Only 50% of secured creditors needed to approve a PIA

[Brendan Burgess]

I thought that in the Bill, it was 65% of the secured creditors. Here is what the revised Explanatory Memorandum says

[FONT=&quot]Section 106 [/FONT][FONT=&quot]sets out the necessary proportion of creditors required to approve a Personal Insolvency Arrangement. Subsection (1) provides that each of the following is required:[/FONT]

[FONT=&quot](a) a majority of creditors representing not less than 65 per cent in value of the total of the debtor’s debts due to the creditors participating in the meeting and voting must have voted in favour of the proposal,[/FONT]

[FONT=&quot](b) creditors representing more than 50 per cent of the value of the secured debts due to creditors who are entitled to vote and have voted at the meeting as secured creditors must have voted in favour of the proposal, and[/FONT]

[FONT=&quot](c) creditors representing more than 50 per cent by value of the creditors who are entitled to vote and have voted at the meeting as unsecured creditors must have voted in favour of the proposal.[/FONT]

 

[Brendan Burgess]

I just checked the Bill and it was like this in the Bill as well.

If one lender has more than 35% of the debts, they can veto the PIA.

If the secured lenders agree, but a majority of the unsecured lenders disagree, they can veto the PIA.

However, if a secured lender only has secured voting rights for the value of the security. The "negative equity" becomes an unsecured creditor and as such he can probably ensure that 50% of the unsecured creditors approve any arrangement.

 

[dub_nerd]

However, if a secured lender only has secured voting rights for the value of the security. The "negative equity" becomes an unsecured creditor and as such he can probably ensure that 50% of the unsecured creditors approve any arrangement.

I'd be the first to admit I know nothing about it, but that doesn't sound right. Surely the creditors are people and institutions? "Negative equity" can't be a creditor. If the bank has a 200k mortgage on a house in 100k negative equity, I would thought that the bank has a 200k secured loan regardless of the dodgy security. Otherwise a) who would be creditor for the other 100k?, b) if you could find someone to value the house at 50k, you could prevent the bank from vetoing anything.

 

[Brendan Burgess]

Hi dub nerd

The legislation specifies that the secured creditor is split into two bit - the secured bit as represented by the value of the security - the balance is treated as an unsecured creditor.

In the example you provide the bank is a secured creditor for €100k and an unsecured creditor for €100k. So let's say that the total other unsecured creditors are €80k.

If the bank approves your PIA, it goes ahead.

It passes the 65% of all creditors test - €200k/€280k = 71%

It passes the 50% of secured creditors test - €100k/€100k = 100%

It passes the 50% of unsecured creditors tes €100k/€180k = 55%

If the house was worth €250k, the bank would have €50k of unsecured credit, which would make the total unsecured creditors €130k. Creditors representing €15k of the other unsecured creditors would have to vote in favour of the arrangement.

Brendan

 

[dub_nerd]

Ok, gotcha. Thanks Brendan.
So chances are, in most cases involving a mortgage, the bank will still be calling the shots. I guess this is the flaw we knew about.

 

[Dr.Debt]

Hi Brendan

This contradicts a previous post by you on 29/6 of last year.

You were reporting about questions being asked at a public meeting at the Department of Justice after the initial publication of the Personal Insolvency Bill.

In the example above the secured debt is 100K ((restricted to the current value of the propertry)however the other 100K, representing negative equity,eventhough not allowed to be calculated as secured debt,is not either allowed to be used as part of the approval calculation for unsecured debts. If my understanding is correct here is the situation :


It passes the 65% of all creditors test - €200k/€280k = 71%

It passes the 50% of secured creditors test - €100k/€100k = 100%

It doesnt pass the 50% of unsecured creditors test €0/€80k = 0%

So in this case the bank would not be able to approve the PIA without "input" from other creditors.

 

[ronron]

Hi Dr Debt

the bank's negative equity of €100 k would be classed as unsecured creditors and therefore their vote will be €100 k / €180 k. The bank will be a secured and non secured creditor and will control the voting.
RON