Transcript Personal Insolvency Practitioner

Personal Insolvency Practitioner
Presented by
Tom Murray, Friel Stafford
EDUCATING
SUPPORTING
16 May 2013
REPRESENTING
The New Act – A PIP’s perspective
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I cannot give a PIP’s perspective as no PIP’s authorised as of yet!!!
(at least not accountants...)
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But I hope to share some of my experiences as someone who is becoming a
PIP
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Whole new environment – legislatively, market place, practice structure
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Lot of unknowns – interpretations of regulations, schemes, attitudes of
creditors etc.
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Have to work with legislation – may privately not agree with some or parts –
but it is what it is.
Practical Issues
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Commercial Decision - Is it worth my while? Size of Market? Costs
Associated?
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Qualify as PIP
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Resourcing your practice
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Up skilling your staff
PERSONAL INSOLVENCY PRACTITIONERS
• Size of market: 10,000 to 40,000 potential cases?
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Lifetime of market: Bulk will be dealt with over next 5 years
Multi-banked individuals
Arrangements
best candidates
for Personal Insolvency
Competition:
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would be
Solicitors and consortia involving solicitors?
At least three UK “specialist” firms will enter the market place
Accountants
Mediators?
Mortgage Brokers?
Some of the 5,000 redundant bankers?
Fee Levels? Will be very competitive = streamlined procedures necessary
The Role of the PIPs
An individual may make an application to carry on practice as a PIP if that
individual:
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is a solicitor
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is a barrister at law called to the Bar of Ireland;
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is a qualified accountant and a member of a prescribed accountancy body
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is a qualified financial advisor
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holds a qualification in law, business, finance or other appropriate similar
qualification to the satisfaction of the Insolvency Service recognised to at
least level 7 of the National Qualifications Framework by Quality and
Qualifications Ireland (or equivalent)
The Role of the PIPs
The individual also needs to demonstrate to the satisfaction of the Insolvency
Service
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that he or she has relevant knowledge and experience of and has
completed a course of study and passed an examination on the law and
practice generally as it applies in the State relating to the insolvency of
individuals; and the Act.
has adequate organisational capability and resources to carry on the
practice of a PIP under the Act;
holds, or will hold before commencing to carry on practice as a PIP, a
policy of professional indemnity insurance.
has submitted a completed application, together with supporting
information, documentation and mandates as the Insolvency Service has
requested; and
is tax compliant.
Skills Sets Required
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Understanding of relevant legislation
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Understanding of taxes: IT, VAT, CGT & CAT
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Understanding of offer letters, facility letters, guarantees, issues such as reckless
lending
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Counselling skills
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Experience of share valuations
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Negotiation skills/Mediation Skills
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Persuasion skills
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Understanding of how debt collection procedures by creditors work
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Understanding of property valuations etc.
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If dealing with “consumer” type cases, knowledge of Social Welfare (Family Income
Supplements, Mortgage Interest Subsidy etc)
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Understanding of the benefits of “bankruptcy” tourism
Can we learn from UK colleagues
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UK much more mature market
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When initially introduced – licenses were grandfathered in (Not being done
here!!!)
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Initially attracted sole traders / business people (1980’s) / early 1990’s).
Market then moved to a growth in consumer debt in 1990’s
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UK regulations experienced significant number of Court challenges to clarify
law(I expect same….). This has dramatically reduced as market matured.
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UK has from off been highly regulated ( we will be also….)
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Centralised Voting in UK
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Establishment of “Protocol’s”
Can we learn from UK colleagues
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This lead to
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many practitioners losing licences due to non-compliance (I expect
same….)
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many practitioners ‘dipped toes’ –and then walking away - compliance
and fees key reasons(Suspect same here)
Staffing Levels Required?
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Volume v/s specialised? (Volume requires knowledge of social welfare
benefits)
If Volume, then the UK experience provides a guideline on staffing levels.
