Poor take-up of insolvency provision is down to fatally flawed legislation – Byrne

Fianna Fáil Seanad Spokesperson on Public Expenditure, Senator Thomas Byrne, has described the slow take-up of personal insolvency provisions as ‘disappointing but not surprising’.

“The Insolvency Service of Ireland has published statistics which showed only four insolvency deals involving mortgage debt have been approved by creditors. This brings into clear focus the warning that Fianna Fáil made when the legislation was going through the Dáil that a system that gives the banks an effective veto over all insolvency deals was not fit for purpose,” said Senator Byrne.

“Even in the less complicated scenario where the borrower has only unsecured debt, the use of the legislation has been extremely low.

“When the Bill was passed in October 2012 the Minister for Justice Alan Shatter expressed confidence that financial institutions would be willing to cooperate with the system. He suggested that in 18 months we would be in a position to assess its effectiveness and if the expected level of engagement did not occur, the system to be revisited. That time period has now passed and the legislation has failed the test set by the Minister himself.

“It’s clear that the Minister needs to go back to the drawing board. I believe the situation can be improved in two ways. Firstly the power of veto needs to be removed from banks.  At an absolute minimum, we need an independent appeals mechanism for debtors whose proposals are refused by creditors. The Insolvency Service needs to closely monitor the outcome of cases and outline the reasons why there are not more successful outcomes.

“Secondly we also need to address the issue of costs. It appears some Insolvency practitioners are seeking sizeable upfront payment for the preparation of applications. There have been reports of up to €3,000 or €4,000 being sought.  This puts the service beyond the reach of many who desperately need it. To tackle this, we need a system funded by the State and the creditor institutions for cases in which the debtors’ circumstances render them unable to access the system.”