Oireachtas Joint and Select Committees
Thursday, 18 October 2018
Joint Oireachtas Committee on Finance, Public Expenditure and Reform, and Taoiseach
Governance and Regulation of Receivers: Discussion
I welcome Ms Helen Curley, principal officer, and Ms Tara Coogan, assistant principal officer, from the Department of Business, Enterprise and Innovation; and Mr. Conan McKenna, assistant secretary general, Mr. Seamus Carroll, principal officer, and Ms Madeleine Reid, principal officer, from the Department of Justice and Equality.
Before we begin, I wish to advise witnesses that by virtue of section 17(2)(l) of the Defamation Act 2009, witnesses are protected by absolute privilege in respect of their evidence to the committee. However, if they are directed by the committee to cease giving evidence on a particular matter and they continue to so do, they are entitled thereafter only to a qualified privilege in respect of their evidence. They are directed that only evidence connected with the subject matter of these proceedings is to be given and they are asked to respect the parliamentary practice to the effect that, where possible, they should not criticise or make charges against any person, persons or entity by name or in such a way as to make him, her or it identifiable.
Members are reminded of the long-standing parliamentary practice to the effect that they should not comment on, criticise or make charges against a person outside the Houses or an official either by name or in such a way as to make him or her identifiable.
I call Mr. Conan McKenna to make his opening statement.
Mr. Conan McKenna:
I thank the committee for the opportunity to discuss the issue of the regulation of receivers. I am responsible for civil law reform and courts policy in the Department of Justice and Equality. Mr. Seamus Carroll is responsible for, among other matters, the area of land and conveyancing law, and Ms Madeleine Reid is responsible for, among other matters, the areas of insolvency, bankruptcy and related matters.
Mortgages provide lending institutions with security for their loans. In the event of financial difficulties resulting in default by the borrower, a lending institution’s claim on the secured property takes precedence over the claims of other creditors. The appointment of a receiver is one of the principal remedies available to lending institutions in cases of mortgage default.
Where the lender does not wish to take possession of the mortgaged property in such cases, the alternative remedy of appointing a receiver to ensure more efficient management of a business such as a shop or a hotel, or to receive rents where housing or accommodation has been leased or let to tenants, may be a more effective option. In this latter case, the receiver’s main task will be to repay the mortgage from the proceeds of the rental income.
The appointment of a receiver does not normally arise in the case of a borrower’s principal private residence, which is a key issue, but rather in the case of commercial property, including buy-to-let, BTL, premises. Where a borrower has mortgages over several properties, the appointment of the receiver facilitates a more orderly approach to the management or disposal of the premises.
As Professor John Wylie, who members may know is the author of the classic text on Irish land and conveyancing law, points out in Irish Land Law, there are several sources of appointment of receivers to land and the position of the receiver, particularly in terms of his or her duties and powers, will vary according to that source. Provision for the appointment of a receiver in the case of default is normally contained in the mortgage contract, especially in the case of commercial property. The point about the contractual basis for many receiverships is critical.
Professor Wylie identifies categories of receiver as a "fixed charge" receiver who is appointed over a specific mortgaged property; such a receiver is entitled to collect any rental income. A receiver may be appointed to manage the mortgaged property where the objective is to rescue the business, if possible. Another form of receivership arises where court assistance is sought by a creditor who has been unable to execute a judgment obtained against the debtor by other legal means.
Arising from the fact that receivers are generally appointed under the terms of the mortgage contract, rather than on application to court, detailed information on the number of receivers appointed, and the properties to which they have been appointed, is not available.
The committee's invitation specifically referred to the two Acts, namely, the Conveyancing Act 1881 and the Land and Conveyancing and Law Reform Act 2009. Apart from the express power to appoint a receiver that is normally reserved in the mortgage contract itself, lending institutions have had a statutory power going back to 1881 to appoint a receiver to land. Section 19 of the 1881 Act has a statutory power which permits a mortgagee to appoint a receiver over the mortgaged land, and this power has been carried over into section 108 of the Land and Conveyancing Law Reform Act 2009, which, as the members probably know, is an Act which consolidated and reformed many hundreds of years of land and conveyancing law.
The power to appoint a receiver under section 19 of the 1881 Act and section 108 of the 2009 Act applies generally to legal mortgages and registered charges. Under the 1881 Act, which applies still to pre-2009 mortgages, the power to appoint a receiver arises when the mortgage money became due but it is not exercisable until default occurs; under the 2009 Act, the power vests when the mortgage is created but, again, can only be exercised in the event of default.
The main function of a receiver in these cases is to manage the mortgaged property and to use the rental income to repay the mortgage. The 1881 Act also provides that a receiver shall have the power to demand and recover all the income of the property, and this power is also carried over in the 2009 Act.
On regulation of receivers,as my Department of Business, Enterprise and Innovation colleagues will discuss with the committee in due course, receivers appointed to corporate entities are subject to regulatory provisions set out in the Companies Act 2014. Part 8 of that Act also sets out requirements governing the appointment of receivers, their powers and duties, regulation etc. These statutory provisions do not apply in the case of receivers appointed to mortgaged property held by non-corporate entities. While neither the 1881 nor the 2009 Acts contain provisions in respect of regulation of receivers, the provisions of the 2014 Act will apply where the mortgagor is a corporate entity.
In terms of obligations on receivers, under existing law, including relevant case law, a receiver appointed to mortgaged property is subject to a number of important obligations. A lending institution must act in good faith, and fairly, when appointing a receiver; the lender must not act in a manner that unfairly prejudices the borrower; on his or her appointment, the receiver is also obliged to act in good faith both to the lending institution and the borrower in his or her management of the mortgaged property; where a receiver chooses, for whatever reason, to exercise a power of sale, he or she is obliged to obtain the best price reasonably obtainable for the mortgaged property for the benefit of both the lender and the borrower; and the receiver must act as a reasonable person would act in selling the property.
