Insolvency body: Call to freeze debt deal talks is alarmist

The Insolvency Service of Ireland has dismissed as "alarmist" calls for debt deal negotiations to be frozen or stopped amid concern about a legislative loophole that needs to be corrected.

Insolvency body: Call to freeze debt deal talks is alarmist

However, rules governing personal insolvency deals between banks and debtors will need to be changed as a “priority” once TDs return from their holidays.

The technical error in the legislation means that some lenders, even if they are owed a minority of the debt by an individual, could scupper debt relief plans.

The Insolvency Service of Ireland last night insisted though that not one case or deal had been affected by what it called a loophole in the current legislation.

The service was set up in March last year and acts as a regulator for personal insolvency practitioners and approved mediators in debt negotiations between lenders and debtors.

It began accepting applications at the end of last year.

To date, 180 debt deals have been agreed — amounting to half a billion euro, it said yesterday.

A variety of debt deals are available to people.

These include debt settlements for amounts up to €20,000, personal insolvency arrangements for larger amounts such as mortgages, as well as the option of applying for bankruptcy.

So far this year, 164 bankruptcy cases have been processed, compared to 58 last year.

Practitioners doing deals have been advised by the service that a technical fault in the insolvency legislation has created a situation where a majority of creditors together could hypothetically block a deal, even if they were owed a minority of the individual’s debts.

A spokesman for the insolvency service said it was always the intention of the legislation that creditors would only have a majority vote or decision on a deal if they together held 65% of debt.

But the legislation was now “open to interpretation” and needed to be corrected “as a priority”, he added.

Any calls to halt debt deals until the error is fixed were “alarmist”, he added.

David Hall of the Irish Mortgage Holders Organisation has said the flaw in the rules is a further blow to public confidence in the service.

He called on the insolvency service to halt deals until the problem is fixed.

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