Dillon Solicitors are again offering their unique auction title report service for the next Allsop Auction which will be held in the Shelbourne Hotel on the 6th July 2012.  

If you or anyone with whom you do business have a requirement for contracts/ title to be inspected prior to the auction please contact us without delay.

Our service is comprehensive, quick, very cost effective and deals with the following matters;

1. Report on contract
2. Report on title
3. Report on receivership issues
4. Report on planning issues
5. Report on availability of BER Certificate

And many others

For further information please contact us on 01 296 0666 or info@dillon.ie

IMPORTANCE OF COMPLIANCE WITH CODE OF CONDUCT ON MORTGAGE ARREARS 2011

A recent decision by Ms. Justice Laffoy in March 2012 in a case of Stepstone Mortgage Funding Limited and Fitzell highlighted the importance for Banks of complying with the terms of the code of conduct for mortgage arrears 2011.

This was a case where the Bank had entered into interim arrangements for the repayment of the mortgage with the borrowers after proceedings/possession of the borrower’s family home had been instituted.  After the revised repayment schedule had failed the Bank wrote to the borrowers and requested an updated standard financial statement (SFS) which was received by the Bank on the 30^th September 2011.  After considering the SFS the Bank advised the borrowers that they were not prepared to offer a further repayment arrangement and that they were going to proceed with a litigation process.  They went on to advise the borrowers that “given that this process has already commenced, you do not have the benefit for the MARP process referred to in the 2010 Code of Conduct and Mortgage Arrears 2011 (i.e. the current Code) and consequently among other things you do not have the right to appeal this decision”.

When the matter came before the Master of the High Court he adjourned the case on the basis that the Bank had not complied with their obligations to allow the borrowers to appeal.  The Bank appealed this decision to the High Court and the matter came before Ms. Justice Mary Laffoy.

In the course of her decision Ms. Justice Laffoy referred to the obligations on the part of the Bank and as set out in the Code of Conduct.  She came to the conclusion that in circumstances where proceedings for possession of a primary residence by way of an enforcement of a mortgage or charge to which the current Code applied, the Bank were under an obligation to demonstrate to the Court compliance with the Code.  She referred to the imposition of a moratorium on the initiation of proceedings which is contained in provision 47 of the current Code and which as a result of the updated Code was increased from six months to twelve months .She observed that in circumstances where a Court was seeking to evict a person from his/her home, the Court was entitled to know that the requirements set out in provision 47, which had been imposed pursuant to statutory authority, were complied with.  The Court came to the conclusion that the current Code had not been complied with and in those circumstances refused the Bank’s application.

This case has very clear implications for Banks in cases relating to the repossession of family homes. 

What is not altogether clear is whether the same standard i.e. the need to comply with the obligations under the Consumer Protection Code 2012 applies in relation to non Principal Private Residences.

It should be noted that in order for a borrower to be able to sustain a Defence for breach of the Consumer Protection Code 2012 it would have to demonstrate that it is “a personal consumer” i.e. was acting other than in its normal trade or business.  A borrower may be able to establish a Defence on foot of some aspects of the 2012 Consumer Protection Code such as the duty on the Bank to have to resolve an arrears issue before commencing proceedings or by arguing that a lender had exercised undue pressure on a borrower.  It is a Defence that given the relatively low threshold for establishing an arguable Defence which may have the effect of persuading the Master of the High Court to refer to the case for a full hearing in the High Court, the Fitzell decision may make it more difficult for banks to obtain summary Judgment. 

For further information or enquires in relation to mortgage arrears or any personal insolvency

queries do not hesitate to contact Brendan Dillon on 01 296 0666 or brendandillon@dillon.ie.

Receivership Issues

The following are some issues to be considered by Receivers in the current environment where more and more borrowers are looking to pursue a Receiver for breach of their obligations.

This article looks at the various ways in which a Receiver can be appointed, the duties of Receivers and how Receivers can protect themselves from litigation.

