LOUISE BRITTAIN has her work cut out. She has recently begun investigating the assets of Cork developer John Fleming, who amassed debts of €1 billion, as part of her job as a London-based trustee on bankruptcy.
A partner with Deloitte, Brittain says Fleming is not the first Irish developer declaring bankruptcy in England that she has come across in recent months. The Irish dimension in UK bankruptcy is new because of the scale of the debts involved. “The numbers are just much bigger,” says Brittain, who has been involved in investigating bankruptcy cases for over 20 years.
Fleming’s case shows that while there is a perception in Ireland that declaring bankruptcy in the UK gives the debtor an easy ride, this is not so. Fleming was discharged last November from the bankruptcy he filed in England one year previously, but Brittain continues to investigate his assets with a view to recovering them to pay back his creditors.
This is normal practice and such investigations can last for up to three years after an individual has been declared bankrupt.
Since the UK system is recognised internationally, it can be easier and quicker to recover assets. “The UK system can be as tough if not worse than the Irish system. It may seem like an easy touch but it isn’t,” says Brittain.
Nama says chasing assets of an individual who has gone bankrupt in the UK “is not more expensive nor more difficult to deal with”. Big Nama debtors generally have assets in various countries and “accordingly in any bankruptcy, regardless of where the debtor is made bankrupt, there is a recurring theme of work having to be carried out in several jurisdictions”, says the agency.
The big difference between the Republic and the UK is the time period for discharge – generally just one year in the UK against 12 in Ireland currently (although this is due to drop to three under proposed legislation, details of which were announced this week).
But if a debtor does not co-operate during the process in the UK, they can have their discharge suspended indefinitely. This happened in two high profile cases Brittain has also dealt with – concerning former singer and TV personality Kerry Katona and London City financier Nicholas “Beano” Levene, who was charged last year with investment fraud.
Irish taxpayers might be miffed at the idea that big developers can go bankrupt in the UK and, after just 12 months, can return to Ireland and start making money again. But while any new assets acquired after bankruptcy discharge cannot be seized by creditors, surplus income – after a debtor’s “reasonable needs” are met – can be used to pay back creditors for three years.
There has not yet been a flood of people going to the UK to declare bankruptcy, but Irish cases are beginning to have an impact. There is just one insolvency office for Northern Ireland and it says it has had 18 "cross-Border bankruptcies" in the last year. "The number has increased our workload," the office told The Irish Times.
In six cases, the insolvency office has challenged the debtor’s right to file for bankruptcy there, saying their “centre of main interest” is in the Republic.
In one case the insolvency office lost the challenge, in another the bankruptcy claim was withdrawn, while challenges are still pending in four other cases.
In 2010, the Insolvency Service in Engalnd and Wales identified around 143 possible individual bankruptcy forum shoppers, of which two were from the Republic. That figure increased to 205 in 2011, of which 11 were from the Republic. There have been 24 successful applications so far to have bankruptcy orders annulled on the grounds that the centre of main interest is outside the UK, with a further eight applications pending. Two of the successful annulment cases involved individuals from the Republic.
John Gordon, solicitor with Napier Sons in Belfast, who represented Seán Quinn during the Irish Bank Resolution Corporation’s challenge earlier this month to his bankruptcy in the North, says his practice receives about six calls a week from people in the Republic enquiring about declaring bankruptcy. “People who go on to file for bankruptcy up here are generally big hitters. We have a guy with €110 million debts in Sligo and a guy in Dublin with over €100 million.”
Gordon says declaring bankruptcy in the North did not mean debtors from the South can hide assets more easily. “There is an entire government department which administers the debts in the North. There are over 100 people highly trained in investigative techniques. In Dublin, the operation is basically two men and a dog.”
But Brittain says that, in England and Wales, the official receiver tasked with handling bankruptcies is not meant to launch large-scale investigations. She says Irish creditors concerned about retrieving assets if a debtor goes bankrupt in the UK need to ensure a “robust”private trustee is appointed to investigate. “The official receiver is an official function and is process-driven,” she adds.
The Fleming case, involving the first high-profile Irish property developer to declare bankruptcy in the UK, along with other Irish cases, may impact on the law there since the issue of pension savings has led to legal questions. Under UK bankruptcy law, a debtor’s pension cannot be seized – but only if the pension is registered at the HM Revenue and Customs.
Fleming’s Irish pension wouldn’t have been registered in the UK and, while the courts have discretion to exempt such pensions from the bankruptcy, this has never been tested. A test case is expected on this issue soon.
It is not all “big hitters” going to the UK to declare bankruptcy. Mark Skinner, who deals with insolvency cases at Farleys Solicitors in Manchester, says he has helped more than 10 Irish individuals declare bankruptcy in the past 18 months – only two or three involving debts of millions of euro. “Most have small property portfolios and, even if they have one or two properties, they are insolvent beyond repair,” he said.
Those dealing with bankruptcies in the UK are in agreement that if the proposed law in the Republic does not reduce the bankruptcy period sufficiently, individuals will continue to forum shop. “A reduction from 12 to three years would be sensible,” says Gordon. “The primary motivation in the North is rehabilitative. The focus in the South is penal.”
