A Happy New Year to all and we start with a subject which is in itself depressing but in keeping with the “Eastenders” philosophy I hope that watching the misery of others will help the majority feel grateful acknowledging that for many, there but for the grace of God go we.
Just before Christmas we learned that one of NAMA’s top developers, John Fleming, had filed for bankruptcy in his current base of Essex in the UK. This was quite a milestone event and the concern must be that in 2011, more NAMA developers that have overseas interests may file for bankruptcy in those jurisdictions that are more favourable to their financial interests than here at home.
And during the past week we have learned that in 2010 a total of 1,250 people in Northern Ireland had filed for bankruptcy – it is not clear from the reporting if this total includes cases where bankruptcy was initiated by creditors. So that’s a minimum of 1,250 people in a jurisdiction whose latest population estimate is 1,789,000. In Ireland we have about 10 bankruptcies a year and that includes creditor-initiated bankruptcies like that of former Anglo chairman, Sean Fitzpatrick in July 2010. And with our population of 4,470,000 that means that our northern neighbour’s bankruptcy rate is 350 times that of ours. Indeed for the UK as a whole their bankruptcy rate is 375 times our’s. But that all pales into insignificance compared to the home of capitalism, the US, whose bankruptcy rate is 2000 times our’s.
Although there are plans to reform Ireland’s personal bankruptcy regime (indeed the recent Memorandum of Understanding with the IMF/EU commits the Irish government to presenting reform legislation to the Oireachtas by December 2012 – yes, two years from now), it seems that those presently facing financial ruin must submit to what is acknowledged as one of the most draconian bankruptcy regimes in the world – with loss of the usual assets plus potentially the family home, pension and bankruptcy lasting up to 12 years.
The larger-scale NAMA developers will have international assets which may give them the necessary foothold to file for bankruptcy overseas. As we are seeing in the case of former Anglo CEO, David Drumm’s bankruptcy in the US, he is entitled to keep his family home, his pension and indeed a few farm animals and a sewing machine under Massachusetts law. But bankruptcy isn’t just for the rich. With an estimated 200,000 households in negative equity in Ireland and that number likely to grow (in my view with a prediction that prices will drop 5% in the forthcoming year which will offset the usual repayment of mortgage principal) and with family finances already strained and having to endure new taxes, there is an urgent need for an efficient bankruptcy regime that will balance repayment of debt with personal financial recovery. Sadly that reform is unlikely to be forthcoming in the next year so it will be law firms in London and New York that benefit from self-declared bankruptcies elsewhere. And of course NAMA’s hardball tactics may just bolster those overseas bankruptcies.
UPDATE: 5th August, 2011. An extract of the bankruptcy documents of John Fleming has been published by thestory.ie and is available here. The documents reveal extensive debts, directorships and the grounds upon which John claimed the right to file for bankruptcy in the UK.
UPDATE: 9th August, 2011. The BBC reports that for the second quarter of 2011, there were a record 752 personal insolvencies in Northern Ireland – that includes those made bankrupt and who have entered into an Individual Voluntary Arrangement (IVA, a UK device whereby a person pays back a certain % of their debts over a period of time and has the remainder written off). The 752 comprises 451 bankruptcies and 301 IVAs. The 752 personal insolvencies in Q2, 2011 comes on the back of the record 692 in Q1, 2011 (451 bankruptcies, coincidentally identical to the figure for Q2, and 241 IVAs). The total bankruptcies for H1, 2011 now stands at 902 compared with a total of 1,321 in 2010 (73%). The bankruptcy rate in Northern Ireland is now 500x that of the Republic per 100,000 population (902*2/1,789,000 cf 10/4,581,000). Factor in IVAs and the figures look ever more stark.