Mode of Appointment

The traditional method of appointing a Receiver is under a Deed of Mortgage/Debenture where the appointment is usually governed by the loan documents.

Under the NAMA Act a Receiver can be appointed by the Court as a statutory Receiver and when appointed he becomes an officer of the Court.  Section 147 and 151 of the NAMA Act sets out the duties of the Receiver in these circumstances. 

General Duties

The general duty of a Receiver is to assume and take control of the assets of the debtor.

Section 316 A of the 1963 Companies Act provides that the Receiver must obtain “the best price reasonably attainable at the time of the sale”.

In the current environment more and more Receivers are opting for the auction route (particularly through the distressed property sale market) .This presumably is to be able to demonstrate to a Court at a later date that he/she has placed the property by way of public auction and the price obtainable was the best in the circumstances.  While it is fair to say that the sale by way of auction does not necessarily insulate a Receiver fully from a threat of legal action it certainly goes a long way to demonstrating that he /she has made all reasonable efforts to obtain the best price reasonably obtainable.

 The Receiver has to make sure that in these circumstances that any sale is at arms length and that any interested bidder has no connection with the borrower or the Receiver.  Indeed if it is a case that an officer of the Company wishes to purchase any of the assets of the Company then certain statutory requirements as set out in section 316(a)(3)(a) of the 1963 Act apply.  These also apply in circumstances where the Receiver may be seeking to sell the Company itself or trade as a going concern and if he does so he must ensure that he sets out a tendering process which is fair and transparent to all prospective bidders.

In certain cases the Receiver may seek the directions of the Court.  This is provided for under Section 316 of the 1963 Act but this is rarely used as it is regarded as being reserved only for particularly complex matters given the additional costs.

Selling Assets

One of the dilemmas facing a Receiver is whether to hold onto assets and rent them or to sell them in a declining market.  There are a number of cases including the “Re Edenfell Holdings Limited” and “Grace v ACC Bank plc” which were decided in 1999 and 2006 respectively which deal with this issue.  Both of these cases established the principle that a Receiver should not postpone a sale of assets simply because he believes the market is at a low point and that it would be better to wait until there is an improvement in market conditions.  The Judgements made clear that a Receiver is not a property speculator.

To whom does the Receiver owe a duty ?

The primary duty of care as established in the case of Bula Limited v Crowley (3) (2003)which held that the Receiver owes the primary duty of care to the Debenture holder.  This is a fiduciary responsibility which means the Receiver must act in good faith and must prioritise the interests of the Debenture holder ahead of the interests of the Receiver.

Where the borrower has also signed personal guarantees the Receiver also has a subsidiary duty to the borrower and needs to careful to be sure that he has obtained the best price which is reasonably obtainable in the circumstances to avoid a legal challenge.

How can the Receiver Protect Himself?

1. Appoint a Property Expert with experience in the particular type property being sold/location being sold with a view to obtaining guidance in relation to optimising value and method of sale.
2. Procure the services of an insolvency practitioner with a view to advising on obligations, duties and the best method of guarding same.
3. Secure any assets i.e. make sure they are insured and are reasonably secure.
4. Ensure compliance with statutory obligations under the Companies Act 1963 and where it is a NAMA appointment under the NAMA Act.

The increasing number of Receiver appointments puts Receivers in the spotlight and it is important that they are careful to ensure that they protect themselves and isolate themselves from possible litigation.

For further information contact Brendan Dillon on brendandillon@dillon.ie or 01 296 0666.

The Personal Insolvency Bill

The Personal Insolvency Bill which is due to be enacted in the coming months is likely to bring about a significant change in relation to how personal debt liabilities are dealt with over the next 5-10 years.

The recent publication of the draft general scheme of the Insolvency Bill follows on from a Law Reform Commission report in 2010 and the publication of the Keane report some time later.  Indeed it is interesting to note that when the Keane report was published it was greeted with general disappointment as not going far enough to deal with the issues regarding personal insolvency.  By contrast the publication of the general scheme (which is primarily based on the recommendations of the Keane report), has been greeted with the general approval with some exceptions.

