Archive for February 10th, 2013

“I am fully aware of the difficulties that upward only rent reviews are causing for some businesses. Despite exhaustive work in recent months by my colleague the Minister for Justice, Equality and Defence, Deputy Alan Shatter, including the preparation of draft legislation, it has not proved possible to develop a targeted scheme to tackle this issue that would not be vulnerable to legal challenge or require compensation to be paid to landlords. I do not believe the Opposition would want us to compensate landlords for any losses in their rent.” Minister for Finance, Michael Noonan announcing the abandonment of attempts to reform Upward Only Rent Review legislation, during the Budget 2012 announcement on 6th December 2011.

Earlier today, the Governor of the Central Bank of Ireland told RTE’s “The Week in Politics” that the IBRC Bill – available here – had been signed off by the Attorney General before the end of 2012. For those of us, patiently waiting for the Bill last Wednesday night, the feeling was that the Bill was still being finalized. The Bill itself contains some draconian terms, and one which has piqued the interest of retailers in Ireland who have been campaigning for the abolishment of Upward Only Rent Review leases was the statement in the preamble to the Bill that “In the common good may require temporary or permanent interference with the rights, including property rights, of persons”


It remains unclear how this will affect the liquidation of IBRC property but the stated suspension of property rights in the common good will be latched upon by struggling retailers whose hopes in the Government delivering on its election commitments to abolish UORR terms in pre March 2010 leases was so cruelly abandoned in December 2011.

It seems bizarre that in the context of winding down IBRC that the suspension of property rights is considered appropriate whilst in the context of promoting competition and allowing a major sector of the economy to operate without distortion,  which can only boost the economy and jobs, that the Government is unable to deliver on its commitment because it would “be vulnerable to legal challenge or require compensation to be paid to landlords”.


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No, the agreement on the Anglo promissory note is a dreadful deal, but it is far, far better than many, many expected of this Government, the Department of Finance, the NTMA or Central Bank of Ireland, and what could have been negotiated.

Make no mistake about it, what this Government has achieved this week is astounding. It has arm-twisted the ECB to provide this State with what is technically called “monetary financing” but in common language, the ECB is allowing Ireland to print money, or at least to print bonds which can be exchanged at the ECB for cash loans for up to 15 years which carry a rock-bottom rate of interest, presently 0.75%. The ECB has exposed itself to a stampede of similar requests from other EuroZone countries who might seek to bail out their own banks by issuing 0.75% bonds. For this feat alone, Minister Noonan, Minister Hayes, the Department of Finance, the NTMA and the Central Bank all deserve a pat on the back. It is a genuine breakthrough.

And that is not all, after Minister for Finance, Michael Noonan previously conceding to the Troika that NAMA would redeem 25% of its bonds by the end of 2013, the scheme announced this week anticipates NAMA actually issuing new bonds. These bonds cost NAMA just over 0.75% per annum at present and NAMA assures us that it will generate enough profit over its lifetime to redeem these bonds. Again, this development represents a genuine win for Ireland and represents a victory over the ECB which wanted Ireland to reduce its NAMA bond exposure as quickly as possible.

Under both headings above, Ireland has won, but it is akin to being mugged and having your wallet stolen, but then having the Gardai ring to tell you they found your (empty) wallet. There is no debt write-down for Ireland, we are still exposed to interest rate fluctuations in future and we have saved the ECB’s Achilles Heel – that Ireland might renege on illegal promissory notes – forever by converting the promissory notes to €25bn sovereign bonds on Friday last.


So, let’s get this straight, on Friday last, this State issued €25bn of new sovereign bonds. That in itself is momentous. We then used those bonds to buy promissory notes, the legality of which is presently being tested in the Supreme Court by businessman David Hall, and he is now supported by four TDs who wish to be joined to the action – Clare Daly, Luke Flanagan, Mick Wallace and Joan Collins. Now, David Hall lost his challenge in the High Court – judgment now available online here – on a technical point where the judge opined

“the plaintiff is endeavouring to … advance a case or argument which more properly should have been brought, and may yet still be brought, by an individual member or members of Dáil Éireann. This is not a case where there is no other suitable plaintiff can be found as the developments towards the end of the hearing amply demonstrate. No member of Dáil Éireann is precluded from mounting the very challenge brought by the plaintiff in these proceedings and nothing in this judgment should be taken or construed as indicating what view the Court might take of the merits of such a claim if and when so brought. Secondly, the plaintiff has not shown that he himself has suffered any prejudice which puts him in a different position from any other taxpayer in this country. Thirdly, the delay in bringing the application must be afforded particular weight in this case having regard to the solemn undertakings entered into by the Executive which at this point have been operational for almost three years”

So, last week’s deal saw the State using its sovereign bonds to buy promissory notes which may not be legal, and which are subject to a high profile legal challenge now supported by four of the 166 TDs in the Dail. Not smart.

The quid pro quo for the two small victories over the ECB last week was the conversion of promissory notes into sovereign debt. Some people might claim that the promissory notes were already sovereign debt, but the ECB didn’t take that view. Otherwise it would not have been angling for over a year for the Government to make the switch. This was the weak point in our opponent and we should have been pummeling it. Instead, we have set our opponent free, and in so doing, copper-fastened the burden of the bank bailout to the shoulders of the nation for generations.

In that sense, the deal was dreadful, and that is ultimately the position here.

