# Only 50% of secured creditors needed to approve a PIA



## Brendan Burgess (22 Jan 2013)

I thought that in the Bill, it was 65% of the secured creditors.  Here is what the revised Explanatory Memorandum says



> _[FONT=&quot]Section 106 [/FONT]_[FONT=&quot]sets out *the necessary  proportion of creditors required* to  approve   a  Personal  Insolvency   Arrangement.  Subsection  (1) provides  that  each of the following is required:[/FONT]
> 
> [FONT=&quot](_a_)  a majority of creditors representing not less than 65 per cent in value of the total of the debtor’s debts due to the creditors participating in the  meeting  and  voting  must  have  voted  in favour  of the proposal,[/FONT]
> 
> ...


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## Brendan Burgess (22 Jan 2013)

I just checked the Bill and it was like this in the Bill as well. 

If one lender has more than 35% of the debts, they can veto the PIA. 

If the secured lenders agree, but a majority of the unsecured lenders disagree, they can veto the PIA.

However, if a secured lender only has secured voting rights for the value of the security. The "negative equity" becomes an unsecured creditor and as such he can probably ensure that 50% of the unsecured creditors approve any arrangement.


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## dub_nerd (22 Jan 2013)

Brendan Burgess said:


> However, if a secured lender only has secured voting rights for the value of the security. The "negative equity" becomes an unsecured creditor and as such he can probably ensure that 50% of the unsecured creditors approve any arrangement.


 
I'd be the first to admit I know nothing about it, but that doesn't sound right. Surely the creditors are people and institutions? "Negative equity" can't be a creditor. If the bank has a 200k mortgage on a house in 100k negative equity, I would thought that the bank has a 200k secured loan regardless of the dodgy security. Otherwise a) who would be creditor for the other 100k?, b) if you could find someone to value the house at 50k, you could prevent the bank from vetoing anything.


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## Brendan Burgess (22 Jan 2013)

Hi dub nerd

The legislation specifies that the secured creditor is split into two bit - the secured bit as represented by the value of the security - the balance is treated as an unsecured creditor. 

In the example you provide the bank is a secured creditor for €100k and an unsecured creditor for €100k.  So let's say that the total other unsecured creditors are €80k.

If the bank approves your PIA, it goes ahead. 

It passes the 65% of all creditors test - €200k/€280k = 71%

It passes the 50% of secured creditors test - €100k/€100k = 100%

It passes the 50% of unsecured creditors tes €100k/€180k = 55%

If the house was worth €250k, the bank would have €50k of unsecured credit, which would make the total unsecured creditors €130k.  Creditors representing €15k of the other unsecured creditors would have to vote in favour of the arrangement. 

Brendan


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## dub_nerd (23 Jan 2013)

Ok, gotcha. Thanks Brendan.
So chances are, in most cases involving a mortgage, the bank will still be calling the shots. I guess this is the flaw we knew about.


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## Dr.Debt (23 Jan 2013)

Hi Brendan

This contradicts a previous post by you on 29/6 of last year.

You were reporting about questions being asked at a public meeting at the Department of Justice after the initial publication of the Personal Insolvency Bill.

In the example above the secured debt is 100K ((restricted to the current value of the propertry)however the other 100K, representing negative equity,eventhough not allowed to be calculated as secured debt,is not either allowed to be used as part of the approval calculation for unsecured debts. If my understanding is correct here is the situation :


It passes the 65% of all creditors test - €200k/€280k = 71%

It passes the 50% of secured creditors test - €100k/€100k = 100%

It doesnt pass the 50% of unsecured creditors test €0/€80k = 0%

So in this case the bank would not be able to approve the PIA without "input" from other creditors.


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## ronron (12 Feb 2013)

Hi Dr Debt

the bank's negative equity of €100 k would be classed as unsecured creditors and therefore their vote will be €100 k / €180 k. The bank will be a secured and non secured creditor and will control the voting.
RON


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