The receiver, and this is an important consideration, and any agents employed by him or her for the purposes of exercising his or her functions as receiver, will be held liable for the commission by them of offences, whether against an individual under the Non-Fatal Offences against the Person Act 1997 or otherwise under the Criminal Justice (Public Order) Acts. Enforcement of these statutory provisions is a matter for the Garda and the Director of Public Prosecutions, DPP.
With regard to possible licensing reform - I am nearly finished - during a Topical Issue debate recently, which concerned events outside premises on North Frederick Street in Dublin, the Minister for Justice and Equality referred to possible changes to licensing requirements for those involved in the execution of court orders. He stated that while matters concerning the enforcement of a court order are a matter for the courts, consideration was being given in his Department to the matter of oversight. This could include the introduction of a licensing regime for personnel directly involved in enforcement actions. One possible option to be looked at would be to extend the licensing remit of the Private Security Authority, which operates a licensing system for the private security sector, to such persons. By such persons we mean security type personnel who are there with the receivers, and sometimes when receivers are executing their powers. An examination is currently under way and recommendations will be submitted to the Minister in early course in respect of that.
Finally, I refer to work that has been going on in theDepartment of Housing, Planning and Local Government. It established a working group on receivers last year to examine the scope for amending legislation to provide for greater protection of tenants’ rights during the receivership process under Action 5 of the Strategy for the Rental Sector. The appointment of a receiver to a buy-to-let property can create great confusion and concern for the tenants of such properties, and it is important that their interests and rights be protected during the receivership process.
The Department of Justice and Equality, together with our colleagues from other Departments including the Departments of Business, Enterprise and Innovation and Finance, and the Office of the Attorney General, has participated in the working group.
The objective of this initiative is to improve protection of the rights of tenants during the receivership process, in particular regarding the discharge of landlord obligations by receivers. The working group sought legal opinion on the feasibility of amending legislation to provide for greater protection of tenants’ rights during the receivership process. The final report of the working group is being prepared at present for presentation, I understand, to the Minister for Housing, Planning and Local Government in the near future. We are mentioning that because I am aware that particular aspect has also been a key element of the public discourse about receivers, particularly where receivers, or groups of receivers, are appointed to buy-to-let properties where there has been a default on the mortgage by the buy-to-let lender.
I thank the Chairman for the invitation to contribute here today and to answer questions. We are happy to help the committee in any way we can.
Ms Helen Curley:
I thank the Chair and wish the committee a good morning. I am a principal officer in the company law unit of the Department of Business, Enterprise and Innovation. To my left is my colleague, Ms Tara Coogan, who is also a principal officer in the Department. I thank the committee for this opportunity to address issues concerning the governance and regulation of receivers in the context of the Companies Act 2014.
At the outset, as Mr. McKenna has emphasised, it is important to state that the principal source of law relating to receivership is contract law. Receivership is a long-standing legal mechanism for the enforcement of security. By far the most common method of appointment of a receiver is under the power contained in a debenture. A receiver is an appointed person whose duty is to receive a debtor’s assets and property for and on behalf of a creditor who is entitled to take them in satisfaction of the debtor’s obligations, pursuant to a written agreement. Parties to the contract, for example a company and a lending institution, agree that one of the terms on which the company borrows money is that, in the circumstances specified in the agreement, the lending institution can appoint a receiver over its assets. The parties have freedom to contract and agree contractual terms, including in respect of the appointment of a receiver.
While the terms on which a receiver can be appointed may vary from one debenture to the next, according to Forde, Kennedy and Simms's The Law of Company Insolvencythey generally include the following events: whenever the principal sum due under the agreement becomes payable; whenever the company fails to pay any instalment, or the principal sum or the interest due under the agreement; whenever the company contravenes covenants in the security instrument; whenever the company ceases or threatens to cease its business; whenever a resolution is passed, a petition presented or an order is made to wind up the company; whenever the company acts in such a way as to jeopardise the security created by the debenture; and whenever any prior debenture becomes enforceable against the company.
There are advantages to a contractual receivership as it avoids the need for the debenture holder to go to court to enforce the security and therefore saves costs; costs which the debtor would have to pay. Receivers may also be appointed under specific statutory powers such as that contained in the Land and Conveyancing Law Reform Act 2009 or by the High Court under its equitable jurisdiction under the Supreme Court of Judicature Act (Ireland) 1877. Where a receiver is appointed by the High Court, his or her powers will be dependent on the court order of appointment.
A receiver’s primary duty is towards the debenture holder who has appointed him or her. Receivers will generally have the power to sell the secured assets with a view to paying off the debt owed to the debenture holder. A receiver-manager will often have the power to carry on the business of the company, to borrow money, to employ or dismiss employees, to compromise debts of the company and to insure and repair property.
Section 437 of the Companies Act 2014, which I will refer to subsequently as “the Act”, confers statutory powers on receivers of the property of a company to do certain things and is intended to alleviate many of the problems which may arise from poorly drafted debentures. Examples of these things include the power to enter possession and take control of property of the company; to lease, let on hire or dispose of property of the company; to grant options over property of the company on such conditions as the receiver thinks fit; to borrow money on the security of property of the company; and to repair, renew or enlarge property of the company.
It is important to point out that these powers are subject to any provision in the instrument under which the receiver was appointed which limits the receiver’s powers in any way, again underlying the essentially contractual nature of receivership. For example, if the agreement provided that the receiver was not to borrow money, the Act would not prevail over that restriction.
A receiver is very different from a liquidator or an examiner. A liquidator has the task of winding up a company, realising its assets and distributing those assets in accordance with the law. An examiner is appointed for the purpose of examining the state of the company’s affairs and to put together some compromise or scheme of arrangement which may facilitate the survival of the company and then reporting to the court. A receiver, appointed on foot of a debenture, has a much narrower function. His or her principal task is to secure the assets of a company which have been mortgaged or charged in favour of the debenture holder which appointed him or her and realise those assets so that the secured creditor’s debt is repaid as quickly and efficiently as possible.
