Developers to Sue over being allowed to borrow.

dan_d · 23-02-2011 09:02AM

My experience with our broker was that she wanted to approve the maximum amount possible for us, assuming we continued to earn what we earned at the time and interest rates never changed, over the longest period possible.And based on that, the banks gave her the amount we'd be able to borrow. (500k, as it turned out:eek:).

I wouldn't say she - or they - fudged numbers as such.But they certainly did not build in any kind of "safety factors" or guards against one of the factors above changing.It was up to us to do that. Which is fine if you're someone whose got a natural sense of caution about these things. But most people don't, particularly when they're being fed a diet of property-based wealth by every media outlet, politician and bank out there. And aside from that, for as long as banking has existed in this country, they've built in the safeguards themselves when loaning money, because they worked on the basis that if you couldn't pay back, then they lost out.They had numerous criteria and formulae to be met before loaning money, and they erred on the conservative side. Yet in the last decade, in the interest of profit making, they turned all this on their head, and now it's suddenly the consumer's fault for borrowing stupid money as opposed to the banks for throwing all their own rules out the window???

There is a certain degree of blame on the part of the consumer, I do accept that. But...I can't help comparing to my parents, whose mortgage was 25k over 25 years at 14% interest. Their borrowings were wholly determined by the bank.They had zero input, other than submitting their earnings. The bank decided what they could or couldn't borrow, and while at it, didn't count the salary of my mother (a teacher), the assumption being that she would stop work at some point (which she didn't, as it turned out). I just wonder at what point it stopped being the bank's responsibility and became wholly the responsibility of the consumer....at what point it became ok to ignore all the rules.

PyeContinental · 23-02-2011 11:59AM

Scofflaw wrote: »

If bank employees colluded in people getting loans bigger than were repayable under sensible assumptions by fudging the numbers

They did.
I know people who got letters from their HR department which said how much they earned, rather than payslips which proved how much they earned. I know that the banks accepted these letters as proof of earnings and future earnings.

if the bank encouraged such behaviour by their employees then they were irresponsible

They did.
I know that bank staff were both incentivised with commission and put under pressure via targets and metrics to approve more loans.

but they're not responsible for people taking out loans on their own advice.

I might have to ruminate on this a bit more. I believe in personal responsibility, but I also know that there are a lot of naive people out there and banks were certainly trying to get anyone or anything to take out loans.
I think that both parties to these irresponsible loans should be obliged to accept the consequences.

jmayo · 23-02-2011 12:42PM

Permabear wrote: »

This post had been deleted.

True they are similar, but then so the case of mega developers whose toxic loans were dumped on the taxpayers through a combination of bank nationalisation and NAMA.
Now forgive me for beeing cynical, but we still have these devleopers swaning around with no real consequences yet they owe us the taxpayers billions.
And as can be seen from the court case involving one simon kelly and ACC, these guys are not being forced to pay for their wreckless borrowing.

As Liam Bryne says in his post, ff set a precedent where mega developers and the banks were bailed out to a large degree.
And people can claim it isn't a bailout and that NAMA, etc are chasing developers, but so far we have seen no evidence of this actually happening, even though these guys businesses affectively stopped over two years ago.

jimmycrackcorm wrote: »

I'm a fan of TV legal drama shows. I'd love to watch this played out in court.

lawer: So Mr. Murphy, how long were you happy paying your expensive mortgage?

Murphy: Well, m'lud - it was completely fine until I discovered that the builders were selling other houses in the estate for 100k less.

It actually would make a plausible episode of Boston Legal.

Scofflaw wrote: »

Isn't the whole "irresponsible foreign banks lent us billions" story also based on the same principle?

amused,
Scofflaw

Yeah there is an analogy, except the normal capitalisation rules were subverted by ff who chose to make us the taxpayers responsible for the debts of our banks/developers to those foreign banks.

They set the precedent where bank debts and well connected people's debts were taken into the ownership of the state and the taxpayers were made ultimately responsible for them.

So is it any wonder that other less connected citizens would want to receive similar treatment ?

Isn't it a bit rich to tell Johnny or Mary that they should be responsible for their own debts, but liam carroll, bernie mcnamara, seanie fitzpatrick, simon kelly, etc can declare bankruptcy and walk away from their much larger debts, after making Johnny or Mary partially responsible (through being taxpayers/citizens) for those debts ?

I don't agree with debt forgiveness for anyone and shovelling them on some else is not the answer.

