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If there is one positive to be taken from the fall of the HMV group into administration and the closure of its Ireland branches it is that it has brought home to the wider public the ugly realities of business failure.
Unlike the vast majority of business failures, the HMV affair touched off a massive resonance with the public, particularly around the issue of gift vouchers.
Here was something to which everybody could relate: parents and grandparents in charge of children stuck with post-Christmas gift vouchers, being told by staff that their Christmas presents were now effectively worthless and that they would have to join the end of the queue of creditors to the stricken group.
The public indignation that followed was huge and led to a swift reversal on the part of the receiver. It is saying something when the gift voucher holders were able to get satisfaction well before the staff members that were forced to adopt sit-in tactics to ensure that their wages would be paid – sums of monies massively larger than those involved with the gift voucher group.
Indeed, those with gift vouchers are – ironically – rather fortunate insofar as the sums involved are relatively small. This was not the case with the €27,000 owed from sales of the charity single in aid of sick child Lily Mae whom the receiver has also agreed to satisfy in the face of public outrage.
The lesson is that those who shout loudest and have the greater clout get listened to. Unfortunately such is rarely the way with regular business creditors who have to suck it up and pick up the pieces.
Administration is a process whereby creditors effectively lose their rights to get paid while the administration process carries on to its conclusion. At the end of the process either a rescue plan is proposed and agreed on by a majority of the creditors and the company returns into normal business, or it fails and a receiver and/or liquidator is appointed.
HMV Ireland is now in a receivership situation so the fate of the creditors (which includes anyone who has faulty goods they want to return) is anyone’s guess. Normally a successful administration means that creditors only get a certain number of “pence in the pound” and the rest of their debt is written off. A receivership/liquidation scenario is usually even more injurious to creditors.
On the face of things, the situation looks bleak for HMV Ireland. Because the UK operation is in administration it has protection from its creditors (including voucher holders!). It is impossible to know to what extent the UK operation was supporting Ireland (if indeed that was the case – there have been suggestions that Ireland was profitable) but while there has been talk of a buyer being found for the UK operations, there appears to be no rescuer on the horizon in Ireland.
There are two potential obstacles to HMV emerging as a going concern from the mess. First, HMV Ireland has gone guarantor for the wider group’s debts and hence has been dragged into the overall insolvency process. Second, it may have been relying on the UK for ongoing funding. This would effectively close off the examinership route (whereby, like administration, the company would be protected from its creditors) on the basis that it would have great difficulty convincing the High Court that the Ireland business could be saved as a going concern independent of the UK.
While there has been great sympathy for HMV’s voucher-holding creditors, sympathy for the biggest creditors in the land – the banks – has been in short supply over the past few years.
As we have seen with the HMV case, those who shout loudest get most attention. It has now been reported that the Central Bank is proposing to unmuzzle the banks in their pursuit of homeowners in arrears. To date, public resistance has dissuaded banks from using the heavy hand.
Reuters reports a source in the central bank saying that it was considering relaxing the 2010 rule that limits the number of times a bank can contact struggling borrowers to three per month.
"We're not seeing harassment, if anything people (at the banks) are being very timid and not delving into levels of income and spending (put forward by borrowers)," said the Reuters source. "If anything, they are being too tame."
The source said that some borrowers were abusing the current system by answering the phone and promising to get back to the bank - but never returning the call. "We're thinking about whether we should relax the three contacts rule and go for a more principle-based approach," said the source.
A consultation paper on the matter is due from the central bank “in the coming weeks” according to a spokeswoman.
Here at StubbsGazette we agree with the central proposition on more freedom to contact debtors in arrears. Creditors or their the agents should be permitted weekly communication with debtors and at a minimum – something like three effective verbal contacts per month, with an effective verbal contact defined as a 3-plus minute conversation as opposed to a “sorry can’t talk now, will call you back” engagement. The rules should also be clarified to explicitly allow three additional written contacts confirming whatever was agreed in the call.