Liquidator appointed to Drumcondra Credit Union

[Brendan Burgess]

Provisional liquidator at Drumcondra Credit Union

The Central Bank has made an application to the High Court to have a provisional liquidator appointed to Drumcondra and District Credit Union in Dublin.

www.rte.ie

I haven't seen the accounts, but it's unlikely that it was necessary to appoint very expensive liquidators.

They should have stopped issuing loans a year ago and paid back all their members shares over a wind down period.

If there was a deficit at the end of this, then put it into liquidation, but it would be much smaller and much cheaper.

Brendan

 

[MrEarl]

Hello Mr Burgess,

I agree entirely.

However, my guess is that the Board either didn't have the skillsets needed, or the confidence to put that to the members.

I assume one of the big Northside credit unions are on standby - by it Progressive or Members First, and will soon step in to take on the members share accounts.

 

[NoRegretsCoyote]

They should have stopped issuing loans a year ago and paid back all their members shares over a wind down period

How do you "pay back" a member whose only bank account is with the credit union?

 

[Pinoy adventure]

A sad state of affairs when you see things like this.
Will this cost the tax payers if they cannot cover all members shares ?

 

[Brendan Burgess]

How do you "pay back" a member whose only bank account is with the credit union?

Give them a bank draft and let them figure it out.

Brendan

 

[Brendan Burgess]

Will this cost the tax payers if they cannot cover all members shares ?

Yes.

I imagine that we will be paying the liquidators' fees.

It would have saved everyone if the Central Bank just told the Credit Unions which are unsustainable to wind themselved down.

Brendan

 

[RedOnion]

Yes.

I imagine that we will be paying the liquidators' fees.

No.

Resolution actions are paid for from the Credit Institutions Resolution Fund, which is funded by levies on credit institutions. There is no direct taxpayer cost.

This case has been over 4 years in the making. The appointment of a liquidator is the right action to contain the issue and protect members savings, which in the CBIs remit.

The appointment of a liquidator will result in a short resolution timeframe. It should cost less than a disorderly wind-down over years which will probably result in an insolvent situation which requires a liquidator anyhow. Or funding from the CBI which leads to a spread to the tax payer.

 

[NoRegretsCoyote]

Give them a bank draft and let them figure it out.

You are 90 years of age. Your life savings are with the credit union. It's your only account. You've never dealt with a bank draft in your life. You have health issues and assembling the KYC paperwork to open a normal bank account is a huge challenge.

Brendan's approach is both impractical and unethical.

This is why bank resolution and recovery frameworks should always provide for deposit transfer to another viable institution.

 

[RedOnion]

This is why bank resolution and recovery frameworks should always provide for deposit transfer to another viable institution.

It doesn't currently go this far once the liquidator is appointed. The DGS is automatically triggered.
In this particular case, the options to merge / transfer had been exhausted.

 

[Peanuts20]

Liquidator was appointed after merger attempts failed. State deposit guarantee scheme has kicked in. Since members had previously been told to reduce their savings to €15k, all savers should be covered.

 

[Pinoy adventure]

You are 90 years of age. Your life savings are with the credit union. It's your only account. You've never dealt with a bank draft in your life. You have health issues and assembling the KYC paperwork to open a normal bank account is a huge challenge.

Brendan's approach is both impractical and unethical.

This is why bank resolution and recovery frameworks should always provide for deposit transfer to another viable institution.

That would be a mess for the said 90 year old member with perhaps a rather large balance of shares

 

[Brendan Burgess]

You are 90 years of age. Your life savings are with the credit union. It's your only account. You've never dealt with a bank draft in your life. You have health issues and assembling the KYC paperwork to open a normal bank account is a huge challenge.

So you will go through a very expensive transfer for all 5,000 members because it's a problem for one 90 year old, sick person who never had a bank account in their life?

They will be able to figure out what to do with a bank draft.

It won't be that much more complicated than going to a new credit union.

Brendan

 

[Brendan Burgess]

This case has been over 4 years in the making. The appointment of a liquidator is the right action to contain the issue and protect members savings, which in the CBIs remit.

It might be now.

But the correct approach is to identify these cases long in advance and wind them down while they are still solvent.

It is much cheaper.

Brendan

 

[Brendan Burgess]

Resolution actions are paid for from the Credit Institutions Resolution Fund, which is funded by levies on credit institutions. There is no direct taxpayer cost.

Thanks for the correction.

Did we not set aside taxpayers' money for some fund? Has that not been used?

Brendan

 

[NoRegretsCoyote]

So you will go through a very expensive transfer for all 5,000 members because it's a problem for one 90 year old, sick person who never had a bank account in their life?

I am sure there are lots of cases like that. What if somone has lived in Australia for 20 years and they don't have the address on file?

The best solution is the forced transfer of deposits to a nearby credit union. I don't understand why the regulator hasn't mandated it in this case, maybe they don't have the power without the consent of the members.

This is from the press release:

Payments will automatically issue to the address held on file by the credit union. Members do not have to take any action themselves as compensation payments will automatically issue by cheque to all duly verified depositors. These payments will be made as early as possible within the statutory deadline of 15 working days.

Otherwise, you propose that:

the correct approach is to identify these cases long in advance and wind them down while they are still solvent.

Am not sure that this is at all practical. You will have staff, management and members who will all insist that the business model is viable. Why would they co-operate?

An orderly wind-down takes a long time. Even credit union loans have maturities of five years or more in some cases. Who will provide funding during the wind-down period?

 

[Brendan Burgess]

If an orderly wind down takes 5 years, how long will a liquidation take?

And how much will it cost?

If the staff don't want to co-operate,that is fine. Let them go and replace them.

This is not that difficult.

Brendan

 

[NoRegretsCoyote]

If the staff don't want to co-operate,that is fine. Let them go and replace them.

So basically you're recommending a liquidation!

 

[Peanuts20]

This is a liquidation, not an administration so I presume the staff and management have or will all lose their jobs unless the liquidator is prepared to pay for their costs to help him liquidate the assets and recover funds. The liquidator will then try and recover his own costs first. There is currently nowhere to transfer the assets and liabilities although I'm sure he could look to sell the loan book at a discount to a Pepper or some other entity like that.

Under the desposit scheme, eligible members will get their money back within 15 days. Core issue here seems to have been impairment on the value of the building(s) it owns which meant it could not meet its reserve requirements.

 

[Pinoy adventure]

How much would a liquidator be charging for dealing with things like this ? Thousands or hundreds of thousand ?

 

[24601]

The best solution is the forced transfer of deposits to a nearby credit union. I don't understand why the regulator hasn't mandated it in this case, maybe they don't have the power without the consent of the members.

How would that work? The nearby credit union almost definitely does not want the money and such a transfer would massively dilute their regulatory reserve ratio and put their viability into question for the exact same reason as Drumcondra.