The Act sets out a number of duties that a receiver must comply with. Of these duties one of the most often cited is that a receiver, in selling the property of a company, must exercise all reasonable care to obtain the best price reasonably obtainable for the property as at the time of sale. This statutory duty makes it imperative that the receiver obtains expert legal and valuation advice on the sale of property, consistent with that duty. In addition, he or she must give notice to the company’s creditors if he intends to sell by private contract a non-cash asset of requisite value to an officer of the company.
There are provisions relating to the regulation and governance of receivers of the property of a company in the Act. The following are illustrative examples. When a receiver is appointed the Registrar of Companies must be notified within seven days of the appointment and must also be notified when a receiver ceases to act. In addition, every business letter, order for goods, or invoice issued by or for the company or the receiver must state that a receiver has been appointed. Failure to comply with these requirements is a category 4 offence, which is the most minor type within the fourfold classification of company law offences set out in section 871 of the Act.
The Act provides that the receiver must make certain information available to the company and to the Registrar of Companies. In addition, there is an obligation on receivers to send periodic accounts to the Registrar of Companies. Breach of the requirements is also a category 4 offence. A receiver must also report to the Director of Public Prosecutions and to the Director of Corporate Enforcement if it appears to him or her that a past or present officer or member of the company has been guilty of an offence in respect of the company.
Section 433 sets out the categories of persons who are disqualified to act as the receiver of a company, for example an undischarged bankrupt, an employee or officer of the company concerned, or a person who was such within the period of 12 months before the date of the commencement of the receivership. Certain specified family members of an officer of the company concerned are also disbarred. A body corporate cannot be a receiver of the property of a company.
Section 444 of the Act allows a liquidator, a creditor or a member of a company to apply to the High Court for an order to fix the amount to be paid to a receiver, notwithstanding that his or her remuneration has been fixed by the instrument appointing him or her.
Section 446 of the Act provides that the Director of Corporate Enforcement may, where he or she considers it necessary or appropriate, request that the receiver produce to the director the receiver's books for examination, either in regard to a particular receivership or to all receiverships undertaken by the receiver. Failure to do so is a category 3 offence. The court may, on cause shown, remove a receiver and appoint another and may end or limit a receivership on the application of a liquidator.
That is the end of my initial presentation. I thank the committee for its attention. We will be pleased to address any questions on the governance of receivers in the context of the Companies Act 2014.
I welcome the officials before us and thank them all for their opening statements. It is certainly a complex area. It seems that much is determined by the basis on which the receiver is appointed - whether on the basis of the mortgage or debenture loan, whether there is a legal basis under the Companies Acts, and so on. It seems to be quite varied in terms of the basis and the impact that has. On the issue of buy-to-let property and tenants' rights to which Mr. McKenna referred, currently the basis of a receiver being appointed to a buy-to-let property - which we know has happened in many cases involving several different banks - derives from the mortgage contract. Is there any statutory basis to that?
Mr. Seamus Carroll:
When it comes to housing and accommodation, the appointment of receivers is normally limited to to buy-to-let premises, as Mr. McKenna has said.
Receivership is not appropriate in the case of a principal private residence of an individual. The receiver, when appointed, has a duty of care both to the lending institution that has appointed the receiver and to the borrower. The receiver must act in a fair and proportionate manner vis-à-visthe lender and the borrower. Current land and conveyancing law does not specifically refer or cover the role of tenants in any buy-to-let property.
Tensions and potential conflict may arise because the role of the receiver is to manage the property but at a certain stage the receiver may move to sell the property. The obligation on the receiver then, as has been said, is to obtain the best price reasonably obtainable for the property. That is a strict obligation and has been interpreted by the courts in a strict manner.
If the buy-to-let property is in a residential area, for example, likely buyers will want to use it as their residence. Therefore, the best price reasonably obtainable for that property will normally require vacant possession of the property. A potential buyer will not wish to buy property with tenants if he wants accommodation for himself. This is where the conflict arises because the obligations of the receiver are to the lender and the borrower. In a way the tenants are caught in the middle. A code of conduct has been issued by Banking and Payments Federation Ireland. The code is voluntary, obviously. It is entitled A Residential Tenant's Guide to Receivership. It answers some of the questions that would arise with regard to the payment of rent.
Mr. Seamus Carroll:
There is nothing specific in the Land and Conveyancing Law Reform Act or in the preceding conveyancing Act from 1881 about informing the tenants. However, the code of conduct, which, I wish to underline, is a voluntary code, does advise that the tenants be informed. This is because the tenants will have to start paying rent to the receiver, whose task it is to arrangement repayment.
Mr. Conan McKenna:
It would depend on the terms of the mortgage contract and whether there is an obligation to inform in the contract terms. However, one would assume it would be standard and good practice for that to happen in any event where there is a contractual relationship and a term of the contract is being invoked.
I wish to clarify the point. Under the existing law, does the receiver take on the responsibilities of the landlord in respect of giving notice of termination, returning the deposit and so on? What is the current position when a receiver is appointed?
Ms Tara Coogan:
I wish to add one point. This is really a matter for the Department of Housing, Planning and Local Government. That Department is better placed to discuss this with the committee. I have no wish to mislead the committee in this regard. As it currently stands, under the Residential Tenancies Act a receiver is specifically not seen as a landlord. That is the issue the group is examining at the moment.