However, bear in mind that the Irish legislation is much more cumbersome!
An efficient UK firm, which handles approximately 100 IVA’s a month, has the
following staffing structure:
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4 appointment takers (i.e. licensed IPs)
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Pre-Appointment staff 12
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Cashiers/Finance 4
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Post appointment staff 20
Software Packages Available
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Banks will insist on regular distributions = need for good software packages.
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“Volume” firms will need a document imaging system
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What will be available in the Irish market place?
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At least 3 companies have offerings for PIPs:
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www.pipx.ie
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•“Volume” firms may need a document imaging system
www.insolv.co.uk
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www.documatics.ie
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(PS: I would suggest that the package you select can “talk” with the IT
systems of the Insolvency Service)
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Given the volume of documentation generated, significant cost savings
can be had by having a “Creditors Portal” on your web site so that
creditors can down load documentation
Role of the Personal Insolvency Practitioner
Role of the Personal Insolvency Practitioner
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Section 52 of the Act states that on completion of the Prescribed Financial
Statement the PIP shall advise the debtor of the following:
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Debtor’s eligibility to make a proposal for a DSA or PIA
The PIP’s opinion as to whether it would be more appropriate for the debtor
to enter into a PIA or DSA
Section 52 does not contain a full list of what other “options” might exist for
addressing financial difficulties. It does list the following options;
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Options for addressing financial difficulties
Direct negotiations with a creditor
Becoming a specified debtor as respects a Debt Relief Notice
Bankruptcy
The PIP shall confirm his advice in writing to the debtor
REASONS WHY A BORROWER MAY GO BANKRUPT
• To enable spouse to buy 50% share of family home now
at a relatively low valuation
• To protect inheritances
• To protect pension funds
• To protect future earnings
• Not effected by reasonable standards of living (low level
salaried people etc.
70 DAY PROTECTIVE PERIOD = TIGHT TIME SCALES!!!
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Time for the Insolvency Service to advise the PIP of the issuance of
the Protective Certificate? Allow 2 days.
“Excludable” creditors have 21 days (from date of receipt of
notification) to decide if they will be treated as unsecured creditors
or not.
Delays in agreeing the valuation of secured properties. Allow 21
days (minimum!) However, this time should run concurrently with
the excludable creditors.
14 days notice has to be given for the creditors meeting. (Will this
be sufficient for Credit Committees?)
Allow 1 day for PIP to notify the Insolvency Service of the outcome
of the creditors meeting.
= PIP has 33 days to formulate a PIA.
In practice, the responsible PIP would have “stress tested” the
scheme with the major creditors beforehand.
Watch out for creditors seeking to enforce judgements! (= seeking
protection faster)
Ethical Issues
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Accountancy bodies guidelines
ISI Section 161 Regulations:
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Must be independent
PIP shall seek to avoid conflicts of interest
Where conflicts arise, PIP shall have a written policy
A PIP shall make a conflicts of interest assessment in respect of
a debtor AND in respect of the debtor’s creditors
A PIP and his staff shall ensure that his practice does not offer,
give, solicit any gifts or rewards which conflict with any functions
of the PIP
Acting for existing clients may be a conflict of interest.
Ethical Issues
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Acting for Husband & Wife? May be OK if they have the
same assets and liabilities profile and the same
objectives. (Similar issues in acting for business partners)
Can firms be on Receivership Panels of banks and then
act as PIP’s seeking debt write downs? No conflict, but
banks may not see it that way!
Case Management Issues - Bank accounts
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PIP must open separate a Bank account for each debtor in a bank
authorised to carry on business in the State. Bank must be notified
that the account is not an asset of the PIP
All such accounts shall be designated as either a ‘DSA’ account or a
‘PIA’ account . Eg, a DSA account for a debtor with the name of John
Murphy, and with the PIP as Tom Murray, will be opened up as:
John Murphy DSA, Tom Murray PIP
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A PIP must maintain proper records and accounts
PIP must conduct regular reconciliations
PIP must notify the ISI within one business day of material or
recurrent differences arising from reconciliations
Opening a bank account – could take 2 weeks...
