© Grant Thornton Ireland. All rights reserved. Personal Insolvency Bill 2012 Michael Bolger – Head of Personal Insolvency With legal opinion from: Barry.

Personal debt in Ireland Legal Overview of Bill Debt Relief Notice (DRN's) Debt Settlement Arrangements (DSA's) Personal Insolvency Arrangement (PIA's) Case studies Questions and answers

Personal debt in Ireland

Debt pathways PRE-CRISIS Growth and ambition TIPPING POINTS CONTACT WITH MABS (ONGOING CRISIS) POST-CRISIS EXPECTATIONS – STRUCTURED SOLUTIONS (eg DSA,PIA, pay off the debt, Bankruptcy) - Optimism Time Well being Positive future: New lifestyle free from debt. But risk of regression to pre-crisis, repetition of past failures (re-offending) DEBT PROGRESSIVE DECLINE Distress Debt

Debt psychology Symptoms Physical/Somatic SLEEP APPETITE IBS: BLOOD PRESSURE: IMMUNE SYSTEM: weakened LIBIDO: SKIN: ABUSE: alcohol (smoking, drugs) Psychological EMOTIONAL: COGNITIVE: SOCIAL: CULTURAL: –stigma –blame banks, government, immigrant groups

Advice tipping points Action Advice CAB Online search Grant Thornton contact Denial Ignoring bills Hiding from partner Escapism Loss of utilities threat of bailiffs Partner pressure No or limited income Paying redundancies, etc. Realisation of need

Personal debt in Ireland Loan products which have substantially increased since 2003: Unsecured20032011 Personal loans23,651m19,908m Credit cards1,500m2,700m Secured Residential mortgages45,527m115,089m Other mortgages (buy to let)7,161m24,238m Total (including all loans)77,839m161,935m Source: Central Bank Report June 2011

Personal debt in Ireland Private residential mortgage market in Ireland: Irish Private Residential Mortgage Market MortgagesTotal value Arrears > 90 days Arrears <90 days Total private residential mortgages in arrears 30 June 2012 761,533€112bn 83,251 45,165 128,416 10.9%5.9%16.9% Source: Central Bank Report Aug 2012 Note: The above figures do not include buy to let mortgages Total arrears amount to €1.5bn for private residential mortgages (includes 90 days)

Referral: MABs New Client Accommodation TypeQ1Q2Q3Q4Total% Homeless 8 2 8 - 180.08% Hostel 15 8 8 3 340.15% Mortgage 2,672 2,496 2,690 2,099 9,95744.33% Other 299 317 412 422 1,4506.46% Owned 266 248 253 211 9784.35% Rented LA 1,071 955 1,010 837 3,87317.24% Rented PR 1,252 1,197 1,133 1,002 4,58420.41% Residential 6 11 4 4 250.11% Shared Ownership 39 47 21 1460.65% Sheltered Housing 19 18 16 13 660.29% Social Housing Scheme 92 48 61 75 2761.23% Tenant Purchase 8 13 11 8 400.18% With Family/Friends 2 22 66 47 1370.61% With Parents 300 238 199 141 8783.91% Total 6,049 5,612 5,918 4,883 22,462100.00%

Unemployment Black spots Source: census 2011

Personal debt in Ireland What is the age profile of the debtors- MABS New clients age analysisQ1Q2Q3Total % 15-1894417 0.1% 19-253933963701159 6.6% 26-403123292829979048 51.6% 41-652431220724067044 40.2% Over 659371102266 1.5% Total60495606587917534 100% Source: MABS report Nov 2011 www.mabs.ie

Personal Debt in Ireland Profile (UK) The typical debtor (UK) who enters IVA process… average salary £21-24k (median average pay £21,221) 63% home ownership between 50-60% will be aged 25-44 90% will be employed 70% male to 30% female c.50% of new applicants are married.

Personal Debt in Ireland UK/Ireland comparison- Ireland population circa 9% of UK ComparisonIrelandUK Disposable income to household debt – a debt to income ratio of 176% means for every €10,000 of disposable income earned, €17,600 of debt is outstanding 176%161% Debt per adult€54,535£24,636 Unsecured debt€25 billion£216 billion Cost to society of problem debt per yearUnknown£21 billion

Personal Debt in Ireland UK personal insolvency volumes

Personal Debt in Ireland Comparison with UK IrelandUK Workout with secured property Personal Insolvency Arrangement (PIA) Individual Voluntary Arrangement (IVA) Workout without secured property Debt Settlement Arrangement (DSA) Individual Voluntary Arrangement (IVA) BankruptcyBankruptcy – 3 YearsBankruptcy – 1 Year No assets/no incomeDebt relief noticeDebt relief order

