SME Arrears

Arrears Issues Arising; Micro and Small Enterprises

Where a borrower notifies a regulated lender that it may be at risk of going into arrears or if it is in arrears, notifies a lender that it is concerned about going into financial difficulties, the lender shall offer the borrower the option of immediate review of the credit facility agreement, alternative arrangements and security, as appropriate.

Financial difficulties mean a situation in which one or more of the following apply, to a credit facility or to an alternative arrangement.

  • the borrower is in arrears under the credit facility or alternative arrangement for three consecutive months;
  • in the case of an overdraft, the approved limit is exceeded for 90 consecutive days;
  • following an assessment, the borrower’s circumstances are such that the resolution policy for a financial difficulties case, must be applied.

Assessment

Where the borrower agrees to a review, the regulated lender is to perform the review and identify the options available to address the borrower’s anticipated arrears or financial difficulties and assess if the below-mentioned procedure should be applied.  The recommendations are to be recorded in a durable medium and the recommended course of action communicated to the borrower.

Where the borrower remains in arrears for 15 days after they first arose, the regulated lender, where the borrower continues to be in arrears, shall promptly contact the borrower to confirm that it is in arrears and seek to identify the reasons why.  Based on the information available, it shall assess whether the borrower’s circumstances should subject to the below procedures and policies.

A regulated entity must promptly inform the borrower of the outcome of an assessment and any course of action, which the borrower should take pursuant to the assessment.

Where the regulated lender determines, as part of its assessment that the below procedure should be applied to the borrower, it must apply them.


Policies for Financial Difficulties Cases; Micro and Small Enterprises

A regulated lender must establish and maintain in writing, policies, and procedures for dealing with borrowers in financial difficulties.  It must adhere to those procedures.  The procedures are to have the objective of assisting the borrower to resolve its financial difficulty.

The procedures must as a minimum provide:

  • a procedure to be applied in dealing with borrowers in financial difficulties and how they will be implemented;
  • information sought from borrowers relevant to assessing the financial situation;
  • that an alternative arrangement may be agreed;
  • descriptions of alternative arrangements that may be offered;

The criteria which will apply in considering an alternative arrangement must be appropriate to a borrower.

If the regulated lender cannot make a decision on whether it will facilitate an alternative arrangement within 15 days from the receipt of the information required, it shall specify that the borrower shall be informed promptly of how long it will take, and the reasons why it will take longer than 15 days.


Criteria for Alternative Arrangement; Micro and Small Enterprises

The criteria in relation to considering an alternative arrangement must include, at a minimum:

  • the viability of the business;
  • links with the personal debt of the owners of the borrower who is concerned in its management that impact on the business;
  • business debt related to property and other investments;
  • the borrower’s current and future repayment capacity;
  • the borrower’s previous payment history;
  • whether the borrower has any business debt other than the credit facility in financial difficulties, and if so, the overall business indebtedness of the borrower;
  • the information provided by the borrower;
  • identification of contact points within the regulated entity assigned to deal with borrowers in financial difficulties;
  • facilitation of separate consideration of the business debt and property or other investment debts or personal debts of the owners or persons concerned in the management of the business;
  • consideration for financial difficulties cases on the specific facts of the case;
  • set out that the regulated lender will consider all reasonable options available before suggesting the borrower dispose of assets essential to the running of the business;
  • include the following statement: “A key objective of this policy is to assist borrowers to resolve their financial difficulties.”

Standard Information and Booklet I

A regulated lender shall prepare and make available to borrowers an information booklet setting out the following

  • description of the lender’s procedures for dealing with borrowers in difficulty, including the relevant timelines;
  • an explanation that the lender may offer the borrower an alternative arrangement to assist the borrower to resolve financial difficulties, subject to the borrower meeting its alternative arrangement assessment criteria and to individual assessment;
  • the type of criteria that may apply to the borrower’s financial difficulty case to determine whether an alternative arrangement is suitable to resolve those difficulties;
  • a statement emphasising that it is in the borrower’s interest to engage with the entity about arrears or financial difficulties;

Standard Information and Booklet II

The booklet is also to contain the following:

  • an explanation that the lender may be entitled to impose additional fees or charges on borrowers in financial difficulties under the credit facilities;
  • a list of the information which the entity may request from the borrower when assessing its case;
  • a statement that the financial difficulties may impact upon the borrower’s credit rating;
  • an explanation that information regarding the arrears may be shared with relevant credit reference agencies, registers, where permitted by contract or by law;
  • confirmation that where a borrower enters financial difficulties, the lender will appoint a designated contact point and inform the borrower of the contact details;
  • a statement advising borrowers that they may employ third-party advisers to accompany the borrower during discussions, whether face to face or not;
  • an explanation of the lender’s internal appeals process, in relation to granting an alternative arrangement or not, on timeframes;
  • where the lender’s decisions in relation to alternative arrangements are subject to review by the Credit Review Office, information on their role and the contact details for the Office;
  • information regarding a right to make a complaint below, including complaint handling procedures.