Mr. Conan McKenna:
As I was saying earlier, that work is virtually finished. Some legal issues have arisen. If something is going to be done from the perspective of the Department of Housing, Planning and Local Government as well as the other Departments involved, then it needs to be done properly and robustly. My understanding, having spoken to that Department as recently as yesterday, is that the work is imminent. Obviously, it needs to be presented to the Minister for Housing, Planning and Local Government, Deputy Murphy, and it needs to go to Government. In any event, that work will answer several of the issues that arise around the relationship between the receiver and the landlord.
I know there are disqualifications. The Department officials touched on those in the opening address. Are there required qualifications or can anyone call himself or herself a receiver currently?
Ms Helen Curley:
There are, as I mentioned, disqualification provisions in the Act. There are no positive qualifications. Obviously, receivers are subject to a range of civil and criminal sanctions and they may be disqualified for misconduct.
As I have said, receivership results from a private contractual relationship between a lender and a borrower. On the other hand, examinership and liquidations affect all creditors and members as they concern the whole of the business. Receivership is a private matter. The receiver is appointed to realise an asset belonging to the debtor over which the secured creditor has a mortgage or charge. The responsibility for appointing a competent receiver is obviously on the part of the creditor initiating the receivership. Creditors are expected to choose competent receivers because it is in their interests to do so. We understand that most receivers are in fact accountants but I have no statistics on that. That is my understanding.
Let us suppose a receiver is appointed to a business. I know the Department officials will make a distinction between whether it is a company or otherwise. In the case of a company the provisions of the Companies Act will apply. Who is the receiver accountable to? What obligation, if any, does the receiver have to the business that is the subject of the appointment?
My experience is that no information is shared with the business owner – the debtor – who is the subject of the appointment. Business owners are kept completely in the dark. The business is being run by the receiver. In some cases, it is being run into the ground. Fees mount and mount and are allowed to get to a ridiculous level. There seems to be no accountability or transparency around it.
Ms Helen Curley:
As I mentioned, the primary duty is to the debenture holder who appoints the receiver. There are no provisions relating to information that a receiver-manager, which is what we are talking about in this case, has to give to the business owner.
As I also mentioned, there are certain duties if the person wishes to sell the property. The job of the receiver is to get moneys to repay the debt owed by the business owner to the debenture holder. In that case there are duties for a receiver to endeavour to get the best price for the property when selling it and there is no indemnity for a receiver who breaches that duty.
I know the Chairman wants to move on. There are two parts to my final question. What is the position on the regulation of fees charged by receivers appointed to a business? Second, if someone wishes to bring a complaint about the conduct of a receivership, or the behaviour of a receiver, where do they go? What does the data say about complaints taken against receivers and the outcome of those? Have we seen action taken by the Director of Corporate Enforcement and so on against receivers for bad behaviour that contravenes the law?
Ms Helen Curley:
As I mentioned in my presentation, section 444 of the Companies Act allows the liquidator of a company or any creditor or member of the company to apply to the court in relation to receivers' fees, notwithstanding that they may have been set out in the instrument appointing the receiver. The court's powers extend to fixing the remuneration before the making of the order of the application. If the receiver has been paid previously in excess of the amount fixed by the court; the court order may extend to requiring him or her to account for the excess, or such part of it, that maybe specified in the order. However, this power shall not be exercised in relation to any period before the making of the application for the order to fix the fees unless in the opinion of the court there are special circumstances that warrant it.
On complaints on the conduct of a receivership, the terms under which a receiver will act have been set out in the terms of the contract. If there are specific offences which the receiver may have committed under the Act, there will be provision for reporting such offences to the Director of Corporate Enforcement. There are various offences under the Act, such as reporting offences that a receiver who does not file abstracts and so on may be amenable for. The Director of Corporate Enforcement can seek the books of the receiver in relation to particular receiverships or all receiverships with which the receiver has been engaged.
I am afraid I do not have the data around numbers of complaints.
I will ask for one representative from each Department to answer their own views on something given their knowledge of the area. I refer to a comment made by the Master of the High Court in connection with a case taken by constituents of mine in relation to to property going into receivership. The Master was quoted as saying: "I have sympathy for the view that the unaccountable receivership is a licence for theft." What is Mr. McKenna's view on that?
Mr. Seamus Carroll:
If I may, I will jump in first to add to what I said earlier. Where a receiver is appointed under the Land and Conveyancing Law Reform Act, there is a statutory instrument from 2010, SI 655, which specifies that the rate of commission of the receiver may not exceed 5% of the gross amount of money received by the receiver. The 5% limit is in place where the receiver is acting under the land law provisions.
Mr. Conan McKenna:
It goes back to the previous comment. First, the receiver in a non-corporate instance is subject to the criminal law in terms of their behaviour, whether it is non-fatal offences or under the Criminal Justice (Public Order) Act. Their behaviour as a receiver is accountable under the criminal code. Equally, the receiver would have liability for any other issue that might arise in tort law with regard to their actions. The fundamental question is whether receivers in the non-company context are accountable and whether there is a system of complaints about their behaviour, and the answer is there is not.
That goes to the crux of the problem. Many people have told me that receivers are unaccountable, unregulated, require no licence, can run up fees and are running up fees because the longer they are there, the more they benefit, even though under the Land and Conveyancing Law Reform Act they are supposed to be acting as an agent for the borrower. There are State institutions such as NAMA which earlier this year paid out €129 million to receivers, €15 million alone in Spencer Dock. I have been raising these issues over several years. When I raised the lack of regulation on receivers in 2016, the former justice Minister, Deputy Frances Fitzgerald, said that the Company Law Review Group was examining the issue. Two years later the group is still looking at the issue. What are we to say to people, and it is not in all cases, where receivers land in in the dead of night, wearing balaclavas and changing locks? There are tenants who pay rent to a landlord, sometimes to companies, who have done nothing wrong, and have their businesses closed down on them. All the anecdotal evidence given to us - and I am unable to back this up because I have not investigated it as it is not my job to do so - suggests that these receivers are milking a system because they are allowed to.
