Inside the world of business

Going for broke on bankruptcy

THE TRICKY process of how to juggle mortgage debt in out-of-court debt settlements is one of the issues focusing minds in officialdom as Government prepares the draft personal insolvency legislation.

Reforming the draconian bankruptcy regime has been acknowledged by various parties as key to solving the mounting problem of personal indebtedness and rising mortgage arrears.

Undoubtedly, banks are showing forbearance to mortgage holders who have no hope of ever being able to repay mortgages and this needs to addressed quickly. For this growing number, the only route to reach deals with creditors is the bankruptcy court.

The troika of the European Commission, the European Central Bank and the International Monetary Fund said yesterday it was discussing options for the design of the personal insolvency law during its current mission to Ireland as the Government develops a strategy before the end of the year.

The problem with a new bankruptcy regime is how do you treat long-term mortgage debt in either judicial or out-of-court debt settlements when the discharge period is set at five years, for example.

If the regime is not properly designed and there is a prospect of heavier-than-expected loan writedowns, the capital costs to the banking sector and inevitably, its parent – the State – will rise.

The option being considered – a brake or reduction on mortgage or secured debt repayments to facilitate a deal on unsecured debt – is a high-stakes game, as longer-term secured debt is generally not included in non-judicial debt settlements internationally.

The State authorities are loathe to tinker with anything that could lead to strategic defaults and borrowers masquerading as being in the “can’t pay” category when they are clearly in the “won’t pay”.

The Central Bank, banks and troika are looking at the proposals being considered and the Department of Justice is said to be very close to putting a final proposal to the Government. A carefully judged balance must be struck.

Dunsmore jumps ship while C&C still fizzes

JOHN DUNSMORE’S departure from C&C took markets by surprise yesterday.

The former head of Scottish Newcastle was recruited, along with colleagues Stephen Glancey and Kenny Nielen, in late 2008 to run C&C at a time when the company’s fortunes were declining rapidly.

The trio successfully turned the business around, tightening it up through the sale of its spirits division and the acquisition of the Tennents and Gaymers brand, regaining Magner’s market share in the UK in the process.

The timing of Dunsmore’s announcement is interesting. At the end of this year, Dunsmore, along with his two colleagues will qualify to receive the final tranche of shares they are entitled to under the share-based incentive scheme that formed part of their package.

C&C’s performance over the last few years means that the three men easily qualify for their incentive schemes – something that proved controversial when first announced, but which now appears justified as a strategy in terms of the company’s performance.

While the market is awash with speculation about the reason for Dunsmore’s departure, the management team was on message yesterday about the fact that it would not mean any change in strategy, pointing to the fact that Dunsmore is retaining his shareholding.

The big question that remains is whether the company is being prepared for sale. With MA activity thin on the ground, and the financing climate extremely difficult, any imminent sale of C&C is less likely to happen.

Dunsmore’s decision to jump ship can just as easily be read as a pragmatic move to bow out when the going is good and the possibility of a sale has receded, rather than a sign that any major change in the status of C&C is imminent.

TODAY

Representatives of the EU/ECB/IMF troika examining Ireland progress on the bailout hold a press conference on their findings

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