# Liquidator appointed to Drumcondra Credit Union



## Brendan Burgess (2 Jul 2020)

Provisional liquidator at Drumcondra Credit Union
					

The Central Bank has made an application to the High Court to have a provisional liquidator appointed to Drumcondra and District Credit Union in Dublin.




					www.rte.ie
				




I haven't seen the accounts, but it's unlikely that it was necessary to appoint very expensive liquidators. 

They should have stopped issuing loans a year ago and paid back all their members shares over a wind down period. 

If there was a deficit at the end of this, then put it into liquidation, but it would be much smaller and much cheaper.

Brendan


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## MrEarl (2 Jul 2020)

Hello Mr Burgess, 

I agree entirely. 

However, my guess is that the Board either didn't have the skillsets needed, or the confidence to put that to the members. 

I assume one of the big Northside credit unions are on standby - by it Progressive or Members First, and will soon step in to take on the members share accounts.


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## NoRegretsCoyote (3 Jul 2020)

Brendan Burgess said:


> They should have stopped issuing loans a year ago and paid back all their members shares over a wind down period



How do you "pay back" a member whose only bank account is with the credit union?


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## Pinoy adventure (3 Jul 2020)

A sad state of affairs when you see things like this.
Will this cost the tax payers if they cannot cover all members shares ?


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## Brendan Burgess (3 Jul 2020)

NoRegretsCoyote said:


> How do you "pay back" a member whose only bank account is with the credit union?



Give them a bank draft and let them figure it out.

Brendan


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## Brendan Burgess (3 Jul 2020)

Pinoy adventure said:


> Will this cost the tax payers if they cannot cover all members shares ?



Yes. 

I imagine that we will be paying the liquidators' fees. 

It would have saved everyone if the Central Bank just told the Credit Unions which are unsustainable to wind themselved down.

Brendan


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## RedOnion (3 Jul 2020)

Brendan Burgess said:


> Yes.
> 
> I imagine that we will be paying the liquidators' fees.


No.

Resolution actions are paid for from the Credit Institutions Resolution Fund, which is funded by levies on credit institutions. There is no direct taxpayer cost.

This case has been over 4 years in the making. The appointment of a liquidator is the right action to contain the issue and protect members savings, which in the CBIs remit. 

The appointment of a liquidator will result in a short resolution timeframe. It should cost less than a disorderly wind-down over years which will probably result in an insolvent situation which requires a liquidator anyhow. Or funding from the CBI which leads to a spread to the tax payer.


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## NoRegretsCoyote (3 Jul 2020)

Brendan Burgess said:


> Give them a bank draft and let them figure it out.



You are 90 years of age. Your life savings are with the credit union. It's your only account. You've never dealt with a bank draft in your life. You have health issues and assembling the KYC paperwork to open a normal bank account is a huge challenge. 

*Brendan's approach is both impractical and unethical.*

This is why bank resolution and recovery frameworks should always provide for deposit transfer to another viable institution.


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## RedOnion (3 Jul 2020)

NoRegretsCoyote said:


> This is why bank resolution and recovery frameworks should always provide for deposit transfer to another viable institution.


It doesn't currently go this far once the liquidator is appointed. The DGS is automatically triggered. 
In this particular case, the options to merge / transfer had been exhausted.


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## Peanuts20 (3 Jul 2020)

Liquidator was appointed after merger attempts failed. State deposit guarantee scheme has kicked in. Since members had previously been told to reduce their savings to €15k, all savers should be covered.


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## Pinoy adventure (3 Jul 2020)

NoRegretsCoyote said:


> You are 90 years of age. Your life savings are with the credit union. It's your only account. You've never dealt with a bank draft in your life. You have health issues and assembling the KYC paperwork to open a normal bank account is a huge challenge.
> 
> *Brendan's approach is both impractical and unethical.*
> 
> This is why bank resolution and recovery frameworks should always provide for deposit transfer to another viable institution.



That would be a mess for the said 90 year old member with perhaps a rather large balance of shares


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## Brendan Burgess (3 Jul 2020)

NoRegretsCoyote said:


> You are 90 years of age. Your life savings are with the credit union. It's your only account. You've never dealt with a bank draft in your life. You have health issues and assembling the KYC paperwork to open a normal bank account is a huge challenge.



So you will go through a very expensive transfer for all 5,000 members because it's a problem for one 90 year old, sick person who never had a bank account in their life? 

They will be able to figure out what to do with a bank draft.

It won't be that much more complicated than going to a new credit union.

Brendan


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## Brendan Burgess (3 Jul 2020)

RedOnion said:


> This case has been over 4 years in the making. The appointment of a liquidator is the right action to contain the issue and protect members savings, which in the CBIs remit.



It might be now.

But the correct approach is to identify these cases long in advance and wind them down while they are still solvent. 

It is much cheaper. 

Brendan


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## Brendan Burgess (3 Jul 2020)

RedOnion said:


> Resolution actions are paid for from the Credit Institutions Resolution Fund, which is funded by levies on credit institutions. There is no direct taxpayer cost.



Thanks for the correction. 

Did we not set aside taxpayers' money for some fund?  Has that not been used?

Brendan


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## NoRegretsCoyote (3 Jul 2020)

Brendan Burgess said:


> So you will go through a very expensive transfer for all 5,000 members because it's a problem for one 90 year old, sick person who never had a bank account in their life?


I am sure there are lots of cases like that. What if somone has lived in Australia for 20 years and they don't have the address on file?

The best solution is the forced transfer of deposits to a nearby credit union. I don't understand why the regulator hasn't mandated it in this case, maybe they don't have the power without the consent of the members.