Scofflaw wrote: »

But NAMA isn't a "break for developers" - the loans have been transferred in total to NAMA, so a developer who owed €100m to Anglo now owes €100m to NAMA. In some cases NAMA may choose to write down the loan, but in those same circumstances the bank would have done so as well.

Ah still believing in NAMA fairytales.

NAMA helped prevent the progress of natural capitalism and subverted the entire process and made us responsible for the debts run up by the former highflying bankers and developers.
As can be seen by the Zoe carroll case it allowed breathing space for developers, who now lo and behold have moved overseas and/or declared bankruptcy.
Funny their families have not been so hit.

Developers and their primary irresponsible banks should have all gone bust, and NAMA, the bank guarantee and the recapitalisation programs have prevented this.
NAMA has created a limbo environment and in the process made us all responsible.

Of course you will say NAMA is working as they managed to sell one or two sites to Google, one of the most cash rich companies in the world.

Lets see how much they get for the Dublin Docklands site and lets see how NAMA will chase the now bankrupt bernie mc for the outstanding amounts on his loans including those for that site.

You neglect to mention that the banks were private companies prior to nationalisation or partial nationalisation and that NAMA has affectively turned that private debt into public soverign debt. :rolleyes:

Scofflaw wrote: »

Transferring all the mortgages in the Irish banks into NAMA II would make no difference to the mortgage holders. They'd still owe their mortgages exactly as before.

cordially,
Scofflaw

Only difference might be that the mortgage holders might actually make some repayments and not hide behind the bankruptcy laws, after of course transferring their assets to family members.

Permabear · 23-02-2011 01:13PM

This post has been deleted.

PyeContinental · 23-02-2011 01:21PM

What you said is true, but I know that what is legal is not always right and vice-versa.

Scofflaw · 23-02-2011 04:49PM

PyeContinental wrote: »

What you said is true, but I know that what is legal is not always right and vice-versa.

No, but what is legal is legal, and changing the law to pursue particular individuals rather than a class of people is not a good precedent.

jmayo wrote:

Ah still believing in NAMA fairytales.
NAMA helped prevent the progress of natural capitalism and subverted the entire process and made us responsible for the debts run up by the former highflying bankers and developers.
As can be seen by the Zoe carroll case it allowed breathing space for developers, who now lo and behold have moved overseas and/or declared bankruptcy.
Funny their families have not been so hit.

Developers and their primary irresponsible banks should have all gone bust, and NAMA, the bank guarantee and the recapitalisation programs have prevented this.
NAMA has created a limbo environment and in the process made us all responsible.

Of course you will say NAMA is working as they managed to sell one or two sites to Google, one of the most cash rich companies in the world.

Lets see how much they get for the Dublin Docklands site and lets see how NAMA will chase the now bankrupt bernie mc for the outstanding amounts on his loans including those for that site.

You neglect to mention that the banks were private companies prior to nationalisation or partial nationalisation and that NAMA has affectively turned that private debt into public soverign debt.

NAMA may or may not make a profit (and yes, the Google sale is a good thing in that regard, although it can hardly be taken as particularly indicative), but it is, on the other hand, at least a revenue generator. An investment - or as we say in Ireland, a gamble.

Some people have been convinced since they first ever heard of it that it was a mechanism for allowing developers to escape their debts, and the complete absence of any evidence that that's the case hasn't changed their minds, and no doubt never will. If developers were not being pursued for their loans, we would have heard about it, and strangely, we haven't.

What we have heard is that developers have done their best to protect themselves legally from NAMA - which, bizarrely, is again taken as evidence that NAMA is a way of letting them off, as opposed to evidence that NAMA is chasing them for their debts. We've also seen that NAMA is attempting to beef up its armoury of legal tactics - and again, any delay there is taken as evidence that it's a developer bailout, as opposed to evidence that NAMA is trying to reach beyond the various obstacles legal developers have created.

As a result, I don't expect to ever convince some people that maybe they should wait for more evidence, because they can't in any case prevent NAMA from going ahead.

You neglect to mention that the banks were private companies prior to nationalisation or partial nationalisation and that NAMA has affectively turned that private debt into public soverign debt.

Heh - NAMA is hardly the only way that's been done, and not the most egregious either, since NAMA pays for the discounted loans it buys with "NAMA bonds" rather than cash.