Debt Journey Acceptance of the current situation Need for debt advice Understanding the options available Creditor containment Debt prevention

Legal Overview of Bill

Context Radical Legal Overview of Bill

New law Change Legal Overview of Bill

New Debt Relief Notice Debt Settlement Arrangement Personal Insolvency Arrangement Legal Overview of Bill

Court Insolvency Service “Intermediary” Legal Overview of Bill

PIA Legal Overview of Bill

© Grant Thornton Ireland. All rights reserved. Debt relief notice (DRN's)- Key eligibility criteria Unsecured debts debts < €20k disposable < €60 per month assets < €400 (can be increased to €1,200 if for motor vehicle/furniture) 3 year protection if >50% of debt paid DRN will cease to have affect 75% of debt must be > 6 months

© Grant Thornton Ireland. All rights reserved. Debt Settlement Arrangement(DSA's)-Key eligibility criteria domiciled/place of business in Ireland (12 months) provide prescribed financial statement (affidavit) debts > €20k (no max) unsecured debt only 5 year period (with possible 1 year extension) Personal Insolvency Practitioner (PIP) must be of the opinion that debtor is insolvent, with no likelihood of solvency in the next 5 years all creditors/debts will be treated on a pro rata basis once in a lifetime only

© Grant Thornton Ireland. All rights reserved. Debt Settlement Arrangement(DSA's) Typical debts/creditors personal guarantees credit union loans personal loans/overdrafts credit/store cards Protective Certificate 70 days possible extension of 40 days "creditor shall not terminate or amend that agreement" under 56 (1) F (i & ii) - Implications??? "shall not operate to prevent a creditor taking actions as respects another person who has guaranteed the debts of the debtor" –under 56 (4) implications for guarantors??

© Grant Thornton Ireland. All rights reserved. Process map - DSA Creditor will receive 14 days notice of creditors meeting (pack will include proposal, prescribed financial statement) from PIP Creditor will forward proof of debt and either the Creditor or an appointed agent will liaise with PIP on what terms are acceptable prior to creditors meeting. Creditor or representative will vote to accept or reject the proposal (either in attendance or by proxy) The debtor will meet with PIP. PIP will formulate proposal based on representations made and information provided 70 days protective cert *(V imp that this phase is streamlined to keep costs to a min)

© Grant Thornton Ireland. All rights reserved. Process map - DSA Phase 2 - if rejected If proposal is not approved by 65% of the creditors present the process with the PIP will finish creditor may continue to pursue debtor as was the case prior to the process beginning

© Grant Thornton Ireland. All rights reserved. Process map - DSA Phase 2 - if approved If proposal is approved by 65% of the creditors present Creditor will receive a proposal document (contract) from PIP; Creditor will instruct PIP of account details & payment preferences Creditor will receive payments quarterly & an annual statement from PIP on the performance of the account; Debtor will be discharged after 5 years if compliant unless a variation Creditor will forward proof of debt and either the Creditor or an appointed agent will liaise with PIP on what terms are acceptable prior to creditors meeting. If proposal is approved by 65% of the creditors present If there is a material change in the debtors financial circumstances he/she is obligated to inform the PIP of same and a variation proposal will be submitted Creditor will receive payments quarterly & an annual statement from PIP on the performance of the account; Debtor will be discharged after 5 years if compliant

© Grant Thornton Ireland. All rights reserved. Process map- DSA Phase 3 If there is a variation Creditor will receive14 days notification of a variation meeting and a variation proposal document from the PIP Creditor will vote to approve or reject variation- If 65% of creditors (present) vote to accept proposals All creditors will be bound. Debtor will be discharged after agreed however ability to increase by 1 year

© Grant Thornton Ireland. All rights reserved. Debt Settlement Arrangements (DSA's) obtaining approval –approval required by 65% of creditors value who voted at meeting –connected or preferred creditors not entitled to vote –rejection = lifting of protective order –if no creditor votes DSA is approved –appeals process by aggrieved creditors through Circuit Court –variation to proposals allowed if accepted by 65% of creditors successful DSA means –no creditor can persist in bankruptcy petition –no creditor can commence legal proceedings for recovery of debt –no action can be taken by enforcement officer to enforce a judgement –debtor is discharged from remaining debts owed certain debts excluded –court order in family law proceedings / damages in respect of personal injury / Proceeds of Crime debts / debts obtained through fraud