Mr. Conan McKenna:
I will let my colleagues from the Department of Business, Enterprise and Innovation answer on the Company Law Review Group. There are a couple of questions. I do not think that anyone can countenance the idea of people arriving in the middle of the night, particularly to residences and people living in houses. One cannot see why there would be a necessity for that in the first place. Sometimes issues are raised about those who accompany receivers or bailiffs or similar, and the behaviour of those particular people. The Department of Justice and Equality is looking pressingly at rendering those who work with receivers or sheriffs in those instances subject to regulation under the Private Security Authority. However, we are not proposing that receivers would come within that because the Private Security Authority obviously licences security people. However, returning to Ms Curley's earlier comment, our understanding is that the vast majority of receivers are themselves regulated professionals and would be subject to complaints about their conduct to their professional bodies, and I am not sure whether that avenue is being used.
If a receiver is a member of a particular accountancy body that is subject to a regulator, as they often are, that is a quite serious avenue of complaint about their behaviour, depending on how misconduct is defined in the legislation or charter governing that complaint system .
The problem is that somebody has lost possession of or access to their property and there is no body to which they can complain. There is no overarching regulatory body regulating receivers. This was touched upon earlier in reference to qualifications. Required qualifications for examiners and liquidators are set out in sections 519 and 633 of the 2014 Act, but no qualification whatsoever is required for receivers. I make this comment because there are numerous properties with receivers appointed about whom I have no knowledge. I presume that is done in a fair, transparent and decent way. I am not suggesting that the idea of a receivership is wrong. However, I am aware of numerous cases where there has been thuggish or unacceptable behaviour; where tenants are locked out of their businesses without notice; where they have no access to their own personal property; or where the receivers fail to communicate with the individual over and over again. There are countless examples of properties being sold below market value and below what was offered several months earlier. There are other cases where the overall cost of the receivership, not just the fee, is nearly 30% of the actual value for which the property is disposed of at the end of the day. In other cases, businesses that one could argue are going concerns are run into the ground. When are we going to deal with this? We need to regulate receivers. We need to set up a minimum standard of qualification, just as there are for examiners and liquidators. We need to regulate them and have a governing body for them, and we need to set up very clear structures for people who feel they have been wronged by receivers.
This is the madness of this issue. The Land and Conveyancing Law Reform Act 2009 very clearly provides that the receiver is the agent for the borrower. We all know that the receiver does not act for the borrower. The receiver is appointed by the bank or institution. In law it is an agent of the borrower. The receiver is supposed to run the company or business and pay back the mortgage on behalf of the borrower, but the reality on the ground in numerous cases is that their work is in complete conflict with that aim. The option open to an individual such as my constituent is to go to the High Court. That is out of the reach of most people. I want to get to the crux of this. As I said, I have been raising this since December 2015. We still have not moved forward much in my view. Has the Company Law Review Group looked at this issue? Is it actually going to take any action on it?
Ms Helen Curley:
I need to correct something here. The Company Law Review Group is not looking at this issue at the moment, and it has never looked at it since 2016. Receivership is not currently on its work programme. I wish to correct that misunderstanding.
In regard to the other aspects the Deputy has raised, such as the running up of fees, all I can tell the committee is what the legislation currently provides. I have mentioned section 444 of the Act and the possibility of going to the High Court to have the receiver's fees reviewed. Regarding minimum qualification standards like those for liquidators or examiners, I have attempted to point out the difference between a liquidator or examiner and the more narrow role a receiver will have in a lot of cases. That role is to secure an asset and sell it at the best price obtainable so that the debt can be repaid to the person or institution that provided the money. Mr. McKenna has alluded to the fact that many receivers may be accountants and thereby amenable to the professional standards set by their own professional body.
Mr. Conan McKenna:
If I may add something, we have not discussed the fact that a lot of the focus of our efforts, particularly since 2015, has been on dealing with mortgage arrears, mortgage distress and insolvency. We have tried to render all of those pieces more effective, including through the Abhaile service and various other mechanisms. We have managed to bring about a number of significant successes in that area.
In regard to the question of regulation of receivers as such, as I mentioned earlier we had a working group with the Department of Housing, Planning and Local Government. We also have very good contacts with our colleagues in the Department of Business, Enterprise and Innovation about insolvency and related areas. To the extent that there is a perceived significant gap, it should not be beyond the bounds of possibility for us to get together and have a good look at that issue. Obviously the Companies Acts provide for issues relating to receivers, but only for companies. Issues concerning receivers also arise for small and medium-sized businesses which are not companies. Then there are individuals who are both tenants in and owners of buy-to-let properties. They may have bought one or two houses and they are now caught in the headlights of a receivership as well as the people living in the houses. It is not beyond our capacity as a group of Departments with various stakes in this to get together, look at this issue and see if there is anything that could be done about it directly. I emphasise that all of our efforts so far have been around trying to deal with the issue of chronic mortgage arrears. Looking at how the numbers have changed, a huge amount of success has been achieved in that area through very good and effective co-operation between Departments. Mr. Carroll also wanted to mention something
Mr. Conan McKenna:
No, I am saying it is a contributing factor, as are the improving economy, the legislation we brought in during 2015 to remove the bank veto on personal insolvency arrangements and other legislation we brought in, including legislation concerning bankruptcy. I am not claiming anything in particular, but it certainly looks as if things are improving significantly, particularly in recent years and in the chronic area of arrears beyond 720 days. Numbers in that area have been coming down since 2015 and were going up until then.
Mr. Conan McKenna:
Ms Reid can provide some headline numbers. The fact that 12,000 to 14,000 people have availed of the Abhaile service in recent years, with more than half of those in the 720 day or chronic arrears period, an area that basically had no engagement prior to that whatsoever, is a tangible success. Until 2015, the number of people in 720 day mortgage arrears was increasing. Since then, large volumes have been engaging with assistance services for the first time to help them towards solutions and are on the route to same.