Isn't it a bit rich to tell Johnny or Mary that they should be responsible for their own debts, but liam carroll, bernie mcnamara, seanie fitzpatrick, simon kelly, etc can declare bankruptcy and walk away from their much larger debts, after making Johnny or Mary partially responsible (through being taxpayers/citizens) for those debts ?

Johnny and Mary now own the developers' debts, bought at a discount that attempts to properly factor in the likelihood of non-payment. It may or may not turn out to be a good investment, but it's not actually the same thing as simply getting Johnny and Mary to pay those debts, which you seem to be describing it as.

cordially,
Scofflaw

PyeContinental · 23-02-2011 06:10PM

Scofflaw wrote: »

No, but what is legal is legal, and changing the law to pursue particular individuals rather than a class of people is not a good precedent.

I meant to write "unfortunately" as I was really bemoaning reality rather than trying to deny it. Yes, I fully understand that we all have to play the game within this "legal framework" of ours.

Whether changing the law to persue particular individuals sets a bad precedent is something else I'll have to ruminate over. I don't think I agree. I see the law, as in the rules which our society is bound to follow, as being directly analogous to a collection of computer programs, and the courts being analagous to a computer which runs the programs exactly as they are written (dispassionately).

When bugs in computer programs or loopholes in the law (unintended results) are identified, they should be rewritten.

As far as these discounts went, I would make another analogy here.
What if you bought some worthless "magic beans" (could be anything with little to no inherent value) for 250 million, and after a frenzy of nonsensical trading in these magic beans, all of a sudden, everyone realised that they were worthless and after this you found that you were stuck with them and couldn't sell them on to anybody. If some institution was then set up which wanted to buy these magic beans from you at a 40% discount, wouldn't you consider yourself very lucky to have offloaded them? :pac:

Scofflaw · 23-02-2011 06:19PM

PyeContinental wrote: »

I meant to write "unfortunately" as I was really bemoaning reality rather than trying to deny it. Yes, I fully understand that we all have to play the game within this "legal framework" of ours.

Whether changing the law to persue particular individuals sets a bad precedent is something else I'll have to ruminate over. I don't think I agree. I see the law, as in the rules which our society is bound to follow, as being directly analogous to a collection of computer programs, and the courts being analagous to a computer which runs the programs exactly as they are written (dispassionately).

When bugs in computer programs or loopholes in the law (unintended results) are identified, they should be rewritten.

And the problem with writing in special cases, as any programmer will tell you, is that they often result in unexpected consequences, and may interact badly with general cases.

The problem is that as far as I know, it's not even possible to write law that specifically names individuals, so what you end up with is a piece of law which is intended to catch particular individuals, but which cannot possibly describe them in a way that doesn't result in more general applicability. That being the case, one should write the law as a generally applicable one in the first place.

PyeContinental wrote: »

As far as these discounts went, I would make another analogy here.
What if you bought some worthless "magic beans" (could be anything with little to no inherent value) for 250 million, and after a frenzy of nonsensical trading in these magic beans, all of a sudden, everyone realised that they were worthless and after this you found that you were stuck with them and couldn't sell them on to anybody. If some institution was then set up which wanted to buy these magic beans from you at a 40% discount, wouldn't you consider yourself very lucky to have offloaded them? :pac:

If they were genuinely worth absolutely nothing under any conceivable circumstance, of course I would be. The thing is, though, that they're not. The loans NAMA bought are certainly hard to value properly, but as long as there's someone on the other end of them capable of paying, or a piece of property someone might buy, they're not worth nothing.

cordially,
Scofflaw

PyeContinental · 23-02-2011 06:34PM

Actually, I think we agree on the programming of the law, as long as we don't write sloppy "code".
The problem is resolved by defining what it is that these people are as a group and if necessary, writing a case for this defined group.

Alternatively, if there is already a bug in the law which they are exploiting (such as transferring their wealth to the wife for example) then this should be "patched".

I don't doubt that there are some properties in NAMA which are worth something, but I am also sure that there are some that are worth so little to anyone that their worth on the market is effectively zero and that won't change in ten or twenty years.

The point I wanted to make though, was that the term "discount" is grossly misleading, because it sounds like NAMA is getting a great deal for us, the taxpayer, when in reality, it's only paying less than the ludicrous prices that these properties were at one time, which is not a discount in the real world.

Another quick analogy-
2007: Car dealer buys a VW Polo for €70,000
2008: Can't seem to offload it onto anyone
2009: He still can't sell it on
2010: NAMA buys it for €40,000 - over 40% discount - but obviously they still paid far too much for it.

