Fifth insolvency bill facing problems

The fifth and final bill of the “insolvency framework” has caused a new rift between the Cyprus government and Troika technocrats, particularly with regard to the proposed treatment of guarantors to bad loans.
Four bills of the insolvency framework have already made their way to parliament, but the fifth was under Troika scrutiny. Cyprus’ international creditors appear to have red-flagged a provision linking guarantors’ obligations to those of the borrower, meaning they should be let off the hook if the borrower has declared bankruptcy, and that their obligations should be reduced in line with concessions made to the borrower.
But the Troika delegates, in town to discuss the progress made on the country’s economic adjustment programme, appeared resolute that guarantors’ obligations should remain unaffected by any settlement the bank may agree with borrowers.
Disagreement has also surfaced on a second front – that of the proposed protection of primary residences.
According to Sigma TV station, in addition to the criteria set for viable borrowers to be eligible for a court order imposing a repayment plan to the bank – thus precluding foreclosure – the Troika technocrats demand that before a borrower’s primary residence can be protected by the court, the borrower’s other assets must be liquidated.
A bank, the Troika argued, cannot be entitled to less than it would be if the borrower were to declare bankruptcy, in which case all of his assets would be liquidated at market value.
Disagreements on the insolvency framework cause yet more uncertainty as to the prospects of the country’s economic adjustment programme, which was thrown off track after parliament voted to suspend tougher foreclosure legislation until the end of January last month. The suspension was extended on Thursday until March 2.
Despite the fact that, as long as the programme remains off track, Cyprus is not eligible for any more funds from the emergency bailout loan agreed in March 2013 with international creditors, Finance minister Harris Georgiades said a more damaging blow was struck to the country’s credibility, rather than its coffers.
Speaking on state radio, Georgiades said the government is sufficiently funded to operate smoothly in the near future, but noted that “we are faced with a serious problem, precisely because of the uncertainty of government funding, whether by the Troika, or by international markets, which was our goal”.
Noting that, despite the House’s decision to extend the suspension of the law on foreclosures, the Troika mission chiefs are expected in Cyprus next week, in order to record and evaluate progress, Georgiades said the mission will likely not amount to anything, given the recent negative developments.

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