Dealing with Financial Difficulties

Dealing with Financial Difficulties

Code of Conduct for Business Lending to SMEs

Dealing with Financial Difficulties

Central Bank Code

The Central Bank of Ireland’s revised Code of Conduct for Business Lending to Small and Medium Enterprises (SME Code) became effective from 1 January 2012.  The revisions deal mainly with how banks deal with SMEs in financial difficulties only.

The revised Code introduced a number of new provisions that aim to assist borrowers and lenders to address financial difficulties.  The Central Bank emphasizes that each SME needs to be considered on a case by case basis and that it is important for SMEs at risk of going into arrears to contact their lender to inform them of the difficulties and engage with the lender to try and address the situation.

The Code sets put the procedures that lenders should follow when dealing with SMEs in financial difficulties, including:

  • A lender must provide SMEs with an information booklet setting out the procedure for dealing with financial difficulties cases and the implications for the SME and make the booklet available on its website.
  • A lender must provide the SME with a list of the information required in order to assess the SME for a possible repayment arrangement.
  • A lender must respond to the SME in relation to its decision on a repayment arrangement within 15 business days of having received all the necessary information.
  • A lender must inform an SME of its right to appeal the lender’s decision on the repayment arrangement.  A lender must respond to an appeal within 15 business days of receiving the appeal from the SME.
  • Where an SME is concerned about meeting repayments and approaches the lender, a lender must offer the SME an immediate review meeting to discuss their circumstances and assess the potential for the SME to be offered an alternative repayment arrangement.

The code is available on the Central Bank’s website here.


IBF Protocol on Multi-banked SME Debt

In January 2014, the Irish Banking Federation (IBF) launched the IBF Protocol on Multi-banked SME Debt.  This is designed to allow an SME in financial difficulty, and with multi-banked debt, to communicate with IBF member banks on a collective basis and to allow those banks to collectively discuss and consider the case.  The Protocol is intended supplement existing bilateral bank/SME customer relationships.

At the request of an SME customer or of a bank (with the customer’s consent) this Protocol will see the setting up of a banks’ Liaison Group to enable the indebted SME to engage with all debtor banks at the same time and to facilitate collective consideration of that particular case by those same banks.  The operational framework underpinning the Protocol provides for an SME Customer Consent Form and an SME Customer Request Form as well as various processes and timelines to facilitate the provision of full information by the SME and of a response by the participating banks.

The following categories of debt are covered:

  • Direct SME Debt comprises debt advanced directly to the SME business by member banks to finance the SME business.
  • Indirect SME Debt comprises debt advanced indirectly to the SME business by member banks, which finances any asset (including premises) which is essential to the functioning of the SME business.  Such debt is most likely to be in the name of a party other than the SME.
  • SME Related Debt comprises debt other than Direct or Indirect SME Debt which depends primarily for its repayment on the viability and cash flow of the SME business.

The following banks subscribe to the Protocol:

  • ACCBank
  • AIB Bank
  • Bank of Ireland
  • Danske Bank
  • KBC Bank Ireland
  • Permanent tsb
  • Ulster Bank

A copy of the IBF Protocol on Multi-Banked SME Debt, as well as the Protocol Customer Consent Form and the Protocol Customer Request Form can be viewed on the IBF website here.

If your business is in financial difficulties and has multi-banked debt, you should contact your main bank.