Financial Times December 19, 2011 3:56 pm
Bankruptcy tourists cross Irish Sea By Jamie Smyth in Dublin
About 15 people turned out on a cold night at the Clarion Hotel in west Dublin last week to take part in an unusual business seminar. The attendees came from different parts of Ireland and had different backgrounds but they all had one thing in common: they were in debt and considering declaring bankruptcy in the UK.
?Most of the group had property portfolios and were sophisticated investors who just got caught out in Ireland?s property crash,? says Steve Thatcher, director of IrishBankruptcyUK, a company aiming to tap into the growing trade of bankruptcy tourism from Ireland to the UK.
Ireland?s economic boom and bust, which led to a bail-out from the European Union and International Monetary Fund a year ago, has left households saddled with ?185bn of debt. High unemployment and a 50-60 per cent fall in house prices, which has left up to 300,000 mortgage holders in negative equity, means tens of thousands of people have little hope of ever being able to pay back their loans.
But in Ireland, unlike in many western countries, bankruptcy is not an option for most people. Just 29 people were declared bankrupt last year and 17 in 2009. This compares to 135,089 bankruptcies in England and Wales, 20,329 in Scotland and 2,323 in Northern Ireland in 2010.
?It takes 12 years to be discharged from bankruptcy in Ireland compared to just one year in the UK. It is a no-brainer for people to relocate to the UK for a few months to free themselves of debts,? says Mr Thatcher, who claims to be helping about 50 people through the UK insolvency system for a fee of a few thousand euros per client.
Successive Irish governments have been advised to reform Ireland?s punitive bankruptcy laws, which business leaders say inhibit the development of an entrepreneurial culture. The EU-IMF has made reform of the bankruptcy and personal debt regime a condition of its ?85bn bail-out and set a deadline of next March to draw up new legislation.
Leaks from the Irish government suggesting the new law may set a three- year discharge period has prompted an intense lobbying campaign from banks and concern at the Central Bank of Ireland.
Matthew Elderfield, Ireland?s financial regulator, recently warned that too short a discharge period for people with mortgage debt could damage the banks, which have been recapitalised with ?63bn in taxpayers? money.
?Any approach to restructuring needs to take account of the risk that it creates incentives for borrowers to cease meeting their obligations,? he said.
But groups representing people in mortgage arrears say the banks will not begin writing off distressed mortgage debt until a bankruptcy regime is put in place.
Many people are not waiting to see how, or whether, the government will act. This month Sean Quinn, who three years ago was listed as Ireland?s richest man with a fortune of $6bn, declared bankruptcy in Northern Ireland, rather than in Ireland where he lives with his wife.
By choosing Belfast over Dublin he should be discharged from bankruptcy within a year and he can hold on to his pension. Under the Irish bankruptcy regime pensions can be used to pay off creditors.
Mr Quinn?s bankruptcy was challenged in a Belfast court on Monday by Anglo Irish Bank, to which he owes more than ?2bn.
John and Linda, who didn?t want to give their real names due to the stigma of bankruptcy in Ireland, declared bankruptcy in Wales to get rid of ?300,000 mortgage debt on a house they bought at the peak of the boom in 2007.
In an interview with the Financial Times they said the most difficult part of the process was moving to Wales for several months to establish their main centre of interest in the country ? a condition of UK bankruptcy law.
?My husband lost his job and we couldn?t keep up with the payments on our house. But we couldn?t sell it because it was worth only half our mortgage and the debt in Ireland would have followed us,? said Linda.
The couple initially considered staying in Wales to make a new life. But they have since returned to Ireland where their house has been repossessed but they now live debt free.
?It was the best thing we ever did,? says Linda. ?We don?t have the stress of the debts and even though we can?t get a bank account, it is not the end of the world.?