Ireland turns to bankruptcy tourism

dublogic

From Todays Guardian
Ireland turns to bankruptcy tourism

"Niall is 31 and manager of a successful fruit farm just outside Dublin. He is thinking of emigrating to England – not because he is out of work but because he is so heavily in debt that he wants to declare himself bankrupt.He bought three houses as a buy-to-let sideline between 2004 and 2006. Although he earned a modest salary of €25,000 a year (less than £17,000 then), the banks gave him two mortgages of more than €300,000 and another one for more than €200,000 – a loan-book worth 32 times his salary.
The fantasy of becoming a property millionaire did not last long and now the farm manager is in negative equity to the tune of €250,000 and with a glut of empty properties on the market, he has no hope of meeting monthly repayments from rent.
The first house cost €215,000 and his mortgage is €1,284 a month. He rents it out at €800 a month – a loss of close to €500 a month. "If I sold it today, I'd get between €160,000 and €170,000. I'm down €100,000 apiece on the other houses. If I look forward 10 years I don't think I'll ever make my money back, so I want to get rid of it completely. It's a noose around my neck," says Niall, who asked that his name be changed to protect his identity.
Declaring himself bankrupt in Ireland is not a realistic option: bankrupts must wait 12 years before they are discharged from their debts. But under European Union law he can file for bankruptcy anywhere in Europe. If he relocates to London or Manchester he can be free of his debts within 12 months, courtesy of the "progressive" UK law.
Niall's case is far from unique. "Bankruptcy tourism" is the talk of Dublin and the conversation is being held across all strata of society.
Jim Stafford, at the corporate recovery practice Friel Stafford, said: "Personal bankruptcy was virtually unheard of 10 years ago, now it's everywhere: politicians, high-level civil servants, buy-to-let investors, doctors and lawyers."
A chartered accountant, he advises clients to seek bankruptcy in one of three scenarios: a creditor is being vindictive and will not cut a reasonable deal; if a client in difficulty is expecting a large inheritance – "you can go to the UK, come back in 12 months and it will still be there for you; that's a factor for some people" – or if a client has a large pension, because a pension is not included in the estate divided up by courts in Britain, whereas it is in Ireland.
Stafford says he started getting calls about filing for bankruptcy in Britain and the US in September 2008 following the collapse of the investment bank Lehman Brothers. "The phone started hopping and it hasn't stopped since."
There are no official statistics on how many Irish are relocating to Britain – the courts do not document this – but there have been a few high-profile cases including that of the Cork-based property developer John Fleming. He and his construction firms owed €1bn to the banks and in December it emerged that he had relocated to Billericay in Essex and filed for bankruptcy.
Barry Cahir, a partner with the Dublin law practice William Fry, said: "Irish people are turning to places like the UK because it is a friendlier regime – if you behave yourself and co-operate with the trustee you can be out of the woods in less than a year."
In testimony to the fact that insolvency professionals have replaced wealth management as the new experts in demand, he and three colleagues briefed about 180 clients this week about bankruptcy in Britain.
According to Louise Brittain, a partner in Deloitte's insolvency team in London, all Niall – or others in the same situation – has to do is relocate to Britain for about six months to prove his "centre of main interest" (the main legal requirement in bankruptcy law) is in the UK. Like Cahir, she was in Dublin two weeks ago briefing about 150 clients at Deloitte's offices on this.
Figures released this week show that as few as 29 people (including Seán FitzPatrick, the former head of the Anglo-Irish Bank) were made bankrupt in Ireland last year, demonstrating how unattractive bankruptcy in Ireland is. This compares with the 79,000 people in Britain who were made bankrupt last year. "The law is just incredibly penal," said David Carson of Deloitte's insolvency unit in Dublin.
Going to Belfast to file for bankruptcy is also an option but the solicitor Toby McMurray, who briefed clients at William Fry, said it risked social stigma. "We have a heck of a lot of inquiries from people in the south, many who are high-profile people, but they look at Northern Ireland and opt for the UK because it's more anonymous," he said.
"There is only one court in the north where you can file for bankruptcy so it is easy for creditors to go through the lists, whereas if you go to England or Wales you can go to a court in any region you like."
The law in Britain was changed three years ago inspired by the American principle that failure in business is part of the normal entrepreneurial process.
"The idea is to get entrepreneurs back in the market quickly. It's about rejuvenation; it's about removing the stigma. If you are Irish, why would you go bankrupt for 12 years, when you can do it in one year?" she says.
She predicts that the number of Irish people seeking bankruptcy will rise sharply later this year when those relocating now, or at the end of last year, have been resident long enough to prove to the court that their "centre of main interest" is Britain.
The rise in bankruptcy tourism puts into sharp relief the absence of debt forgiveness in Ireland. Several banks in the last month have made it plain that they will not countenance restructuring of personal debt. Bankruptcy will just force it upon them.
Niall said: "If I sell the houses now, the banks get the equity and I still owe the shortfall. If I go bankrupt, I don't owe the shortfall and the banks get the equity. The end result is the same thing for the bank.
"But if I keep going, my life will be a misery. Why should I do that for the banks, which to be honest, shouldn't have given me the mortgages in the first place – I only earn €25,000."
His attitude is mirrored at the high end of the spectrum on consumer debt. One Dublin accountant, who preferred not to be named, said: "I know of several failed developers, some high profile, who are just treading water. They have set up a UK postal address, UK bank account, have all the ducks in the row. They are struggling and when it comes to a point when they fall out with the bank, they will just get on a plane."
'Teeth in Poland, bankruptcy in UK'

