## Executive Summary

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### Introduction and scope
- Assesses select aspects of the Irish insolvency and creditors’ rights system against the international insolvency standard (the “Standard”), focusing on:
  - Use and effectiveness of the corporate restructuring regime (examinership), including micro and small business rehabilitation and incorporation of the European Directive on Preventive Restructuring Procedures (the “EU Directive”) into domestic law by July 2022.
  - Resolution of long-term mortgage arrears (LTMA).
- Mission engagement: CBI, DETE, DoJ, ISI, DoF, Revenue, CSI, CRO, CLRG, retail banks, NPL servicers, private attorneys, insolvency practitioners, judges, consumer protection agencies, and small business representatives.

### Corporate Debt Resolution

### System description and jurisdiction
- Corporate procedures: examinership; SCARP (Small Company Administrative Rescue Process); schemes of arrangement; receivership; liquidation (voluntary and compulsory).
- Personal procedures: debt relief notice; debt settlement arrangement; personal insolvency arrangement (PIA); bankruptcy.
- Institutional responsibilities:
  - DETE: corporate insolvency.
  - DoJ: personal insolvency and bankruptcy.
  - ISI: personal insolvency system operation and supervision, monitoring under the Personal Insolvency Act of 2012, regulation of personal insolvency practitioners, and bankruptcy functions.
  - CSI: administration and management of the courts.
- Judicial jurisdiction:
  - High Court: primary jurisdiction for all bankruptcy cases (individuals), examinerships (unless company liabilities < €317,434, then Circuit Court), and higher-value personal insolvency matters.
  - Circuit Court: primary jurisdiction for other insolvency matters and repossession of a mortgage over a primary residence.
  - Personal Insolvency Act of 2012: allows appointment of up to eight specialized insolvency judges in the Circuit Court; currently two appointed.

### Examinership and schemes of arrangement (features)
- Examinership:
  - Eligibility: company unable, or likely unable, to pay debts as they fall due but with a “reasonable prospect” of survival.
  - Automatic stay: initially 70 days, may be extended up to 150 days (temporary amendment via Companies (Miscellaneous Provisions) (Covid-19) Act of 2020; stay normally extendable to 100 days).
  - Creditor classes: preferential, secured, unsecured (and subdividable by examiner).
  - Approval: scheme requires approval by at least one class of impaired creditors (majority in number and value); court must find plan “fair and equitable” and not “unfairly prejudicial”.
- Schemes of Arrangement (Part 9):
  - Not court-led; no automatic stay.
  - Debtor need not be insolvent or show reasonable prospect of survival.
  - Approval threshold: majority in number representing at least 75 percent in value of voting creditors or class; court sanction required.
- SCARP:
  - Targeted at small and micro-sized companies; entered into effect on December 7, 2021.
  - Initiated by Board resolution appointing an insolvency practitioner (Process Adviser) to formulate rescue plan.
  - No automatic stay.
  - Approval normally without court if majority in value of impaired class votes in favor and no creditor objects within 21 days; if objected to, court review required.
  - Aims to conclude within 70 days.
  - Public creditors may “opt out” of inclusion of their claims at the outset; tax claims are excludable if Revenue opts out.

### Use, analysis and identified legal gaps
- Usage:
  - Examinership is little used: average of only 29 petitions filed over the last four years.
  - CRO Annual Report 2020 data for procedures:
    - Examinership: 2017: 26; 2018: 38; 2019: 26; 2020: 27
    - Corporate Receiverships: 2017: 344; 2018: 167; 2019: 144; 2020: 84
    - Liquidations — Creditors’ Voluntary: 2017: 653; 2018: 484; 2019: 611; 2020: 443
    - Liquidations — Court-Ordered: 2017: 67; 2018: 59; 2019: 67; 2020: 49
  - Data on schemes of arrangement not available; anecdotal data suggests schemes are used infrequently.
- Legal gaps and areas for clarification:
  - Approval of reorganization plans: statutory “not be unfairly prejudicial” is not a clear criterion; recommendation to set specific rules regarding inter-class equity (e.g., absolute priority) to align with the EU Directive and World Bank Principle C14.3.
  - Ipso facto clauses: Companies Act silent on enforceability of automatic termination/acceleration clauses; World Bank Principle C.10.2 recommends such termination provisions be unenforceable except in special cases.
  - Valuation of encumbered assets and secured v. unsecured claim determination: Companies Act silent; UNCITRAL Legislative Guide principal 179 suggests insolvency representative may determine secured portion by valuing encumbered asset.
  - Adequate protection for secured creditors during automatic stay: Companies Act silent on protection and grounds for lifting the stay; initial stay period is short (70 days); World Bank Principle C5.3 calls for specification of protections and relief grounds.
  - Post-commencement financing: recommendation to recognize priority for all post-commencement financing in the Irish regime consistent with UNCITRAL guidance; examinership currently provides priority for costs and expenses of the procedure.

