Key Post Summary of the No Veto PIAs for keeping your family home.

Jim Stafford

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Brendan

I have "cut & pasted" the below from our website:

The amending legislation removing the creditors' veto in a PIA passed all stages in the Oireachtas, and was signed into law by the President on 28th July 2015 . The new legislation will be effective from 20th November 2015.

To say that the amendments are complex is an understatement! The amendments to the Act will only apply to debtors who have a debt which is secured over their family home and in respect of which the debtors, on 1 January 2015, were in arrears with their payments, or the debtors, having been, before 1 January 2015, in arrears with their payments, had entered into an alternative repayment arrangement with the secured creditor concerned. As such, possible removal of the creditors’ veto only applies to a Personal Insolvency Arrangement (“PIA”) and does not apply to Debt Settlement Arrangements.

If a PIA is voted against at the creditors meeting, then the debtor has the right to appeal to the courts to review the creditors’ votes. The appeal would have to be made by the PIP on behalf of the debtor. It is expected that the legal team representing the PIP would require payment up front, and that such a payment would have to be financed by the debtor. No guidelines have yet been given on who will pay the costs of creditors who successfully "win" cases.

Where the debtor has only one creditor, which, by definition, would have to be a creditor secured on the family home, it is possible to appeal a no vote to the courts.

In reality, where a debtor has already entered into an alternative repayment arrangement with his lender, it will be very difficult for a Personal Insolvency Practitioner (“PIP”) to even commence the process of a PIA, as the lender will have probably ensured that the debtor is already solvent within the meaning of the legislation. The definition of solvency is being able to pay debts as they fall due. For example, you might have a debtor whose family home is valued at €200,000 but has a mortgage of €350,000. If the lender is prepared to give a “split” mortgage, and asks the debtor to pay €1,200 a month on €200,000, and “parks” the remaining €150,000, then the debtor might be cash flow solvent, and therefore not eligible for a PIA.

it will now be judges who decide what a sustainable mortgage is, as they will have to abide by the legislation. The key Section of the revised legislation is:

"The court, following a hearing under this section, may make an order confirming the coming into effect of the proposed Personal Insolvency Arrangement only where it is satisfied that—
(a) the terms of the proposed Arrangement have been formulated in compliance with section 104,
(b) having regard to all relevant matters, including the terms on which the proposed Arrangement is formulated, there is a reasonable prospect that confirmation of the proposed Arrangement will—
(i) enable the debtor to resolve his or her indebtedness without recourse to bankruptcy,
(ii) enable the creditors to recover the debts due to them to the extent that the means of the debtor reasonably permit, and
(iii) enable the debtor—
(I) not to dispose of an interest in, or
(II) not to cease to occupy, all or a part of his or her principal private residence"



The judges will, in effect, have to decide on issues of interest rates, length of mortgages, amounts of Principal and Interest payments etc. In theory, a judge could decide to agree a PIP's proposal that reduces the interest rate from, say 5%, to 2%, and extend the term of a loan from, say 20 years, to 25 years. It will be some time before there is a body of case law that can be used to provide guidance.

Where the debtor has more than one creditor, and his PIA is voted down, but some creditors have voted in favour of the PIA, it will be possible to appeal to the courts.

In order for such an appeal to be successful, it must be shown that at least one class of creditors has accepted the PIA proposal, by a majority of over 50% of the value of the debts owed to that class. However, the definition of class for this purpose is not limited to the classes applicable under the legislation (i.e. the existing classes of overall creditors, secured creditors and unsecured creditors) but uses a more flexible “examinership” test. A class may be comprised of any creditors having interests or claims of a similar nature, and a single creditor may be sufficient to constitute a class, though the Court will have regard to the overall number and composition of the creditors and to the proportion of debts due to the class supporting the proposal.

The amendments to the legislation restraining the creditors’ veto will certainly help some people, particularly those people who have mortgages with providers who have thus far refused to engage in the PIA process. However, we believe that in many cases it will be difficult to get loans actually written off on family homes, as we anticipate that many lenders will just simply agree “split” mortgages with debtors and “park” residual debt. Such “split” mortgages do technically restore people to solvency within the meaning of the legislation, even though the debtor may still be ”balance sheet” insolvent. Such people may face a life time of living on Reasonable Living Expenses, with yearly reviews. It remains to be seen if the courts will restrict the amount of debt that may be “parked” on a family home.

As with any new legislation, it will be necessary to see how the courts interpret it to determine if it is workable or not.

Jim Stafford
 
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Hi Jim

That is very helpful. I had actually looked at your website, and had missed it. I think you should separate it out from the main article as it gets a bit lost. I have edited your post to put in a link.

I will try to do a user guide or FAQ on it. Here goes with some questions and my answers as far as I know them?


Has the Courts Service amended the procedures to handle it?


Not yet.


I am getting into difficulty now for the first time. Does this apply to me?

No, unless you were in arrears on 1 January 2015, or in an alternative repayment arrangement, having been in arrears previously.

I rescheduled my mortgage in 2014, but never went into arrears. Does this apply to me?

No.

My PIA was rejected in June 2015. Can I still appeal it?

No. Appeals must be lodged within 14 days of the creditors' meeting

What are the qualifying criteria for an appeal?

1) The PIP must consider that there are reasonable grounds for an appeal

2) The debtor must instruct the PIP to make an appeal

3) There has to be a family home involved

4) There must have been arrears on 1 January 2015, or there must have been arrears before 1 January and an ARA must be in place.

5) It must be made within 2 weeks of the creditors' meeting

6) At least one “class” of creditors must have approved the PIA

Does the judge approve the proposed PIA or can they amend it?
For example, my PIP proposed that €100k be written off. Could the judge impose a split mortgage instead?


