have to be paid for, but it is not clear who will pay for it.

“These are very serious situations, where people need proper advice and guidance so you need people who are kosher to carry out the work,” said Mr Joyce. “The regulation and guidelines around all of this need to be very tight and the rules need to be the same for everyone — you can’t have the situation where one person is getting different treatment just because they have a better or more conscientious negotiator.”

He said a lot more detail about the administrative working of the proposed laws needed to be seen.

He said a new body, the insolvency service, would licence the trustees and oversee the non-judicial personal insolvency system. “The biggest issues are that this is dependent on creditor agreement.

“There needs to be a review process, with the power to override the refusal and of course allowing the creditors a right of appeal into the courts.”

The proposed laws state that people entering in to agreements must be allowed to retain a reasonable standard of living.

“There is huge concern about this,” said Mr Joyce.

“What will be a ‘reasonable standard of living’ be? Who decides? It can’t be random and would have to be the same for everyone, social welfare could start as a guide and you would need go up from there.

“This is a key issue, as entire families are being asked to repay what they can over a period of years and cannot be left with insufficient income.”

Q&A

* Q. Who are personal insolvency trustees or who should they be?

A. There are quite a number of accountants and solicitors who would be happy to take up this work, as well as mortgage brokers. However, some might only be interested in the higher end of the scale. The big question is how much they will be paid and who will pay them. There has not been much detail provided on the administration of the scheme

* Q. What is the insolvency service?

A. The insolvency service will be a State-run body which will license the trustees and oversee the scheme. The office would have to ensure that any debt enforcement mechanism is proportionate and that the people in debt are left with a minimum standard of living for them and any dependants. At the lower end of the debt settlement spectrum, people with debts under €20,000 who are applying for a debt relief certificate will present an application to the insolvency service with the help of an intermediary (such as Mabs, the State’s money advice service) and they will make decision about the certificate.

* Q. What is the first port of call be for someone looking for help?

A. It is not yet clear, but agencies Flac or Mabs will play a critical role in initially assessing people. With such a wide range of schemes on offer, Flac and Mabs will be pivotal in advising people before they get the insolvency service.

* Q. What kind of regulation will be needed?

A. Very tight oversight and regulation will be needed, and it is not clear that this will be the case. The insolvency service, which will licence and register agreements, needs strong powers to intervene with creditors and override creditor refusal where a reasonable proposal is made.

* Q. What about creditor/bank buy-in to the proposed schemes?

A. The schemes depend on credit institutions acting reasonably. A majority of creditors (65%) can veto an agreement. So, if you have one big creditor holding a lot of the debt who disagrees, the whole deal could collapse. There need to be stronger proposals on this issue. The banks’ reaction to the schemes was lukewarm and there is irony in that as they have been bailed out by the taxpayer. They argue too much of a write-off could be counter-productive for the economy, but this has all been driven by the IMF which realises there is no point in trying to hide the debt people are carrying.

* Q. What could prevent this from working?

A. If the proposed legislation is watered down and not strengthened before it becomes law, and if repayment plans are blocked time and time again, then the legislation will be ineffective and people will go bankrupt.