### SCARP analysis and limitations
- SCARP seen as welcome, leaner alternative for SMEs, but potential limitations:
  - Stay is not automatic (constitutional conformity), possibly limiting incentives to use SCARP.
  - Standard for rejection of executory contracts may be too high.
  - No priority for interim/new finance; absence may hinder SME restructuring.
  - Revenue Commissioners may “opt out” and exclude tax claims; discretion may add debtor uncertainty.
  - As of December 2021: 93,000 businesses have warehoused debt amounting to €2.9 billion.
  - Many SMEs are not in corporate form and thus are ineligible for SCARP.
  - No SCARP provisions contemplate interaction between corporate and personal insolvency; many SMEs have director/shareholder guarantees.
  - Cross-country evidence: specialized SME procedures fit only companies with high going concern value (e.g., Small Business Reorganization Act of 2019 in the United States had only 1278 cases in 2020).

### Court system and modernization needs
- Courts:
  - High Court judges commended; stakeholders suggested greater specialization in insolvency matters at High Court and Circuit Court levels.
  - Circuit Court has two judges specialized in personal insolvency matters; none specifically required for enterprise insolvency.
- Modernization:
  - Electronic filings and remote hearings expanded but not universal; acceleration of electronic filings and remote hearings recommended, especially if filings increase.

### Corporate recommendations (from source, with responsibility, timeline and priority preserved)
- #1 Conduct a review of examinership given limited usage, the EU Directive and identified gaps vis a vis the Standard. Consider introducing a new hybrid procedure in line with the “spirit” of the EU Directive. Responsible: DETE; CLRG. Timeline: I. Priority: M.
- #2 Monitor implementation of SCARP with a focus on possible impediments and revisit law as experience is gained and data is collected. Responsible: DETE. Timeline: ST-MT. Priority: M.
- #3 Issue clear guidelines on participation of public creditors in SCARP. Responsible: Revenue. Timeline: I. Priority: H.
- #4 Create a more extensive systematic data collection system for corporate insolvency procedures, including SCARP. Responsible: DETE; CRO; CSI. Timeline: I. Priority: H.
- #5 Strengthen the institutional framework for insolvency by increasing the number of judges specialized in enterprise insolvency matters, while recognizing allocation is a matter for the judiciary and subject to available resources, and accelerating modernization plans to increase use of electronic filings and remote hearings. Responsible: CSI, DETE. Timeline: ST-MT. Priority: M.

### Mortgage Arrears and Long-Term Mortgage Arrears (LTMA)

### Overview and stock metrics
- System NPL peaks and LTMA:
  - At the height of the crisis, the NPL ratio for the banking system reached almost 26 percent.
  - For the subset of retail banks, the peak NPL ratio was close to 32 percent.
  - Long-term mortgage arrears (LTMA) were 25,900 accounts as of December 2021, down from a maximum of over 60,000 in 2014.
  - LTMA represent 4 percent of all Primary Dwelling Home (PDH) mortgages in the entire financial system.
  - LTMA account breakdown as of December 2021: 8,515 held by retail banks and 17,383 held by non-banks.
  - Over 55 percent of LTMA are over five years old.
  - As of December 2021, over 67 percent of LTMA are held by non-bank entities, including investment funds.

### Authorities’ multi-faceted strategy since the crisis
- Consumer protection: Code of Conduct for Mortgage Arrears (CCMA) and Mortgage Arrears Resolution Process (MARP).
- Debtor support and advisory services: MABS and the Abhaile Scheme.
- Personal Insolvency Act (2012): personal insolvency arrangements (PIA) to reschedule debt backed by a primary residence.
- Social support: mortgage-to-rent for most vulnerable.
- Supervisory tools and oversight: time-bound targets historically; active engagement with creditor institutions.
- Banks’ wholesale strategy: offloading NPLs from balance sheets.

### Borrower capacity and affordability statistics
- Affordability:
  - Primary affordability finding: most debtors with LTMA are unable to afford their mortgage, in part due to unsecured borrowings.
  - DSTI metrics for LTMA borrowers:
    - Half of LTMA borrowers owe more than 43 percent of their monthly take-home income on debt repayments (including non-mortgage debt).
    - Mean DSTI is 61 per cent.
  - CBI analysis (Table 5) proportions:
    - More than 50 percent of the total balance can be cleared: 56.8%
    - Less than 50 percent but more than 0 can be cleared: 25.3%
    - No mortgage balance can be cleared: 17.9%
  - More than 43 percent of LTMA borrowers cannot afford to pay even 50 percent of the loan balance by retirement age.

### Restructuring practices and outcomes
- Creditor practices:
  - Banks generally avoid nominal haircuts or interest rate reductions citing moral hazard.
  - Typical restructuring tools: “split mortgages,” arrears capitalization, and term extensions.
- Restructuring statistics (end-December 2021):
  - 1.6 percent of LTMA have been granted interest rate reduction.
  - 4 percent have been restructured through reduced payments beyond interest only.
  - 31 percent of restructured LTMA achieved using “split” mortgages.
  - Almost 27 percent of restructurings through arrears recapitalization.
  - 10 percent through term extension.
- Observations: Absence of nominal haircuts is a significant barrier; for many LTMA borrowers these measures are insufficient.

### Role of non-bank purchasers
- Non-bank entities purchased many LTMA from retail banks at a significant discount and may offer long-term extensions or principal haircuts.
- Anecdotal indications suggest non-banks may be more amenable to aggressive solutions; data are sparse given recency.
- Risks: long-term extensions may result in debtors repaying for life; principal/interest haircuts may still be insufficient for some borrowers.

