Ivan Yates story highlights a "Hierarchy of Distress"

In many ways, the case of Ivan Yates should be a textbook example of how serious debt could be treated in this country.

Yates has just returned from 16 months in the UK, as his bankruptcy was processed. He filed for bankruptcy on foot of a €3m-plus debt he owed to AIB, which was drawn down to expand his bookmaking business at the height of the bubble.

Having failed to reach an agreement with the bank on repayment of the money, he moved over to Wales and underwent the process there. This allowed for him to deal with the bankruptcy in a 12-month period, during which he was stripped of all his assets. The same process here would have dragged on for up to 12 years, effectively rendering him a chattel of the bank through most of his remaining productive years.

By his own account, none of it was easy. In particular, relocating alone to Wales to live in a flat while his family remained on this side of the Irish Sea was extremely difficult. “There were two occasions when the whole thing was dragging me down,” he said earlier this week. “I didn’t see any way out of it. I thought it would just go on and on. It has been presented as if I have suddenly become Houdini-like, broken free from all of my problems. That’s total horse manure.”

The process doesn’t mean that Yates has a clean slate. “I am no longer bankrupt but I do not have finality on any of my life issues expect one: The disqualification of being an economic zombie is over. I have the facility to earn money thereafter but pressure on me, on my mother and what will happen are all in play.”

Yates did not belong to the class of so-called entrepreneurs that blew the arse out of the property bubble. He didn’t borrow to gamble on the sure bet that property was promoted as representing.

He had been in business for more than 20 years and, like many kindred spirits, he took the opportunity of easy money to expand. Things didn’t work out, and when the tide went out, he was left soaked in debt.

Unlike some of the high rollers who have been paraded through the courts over the last five years, there is no allegation that Yates ever attempted to hide assets, or pull a fast one by diverting money to family members. He has been straight about his mistakes.

And now, after enduring dark nights of the soul for the past 16 months, he is stepping back into the light. He has served his penance, surrendered his assets, and resumed work this week. In essence, he has not been subjected to a life sentence for making mistakes at a time when a delusionary fog enveloped the country.

Yet, he can consider himself extremely fortunate. For most who made mistakes of even a much lesser magnitude, there is no sign of light. Yates is in receipt of a government pension from his 20 years in politics, which facilitated his relocation and allowed him to survive without working. He was also lucky in that AIB made a hames of trying to bankrupt him in this country. Last September, the High Court ruled that the bank’s attempt was so cack-handed that it didn’t even provide the correct figure on the amount of Yates’s debt.

So while Ivan Yates can claim with moral authority that he has paid his debt and should be allowed to resume his life, the route through which he did so is still preserved for the privileged few. That reflects appallingly on the level of power in this country that the banks enjoy, despite all that has happened.

Another for whom luck has smiled is the minister for small business, John Perry. Like Yates, he was not involved in a property play, but merely expanded a long-standing business at a time of illusory plenty. Then his creditor, Danske Bank, came after him for €2.47m when the tide went out.

Earlier this week, Perry announced that he’d reached agreement with the bank. He has declined to give any details, which would be fair enough if he was an ordinary citizen, or even a backbench TD. But as minister for small businesses, he has added responsibilities. Questions about his revenue status, and the manner in which he cut a deal with the bank, have been left hanging. Fianna Fáil’s Michael McGrath has called for a fuller statement.

“Many people in debt will be scratching their heads at how someone can achieve this sort of deal,” McGrath said. “We need to know if there were any writedowns involved, and if Mr Perry approached any bailed-out banks to help.”

Beyond the base reaction of political point scoring, McGrath has raised pertinent issues.

In a country where the banks enjoy huge power, and where the Government could be expected to put some manners on the worst abuses of that power, one of the ministers at the frontline — Perry — may be compromised. Yet he has received the backing of not just his party leader and Taoiseach Enda Kenny, but Eamon Gilmore as well. At the very least, he should be obliged to provide a fuller statement to the public on how he is still equipped to oversee a sector of the economy which is in frequent conflict with the banks.

It would be unfair to attribute the securing of Perry’s deal with Dankse Bank exclusively to his political office. Others in business have been able to cut deals, most of which we never hear about. In many cases, the banks apply zero tolerance to those who owe money — the more zeros in the debt, the more tolerance given to the borrower.

What the cases of both Perry and Yates demonstrate is that there is a hierarchy of distressed borrowers. Despite all that has befallen the country, despite the bailing out of appallingly run banks, it is the executives therein who determine this hierarchy.

At the top are the serious players who owe tens and hundreds of millions, and in the case of Seán Quinn’s family, more than €2bn. Here the banks appear to have put the hard arm on the borrowers only when it looked as if they were attempting to break free altogether.

Quinn was bankrupted by IBRC only after he attempted to file in the UK. Similarly, the High Court this week declared solicitor Brian O’Donnell and his wife Mary Pat bankrupt after they attempted to relocate across the Irish Sea on foot of a €71.5m debt to Bank of Ireland.

There have been numerous reports of others with debts of a huge quantity continuing to enjoy a relatively extravagant standard of living.

Further down the hierarchy are people like Yates and Perry, both of whom were subjected to apparently harsh treatment by their respective banks, but both of whom had some aces to play. Those at the bottom of the hierarchy, who now find themselves at the hard end of the mortgage crisis, are largely bereft of any cards.

The appearance of the bank honchos before the Oireachtas finance committee this week reiterated this power balance. The chief executive of AIB, David Duffy, told the committee that the bank had written down around €47m on arrears in the first half of the year, but only €38m of this related to residential loans. In other words, the major hit taken by the bank was from its big customers, rather than the average mortgage holder.

Duffy also maintained that around 20% of those in arrears were strategic defaulters, categorised as borrowers who “won’t pay” as opposed to “can’t pay”. How exactly he has gleaned this information is beyond all logic.

Most pertinently, though, Duffyreasserted how the banks continue to enjoy the overweening power to determine exactly who will receive writedowns, and who will continue to be haunted by past mistakes.

When asked why borrowers shouldn’t simply hand back the keys to their homes and let the bank deal with the arrears, Duffy replied: “If everyone goes back and throws the keys in you can kiss goodbye to AIB.”

The threat was stark. Unless the banks are left to deal with all debtors in the manner that they believe is appropriate — including determining who gets writes-offs and who is subjected to life sentences — then they may well go under, dragging the rest of the economy with them.

This scenario informed the drafting of the personal insolvency act and much else to do with how the Government deals with the banks it bailed out. It also ensures that the hierarchy of distressed borrowers will continue to be formed by institutions which bent over backwards to lend the money to all when the sun was shining.