Mick Wallace: high debt and low standards in public office
Like many other Irish businesspeople, Mick Wallace has watched his development company collapse around him. But how ong can he hold on to his seat in the Dáil, having admitted he underdeclared €1.4 million in VAT?
THE DECISION of the Independent TD for Wexford, Mick Wallace, not to resign his Dáil seat in the wake of his admission that he knowingly filed false VAT returns has received little support from his fellow TDs.
His company, MJ Wallace, underdeclared €1.4 million of VAT, and Revenue has imposed interest and penalty charges of more than €700,000. The company is not in a position to pay the debt.
A few media commentators have praised the way Wallace dealt with the revelation, and some in the business community have empathised with the plight of a man trying to save his business from collapse.
Wallace’s position is not equivalent to that of the Independent deputy for North Tipperary, Michael Lowry, who created a toxic nexus by way of – according to the McCracken and Moriarty tribunal findings – offshore accounts, payments from business figures, political fundraising and interference in State business. Lowry and his refrigeration business made a settlement of €1.45 million in 2007. That said, the continued presence of the two men in the Dáil sends out an unhappy message about standards in Irish public life.
A request this week to interview Wallace about his financial affairs was unsuccessful, but his public statements, along with public records, paint a picture of a man who made bad decisions while struggling to handle the unexpected collapse of his business.
Wallace, who is 56, is the director of a number of companies, including management companies associated with apartment developments built by MJ Wallace, and restaurants and wine bars that he tended to build on the ground floor of his developments.
The accounts for MJ Wallace show that it grew through the years when the Irish property boom was turning into a bank-fuelled bubble. The construction and civil-engineering company produced a pretax profit of €2.47 million in the year to the end of August 2005, during which it had an average of 44 workers. Pretax profits the next year were down to €407,005, and were at a similar level in 2007. During those years turnover fluctuated, but the amount of bank debt was rising steadily. In 2005 the company had bank loans of €14.8 million that were due to be repaid within five years. By 2007 that figure had jumped to €34.22 million.
In his interview with The Irish Times earlier this month, before the disclosure of his tax settlement in the quarterly defaulters’ list, Wallace said the first signs of the impending storm came in 2008, when he was working on a development on North Circular Road in Dublin. In April that year ACC Bank sanctioned a €7.5 million loan, but a few months later it asked him to stop work on the development. The next year, he said, the company was finishing the Behan Square development, near Croke Park. The bank wasn’t giving the company the money it needed to complete the work, he said.
When buyers paid the company deposits on their apartments, Wallace used that money to fund other work, he said. “The bank was taking all the sale money, and we had spent the deposit money, and so we couldn’t pay the €1.4 million that was due in VAT.”
According to Revenue, property developers are supposed to pay the VAT associated with deposits on apartments as the deposits are paid. It is not clear from what Wallace said whether the VAT on the deposits was paid as it should have been.
He said that he usually sold off the last apartments in a development to pay his VAT bill but that the last apartments in the Behan Square development proved difficult to offload. “So I filled in a false VAT form.”
Meanwhile, he was also having difficulty paying subcontractors and making workers pension contributions. Last year Wallace was fined €7,000 in relation to the pensions issue. The court heard that Wallace had failed to pay contributions to the Construction Workers’ Pension Scheme between January 2008 and January 2010. The court was told that €49,311 had been deducted from employees’ pay for pension contributions but that only €26,557 was paid into the scheme.
In his interview with The Irish Times Wallace said he went to Revenue in October 2010 and disclosed his underdeclaration of VAT. “We opened up our books.That’s one of the reasons they didn’t throw the book at me.”
The fact that his company appeared in the June list of tax defaulters means the Wallace case did not qualify as a voluntary disclosure under Revenue rules. It may be that Revenue took the view that Wallace owned up only when it was obvious he was going to be caught.
The records in the Registry of Deeds show that a number of apartments in the Behan Square development were sold in late 2008 and early 2009, and these included sales to five people related to Wallace. These included his sons Fionn and Sasha, who took out mortgages on their apartments, respectively, in October 2008 and September 2008.
Fionn, who is 28, was a director of MJ Wallace from September 2008 to July 2010 and continues to be a director of some other Wallace companies. Sasha, who is 30, has been a director of MJ Wallace since 2004 and remains a director. They use the same address in Clontarf, in north Dublin, as their father in their company filings.
The latest accounts on file for MJ Wallace are for the year to the end of August 2008 and were signed by the directors, Mick and Sasha Wallace, on April 22nd, 2009. The company recorded a loss of €2.7 million, having made a profit of €428,220 the previous year. By that stage the bank debt due to be repaid within five years was €42.4 million, and the company was not putting its employees’ pension contributions into the Construction Workers’ Pension Scheme. Nevertheless the salaries of the company’s two directors almost doubled, from €148,141 to €289,605. Outstanding VAT is given as €76,262.
What pay Wallace and either of his sons received from the company after August 2008 is not known, as the company has not filed its accounts for that year.
In an interview with the Irish Daily Mail Wallace said he had sold his villa and associated vineyard in Italy to his brother, Joseph, in 2009 after other creditors had turned down the chance to bid for it. “I no longer own it. I had to sell it to a creditor, who happens to be my brother,” he said. “I owed him €550,000 and I sold him the vineyard. It’s not something I wanted to do, but he was going to get nothing for the €550,000 worth of material that I had got from him for construction work.”
Joseph Wallace is a Wexford-based businessman who is involved in retail, including a hardware company and a builders’ providers. He was a director of MJ Wallace until 2004.
It is understood Mick Wallace still owns an apartment in Turin.
In 2010 Wallace entered an arrangement with Revenue whereby MJ Wallace would make monthly repayments to deal with the unpaid VAT. In February 2011 Wallace, who was trying to pay his debts to Revenue and to his subcontractors and suppliers, won a seat in the Dáil. In July 2011 MJ Wallace was placed in receivership, and in November that year ACC Bank secured a judgment against him and his company for €19.4 million. The company also owes money to Bank of Scotland Ireland, AIB and Ulster Bank.
Because ACC Bank moved on him, his deal with Revenue faltered, which led to the name of his company name appearing on the tax defaulters’ list.
Wallace told The Irish Times that ACC Bank has threatened to have him declared bankrupt, something that would cause him to lose his seat. He told the Dáil that he will use half of his TD’s salary to pay off the MJ Wallace VAT liability. What arrangements he has with personal creditors, and what their view of this commitment may be, is not known. Nor is his income from his wine bars and restaurant businesses known. His salary as a TD is €92,672, and he receives about €20,000 a year in allowances.
This year ACC Bank registered judgment mortgages in the Registry of Deeds against 26 properties owned by Wallace and his company, including his Clontarf home. With the permission of the courts the properties could be sold by the bank.
It is not clear whether, in 2010, during his negotiations with Revenue, Wallace secured immunity from criminal prosecution arising from the VAT returns that he has now admitted he submitted knowing they were wrong.
He has a level of debt that will be hard to clear other than through bankruptcy, through either his own application or that of a creditor. The appearance of his company on the latest tax defaulters’ list has used up a substantial amount, if not most, of his political capital.