My message to the master? He ain’t seen nothing yet. In the first quarter of this year a mere 2010 house repossession orders have been issued by the courts. A tsunami of judgments will be sought in the coming three years on mortgage debt alone. 44,500 mortgagees have been unable to meet interest payments for more than three months. Agreed procedures with lending institutions’ code of practice mean that it takes two years for a defaulter to get to court. Meanwhile, more than 300,000 householders live in negative equity territory.
The Irish Bankers’ Federation spokesman Pat Farrell is one of the cutest, smartest and politically experienced spokespersons in the country. His response to Honohan was to explain the banks’ “forbearance” to date. This is mostly due to internal initial denial and subsequent paralysis in facing up to lone losses. The lending institutions own internal valuations of collateral held against loans have collapsed by at least 50%. Where they issued 100% loan to value credit, there is inevitable debt default. Their accountants are now up to speed and have declared cumulative losses of €70 billion. These write-offs have transferred to the taxpayer and sovereign debt, yet banks are seeking and obtaining court judgments for the full amount.
While people understand and accept the top-line reality of national corporate and personal insolvency, many still haven’t got their heads around the unavoidable cultural fallout of individual bankruptcy. Currently the indigestible piece of the story is “debt forgiveness”. Tánaiste Eamon Gilmore told the Dáil that new legislation will not provide for debt forgiveness. Enterprise minister Richard Bruton still believes overtures about “moral hazard” are relevant. The Departments of Finance and Justice have still not acted on Law Reform Commission recommendations of 2004 to protect the family home from creditors. Both NAMA and the Revenue Commissioners are still litigating up to the Supreme Court over their right to pursue domestic dwellings.The prevailing legal code for bankruptcy still revolves around antiquated legislation: 1840 Judgement Act; 1850 Debtors’ (Ireland) Act; Sheriff’s Act 1912 and Bankruptcy Act 1988.
The deep denial and stubborn resistance of the ECB and Frankfurt in failing to accept mathematical logic is matched by official obfuscation about the end game of our economic realities. Judges have interpreted the letter of the law in approving judgements to landlords and financial institutions against tenants and borrowers. The judiciary have rubber stamped creditors demands without appreciation of the uncollectibilty by bailiffs of their decrees.
Honohan correctly described it as a paper exercise to fulfil accountancy requirements. The fundamental lesson of insolvency at every level is that the debtors’ demise is ultimately the creditors’ pain. The remaining issue is what is to become of individual defaulters.
Into the limelight steps DJ Carey and Sarah Newman. Like many entrepreneurs, they have worked themselves selfless all their adult life to build up their businesses. Needahotel.com and DJ Carey Enterprises have been bought out respectively by Cendant and Western Hygiene. The former being sold at the top of the market and the latter arising out of business failure. Their subsequent property plays bases on borrowings have turned sour. Despite engaging advisors, placing properties on the market and submitting repayment proposals, AIB have cut loose on them in the Commercial Court. No doubt, their all encompassing mutual personal guarantees will be used to horsewhip them in the coming years. Their past record of creating wealth, displaying spectacular talent on and off the pitch, support for their employees and generosity to charities is readily forgotten. No doubt the banks also insisted on “key man/woman” insurance policy in their lives as additional lending security.
Over recent weeks, Bank of Ireland and AIB have been communicating to their subordinate bondholders. Either by way of debt equity swap or cash redemption, they are offering to renege on liabilities by between 90% and 75%. Each has about €2.6 billion of junior debt. Let’s get this straight — it’s OK for the banks to default but, their customers are having settlement proposals in excess of 50% debt recovery rejected. Indigenous financial institutions have had three years to assess their loan losses and allowed make a fresh start with state re-capitalisation. Simultaneously, on a case my case basis, they are rejecting customers’ settlement proposals.
The legal rights for debt collection are not a level playing field. Beyond the banks, unsecured creditors are being wiped on a daily basis. Unpaid subcontractors, suppliers and service providers are being bluntly told to get lost. They’re luck to get 5 cent on the euro as an outcome of examinership, receivership or liquidation. Debt recovery rules are there to preferentially reward lenders over all others. Banks, and NAMA will vigorously oppose any new debt resolution scheme that could equate rights amongst tiers of creditors. The only pound of flesh to be procured is to be for our failed, bailed out banks. While politicians preach and procrastinate, and the court processes slavishly uphold the legal rights of creditors, an entire generation of Irish entrepreneurs are set to be shafted.
Due to my own personal strife, I seem to be a magnet for people opening up and relaying their personal woe. The tails are endless: property plays at home and abroad; buy to let asset destruction and more than 5,000 failed businesses, with 10,000 more to follow. In summary, a cohort of up to 20,000 individuals, who rolled the dice and have lost all. They don’t require sympathy, just solutions. They need a discharge date form their debts and the opportunity to make a fresh start. Eureka. Salvation is at hand — get out of the country. By the time official Ireland gets its head around life after debt, it will be too late for many entrepreneurs. Eventually reducing the purgatory of bankruptcy from 12 to three years does not fit the bill for those who can have the strength to cope with the acute stress and reject suicide. The distress arising from uncertainty and fear is placing an intolerable burden on affected families. These enterprising culprits, who have only themselves to blame have to suck up the reality of moving their residency abroad.
The smartest and most successful business people — eg Dermot Desmond, Dennis O’Brien, John Magner, JP McManus — have changed their domicile principally for tax reasons. A new cohort of wannabes and survivors have to draw their own conclusions about the prevailing moral and other attitudes to business failure and indebtedness. Walt Disney is heralded in the US for having gone bust eight times. Edmund Honohan has only scratched the surface of the movement from macro to micro of the Celtic Collapse. Project forward, who are the people with the talent, capacity, hunger, ambition and drive to take the risks to ensure economic recovery? Who can create the wealth to pay for our future public services and bubble of pensioners? Maybe the DJ Careys and the Sarah Newmans will be needed again. If they have any sense, they’ll be doing their stuff in Essex.