This is from the press release:



> Payments will automatically issue to the address held on file by the credit union. Members do not have to take any action themselves as compensation payments will automatically issue by cheque to all duly verified depositors. These payments will be made as early as possible within the statutory deadline of 15 working days.



Otherwise, you propose that:



Brendan Burgess said:


> the correct approach is to identify these cases long in advance and wind them down while they are still solvent.



Am not sure that this is at all practical. You will have staff, management and members who will all insist that the business model is viable. Why would they co-operate?

An orderly wind-down takes a long time. Even credit union loans have maturities of five years or more in some cases. Who will provide funding during the wind-down period?


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## Brendan Burgess (3 Jul 2020)

If an orderly wind down takes 5 years, how long will a liquidation take?

And how much will it cost? 

If the staff don't want to co-operate,that is fine. Let them go and replace them.

This is not that difficult. 

Brendan


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## NoRegretsCoyote (3 Jul 2020)

Brendan Burgess said:


> If the staff don't want to co-operate,that is fine. Let them go and replace them.



So basically you're recommending a liquidation!


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## Peanuts20 (3 Jul 2020)

This is a liquidation, not an administration so I presume the staff and management have or will all lose their jobs unless the liquidator is prepared to pay for their costs to help him liquidate the assets and recover funds. The liquidator will then try and recover his own costs first. There is currently nowhere to transfer the assets and liabilities although I'm sure he could look to sell the loan book at a discount to a Pepper or some other entity like that. 

Under the desposit scheme, eligible members will get their money back within 15 days. Core issue here seems to have been impairment on the value of the building(s) it owns which meant it could not meet its reserve requirements.


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## Pinoy adventure (3 Jul 2020)

How much would a liquidator be charging for dealing with things like this ? Thousands or hundreds of thousand ?


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## 24601 (3 Jul 2020)

NoRegretsCoyote said:


> The best solution is the forced transfer of deposits to a nearby credit union. I don't understand why the regulator hasn't mandated it in this case, maybe they don't have the power without the consent of the members.



How would that work? The nearby credit union almost definitely does not want the money and such a transfer would massively dilute their regulatory reserve ratio and put their viability into question for the exact same reason as Drumcondra.


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## Brendan Burgess (3 Jul 2020)

NoRegretsCoyote said:


> So basically you're recommending a liquidation!



No. A liquidation is a very expensive, legalistic process.   The liquidators can more or less set their own fees - subject to the court approval. 

An orderly wind down, is where the board stays in control. 
They stop lending.
They continue collecting in the old loans.
They repay the shares. 

What will be left after all that will be a few difficult loans which they can then transfer to another credit union to collect or write off. 

It's not that different from any other business. If you decide that your business is no longer viable, you should decide it early on and wind it down, rather than apply a lot of the remaining assets to paying liquidators' fees.

And the liquidator of a credit union will find it very hard to recover some of the loans. Many of the customers will use it as an excuse not to pay.

Brendan


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## RedOnion (3 Jul 2020)

Brendan Burgess said:


> And the liquidator of a credit union will find it very hard to recover some of the loans. Many of the customers will use it as an excuse not to pay.


Yep, that would be completely different in your "orderly wind-down".... The loan book will be sold.

In the case of charleville, the liquidator was appointed in Nov 17, and the High court approved the loan sale in March 18. 

4 months.

Then it's a normal liquidation. No loans, no deposits to deal with.


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## MrEarl (4 Jul 2020)

NoRegretsCoyote said:


> How do you "pay back" a member whose only bank account is with the credit union?



Credit Unions have the ability to give out cash, over the counter


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## Bronte (4 Jul 2020)

RedOnion said:


> No.
> 
> Resolution actions are paid for from the Credit Institutions Resolution Fund, which is funded by levies on credit institutions. There is no direct taxpayer cost.
> 
> ...


Where does the CU get the money for the levies.

What’s the difference in cost of a liquidator versus a wind down. And what is the difference in time frame.


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## RedOnion (4 Jul 2020)

Bronte said:


> does the CU get the money for the levies


It's a cost of regulation, so it's born by members / customers. So reduced return on deposits, and increased interest on loans. But there's no spread to the wider tax payer.



Bronte said:


> What’s the difference in cost of a liquidator versus a wind down. And what is the difference in time frame.


It's really difficult to put numbers on this.
A credit union in wind-down will need staff. It'll take 5 years minimum. And then you still need a liquidation to tidy up legally. It'll likely become insolvent at some point, which leads to the exact same liquidation as is done now. You also create massive uncertainty about whether or not loans will be repaid.

You also lead to a 'run' on savings, and the central bank either funding the credit union, or alternatively telling the savers to wait for their money.

A liquidation is relatively quick. The example above with charleville was 4 months to get high court approval for loan sale. It still takes time after that to sell building, and go through normal insolvency process and wrap up, etc. 

There has never been an 'orderly' wind-down of any credit union or bank. The central bank have the powers to seek a liquidation, and it's the right action when other avenues have been exhausted.


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## NoRegretsCoyote (4 Jul 2020)

24601 said:


> How would that work? The nearby credit union almost definitely does not want the money and such a transfer would massively dilute their regulatory reserve ratio and put their viability into question for the exact same reason as Drumcondra.



Presumably you transfer good-quality assets so it's worth their while.

This Drumcondra solution would appear to leave several hundred people without their only access to banking services, which seems a pity.


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## WizardDr (1 Oct 2020)

Would somebody give a breakdown of assets and liabilities?

Please.


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