AIB - Leinster

Report
Personal Insolvency Bill 2012
Michael Bolger – Head of Personal Insolvency
With legal opinion from:
Barry O Neill
Partner
Eugene F. Collins
August 2012
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Personal debt in Ireland
Legal Overview of Bill
Debt Relief Notice (DRN's)
Debt Settlement Arrangements (DSA's)
Personal Insolvency Arrangement (PIA's)
Case studies
Questions and answers
Personal debt in Ireland
Debt pathways
Well being
PRE-CRISIS
Growth and ambition
POST-CRISIS
EXPECTATIONS –
STRUCTURED SOLUTIONS
(eg DSA,PIA, pay off the
debt, Bankruptcy) Optimism
DEBT
PROGRESSIVE
DECLINE
TIPPING POINTS
CONTACT WITH MABS
(ONGOING CRISIS)
Distress
Time
Positive future: New
lifestyle free from debt.
But risk of regression
to pre-crisis, repetition
of past failures
(re-offending)
Debt
Debt psychology
Symptoms
Psychological
Physical/Somatic
• SLEEP
• APPETITE
• IBS:
• BLOOD PRESSURE:
• IMMUNE SYSTEM: weakened
• LIBIDO:
• SKIN:
• ABUSE: alcohol (smoking, drugs)
• EMOTIONAL:
• COGNITIVE:
• SOCIAL:
• CULTURAL:
– stigma
– blame banks,
government,
immigrant groups
Advice tipping points
Denial
• Ignoring bills
• Hiding from partner
• Escapism
Realisation
of need
• Loss of utilities threat
of bailiffs
• Partner pressure
• No or limited income
• Paying redundancies, etc.
Action
• Advice
• CAB
• Online search
• Grant Thornton contact
Personal debt in Ireland
Loan products which have substantially
increased since 2003:
Unsecured
Personal loans
Credit cards
2003
23,651m
1,500m
2011
19,908m
2,700m
Secured
Residential mortgages
45,527m
115,089m
7,161m
24,238m
77,839m
161,935m
Other mortgages (buy to let)
Total (including all loans)
Source: Central Bank Report June 2011
Personal debt in Ireland
Private residential mortgage market in Ireland:
Irish Private Residential Mortgages
Mortgage Market
30 June 2012
761,533
Total value Arrears > 90
days
€112bn
83,251
10.9%
Arrears <90 Total private
days
residential
mortgages in
arrears
45,165
5.9%
Note:
• The above figures do not include buy to let mortgages
• Total arrears amount to €1.5bn for private residential mortgages (includes <&>90 days)
Source: Central Bank Report Aug 2012
128,416
16.9%
Referral: MABs
New Client Accommodation Type
Q1
Q2
Q3
Q4
Total
%
8
2
8
-
18
0.08%
15
8
8
3
34
0.15%
2,672
2,496
2,690
2,099
9,957
44.33%
Other
299
317
412
422
1,450
6.46%
Owned
266
248
253
211
978
4.35%
Rented LA
1,071
955
1,010
837
3,873
17.24%
Rented PR
1,252
1,197
1,133
1,002
4,584
20.41%
6
11
4
4
25
0.11%
Shared Ownership
39
39
47
21
146
0.65%
Sheltered Housing
19
18
16
13
66
0.29%
Social Housing Scheme
92
48
61
75
276
1.23%
Tenant Purchase
8
13
11
8
40
0.18%
With Family/Friends
2
22
66
47
137
0.61%
300
238
199
141
878
3.91%
6,049
5,612
5,918
4,883
22,462
100.00%
Homeless
Hostel
Mortgage
Residential
With Parents
Total
Unemployment Black spots
Source: census 2011
Personal debt in Ireland
What is the age profile of the debtors- MABS
New clients age analysis
Q1
Q2
Q3
Total
%
15-18
9
4
4
17
0.1%
19-25
393
396
370
1159
6.6%
26-40
3123
2928
2997
9048
51.6%
41-65
2431
2207
2406
7044
40.2%
93
71
102
266
1.5%
6049
5606
5879
17534
100%
Over 65
Total
Source: MABS report Nov 2011 www.mabs.ie
Personal Debt in Ireland
Profile (UK)
The typical debtor (UK) who enters IVA process…
• average salary £21-24k (median average pay
£21,221)
• 63% home ownership
• between 50-60% will be aged 25-44
• 90% will be employed
• 70% male to 30% female
• c.50% of new applicants are married.