Scofflaw · 23-02-2011 07:00PM

PyeContinental wrote: »

Actually, I think we agree on the programming of the law, as long as we don't write sloppy "code".
The problem is resolved by defining what it is that these people are as a group and if necessary, writing a case for this defined group.

Alternatively, if there is already a bug in the law which they are exploiting (such as transferring their wealth to the wife for example) then this should be "patched".

I don't doubt that there are some properties in NAMA which are worth something, but I am also sure that there are some that are worth so little to anyone that their worth on the market is effectively zero and that won't change in ten or twenty years.

The point I wanted to make though, was that the term "discount" is grossly misleading, because it sounds like NAMA is getting a great deal for us, the taxpayer, when in reality, it's only paying less than the ludicrous prices that these properties were at one time, which is not a discount in the real world.

Another quick analogy-
2007: Car dealer buys a VW Polo for €70,000
2008: Can't seem to offload it onto anyone
2009: He still can't sell it on
2010: NAMA buys it for €40,000 - over 40% discount - but obviously they still paid far too much for it.

Yes - but NAMA didn't buy properties, it bought loans, which makes a difference. If I loaned you €450k to buy a property valued at €500k in the bubble, then despite the fact that the property is now worth €200k, the mortgage is still worth €450k. If you're still able to make payments on it, the value of the house is irrelevant - and if you can't make payments, then I'm entitled to seize not just the house, but other assets.

So if NAMA bought that mortgage from me, the lender, with a 50% haircut (so for €225k), then their loss on the property itself will be small, they can seize any other assets you may have, and they don't have to do either of those until they're sure you can't pay any more of the mortgage. Further, they can probably get a lien on any of your future earnings, because you'll still owe them however much of the €450k they didn't make from a sale of your assets and your repayments, and they can come after your for that at any time.

Using your car analogy, NAMA didn't buy the car - they bought the car loan. Sure, the car isn't worth €30k, but the value of the loan isn't just the car - it's (car + repayments + other assets + future earnings).

cordially,
Scofflaw

SkepticOne · 23-02-2011 07:29PM

Scofflaw wrote: »

Yes - but NAMA didn't buy properties, it bought loans, which makes a difference. If I loaned you €450k to buy a property valued at €500k in the bubble, then despite the fact that the property is now worth €200k, the mortgage is still worth €450k. If you're still able to make payments on it, the value of the house is irrelevant - and if you can't make payments, then I'm entitled to seize not just the house, but other assets.

The analogy works with developer loans as well. The market value of those loans will have fallen from their original value to something much lower today. If 3 million was loaned to a developer to build a ghost estate in Leitrim, the value of the loan (not the property) is today only a fraction of that three million. No one will touch it as the chances of getting it repaid is very slim. Brian Lenihan made the same mistake as you are making thinking the original value of the loan doesn't fall in value in his rhetoric supporting NAMA. He mistook the principal of the loan with its market value and thus we have NAMA.

PyeContinental · 23-02-2011 07:40PM

Ok, I accept that there is an important distinction there in that it bought (with government bonds) the legal concept of the loans, rather than buying the properties.

Using your car analogy, NAMA didn't buy the car - they bought the car loan. Sure, the car isn't worth €30k, but the value of the loan isn't just the car - it's (car + repayments + other assets + future earnings).

What if they buy this 70k loan for 40k and find that the asset is worth significantly less than 30k, and no one wants to buy it anyway, so the lien is of no use, and there are no repayments because the developer is "broke" (has declared bankruptcy) has no other assets (transferred assets to wife) and has made sure he has no tangible future earnings?

Scofflaw · 23-02-2011 07:56PM

SkepticOne wrote: »

Yes - but NAMA didn't buy properties, it bought loans, which makes a difference. If I loaned you €450k to buy a property valued at €500k in the bubble, then despite the fact that the property is now worth €200k, the mortgage is still worth €450k. If you're still able to make payments on it, the value of the house is irrelevant - and if you can't make payments, then I'm entitled to seize not just the house, but other assets.

The analogy works with developer loans as well. The market value of those loans will have fallen from their original value to something much lower today. If 3 million was loaned to a developer to build a ghost estate in Leitrim, the value of the loan (not the property) is today only a fraction of that three million. No one will touch it as the chances of getting it repaid is very slim. Brian Lenihan made the same mistake as you are making thinking the original value of the loan doesn't fall in value in his rhetoric supporting NAMA. He mistook the principal of the loan with its market value and thus we have NAMA.

