Tuesday 21 November 2017

New laws fail to deter bankruptcy tourism to the UK

Maeve Sheehan talks to some of the 'new exiles of the failed Republic' and one man here who wishes he was

BILL was a successful builder during the boom. He never entered the stratosphere occupied by the likes of Sean Dunne and Bernard McNamara, but he turned over several million buying up vacant sites and developing them into valuable commercial properties. Then came the crash: banks called in their loans, the value of his properties plummeted and the personal guarantees which he never expected he'd have to honour came back to haunt him. He owed €4m. One bank secured a judgement against him for more than €1m, some of his companies are in receivership and other lenders are circling what's left. The crunch came when one his creditors threatened to make him bankrupt.

Bill had two options: stay in Ireland, where bankruptcy lasts 12 years but debts can follow you to the grave; or he could move to the UK, where the advantageous bankruptcy laws would allow him to be debt-free in 12 months. So he left his Dublin home and his family to live in a rented house in Northern Ireland. He has a salaried job of £30,000 a year with a small construction firm.

Once he has lived there for a year, he will be entitled to file for bankruptcy. He must surrender his assets and repay what he can. But he will emerge debt-free after a year, whether or not his debts have been repaid in full. His credit rating might be shot and his bankruptcy will be forever registered, but at least he can start up again in business.

"It was a no-brainer," said Bill, who now refers to himself as "one of the new exiles of the failed Republic". "Over the years I paid all my taxes. I owe not one cent to the Revenue. My businesses at the height of the Celtic Tiger collected and returned every month in excess of €100,000 to the State," he said.

"I have to pay my taxes to the Queen to live in exile because of the failure of the politicians and Government to bring in immediate reforms to the bankruptcy laws."

He is not alone. Insolvency experts predicted an exodus of Irish business people to the UK -- despite the Government's plans to reduce the Irish bankruptcy term from 12 years to five.

So far, a handful of developers have made headlines. John Fleming, the Cork developer once worth €140m, moved into a semi-detached house in Billericay, Essex, got a £35,000-a-year job and filed for bankruptcy. He claimed to have £4,000 in a bank account and £200 in cash. His debts -- believed to be more than €700m -- will be automatically discharged after November 10 this year.

Larry O'Mahony, a former partner of the former IRA hunger striker Tom McFeely, moved from Shrewsbury Road to an apartment in Wilmslow, near Manchester, where he filed for bankruptcy. He could be discharged of his multi-million euro debt next April.

Niall McFadden, a financier, has also relocated to the UK where he is trying to protect himself from creditors. The Commercial Court heard earlier this year that he is insolvent and faces bankruptcy proceedings from Anglo Irish Bank, which is owed €65m.

The exodus might not have materialised, but new laws on bankruptcy enacted last week have done little to deter bankruptcy tourism.

Under the old law, bankrupts in Ireland were subjected to at least 12 years of punitive restrictions, and possibly for life and even in death. A bankrupt remained a bankrupt unless discharged by the court. That could only happen if at least a portion of the debt was repaid, along with any costs that may have arisen. The new laws mean that bankrupts can apply to be discharged from bankruptcy after five years if they meet certain conditions but after 12 years will, for the first time in Irish law, be automatically discharged from bankruptcy -- once fees, costs and preferential creditors such as the Revenue Commissioners have been paid.

It's not quite the lenient system in the UK where honest and co-operative bankrupts can be discharged from bankruptcy within a year, but Justice Minister Alan Shatter believes this is a good thing. He said he was inclined to reduce the discharge period to three years but he said a sense of fairness was important. The UK reduced its bankruptcy term to one year, "and they have now discovered it's a real problem and people are using that just to avoid debt," he said.

When the new laws come into force in October, an estimated 400 people who are bankrupt for more than 12 years will be automatically discharged from bankruptcy, according to solicitor and bankruptcy expert, Bill Holohan.

"Basically what is happening for the first time is that an automatic discharge system is being introduced. If somebody goes into bankruptcy, the worst-case scenario is that they will be automatically discharged in 12 years," he said. "There are 400 people who will be discharged when the legislation comes into effect later this year."

He believes 12 years is still too long a term to serve as a bankrupt. "It still gives us one of the longest lasting bankruptcy systems in the world. The previous government committed to the EU's Second Chance Policy, which is to converge on three years. We are not even near that."

For James, a bankrupt builder, the 12-year automatic discharge gives him some comfort that at least there is an end in sight. Bankrupted three years ago, he had worried that he would never discharge his debt, and would go to his grave a bankrupt.

"It does give some finality," he said, although he wonders about the costs associated with the discharge. "I've heard they could be €50,000 over a 12-year period, and if you're bankrupt you won't have that kind of money," he said.

James was forced into bankruptcy in 2008 by another business over a €200,000 bill. He disputed that he owed the money and refused to pay it, and wound up being bankrupted in his absence in court. He hopes to mount a legal challenge.

Meanwhile, such is the stigma that, although he has been named and shamed on a public register, he doesn't want to be identified to protect his wife and children. He comes from a small town in rural Ireland and still lives there, in the same family home he has lived in for 27 years.

Days after James was declared bankrupt, a representative from the official assignee's office came to his home to make an inventory of his possessions. "He went through everything in my home. He walked into our bedroom, even our children don't go in there, and counted how many pairs of shoes my wife had. That was the worst thing," he said. "It was the most degrading thing that happened to me."

Anything in his name was transferred to the official assignee: car, properties and bank accounts, including his joint bank account with his wife. The family home was protected as it was in his wife's name. More than €100,000 was transferred to pay his debt and he was told that anything he earned over and above €600 could also be seized.

"They went through every single item of expenditure and questioned me," he said. "They found out everything about me. When you bought that car, property registered in your name, checking out everything in your life. You cannot sign anything. You cannot get a credit card and cannot have a cheque book."

He is by law obliged to tell his employers that he is a bankrupt. As it is, he has been unable to get a job and lives on social welfare benefits.

"Bankruptcy is an awful, shameful thing, especially if you shouldn't be bankrupt in the first place, it's terrible," he said. Unless James can reach agreement with his creditors, another nine long years of this existence stretches ahead of him. Had he known what was coming, he would have moved to England.

Sunday Independent

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