Talking Property

Will bankruptcy law be changed . . . to save lawyers, asks ISABEL MORTON

PERSONAL DEBT and bankruptcy has always been a thorny issue but never before has it affected so many, so dramatically, across the social spectrum.

A decade ago, in the middle of the boom times, lawyer Paul Joyce, senior policy researcher with FLAC (Free Legal Aid Centres), recognised the inadequacies of our bankruptcy system and in 2003 published a report recommending a complete overhaul of the Bankruptcy Act of 1988 which, having taken so long to prepare, was already out of date by the time it was implemented.

Until recently, the State’s response was one of relative complacency, as they believed they were doing enough through the funding of money advice services, such as MABS (Money Advice and Budgeting Services).

More recently, however, FLAC’s original report, along with subsequent publications, have become central to urgent efforts to reform the law on personal debt.

At last November’s Law Reform Commission Annual Conference 2009, Mrs Justice Catherine McGuinness spoke on a range of issues, including ways in which personal debt might be tackled and resolved at an early stage; the pointlessness of imprisoning debtors; regulation changes required by financial institutions; and the need to change our laws on debt enforcement in line with international standards. The Commission’s final recommendations are due by early autumn 2010.

But it wasn’t until February of this year, amidst a rising tide of mortgage and personal debt problems, that Brian Lenihan launched a new committee to examine ways to assist those in mortgage arrears to keep their family homes. In conjunction with the Law Reform Commission, it is to look specifically at reform of personal insolvency, bankruptcy law and debt enforcement.

Chaired by insolvency accountant Hugh Cooney of BDO Simpson Xavier and with representatives from the ESRI, the Irish Banking Federation and the Law Reform Commission, the committee will present its findings “on a rolling basis” to the Minister for Finance. Given that existing Irish bankruptcy laws are both archaic and punitive, any changes which might bring them more in line with the EU average were welcomed and encouraged, particularly now, when so many find themselves in debt. However, it has recently come to light that the proposed change of bankruptcy laws will also provide a solution to another emerging problem, one that was never anticipated.

Our legal eagles are finding it rather hot, itchy and uncomfortable beneath their wigs these days. Rumours are rife around the Four Courts that some members of our legal establishment will imminently be declared bankrupt. And, as bankrupt barristers and solicitors would no longer be permitted to practise law, this matter is proving to be of grave concern to all concerned.

It all started (didn’t everything?) during those heady Tiger days when persons of wealth, power and influence were “invited” to invest in property syndicates by others of their ilk. Attractive investment opportunities were hawked around the Law Library and solicitors’ offices or discreetly passed around via the old boy (and growing old girl) network.

Presented as a package, with finance organised, investors were promised big returns; the chosen few felt so honoured to have been invited to invest that they didn’t question the possibility of failure. After all, apart from the fact that financier Derek Quinlan was making vast sums of money via these tax-efficient property syndicates, it would have appeared foolish to decline an invitation from the golden gods of the inner circle.

Their banks of course, were both encouraging and accommodating and were delighted to facilitate these investment opportunities by giving them hefty loans.

Indeed, the lending institutions were themselves either co-investors in the same property syndicates or instigators of similar schemes, resulting in millions of euro being spent purchasing property in various hotspots from Dublin to Dubai, Shanghai to Chicago.

It was all very cosy, comfortable and indeed lucrative for a while, but we all know what happened next . . . Mr Quinlan has moved to Switzerland and Irish bankers have, to put it mildly, changed their tune.

So now lawyers are making every effort to rewrite the rule book in order to extricate themselves from this double bind. If they are formally declared bankrupt and can no longer practise law, they no longer have a way of earning a living with which to pay off their debts. Draconian Irish bankruptcy laws condemn us to a lengthy sentence of 12 years as a financial outcast. Most of us however, can continue to work despite the fact that we would be unable to own property or indeed, hold a bank account. But bankrupt barristers would not be allowed to appear in court nor would bankrupt solicitors be permitted to handle client funds.

The soon-to-be-revised bankruptcy laws may succeed in killing two birds with one stone as lex non distinguitur nos non distinguere debemus (the law does not distinguish and so we ought not distinguish). After all abusus non tollit usum (abuse of a right does not invalidate use).