He may have done, but I haven't. The market value of the loan is whatever money can be recovered over a given time scale. However, you will find that lenders don't say "ok, fair's fair, the market value of the loan was less than we paid for it, boy are our faces red" - they say "we recovered €200k on your €450k loan - so you now owe us €250k".

What can be recovered if a loan is called in in full and the lendee defaults is a separate issue from the amount you owe. The amount you owe doesn't change unless the lender decides to write it down.

The same issue arises with the guaranteed loans of the banks - whether we choose to default or not, we will owe the lenders the same amount unless they agree to write down their debts.

cordially,
Scofflaw

Scofflaw · 23-02-2011 08:02PM

PyeContinental wrote: »

Ok, I accept that there is an important distinction there in that it bought (with government bonds) the legal concept of the loans, rather than buying the properties.

What if they buy this 70k loan for 40k and find that the asset is worth significantly less than 30k, and no one wants to buy it anyway, so the lien is of no use, and there are no repayments because the developer is "broke" (has declared bankruptcy) has no other assets (transferred assets to wife) and has made sure he has no tangible future earnings?

Then they're stuffed, as is he. That situation will undoubtedly apply to some loans in NAMA, but most developers hope to stay in business and continue to earn.

A point about bankruptcy in Ireland - it's not a "get out of debt free" card either:

Petition the court to grant you protection from any bankruptcy actions brought forth by your creditors. You must have been served with a bankruptcy summons from one or more creditors in order to file this petition.

Receive approval of your petition by three-fifths of your creditors for three-fifths of the total amount you owe. If three-fifths of the creditors accept the arrangement, then all the creditors must abide by it.

Declare all assets to the court. Someone will be assigned to handle your case. You must turn over any requested property or documents to this Official Assignee.

Pay off debts as instructed by the court. There are many different circumstances that may affect the court's ruling regarding what you are required to pay back. Often, the court will broker a repayment arrangement so that you are not declared bankrupt.

Receive back any property that the Official Assignee still has in his possession after your bankruptcy claim has been discharged, which can take up to 12 years.

cordially,
Scofflaw

SkepticOne · 23-02-2011 08:08PM

Scofflaw wrote: »

He may have done, but I haven't. The market value of the loan is whatever money can be recovered over a given time scale. However, you will find that lenders don't say "ok, fair's fair, the market value of the loan was less than we paid for it, boy are our faces red" - they say "we recovered €200k on your €450k loan - so you now owe us €250k".

What can be recovered if a loan is called in in full and the lendee defaults is a separate issue from the amount you owe. The amount you owe doesn't change unless the lender decides to write it down.

The same issue arises with the guaranteed loans of the banks - whether we choose to default or not, we will owe the lenders the same amount unless they agree to write down their debts.

cordially,
Scofflaw

I think you're making the same mistake here of mistaking the value of the loan for the principal. Yes the principal stays the same (the developer still owes the same amount) but the value can still drop (and has dropped significantly).

Do you understand the difference now?

jmayo · 23-02-2011 08:08PM

Permabear wrote: »

This post had been deleted.

Oh I do know the legal basis of a limited company and what that entails.
Limited companies were one of the pillars on which capitalism was built from as far back as the Dutch East India company in the 1600s.

You allude to their personal borrowing, but some of these develoeprs often took their companies private since it meant they did not have to publish accounts for all to see.
This should mean they have lost the protection a limited company affords.
AFAIK this was partially the case with sean dunne ?
Perhaps someone can correct me on this ?

They also often gave personal guarantees that were often thrown out by some NAMA propoents as showing how they were liable for these huge debts.
But the ugly spector that I and others highlighted has come to pass and it is very evident in the very public case of the likes of bernie mcnamara and simon kelly.
These people are either declaring bankruptcy thus meaning the personal guarantees are worthless or they are brazening it out.

Scofflaw wrote: »

No, but what is legal is legal, and changing the law to pursue particular individuals rather than a class of people is not a good precedent.

It may not be a good precedent, but I hold there is a difference between the law and justice.
For this country to have any future social cohesion one class of people can not be allowed dump their complete greedy cockups on the rest of society and continue as if nothing happened.
Every day the likes of simon kelly or johnny ronan swans around lauding it, they are rubbing the noses of every taxpayer in the country in their sh**.
You cannot expect that this will not have consequences long term.
Sooner or later the damned up emotions of Irish people will break and it will be very nasty.