© Grant Thornton Ireland. All rights reserved. Debt Settlement Arrangements (DSA's) debtor duties in DSA –fully cooperate in the process including providing all relevant information and documents to the PIP –debtor must supply information on all assets and liabilities (including contingent or disputed), incomings, outgoings –inform the PIP of any changes in his circumstances (such as increase in income) –not to obtain credit above a prescribed amount without disclosing the fact that they are subject to a DSA –not to engage in any business under a name other than that in which DSA has been registered criminal offence for a debtor to –provide false or incomplete representation in regard to statement of affairs –concealing or disposing of property –obtaining credit above allowed limits

© Grant Thornton Ireland. All rights reserved. Personal Insolvency Arrangements (PIA's) Key eligibility criteria Similar to DSA- with a number of key exceptions Debts > €20k PIA ceiling €3m (can be increased if all creditors agree) Secured debt (unsecured debt can also be included) 6 Year period (with possible 1 year extension) a PIA must be supported by at least 65% of creditors and at least 50% of secured creditors and 50% of unsecured creditors in terms of value must have worked with the Mortgage Advice Resolution Process (MARP) for at least 6 months (unless PIP is of the opinion no reasonable chance of solvency through the proposed process) "co-operated for a period of at least 6 months with his/her secured creditors"

© Grant Thornton Ireland. All rights reserved. Personal Insolvency Arrangements (PIA's) Mortgage Arrears Resolution Process (PPR): Code introduced 1 January 2011 encourages open communication & co-operation lender- assess case lender – deliver workable options if co-operation- 12 months protection from repossession

© Grant Thornton Ireland. All rights reserved. Personal Insolvency Arrangements (PIA's) Typical debts/creditors principle private residence mortgages Investment Property- Individual/Partnerships buy to let mortgages Personal Guarantees personal loans credit unions credit cards

© Grant Thornton Ireland. All rights reserved. Personal Insolvency Arrangements (PIA's) Interaction with secured creditors secured creditor should carry out good faith valuation of property, If any disputes arise on valuation an Independent Valuation expert will be appointed and his/her valuation will be binding PIP includes terms in arrangement on secured creditor treatment

© Grant Thornton Ireland. All rights reserved. How it will work in practice Process map - PIA Phase 1 Creditor will receive 14 days notice of creditors meeting (pack will include proposal, prescribed financial statement) Creditor will forward proof of debt and either Creditor (or agent) will liaise with PIP on proposals as to what terms are acceptable prior to creditors meeting. Creditor or representative will vote to accept or reject the proposal (either in attendance or by proxy) The debtor will meet with PIP. PIP will formulate proposal based on representations made and information provided

© Grant Thornton Ireland. All rights reserved. How it will work in practice Process map - PIA Phase 2- if rejected If proposal is not approved by 65% of total creditors present as well as 50% of both secured & unsecured creditors the process with the PIP will finish creditor may continue to pursue debtor as was the case prior to the process beginning

© Grant Thornton Ireland. All rights reserved. How it will work in practice Process map - PIA Phase 2 - if approved If proposal is approved by 65% of total creditors present as well as 50% of both secured & unsecured creditors Creditor will receive a proposal document (contract) from PIP; Creditor will instruct PIP of account details & payment preferences Creditor will receive payments quarterly & an annual statement from PIP on the performance of the account; Debtor will be discharged after 6 years if compliant If there is a material change in the debtors financial circumstances he/she is obligated to inform the PIP of same and a variation proposal will be submitted

© Grant Thornton Ireland. All rights reserved. How it will work in practice Process map - PIA Phase 3 If there is a variation Creditor will receive14 days notification of a variation meeting and a variation proposal document from the PIP Creditor will vote to approve or reject variation- If 65% and 50%:50% (unsecured: secured creditors) of creditors (present) vote to accept proposals All creditors will be bound. Debtor will be discharged after 6 years

© Grant Thornton Ireland. All rights reserved. Bankruptcy – key changes from existing legislation the Bill aims to discourage the use of bankruptcy automatic discharge from bankruptcy reduced from 12 years to 3 years can be extended to 8 years if non co-operation or if the debtor has hidden or not disclosed assets court can adjourn bankruptcy proceedings if of the view better dealt through DSA or PIA debts must be >€20k (previously €1,900) award of costs - now discretionary (previously automatic) 3 year look back (1 Year unconnected) court to take account of "reasonable" living standards of debtor