Personal Debt in Ireland
UK/Ireland comparison- Ireland population circa 9% of UK
Comparison
Ireland
Disposable income to household debt – a
176%
debt to income ratio of 176% means for every
€10,000 of disposable income earned,
€17,600 of debt is outstanding
UK
161%
Debt per adult
€54,535
£24,636
Unsecured debt
€25 billion
£216 billion
Cost to society of problem debt per year
Unknown
£21 billion
Personal Debt in Ireland
UK personal insolvency volumes
25000
20000
15000
IVA
DROs
10000
BKYs
5000
0
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 p
Q3
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Personal Debt in Ireland
Comparison with UK
Ireland
UK
Personal Insolvency
Arrangement (PIA)
Individual Voluntary
Arrangement (IVA)
Workout without secured Debt Settlement
property
Arrangement (DSA)
Individual Voluntary
Arrangement (IVA)
Workout with secured
property
Bankruptcy
Bankruptcy – 3 Years
Bankruptcy – 1 Year
No assets/no income
Debt relief notice
Debt relief order
Debt Journey
•
Acceptance of the current situation
•
Need for debt advice
•
Understanding the options available
•
Creditor containment
•
Debt prevention
Legal Overview of Bill
Legal Overview of Bill
•Context
•Radical
Legal Overview of Bill
•New law
•Change
Legal Overview of Bill
• New
• Debt Relief Notice
• Debt Settlement Arrangement
• Personal Insolvency
Arrangement
Legal Overview of Bill
• Court
• Insolvency
Service
• “Intermediary”
Legal Overview of Bill
•PIA
Legal Overview of Bill
• Court?
• Circuit Court
• High Court
• €2.5million+
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Legal Overview of Bill
•Joint Proposal
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Legal Overview of Bill
•Once
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Legal Overview of Bill
• Domiciled
• Residence (1 Year)
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Legal Overview of Bill
•€3M (Waiver?)
•Home
•6 Years
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Legal Overview of Bill
Residence
• “Co-operated”
• 6 Months
• Process
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Legal Overview of Bill
Process
• No agreement
• Unwilling
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Legal Overview of Bill
Process
•
•
•
•
•
Confirmation
Belief
Arrangement
Not solvent
5 years
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Legal Overview of Bill
•70 Days
•No Action
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Legal Overview of Bill
•Judgement
Mortgage
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Legal Overview of Bill
•Value
•Agree
•Expert
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Legal Overview of Bill
•Accounting
•Records
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Legal Overview of Bill
•Sale
•Surrender
•Retention
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Legal Overview of Bill
•Residence
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Legal Overview of Bill
•Uplift
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Legal Overview of Bill
•Meeting
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Legal Overview of Bill
•65%
•50%
•Connected
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Legal Overview of Bill
• Vote?
• Value
• or
• Debt
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Debt Relief Notice (DRN)
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Debt relief notice (DRN's)Key eligibility criteria
•
•
•
•
Unsecured debts
debts < €20k
disposable < €60 per month
assets < €400 (can be increased to €1,200 if for motor
vehicle/furniture)
• 3 year protection
• if >50% of debt paid DRN will cease to have affect
• 75% of debt must be > 6 months
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Debt relief notices (DRN's)Typical creditors/debt
• credit/store cards
• credit union
• personal loan/overdraft
• utility bills
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Debt Settlement Arrangement (DSA's)
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Debt Settlement Arrangement(DSA's)-Key eligibility criteria
•
•
•
•
•
•
domiciled/place of business in Ireland (12 months)
provide prescribed financial statement (affidavit)
debts > €20k (no max)
unsecured debt only
5 year period (with possible 1 year extension)
Personal Insolvency Practitioner (PIP) must be of the
opinion that debtor is insolvent, with no likelihood of
solvency in the next 5 years
• all creditors/debts will be treated on a pro rata basis
• once in a lifetime only
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Debt Settlement Arrangement(DSA's)
Typical debts/creditors
• personal guarantees
• credit union loans
• personal loans/overdrafts
• credit/store cards
Protective Certificate
• 70 days possible extension of 40 days
• "creditor shall not terminate or amend that agreement" under 56 (1) F (i
& ii) - Implications???
