For Irish debtors, bankruptcy 'tourism' offers a way out

By Marianne Curphey

Ireland is notorious for its tough bankruptcy laws. Luckily for Irish bankrupts, their neighbour (Great Britain) is much more lenient. And that has led to a trend of "bankruptcy tourists" -- Irish citizens who temporarily immigrate to the UK to expunge their debts.

What is bankruptcy tourism?
Bankruptcy tourism involves establishing a life in the UK just long enough to be able to go through the bankruptcy process there, where bankruptcy laws are much less severe.  irish-bankruptcy-tourism

"Irish laws on bankruptcy are tough and somewhat draconian in nature," says David Russell, solicitor at Bracewell Law, which specialises in insolvency in both Great Britain and Ireland.

In Ireland, a person must languish in bankruptcy for 12 years. During that time, bankrupts cannot act as director of a company, have a bank account or obtain credit over €635 without declaring their bankruptcy status. In contrast, the UK period of bankruptcy is just 12 months.

Those who are looking for a fresh start may therefore come to Britain because they are able to regain their financial freedom much more quickly. The trend recently made headlines when Shane Filan (singer of the band Westlife) was declared bankrupt in June 2012, not in his home country of Ireland, but in Britain. Yet it's not just the (formerly) rich and famous who have been fleeing Ireland -- many ordinary citizens saddled with huge debts and are making temporary homes in the UK.

"It is not just high-profile people who have been affected," says Steve Thatcher, who runs the advisory service IrishBankruptcyUK, which helps Irish debtors navigate the British courts. "Ninety-five percent of new [bankruptcy] enquiries have been from people who have had just one or two property loans. Then they have lost their job or can't cope with the tax increases."

How to declare bankruptcy in the UK
Simply put, "You cannot declare bankruptcy in the UK if you are still living in outside the UK," Russell says. 

More specifically, in order to present a bankruptcy petition in the UK as a foreign national, you need to have established a "centre of main interests" (known as a ‘COMI').

How can you establish a COMI? There are several ways to do so, Russell says.

  • Conduct business and/or live in the jurisdiction where you file for bankruptcy
  • Take up employment in the UK
  • Open UK bank account
  • Have a tenancy agreement

In general, according to Russell, a COMI would have to be established for a period of six months before you attempt to declare bankruptcy in the UK.

What does this mean for creditors in Ireland?
If Irish debtors can flee to the UK, what does that mean for those they owe money back in Ireland? They still might get paid. Because insolvency involves a debtor handing over virtually all assets to be sold for the benefit of their creditors, Russell explains, creditors back in Ireland would receive some of that money.

"To that extent, the creditors in Ireland will be treated the same as if the person had been declared bankrupt in Ireland," Russell says. "The Bankruptcy Trustee or Official Receiver will deal with the estate of the bankrupt by realising all the assets and will distribute the assets in accordance with the rules of insolvency."

Yet because UK bankruptcy laws allow debtors to regain financial freedom so quickly, the length of time Irish debt collectors have to pursue debts is drastically diminished. In Ireland, collectors have 12 years to get what's owed -- in the UK, the chance of getting that money vanishes within a year.

Therefore, even though bankruptcy tourism is not illegal, Irish creditors may try to have an Irish citizen's UK bankruptcy annulled. That's what happened to former billionaire Sean Quinn, whose Northern Ireland bankruptcy was overturned, forcing him to file in the Republic of Ireland instead.

Reform on the horizon?
Although bankruptcy tourists may be seen as debt-dodgers, the troubling economic situation in Ireland offers a reason for their actions. Ireland has seen recent tax increases as well as cuts to social benefits along with austerity measures. Thatcher points out that, during the housing boom, many people were allowed by banks to borrow up to £300,000 and now can't repay those loans.

The Irish government is therefore currently debating the long-anticipated Personal Insolvency Bill 2012, which would overhaul the current bankruptcy system, shrink the 12-year bankruptcy period to three years and introduce a debt settlement process that's similar to an individual voluntary agreement (IVA) in the UK. However, if the bill does become law, Thatcher estimates that its provisions will likely not take effect for 15 to 18 months.

See related: Many UK families dangerously close to financial ruin, Falling credit card balances may not be good news

Published: 12 July 2012