Bankrupt Irish running to Britain

Niall is 31 and manager of a successful fruit farm just outside Dublin.

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.”

About the author

Avatar of Linda Hohnholz

Linda Hohnholz

Editor in chief for eTurboNews based in the eTN HQ.

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