Cliff Taylor: The Battle of Gorse Hill and the ‘bog standard’ mortgage arrears

There appears to be a playbook for the formerly super-rich who have hit debt troubles as a result of the economic crash. It involves international financial transactions, assets coming under the control of wives and adult children and a complicated web, typically involving tax havens, trusts and lengthy legal proceedings.

All of the above have featured in the past four years as the extraordinary property empire controlled by Brian and Mary Patricia O'Donnell has gradually unravelled, culminating in this week's Battle of Gorse Hill. This has been the final chapter of a long and bitter legal fight between Bank of Ireland and the O'Donnells over a debt of €71.5 million owed to the bank.

Similar legal battles feature in the stories of the other tycoons fallen on hard times. The super-rich tend to preach about the value of the free market on the way up but when things turn down they will go to great lengths to protect their assets from their creditors. It is almost as if they see themselves in some way as victims, rather than authors of their own misfortune.

Reading back over the story of the O'Donnells, the scale of what they bought is astonishing. Even if you have never been in London's Canary Wharf, you will have seen the pictures of the giant buildings. Imagine borrowing enough to buy one of them. There were other landmark properties, too, in London, Stockholm and Washington, and a ski chalet in France.

International empire

Just as striking is how quickly their international empire crumbled and, Gorse Hill apart, the fact that the vast bulk of the properties have been sold off by the O’Donnells, or reclaimed and refinanced by lenders and are now with new owners. The world of international finance writes off what needs to be written off and moves on, if not in an instant, then pretty quickly.

The O'Donnells' companies, the best known of which was Vico Capital, reportedly borrowed close to €900 million. In court this week, Brian O'Donnell said €700 million had been repaid to lenders.

But as well as international loans, O'Donnell also borrowed from Bank of Ireland, backed by personal guarantees on his assets. The bank successfully objected to O'Donnell going bankrupt in Britain and now has a €71.5 million claim and a call on Gorse Hill, which has been upheld by the Irish courts.

Gorse Hill apart, the O'Donnell property empire has now been largely dismantled. Complex financial arrangements across a range of countries have been unpicked and restructured in a couple of years. In Ireland, however, as economist Peter Bacon noted at the bank inquiry this week, six years after the crisis broke, we still have a huge mortgage debt problem.

It seems extraordinary that the self-styled Land League stepped in and tried to draw a parallel between the O'Donnells and these homeowners. Jerry Beades, the spokesman for the new organisation, claims the same issues emerge whether you owe the bank €5 million or €50,000. They don't, though. O'Donnell gambled on the international property market. The only gamble taken by the ordinary defaulting homeowner was buying a "bog-standard" home at what turned out to be too high a price. Both groups are suffering but the delay in sorting out the ordinary borrower has been too long.

Repossessions

I remember a senior Government adviser telling me two years ago that the Coalition wanted the banks to get on with dealing with mortgage debt quickly . . . but not “too” quickly. The point was that in a small minority of cases this would involve repossessions. Also, there were fears of new holes appearing in bank loan books if “reality” was recognised.

Only in the past couple of years have banks started to accept the reality and actually do deals with indebted households in significant numbers.The latest figures show more than 110,000 homes still behind in repayments, of which almost 80,000 are three months or more in arrears. The overall numbers are now falling but there is a long way to go and the number in arrears for over two years is edging back up. Meanwhile, the new insolvency rules are finally cranking into action, even as debate heats up about whether they need to be rewritten.

Domestic mortgage debt is never going to be refinanced with the brutal efficiency of the big commercial properties. Nor should it be. But, partly due to these political decisions to go softly, softly, we have delayed dealing with our mortgage crisis. Now there are arguments about the new insolvency rules and a Bill, sponsored by Labour TD Willie Penrose, proposes to cut the bankruptcy period to one year and introduce other changes to help those in debt. I have sympathy with this viewpoint and some tweaks,as Minister Michael Noonan put it, may be needed. But the rules may not be the main problem.

In Ireland we have a tendency, too often, to blame structures and rules when really it is implementation that is the issue. If banks and borrowers are both prepared to do reasonable deals, then they will happen. In most cases of domestic mortgage debt, this should involve the family home being protected. The story of Gorse Hill is a different case entirely.

Twitter: @CliffTaylorIT