It is not just the Irish like Cork developer John Fleming who are drawn to going bankrupt in Britain. The last two years have seen a flurry of bankruptcy tourism from Germany, where small advisory firms such Insolvenz Agentur have controversially advertised the benefits of individuals relocating to the UK before going bankrupt. The lure is a far shorter spell before a bankruptcy is discharged – just a year in . The period in the UK, compared with seven in Germany and 12 in Ireland.
Mike Gerrard, an insolvency partner at of Grant Thornton, said: "We are certainly getting more calls from Ireland. It's not every day but the inquiries are coming." Reports of a flood of insolvency tourists arriving in Britain, however, are premature.
It is fairly easy for applicants to satisfy a court that their "centre of main interests" has permanently transferred to the UK, even after moving to a British address for a few weeks. However, Insolvency Service officials have been watching for abuse and have taken a number of cases back to the courts and successfully overturned initial bankruptcy orders.
Stephen Baister, a senior UK bankruptcy judge, suggests it may be harder for the authorities to spot Irish bankruptcy tourists than it has been identifying Germans because of the large Irish diaspora. "If an O'Neill or a Joyce turns up and gives an address in the UK, you think no more of it.". He added that said there was nothing illegal about indebted Irish individuals genuinely relocating to the UK and seeking bankruptcy, regardless of their creditors' location of their creditors. "If you prove you have a genuine tenancy agreement or if you have gainful employment and prove you are settled here, you can fill in the forms and say you can't pay your debts and we will make you bankrupt," he said.
Frances Coulson, vice-president of insolvency professionals' trade body R3, says: "People can come to the UK to take advantage of our bankruptcy rules just as we might go to Poland to get our teeth done."

Our man in Havana

Can the creditors do anything about it?

dublogic

Its a question which occurred to me when I was reading this and I think its a case by case - I was so shocked to read that this guy on 25,000 per annum when he was 25 years old got .5 million credit. Thats just looney tunes stuff and the bank, in this case, deserves to get burnt.

However there are also many honest, creditors (many small and individual businesses) who should not have to suffer because the defaulter can skip to the UK.

Overall its a **** situation.

coylemj

The example quoted illustrates that it was a combination of complete stupidity on the part of the banks and greed on the part of would-be property investors that caused the property bubble that brought this country to it's knees.

Who did these people think were going to occupy the houses and apartments they bought as investments?

Hippo

There are undoubtedly cases of bankruptcy tourism, though I'm not quite sure it's the flood suggested by the article.

The major problem is the structure of bankruptcy law in this jurisdiction; expensive, time-consuming and very difficult to discharge. Very few people over the years have filed for bankruptcy in Ireland. Before the economic collapse the numbers were in single figures per annum.

krd

dublogic wrote: »

Its a question which occurred to me when I was reading this and I think its a case by case - I was so shocked to read that this guy on 25,000 per annum when he was 25 years old got .5 million credit. Thats just looney tunes stuff and the bank, in this case, deserves to get burnt.

However there are also many honest, creditors (many small and individual businesses) who should not have to suffer because the defaulter can skip to the UK.

Overall its a **** situation.

