Short bankruptcy term may be bittersweet pill

On the corner of St Stephen’s Green and Earlsfort Terrace in Dublin, the final touches are being put to Denis O’Brien’s “LXV” building, which seems to be setting a new benchmark for post-crash office rents in the capital.

It marks the return of boom-time developer Bernard McNamara, whose company is building the office block. McNamara went bankrupt in the UK, where it took about 15 months for him to be discharged from his €1 billion-plus debts.

His involvement in O’Brien’s shiny new block must stick in the throat of the 600 residents of the Longboat Quay apartment block in Dublin’s docklands.

Longboat Quay was one of McNamara’s boom-time developments, completed in 2006 with Celtic Tiger price tags.

But it was shoddily built and residents were told earlier this year that it’s a fire trap and they either have to come up with €3.88 million for repairs or vacate the premises.

Yesterday, the Cabinet decided to reduce Ireland’s bankruptcy term from three years to just 12 months, mirroring the position in the UK. It was a policy initiative pushed by the Labour Party, who will hope this will win them votes from those who find themselves drowning in personal debt.

In July, the Oireachtas joint committee on justice, defence and equality published its report and recommendation to Government on reducing the bankruptcy term.

It had received 122 submissions from individuals and groups, most of them in favour of reducing the term to one year.

But there were some interesting objections to the move. The Lisduggan Credit Union in Waterford argued that a reduction "would constitute too easy a channel for individuals to enter in order to avoid having to take reasonable responsibility for debt incurred".

Consumer advocate Brendan Burgess recommended that the default term be left at three years.

“The official assignee should be given the right to apply to the High Court to discharge the bankrupt earlier where the bankrupt has co-operated and where there is nothing further to be gained by waiting for three years,” he added.

The Consultative Committee of Accountancy Bodies-Ireland argued that reducing the term would not help a debtor remain in their family home and recommended the term be kept at three years.

Moral hazard

And in a presentation to the justice committee in May,

Chris Lehane

, the official assignee of bankruptcy in Ireland, warned of the risk of moral hazard in reducing the term.

“The easier you make bankruptcy, the more people who will avail of the solution and the fewer number who will seek to pay their debts in full or seek informal or formal debt-settlement solutions with their creditors,” he said.

Lehane also warned that reducing the term could encourage bankruptcy tourism into Ireland.

He said many of these cases would be difficult to investigate and would place a heavy burden on the resources of the insolvency service.

In his recent memoir, Ivan Yates made a strong case for mirroring the UK laws in recounting his own experience of going bankrupt in Wales for a year.

Indefinite damnation

“The British have been at this since 1986,” he said. “Their system, unlike the Irish regime, works. They understand that getting people through a financial crisis and out the other end is more important than indefinite damnation. It’s better for the economy and society to give people a fresh start.”

Yates's book details how he sought, without success, on a number of occasions to reach a fair settlement of his debts with AIB. The same can't be said of every bankrupt.

Seán Quinn initially tried to go bankrupt in Belfast until the Irish Bank Resolution Corporation blocked the move and forced his bankruptcy south of the Border. Quinn played a significant role in the demise of Anglo Irish Bank, which has cost the taxpayer the guts of €30 billion, and, along with various family members, sought to frustrate the bank and its liquidators at every turn as they sought to take control of assets as security for his debts.

Quinn is now free of his three-year bankruptcy term and reportedly working as a "consultant" for a business that was once part of the Quinn Group and is now owned by some of his former employees. This is good news for him but of little comfort to taxpayers.

Time will tell if the Government was right to reduce the term to just one year. All we can say for sure is that there is no one-size-fits-all solution to the bankruptcy conundrum. Some will stink, in which case we’ll just have to hold our noses.

Twitter: @CiaranHancock1