Honohan: people in debt have rights too
Master of the High Court warns of 'a cascade of litigation'
IT is Friday afternoon and the Master of the High Court, Edmund Honohan has emerged from a morning's work of presiding over a litany of cases, largely involving people chasing debt.
It is a couple of days since he criticised banks for pursuing debtors to the bitter end, driving some to suicide. In the process, he heaped pressure on the Government to introduce a few straightforward measures that could ease the personal-debt problem.
The bankers weren't pleased. The chief executive of the Irish Banking Federation accused Mr Honohan of using "inflammatory" language and the Government had to issue a statement promising that reforms were on the way.
It is not the quite the done thing for civil servants such as Mr Honohan to speak out but he believes it is better to do so now, rather than regretting later that he did not say anything.
"It's a bit strange for a person in my position to be talking to the press like this but we live in strange times. I think it's important that there should be a public-service announcement -- if I can call it that -- in order to reassure people that they are not friendless," he told the Sunday Independent.
"What I was hoping to achieve with my comments in court was to communicate to debtors that they do have rights, significant rights. They should be aware of them and shouldn't feel afraid about coming to court or resisting claims against them which they feel are not justified.
"It's alarming for anybody to receive a High Court summons signed by the Chief Justice, requiring a person to turn up to court. The problem we now face is that there is a flood of litigation concerning debt which is quite obviously wholly disproportionate to the available assets that are there to pay back the monies."
Pat Farrell, the chief executive of the Irish Banking Federation, accused Mr Honohan of being too emotive last week when he talked of people being driven to suicide over relatively small debts.
However, Mr Honohan surveys the wreckage of the recession from a unique vantage point. His court is where cases are administered before they go on the High Court list, but it is also a central hub for debts. Banks, businesses, the taxman, individuals, come here seeking judgements, in the hope of staking a claim over the assets of those who owe them money.
Anyone who has sat through his court will be familiar with the personal tragedies of those weighed down by debt. There are stories of marriage breakdown, elderly parents in court because they guaranteed loans for their children and, of course, the widows bereaved by suicide. Many have never been in court in their lives.
"We have a problem that people don't generally understand what's going on in courts or indeed what the law is," says Mr Honohan.
"So there is confusion between an ordinary house mortgage and a judgement mortgage, for example. The problem is that ordinary money judgements can be converted into judgement mortgages and in turn, judgement mortgages can be the basis for an order for the sale of the house.
"It's strange that the Law Reform Commission of 2004 recommended that special and careful consideration be given before any family home was sold, but this has not yet been put into law. Now is the time to do it."
This raises another issue. The Law Reform Commission has recommended measures to protect the family home from creditors. The High Court has ruled on it in the Irwin and Deasy case, effectively protecting the family home from being sold to settle a tax debt. Mr Honohan questions why the Revenue Commissioners -- an agent of the State -- appealed the ruling to the Supreme Court.
"Only on Friday, there was a decision from the Supreme Court in which the court resisted a Revenue application to, in effect, sell the family home in respect of the revenue debt of the father. Why did the Revenue appeal the decision to the Supreme Court? Is there some disconnect between the actions of debt collectors of this sort and the general social interests of society?"
He continues: "There was a letter in the newspaper on Friday which suggested that one of the causes of the proliferation of litigation was the banks had handed over debt recovery to the law firms, without much consideration as to whether the pursuit of penniless debtors was worth the legal fees being incurred.
"That's something the banks need to look at -- and the banks' owners. I've noticed 'hot spots' of litigation, which suggests over-enthusiasm by the local agents for the bank and/or their solicitors."
So just what can the banks, financial institutions and businesses going to do with this slew of judgements against their penniless debtors?
Here, Mr Honohan raises another alarming prospect.
"I'm very concerned that we may have a cascade of litigation, leading to boxes of judgements, which may have a street value and be traded.
"A judgement mortgage could be worth more than the judgement itself. We could have a judgement-mortgage secondary market, which could result in unregulated and possibly threatening activities by speculators and perhaps foreign interests with money to spare on junk bonds. Sadly, we could very easily find the green fields of Ireland slipping out of our fingers through this route."
Mr Honohan welcomes the proposed reforms of Ireland's arcane bankruptcy laws. In this country, people can be jailed for failing to repay a debt and bankrupts must endure severe restrictions for 12 years -- compared to just 12 months in the UK.
However, he believes the proposed reforms are themselves the cause of a rush to secure judgement by mortgage because a secured debt ranks in priority to an unsecured debt.
"There is no need to rank creditors in this way and it is fundamentally oppressive of the debtor to have creditors scrambling to secure their rights through litigation.
"It's clear that the Government is full set on handling the crisis and that the proposal is a balanced one -- and that there will be debt forgiveness in the context of the new bankruptcy code.
"There can't be debt forgiveness without pain. But the bankruptcy code is as much for the benefit of the debtor because at least he gets a living income for himself and his dependents and it's guaranteed and he can sleep.
"The difficulty I see is that when we accept that bankruptcy is not the end of the road or social death, there will be thousands of such applications and the State cannot afford the bureaucratic cost of handling these with expedition. Interim measures which could be quickly enacted could be a godsend."
Mr Honohan was not the only member of his family to make headlines last week. His brother, Patrick, Governor of the Central Bank, was in the eye of another debt storm when economist Morgan Kelly criticised him for not reversing the bank guarantee.
The Master of the High Court refused to be drawn but he did hint at which side he was on, commenting: "I was a bit puzzled at the debate about the cause and effect of our recession. Suggesting that the bailout had caused the financial crash was like suggesting that the car crash was caused by the airbag."