New bankruptcy regime ‘to protect thousands’ from US vulture funds

Thousands of people will benefit if commitments by the Government to finally reduce the Irish bankruptcy term to one year from three years are implemented, one of the country’s leading bankruptcy experts has said.

Bill Holohan, senior partner at Holohan Solicitors, also said that the new legislative plans could, for the first time, provide some protection against the US vulture funds who bought billions of euro of distressed loans from Irish banks.

Though concerns persist about vulture funds, there may be enough protection that going into bankruptcy “would be less of a terror” than it once was, he said.

Mr Holohan also said fears that the courts and the Official Assignee will be swamped are misplaced, saying that the system has been geared up for some time to receive thousands of bankruptcy applications each year.

The proposed change in the law will bring the Irish bankruptcy term broadly into line with the long standing UK period of one year.

That will probably signal an end too to so-called ‘bankruptcy tourism’ by which business people with means applied for bankruptcy in the North or, more frequently, in Britain.

Despite the severity of the financial crash here, records show that the current regime only attracts a few hundred bankruptcy applications each year.

Debt involved in bankruptcy adjudications in the three months to the end of September was around €129m, said the Insolvency Service of Ireland.

The number of bankruptcy applications made so far this year is running at only 337, down from 448 made for the whole of 2014.

Mr Holohan, who co-wrote with senior counsel Mark Sanfey the Irish reference book Bankruptcy Law and Practice, said that on a pro rata basis, the number applying for bankruptcy are meagre compared with the tens of thousands who apply in the UK.

A former council member at the Irish Society of Insolvency Practitioners, Mr Holohan gave evidence to the Oireachtas Justice Committee which recommended last summer the Irish bankruptcy period be reduced to one year.

Mr Holohan said that the proposed law, along with earlier changes that meant the bankrupt could under some circumstances still keep the family home, are highly significant.

The first attempted changes were made in 1960.

“Going back to 1960 we had 1857 legislation.

"And in 1960 they said this is Dickensian and they appointed a committee, which with commendable speed published the report, in 1972,” he said.

Even then it took 16 years for the legislation to get through the Oireachtas, with the passing of the Bankruptcy Act of 1988, with “all its flaws”.

A commitment Ireland made in 2007 to strike a common three-year bankruptcy period in Europe came to nought, as the financial crisis closed in, and the Government did not want to be seen giving a break to developers.

Post the crash, in 2011, the12-year term was reduced, and then subsequently cut to three years.

“I think it [the number of applications] will jump into the thousands.

“Up to 2011, only 10 people a year were going bankrupt because the consequences were so draconian.

“In 2011, there were 458 people who had been in bankruptcy since before January 1 1960,” said Mr Holohan.