### Enforcement, legal-process constraints and effects
- Repossession used sparingly due to public policy, cost, time, reputational concerns, and banks’ preferences.
- Of PDH cases currently in the legal system:
  - The majority (4,456 accounts) have been in the legal system for over 2 years.
  - Almost 50 percent of those accounts have been in the court system for over 5 years.
- Identified impediments:
  - Wide judicial discretion to grant adjournments.
  - Frequent adjournments at county registrar and circuit court levels.
  - Judge rotations limiting hearings.
  - Unilateral delays by banks seeking negotiated solutions.
- Legal change: Land and Conveyancing Act amendment in 2019 requires judges to take account of a debtor’s overall circumstances before making repossession orders.

### Macro-financial implications and mortgage cost drivers
- Mortgage cost:
  - Average mortgage rate was 2.44 percent in October 2021, the second highest rate among EA-member countries.
- Drivers of higher mortgage costs: reduced recovery prospects and time to recover collateral, higher operating costs, lower competition, higher capital requirements.
- LTMA and other banking-sector factors contribute to Irish banks’ low profitability; impact has lessened as LTMA declined.
- Among currently performing PDH borrowers, one in eight are likely to have a balance shortfall at the end of their mortgage term.

### Enforcement-system improvement steps (recommended)
- Align enforcement with World Bank Principle A5.2 via:
  - (i) creating clear guidelines for county registrars and circuit court judges on grounds for adjournments in enforcement (including eliminating automatic adjournments at the county registrar level);
  - (ii) increasing the number of sessions where enforcement cases are heard in each circuit; and
  - (iii) narrowing the grounds in the Land and Conveyancing Act for which delays can be granted.
- Additional measures: judiciary issuance of clear interpretive rules and guidance; government agencies and courts to collect and publish data on overall length of proceedings and duration of each stage.

### Borrower segmentation and policy approach
- Segment borrowers by capacity to repay to tailor solutions:
  - Borrowers who can pay over 50 percent: term extensions, or term extensions coupled with rate reductions and write-downs on principal.
  - Borrowers who can pay less than 50 percent: may need additional measures for sustainable restructuring.
  - Borrowers who can pay nothing: require social support beyond financial-sector policies, potentially access to social housing.
- Free-riding: limited subset of borrowers may be avoiding obligations; effective repossession system needed to incentivize sustainable restructuring.
- Government support should be conditional on creditor making the mortgage sustainable via term extensions, rate reductions, and write-downs (e.g., in line with a CBI published waterfall).
- Lifetime-minimal payment arrangements generally discouraged; the Review of the Personal Insolvency Act should examine such arrangements to ensure sustainability after PIAs.

### Mortgage recommendations (from source, with responsibility, timeline and priority preserved)
- #6 Eliminate legal and institutional barriers to timely, efficient system for enforcement of secured credit. Responsible: DoJ; courts. Timeline: ST-MT. Priority: H.
- #7 Strengthen data collection and publication on enforcement procedures to allow policy makers to better understand and address any possible bottlenecks. Responsible: CSI, courts. Timeline: I. Priority: H.
- #8 Further develop the government strategy, ensuring coordination across multiple responsible agencies, to provide targeted solutions to LTMA borrowers based on their financial situation and debt servicing capacity, taking into account the experiences of the last decade, increased data collection and the entrance of non-banks into the area. Responsible: CBI, DoF, DoJ, ISI, in consultation with relevant agencies. Timeline: ST. Priority: H.
- #9 As part of an overall strategy to address LTMA, the Review of the Personal Insolvency Act 2012, now underway, should examine whether further statutory interventions are required to ensure that after the satisfactory completion of the PIA, the remaining mortgage debt agreed to be payable between the parties is sustainable. Responsible: DoJ. Timeline: ST. Priority: M.

### Data and operational notes
- Data gaps:
  - Scarcity of systematic data on corporate insolvency procedure usage limits analysis and policy design.
  - Courts collect limited data on repossession proceedings; stronger collection and publication recommended.
- Operational details preserved:
  - SCARP aims to conclude within 70 days.
  - Examinership stay initially 70 days, extendable to 150 days (temporary amendment), normally 100 days.
  - Company liabilities threshold for High Court vs Circuit Court jurisdiction for examinership: €317,434.

*Source: IMF technical note (Executive Summary) and IMF staff report excerpt (Ireland), content unit 1irlea2022004.*

### EXECUTIVE SUMMARY ___________________________________________________________________________ 4

### EXECUTIVE SUMMARY

### Introduction
- Scope: Assesses select aspects of the Irish insolvency and creditors’ rights system against the international insolvency standard (the “Standard”), focusing on:
  - Use and effectiveness of the corporate restructuring regime (examinership), including micro and small business rehabilitation and incorporation of the European Directive on Preventive Restructuring Procedures (the “EU Directive”) into domestic law by July 2022.
  - Resolution of long-term mortgage arrears (LTMA).
- Engagement: Mission met with CBI, DETE, DoJ, ISI, DoF, Revenue, CSI, CRO, CLRG, retail banks, NPL servicers, private attorneys, insolvency practitioners, judges, consumer protection agencies, and small business representatives.