© Grant Thornton Ireland. All rights reserved. Bankruptcy ComparisonUKIRL Bankruptcy Timeframe1 Year3 Years (up to 15 Years)(up to 8 Years) CourtCounty court (Chambers)Circuit Court (High court > €2.5) COMINo min (generally 6 months accepted)12 Months Restrictions on occupationMay not hold certain public office Not act as director, Mgt of Co, elected representative Necessary Assets allowedTools of trade€6k Lookback period 5 years (in theory unlimited if concerns over legitimacy)3 years Pensions Income will be included, Pension asset dependant on structureNot explicitly excluded Bankruptcy – key Comparison with UK

© Grant Thornton Ireland. All rights reserved. Bankruptcy – key cases Yates- declared bankrupt in Wales on 24 August (4 months) Quinn – COMI application rejected in Belfast McFeely – UK bankruptcy overturned, now bankrupt in ROI Eichler- COMI awarded to UK Eichler II – COMI overturned to include Germany The cases where a COMI claim has been lost are usually when a creditor has followed the applicant Royal Tunbridge Wells (Kent)- destination for German bankruptcy tourists

© Grant Thornton Ireland. All rights reserved. Eichler II (30 June 2011) - UK Chief Bankruptcy Registrar stated A debtor may now be required to file more detailed evidence to establish that his COMI is really in the UK and/or the court may adjourn the petition and require that notice of the hearing be given to the debtor's creditors so that they can appear and make representations at that stage in opposition to the making of the order instead of having to apply after the order is made

© Grant Thornton Ireland. All rights reserved. Case study 1 - DRN Sean is married with 2 kids and recently lost his job the family live in rented accommodation and his only income is through the social welfare system over the years while working he built up debts with 3 credit card providers totalling €14,000. He also has store cards of €3,000 and has fallen into arrears with the electricity and gas providers of €1,500 Sean has no assets apart from household furniture. after paying for his weekly essentials such as food, clothes, rent etc. Sean has €53 a month left.

© Grant Thornton Ireland. All rights reserved. Case study 1 - DRN potential solution subject to Sean signing a declaration that the facts outlined are correct, Sean can apply for a DRN from a recognised intermediary (possible MABS) and this body will send all the required documents to the Insolvency Services for approval. the Insolvency Service will then issue a DRN to Sean, and a 3 year moratorium period will apply during which none of Sean’s creditors can pursue him for repayment of his debts. at the end of 3 years if Sean adheres to the debt relief process and contributes accordingly the debt will be written off, and Sean will be debt free.

© Grant Thornton Ireland. All rights reserved. Case study 2- DSA Niamh is a 37 year old contract agency nurse who works in Beaumont hospital, a single parent with 2 children she lives in Drogheda, near her parents, in rented accommodation she has a 2008 Ford Focus which is necessary for her to get to work she has no other assets and, after essential living expenses are paid, has €400 a month left from her salary she has 3 credit cards which total €18,000, she has a credit union loan of €9,000, and a personal loan of €5,000 the combined monthly interest bill on her debts amount to €405. The stress of her position has affected her health and Niamh is now regularly missing work and as a result her income is reduced when she doesn’t work.

© Grant Thornton Ireland. All rights reserved. Case study 2 – DSA potential solution a PIP will review Niamh’s circumstances and based on all of her circumstances identify an amount, say €300 a month, that will be ring fenced to meet her liabilities. a proposal will be sent to her creditors and at a creditors meeting if 65% of the creditors approve the proposal, then the DSA will be binding on all creditors. this amount will be collected monthly by the PIP and distributed to the creditors.

© Grant Thornton Ireland. All rights reserved. Case study 2 - DSA potential solution as Niamh is no longer concerned with her debts, her health improves, and should her monthly income improve say by an additional €100 net a month the PIP might agree to take 50% of this increase for the benefit of the creditors. the DSA will last for 5 years and subject to Niamh complying with the agreement, the payments made by Niamh will be deemed to be in full and final settlement of all her debts and she will be debt free at the end of the DSA.

© Grant Thornton Ireland. All rights reserved. Case study 3 – PIA Brendan is 43 year old accountant, married with 3 children, working in the financial services industry on a gross salary of €82,000. Brendan bought his house 10 years ago and while it’s now worth €300,000 he has a mortgage of €340,000 as he used the equity in the boom years as deposits to buy 2 apartments in Navan. the apartments, which were bought for €330,000 each, are now each worth €150,000 but have outstanding mortgages of €260,000. one of the apartments is vacant and the other has rental income of €700 a month. The loan repayments are €1,500 each a month. he has unsecured debt (credit cards, credit unions, personal loans) of €38,000.

