Brendan Burgess
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The ECB has expressed their opinion on the Personal Insolvency Bill
I have posted the key extracts here
[FONT="]OPINION OF THE EUROPEANCENTRAL BANK[/FONT]
[FONT="]on measures relating to personal insolvency[/FONT][FONT="](CON/2012/70)[/FONT]
[FONT="]2. General observations[/FONT]
[FONT="]2.1 The ECB generally supports the reform of personal insolvency and bankruptcy laws in Ireland as proposed by the draft law.[/FONT]
[FONT="]2.2 The ECB supports the draft law’s aim of lowering the cost and increasing the speed and efficiency of personal insolvency proceedings while at the same time mitigating moral [/FONT][FONT="]hazard and maintaining credit discipline. … The ECB considers that the provisions strike a reasonable balance between the interests of creditors and debtors in coming to an insolvency arrangement.[/FONT]
[FONT="]2.3 The ECB notes, however, that the reforms are unprecedented, particularly as regards the scope of the PIA, which is the only insolvency arrangement applying to both unsecured and secured debt and hence risks impacting credit institutions that have lent to the debtor against security, e.g. mortgage loans in arrears. In addition, the reforms are being introduced without the benefit of a thorough economic impact assessment[/FONT][FONT="]13[/FONT][FONT="]. The ECB considers that the insolvency arrangements and the supportive administrative infrastructure, whilst ambitiously conceived, should above all be workable and that these measures should not result in blanket mortgage debt forgiveness and should be geared to minimising the risk of abuse. In the absence of an impact assessment, however, it is difficult to be confident that the objectives set by the draft law will be achieved[/FONT][FONT="]14[/FONT][FONT="]. In particular certain features of the proposed PIA regime may have negative implications for credit institutions in their capacity as creditors and even for the wider functioning of the financial system. In that regard, the ECB invites the authorities to consider the following points.[/FONT]
[FONT="]3. Eligibility criteria for the PIA[/FONT]
[FONT="]3.1 Threshold of debt[/FONT]
[FONT="]The ECB notes that the PIA will apply to an arrangement which, inter alia, has satisfied the criterion that the aggregate of a debtor’s debts which are secured debts is less than EUR 3 000 000[/FONT][FONT="]15[/FONT][FONT="]. In the ECB’s view, the potential inclusion of such large amounts of secured debt in the PIA, including debt relating to a debtor’s quasi-commercial transactions, i.e. ‘buy-to-let’ mortgage loans, is unprecedented and may have significant financial implications for creditor banks if it results in deteriorating payment morale of debtors. The ECB notes that the threshold of EUR 3 million represents by many times the average amount of secured borrowings by customers of Irish banks. If made use of by large numbers of debtors, the PIAs could significantly increase[/FONT] [FONT="]default rates and thus impact on both the capital adequacy and liquidity position of credit institutions at a time when they are still undergoing restructuring[/FONT][FONT="]16[/FONT][FONT="].[/FONT]
[FONT="]The ECB, therefore, invites the authorities to take into account such considerations in the draft provisions on the PIA and to carry out an impact assessment of these provisions on creditor banks. The authorities should also consider lowering the eligibility threshold to an aggregate of secured debt of no more than EUR 1 million.[/FONT]
[FONT="]7. Bankruptcy law reform[/FONT]
[FONT="]The ECB also invites the authorities to further consider reforming Irish bankruptcy law and procedure to make it more effective and also to make it easier for secured creditors to repossess mortgaged properties upon default by the debtor[/FONT][FONT="]24[/FONT][FONT="]. No matter how successful the insolvency arrangements turn out to be, there will always be debtors who default on their specific arrangement and who will need to enter into formal bankruptcy proceedings.[/FONT]
I have posted the key extracts here
[FONT="]OPINION OF THE EUROPEANCENTRAL BANK[/FONT]
[FONT="]on measures relating to personal insolvency[/FONT][FONT="](CON/2012/70)[/FONT]
[FONT="]2. General observations[/FONT]
[FONT="]2.1 The ECB generally supports the reform of personal insolvency and bankruptcy laws in Ireland as proposed by the draft law.[/FONT]
[FONT="]2.2 The ECB supports the draft law’s aim of lowering the cost and increasing the speed and efficiency of personal insolvency proceedings while at the same time mitigating moral [/FONT][FONT="]hazard and maintaining credit discipline. … The ECB considers that the provisions strike a reasonable balance between the interests of creditors and debtors in coming to an insolvency arrangement.[/FONT]
[FONT="]2.3 The ECB notes, however, that the reforms are unprecedented, particularly as regards the scope of the PIA, which is the only insolvency arrangement applying to both unsecured and secured debt and hence risks impacting credit institutions that have lent to the debtor against security, e.g. mortgage loans in arrears. In addition, the reforms are being introduced without the benefit of a thorough economic impact assessment[/FONT][FONT="]13[/FONT][FONT="]. The ECB considers that the insolvency arrangements and the supportive administrative infrastructure, whilst ambitiously conceived, should above all be workable and that these measures should not result in blanket mortgage debt forgiveness and should be geared to minimising the risk of abuse. In the absence of an impact assessment, however, it is difficult to be confident that the objectives set by the draft law will be achieved[/FONT][FONT="]14[/FONT][FONT="]. In particular certain features of the proposed PIA regime may have negative implications for credit institutions in their capacity as creditors and even for the wider functioning of the financial system. In that regard, the ECB invites the authorities to consider the following points.[/FONT]
[FONT="]3. Eligibility criteria for the PIA[/FONT]
[FONT="]3.1 Threshold of debt[/FONT]
[FONT="]The ECB notes that the PIA will apply to an arrangement which, inter alia, has satisfied the criterion that the aggregate of a debtor’s debts which are secured debts is less than EUR 3 000 000[/FONT][FONT="]15[/FONT][FONT="]. In the ECB’s view, the potential inclusion of such large amounts of secured debt in the PIA, including debt relating to a debtor’s quasi-commercial transactions, i.e. ‘buy-to-let’ mortgage loans, is unprecedented and may have significant financial implications for creditor banks if it results in deteriorating payment morale of debtors. The ECB notes that the threshold of EUR 3 million represents by many times the average amount of secured borrowings by customers of Irish banks. If made use of by large numbers of debtors, the PIAs could significantly increase[/FONT] [FONT="]default rates and thus impact on both the capital adequacy and liquidity position of credit institutions at a time when they are still undergoing restructuring[/FONT][FONT="]16[/FONT][FONT="].[/FONT]
[FONT="]The ECB, therefore, invites the authorities to take into account such considerations in the draft provisions on the PIA and to carry out an impact assessment of these provisions on creditor banks. The authorities should also consider lowering the eligibility threshold to an aggregate of secured debt of no more than EUR 1 million.[/FONT]
[FONT="]7. Bankruptcy law reform[/FONT]
[FONT="]The ECB also invites the authorities to further consider reforming Irish bankruptcy law and procedure to make it more effective and also to make it easier for secured creditors to repossess mortgaged properties upon default by the debtor[/FONT][FONT="]24[/FONT][FONT="]. No matter how successful the insolvency arrangements turn out to be, there will always be debtors who default on their specific arrangement and who will need to enter into formal bankruptcy proceedings.[/FONT]
[FONT="]The President of the ECB[/FONT]
[FONT="]Mario DRAGHI[/FONT]