I wish to speak on this. Ms Curley wanted to correct a misunderstanding and stated that the Company Law Reform Group, CLRG, had not been dealing with the issue of receivers. That is fine. I have been raising this case since 2015. In 2016, we got an answer from the then Minister regarding the issue of receivers. She wrote:
However, the 2014 Act does not specify any regulatory standards for the appointment of a receiver.
The Company Law Review Group is a statutory body which advises the Minister for Jobs, Enterprise and Innovation on the review and development of company law in this jurisdiction. As part of its Work Programme 2014 – 2016, the Review Group is examining whether it is desirable or necessary to further amend the law in light of developments in case law or any submissions received on matters which have not been addressed in the 2014 Act.
The only way to read this is to say that exactly what I said was supposed to happen was supposed to happen, yet Ms Curley is telling me that the CLRG has never considered this issue. The reply is on the record of the Dáil.
I am not looking to catch people out in their evidence, but I am astounded. I searched for the answer to check that I was correct. There have been numerous references on the floor of the Dáil to the non-regulation of receivers. Along with other Deputies who had raised the issue, that reply left me with the clear message that this work was ongoing. We can talk about this or that section of the Act, but let us call a spade a spade - receivers are unregulated. In Irish law, they do not have to have any minimum qualification. They are running up large bills. While they are supposed to have a duty of care to the borrowers under Irish law, a borrower seeking to secure that duty is required to go through a legalistic process, which such people are usually not in a position to do because a receiver has been appointed to their premises. This is not about the validity of the appointment of the receiver, but about the receiver's actions. I am not saying that every receiver is involved in actions that are not appropriate.
Of course there should be accountability for whatever receivers have done in the past, but how can our committee move forward? Is there any hope? I believed there was, given the assertion that the matter was being discussed by the CLRG for the past two years. I thought that it might come up with something and that it was just dragging its feet. Will there be any change to the law outside of the report on protecting the rights of tenants where a receiver has been appointed, which we have been waiting on? According to an update in June, it was imminent. Now we have another update claiming it is imminent.
I have raised other issues, those being, fees, the minimum qualifications that a receiver should have and the regulation of those same receivers. Falling back on the claim that they are usually accountants and are regulated by their own body is not good enough. That is like saying that private security firms usually have other roles and are regulated there. That does not work. We have strong legislation on the regulation of security firms. Someone cannot change a lock now without being registered as an appropriate person to undertake the task, although there might be some overreach in that regard. I am not sure that receivers who are walking into properties and changing locks are actually registered with the Private Security Authority, PSA. If someone wanted to change a lock on a front door, that person would have to go through a stringent process in terms of the qualifications he or she would have to meet. The person would have to pay a fee to be registered, meet certain criteria, be Garda vetted and so on. However, were I an institution to whom someone owed a few euro, I could appoint any Tom, Dick or Harry to go in, take over a premises and run it on my behalf and supposedly in the interests of the borrower. The problem is there is no regulation, no minimum standards and, without going to court, no body to complain to for anyone who believes he or she has been wronged where a receiver has been appointed.
Mr. McKenna said it "is being dealt with". We will not move on from that. I will give Mr. McKenna an example. A receiver appointed in the dead of night goes in to change the locks on a premises. The premises is a public house somewhere in the State. The individual who was operating it was renting the premises from a landlord and was meeting his or her payments on a monthly basis. The individual's contract was fine and secure. However, that individual is completely locked out of the property. All of his or her investments - life savings that have been thrown into the business - are gone because the place was closed down overnight and the individual has no access to it. The firm appointed is usually a reputable group of accountants, but it is not the accountants who are out changing locks or sitting inside playing cards and so on, for example. Another group of people are employed to do this. The individual has no access to the building. The company closes and jobs are lost as a result of that receivership.
Mr. McKenna said that tenants' rights were being protected. What changes have happened or will happen to ensure that people who are abiding by their contracts with their landlords and whose landlords' premises then go into receivership will not have their businesses disrupted as a result?
The receiver is the only one who can do it. If Mr. McKenna was running a public house in Kilkenny, he would be the licensee. If Mr. Carroll appointed me as the receiver, I could not go in and run that public house. I would have no licence to trade. The receiver is closing the business.
Are there any protections? I am at somewhat of a loss as I came in here thinking the questions were about how long we would have to wait to get more regulation, make sure that receivers are regulated and that there are minimum qualifications but I now find out that there is not any plan for that.
Mr. Seamus Carroll:
I can only speak for what is in the 1881 Act and the 2009 Act. In both of those situations the receiver is appointed by the lender, but is the agent of the borrower. The general duty of the receiver is to secure the property and to act for the lender in terms of servicing the loan. There are certain obligations when it comes to acting fairly in the interests of the borrower. Deputy Doherty mentioned what appeared to be a fire sale, which would appear to be contrary to the law, because the legal obligation set out in the legislation is to obtain the best price reasonably obtainable for the property, in other words, to act fairly in the interests of the borrower, not just of the lender. As I mentioned earlier, that can lead to tension where one has tenants in a situation because if it is residential property, for instance, one will not maximise the sale price of the property unless there is vacant possession. That is where one potentially comes into a conflict between the interests of the borrower on the one hand, as the receiver has duties towards the borrower, and towards the lender on the other hand. A missing part of the jigsaw at the moment is rights towards tenants who may be caught in the crossfire between a mortgagor, the borrower, who wants to maximise the sale price to reduce debt and the obligation on the receiver to service the loan on the other hand.
