Banks are losing more than €100,000 every time they reject a personal insolvency application but many continue to “defy commercial logic” by forcing distressed borrowers down the bankruptcy road, it has been claimed.
In a new report published by the Insolvency Service of Ireland (ISI), Permanent TSB is exposed as the bank least likely to come to an arrangement with a borrower trying to reach a debt repayment agreement.
Since the ISI began accepting insolvency applications in September 2013, banks have exercised their controversial vetoes in one in four cases, with the number of cases rejected climbing to almost 30 per cent when mortgage debt is involved.
Using case data provided by Personal Insolvency Practitioners (PIPs) covering the last quarter of 2014, the ISI highlighted 47 rejected cases involving debt of more than €30m.
In all circumstances the financial return for both secured and unsecured creditors was higher in the arrangements rejected than the alternative available if the applicant declared themselves to be bankrupt.
Proposals drawn up by PIPs involving mortgage debt would have seen creditors recover just over 68 per cent of their loans from borrowers compared to just under 45 per cent if the borrower entered bankruptcy.
Unsecured creditors meanwhile stood to recover 8.6 per cent of their debt through insolvency compared with less than 1 per cent after bankruptcy proceedings were issued.
The overall potential loss for creditors voting down potential agreements was put at almost €5m in a single quarter which worked out at more than €100,000 per case.
“This is why I have always thought the voting system [which requires 65 per cent of creditors back a deal] would work,” said the head of the ISI Lorcan O’Connor. “It seemed to me to be a no-brainer. I have always been of the view that commercial logic would win out.”
Veto
Sub-prime lender Start Mortgages rejected 80 per cent of the Personal Insolvency Arrangements (PIA) put to it. All told it vetoed eight deals and accepted only two. Permanent TSB, meanwhile, voted down 46 deals - a rejection rate of 48 per cent.
Bank of Ireland vetoed 21 per cent of debt deals, Ulster Bank rejected 19 per cent of deals while AIB and EBS combined voted against 14 per cent of arrangements brought forward by PIPs.
Mr O’Connor said the ISI was in the process of arranging meetings with the individual banks to try and establish what are their perceived stumbling blocks when it comes to doing deals. “Once you have statistics and facts at your disposable it is a lot easier to have a conversation,” he said.
The ISI report shows continued growth in applications month on month with activity across all debt solution categories. Growth has been particularly strong since the launch of the ‘Back on Track’ information campaign last October which coincided with the waiving of application fees.
400 arrangements
The ISI’s latest raft of statistics show that over 400 arrangements involving unsecured debt and mortgages had been reached.
There were 101 Debt Relief Notices involving debts of less than €20,000 A further 43 Debt Settlement Arrangements for unsecured borrowings over that amount were put in place while 129 Personal Insolvency Arrangements which typically involve mortgage debt were done. And 162 bankruptcies were processed.
Since it started processing applications in September 2013, 821 approved arrangements have been put in place while 610 bankruptcies have been declared since the term was reduced to three years from 12. All told the cases involved debt of almost €2 billion. Mr O’Conner accepted the level of applications was still some way off the 7,000 he would expect the ISI to handle annually.
“I can’t deny that the numbers using the insolvency service remain low relative to the scale of the personal debt problem,” Mr O’ Connor said. However he suggested that many of the 100,000 restructured mortgage deals that banks have now down with borrowers had come about directly as a result of the establishment of the ISI.
He said the number of people using the ISI was “creeping up” and pointed out that in the last applications grew at its fastest rate since the service started 18 months ago.
New Beginning welcomed the ISI figures which, it said, confirmed that the system continues to get traction. “The figures show that in over 75 per cent of cases creditors are agreeing to massive debt write down,” said its spokesman Ross Maguire.
However David Hall of the Irish Mortgage Holders Organisation was less upbeat. “The Insolvency Service press release tries to present what are pathetic figures in as positive a way as possible, but they are fooling no one,” he said.