© Grant Thornton Ireland. All rights reserved. Case study 3- PIA after tax he has €5,000 a month to live on but his current outgoings (incl. mortgage repayments etc. are €7,000) Brendan believes that if he sells the apartments he will never be able to repay the outstanding loans and is living in hope for a recovery in the property market he is ignoring the letters and calls from the various mortgage providers in the hope that they will just go away Brendan has kept his true financial position from his wife, which has resulted in significant stress being put on their relationship.

© Grant Thornton Ireland. All rights reserved. Case study 3 –PIA potential solution A PIP formulates a proposal such as: sell the vacant apartment for €150k and the shortfall of €110K will be dealt with as part of his scheme. the mortgage on the apartment that is rented will be reduced to €160k as this can be discharged on an interest and capital basis from the €700 a month rental. The mortgage write-down of €100k will be added to his liabilities. his mortgage is extended by 5 years reducing the monthly repayments by €300 a month.

© Grant Thornton Ireland. All rights reserved. Case study 3 –PIA potential solution his debts, which are subject to the PIA, amount to €248K the PIP calculates that Brendan can contribute €2,000 a month to his creditors for 6 years this equates to €144k and results in the creditors recovering just over 50% of their debt the scheme could also provide for circumstances where should Brendan’s income go up, or should the property market recover (20 years from commencement date) that the creditors share in this increase at the end of the 6 year period, Brendan exits his PIA debt free, except for his mortgage and investment property which are now performing loans.

© Grant Thornton Ireland. All rights reserved. Case study 4 - PIA Alan Byrne is married with 2 children and he works as a sole practitioner Solicitor earning €200k p.a. During the Celtic Tiger Alan acquired two Commercial properties in Dublin, a retail unit on Grafton street with debt of €3m (financed by Ulster Bank) and a retail unit on Talbot street with debt of €7m (financed by AIB). There are no unsecured creditors. The secured debt is over €3m and the PIP has obtained approval from both banks to proceed with proposal Due to trading difficulties the same tenant who was in both units has gone into liquidation and the units are currently vacant. Both AIB and Ulster Bank have received a 14 day notice letter of a creditors meeting and a proposal from the PIP

© Grant Thornton Ireland. All rights reserved. Case study 4 - PIA during negotiations with the PIP, AIB have expressed a willingness to sell the property with immediate effect as they see no real medium prospect of recovery. Ulster Bank however believe the property in Grafton Street has a reasonable prospect of recovering some of its equity over the short to medium term given its prominent location the PIP proposes that the AIB property be sold at auction under the PIA and that the UB loan is restructured to meet rental income repayment with no recourse to Alan The properties are valued €2m (40% of Vote) and €3m (60% of Vote) respectively. both banks accept the proposals and the PIA will be passed as the 65% rule applies

© Grant Thornton Ireland. All rights reserved. Case study 5 - PIA Lets assume that the properties have aggregate debts of €1m (UB) and €2m (AIB) (below €3m- so no unanimous agreement required) The properties are valued at €667k (UB) and €1,333k (AIB) AIB with 66.7% of the vote to accept while UB with 33.3% vote to reject the PIA will be passed as the 65% rule applies UB have 21 days to object to same under section 109 & 116 of the Bill

© Grant Thornton Ireland. All rights reserved. Case study 6 - PIA Lets assume Alan Byrne also has an unsecured personal loan of €50k from BOI with no other unsecured creditor What difference would it make? BOI would have the power to reject the PIA due to the fact that they hold over 50% of the unsecured vote

© Grant Thornton Ireland. All rights reserved. Case study 7 - DSA If Alan Byrne acquired both properties via an SPV (to which Alan is a director) Alan has also given personal guarantees Alan Byrne opts for a voluntary liquidation and the banks appoint receivers to the respective premises the properties are sold for their market value's in October 2012, leaving Ulster bank owed €1m with AIB owed €4m, based on the shortfall Assuming Alan Byrne has no other secured creditors, the PIP will propose that the shortfall will be included along with the €50k unsecured (BOI) debt in the arrangement

Questions and answers

Contact details Michael Bolger Head of Personal Insolvency michael.bolger@ie.gt.com Barry O Neill Partner (Eugene F. Collins) boneill@efc.ie

© Grant Thornton Ireland. All rights reserved. Personal Insolvency Bill 2012 Michael Bolger – Head of Personal Insolvency With legal opinion from: Barry.

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© Grant Thornton Ireland. All rights reserved. Personal Insolvency Bill 2012 Michael Bolger – Head of Personal Insolvency With legal opinion from: Barry.

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