### Overview of the Irish Insolvency System
- Procedures:
  - Corporate: five statutory procedures—examinership; SCARP (Small Company Administrative Rescue Process); schemes of arrangement; receivership; liquidation (voluntary and compulsory).
  - Personal: four procedures—debt relief notice; debt settlement arrangement; personal insolvency arrangement (PIA); bankruptcy.
- Institutional responsibilities:
  - DETE: corporate insolvency.
  - DoJ: personal insolvency and bankruptcy.
  - ISI: operation and supervision of the personal insolvency system, monitoring arrangements under the Personal Insolvency Act of 2012, regulating personal insolvency practitioners, and bankruptcy functions.
  - Courts Service of Ireland (CSI): administration and management of the courts.
- Judicial jurisdiction:
  - High Court: primary jurisdiction for all bankruptcy cases (individuals), examinerships (unless company liabilities < €317,434, then Circuit Court), and higher-value personal insolvency matters.
  - Circuit Court: primary jurisdiction for other insolvency matters and repossession of a mortgage over a primary residence.
  - Personal Insolvency Act of 2012 allows appointment of up to eight specialized insolvency judges in the Circuit Court; currently two appointed.

### Corporate Debt Resolution — Description of the System
- Examinership:
  - Standard corporate reorganization procedure.
  - Eligibility: company unable, or likely unable, to pay debts as they fall due but with a “reasonable prospect” of survival.
  - Automatic stay: initially 70 days, may be extended up to 150 days (temporary amendment via Companies (Miscellaneous Provisions) (Covid-19) Act of 2020; stay normally extendable to 100 days).
  - Creditor classes: preferential, secured, unsecured (and subdividable by examiner).
  - Approval: scheme requires approval by at least one class of impaired creditors (majority in number and value); court must find plan “fair and equitable” and not “unfairly prejudicial”.
- Schemes of Arrangement (Part 9):
  - Not court-led; no automatic stay.
  - Debtor need not be insolvent or show reasonable prospect of survival.
  - Approval threshold: majority in number representing at least 75 percent in value of voting creditors or class; court sanction required.
- SCARP:
  - Targeted at small and micro-sized companies; entered into effect on December 7, 2021.
  - Initiated by Board resolution appointing an insolvency practitioner (Process Adviser) to formulate rescue plan.
  - No automatic stay.
  - Approval normally without court if majority in value of impaired class votes in favor and no creditor objects within 21 days; if objected to, court review required.
  - Aims to conclude within 70 days.
  - Public creditors have a right to “opt out” of inclusion of their claims at the outset; tax claims are excludable if Revenue opts out.
- Corporate Receivership:
  - Triggered by creditor contractual remedy on default of secured debt; receiver appointed to administer and realize secured assets (statutory duty to obtain highest price).
  - Company petition for examinership halts a receivership only if presented within three days of receiver’s appointment. (SCARP has analogous removal provision for receivers appointed for less than 3 days—558M of the Companies Act.)
- Liquidation/Winding Up:
  - Members’ voluntary liquidation (solvent companies); creditors’ voluntary liquidation; court-ordered liquidation (petition by interested party).

### Corporate Debt Resolution — Use, Analysis, and Recommendations
- Key findings:
  - Legal framework is sophisticated and largely in line with international best practice but is little used and costly.
  - Certain aspects are not consistent with the Standard and require review, particularly in light of the EU Directive.
  - SCARP is welcome but certain features (e.g., public creditors’ ability to opt out) may limit effectiveness; expectations should be realistic.
  - Data on corporate insolvency procedures is scarce; improved data collection and publication are needed.
  - Institutional improvements could include more judges specialized in insolvency and continued modernization (electronic filings, remote hearings).
- Recommendations (extracted from Table 1; timelines and priorities preserved):
  - #1 Conduct a review of examinership given limited usage, the EU Directive and identified gaps vis a vis the Standard. Consider introducing a new hybrid procedure in line with the “spirit” of the EU Directive. Responsible: DETE; CLRG. Timeline: I. Priority: M.
  - #2 Monitor implementation of SCARP with a focus on possible impediments and revisit law as experience is gained and data is collected. Responsible: DETE. Timeline: ST-MT. Priority: M.
  - #3 Issue clear guidelines on participation of public creditors in SCARP. Responsible: Revenue. Timeline: I. Priority: H.
  - #4 Create a more extensive systematic data collection system for corporate insolvency procedures, including SCARP. Responsible: DETE; CRO; CSI. Timeline: I. Priority: H.
  - #5 Strengthen the institutional framework for insolvency by increasing the number of judges specialized in enterprise insolvency matters, while recognizing allocation is a matter for the judiciary and subject to available resources, and accelerating modernization plans to increase use of electronic filings and remote hearings. Responsible: CSI, DETE. Timeline: ST-MT. Priority: M.

