Presented by Tom Murray, Friel Stafford

1. Personal Insolvency Practitioner Presented by Tom Murray, Friel Stafford 16 May 2013

2. The New Act – A PIP’s perspective • I cannot give a PIP’s perspective as no PIP’s authorised as of yet!!! (at least not accountants...) • But I hope to share some of my experiences as someone who is becoming a PIP • Whole new environment – legislatively, market place, practice structure • Lot of unknowns – interpretations of regulations, schemes, attitudes of creditors etc. • Have to work with legislation – may privately not agree with some or parts – but it is what it is.

3. Practical Issues • Commercial Decision - Is it worth my while? Size of Market? Costs Associated? • Qualify as PIP • Resourcing your practice • Up skilling your staff

4. PERSONAL INSOLVENCY PRACTITIONERS • Size of market: 10,000 to 40,000 potential cases? • Lifetime of market: Bulk will be dealt with over next 5 years • Multi-banked individuals would be best candidates for Personal Insolvency Arrangements • Competition: • 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

5. The Role of the PIPs An individual may make an application to carry on practice as a PIP if that individual: • is a solicitor • is a barrister at law called to the Bar of Ireland; • is a qualified accountant and a member of a prescribed accountancy body • is a qualified financial advisor • 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)

6. The Role of the PIPs The individual also needs to demonstrate to the satisfaction of the Insolvency Service • 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.

7. Skills Sets Required • Understanding of relevant legislation • Understanding of taxes: IT, VAT, CGT & CAT • Understanding of offer letters, facility letters, guarantees, issues such as reckless lending • Counselling skills • Experience of share valuations • Negotiation skills/Mediation Skills • Persuasion skills • Understanding of how debt collection procedures by creditors work • Understanding of property valuations etc. • If dealing with “consumer” type cases, knowledge of Social Welfare (Family Income Supplements, Mortgage Interest Subsidy etc) • Understanding of the benefits of “bankruptcy” tourism

8. Can we learn from UK colleagues • UK much more mature market • When initially introduced – licenses were grandfathered in (Not being done here!!!) • Initially attracted sole traders / business people (1980’s) / early 1990’s). Market then moved to a growth in consumer debt in 1990’s • UK regulations experienced significant number of Court challenges to clarify law(I expect same….). This has dramatically reduced as market matured. • UK has from off been highly regulated ( we will be also….) • Centralised Voting in UK • Establishment of “Protocol’s”

9. Can we learn from UK colleagues • This lead to • many practitioners losing licences due to non-compliance (I expect same….) • many practitioners ‘dipped toes’ –and then walking away - compliance and fees key reasons(Suspect same here)

10. Staffing Levels Required? • 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: • 4 appointment takers (i.e. licensed IPs) • Pre-Appointment staff 12 • Cashiers/Finance 4 • Post appointment staff 20

11. Software Packages Available • Banks will insist on regular distributions = need for good software packages. • “Volume” firms will need a document imaging system • What will be available in the Irish market place? • At least 3 companies have offerings for PIPs: • www.pipx.ie • www.insolv.co.uk • www.documatics.ie • (PS: I would suggest that the package you select can “talk” with the IT systems of the Insolvency Service) • 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 • “Volume” firms may need a document imaging system • “Volume” firms may need a document imaging system

12. Role of the Personal Insolvency Practitioner

13. Role of the Personal Insolvency Practitioner • Section 52 of the Act states that on completion of the Prescribed Financial Statement the PIP shall advise the debtor of the following: • Options for addressing financial difficulties • 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; • 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

14. 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.

15. 70 DAY PROTECTIVE PERIOD = TIGHT TIME SCALES!!! • 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)

16. Ethical Issues • Accountancy bodies guidelines • ISI Section 161 Regulations: • 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.

17. Ethical Issues • 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!

18. Case Management Issues - Bank accounts • 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 • 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...

19. 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

20. OTHER POTENTIAL PITFALLS WITH NEW LEGISLATION • A “connected person” • 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!!!

21. Who sues for negligence? • The UK experience is that Creditors do not sue the “PIP”, but debtors do! • Accordingly, boiler plated engagement letter is vital.

22. 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.

23. 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? • The Act says that monies due to management companies from are “excludable” debts. However, you could argue that they are actually secured debts

24. 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?

25. How will the banks react to the new legislation? • 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

26. Will the new regime work? • Ultimately - Yes • Will evolve • Market will consolidate • Banks will buy in (in time…)

27. Will the new regime work? The 4 Pillars of Debt Resolution • Effective legislation • Effective Practitioners • Effective Courts • Culture CONCLUSION • The banks’ attitude towards debt forgiveness will have to change for the new regime to work. • Banks need to set “tight but attainable” targets for borrowers so that they are motivated, and not crushed

28. THANK YOU Tom Murray Friel Stafford 44 Fitzwilliam Place Dublin 2 tom.murray@frielstafford.ie www.frielstafford.ie Tel: 01 661 4066 in association with FRP Advisory