Press Release

SIPTU welcomes Personal Insolvency Bill but questions the veto given to banks

Date Released: 25 January 2012

SIPTU has welcomed the publication by the Government of the Personal Insolvency Bill but has questioned the extent to which a bank can effectively refuse to participate in the non-judicial resolution of debt problems. Speaking after its publication, SIPTU researcher Marie Sherlock, said that there are very many positive elements contained within the Bill.

SIPTU has welcomed the publication by the Government of the Personal Insolvency Bill  but has questioned the extent to which a bank can effectively refuse to participate in the non-judicial resolution of debt problems.

Speaking after its publication, SIPTU researcher Marie Sherlock, said that there are very many positive elements contained within the Bill.

“To date, Ireland has stood far behind most other advanced industrial countries in not having a non-judicial framework in place to address contemporary problems of over-indebtedness. This country will now move ahead by including not only unsecured, but also secured, typically mortgage debt in the new debt settlement institution. The process of comprehensively addressing the debt over-hang problem in this country can only be achieved by taking a holistic approach to all forms of debt currently borne by Irish households,” Marie Sherlock said.

“We are pleased to see clear guidelines as to how debtors will be advised and afforded representation in each of the three over-indebtedness resolution processes; in the debt relief applications, debt settlement arrangements and personal insolvency process. Personal insolvency will not necessarily result in an individual having to surrender their home and the Bill details how the recommendations of the Keane report on mortgage arrears, published last October, must be considered as part of the range of options for the debtor. The principle of keeping people in their homes, where viable, is a very significant development,” she said.

However, SIPTU is concerned about the effective veto which banks will have over the personal insolvency process. The Bill suggests that participation will depend on the agreement of 75% of “secured” creditors - typically the mortgage lender.

“Given what we know about the practices of some financial institutions in this country and the fact that some 50% of those mortgages in arrears are with banks outside of the so called “covered” institutions (i.e those covered by the State backed bank guarantee), there is a danger that some mortgage lenders will not engage. However, it must also be noted that failure to participate in the non-judicial process will be factored into considerations on the awarding of costs if a bankruptcy petition goes to the courts,” Marie Sherlock said.

SIPTU has also questioned the wisdom of introducing a significant difference between the discharge periods for those that go through the judicial bankruptcy process (3 years) compared to the non-judicial insolvency process (6-7 years) and calls on the Government to clearly communicate its reasons for this distinction. The terms of discharge for a bankrupt appear to be more onerous, with 50% of all preferential creditors to be paid, although this includes a possible extension of the repayment period out to 8 years, Marie Sherlock said.

“In many instances this seems likely to favour employers and owners of failed businesses while penalising ordinary home owners and workers. Social equity and public acceptance of the legislation requires a level playing pitch,” she said.