### Mortgage Arrears Resolution — Context and Concerns
- Importance:
  - Mortgage-related NPLs constitute 46 percent of all NPLs (total loans) in the retail banking system.
  - Long-term mortgage arrears are largely legacy from the 2008 crisis but unresolved arrears can undermine credit growth and affordability due to increased uncertainty in realizing collateral.
- Core hindrance:
  - Inability of financial institutions to predictably and efficiently enforce mortgage security on primary dwelling homes (PDH) is a key weakness in creditors’ rights.
- Enforcement and courts:
  - Enforcement should be streamlined and simplified.
  - Recommendations include clear rules and guidelines for judges on proceedings and timely hearings (e.g., more frequent court sessions).
  - Courts should strengthen data collection and publication on repossession cases to identify and address bottlenecks.
- Strategy:
  - Government should adopt a coordinated, multi-agency strategy for resolving mortgage arrears informed by granular data on borrower financial situation and debt servicing capacity.
  - Published guidance on expected solutions based on financial indicators and broader social support are critical.
- Personal Insolvency and LTMA:
  - As part of an overall strategy to address LTMA, the Review of the Personal Insolvency Act 2012 (now underway) should examine whether further statutory interventions are required to ensure that after satisfactory completion of the PIA, remaining mortgage debt agreed to be payable between the parties is sustainable. Responsible: DoJ. Timeline: ST. Priority: M.

### Mortgage Arrears — Recommendations (from Table 1)
- #6 Eliminate legal and institutional barriers to timely, efficient system for enforcement of secured credit. Responsible: DoJ; courts. Timeline: ST-MT. Priority: H.
- #7 Strengthen data collection and publication on enforcement procedures to allow policy makers to better understand and address any possible bottlenecks. Responsible: CSI, courts. Timeline: I. Priority: H.
- #8 Further develop the government strategy, ensuring coordination across multiple responsible agencies, to provide targeted solutions to LTMA borrowers based on their financial situation and debt servicing capacity, taking into account the experiences of the last decade, increased data collection and the entrance of non-banks into the area. Responsible: CBI, DoF, DoJ, ISI, in consultation with relevant agencies. Timeline: ST. Priority: H.
- #9 As part of an overall strategy to address LTMA, the Review of the Personal Insolvency Act 2012, now underway, should examine whether further statutory interventions are required to ensure that after the satisfactory completion of the PIA, the remaining mortgage debt agreed to be payable between the parties is sustainable. Responsible: DoJ. Timeline: ST. Priority: M.
- Note: One recommendation listed in Table 1 was implemented after the FSAP mission.

### Data and Operational Notes
- Data gaps:
  - Scarcity of meaningful, systematic data on corporate insolvency procedure usage limits analysis and policy design.
  - Courts currently collect limited data on repossession proceedings; stronger collection and publication is recommended.
- Operational details preserved from source:
  - SCARP aims to conclude within 70 days; examinership stay initially 70 days, extendable to 150 days (temporary amendment), normally 100 days.
  - Company liabilities threshold for High Court vs Circuit Court jurisdiction for examinership: €317,434.
  - Personal Insolvency Act limits and definitions cited (e.g., small company criteria, micro company criteria) remain part of the system description.

*Source: IMF technical note (Executive Summary).*

### 7.      Use of reorganization procedures is limited in Ireland. As highlighted in Table 3, an

### 1irlea2022004 - 7.      Use of reorganization procedures is limited in Ireland. As highlighted in Table 3, an

### Limited use of examinership and context
- An average of only 29 petitions for examinership were filed over the last four years.
- Stakeholders indicated examinership is:
  - A sophisticated, well-established procedure.
  - Best suited for large companies due to procedural complexity and high cost (including cost of entry).
  - Reasons for low usage informed establishment of SCARP.
- Stakeholders noted examinership could benefit from modernization, particularly drawing on recent reforms in the UK and the Netherlands.

### Data on corporate resolution procedures (CRO Annual Report 2020)
- Examinership: 2017: 26; 2018: 38; 2019: 26; 2020: 27
- Corporate Receiverships: 2017: 344; 2018: 167; 2019: 144; 2020: 84
- Liquidations:
  - Creditors’ Voluntary: 2017: 653; 2018: 484; 2019: 611; 2020: 443
  - Court-Ordered: 2017: 67; 2018: 59; 2019: 67; 2020: 49
- Notes: With respect to examinership, data refers to total number of applications; for receiverships, data refers to number of companies over which a receiver was appointed; for liquidations, the number refers to the number of procedures initiated. Data on schemes of arrangement are not available; anecdotal data suggests schemes are used infrequently.

### Analysis: legal gaps and areas for clarification (selected issues)
- Approval of Reorganization Plans:
  - World Bank Principle C14.3: plan approval should be based on clear criteria aimed at fairness among similar creditors, recognition of relative priorities, and majority acceptance, while offering opposing creditors or classes a dividend equal to or greater than liquidation.
  - Under examinership, “fair and equitable” has been interpreted to require liquidation value, but the statutory requirement that the plan not be “unfairly prejudicial” is not a clear criterion.
  - Recommendation: Set forth specific rules regarding inter-class equity (e.g., absolute priority) to address the gap and align with the EU Directive.
- Ipso Facto Clauses:
  - The Companies Act is silent on enforceability of automatic termination and acceleration clauses of executory contracts upon insolvency.
  - World Bank Principle C.10.2 recommends such termination provisions be unenforceable, except in special cases such as financial contracts.
- Valuation and Treatment of Secured Claims:
  - The Companies Act is silent on how encumbered assets are valued for determining secured v. unsecured claims.
  - UNCITRAL Legislative Guide principal 179: insolvency representative may determine portion of secured creditor’s claim that is secured by valuing the encumbered asset; secured creditor may participate as an ordinary unsecured creditor for any unsecured portion.
- Adequate Protection for Secured Creditors:
  - The Companies Act is silent on provision of adequate protection during the automatic stay and does not clearly state grounds for lifting the stay by creditors.
  - The initial stay period is short (70 days).
  - World Bank Principle C5.3: insolvency law should specify secured creditor protection and grounds for relief from the stay.
- Post-commencement Financing:
  - UNCITRAL Legislative Guide recommends incentives for post-commencement financing, including priority at least ahead of unsecured creditors, and recognition of such priority if proceeding converts to liquidation.
  - Examinership does provide for a priority for costs and expenses of the procedure, including in subsequent liquidation.
  - Recommendation: Recognize priority for all post-commencement financing in the Irish regime.

