Poor take-up of insolvency provisions due to fatally flawed legislation – FF

Fianna Fáil Finance Spokesperson Michael McGrath has described the slow take up of personal insolvency provisions as disappointing but not surprising.

Deputy McGrath stated, “The Insolvency Service of Ireland (ISI) has published statistics which showed only 27 personal insolvency arrangements have been approved by creditors in the last 3 months. We do not even know if all of these involved mortgages, which tend to be the most intractable of arrears related problems, as the ISI does not publish this detail. This omission needs to be addressed and in addition I have asked for statistics to be made available on the number of proposed agreements put forward by personal insolvency practitioners that have been vetoed by the banks. This would give us a much clearer indication of how effective the legislation is in practice.

“The very slow take up of the insolvency service brings into clear focus the warning that Fianna Fáil made at the time the legislation was going through the Dáil, that a system that gave the banks an effective power of veto was not fit for purpose.  Even in the less complicated scenario where the borrower has only unsecured debt, the level of application of the legislation has been extremely low. At the current rate of progress it will be many years before we get on top of the problem. As a country we cannot afford to continue to let this problem fester. Action is needed now to address the shortcomings in the legislation.

“When the bill was passed in October 2012, the then Minister for Justice Alan Shatter expressed confidence that financial institutions would be willing to cooperate with the system. He suggested that after 18 months we would be in a position to assess its effectiveness and of the expected level of engagement did not occur there would be a need for the system to be revisited. That time period has now passed and the legislation has failed the test set by the Minister. His successor Frances Fitzgerald needs to go back to the drawing board.

“I believe the situation can be improved in the following ways. Firstly, the power of veto needs to be removed from banks or at a minimum an independent appeals mechanism for debtors whose proposals are refused by creditors. The Insolvency Service needs to closely analyse the outcome of cases and outline the reasons why they believe more are not coming to a successful conclusion. Secondly, we also need to address the issue of costs. It appears some Insolvency practitioners are seeking sizeable up-front payment for the preparation of the insolvency application. 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.

“The reality is that, without an overhaul of the rules underpinning it, the Insolvency Service will not adequately deal with the overhang of unsustainable personal debt facing thousands of people in Ireland today.”