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Dublin: 10 °C Sunday 21 September, 2014

A fate worse than debt: tackling Ireland’s insolvency problem

This week the Insolvency Service was branded “pathetic” – the director admits performance is disappointing, but can it be turned around?

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EARLIER THIS WEEK, the Insolvency Service of Ireland released its figures for the first half of the year.

At first glance, they showed healthy improvements. But the shine came off them when the Irish Mortgage Holders Organisation launched a broadside against the ISI.

The organisation which was set up help people leave behind debt they had accumulated during the boom had secured just 127 deals in the first half of the year.

Only 27 of the flagship Personal Insolvency Arrangements, which are designed to help with people deal with debts of up to €3 million, were rolled out.

For context, there are around 100,000 people in Ireland in some sort of mortgage distress.

The ISI’s numbers were “pathetic”, it was alleged. The service itself, which opened its doors late last year, was “not fit for purpose”.

Numbers game

ISI director Lorcan O’Connor admits that the numbers accessing his services aren’t as high as he’d like.

“Clearly our numbers are too low, and clearly were that to continue, there’s a very significant problem with regard to the formal insolvency solutions.”

If numbers were to stay low from here on out, there must be something wrong with the system.

He argues, however, that a year ago, there were no deals being struck before the ISI opened its doors.

The agency has had an impact on the number of informal deals being agreed, with lenders more open to arrangements once the threat of a formal agreement is on the table, he says.

Language barrier

O’Connor is adamant that the ISI has the potential to be a major player in alleviating the national debt burden.

However, he says that the headlines and the rhetoric they come up against – implicitly that deployed by David Hall and the IMHO, is “not helpful”

Insolvency Bills Crisis

Source: Sasko Lazarov/Photocall Ireland

“My fear in terms of some of the language that’s being used in the last week is that it would have the unintended consequence of deterring debtors.”

If you see those headlines, you aren’t going to approach a PIP…it could deter debtors from the solutions they need.

The headlines, he says contribute to an environment in which a debtor doesn’t know which way to turn when trying to address solvency issues.

“There is a lot of noise out there, in that debtors aren’t necessarily clear in their minds as to what solutions are available for them.”

When they do turn to the ISI, O’Connor says that the agency can be quick and effective.

“We would have had people who were very much under pressure and had family issues as a result, and they were able to do a three month arrangement and they are now completely solvent and ready for a fresh start.”

Stagnation

The structural problem of debt in a society, acting as a brake on growth and a dead weight on consumers, worries O’Connor.

“What I as a citizen would like to avoid is what I perceive to have been the problems in Japan over the last couple of decades.”

You had a decade or more of very little happening in the economy. And why was that? Because you didn’t have banks operating as banks where they lend money to generate economic activity. Instead they were trying to extend the problem of dealing with problem loans over a long period so as not to take a big hit.

Irish banks, and their approach to dealing with debt, have been in O’Connor’s sights before. Earlier this year, he used an appearance at the Finance Committee to publicly call out Bank of Ireland’s point-blank refusal to consider writing off debt.

Back then, he said that BoI “making a global policy statement about how they intend to deal with applications does not take full account of the new reality”.

Now, he maintains that banks need to up their game, and that “some banks are slower than others to come to the table”.

Political pressure

He acknowledges also that there is political pressure to achieve results.

“Clearly the political system…wants to see numbers up and arrears down.”

When Frances Fitzgerald took over the reins as Justice Minister, he met with her, and acknowledges that “she would be hopeful that those numbers would increase significantly over the coming months”.

But to what point? He won’t set himself a target publicly, but says that based on equivalent numbers in the UK, there should be around 10,000 insolvencies and bankruptcies in Ireland per year.

The current figure is less than 500.

Looking to the future, O’Connor says that past performance actually encourages him, despite the low number of agreements.

“I took up my job less than a year and a half ago…I didn’t have an office, didn’t have a computer, didn’t have staff.”

In the last year I’ve put in place an entire organisation that deals with all the bankruptcies, and put in place infrastructure to deal with a completely new industry

“That system has capacity and capability to deal with 100 times more cases than it is dealing with at the moment.”

Read: ‘Pathetic’ Insolvency Service ‘not fit for purpose’ – IMHO>

Read: Explainer: What does the Insolvency Service of Ireland do?>

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