He was 25, salt of the earth, and they gave him 0.5 million. And now you have to pay it all back (so do I )

The thing that gets me about so many of these arseholes. I remember these cock of the walks rubbing their borrowed money in my face.

I seriously want to torture and murder a few people.

Entrepreneurs my arse.

krd

Our man in Havana wrote: »

Can the creditors do anything about it?

Yes,

They can be less foolish about who they lend to in the future.

Like, if a thick Paddy comes looking for millins to buy magic beans - they shouldn't lend to him. I certainly wouldn't - foolishness is expensive buisness

I'm very angry. I remember people trying to raise small business loans in the 90s. Educated people, skilled people, with real businesses that made real money. And they couldn't get a bean.

But the noughties. They poured billions out to thick ignorant baboons.

danbohan

krd wrote: »

He was 25, salt of the earth, and they gave him 0.5 million. And now you have to pay it all back (so do I )

The thing that gets me about so many of these arseholes. I remember these cock of the walks rubbing their borrowed money in my face.

I seriously want to torture and murder a few people.

Entrepreneurs my arse.

my maths is terrible but wasn't his borrowing 800k , 32x25k ? , and your right about the cock of the walks , i can still smell the arrogance .

krd

danbohan wrote: »

my maths is terrible but wasn't his borrowing 800k , 32x25k ? , and your right about the cock of the walks , i can still smell the arrogance .

I don't even want to think about the numbers. Whenever I do, I start feeling dizzy and begin to panic.

I could pull out a good few examples that are worse.

And remember. These gob****es were being called geniuses when they were doing their borrowing, and anyone who didn't get in on it was being called a fool.

SimonPRepublic

Hi,

Has anyone ever gone bankrupt in the UK? From what I hear many people from the Republic are declaring bankruptcy in the UK because it is a simple process for an Irish person to do and in the UK you are only bankrupt for 12 month before being free of your debts (as opposed to 12 years in Ireland).

We're working with a new client that helps people declare bankruptcy in the UK and are looking for case studies of anyone from Ireland that has done this, for a feature in the media. You won't have to give anyway your identity as it can be done anonymously, but we want to give feedback for people that have gone through the process.

Apparently all they say you need to do is get a UK address, a utility bill in your a name at that address and a UK bank account. Has anyone done this?

Any help or insight would be much appreciated.

Thanks in advance.

Delancey

SimonPRepublic wrote: »

Hi,


Apparently all they say you need to do is get a UK address, a utility bill in your a name at that address and a UK bank account. Has anyone done this?

Apparently it is not as easy as you suggest - the Judge must be satisfied the person is genuinely resident in UK and not availing of a ' flag of convenience '.

Contra Proferentem

It's probably worth going through the routine of proving it's not a "flag of convenience" to get it considering it saves a 12 years of intense hardship off a person's life.

Obviously there needs to be a deterrent aspect to bankruptcy, but 12 years is definitely too stiff to expect any rational being to go through in this day and age, but personally, 12 months seems a little short to me to have any sort of deterrent or learning curve effect.

Another issue is the fact the problems of Solicitors not being able to practice to repay debts, which I believe the Legal Services Bill will supposedly address while doing so horrendous things to the sector.

I believe that it's the same for a number of careers, such as in the Gardai, if you declare bankruptcy you're out of the job. I think that will have to change, as it's readily becoming clear that there's relatively few people not in massive debt which they've no prospect of repaying.

That said, there's plenty of people who didn't cause this and were modest during the so-called "boom", so it comes down to how much wiggle room we're willing to give our negligent fellow citizens.

Delancey

Certainly the 12 years ' rule ' here is positively Dickensian , is there not a proposal to cut this to 6 years ?

dermot_sheehan

it was cut this year by the civil law (miscellaneous provisions) act 2011

It's for a UK court to determine in forum is proper under the personal insolvency regulation.

Personal insolvency in another state doesn't effect any person with in rem rights here (Article 5 of Regulation 1346/2000) so it wouldn't stop a bank repossessing a property here. It would however stop them chasing the borrower to make up any deficit in the forced sale of the property against the sums still outstanding.

There's actually a fascinating case before the High Court at the moment involving arguments revolving around where the Centre of Main Interests (COMI) of a petitioning debtor is situated.

Determining the COMI is the standard test for bankrupting oneself in another country.