• "shall not operate to prevent a creditor taking actions as respects
another person who has guaranteed the debts of the debtor" –under 56
(4) implications for guarantors??
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Process map - DSA
The debtor will
meet with PIP.
PIP will formulate
proposal based
on
representations
made and
information
provided
70 days
protective cert
Creditor will
receive 14 days
notice of creditors
meeting (pack will
include proposal,
prescribed
financial
statement) from
PIP
*(V imp that this
phase is
streamlined to
keep costs to a
min)
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Creditor will
forward proof of
debt and either
the Creditor or an
appointed agent
will liaise with PIP
on what terms are
acceptable prior
to creditors
meeting.
Creditor or
representative
will vote to
accept or reject
the proposal
(either in
attendance or
by proxy)
Process map - DSA
Phase 2 - if rejected
If proposal is not
approved by 65%
of the creditors
present
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the process with
the PIP will finish
creditor may
continue to
pursue debtor
as was the
case prior to
the process
beginning
Process map - DSA
Phase 2 - if approved
IfIf proposal
proposal is
is
approved
approved by
by
65%
65% of
of the
the
creditors
creditors
present
present
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Creditor will
receive a
proposal
document
(contract) from
PIP;
Creditor will
instruct PIP of
account details
& payment
preferences
Creditor
Creditor will
will
forward
proof of
receive
debt
and either
payments
the
Creditor
or
quarterly
& an
an appointed
annual
agent
will liaise
statement
from
with
on
PIP PIP
on the
what
terms are
performance
of
acceptable
prior
the account;
to creditors
Debtor
will be
meeting.after
discharged
5 years if
compliant
Creditor will
If there
receive
is a
material
payments
change
quarterly
in the
& an
debtors
annual
statement
financial from
circumstances
PIP on the
performance
he/she is
of
obligated
the account;
to
inform
Debtor
thewill
PIP
be
of same
discharged
and a
after
variation
5 years if
proposal
compliant
will
be submitted
unless a
variation
Process map- DSA
Phase 3
If there is
a
variation
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Creditor will
receive14 days
notification of a
variation
meeting and a
variation
proposal
document from
the PIP
Creditor will vote
to approve or
reject variation- If
65% of creditors
(present) vote to
accept proposals
All creditors will
be bound.
Debtor will be
discharged after
agreed however
ability to increase
by 1 year
Process map - DSA
Phase 4
If Variation
Rejected
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The process with
the PIP will finish
Administration to
finalise same
Debt Settlement Arrangements (DSA's)
•
•
•
obtaining approval
– approval required by 65% of creditors value who voted at meeting
– connected or preferred creditors not entitled to vote
– rejection = lifting of protective order
– if no creditor votes DSA is approved
– appeals process by aggrieved creditors through Circuit Court
– variation to proposals allowed if accepted by 65% of creditors
successful DSA means
– no creditor can persist in bankruptcy petition
– no creditor can commence legal proceedings for recovery of debt
– no action can be taken by enforcement officer to enforce a judgement
– debtor is discharged from remaining debts owed
certain debts excluded
– court order in family law proceedings / damages in respect of personal injury /
Proceeds of Crime debts / debts obtained through fraud
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Debt Settlement Arrangements (DSA's)
•
•
debtor duties in DSA
– fully cooperate in the process including providing all relevant information and
documents to the PIP
– debtor must supply information on all assets and liabilities (including contingent or
disputed), incomings, outgoings
– inform the PIP of any changes in his circumstances (such as increase in income)
– not to obtain credit above a prescribed amount without disclosing the fact that they
are subject to a DSA
– not to engage in any business under a name other than that in which DSA has been
registered
