By Elias Hazou
A cliff-hanger vote faces the government’s insolvency framework at the House today, where a possible split ballot could land Cyprus in more hot water with its international creditors.
The House plenary is scheduled to start at 4pm and is expected to be a drawn-out affair.
Ruling DISY and DIKO have said they will endorse the framework. But they hold just 28 of the 56 seats in parliament, and need one more vote to see through the package of bills. The legislation requires an absolute majority to pass.
As it stands, it all hinges on which way the single-seat European Party (Evroko) swings.
Evroko MP Demetris Syllouris has drawn a line in the sand, saying he will vote for the insolvency package only if his amendment is approved. That amendment provides that banks must auction off a foreclosed property at least at 80 per cent of the value of the mortgage, in order to be able to chase down loan guarantors for the remainder of the debt.
DIKO came on board after most of their proposals made it into the revised insolvency framework.
“Thanks to our amendments, the insolvency framework now provides people a real safety net against the banks,” DIKO chairman Nicholas Papadopoulos said in a statement yesterday.
At the House plenary, DIKO intends to table additional legislative proposals. One would make illegal excessive interest on late payments; another would spare homeowners whose property is forcibly sold from paying capital gains tax and transfer fees.
The parties have produced some 80 amendments to the insolvency package, which is a set of five bills governing personal and corporate bankruptcy.
Under the revised insolvency framework, the value of primary residences to be afforded protection from repossession has been raised to €300,000 from €250,000 initially, where a person’s total debt is up to €350,000 (up from €300,000 previously).
Insolvent borrowers will be eligible for debt forgiveness, for amounts up to €25,000 (up from €15,000), if they meet certain criteria, such as monthly disposable income up to €200 (from €100), and assets worth up to €1000 (€400 initially).
A clause stipulating that an eligible borrower’s income and assets would be monitored by the lender for a period of two years – after he or she has been approved for debt cancellation – has been stricken.
Where forced sales of property are concerned, whenever the price at which the property is sold exceeds the amount stated in the ‘guarantor’s statement of financial responsibility’, the amount in excess will not be collected by the bank but will go toward paying down the debt and lessening the guarantor’s responsibility.
Moreover, debt guarantors will be able to challenge the market value cited by the lender in the guarantor’s statement of financial responsibility.
EDEK meantime have somewhat softened their stance, indicating this week that they may vote for the framework. But they have set a steep price for their support.
The socialist party wants to give the courts the power to order repossession proceedings on a primary residence frozen for six months, and once this period has elapsed the mortgagor’s viability will be reassessed.
They also propose that loan guarantors be let off the hook in the event the principal debtor has declared bankruptcy and has had his collateral sold. It’s understood that Cyprus’ international lenders have already rejected this.
Passage of the insolvency framework – an obligation of Cyprus under its bailout programme – would pave the way for the bailout programme to get back on track. The island’s international lenders have withheld further financial assistance until Cyprus sorts out its bankruptcy and foreclosures laws.
Once again, Cyprus is cutting it close. The Eurogroup next meets on April 24, and if international creditors are by then satisfied, they may give the green light to resume assessment of the bailout programme.
In another bid to shield distressed debtors, the government is expected soon to approve legislation providing assistance to homeowners who have obtained financing through the Cyprus Land Development Corporation (KOAG).
Under the new scheme drawn up by KOAG, the public-law organisation will subsidise for a period of four years loan interest payments up to 4 per cent, provided certain criteria are met.
A finance ministry official told MPs on yesterday that the scheme would cover a large proportion of non-viable borrowers, that is, those borrowers who are ineligible for a personal debt repayment plan.