Mr. Conan McKenna:
As I said a while back, we will go away and look at this following the discussion with the committee. We are aware from other discourse that there are concerns in these areas. If there are gaps it is well within the competence of the Department to deal with them. We have worked successfully with our colleagues in other Departments on a number of related aspects. We will take this away and look at that general issue and if there are substantial gaps that need to be addressed then we will come up with a strategy for dealing with that. We must bear in mind that there are two other pieces of work ongoing, one on the protection of residential tenancies and the other on the security personnel who may be changing the locks or opening the door. I have listened carefully to what has been said here and we will take this away and have a good look at it.
I appreciate what Mr. McKenna said at the end. A consultation by the Department will provide a lot of evidence to suggest that there are huge gaps and that there needs to be tighter regulation and an easier pathway for people to fulfil their rights under law, whether that is the 1881 Act or the 2009 Act. If it is a financial institution we do not force everybody to go to the High Court. We have the Financial Services Ombudsman. The regulation needs to be more stringent. I would suggest a short, sharp consultation period which would give a great insight into what is happening on the ground.
Ms Madeleine Reid:
Yes I can do that. We have been running the Abhaile scheme together with the Department of Employment Affairs and Social Protection since July 2016. We are just finalising a report on the outcomes after two years, which will go to the Government shortly and the data I will provide is a little foretaste of that. We hope that once the report goes to the Government it will be published very quickly.
The question was about the impact on the mortgage arrears problem. The Abhaile scheme is targeted in particular at those who are in the worst mortgage arrears, those who are in immediate risk of repossession on their homes. That would be the cohort who are in arrears equivalent to two years of repayments, who are over the 720 days category as set down by the Central Bank.
As Mr. McKenna said, that category has been dropping, but it is the slowest to reduce and that is the hard coalface really in addressing the mortgage arrears problem. It peaked at the end of June 2015 and it has gone down considerably at this stage. The Central Bank figure at the of June this year was 28,000 household accounts, which is probably equivalent to approximately 25,000 homes, because the Central Bank counts mortgage accounts which include top-ups and second mortgages. If we take it that there are 25,000 households that are at serious risk of repossession, we have 10,000 households already in receipt of financial advice and help under the Abhaile programme and that is having a significant impact.
Ms Madeleine Reid:
What is provided is that the person is given a triage under Abhaile which is implemented by the Money Advice & Budgeting Service, MABS, in consultation with the Insolvency Service of Ireland, ISI. Most people would be offered a consultation with a personal insolvency practitioner, PIP, but if they do not wish to look at personal insolvency they get help from a dedicated mortgage arrears, DMA, adviser in MABS. There are two alternative streams of mortgage advice.
Ms Madeleine Reid:
The borrower is not given money, what is given is advice and help but that advice and help covers doing an analysis of their finances, giving them advice on the best solutions available and negotiation with the borrower up to concluding an arrangement for them. They will stay with a PIP or a DMA adviser until there is an arrangement in place for them.
Ms Madeleine Reid:
Yes, I can tell you that exactly, Chairman. There are two streams, so if one is with a DMA adviser with MABS, no fees are paid to the DMA adviser, as they are paid salaries under contract with the MABS body they are working with. If one is directed to a PIP, what we negotiated with PIPs is that under Abhaile they will provide a basic package of advice and assistance which follows statutory requirements laid down under the Personal Insolvency Act and for doing that they are paid €500 plus VAT which comes to a total cost to the taxpayer of €625. They are not paid anything else, but they are expected to continue assisting the borrower until there is a solution in place for them. The ISI is the regulator for PIPs. We are tracking and following up very carefully what is happening to borrowers who get financial advice under Abhaile and the indications are that they are staying helped in the process until there is a solution in place for them.
Approximately 30% of all the households that have been receiving financial advice from a PIP have already got a solution in place. Approximately 95% of those solutions are keeping them in their homes. Approximately 50% of borrowers are with a PIP and still in progress towards a solution. That is slower than we would like but it is natural because they are the people in the worst arrears and it takes time negotiating a solution for them.
A lot of them have to establish a repayment record with the lending institution before a solution can go in.
Ms Madeleine Reid:
I should mention one other financial aspect to be complete in my answer. If a proposal is made to a lender for a personal insolvency arrangement for them and it is refused, Abhaile also covers legal aid for the PIP to take the review to court for the court to check whether it should be imposed on the borrower.
I respect all the work the officials are doing. I will start from that point. The reason I asked that the committee would bring in the officials is because of the numerous stories I have head about receivers. I am giving the officials information that has come out of my discussions with borrowers and so on. The first thing I wanted to get absolutely clear was the fact that receivers are not accountable and are not regulated. I think Mr. McKenna said receivers are not accountable and not regulated although they may have a background as accountants or whatever. Receivers are appointed and when they are appointed, they take total control. In fact, a number of receivers - I am not saying all of them but the ones I have experienced - act like thugs and bullies. In Kilkenny, they set about notifying almost a complete housing estate that the receiver was taking over the property and they set out their case. There was no prior lead-up to it, they just notified everybody. In fact, they did not even own the houses; the houses belonged to Kilkenny County Council. Yet for the period that the tenants had got these letters, they were terrified. They saw people acting for receivers literally breaking down front doors, changing locks on vacant houses and bullying people in their family homes. That is just one example.
I have another example of a case here in Dublin where the receiver was Grant Thornton. I am naming the company because it was in the public domain so there is no issue around that. I went and tried to meet with them to discuss a case they were pursuing. They did to me what they do to an awful lot of other people who try to help. They got their solicitors to write to me. They spoke to me about the separation of powers and accused me of interfering and so on. That is the type of activity that is going on all over the country. Deputy Pearse Doherty gave an example that is not unusual. Social media give us reports of the various attempted evictions and so on that have taken place and the activities of these people when they visit homes. It is shocking.