Scofflaw wrote: »

NAMA may or may not make a profit (and yes, the Google sale is a good thing in that regard, although it can hardly be taken as particularly indicative), but it is, on the other hand, at least a revenue generator. An investment - or as we say in Ireland, a gamble.

I reckon you must be the only person who still uses may when speaking of NAMA making a profit ?
NAMA is not an investment, it is a stop gap, it is a fudge to prolong the disease.
It is much like how the ECB/EU are kicking the can down the road regarding the huge circle of debt that exists in Europe.
Sooner or later a hit has to be taken.

Scofflaw wrote: »

Some people have been convinced since they first ever heard of it that it was a mechanism for allowing developers to escape their debts, and the complete absence of any evidence that that's the case hasn't changed their minds, and no doubt never will. If developers were not being pursued for their loans, we would have heard about it, and strangely, we haven't.

And there is really complete absense that developers are really being pursued.
mcnamara has declared bankruptcy, so has fleming AFAIK.
The kellys are swaning around as if it is normal to owe someone over a billion.

Scofflaw wrote: »

What we have heard is that developers have done their best to protect themselves legally from NAMA - which, bizarrely, is again taken as evidence that NAMA is a way of letting them off, as opposed to evidence that NAMA is chasing them for their debts. We've also seen that NAMA is attempting to beef up its armoury of legal tactics - and again, any delay there is taken as evidence that it's a developer bailout, as opposed to evidence that NAMA is trying to reach beyond the various obstacles legal developers have created.

Please the major legal challenge to NAMA was not that the developer was refusing to pay his debts, but that he felt that NAMA had no right to his debts and that it adversily affected his business standing.

Scofflaw wrote: »

Heh - NAMA is hardly the only way that's been done, and not the most egregious either, since NAMA pays for the discounted loans it buys with "NAMA bonds" rather than cash.

Ah come on I mentioned NAMA and bank recapitalisation/nationalisation.
You are been economically with the truth in not mentioning both in the same sentence.
What we saved in one we spent in the other.
Thus we saved nothing but lost a hell of a lot.

Scofflaw wrote: »

Johnny and Mary now own the developers' debts, bought at a discount that attempts to properly factor in the likelihood of non-payment. It may or may not turn out to be a good investment, but it's not actually the same thing as simply getting Johnny and Mary to pay those debts, which you seem to be describing it as.

Again you neglkect to mention how we have had to factor into recapitalisation what discounts were given when buying loans into NAMA.
That is robbing Peter to pay Paul.
BTW who guarantees the lot ?
Who is the one carrying the can for the lot ?
Johnny, Mary and the rest of us.

BTW I do hope you are right that some of these "investments" come through, but somehow I doubt it.

PyeContinental · 23-02-2011 08:13PM

Scofflaw wrote: »

Then they're stuffed, as is he.

Ah good! I was expecting some conceptual way of balancing that one. :pac:
And so we're all stuffed too, because all of these loans were bought with government bonds which are underwritten by the state, which is all picked up by the taxpayer. I find it all to be just like the three card trick where you have to try to keep your eye on the lady. They really do try to make it as difficult as possible.

That situation will undoubtedly apply to some loans in NAMA, but most developers hope to stay in business and continue to earn.

I think the only thing we disagree about now is whether the scenario I envisage is a minority case, or in fact is the vast majority of cases. I'm jaundiced and cynical so you know what I think. :pac: Won't the developers just start a new company and continue on making money, leaving the debts of the other company behind?

A point about bankruptcy in Ireland - it's not a "get out of debt free" card either:

Is this in regard to a private individual delaring bankruptcy or a limited company?

K-9 · 23-02-2011 08:32PM

jmayo wrote: »

Oh I do know the legal basis of a limited company and what that entails.
Limited companies were one of the pillars on which capitalism was built from as far back as the Dutch East India company in the 1600s.

You allude to their personal borrowing, but some of these develoeprs often took their companies private since it meant they did not have to publish accounts for all to see.
This should mean they have lost the protection a limited company affords.
AFAIK this was partially the case with sean dunne ?
Perhaps someone can correct me on this ?

They also often gave personal guarantees that were often thrown out by some NAMA propoents as showing how they were liable for these huge debts.
But the ugly spector that I and others highlighted has come to pass and it is very evident in the very public case of the likes of bernie mcnamara and simon kelly.
These people are either declaring bankruptcy thus meaning the personal guarantees are worthless or they are brazening it out.