SimonPRepublic

Absolutely, a COMI has to be established in the UK, which is straight forward enough if you know what you're doing and is perfectly allowable under the rules of the EU.

No wonder there's only one personal bankruptcy in Ireland every fortnight, it seems everyone is moving to the UK to do it.

UK laws are intended to get the person or business free from their debts and participating in the economy again as soon as possible, whereas in Ireland it seems the laws are designed to help with collection of the debts.

SimonPRepublic

SimonPRepublic wrote: »

No wonder there's only one personal bankruptcy in Ireland every fortnight, it seems everyone is moving to the UK to do it.

By this do you mean Petitions brought by debtors to bankrupt themselves?

SimonPRepublic

I do yes.

supermonkey

Delancey wrote: »

Apparently it is not as easy as you suggest - the Judge must be satisfied the person is genuinely resident in UK and not availing of a ' flag of convenience '.

Not genuinely moving to England or Northern Ireland would be very very stupid because it would leave the way clear for the creditors to challenge the proceedings in future.
The English are crackng down hard on bakruptcy tourists.

SimonPRepublic

supermonkey wrote: »

Not genuinely moving to England or Northern Ireland would be very very stupid because it would leave the way clear for the creditors to challenge the proceedings in future.
The English are crackng down hard on bakruptcy tourists.

There's nothing under EU law to stop people moving their residency to the UK to go bankrupt there. That's why so many people are doing it. Of course you have to prove you're a resident there, and have to be there for the majority of the 6 months prior to submitting for bankruptcy, but then in 12 months you're free of all your Irish bank debts. It's a no brainer when compared to 12 years in Ireland and even then your debts could out live you.

I've seen nothing to say that Britain has been 'cracking down' on this especially there is nothing to stop people moving there -it's part of the free movement of trade, goods and services in the EU. It happens from other EU states and has been for sometime. For instance a group of Austrian doctors recently moved to Kent and declare themselves bankrupt there.

With 14% of the UK economy coming from goods and services sold in the Republic it makes sense from Britain's perspective to help Irish people become economically active again. Plus, they get all the Court fees and money coming into their economy from people doing there. When you look at it this way it's a sensible service for Britain to market to Irish residents.

Our man in Havana

It is just a case of sour grapes from the Irish banks.

SimonPRepublic

Our man in Havana wrote: »

It is just a case of sour grapes from the Irish banks.

I'd say it is. The banks here must be very worried about people hopping across the Border for a year to declare bankruptcy. Ireland's archaic bankruptcy laws have played into the hands of Irish banks for years. Thankfully the Troika are forcing the government to relax them, but it doesn't look like the government are going to far enough to stem the flow i.e. 5 years will still be too long.

The whole stigma of bankruptcy needs to change in this country. In Silicon Valley it's a badge of honour. If the US had had the Irish bankruptcy laws we'd have never had companies such as the Ford Motor Company, Disney, Heinz, Goodyear or 20th Century Fox. Even U.S. President's Abraham Lincoln and Thomas Jefferson declared themselves bankrupt and Donald's Trump's declared bankruptcy twice!

supermonkey

It is certainly easy to arrange your affairs to go bust in the UK.
Move to the UK
Go bust

One certainly doesn't need the help of debt advisers (formerly mortgage brokers) or PR companies or anything else that one might scrape off one's shoe on a hot day.

SimonPRepublic

supermonkey wrote: »

One certainly doesn't need the help of debt advisers (formerly mortgage brokers) or PR companies or anything else that one might scrape off one's shoe on a hot day.

The 'debt advisers' as you call them are a legal professionals in the UK and property investors in Ireland who have themselves needed to explore the avenue of bankruptcy in the UK, have gone through the process themselves and are thus helping other people do the same.

There are strict legal procedures that have to be followed, so no it isn't as simple as just moving to the UK and going bust. Or are you taking from experience?

I work with businesses and individuals helping them communicate to people what they do. I help journalists find stories about stuff that is happening in business or society in general. So for the choice of my career I do not expect, or deserve, to be called 'anything that one might scrape of one's shoe on a hot day' by someone who hides behind an anonymous username calling themselves 'supermonkey'. Good luck in life with an attitude like that.

page1

What happens your credit rating here? Would you ever get a loan here again. What are the other consequences of being declaring bankrupt?

