Drumm’s surprise move leaves Anglo wondering where to go from here

EARLIER this month, so local media in the US reported, David Drumm forked out thousands of dollars to erect a seven-foot fence around his Cape Cod home.

Where he got the thousands of dollars given that he was about to apply for bankruptcy and whether his creditors will now insist on making him walk the planks back to the hardware store, are just some of the questions his actions have raised since he fled these shores.

But the answers to those questions, and the many hanging over from his time as chief executive of Anglo Irish Bank, are likely to get all the more elusive given the legal fence he is building around himself by opting to enter bankruptcy proceedings 3,000 miles away from where his troubles began.

It was a clever move that seems to have completely wrong-footed his chief creditors here, namely Anglo, which says Drumm owes it €8.3 million.

Now the lawyers acting on behalf of the bank – which really means the Irish public given that the taxpayer owns the banjaxed institution since it was nationalised last year – have to acclimatise to a brand new legal territory if they are to act out the bank’s determination to pursue Drumm for every last outstanding cent.

By filing for bankruptcy in the state of Massachusetts, where he has lived since leaving Anglo in 2008, Drumm has obtained the protection of the “automatic stay”, which forces creditors to back off until the courts sort out his financial status.

As the Massachusetts Bankruptcy Court explains: “As long as the stay is in effect, creditors generally may not initiate or continue lawsuits, wage garnishments, or even telephone calls demanding payments, without the approval of the bankruptcy court.”

What Drumm will be hoping to achieve from going bankrupt abroad is a comprehensive “discharge” or debt forgiveness.

They’re kinder about that sort of thing in Massachusetts than here. The court there explains: “The discharge order permanently prohibits creditors from taking action to collect discharged debts from the debtor and, with very limited exceptions, against income and property that the debtor acquires after the bankruptcy filing. When a debt has been discharged, the creditor can no longer seek repayment. Discharge is the main benefit debtors obtain from bankruptcy.”

Back in his less forgiving homeland, bankrupts have to hand over everything they own to be divvied up between creditors, apart from essential items worth no more than €3,100.

In addition, they have to disclose anything they acquire after becoming bankrupt and it too can be seized. In Ireland, bankruptcy generally lasts 12 years but in Massachusetts you can be back in business in a fraction of that time, with the fruits of the new business hanging well out of reach of creditors left behind.

All this doesn’t necessarily mean Anglo can’t still pursue Drumm. Chapter 15 of the federal Bankruptcy Code in the US “gives foreign creditors the right to participate in US bankruptcy cases and it prohibits discrimination against foreign creditors”.

But we don’t know yet if Drumm has creditors in the US. Drumm set up a financial advisory business, Delta Corporate Finance, after he left Ireland, and it’s unclear how successful its activities have been.

What we do know is the whole business of banging on Drumm and knocking money out of him has just got a lot more complicated.

Under the “homestead exemption” in Massachusetts, for example, he can claim €360,000 from the sale of his €3.2 million Cape Cod home if he’s forced to put it on the market, and he’s also thought likely to be able to hang on to his pension, which will be worth €250,000 a year.

There are occasions when the US courts can get tough and refuse to discharge debts but only if those debts arose from fraud, false representations or “the mishandling of funds that the debtor held as a trustee or fiduciary”.

It’s well known that the gardaí and Office of Corporate Enforcement are investigating what happened at Anglo under Drumm’s watch but it’s doubtful he’ll ever face charges.

So it’s looking likely that as a result of Drumm throwing himself upon the mercy of the US courts, Anglo (ie, the taxpayers) will have to spend more time and money pursuing a more complicated case than anticipated with less likelihood of success.

This new scenario places fresh question marks over Anglo’s decision to decline Drumm’s offer of a settlement which would have given the bank a share in his properties and pension.

On the face of it, it would seem the Anglo lawyers should be kicking themselves firmly in the shins now but Drumm’s outwardly generous settlement offer obscured the fact that he has been counter-suing Anglo for millions in bonuses he claims he is owed.

There were also differences in opinion about how much his pension fund was worth. That, and the likely public distaste for seeing Anglo reach a gentlemanly settlement with Drumm instead of dragging him squealing through the courts, seems to have been the reason for rejecting the settlement offer.

Some observers have pondered whether Anglo might get the last laugh if their man was drummed out of the US but that seems highly unlikely.

Back home at the Commercial Court, Anglo v Drumm will be listed again for mention the week after next to see what sense the Anglo lawyers have made of this week’s developments and what decisions they have made about where their case goes from here.

It gives Drumm time to get another protective coat of paint on his new fence – the timber and the legal one.