### EU Directive implications and options
- The EU Directive establishes minimum standards for preventive restructuring mechanisms and other insolvency-related matters; member states must incorporate by July 17, 2021 (with possible one-year extension) (Box 1).
- Key elements of the Directive (select):
  - Early Warning Mechanisms: require “early warning” systems (examples: alert mechanisms, advisory services, incentives for third parties).
  - Preventive Insolvency Procedures: allow restructuring without full court intervention; objective to maximize hybrid restructuring (judicial actions at key points combined with negotiation).
    - Access: debtor must have only a “likelihood” of insolvency; member states may introduce barriers like eligibility or “viability” tests.
    - Debtor in Possession: debtors remain totally or partially in control.
    - Automatic Stay: initial period no more than four months; member states have discretion on scope and duration.
    - Restructuring Plans: flexibility on classes and approval requirements; considerations include absolute priority v. relative priority.
    - New Finance: Directive requires adequate protection for new and interim financing but gives discretion on priority relative to other creditors.
  - Data Collection: Directive requires limited data collection on number and outcome of procedures, and average length; states are encouraged to collect core indicators of time, cost and recovery rate.
- Authorities could comply with Directive via targeted changes to examinership (e.g., plan approval rules, essential contracts, stay design), but should consider introducing a hybrid procedure to increase options and lower cost.

### SCARP (Small Company Administrative Rescue Process)
- Adoption of SCARP seen as a welcome addition; stakeholders positive about a leaner, less costly alternative to examinership, particularly post-COVID for SMEs.
- SCARP alignment:
  - Comparable specialized regimes exist in U.S. and Spain; World Bank Principles updated to include small and micro enterprise principles (C18-C20).
- Potential limitations of SCARP:
  - Stay (injunctive relief) is not automatic due to necessity of conformity with the Irish constitution, possibly limiting incentives to use SCARP.
  - Standard for rejection of executory contracts may be too high (court must judge necessity for survival).
  - No priority for interim finance; new financing crucial for SME restructurings.
  - Revenue Commissioners may “opt out” and exclude its claims; discretion may add uncertainty for debtors.
  - As of December 2021: 93,000 businesses have warehoused debt in the amount of €2.9 billion.
  - After the FSAP mission, authorities published guidelines on Revenue participation (note in source).
- Limitations in scope and expectations:
  - Small and micro-enterprises make up 98 percent of Irish enterprises by count.
  - Many SMEs are not in corporate form (e.g., sole traders) and thus are not eligible for SCARP; personal insolvency procedures and bankruptcy apply instead.
  - No SCARP provisions contemplate interaction between corporate and personal insolvency; many SMEs may have debt secured or guaranteed by principal shareholder or director assets.
  - Cross-country experience suggests specialized SME procedures suit only companies with high going concern value; example: Small Business Reorganization Act of 2019 in the United States had only 1278 cases in 2020.
  - Policymakers should ensure traditional tools and informal restructurings are available and that SCARP is not used to postpone inevitable outcomes.

### Court system and procedural modernization
- Irish court system is well-functioning; High Court judges commended for caliber of decisions.
- Private sector stakeholders suggested greater specialization in insolvency matters at High Court and Circuit Court levels.
  - Circuit Court has two judges specialized in personal insolvency matters; no similar requirement for enterprise insolvency cases.
- SCARP involves judges at key points and may necessitate increased expertise.
- Electronic filings and remote hearings have expanded but are not universal; increased electronic filings and remote hearings are important, especially if insolvency filings increase post-pandemic.

### Recommendations (numbered in source)
- Recommendation 1: Conduct a review of examinership given limited usage, the EU Directive and identified gaps vis a vis the Standard. Consider introducing a new hybrid procedure in line with the “spirit” of the EU Directive.
- Recommendation 2: Monitor implementation of SCARP with a focus on possible impediments and revisit law as experience is gained and data is collected.
- Recommendation 3: Issue clear guidelines on participation of public creditors in SCARP.
- Recommendation 4: Create a systematic data collection system for corporate insolvency procedures, including SCARP.
- Recommendation 5: Strengthen the institutional framework for insolvency by increasing the number of judges specialized in enterprise insolvency matters, while recognizing that such allocation is a matter for the judiciary and is subject to available resources, and accelerating modernization plans to increase use of electronic filings and remote hearings.

