When the Insolvency Service of Ireland (ISI) was launched in
the Republic of Ireland amid great fanfare just over 4 months ago, it was
trumpeted as a solution to a large chunk of the country’s personal debt
problems and gave hope to a huge swathe of people. The new laws had taken over
2 years to devise and were seen as a key element of the Government’s
(Troika-influenced) strategy to help the tens of thousands that were swamped by
personal and mortgage debt.
Given that the system had taken 2 years to devise and its
roll-out delayed several times to make sure all was in order, people would have
been forgiven for hoping it would hit the ground running. Instead, it has
proved to be an embarrassment for the Government due to the low level of
uptake. In advance of its launch on the 9th September 2013, the ISI
indicated that it had already had 4,500 enquiries and was expecting “thousands”
to avail of its services and deal with their debt issues. The reality has been
starkly different – as of last week, only 11 cases had come before the courts
since the ISI opened for business. Whilst some of the blame for the low uptake
can be placed on people’s reluctance to be ’first through the gate’ with the
new system, it must ultimately be said that the service is not fit for purpose
– it is not helping those it promised could avail of it. What makes this fact
all the more damning is that such a situation was completely avoidable – there
has been a well-run and functioning Insolvency Service operating in the UK for
a number of years; why not simply mirror that system as closely as possible?
The UK system was not an immediate success but was tweaked accordingly with new
protocols introduced that resulted in acceptance rates for cases exceeding 90%
- a figure that can only be dreamt of in ROI under the current system, which
places the trump card in the hand of the largest creditor (i.e. the bank) in
the form of the power of veto.
The salient point is this: the UK system wasn’t perfect; it
was amended to rectify its flaws, and now works well. Why weren’t the relevant
lessons learnt here and a similar system put in place? The people who have
been through the financial mire for the past 5 years and were told that the ISI
could solve their problems have been badly let down. The news last week that
Justice Minister Alan Shatter is to change the system to make it more like the
Individual Voluntary Arrangement (IVA) system in the UK is welcome, but why not
do it from the start? This surely amounts to a missed opportunity, for both the
Government and the country’s indebted borrowers, as currently people have
little or no faith in the ISI. This is evidenced by the low numbers of people
looking to it as a viable solution to their problems, and acknowledging the
need to amend it 4 months into its lifetime is unlikely to increase confidence
in the short term.
The system’s lack of transparency is a huge problem and
highlights the fact that the majority of indebted borrowers would be far better
off attempting to come to an informal solution with their bank, either directly
themselves or through an intermediary. The banks are starting to come around to
the idea of doing deals with borrowers as the Central Bank threatens to force
them to make special provisions for unsustainable mortgage debt regardless of
whether they have come to an agreement with borrowers – the hope is that once
the banks realise they are going to take a hit one way or the other, they will
approach the personal debt problem in a more realistic and proactive manner.
Until then, the economic recovery will remain slow and continue to be hampered
by the lack of a viable Insolvency Service.
Fergal Hand Senior Relationship Manager GDP - Solicitor
No comments:
Post a Comment