Liquidator appointed to Drumcondra Credit Union

[Brendan Burgess]

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

 

[RedOnion]

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.

 

[MrEarl]

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

 

[Bronte]

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.

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.

 

[RedOnion]

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.

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.

 

[NoRegretsCoyote]

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.

 

[WizardDr]

Would somebody give a breakdown of assets and liabilities?

Please.