*Source: IMF staff report excerpt (Ireland), chapter on corporate resolution procedures and SCARP.*

### 16.      Mortgage-backed arrears in Ireland are largely a legacy from the global financial crisis,

### 16. Mortgage-backed arrears in Ireland are largely a legacy from the global financial crisis

### Overview and stock of LTMA
- At the height of the crisis, the NPL ratio for the banking system reached almost 26 percent.  
- For the subset of retail banks, the peak NPL ratio was close to 32 percent.  
- Long-term mortgage arrears (LTMA) were 25,900 accounts as of December 2021, down from a maximum of over 60,000 in 2014.  
- LTMA represent 4 percent of all Primary Dwelling Home (PDH) mortgages in the entire financial system.  
- LTMA account breakdown as of December 2021: 8,515 held by retail banks and 17,383 held by non-banks.  
- Over 55 percent of LTMA are over five years old.  
- As of December 2021, over 67 percent of LTMA are held by non-bank entities, including investment funds.

### Authorities’ multi-faceted strategy since the crisis
- Consumer protection: Code of Conduct for Mortgage Arrears (CCMA) and the Mortgage Arrears Resolution Process (MARP) outlining steps creditors must follow.  
- Debtor support and advisory services: MABS and the Abhaile Scheme providing legal and financial advice.  
- Personal insolvency procedure (introduced 2012): allows court-approved personal insolvency arrangements (PIA) to reschedule debt backed by a primary residence.  
- Social support schemes: mortgage-to-rent for the most vulnerable.  
- Supervisory tools and oversight: past time-bound targets for NPL resolution and current active engagement with creditor institutions to encourage LTMA resolution.  
- Wholesale strategy by Irish banks to offload NPLs from balance sheets.

### Borrower capacity and affordability metrics
- Primary affordability finding: most debtors with LTMA are unable to afford their mortgage, in part due to unsecured borrowings.  
- Debt-service-to-income (DSTI) metrics for LTMA borrowers:  
  - Half of LTMA borrowers owe more than 43 percent of their monthly take-home income on debt repayments (including non-mortgage debt).  
  - Mean DSTI is 61 per cent.  
- CBI analysis (Table 5):  
  - More than 43 percent of LTMA borrowers cannot afford to pay even 50 percent of the loan balance by retirement age.  
  - Specific proportions (from Table 5):  
    - More than 50 percent of the total balance can be cleared: 56.8%  
    - Less than 50 percent but more than 0 can be cleared: 25.3%  
    - No mortgage balance can be cleared: 17.9%

### Restructuring practices by creditors
- Banks generally avoid nominal haircuts or interest rate reductions, often citing moral hazard concerns.  
- Typical restructuring tools offered: “split mortgages,” arrears capitalization, and term extensions.  
- Restructuring statistics (end-December 2021):  
  - Only 1.6 percent of LTMA have been granted interest rate reduction.  
  - Only 4 percent have been restructured through reduced payments beyond interest only.  
  - 31 percent of restructured LTMA achieved using “split” mortgages.  
  - Almost 27 percent of restructurings through arrears recapitalization.  
  - 10 percent through term extension.  
- For many LTMA borrowers, these measures are insufficient; absence of nominal haircuts is a significant barrier to resolution.

### Role and potential impact of non-bank purchasers
- Non-bank entities purchased many LTMA from retail banks at a significant discount and may be willing to offer: long-term extensions that are cash-flow positive for creditors, or principal haircuts.  
- Anecdotal indications suggest non-banks may be more amenable to offering more aggressive solutions, but data are too sparse to confirm given the recency of their dominant role.  
- Risks noted: long-term extensions may leave debtors repaying for life; principal and interest haircuts may still be insufficient for some borrowers.

### Enforcement, legal-process constraints, and effects on resolution
- Repossession of PDH has been used sparingly due to public policy aims, costs and length of enforcement, reputational concerns, and banks’ business preferences.  
- Of PDH cases currently in the legal system, the majority (4,456 accounts) have been in the legal system for over 2 years, with almost 50 percent of those accounts in the court system for over 5 years.  
- Many PDH mortgage accounts remain in arrears for years without banks bringing legal proceedings.  
- Identified impediments to efficient enforcement: wide judicial discretion to grant adjournments; frequent adjournments at county registrar and circuit court levels; judge rotations limiting hearings; and unilateral delays by banks seeking negotiated solutions.  
- Recent legal change: Land and Conveyancing Act amendment in 2019 requires judges to take account of a debtor’s overall circumstances before making repossession orders.

### Analysis: macro-financial implications and drivers of mortgage cost
- The cost of mortgage credit in Ireland is significantly higher than peers: average mortgage rate was 2.44 percent in October 2021, the second highest rate among EA-member countries.  
- Higher mortgage costs reflect higher perceived risks due to reduced recovery prospects and time to recover collateral, higher operating costs, lower competition, and higher capital requirements.  
- LTMA and other banking-sector factors contribute to Irish banks’ low profitability, though the impact has lessened as LTMA declined.  
- Among currently performing PDH borrowers, one in eight are likely to have a balance shortfall at the end of their mortgage term.

### Fundamental principles to inform an overall strategy
- Understanding the problem: clarity and shared agreement across government and financial institutions on the nature of the problem.  
- Creditors should realize their losses: acknowledge uncollectable debts and internalize costs of prior lax lending; timely loss recognition reduces investor uncertainty.  
- Debtors should be relieved from unsustainable debt burdens: unsustainable debt reduces debtor productivity and may encourage hiding income or participation in the gray economy.  
- Limits of financial-sector-only solutions: insolvency and creditor-rights regimes alone cannot substitute for wider social housing policy where borrowers are chronically unable to generate enough income.