criminal offence for a debtor to
– provide false or incomplete representation in regard to statement of affairs
– concealing or disposing of property
– obtaining credit above allowed limits
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Personal Insolvency Arrangement (PIA's)
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Personal Insolvency Arrangements (PIA's) Key eligibility criteria
•
•
•
•
•
•
Similar to DSA- with a number of key exceptions
Debts > €20k
PIA ceiling €3m (can be increased if all creditors agree)
Secured debt (unsecured debt can also be included)
6 Year period (with possible 1 year extension)
a PIA must be supported by at least 65% of creditors and at least 50%
of secured creditors and 50% of unsecured creditors in terms of value
• must have worked with the Mortgage Advice Resolution Process
(MARP) for at least 6 months (unless PIP is of the opinion no
reasonable chance of solvency through the proposed process)
• "co-operated for a period of at least 6 months with his/her secured
creditors"
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Personal Insolvency Arrangements (PIA's)
Mortgage Arrears Resolution Process (PPR):
• Code introduced 1 January 2011
• encourages open communication & co-operation
• lender- assess case
• lender – deliver workable options
• if co-operation- 12 months protection from
repossession
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Personal Insolvency Arrangements (PIA's)
Typical debts/creditors
• principle private residence mortgages
• Investment Property- Individual/Partnerships
• buy to let mortgages
• Personal Guarantees
• personal loans
• credit unions
• credit cards
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Personal Insolvency Arrangements (PIA's)
Interaction with secured creditors
• secured creditor should carry out good faith valuation of
property, If any disputes arise on valuation an Independent
Valuation expert will be appointed and his/her valuation will be
binding
• PIP includes terms in arrangement on secured creditor
treatment
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How it will work in practice
Process map - PIA
Phase 1
The debtor will
meet with PIP.
PIP will
formulate
proposal based
on
representations
made and
information
provided
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Creditor will
receive 14 days
notice of
creditors
meeting (pack
will include
proposal,
prescribed
financial
statement)
Creditor will
forward proof of
debt and either
Creditor (or
agent) will liaise
with PIP on
proposals as to
what terms are
acceptable prior
to creditors
meeting.
Creditor or
representative
will vote to
accept or
reject the
proposal
(either in
attendance or
by proxy)
How it will work in practice
Process map - PIA
Phase 2- if rejected
If proposal is not
approved by 65%
of total creditors
present as well as
50% of both
secured &
unsecured
creditors
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the process
with the PIP
will finish
creditor may
continue to
pursue debtor
as was the case
prior to the
process
beginning
How it will work in practice
Process map - PIA
Phase 2 - if approved
If proposal is
approved by 65%
of total creditors
present as well
as 50% of both
secured &
unsecured
creditors
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Creditor will
receive a
proposal
document
(contract) from
PIP;
Creditor will
instruct PIP of
account details
& payment
preferences
Creditor will
receive
payments
quarterly & an
annual
statement from
PIP on the
performance
of the account;
Debtor will be
discharged
after 6 years if
compliant
If there is a
material change
in the debtors
financial
circumstances
he/she is
obligated to
inform the PIP
of same and a
variation
proposal will be
submitted
How it will work in practice
Process map - PIA
Phase 3
If there is
a variation
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Creditor will
receive14 days
notification of a
variation
meeting and a
variation
proposal
document from
the PIP
Creditor will vote
to approve or
reject variation- If
65% and
50%:50%
(unsecured:
secured
creditors) of
creditors
(present) vote to
accept proposals
All creditors will
be bound.
