Concerns raised over insolvency practice’s ‘business model’

An internal Insolvency Service of Ireland (ISI) report raised concerns about the business model of a company which provided advice to over 600 people in mortgage arrears under a State-funded scheme to assist distressed borrowers.

New Beginning was paid more than €330,000 under a scheme to assist distressed borrowers, but did not directly set up any personal insolvency arrangements to restructure debts, the report found.

The report, completed last November and seen by The Irish Times, raised concerns the firm’s business model was “potentially problematic” and had been “actively discouraged” by the insolvency service, although it “does not contravene the specific terms and conditions” of the scheme.

In 2016, the Abhaile scheme was introduced in response to the high number of households in serious mortgage arrears following the property crash. The scheme provides borrowers with vouchers to obtain legal and financial advice paid for by the State.

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Personal Insolvency Practitioners (PIPs) provide financial advice with the aim of finding a solution to borrowers’ debts. These can include a bankruptcy application, a referral to budgeting service Mabs, an informal debt solution, or a Personal Insolvency Arrangement (PIA) to restructure the debts.

In June 2017, the ISI “became concerned about activity at New Beginning”, due to a “lower level” of recommendations for certificates to begin PIAs compared to other practitioners, the report said. When New Beginning referred borrowers on to another company, the second PIP did not avail of a further Abhaile voucher, and “the borrower was not asked to pay any fee”, the report said.

‘Alternative PIP’

The firm, led by barrister and high-profile debtor advocate Ross Maguire, is no longer on the Abhaile panel of providers.

The firm had two staff registered as PIPs who would meet with borrowers availing of vouchers and then draw up a “comprehensive letter of advices” on their options.

However, “New Beginning did not provide a service beyond this point and where the letter of advices deemed a PIA to be the most appropriate solution” the firm would recommend the borrower “appoint an alternative PIP” to pursue the debt restructuring, the report said.

The firm redeemed 661 vouchers under the Abhaile scheme, and between October 2016 and March 2018 was paid in excess of €330,500 by the State. The report found 30 files did not meet the scheme’s terms and the ISI was recouping payments in those cases.

Due to concerns within the insolvency service, payments to the firm were postponed for a period in October 2017, it said.

The report found New Beginning had demonstrated “a high level of technical compliance” with the scheme terms, and a solution was achieved for 33 per cent of the 661 borrowers, a rate in line with the wider Abhaile scheme.

Statutory debt arrangements

However, the report said “ISI has reservations about the effectiveness of the business model employed by New Beginning. Specifically the ISI is concerned at its potential impact on the level of formal solutions achieved for borrowers”.

The policy of referring people to another provider to set up statutory debt arrangements “requires already vulnerable debtors to engage with new PIPs”, it said.

The report concluded while “this model does not contravene the specific terms and conditions” of the scheme, “it has been actively discouraged by the ISI since mid-2018”.

In a statement, Mr Maguire said “while I accept the ISI finding, I do not necessarily agree with it” and the firm was “satisfied that our model gave the very best outcome to clients”.

New Beginning had an arrangement to refer all cases that required PIAs to Co Donegal firm McCambridge Duffy, who were "better-placed than us" to manage statutory insolvency arrangements, he said.

“Between McCambridge Duffy and ourselves we have completed a very large proportion of all the successful arrangements in the State and many of the cases have been groundbreaking,” he said.

Mr Maguire said the ISI had been notified of the agreement with McCambridge Duffy in 2014. New Beginning continues to offer debt management and insolvency services outside of the Abhaile scheme.