### Enforcement-system improvements proposed (steps and recommendations)
- Steps to align the Irish enforcement system with World Bank principles (Principle A5.2) could include:  
  - (i) creating clear guidelines for county registrars and circuit court judges on grounds for adjournments in enforcement (including eliminating automatic adjournments at the county registrar level);  
  - (ii) increasing the number of sessions where enforcement cases are heard in each circuit; and  
  - (iii) narrowing the grounds in the Land and Conveyancing Act for which delays can be granted.  
- Additional measures: judiciary issuance of clear interpretive rules and guidance; government agencies and courts to collect and publish data on overall length of proceedings and duration of each stage to identify bottlenecks.

### Specific recommendations (as stated)
- Recommendation 6: Eliminate legal and institutional barriers to timely, efficient system for enforcement of secured credit.  
- Recommendation 7: Strengthen data collection and publication on repossession cases to allow policy makers to better understand and address potential bottlenecks at different stages of the process.  
- Broader recommendation: Government should use granular LTMA data to develop targeted solutions involving multiple agencies; for borrowers with no debt servicing capacity, only wholesale cancellation of the loan or repossession and relocation into social housing would be appropriate.

*Source: 1irlea2022004 - 16. Mortgage-backed arrears in Ireland are largely a legacy from the global financial crisis (IMF).*

### 28.      Government agencies should focus on “groups” of borrowers to identify what

### 28.      Government agencies should focus on “groups” of borrowers to identify what adjustments or alternative solutions may need to be developed for them.

### Borrower segmentation and tailored solutions
- Segment borrowers into “groups” by capacity to repay to identify appropriate adjustments or alternative solutions.
- For borrowers who can pay over 50 percent:
  - Appropriate measures may include only term extensions, or term extensions coupled with rate reductions and write-downs on principal.
- For borrowers who can pay less than that:
  - Those solutions may need to be supplemented by additional measures for creditors to offer sustainable loan restructuring plans.
- Borrowers who can pay nothing:
  - Will need more significant social support beyond financial sector policies, which could include access to social housing.
- A limited subset of borrowers may be “free riding” on the system; debtors who can pay some or all of their mortgage but refuse to do so should be enforced against.
- An effective repossession system is essential to create incentives for borrowers to agree to sustainable restructuring plans they can afford.

### Role of government support and creditor actions
- Any government support should be conditional on the mortgage being made sustainable by the creditor (e.g., based on a debt servicing metric determined by policymakers) through:
  - Term extensions
  - Rate reductions
  - Write-downs (e.g., in line with a CBI published waterfall)
- Subsidies to borrowers must be well-targeted and only granted if the mortgage is made sustainable.
- Recognizes that capacity to repay is not always easy to measure and varies over time; any system requires controls and revisions to adapt to income changes.

### Regulatory guidance and supervisory options (CBI, CCMA, LTMA)
- Consider publishing more granular guidelines on sustainable solutions to be offered to borrowers, based on capacity-to-repay parameters, if creditors fail to provide sustainable solutions in the near term.
- Example parameters to guide mortgage solutions: sustainability, reasonable living expenses, DSTI-ratios, etc.
- The CBI’s engagement with banks and non-bank entities on LTMA could be guided by published guidance.
- If engagement does not lead to satisfactory results within a reasonable timeframe, the CBI could consider:
  - Issuing stricter targets for resolving NPLs, as done in the past.
- Alternatively, amend the CCMA by mandating solutions that must be offered based on the financial situation of the borrower.
- Legislative changes would likely be necessary for mandating solutions.

### Lifetime-minimal payment arrangements and PIAs
- Generally discourage solutions that allow minimal payments for a debtor’s entire lifetime.
- Recent high-profile Irish court cases allowed payments beyond the agreed duration of PIAs for the entire lifetime of the debtor, with minimal monthly payments, aiming to:
  - Allow the debtor to remain in the home and allow the bank to collect the remaining balance of the mortgage upon the debtor’s death.
- Unclear whether such arrangements further the insolvency law objective to relieve debtors from unsustainable debt; in some cases they may be the least bad outcome given broader social considerations.
- The review of the Personal Insolvency Act should examine the nature of such arrangements, where sufficient evidence exists, to ensure that after completion of the PIA the remaining mortgage debt is sustainable.

### Policy recommendations (explicit)
- Recommendation 8:
  - Further develop the government strategy, ensuring coordination across multiple responsible agencies, to provide targeted solutions to LTMA borrowers based on their financial situation and debt servicing capacity, taking into account:
    - Experiences of the last decade
    - Increased data collection
    - The entrance of non-banks into the area
- Recommendation 9:
  - As part of an overall strategy to address LTMA, the Review of the Personal Insolvency Act 2012 should examine whether further statutory interventions are required to ensure that after the satisfactory completion of the PIA, the remaining mortgage debt, agreed to be payable between the parties, is sustainable.

*Source: IMF content unit 1irlea2022004 - 28.*

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_Source: https://www.imf.org/-/media/files/publications/cr/2022/english/1irlea2022004.pdf_