Debtor will be
discharged after
6 years
How it will work in practice
Process map - PIA
Phase 4
If variation
rejected
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The process
with the PIP will
finish
Administration
to finalise
same
Bankruptcy
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Bankruptcy – key changes from existing legislation
• the Bill aims to discourage the use of bankruptcy
• automatic discharge from bankruptcy reduced from 12 years to
3 years
• can be extended to 8 years if non co-operation or if the debtor
has hidden or not disclosed assets
• court can adjourn bankruptcy proceedings if of the view better
dealt through DSA or PIA
• debts must be >€20k (previously €1,900)
• award of costs - now discretionary (previously automatic)
• 3 year look back (1 Year unconnected)
• court to take account of "reasonable" living standards of debtor
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Bankruptcy – key Comparison with UK
Bankruptcy
Comparison
UK
IRL
Bankruptcy Timeframe 1 Year
(up to 15 Years)
3 Years
(up to 8 Years)
Court
County court (Chambers)
COMI
No min (generally 6 months accepted)
Circuit Court
(High court > €2.5)
12 Months
Restrictions on
occupation
May not hold certain public office
Not act as director, Mgt of Co, elected
representative
Necessary Assets
allowed
Tools of trade
€6k
Lookback period
5 years (in theory unlimited if concerns over
legitimacy)
3 years
Pensions
Income will be included, Pension asset dependant on
structure
Not explicitly excluded
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Bankruptcy – key cases
•
•
•
•
•
Yates- declared bankrupt in Wales on 24 August (4 months)
Quinn – COMI application rejected in Belfast
McFeely – UK bankruptcy overturned, now bankrupt in ROI
Eichler- COMI awarded to UK
Eichler II – COMI overturned to include Germany
• The cases where a COMI claim has been lost are usually when a
creditor has followed the applicant
• Royal Tunbridge Wells (Kent)- destination for German
bankruptcy tourists
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Eichler II (30 June 2011) - UK
Chief Bankruptcy Registrar stated
• A debtor may now be required to file more detailed
evidence to establish that his COMI is really in the UK
and/or
• the court may adjourn the petition and require that notice of
the hearing be given to the debtor's creditors so that they
can appear and make representations at that stage in
opposition to the making of the order instead of having to
apply after the order is made
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Case studies
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Case study 1 - DRN
• Sean is married with 2 kids and recently lost his job
• the family live in rented accommodation and his only
income is through the social welfare system
• over the years while working he built up debts with 3
credit card providers totalling €14,000. He also has
store cards of €3,000 and has fallen into arrears with
the electricity and gas providers of €1,500
• Sean has no assets apart from household furniture.
• after paying for his weekly essentials such as food,
clothes, rent etc. Sean has €53 a month left.
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Case study 1 - DRN potential solution
• subject to Sean signing a declaration that the facts outlined
are correct, Sean can apply for a DRN from a recognised
intermediary (possible MABS) and this body will send all the
required documents to the Insolvency Services for approval.
• the Insolvency Service will then issue a DRN to Sean, and a 3
year moratorium period will apply during which none of Sean’s
creditors can pursue him for repayment of his debts.
• at the end of 3 years if Sean adheres to the debt relief
process and contributes accordingly the debt will be written
off, and Sean will be debt free.
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Case study 2- DSA
• Niamh is a 37 year old contract agency nurse who works in Beaumont
hospital, a single parent with 2 children
• she lives in Drogheda, near her parents, in rented accommodation
• she has a 2008 Ford Focus which is necessary for her to get to work
• she has no other assets and, after essential living expenses are paid,
has €400 a month left from her salary
• she has 3 credit cards which total €18,000, she has a credit union loan
of €9,000, and a personal loan of €5,000
• the combined monthly interest bill on her debts amount to €405. The
stress of her position has affected her health and Niamh is now
regularly missing work and as a result her income is reduced when she
doesn’t work.
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Case study 2 – DSA potential solution
• a PIP will review Niamh’s circumstances and based on all
of her circumstances identify an amount, say €300 a month,
that will be ring fenced to meet her liabilities.
• a proposal will be sent to her creditors and at a creditors
meeting if 65% of the creditors approve the proposal, then
the DSA will be binding on all creditors.
• this amount will be collected monthly by the PIP and
distributed to the creditors.
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Case study 2 - DSA potential solution
• as Niamh is no longer concerned with her debts, her health
improves, and should her monthly income improve say by
an additional €100 net a month the PIP might agree to take
50% of this increase for the benefit of the creditors.
• the DSA will last for 5 years and subject to Niamh
complying with the agreement, the payments made by
Niamh will be deemed to be in full and final settlement of all
her debts and she will be debt free at the end of the DSA.
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Case study 3 – PIA
• Brendan is 43 year old accountant, married with 3 children, working
in the financial services industry on a gross salary of €82,000.
• Brendan bought his house 10 years ago and while it’s now worth
€300,000 he has a mortgage of €340,000 as he used the equity in
the boom years as deposits to buy 2 apartments in Navan.
• the apartments, which were bought for €330,000 each, are now
each worth €150,000 but have outstanding mortgages of €260,000.
• one of the apartments is vacant and the other has rental income of
€700 a month. The loan repayments are €1,500 each a month.
