The Q3 figures released by the Insolvency Service of Ireland (ISI) indicate that the personal insolvency regime is operating in a state of limbo at this point.

The headline the ISI would have us highlight is the 25 percent increase in Personal Insolvency Arrangements (PIA) approved but nearly two years into the new regime the overall figures of 185 for the quarter is less than impressive.

When one considers that about 80 percent of these 185 cases are likely to be “mom and pop” arrangements where a couple is involved this means that little over 100 homes are involved.
Contrast this with the fact that there are some 20,000 cases before the various County Registrars’ Courts whose mortgages are deemed unsustainable with Civil Bills seeking possession (and that there are probably another 20,000 cases in the pipeline) and the ISI figures are placed in sharp relief.

The ISI figures also show that the number of Personal Insolvency Practitioners (PIPs) recognised by the ISI has fallen fractionally to 140. The reality, however, is that less than 50 are practicing in a serious manner and there are probably only 15 of any consequence.

This is hard to square with the fact that there are 40,000 homes in jeopardy with an average of three persons per household. If the system were actually to work as intended the numbers of PIPs would simply not be able to cope.

Last week the Circuit Court Rules Committee met to agree the Court Rules governing the appeal process for a vetoed PIA. It is understood that in order to be eligible for an arrangement (without creditor right of veto) five criteria must be satisfied:

This will help matters but as some 80% of PIAs that come before the courts are currently approved by creditors on the face of things the overall effect of modifying dysfunctional behaviour of some creditors would seem to be minimal.

But that view is mistaken. It is the very fact that creditors have the power of veto that is holding back applications in the first place. And a second and related factor has been the waiting time for the relevant Court Rules committees to approve the Court process for dealing with an appeal of a vetoed PIA that has further backed up the system.

In fact, dysfunctional behaviour and lack of join-up thinking seems to be the order of the day when it comes to personal insolvency.

Anecdotal evidence indicated that every repossession incurs around €20,000 in legal costs and some 15 percent of market value in realisation costs – a total of around €40,000 average across the market. PIP fees for a PIA are something like €10,000 yet the resistance over PIP fees is substantial in spite of the fact that the PIP will give the same or an even better realisations to the creditor.
But the new rules that would smash the veto promises to improve matters, in particular the stipulation that more than 50% of any single class of creditor – as determined by the PIP – can push through the scheme so long as all of the other criteria are met to the satisfaction of the relevant Court.

This is likely to alter the balance of power among various creditor classes markedly.

Consider a household with €3,000 in income, €2,000 in set costs and a mortgage of €150,000 on a home with negative equity of €100,000.

In the old world the secured creditor would insist on all of the available €1,000 per month going against the mortgage. Under the new rules it is possible for any single class of creditor for example a credit union, to posit and arrangement to the PIP that €700 goes to the mortgage holder but €300 to the unsecured creditors and the PIP over 72 months. So long as the family home is saved and the court believed this is a fair and equitable arrangement for all classes of creditors then this has every change of being passed. It certainly will sit well with the hard-pressed PIPs who may also look forward to the possibility of debtor assistance towards meeting legal and PIP fees according to industry rumours.

Perhaps the mortgage providers have overplayed their hand until now? We shall see in the coming months.