Monty Burnz

Of course the one-year bankruptcy in the UK is ridiculously soft. The idea was to encourage entrepreneurialism and creative risk-taking in business - but what has happened is that it's encouraged a bunch of lazy vegetables to run up huge debts, default on them all, go bankrupt, then move to a new address and start the process again. And it's the honest people who have to pay for them. I'd be surprised if they don't take the bankruptcy period in the UK back out to 3 years or so in the not-too-distant future.

Our man in Havana

Even so it would be preferable to the penal system in Ireland.

Monty Burnz

Our man in Havana wrote: »

Even so it would be preferable to the penal system in Ireland.

Ours is being changed by the new government. 5 years sounds like a good compromise to me.

Our man in Havana

I will believe it when I see it.

SimonPRepublic

page1 wrote: »

What happens your credit rating here? Would you ever get a loan here again. What are the other consequences of being declaring bankrupt?

For people in this situation their credit rating is shot anyway, so there's no difference. You're still going to find it hard getting finance in Ireland. The other consequence is you have to move to the UK for a year. For business person the consequences are probably that previous suppliers of goods and services wouldn't deal with you again.

SimonPRepublic

Monty Burnz wrote: »

Of course the one-year bankruptcy in the UK is ridiculously soft. The idea was to encourage entrepreneurialism and creative risk-taking in business - but what has happened is that it's encouraged a bunch of lazy vegetables to run up huge debts, default on them all, go bankrupt, then move to a new address and start the process again. And it's the honest people who have to pay for them. I'd be surprised if they don't take the bankruptcy period in the UK back out to 3 years or so in the not-too-distant future.

The period for bankruptcy in the UK was changed to match that of US. It is seen as key tenet to doing business there. It won't be changing and there's certainly been no discussions about it as it is working so well to encourage new businesses in the UK. The one year bankruptcy law in the US was crucial to the success of areas like Silicon Valley and wider tech industry there and the UK government wants to encourage this. Ireland's bankruptcy laws are hastening the drain of entrepreneurs to UK and the UK will only benefit from this. If they take a lot of entrepreneurs it is going to be very detrimental to Ireland.

Monty Burnz

Our man in Havana wrote: »

I will believe it when I see it.

THE Government is preparing a series of radical moves to make the banks take responsibility for the home mortgage crash.

The Keane Report, which will be presented to the Cabinet next week, will propose major changes to Ireland's bankruptcy laws -- which are the harshest in Europe -- and make the banks write off mortgage debt for homeowners in a similar way to writing off business debt.

The group, chaired by accountant Declan Keane, will recommend:

• Homeowners who can no longer pay the mortgage could negotiate with their lenders to hand back the property but remain on as tenants.

• Banks who repossess homes will then lease them to local authorities to deal with housing shortages.

• The timeframe to get discharged from bankruptcy to be cut from up to 20 years to just three years.

• People facing bankruptcy will be offered a "non-judicial" route -- meaning they won't have to go through the courts in all cases.

• The Money Advice and Budgeting Service will be beefed up with hundreds of "front-line" financial advisers who will deal exclusively with distressed mortgage holders.

http://www.independent.ie/opinion/columnists/john-drennan/john-drennan-reform-of-bankruptcy-law-and-initiatives-on-homeowners-in-trouble-finally-to-be-dealt-with-2893650.html

SimonPRepublic

I think 5 years is still too long to stem the loss of entrepreneurs to the UK. 5 years is a hell of a long time for a start up, why you wait here when you can do a year of bankruptcy in the UK and have 4 years of growing a business during the time you would still be in bankruptcy?

For those people looking to free themselves of property debts you can be over and back in 16 months and starting you life again, instead of half a decade here in penury.

Thankfully I'm not in the that situation but if I was, the more I learn about it, the more I'd be likely to it.

It's a misconception that it is people running up fats debts and thinking they can walk away. Bankruptcy is a fact a life in a normal economy and never more so than the recesssion/depression that we are going through in Ireland. In many instances it cannot be avoided, therefore, the laws need to reflect this and get these people back building businesses again for the good of the Irish economy. Our entrepreneurs will not sit around and wait out bankruptcy for 12 years, and won't for 5 either, they'll simply move across the border. I mean why wouldn't you?

SimonPRepublic

Our man in Havana wrote: »

I will believe it when I see it.

It's already being done. There is a new Personal Insolvency Bill and that the government have had to agree to bring during the first quarter of 2012 under the terms of the EU/IMF bailout.