Debt Write-Down - Let's Get on with It...

2014 is moving at a hectic pace and it has to be said that the doom and gloom regarding debt in Ireland hasn’t gone away. Banks across the island are not in good shape as they struggle to work out how to deal with the massive debt overhang from the glory years and also how they deal with borrowers who are running out of money. Our practice is currently working in this space trying to find solutions to this problem in both jurisdictions. It is very interesting and moreso frustrating to watch the whole process play out between Banks and Borrower and indeed Government.

Memo to anyone who is reading this: debt is an affordability issue. If you cannot afford to pay a mortgage(s) every month, then you cannot afford to pay. GDP Partnership is still the only practice in Ireland who is promoting Mediation as a way to sort out the debt issues facing most of the country. We have found that over the last twelve months, the banks in Northern Ireland are now becoming more open to this form of solution, albeit very slowly.

In the Republic, resolution was at a standstill for the past few years, as the nation waited for the introduction of the miracle Insolvency bill which many of the politicians must believe will sort the whole problem out. Our view is very clear: the new legislation will not sort the problem out as the bank has a veto on the solution. This simply will not work and is a missed opportunity for the country as a whole.

We have noticed in the last month or two that banks in the Republic have upped their game regarding dealing with borrowers and calling them in. There is no coincidence that this new approach is tied in with the pressure the IMF and Irish Central bank have been putting on Irish banks to deal with the debt problems and correct their wildly impaired balance sheets. This is a fundamental problem within the Irish banking sector today.

Former President of the USA Bill Clinton said in October 2011 on a visit to the Emerald Isle that “Economically, Ireland will not move on, until there is debt forgiveness” – interesting thought.

This is coming from a man who lives in a country whereby the banking sector deals with debt predominantly by writing it down to a dollar and starting again. There is a lot to take out of this. My fear is that as we are now in the sixth year of this recession, which has turned into a depression for many, most banks are continuing with this slow death policy. We have many clients on our books that very clearly have lost everything in the last few years and in many cases their whole life’s work, and the banks are still saying 'we want all our money back, we want more security, we need a better return.' Quite frankly, it’s not going to happen. People need to remember that everyone restructures their debt and, most notably in the past five years, Governments and a range of Financial institutions. Our whole philosophy at GDP partnership is very simple: why is it so unrealistic or unreasonable for a borrower to do the same thing as banks who have already restructured? The simple answer is, it’s not.

 Ireland is facing one of its worst crises in modern history.  Sure, there are some who are taking their money out of the banks and buying property to get a return at low ball sale prices. However, many people are living on the edge or very close to it. It’s a precarious situation to be in and there is a lot of spin and incorrect PR being printed in publications about green shoots and economic recovery. The facts are simple; there is too much sovereign debt, SME debt and consumer debt in the country. The banks need to genuinely engage with borrowers and agree to restructure loans in such a way that is fair for all. Banks were a major part of the problem but must be brave enough to become an equally important part of the solution. 

Bankruptcy is not the solution and certainly not the answer, although many professional organisations seem to be in favour of it – I wonder why that is? The new insolvency law in Ireland is clearly designed to punish people, and considering debt problems occur as a result of a life event, you have to question the mind-set of the people who drafted such legislation – they themselves need a holiday and some time to unwind and clear their own heads, I would suggest.

Mediation is the way forward and our practice for one will continue to fly the flag for this type of solution with the hope that the banks be a little bit more open to this type of approach and embrace the opportunity to sort the issues and move on. 

I agree with Bill Clinton and it has been proven in other parts of the world over the last fifty years that debt forgiveness/debt write-down  is what needs to happen sooner rather than later if the country is to start pulling out of this dreadful situation we all find ourselves in.