Maintenance of core business must be primary objective in bank resolutions for small businesses in financial difficulties

Noreen O’Sullivan (Vintners Federation of Ireland) Pat Smith IFA, Eddie Downey IFA, Tara Buckley (RGDATA), Stephen Faughnan IPOA

While the Irish economy is beginning to recover from the worst recession experienced in a generation, a significant number of small, family-owned enterprises are still facing financial difficulties. There remains a pressing
need to ensure that these difficulties are resolved in order to maximise the numbers employed in small enterprises across Ireland. Regrettably, it has become clear to the bodies representing family businesses in key
sectors that the action of some of the banks is actively damaging the recovery for some businesses. The Irish Farmers’ Association, the Vintners Federation of Ireland, Irish Property Owners Association and RGDATA, have now come together to send a clear message to the Government that the current basis on which negotiations between banks and small businesses dealing with credit difficulties is not working. Acceptable compromise and viable solutions are not being reached. In some instances, banks are imposing unreasonable conditions on customers seeking to refinance, which are just not achievable. This results in high levels of stress and anxiety for the business owner and their family. The breakdown of negotiations and appointment of receivers is a completely unacceptable outcome.
The Government and Central Bank must ensure that engagement between these enterprises and the banking sector is undertaken with the primary objective of retaining the viability of the core business and keeping people in employment. Lenders must adhere to the existing Code of Conduct for Business Lending to Small and Medium Enterprises; however, the Code does not provide sufficient protection to a customer under pressure facing unreasonable demands from their bank. The problem is particularly acute with the banks exiting the Irish market place, who are taking a very aggressive approach to seeking
judgments and appointing receivers. To address this, the Group has outlined a protocol for the banks which, if implemented, will result in greater levels of cooperation, with more positive and sustainable outcomes for both the lender and borrower. The Group’s key demands are:
• Banks must seek resolutions that preserve the viability of the
underlying business and maintain employment.
• For all negotiations, a clearly identified point of contact in the
bank must be agreed, who has responsibility for delivering a
sustainable solution acceptable to both parties.
• A dispute resolution/mediation service must be employed
where banks and borrowers cannot reach agreement.
• Agreements reached must be full and final
IFA President, Eddie Downey, said: “If we are going to maintain the maximum number of viable farm businesses, there must a fundamental change in the process of negotiation with the banks. Both the borrower and
lender must be prepared to contribute to a sustainable solution, with negotiations entered into on the basis of reaching full and final settlement”.
VFI President, Noreen O’Sullivan, said,:“For too long, there has been inadequate engagement by the banks towards finding sustainable solutions. Commitment to this protocol by all parties will lead to better and fuller solutions to the problems facing many small and medium sized businesses”.
RGDATA director, Tara Buckley, said: “Viable business will close and jobs will be lost unless the Banks are forced to change their approach to customers in distress. The problem is particularly acute with customers of foreign banks that are winding down their Irish businesses. All banks must be forced to be reasonable in trying to reach a resolution with co-operative customers. The Banks should be stopped from driving retailers out of business through withdrawing credit facilities and rushing to forced sales. It’s time the banks focused on helping, not hindering, retailers who are the heart of the majority of town centres in Ireland”.
IPOA Chairman Stephen Faughnan said: “Financial institutions are not adhering to the current Codes and lack a basic understanding of the pressures that vulnerable people face. This is an opportunity for joint consultation to reach a satisfactory conclusion. While it may not solve all cases, it should go a long way to resolving the majority of them on a mutual basis. Pain will have to be endured on both sides if these issues are to be resolved”.