 This is a measure of how attitudes of both the Banks and borrowers in distress have moved considerably over the last 18 months.  There is a general acceptance that there is no silver bullet to resolve the huge mountain of personal debt that exists within our economy.  There is a realisation that there has to be a medium to long term view taken in relation to the debt so as to allow people to have some form of certainty and to move on with their lives.  In some cases this will allow people to restructure their debt.  In other cases it will mean that the inevitable conclusion will mean bankruptcy.  For the Banks it will allow them to negotiate deals and put them in a position where they can at least take account of a case of restructuring or renegotiating in the context of their balance sheet.

It is interesting to look at one of the objectives of the general scheme which is stated as being “to address the serious continuing destruction to society and the economy and the State as a result of wide spread insolvency among debtors with the secured debt and to provide for a realistic alternative for debtors in appropriate circumstances.”

The Scheme attempts to address these objectives by two main mechanisms;

1. Radical changes to the existing Bankruptcy Act.
2. Introduction of a comprehensive three pronged mechanism of restructuring debt as an alternative to bankruptcy.

The Bankruptcy Act

Existing legislation is to be amended to allow for the current twelve year period to be reduced to three years.  There is however an option that the three year period can be extended to eight years for non compliance of fraudulent or dishonest behaviour by the debtor.  Alternatively ,a Court can make a further provision on the discharge of a bankrupt for payments to creditors for up to a further five years.

New Restructuring Models

The Scheme provides for three new components of a personal insolvency structure;

1. A debt relief certificate (DRC)
2. Debt settlement arrangement (DSA)
3. Personal Insolvency Arrangement (PIA)

The main features of these three components are as follows;

1. DRC

·        Limited to debts of €20,000.00.

·        Debtor must have virtually no assets (less than €400.00) and virtually no income (max disposable income of €60.00).

·        Applies to unsecured debts only.

·        Debts can be written off by Insolvency Agency (to be established under the Act) after 1 year.

·        Creditors have no power of veto.

2. DSA

•      Applies to unsecured debts in excess of €20,000.00.

•      Proposals must be implemented within 5 years (may be extended to 6 years).

•      Only one DSA allowed every 10 years.

•      Requires agreement of 65% of creditors by value.

•      If agreed amounts under the DSA under 5/6 years the balance of the debts are written off.

3. PIA

• Applies to secured and/or unsecured debt in excess of €20,000.00.
• Debtor must be insolvent.
• It must be unforeseeable that the debtor would become solvent within 5 years.
• Limited to €3,000,000.00.
• One PIA in lifetime.
• PIA to be proposed by Insolvency Trustee.
• Standard financial statement must be prepared by debtor.
• Debtor must act in good faith at all times.
• Protective certificate to last for 40-60 working days – during this time Banks cannot take action against debtor.

The key feature of both debt settlement arrangements and personal insolvency arrangements will be the role of the Insolvency Trustee.

In the UK this role was confined to accountants and solicitors.  There is some indication from an Oireachtas Committee that suitably qualified mortgage brokers will be involved.  Undoubtedly experience and qualifications will be a big factor.

What will the role of the Insolvency Trustee involve?

• Meeting with the debtor and obtaining all relevant information.
• Assisting in the preparation of standard financial statement.
• Contacting the creditors and seeking submissions.
• Assessing submissions and preparing a workable proposal for the working out of the debt.
• Holding a creditors meeting.
• Negotiating with creditors and trying to seek agreement.
• Holding creditors meeting in the event of a successful debt settlement arrangement/personal insolvency arrangement.
• Ensuring that the DSA/PIA is implemented.
• Maintaining regular contact with the debtor, creditors and the Insolvency Service.
• Implementing any variation if necessary.
• Maintaining ongoing accounts relating the PIA/DSA.
• Notifying creditors in the event of any material inaccuracies that come to their attention.
• Arranging for creditors to be paid in accordance with the restructuring agreements.
• Wrapping up the DSA/PIA on the conclusion of all payments.