The information above must be contained on a link on the lender’s website, where it operates a website.  A dedicated webpage shall contain a statement highlighting the importance of the borrower engaging with the entity to address the financial difficulties and be prominently and directly linked to the lender’s home page.


Non-Cooperating; Small / Micro Entity

The booklet must contain an explanation of the meaning of not co-operating under the Regulations and its implication.  This is to include, in particular, its impact on the assessment of an alternative arrangement, the impact of the classification on the lender’s consideration of its exercising existing legal or contractual rights to enforce security, and where security is enforced, that the borrower will remain liable for the outstanding debt.

“Non-cooperating” under the Regulations means, that the borrower has failed to make a full and truthful disclosure to the entity of the information required to assess its financial situation, within the time frame; a warning letter, has been issued, and the borrower has not carried out the actions within the timeframes specified in the letter.


Communicating with Borrowers in Difficulty I

When contacting a borrower in financial difficulties, the lender must ensure that

  • the level of contact and communications it makes or is made by a third party on its behalf is proportionate and not excessive, taking into account the borrower’s particular circumstances;
  • communications with the borrower are not aggressive, intimidating or harassing;
  • the borrower is given sufficient time to complete an action to which it has committed before follow-up communication is attempted, and
  • steps are taken to agree when the next communication shall take place and the method of communication.

Where the borrower enters financial difficulties, the lender is to appoint a designated contact point and inform the borrower, in a durable medium, of it. Changes are to be notified promptly.

Without limiting other time limits under the Regulations, a regulated lender is to respond to written communications from a borrower regarding financial difficulties or arrears within 10 working days.


Communicating with Borrowers in Difficulty II

Within 10 days of the borrower entering financial difficulties, the lender is to inform the borrower, in a durable medium, of

  • the status of the account;
  • the applicability of the regulations;
  • the availability of the above information booklet;
  • the type of information that may be requested by the borrower from the lender;
  • the impact of the difficulties on other credit facilities with the lender;
  • that it is in the borrower’s interest to engage with the lender about the arrears or financial difficulty;
  • the option of an immediate review of the borrower’s credit facilities,
  • alternative arrangements and securities.

Pre-Non-Cooperating Classification; Small / Micro Entity

Prior to classifying a borrower as non-co-operating, a regulated lender is to issue a warning letter informing the borrower and guarantor, in a durable medium:

  • that the borrower will be classified as not co-operating if it does not perform specific actions to enable the lender to complete an assessment of its circumstances;
  • that the specific actions set out in the letter are to be carried out within a timeframe which shall be not shorter than 20 days from the warning letter;

It shall include an outline of the implications of the borrower for not co-operating, including the

  • impact on the consideration of an alternative arrangement;
  • the classification of it by the entity and the potential exercise of legal and contractual rights, and
  • where security is realised, that the borrower will remain liable for the outstanding debt.

The action in classifying a borrower as non-co-operating is to be reasonable and proportionate.

Where a borrower has been classified as non-co-operating, following a period in which it has been given the opportunity to cooperate as above, the regulated lender must notify the borrower and guarantor, on a durable medium, that it has been so classified, and inform the borrower and guarantor, of the implications, potential exercise of legal and contractual rights, reliability for a shortfall in realisation of a debt.


Review; Small / Micro Entity

Where the borrower is in financial difficulties and the lender requires an independent review by a third party to assess the future viability of the business, it must provide the borrower with an explanation for the review, information on what will be covered, the name of the person carrying it out, and information on any costs to be borne by the borrower.

Where there is a guarantee in place, it shall inform the guarantor, in a durable medium, where it requires an independent review above.

A regulated lender is to inform the borrower, in a durable medium and provide the borrower with a copy of the report following review.  Where the borrower bears the cost, the cost must be proportionate to the amount of credit provided, the size and complexity of the borrower’s business.