Much of what is written above might not be relevant to you. Politicians of all parties have been struggling to make the deal relevant to you, and An Taoiseach Enda Kenny has indicated that the budget adjustment in 2014 and 2015 will not be as bad as previously forecast and that there may be €2bn of cushioning from the €8.7bn adjustment in 2014 and 2015 – we are supposed to “adjust” by €3.1bn in 2014 which will follow through to 2015, and we must also adjust by €2.5bn in 2015 so 2*3.1+2.5 is the total adjustment in those two years. But €2bn out of €8.7bn is significant, even if it doesn’t mean that we have a barrel load of new austerity facing us.


However, it is arguable whether this short term benefit might have been otherwise achieved. After all, we were supposed to be paying €1.8bn this year to Anglo or IBRC in interest on the promissory notes. IBRC was paying €700m over to the Central Bank in interest on its borrowings secured on the promissory notes and was making a profit of €1.1bn on the deal. As the sole shareholder of 100% of the shares in IBRC, Minister Noonan might have directed the bank to pay the State a dividend of €1.1bn. After all, Minister Noonan has previously stated that the interest profit on the promissory note was not necessary to IBRC breaking even, and indeed returning some of the bailout funding previously provided. This direction would have yielded a saving of €3bn in 2013-2015. Better than the deal announced during the week.

So, what now?

This blog will closely follow the challenge in the Supreme Court to the legality of the promissory notes. If the courts ultimately adjudge the notes illegal, then this Government will have to go. And of course, there may be challenges to what happened last week, but regardless of challenges, we have now issued €25bn of sovereign bonds and that will be very difficult to row back from without a sovereign default.

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As you know, the focus on here is NAMA, and we have been tracking the NAMA developers who have shimmied over to the UK (and US) to secure bankruptcy under terms which are a great deal more lenient than those available in Ireland. This is the current list, and it may not be exhaustive.


In January, 2013, efforts were made to obtain from the UK’s Insolvency Service a list of bankrupts who had give addresses in Ireland as previous addresses. Unfortunately, the Insolvency Service does not have an advanced search function, and the Service declined to provide the information. A request under the UK’s Freedom of Information legislation was subsequently lodged which sought an electronic list of names and addresses of people who had obtained bankruptcy orders since 30th November 2009 and who had provided a previous address which included the Republic of Ireland.

On Friday last, the request was responded to. The Insolvency Service says that their records of individuals with Ireland in their previous addresses only cover October 2010 to the present day and there have been a total of 136 cases.

However the Insolvency Service goes on to say that under their bankruptcy legislation, they cannot give details of people who are no longer on the Insolvency Register. This, incidentally, seems to contrast with Ireland where the name-and-shame approach means that insolvency is likely to be recorded and publicly available for time immemorial.

What the UK’s Insolvency Service has done is provided a list of 75 records of people with Irish addresses whose bankruptcy has yet to be discharged. Some people have given more than one Irish address and in total there appear to be 61 individuals on the list who will have declared bankruptcy in the past 12 months. (click to ENLARGE)


What was immediately interesting about the list was the omission of our NAMA developers. None of them appear on the list. Most of the NAMA developers provided Irish addresses, though the address might just be “Dublin” or “County Kildare” and others will have a full Irish address which includes “Ireland”. This was queried on Friday and the Insolvency Service has yet to clarify the omissions or whether there are other omissions. This blogpost will be updated with any amended list.

In the past year, there were an estimated 30 bankruptcies in the Republic of Ireland. So, 61 (at least) bankruptcies in the UK means there are more Irish people being declared bankrupt in UK than in Ireland.

On 26th December 2012, President Higgins signed the Personal Insolvency Act 2012 into law. However, Minister for Justice and Equality Alan Shatter has still now announced a commencement day or establishment day, so you still can’t seek to use the processes set out in the Act. What is the hold-up? Partly, it’s the slowness with establishing the Insolvency Service, but remember Minister Shatter only introduced the legislation because he is being frog-marched into it by the IMF, which has included it as  a term of the bailout. There is no political will at the top of Fine Gael or Labour to provide desperately needed bankruptcy reform in Ireland, and the judgment on here is that they would prefer the legislation to fade away.

But as things stand, we are expecting to have the Act up and running by September 2013. Minister Shatter says he expects 3,000 bankruptcies in a year, which would compare with 60,000 in the UK which has 15 times the population. In other words, we are still expecting fewer bankruptcies pro rata than the UK even with the new Act, which remember will provide a 3-year bankruptcy period compared to 1-year in the UK. And given the crisis we have undergone with GDP down 7%, with unemployment at 14.6%, with little if any domestic growth in the economy, with 87,000 emigrating annually, with residential property down 50% and commercial property down 67% and development land down 90%, we should have a huge pent-up demand for bankruptcy.

There have been recent moves by Minister Shatter to persuade the British authorities to be more stringent in granting bankruptcy orders to Irish citizens. But this approach is to ignore the EU-wide rules on centres of main interest (or COMIs), and despite the recent failure of the Brian and Patricia O’Donnell to secure bankruptcy in the UK (which is presently being appealed) and despite IBRC’s success in having Sean Quinn’s bankruptcy overturned in Belfast, for most people, UK bankruptcy is still just a boat- or plane-ride away for six months to establish a COMI and it mightn’t even require that, there has been a noticeable increase recently in developers acquiring addresses in Northern Ireland.

UK bankruptcy for Irish citizens remains the only viable route to resolving large un-payable debts.

UPDATE: 10th February, 2013. The spreadsheet as provided by the Insolvency Service is here.

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