• he has unsecured debt (credit cards, credit unions, personal loans)
of €38,000.
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Case study 3- PIA
• after tax he has €5,000 a month to live on but his current
outgoings (incl. mortgage repayments etc. are €7,000)
• Brendan believes that if he sells the apartments he will never be
able to repay the outstanding loans and is living in hope for a
recovery in the property market
• he is ignoring the letters and calls from the various mortgage
providers in the hope that they will just go away
• Brendan has kept his true financial position from his wife, which
has resulted in significant stress being put on their relationship.
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Case study 3 –PIA potential solution
A PIP formulates a proposal such as:
• sell the vacant apartment for €150k and the shortfall of
€110K will be dealt with as part of his scheme.
• the mortgage on the apartment that is rented will be
reduced to €160k as this can be discharged on an interest
and capital basis from the €700 a month rental. The
mortgage write-down of €100k will be added to his
liabilities.
• his mortgage is extended by 5 years reducing the monthly
repayments by €300 a month.
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Case study 3 –PIA potential solution
• his debts, which are subject to the PIA, amount to €248K
• the PIP calculates that Brendan can contribute €2,000 a month
to his creditors for 6 years
• this equates to €144k and results in the creditors recovering just
over 50% of their debt
• the scheme could also provide for circumstances where should
Brendan’s income go up, or should the property market recover
(20 years from commencement date) that the creditors share in
this increase
• at the end of the 6 year period, Brendan exits his PIA debt free,
except for his mortgage and investment property which are now
performing loans.
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Case study 4 - PIA
•
•
•
•
•
Alan Byrne is married with 2 children and he works as a sole practitioner
Solicitor earning €200k p.a.
During the Celtic Tiger Alan acquired two Commercial properties in Dublin ,
a retail unit on Grafton street with debt of €3m (financed by Ulster Bank)
and a retail unit on Talbot street with debt of €7m (financed by AIB). There
are no unsecured creditors.
The secured debt is over €3m and the PIP has obtained approval from both
banks to proceed with proposal
Due to trading difficulties the same tenant who was in both units has gone
into liquidation and the units are currently vacant.
Both AIB and Ulster Bank have received a 14 day notice letter of a
creditors meeting and a proposal from the PIP
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Case study 4 - PIA
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during negotiations with the PIP, AIB have expressed a willingness to sell
the property with immediate effect as they see no real medium prospect of
recovery.
Ulster Bank however believe the property in Grafton Street has a
reasonable prospect of recovering some of its equity over the short to
medium term given its prominent location
the PIP proposes that the AIB property be sold at auction under the PIA
and that the UB loan is restructured to meet rental income repayment with
no recourse to Alan
The properties are valued €2m (40% of Vote) and €3m (60% of Vote)
respectively.
both banks accept the proposals and the PIA will be passed as the 65%
rule applies
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Case study 5 - PIA
• Lets assume that the properties have aggregate debts of €1m (UB) and
€2m (AIB) (below €3m- so no unanimous agreement required)
• The properties are valued at €667k (UB) and €1,333k (AIB)
• AIB with 66.7% of the vote to accept while UB with 33.3% vote to reject
• the PIA will be passed as the 65% rule applies
• UB have 21 days to object to same under section 109 & 116 of the Bill
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Case study 6 - PIA
• Lets assume Alan Byrne also has an unsecured personal
loan of €50k from BOI with no other unsecured creditor
What difference would it make?
• BOI would have the power to reject the PIA due to the fact
that they hold over 50% of the unsecured vote
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Case study 7 - DSA
• If Alan Byrne acquired both properties via an SPV (to which Alan is a
director)
• Alan has also given personal guarantees
• Alan Byrne opts for a voluntary liquidation and the banks appoint
receivers to the respective premises
• the properties are sold for their market value's in October 2012, leaving
Ulster bank owed €1m with AIB owed €4m, based on the shortfall
• Assuming Alan Byrne has no other secured creditors, the PIP will
propose that the shortfall will be included along with the
€50k unsecured (BOI) debt in the arrangement
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Questions and answers
Contact details
Michael Bolger
Head of Personal Insolvency
[email protected]
Barry O Neill
Partner (Eugene F. Collins)
[email protected]

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