The majority of companies aren't public. They still have to submit Accounts to the CRO and that information is available to the public for a small fee. Phoenix magazine often uses this information to good effect.

Seeing as you mentioned the personal guarantee, I think that would be a better avenue for these people. As you say, a company has limited liability. Getting a personal guarantee means that is no longer applicable to the Director. Many would not have got the finance if they had not signed it.

This circumvented a basic legal protection of a company. Most guarantees are probably relatively worthless now though, due the property crash.

Scofflaw · 23-02-2011 09:59PM

SkepticOne wrote: »

I think you're making the same mistake here of mistaking the value of the loan for the principal. Yes the principal stays the same (the developer still owes the same amount) but the value can still drop (and has dropped significantly).

Do you understand the difference now?

Indeed, all along, even, as one can tell from my examples. Wasn't sure whether you had understood what the discussion, and hence explanation, was about, though - it doesn't seem worthwhile talking about the value of the loan when we're discussing what the developer owes, since the developer owes the principal regardless of the value of the loan.

cordially,
Scofflaw

Scofflaw · 23-02-2011 10:12PM

PyeContinental wrote: »

Ah good! I was expecting some conceptual way of balancing that one. :pac:

Nope - stuffed is stuffed...

PyeContinental wrote: »

And so we're all stuffed too, because all of these loans were bought with government bonds which are underwritten by the state, which is all picked up by the taxpayer. I find it all to be just like the three card trick where you have to try to keep your eye on the lady. They really do try to make it as difficult as possible.

I think the only thing we disagree about now is whether the scenario I envisage is a minority case, or in fact is the vast majority of cases. I'm jaundiced and cynical so you know what I think. :pac: Won't the developers just start a new company and continue on making money, leaving the debts of the other company behind?

In that case they are likely to get bankruptcy filed against them as directors, which has a lot of implications for any assets they may have, and also for their future earnings (and even for the right to move freely). I won't go through all the implications of a business bankruptcy (they're here):

Does bankruptcy have implications for my salary and pension?

Yes, the High Court may appropriate your salary or pension for the benefit of your creditors. However this is subject to any provision the High Court may make to meet your family responsibilities and your personal situation.

Can I operate a bank account while I am bankrupt?

Yes, you can operate a bank account. However if you obtain credit of €650.00 or more without disclosing your bankruptcy, you are guilty of an offence.

Can I still trade while I am bankrupt?

Yes, as long as you trade in your own name. If you trade in a name other than that in which you were made bankrupt without disclosing this name, you are guilty of an offence. You must notify the Official Assignee of any business or trade in which you engage.

Can I manage a company or become a director of a company?

No, under the Companies Acts it is an offence for a bankrupt to act in various capacities in relation to a company. These include director, auditor, manager, liquidator or receiver of a company.

Can I seek employment while bankrupt?

Yes, and you can continue in current employment or seek employment.

Can I travel outside the jurisdiction?

There is no outright prohibition on you travelling abroad but you should inform the Official Assignee if you intend to do so. You may be arrested if it appears to the High Court that you may be leaving the State in order to avoid the consequences of your bankruptcy.

That's business bankruptcy - the first one was personal bankruptcy. Both are relevant in pursuing developers.

So, again, it's not as simple as being able to laugh in your creditors' faces on the way out of court. The bankrupt still owes the debts, and future income of assets may be seized in order to pay back those debts. There is no wipe of the slate - bankruptcy is a way of putting someone into what is in effect an indentured existence.

cordially,
Scofflaw

SkepticOne · 23-02-2011 11:28PM

Scofflaw wrote: »

Indeed, all along, even, as one can tell from my examples. Wasn't sure whether you had understood what the discussion, and hence explanation, was about, though - it doesn't seem worthwhile talking about the value of the loan when we're discussing what the developer owes, since the developer owes the principal regardless of the value of the loan.

The discussion was about the value of the loans to NAMA (i.e. the state). What the developer owes has a bearing on this but is only part of the story.

Idbatterim · 24-02-2011 02:51AM

If all of the banks weren't effectively state owned, Id say go for it, let them pay for their reckless practices etc. But it wont be the banks paying, it will be us! I think it very dangerous to set the precedent of allowing people make reckless decisions and get away with it...

Developers to Sue over being allowed to borrow.

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