DAVID DRUMM BANKRUPTCY PETITION:THE DECISION of former Anglo Irish Bank chief executive David Drumm to file a voluntary petition for bankruptcy in the US caught the State-owned bank by surprise.
Anglo was preparing for the full hearing of its own legal action against Drumm starting on October 26th in an attempt to recover loans which now stand at €8.5 million.
Counsel for the bank told the High Court at 3.45pm yesterday that this was “quite an extraordinary turn of events”.
Drumm had been trying to settle the action since last April, but Anglo had rejected a settlement proposal put by him on September 24th in a letter last Friday and had put forward a counter-proposal, which he has now rejected.
A settlement deal looked impossible at this stage and by continuing with the case, Drumm would have taken on substantial additional costs which it’s understood that he could no longer afford.
The game was up. While he had tried to avoid bankruptcy over the past year, he felt it was inevitable.
Drumm’s move throws Anglo’s case into disarray as the official trustee appointed by the Massachusetts court will take control of his assets, wherever they are, and sell them, probably at fire-sale prices, to repay his debts.
His court application means that the two most senior bankers in charge of Anglo, which is costing the Irish taxpayer up to €34.3 billion, are now bankrupt.
The difference between Drumm and Anglo’s former chairman Sean FitzPatrick is that the bankruptcy is a far quicker process in the US – Drumm could have his debts discharged within five years.
FitzPatrick, meanwhile, faces a possible 12-year battle to discharge his €150 million in debts, most of which is due to Anglo.
Drumm had made a settlement offer to Anglo on September 24th, offering all his assets except personal effects such as clothes and jewellery. He was willing to transfer his €1 million half-share in a home on the Abington estate in Malahide, Co Dublin, a €1.5 million property in Cape Cod and a further €200,000 to cover a half-share of a Boston home bought last January with his wife’s money.
He also offered to drop his counterclaim for €2.6 million which he said was due for a year’s salary, pension and a deferred bonus.
Drumm also offered his €5.4 million defined benefit pension at Anglo, under which he is entitled to €271,000 a year from the age of 55. (He turns 44 next month.)
The bank argued that he was not entitled to the €2.6 million counter-claim as he resigned from the bank in December 2008.
Anglo is thought to have had its doubts about whether it could secure the €5.4 million pension in full before Drumm’s retirement age, though correspondence shows it was looking into this.
To a degree, Anglo has been out-flanked by Drumm, though the move is highly damaging for him.
Drumm is based in the US so he was able to file for bankruptcy there and avoid the more archaic and draconian Irish bankruptcy process.
Now a US court official will liquidate his assets which will likely mean that Anglo will not recoup the full €8.5 million owed to the taxpayers but a fraction of this sum.
Drumm could hold on to his pension, despite having voluntarily agreed to hand it over to Anglo.
The framework agreement between the Minister for Finance, Anglo’s shareholder, and the bank gave Brian Lenihan the final say over how the bank dealt with this.
The bank’s lawyers admitted in an August 2010 letter to Drumm’s lawyers that the Minister was aware of details of the settlement proposal he offered to the bank.
In a further letter on October 8th, 2010, Anglo’s law firm McCann Fitzgerald said they had shown a statement of net worth contained in a letter of September 2010 with his settlement proposal to the bank’s stakeholders.
“The bank has also within the short time available to it since receipt of this statement of net worth on Sunday last discussed the matter with its stakeholders,” wrote the bank’s lawyers.
While a settlement with Drumm may have made more commercial sense – recovering some of the €8.5 million – Government sources conceded that it made no political sense to settle with a former bank chief who ran a bank that is costing the taxpayer up to €34.3 billion.
The Government was damned if it did and damned if it didn’t. In this case, it didn’t – and Drumm took matters into his own hands.
Now Anglo must deal with a US court – and cover costs arising from that – in order to recover some of its €8.5 million debt.
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