I always believed that there was some form of regulation in place but there is not. Receivers are often appointed with no other purpose but to strong-arm the borrower and take possession. Once they take possession, the borrower cannot even get an account of the rents that they collect. The borrower is totally ignored and the asset is often run down to the extent that there is far less value in it in the context of the sale than what would have been the case had the borrower sold it. This is what is going on. The rip-off in professional fees relative to this activity is criminal. I note from the Deputy Doherty the quotation from the Master of the High Court to the effect that unaccountable receivership is licence for theft. That is the experience of people. My view is not extreme. It is based on fact. There seems to be no effort being made to curtail the activities of these receivers. Some of them may very well be accountants but I doubt very much they are all accountants or all qualified to do this job.
We absolutely have to intervene; there is no question about it. I am disappointed, given all the experiences Deputies have had, that a greater effort is not being made to ensure that these people are accountable. When the difficult point in negotiations is reached between the borrower and the vulture fund, bank or whatever, the threat is made that a receiver will be appointed immediately. The intention is to force the hand of the borrower to come up with the money or lose everything. That is the threat. It is another method used to squeeze money out of the already squeezed borrower. The whole thing is simply corrupt.
Now is not the time to be referring it to another group to deal with it. There must be immediate action to put the small things in place to prevent some of these big things from happening. We must then deal with the overall picture later on. It is outrageous that they are neither accountable nor regulated. There are clearly opportunities being taken by these individuals to collect large sums of money from rents, to sell properties and push up the price because the borrower is in trouble. I wonder if receivership is also used to clear title through court so they can sell properties and, after the sale is over, if the title is wrong or there is something odd about it, they can clean it and off it goes.
There are serious misgivings about all of this that the various Departments need to address without delay. I would like to know what sort of immediate response we are going to have to the issues we have raised today. Please do not tell me we are going to have a review group because the receivers will jump with joy when they hear that.
Mr. Conan McKenna:
To go back to the very start in terms of my saying receivers are not accountable and not regulated, there is no instrument of law generally regulating receivers. That is not to say that they are not regulated as professionals, if they are members of professional bodies, by their own professions.
I will stop Mr. McKenna there because this is the nub of the thing. If someone is a receiver and an accountant, his accountancy regulator does not look at his work as a receiver. Mr. McKenna may be putting forward a case that someone who is regulated as an accountant must be an okay kind of person. I question that, too. We had the accountants during the bank collapse and they were not okay kinds of people. They certainly got their figures wrong, to put it at its mildest. Will the Department regulate receivers separately? They are going around the country like cowboys.
Mr. Conan McKenna:
I was just going back to make that point. I suppose where we are coming from in that regard is also that a number of professional regulatory bodies and regulators have clauses in their regulatory systems about actions bringing the profession into disrepute and things like that.
It is not beyond the bounds of possibility that those kinds of routes could be used. Having said that, we take the point. Most of what we are hearing about receivers, including what we have heard today, relates to the rights of tenants in cases of receivership and to unacceptable behaviour by receivers or receiver assistants, or both. I tried earlier to point out that those two areas are already being examined carefully. In the case of tenants, that examination is nearing a conclusion. The committee might want to look at the report when it is produced by the Department of Housing, Planning and Local Government. I think it will be quite effective.
I want the Department to encourage the Minister to bring in legislation. I am not sure we can rely on regulators. When was the last time an accountant was held to account by the regulatory body for accountants? Were any of the big four, or any of the accountants that were regulated, held to account in relation to the banking crisis?
I can tell Mr. McKenna that it did not happen. On the basis that this is a live issue, I ask the Department to deal with the issue of receivers in some way. Legislation needs to be brought in to sort this out as quickly as possible.
Mr. Conan McKenna:
I have already made the point that we will take this away. We will look at it between the Departments concerned. It is a complex issue that cuts across a number of Departments. That is not to say that it cannot be solved, or that we will not go away, consider carefully everything that has been said today and follow up on it.
Now that it has not had a successful outcome, the borrower who signed the contract is relying on the fact that the contract says the receiver shall act for the borrower and the lender. The borrower did not expect that the receiver would turn up, ignore the obligations and beat the lard out of the borrower, or completely ignore the rights of the borrower. That is what is going on all over the country. I am not just saying it. There is lots of evidence that this is happening.
I want to address that point. The fact is that it is a matter of criminal law. I am talking about someone who was beaten up by the economic crash and turned to the contract to try to get some comfort from it, only for that approach to fail miserably while the person in question was busy trying to keep his or her life, business or family together and, at the same time, trying to stave off the actions of a receiver who has no interest in obligation. Such people often do not have the money or the physical or mental disposition to go to court to defend themselves. They presume that because these people are acting in the way they are acting, they must have the full might of the law behind them. We are discovering today that this is not the case. We have learned that the people they are dealing with are not regulated.
I mentioned a case I took up. It is one of many cases with the same outcome, unfortunately. In that case, the receiver decided to get me off the pitch by sending me a stiff solicitor's letter. I was supposed to buckle at the knees when I received it, but I did not do so. I can imagine that a person who is defending his or her property and family, and trying to keep some of it together for the future, would buckle at the knees in such circumstances. He or she might not have the funds required to continue. I am trying to get a message across about how weak the system is, and how weak the individual is against the might of the lender and one of the big accountancy firms. They are using their money to ensure they get what they want, and they will beat up anyone in the process. That is the reality. I am asking Mr. McKenna to take note of that.
If he asks me after the meeting, I can give him many examples of how these things function in reality. Deputy Doherty has provided some examples. That is all I am saying to Mr. McKenna. I am angry and frustrated about the fact that we do not have legislation. I am trying to get that across. I encourage the Department to address this matter as quickly as possible to bring about some form of resolution that will tilt the balance somewhat in favour of the individual who is making an effort. That is all I am saying. I ask Mr. McKenna and his colleagues to consider that.
That brings us to the end of this part of this morning's meeting. I thank the witnesses for coming along. I appreciate it. They might let us know how they are getting on with the outcome of the meeting.