Given the range of greetings cards that are available these days for practically any event, it’s surprising that there isn’t a whole genre devoted to bankruptcy – “Sorry to hear..” in the early days, “Nil illegitimi carborundum” as the process gets into full flow and “Congratulations – welcome back to financial freedom” when the bankruptcy comes to an end. Of course in Ireland, we have a tiny number of bankruptcies – just 30 in 2010, which is slightly higher than, though still consistent with, previous years – so the market for such greetings cards wouldn’t be huge, though that may be set to change with what appears to be a renewed commitment by the current Government to reform the archaic and largely impractical bankruptcy laws.
However in the neighbouring UK, the bankruptcy business is thriving; in fact it’s so successful that some Irish folks are applying for bankruptcy there. And who can blame them – compared to Ireland the UK bankruptcy process is quick, cheap and seemingly efficient. The UK has a number of processes available depending on the financial condition of the person facing financial challenges – the main ones are bankruptcy, debt relief orders (DROs) where you have small debts of less than GBP15k and practically no assets, and individual voluntary arrangements (IVAs) which are big business in the UK and mean that you work with your creditors for three years to pay them back as much as you can and they agree to write off the remainder. By comparison, the approach to bankruptcy in Ireland is still draconian, even taking into account the Civil Law (Miscellaneous Provisions) Act 2011 which reduced the bankruptcy period from 12 years to a conditional five years.
Last year, NAMAed developer John Fleming (pictured here) applied to the UK courts for bankruptcy, having previously established residency and commercial connections, and during the past 12 months he has been subjected to the process, but all being well he will have awoken this morning as a financial “new born” – his creditors should no longer have any hold over him, and whatever wealth and income he generates from today is his, and his alone. For details of what UK bankruptcy involves, take a look here at the UK government’s own Insolvency Service.
There’s nothing to stop the 61-year old unleashing his entrepreneurial skills and generating substantial wealth on the back of his skills, experience and contacts and his former creditors will have no legal call on that wealth. Seems painless? Hardly, the process is rigorous, John has reversed transfers including a transfer of assets to a trust in 2009 and his assets have been repossessed; it is not clear how many times he has had to meet with the bankruptcy officials. But he is married to Noreen who has presumably wealth in her own right, he keeps pension entitlements – it is not clear how wealthy the wife is, but I think it’s fair to say that John won’t be going hungry or homeless in the marriage anytime soon. It should be said that if the bankruptcy official considers John to have acted “dishonestly, or is blameworthy in some other way” it may impose restrictions on John for 2-15 years which means he has to declare his bankruptcy if getting credit and he might be disqualified from being a company director or take part in the “promotion, formation or management” of a company without getting permission from the court. But assuming John has been forthcoming, he should not be affected by any of that.
John seems to be generally regarded as a “decent skin” in the property development world and has been responsible for large-scale residential development in Cork (much of which has been on the market for some time), hotel development in Ireland including the Fota Island resort but he also has had fingers in other pies including alternative energy production in the US. You can view the Fleming bankruptcy legal documentation (partial) at thestory.ie here; this includes a list of assets and liabilities.
Of course it shouldn’t be forgotten that even though John is set to emerge from bankruptcy today, that creditors, including NAMA and NAMA banks which we mostly own, are likely to still be nursing losses; large losses – creditors were said to have been owed over €1bn but it not clear to what extent these debts have been satisfied; given the collapse in property prices in Ireland, I think it’s fair to say the losses will be substantial. It seems from the bankruptcy documentation that it is only the banks, Homebond and a private landlord who rented a property in the UK to the Flemings, that have lost out as unsecured creditors. It was the banks, and now NAMA, that will seemingly shoulder the greatest losses. So, not a day for celebration all-round, but it seems that an entrepreneur has done the capitalist thing, faced up to his losses, accepted the consequences in the UK, and can now seemingly get on with life.
I wonder if others are set to follow in John’s footsteps…
UPDATE: 30th March, 2012. Barry O’Halloran in the Irish Times today reports that NAMA has applied to the British courts for a so-called “income purchase order” which would allow the Agency to garnish any income that John earns in the three years following his discharge from bankruptcy. It is not totally clear why NAMA would be entitled to such an order but the report says that such orders are available to creditors who were not originally part of the bankruptcy arrangement. This is curious because both Anglo and AIB and their receivers were part of the arrangement and you might have expected that the banks’ assignment of loans to NAMA would have assigned their involvement also. Anyway, the Irish Times reports that NAMA made the application last year before John was discharged from bankruptcy (though elsewhere the report says NAMA made the application this week), that there was a hearing this week and that the case has been adjourned for 10 weeks.