Today the Insolvency Service of Ireland began accepting insolvency applications from Personal Insolvency Practitioners (PIPs). It was recently suggested that the banks had influenced the Insolvency Act and made an amendment to the effect that they could claw back any extra profits from the sale of assets up to 20 years. Effectively, this has nothing to do with going from insolvency to solvency. This provision has been there from the outset; the fairness of this new statutory system to bring people back to solvency has to be shown.
The Personal Insolvency Act has set up a way to value assets. This is particularly important where an asset is in negative equity. The market value needs to be established for the new arrangement.
Under the legislation there are three steps to establishing the market value of assets; a PIP, a creditor and a debtor can agree a value; if they can’t agree a value, they try to agree to appoint an independent expert; if they can’t agree on an expert they refer the matter to the Insolvency Service of Ireland which appoints an expert to determine the market value.
Under the Personal Insolvency Arrangements (PIA), if someone sells an asset the bank receives the proceeds or loan value. If the borrower cannot sell the asset a benchmark has to be decided on as to how much they can realistically repay. If a value is put on an asset and it is not sold as part of the insolvency process, but at a later date when the borrower has returned to solvency it is sold, at a profit, then the banks would be entitled to a claw back a portion of the proceeds for the amount that was written off. The asset could be worth significantly more than the original market value at this stage. This is a reasonable provision.
The claw back only comes into effect if someone makes a profit, above the original market value, on the sale of their home when they are solvent. It is not a charter for the Banks to keep someone insolvent. The primary objective of the Act is to let individuals stay in their homes and s. 103 does not change that.
The 20 years exists so that there is fairness on both sides – it’s not an unlimited open ended time frame – this very common in legal scenarios.
If the borrower holds on to the asset for more than 20 years the profit is theirs.
This legislation is grounded on social policy; the whole reason for social policy is that we are trying to put this country back up on its feet and everyone is entitled to be put back up on their feet.
I am an advocate for this piece of legislation because if after five years enough people have gone through the process we will have a different country at the end of it.