VALIDITY OF MEETINGS AND QUORUMS
• No Regulations set yet (but will allow emails and conference
calls)
• In practice, there can be heavy disputes about notice
periods, validity of proxies etc.
• For example, if a bank which is owed €1m fails to submit a
valid proxy opposing a PIA, it may be bound into the PIA by
smaller creditors
• The PIA should include personal guarantees etc
OTHER POTENTIAL PITFALLS WITH NEW LEGISLATION
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A “connected person”
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Is a relative (sibling, parent, child, spouse or civil partner)
Has a trustee relationship
Is in partnership
Has control of it
May not Vote!!! – Open to challenge!!!
Who sues for negligence?
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The UK experience is that Creditors do not sue
the “PIP”, but debtors do!
Accordingly, boiler plated engagement letter is
vital.
OTHER POTENTIAL PITFALLS WITH NEW LEGISLATION)
• Bankers’ effective veto = not really suitable for clients who
are just with one bank = new legislation will not be
extensively used
• €3m limit on liabilities (unless all secured creditors agree to
abandon limit. Secured creditors include judgment
mortgages)
• Identifying all creditors in a PIA (especially personal
guarantees to leasing companies, landlords, bondsmen etc)
If contingent creditors are not wrapped into the PIA, then
they will not be bound by it
• Valuations of secured assets
• Untested at present. Interpretations to be made by High
Court.
OTHER POTENTIAL PITFALLS WITH NEW LEGISLATION
• Section
102(7) states that a judgment mortgage obtained
more than 3 months before issuance of a protective
certificate is a “secured creditor”. Yet section 2 suggests a
secured debt is only secured to the value of the underlying
security
• Connected
creditors cannot vote in favour of an
arrangement. So a partner who is liable for, say, €10m of a
partner’s debt cannot vote in respect of the partner’s
scheme. Cannot vote in respect of liabilities arising from
Joint & Several Guarantees. Constitutional issues?
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Act says that monies due to management companies
from are “excludable” debts. However, you could argue that
they are actually secured debts
OTHER POTENTIAL PITFALLS WITH NEW LEGISLATION
• Uncertainty over Joint & Several Guarantees, given the
provisions of Section 17 of the Civil Liability Act of 1961.
Example; Mr A has assets of €5m. Mr B has assets of €1m.
They have given a J & S guarantee to ACC. If ACC vote in
a favour of a PIA for Mr. B under which they would get €1m
from Mr. B, are they restricted to only recovering €1m from
Mr. A?
How will the banks react to the new legislation?
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The banks are organising themselves through the Irish Banking
Federation
Expect protocols to be set by the banks i.e. standard clauses to be
incorporated into DSA’s and PIA’s etc
Expect caps on fees
Given the banks’ effective veto, they will try and engage directly with
borrowers and avoid paying fees to Personal Insolvency Practitioners
i.e. they will negotiate their own deals
Remains to be seen if the banks establish a “central voting company”
similar to TDX in the UK. Such a company could represent the
interests of all banks at creditors meetings held up and down the
country and effectively have an absolute veto on proposals
Will the new regime work?
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Ultimately - Yes
Will evolve
Market will consolidate
Banks will buy in (in time…)
Will the new regime work? The 4 Pillars of Debt Resolution
1. Effective legislation
2. Effective Practitioners
3. Effective Courts
4. Culture
CONCLUSION
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The banks’ attitude towards debt forgiveness will have to
change for the new regime to work.
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Banks need to set “tight but attainable” targets for
borrowers so that they are motivated, and not crushed
THANK YOU
Tom Murray
Friel Stafford
44 Fitzwilliam Place
Dublin 2
[email protected]
www.frielstafford.ie
Tel: 01 661 4066
in association with FRP Advisory