Posted on Wednesday 20 June 2012 by Ulster Business
That’s the view of leading insolvency and bankruptcy solicitor John Gordon, managing partner of Belfast firm Napier & Sons.
Mr Gordon, who has represented many prominent businessmen and property developers, including Ireland’s former richest man Sean Quinn, says the banks are showing no leniency to individuals who have given personal guarantees on property in particular.
“The banks have cranked up their debt collection side in a more aggressive manner. They have looked at who is in debt and they are calling in guarantees,” he said.
“Five years ago you wouldn’t have heard of a bank adjudicating against a customer. Now it doesn’t matter to them. All of the banks are prepared to adjudicate if they see a good reason to do so.”
The most recent figures from DETI’s Insolvency Service showed that personal insolvencies, which hit record levels in 2011, continued to push higher in the first quarter of 2012. In that period 796 individuals were declared bankrupt, entered into Individual Voluntary Arrangements or a Debt relief order – a 1.1% rise on the previous quarter and 15% higher than the same quarter of 2011.
With banks calling in personal guarantees and HMRC taking a hard line with those owing VAT, PAYE or corporation tax, Mr Gordon expects the high level of bankruptcies to continue.
“I would be surprised if the numbers went down next year. The Revenue is reviewing all Northern Ireland cases and they don’t know the people involved because it is being done from their GB offices,” he notes.
A licensed insolvency practitioner, Gordon previously specialised in the “much more satisfying” business of cutting deals for voluntary arrangements between parties, but says that market has virtually disappeared over the past four years.
The solicitor believes many more directors of companies with property interests will end up bankrupt because of personal guarantees. He has encountered sums of anywhere between £5m and £100m – sums most developers could not have stood behind even during the boom years.
“The excuses some of the property developers are coming up with are not worth the paper they are written on. What leaves me slightly bemused is that most of them couldn’t possibly have guaranteed those sorts of sums because they were putting most of what they earned back into their companies,” says Gordon.
“Most are mortgaged to the hilt, with their personal homes under water. A lot of them were speculators for whom property was not their day job. I know of a number of doctors, solicitors and estate agents who got on the bandwagon after seeing clients and friends make money, and a lot of them are heavily geared up,” he adds.
“All of them are gamblers. For a lot of the high profile guys who have gone under it was never about the money, it was about the deal. If it was about the money they would have structured their lives differently. Sean Quinn was no different to the rest, he was just a bigger gambler.”
Having largely created the problem by lending in some cases over 100% loan to value on property the solicitor thinks the banks hold the key to improving the situation.
“Until banks start lending the problem will be self-perpetuating,” he says.
“The favourite mantra of the banks is ‘we are not into debt forgiveness’ but I think they need a bit of pragmatism. The threat of bankruptcy does not carry the fear it used to, in fact some people see it as a badge of honour.”
Under UK law a person declared bankrupt can trade again after 12 months. For people who have business interests across the island of Ireland, that is far more appealing than the 12 year ban that accompanies a bankruptcy ruling in the Republic.
“You can’t underestimate the huge relief some people get from starting again. The advice I give people often doesn’t just depend on the size of their debts it is about their psychological state of mind,” adds Gordon.
“Bankruptcy here is rehabilitative, not punitive. In the South it is definitely punitive.”