From Jim's post above:

"The judges will, in effect, have to decide on issues of interest rates, length of mortgages, amounts of Principal and Interest payments etc. In theory, a judge could decide to agree a PIP's proposal that reduces the interest rate from, say 5%, to 2%, and extend the term of a loan from, say 20 years, to 25 years. It will be some time before there is a body of case law that can be used to provide guidance."

So the PIP proposes, and the Judge decides.

Is the lender prevented from seeking a repossession order if they don't like the PIA as approved by the judge?
If the lender does not agree to the PIA, as amended or approved by the judge, can the lender simply seek repossession of my home?
 
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This is a very important section

(10) In considering whether to make an order under subsection (9), the court shall have regard to:
(a) the conduct, within the 2 years prior
to the issue of the protective certificate under section 95, of—
(i) the debtor in seeking to pay the debts concerned, and
(ii) a creditor in seeking to recover the debts due to the creditor;
(b) the following, where details of them are contained in a notice lodged under subsection (3) by a creditor—
(i) a submission made by the creditor under section 98(1) or an indication given by the creditor under section 102(1) and the date on which such submission was made or indication was furnished, and
(ii) any alternative option available to the creditor for the recovery of the debt concerned.

Presumably if the borrower has not engaged with the creditor and/or they have made little or no effort to pay, the judge would not approve the PIA.

If the creditor can recover their debt via an order for possession, presumably the judge would allow it do so. Or they might approve the PIA so that the unsecured creditors get stuffed.

Brendan
 
What if my PIP refuses to appeal?

That will be one of the parameters to be considered by debtors in selecting a PIP: Will the PIP appeal a no vote? Given that PIPs will lose money on failed PIAs, they will generally be selective in the cases that they take on. PIPs will probably have to amend their engagement letters to set out under what conditions they will appeal a rejected PIA, so that both sides know what they are getting into. As a firm, we will be amending our own engagement letters to state, at a minimum, that if the debtors wants to appeal a no vote, that they will directly pay the legal team to present the case. Given that the appeal has to be lodged within 14 days, there is a tight time frame for instructing solicitors and paying them etc.

I do not believe that any PIP would "guarantee" a successful outcome, because sometimes new information comes to light during the PIA process that might colour the chances of a successful outcome.

Has the Courts Service amended the procedures to handle it?

Yes, they have published revised Rules of Court (both for the Circuit Court and the High Court.) The Rules are available on the ISI website.

My PIA was rejected in June 2015. Can I still appeal it?

No. But you could try a fresh PIA 12 months later. (You are allowed one PIA in a lifetime.) It is technically possible to apply for "another" within 12 months, but you would have to make a formal application to Court to do so. I am not aware of any such court applications to date, but I would anticipate such applications, particularly if the original PIA proposal was unreasonably rejected.

What is the likelihood of a Court granting a repossession order on a home, when it is brought to their attention that the PIA has been refused by the bank and subsequently found to be reasonable by a court ?

As a Protective Certificate would "stay" repossession proceedings, the issue should not arise. The Protective Certificate is in place until all appeals are heard. If the PIA is approved by the Court, then the repossession proceedings falls away.

Jim Stafford
 
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Jim
I have moved this from its original thread as your summary was much better than my earlier one.

As it's an old thread, would you mind writing an update on how it's worked in practice?

Brendan
 
Brendan

In practice the courts are, as expected, imposing a very strict interpretation of the legislation. For example, they are 100% rigid on the point that Reviews must be lodged within 14 days etc.

The revised legislation has helped to concentrate the minds of the lenders, and thereby has encouraged more informal deals in the market place. It has also encouraged creditors to vote in favour of PIAs at the creditors meeting. It is a very powerful section!

As of 15 November 2016, there were 163 applications for Reviews, of which only 52 had concluded.

Of the 52 concluded. 21% were in favour of the debtor, 33% were withdrawn and 46% were in favour of the creditor.

Of those cases withdrawn, some were settled "informally".

One of the reasons for the relatively high 46% in favour of the creditors was, in my view, because some PIPs were unfamiliar with the "cut & thrust" of what is effectively litigation, and not complying with the Rules of the Superior Courts, not complying with legislation etc. However, those PIPs will have learned from their cases..

The whole "secret" is to try and avoid having a Review in the first place, and try and get the creditors to vote in favour of the PIA the first time around.

In my view some of the Reviews "won" by creditors have just been Pyrrhic victories, as the debtors will be able to apply for another PIA 12 months later, and be better prepared. Some of those cases were bitterly contested by creditors. In effect, their legal costs do not get paid.

Because the Reviews are effectively litigation, they are expensive. However, the ISI provide a fee of €3,000 + VAT to the PIP for his time on the PIA and the ISI also provides funding to the PIPs legal team.

Jim Stafford
 
Jim

Thanks for that.



I have heard that they are writing down the mortgage to the current value of the property. That makes no sense to me. They should be making the mortgage affordable whether it is in negative equity or not.

I would like to get a better feel for what is happening. Are the decisions of the courts published?

Would I learn anything from attending the court and listening to the discussion? Where is it on in Dublin?

Brendan
 
Only decisions of the High Court are published, and High Court cases only involve debts over €2.5 Million. I am aware of two HC decisions dealing with Section115A, and they only dealt with the "definition" of 14 days and the "definition" of "relevant debt".

Your best opportunity for hearing a Section 115A in Dublin would be to keep an eye on the list of the Circuit Judge who has been designated to deal with PIP cases, Susan Ryan. If you really want to hear a case I suggest that you call ISI and ask them when a hearing is coming up. (It can take 6 months for a case to be heard because of replying affidavits etc.)

Jim Stafford
 
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