Offer of Alternative Arrangement; Small / Micro Entity

Where a regulated entity offers an alternative arrangement to the borrower, the regulated entity shall include the following information, in a durable medium, in the offer documentation:

  • the timeframe to avail of the offer of the alternative arrangement;
  • the new repayments amount on the credit facility, and the number and frequency of repayments;
  • the terms of the arrangement;
  • the implications arising from the alternative arrangement on the term, balance outstanding, and monetary amounts;
  • the frequency with which the alternative arrangement will be reviewed and the criteria against which the borrower’s financial difficulties will be assessed;
  • if known, details of any residual debt remaining at the end of the alternative arrangement;
  • how interest and charges will be applied as a result of the alternative arrangement;
  • how the alternative arrangement will be reported by the entity to a relevant credit reference agency or register and that it may impact on the borrower’s credit rating;
  • a statement highlighting the borrower’s right to seek independent legal and financial advice, and a recommendation that it should do so.

Non-Offer of Alternative Arrangement; Small / Micro Entity

If the regulated lender decides not to offer an alternative arrangement, it must in a durable medium

  • inform the borrowers of the reasons, with reference to specific criteria;
  • advise the borrower of the next steps the regulated entity may take;
  • inform the borrower of its right of appeal, and
  • refer the borrower to the information section concerning appeals in its information booklet above.

If the borrower declines to accept an alternative arrangement, the entity must, in a durable medium, advise the borrower of the next steps the lender may take, inform the borrower of its right of appeal, the terms and conditions applying to the alternative arrangement, and refer the borrower to the relevant section concerning appeals in its information booklet.

Where an alternative arrangement comes to an end, a regulated lender shall promptly review the borrower’s situation in order to assess whether a further alternative arrangement is necessary.


Arrears; Medium Sized Enterprises

Where a medium-size borrower notifies a regulated lender that it may be at risk of going into arrears or the borrower already in arrears, notifies the lender, that it is concerned about going into arrears, the lender shall offer the option of an immediate review of the borrower’s credit facility agreements, alternative arrangements and security, as appropriate.

Where the borrower agrees to the review, the lender is to perform the review, and assess the borrower’s circumstances and consider then. Where a lender determines in the assessment that the circumstances are such that they should apply the below policy, then it shall be applied in respect of that borrower.


Policies and Procedures; Medium Sized Enterprises

A regulated lender is to establish and maintain in writing, policies, and procedures for dealing with borrowers, in financial difficulties.   They are to have the core objective of assisting the borrower to resolve the financial difficulties.  They must at a minimum, provide for the following matters:

  • the procedure that the lender will apply in dealing with borrowers in financial difficulties and how it will implement the procedure;
  • information to be sought from borrowers in difficulties;
  • information specific to assessing the financial situation of borrowers;
  • that an alternative arrangement may be agreed with borrowers, where appropriate;
  • a description of the types of alternative arrangements that may be offered;
  • identifying a contact point with assigned responsibility for dealing with borrowers in financial difficulties;
  • providing consideration of financial difficulties on a case-specific basis.

It must include the following statement:

“A key objective of this policy is to assist borrowers to resolve their financial difficulties.”

If a regulated lender cannot make a decision on whether it will facilitate an alternative arrangement within 15 days of the receipt of the required information, it must inform the borrower promptly of how long it will take to complete the consideration and reasons why it will take longer than 15 days.


Information Booklet; Medium Sized Enterprises

A regulated entity must ensure that an information booklet is made available to medium-sized borrowers containing the following information:

  • a description of the lender’s policies for dealing with borrowers in financial difficulties, including relevant timelines;
  • a statement emphasising that it is in the borrower’s interest to engage with the lender about arrears or financial difficulties;
  • an explanation that the lender may be entitled to impose additional fees and charges on borrowers in financial difficulties in accordance with the terms of the facility agreement;
  • a list of the information which the lender may request from the borrower when assessing the case;
  • a statement that the financial difficulties may impact on the borrower’s credit rating;
  • an explanation of the lender’s internal appeals process in respect of the decision as to whether to grant an alternative arrangement and the timeframes involved.

Where the regulated entity has a website, it must have a dedicated webpage for borrowers in or concerned about, financial difficulties. It shall link to a booklet containing the above information.  The dedicated webpage must contain a statement highlighting the importance of a borrower engaging with the lender to address the financial difficulties and be prominently and directly linked to the lender’s home page.


Communicating with Borrowers; Medium Sized Enterprises

When contacting borrower’s in financial difficulties, a lender shall ensure that the level of contact and communications made by it or by any entity acting on its behalf, is proportionate and not excessive, taking account of the particular circumstances of the borrower.

Within 10 days of the borrower entering financial difficulties, the lender is to inform the borrower, in a durable medium, of following:

  • status of the account,
  • applicability of the protective regulations;
  • the availability of the information booklet and where it can be located;
  • the type of information that may be requested of the borrower;
  • the impact of financial difficulties on other credit facilities held by the borrower with that lender;
  • that it is in the borrower’s interest to engage with the lender about arrears or financial difficulties;
  • the option of an immediate review of the credit facilities, alternative arrangement, and security.

