New bill leaves banks in control, warns opposition

Banks will still have a hold over borrowers under the terms of the new Personal Insolvency Bill, the Opposition has warned.

Fianna Fáil justice spokesman Dara Calleary welcomed the publication of the bill but said there should be a review of the role it afforded the banks.

“There is a unique opportunity for the Government to break the hold the banks have over borrowers and the State, but on first reading, this opportunity appears to have been missed,” he said.

“The bill as published requires that creditors holding 65% of a person’s debt agree with the proposed debt settlement arrangement or personal insolvency arrangement. For the vast majority of people, this will mean their bank is still in control.”

Sinn Féin finance spokesman Pearse Doherty said the bill would grant an “effective veto” to the banks in the majority of cases.

Mr Calleary said there was a real risk that the Government’s response to the mortgage crisis was increasingly reliant “on the good faith of bankers”.

“If we are to learn anything from this crisis, it is that the banks cannot be left to progress these issues as they see fit. This is not a banking issue. It is a social and economic issue that must be addressed by Government and driven by an independent body.”

But Justice Minister Alan Shatter suggested that both sides had a veto.

“Everyone, in a sense, has a veto,” he said. “If a debtor isn’t happy with the proposal made based on the work done by the personal insolvency practitioner, and the debtor doesn’t believe that the arrangement that is presented is financially feasible or workable, the debtor is as entitled to reject the arrangement, as are creditors.”

Fergus Doorly, a partner specialising in insolvency at William Fry Solicitors, said the bill represented a “welcome modernisation” of personal insolvency laws, bringing Ireland more in line with European standards.

“This will encourage parties to reach compromises by providing borrowers with workable debt-resolution processes and it will encourage lenders and borrowers to resolve debt issues,” he said

However, he said both borrowers and creditors would have concerns about the bill.

For creditors, “the ability to discharge unsecured debt will be of concern to sections of the business community, particularly financial institutions”.

For borrowers, “it will remain difficult to discharge mortgage debt where a secured creditor can vote against a proposal to compromise the secured debt”.

“There is no ‘appeal’ process to allow a third party to intervene where it might be argued that a creditor acts unreasonably in not voting in favour of a debt settlement proposal,” he said.

Main points

The main points of the proposed Personal Insolvency Bill:

* There will be three new mechanisms for people to write off or write down debt.

* A Debt Relief Notice to write off of debt up to €20,000

* A Debt Settlement Arrangement to agree a settlement of unsecured debt over five years.

* A Personal Insolvency Arrangement to settle secured debt of up to €3m over six years.

* This will be done in agreement with banks or creditors, outside of the court system and overseen by a state-run insolvency agency.

* The banks can opt out of any arrangements and are not obliged to enter into them.

* If banks decide not to enter an arrangement, there is no appeals mechanism for the borrower.

* Debtors owing over €20,000 must appoint personal insolvency practitioners — accountants who will help them draw up arrangements at a fee expected to be in the region of €3,000.

* Applications for debt agreements will be forwarded to the circuit court for approval.

* If the agreement is not workable, either the creditor or insolvent debtor can make an application for bankruptcy.

* Automatic discharge from bankruptcy will be three years, cut from the current 12 years.

— Mary Regan