What Constitutes Approval?

The Scheme provides for an approval rating of 65% of creditors in both a PIA and DSA.  However because a PIA involves secured creditors (which do not come within the ambit of a DSA) there must be at least 65% of secured creditors in value who approve and 55% of unsecured creditors.  In this way it is clear that secured creditors in a PIA will hold the key.  This however may not give the Banks in a secured lending position the control that many people may envisage. The Banks, in any negotiations, will only be too aware that if a personal insolvency arrangement cannot be concluded that the ultimate conclusion may well be the bankruptcy of the debtor which may not suit the lender. 

The Termination of a PIA

A Personal Insolvency Arrangement can be terminated for a number of reasons which include the following;

a)      Material inaccuracies in financial information.

b)      Non compliance of the debtor i.e. if there is a default in three months of payments then application can be made to Court to have the arrangement terminated.  If there are six months of default in payments then the arrangement is automatically deemed to fail.  In this event a creditor can apply to make the debtor bankrupt at which point the debtor will become liable for all the debts and the insolvency arrangement will have terminated.

     Some of the issues that arise from the publication of the Scheme can be summarised as follows;

·        The Banks will clearly have the ultimate veto in relation to any personal insolvency arrangement and presumably in relation to a debt settlement arrangement.  However if this is abused by the Banks there may be more bankruptcies which may not suit the Banks. 

·        The insolvency trustees will have a crucial role in managing the expectations of the debtor and the creditors.  It is likely that unsecured creditors will come out badly in any such arrangement particularly where a vote is not needed for successful conclusion.

·        The scheme seeks to ring fence the family home.  The probability is however that the Banks will seek to apply pressure in circumstances where they feel that the debtor does not have to stay in for instance a large “trophy” family home.

·        The scheme allows for debts which are incurred in the pursuance of a trade or profession to be factored into a PIA.  It is not clear if this will include guarantees given in this regard.

·        The scheme does not deal with negative equity mortgages and it has preferred the Keane approach and focused on affordability.

·        It is quite possible that unsecured loans will be harder to get given the fact that people will be able to seek a debt relief certificate for unsecured debts for up to €20,000.00.

·        There is limit of €3,000,000.00 on personal insolvency arrangements.  There is a view that this limit is simply too low to take account of the extent of unsecured debt. 

·        The scheme allows for a debtor to have “a reasonable standard of living”.  This is not defined and presumably will be assessed on a case by case basis.

·        The Banks argue that the implications of debt settlement arrangements and personal insolvency arrangements will naturally be that it will increase the cost of obtaining mortgages for new borrowers. 

What is certainly clear is that the new Act when eventually enacted will create an opportunity for lenders and distressed borrowers to seek some certainty in relation to their respective positions and bring about an orderly resolution to the discharge of the mountain of personal debt which exists within our economy.  It is regrettable that it has taken over two years for many of the proposals of the Law Reform Commissions and laterally the Keane report to become law.  It is likely that in 5-10 years time the new Act (assumed that it is published in similar terms to the general scheme) will have made a significant contribution to the significant personal insolvency issues currently existing.

For more information contact us on 01 - 296 0666 or by email at info@dillon.ie 

Dillon Solicitors Short Listed for Leinster Firm of the Year

Dillon Solicitors were delighted to be recognised for our achievements throughout the last twelve months by being shortlisted with four other firms for Leinster Firm of the Year in the inaugural Irish Law Awards. 

The ceremony took place in the Shelbourne Hotel on the 4^th May .Miriam O Callaghan was the host and Minister for Justice Alan Shatter was the guest speaker.

Renowned former President of the Law Society Moya Quinlan won the Lifetime Achievement Award.