Guarantors

Within 10 working days of the borrower entering financial difficulties, the lender shall inform any guarantor, in a durable medium, of the status of the borrower’s account.

Without limiting other timeframes under the Regulations, a lender must respond to all written communications from a borrower regarding financial difficulties or arrears within 10 working days.

Where a borrower is in financial difficulties, and there is a guarantee in place in relation to the facility, the lender shall inform the guarantor, in a durable medium, where it requires an independent review of the borrower’s business by a third party in order to assess the future viability of the business.


Offering an Alternative Arrangement; Medium Sized Enterprises

Where the lender offers an alternative arrangement to a borrower, it shall include the following information, in a durable medium, in the loan documentation:

  • the timeframe for the borrower to avail of the alternative arrangement;
  • new repayment amounts on the credit facility,
  • the number and frequency of repayments;
  • the terms of the alternative arrangement;
  • the implications arising from the alternative arrangement including the impact on the term of the facility agreement, the balance outstanding, and the monetary amount of arrears on account;
  • if known, details of the residual debt at the end of the arrangement owed by the borrower and, if not known, how it is to be calculated;
  • how interest and charges will be applied as a result of the alternative arrangement.

Refusing an Alternative Arrangement; Medium Sized Enterprises

If the lender decides not to offer an alternative arrangement to a borrower, it shall,

  • in a durable medium, inform the borrower of the reasons, with reference to the specific criteria applied for not so offering, and
  • inform the borrower of its right of appeal against the decision, and refer the borrower to the relevant section concerning appeals in the lender’s information booklet.

If the borrower declines to accept an offer of the of an alternative arrangement, the lender shall, in a durable medium, inform the borrower of its right to appeal, to the terms and conditions applying to the alternative arrangement, and refer the borrower to the relevant part of the information booklet referred to above.

When an alternative arrangement comes to an end, the lender is to promptly review the borrower’s situation in order to assess whether a further alternative arrangement is necessary.


References and Sources

Irish Texts

Breslin Banking law + Supplement     3rd Ed  2013

Mortgages Law & Practice     Maddox 2nd Ed            2017

NAMA Act 2009: A Reference Guide Raghallaigh, Kennedy, Whelan

Money Laundering & Anti-Terrorist Financing Act 2010

Financial & Emergency Provision Legislation Annotated      2011

Shelley & McGrath     National Asset Management Agency Act Annotated 2011

Dodd & Carroll            Law Relating to NAMA 2012  0

Ashe & Reid    Anti-Money Laundering: Risks, Governance & Compliance             2013

Johnston & Ors           Arthur Cox Banking Law Handbook               2007

Dr Mary Donnelly  The Law of Credit and Security, 2nd Ed, 2015

UK Texts

A Hudson The Law of Finance 2nd Ed (Sweet and Maxwell 2013)

Veil (Ed) European capital markets law (Hart Publishing 2013)

IG MacNeil An Introduction to the Law on Financial Investment 2nd Ed ( Hart Publishing 2012)

E Ferran Principles of Corporate Finance 2nd Ed ( OUP 2014)

Gullifer (ed) Goode and Gullifer on legal problems of credit and security (6th edn Sweet and Maxwell London 2017).

MA Clarke et al (eds) Commercial Law: Text, Cases and Materials (5th edn OUP Oxford 2017)

McKendrick (ed) Goode on commercial law (5th edn Penguin London 2017)

G McCormack Secured credit under English and American law (CUP Cambridge 2004)

L Gullifer and J Payne Corporate Finance (2nd edn Hart Oxford 2015)

D Sheehan The Principles of Personal Property Law (2nd edn Hart Oxford 2017)

Ross Cranston, Emilios Avgouleas, Kristin van Zwieten, Christopher Hare, and Theodor van Sante Principles of Banking Law 3rd Ed 2018

E.P. Ellinger, E. Lomnicka, and C. Hare Ellinger’s Modern Banking Law 5th Ed 2011

Andrew Haynes The Law Relating to International Banking  Bloomsbury Professional 2009

Charles Proctor Mann on the Legal Aspect of Money 7th Ed 2012

Charles Proctor The Law and Practice of International Banking 2nd Ed  2015

Sheelagh McCracken The Banker’s Remedy of Set-Off   2010 Bloomsbury Professional

Louise Gullifer, Jennifer Payne Banking & Financial Law 2018

Hubert Picarda QC The Law Relating to Receivers, Managers and Administrators 4th Ed  2006 5th Ed 2019

Lightman & Moss on the Law of Administrators and Receivers of Companies 6th Ed  Sweet & Maxwell 2017