Distressed Irish moguls who would be declared bankrupt for 12 years at home are finding it harder to get courts in England – who would bar them for only one year – to hear their cases

At the peak of the Irish economic boom in 2007, lawyer and investor Brian O'Donnell had an empire that was the envy of his contemporaries. Along with a large house in south Dublin around the corner from Bono and an eight-bedroom townhouse in Westminster valued at £13m, his portfolio of luxury properties stretched from Washington DC to Stockholm.

Five years on, O'Donnell has joined a stream of credit crunch debtors crossing the Irish Sea – or the Northern Irish border – to go bust in the UK, which is a far friendlier place for those drowning in debt. Following in the footsteps of a boy band star, a former government minister and the one-time richest man in Ireland, O'Donnell this week returns to the high court to appeal against its refusal to declare him bankrupt on these shores.

Like countless others in Ireland, O'Donnell has suffered a spectacular downfall as a result of his property dealings. His €1bn empire crumbled during the 2008 bust as banks called in loans, including €71.5m (£61.7m) that is owed to Bank of Ireland. Since the downturn, a series of Irish passport holders have opted to declare themselves bankrupt in Britain. The difference between the two jurisdictions is stark: in Ireland, bankrupts may be faced with up to 12 years of financial purgatory. In the UK they can be clear after one year.

After initially attracting Germans, who face a minimum of six years in bankruptcy, the British system soon received an increasing number of Irish people. All applicants have to do is prove that their "centre of main economic interest" is in the UK; in other words, that Britain is the home of their business. Among the first prominent debtors to head to the UK was property developer John Fleming who, with his construction firm, owed €1bn to the banks. He declared bankruptcy in the modest setting of Southend county court, Essex, in November 2010 and was discharged a year later.

Last June, Westlife singer Shane Filan became the highest-profile Irish person to follow the trend when he was declared bankrupt in Kingston county court in Surrey, a week after his Irish-based property development company went into receivership owing €5.5m to Ulster Bank and Bank of Ireland.

Sacha Pickering, a partner with Michelmores solicitors, says the start of the recession saw Irish and German nationals entering bankruptcy in the UK without the media and legal scrutiny that they are receiving now. "I think a lot of them slipped under the radar but then the concept started coming up that they are not moving their centre of main interest properly and therefore it is harder now," he said.

The reduction in 2004 of the UK bankruptcy period from three years to one resulted in a surge of activity, says Neil Smyth at law firm Taylor Wessing. "The court system simply wasn't in a position to have a judge hear all of these matters, so they were being dealt with on paper. Some would be having a brief look at the paperwork and deciding whether the centre of main interest was in England or not."

The original verdict against O'Donnell in December points to a clampdown on the Ireland-UK bankruptcy flight. Melissa Clarke, a district judge who sits at the bankruptcy court in the central London county court, said recently that claims needed to be scrutinised to see whether people switched their centre based on "substance" or an "illusion". "English judges sitting in the personal insolvency jurisdiction may have to look a little deeper into the circumstances of the debtor's move to England and claims to have severed ties with the home country," she wrote in the Law Gazette.

In one case last year, a German sports photographer had a bankruptcy order against him annulled after it emerged that he still lived in Germany and did not even own a camera.

Smyth said: "I think the courts are trying to send out more of a warning signal that you can't continue to abuse the system by trotting along, making yourself bankrupt and hoping people don't look at the papers too readily – getting yourself made bankrupt here and after a few months going back to your original jurisdiction and leaving all of your problems behind."

Ireland will soon reduce the bankruptcy period from 12 to three years but Alan Shatter, the country's justice minister, is alarmed at the number of Irish people seeking out the more liberal regime. "It is Minister Shatter's view that there is need for greater clarity in bankruptcy matters across the EU in determining a person's centre of main interest in the context of courts in EU states assuming jurisdiction to deal with bankruptcy matters," a spokesman said.

But even those forthcoming changes in the law in Ireland will not stop the flow, says Barry Cahir of Dublin solicitors William Fry. He thinks that people will continue to choose between three years of bankruptcy in Ireland versus one in the UK.

Steve Thatcher, a Leicester-based insolvency lawyer who once had an Irish client with €150m of debt whose case was heard in just 35 seconds, says most of the figures with large debts have already been through the system and it is now younger families who are looking for his services.

The number of Irish people who have declared bankruptcy in Britain is not clear, as the Insolvency Service (IS) does not keep such records. However, the IS says the system is not being abused. And it has not dissuaded O'Donnell from returning: last year, he admitted his initial application for bankruptcy in the high court was a "chastening experience"that had effectively ended his 30-year career. In December, Mr Justice Newey said O'Donnell had not been "a frank, or even a wholly truthful" witness as he rejected an application by O'Donnell and his wife, Mary Patricia, to declare bankruptcy.

Undeterred, O'Donnell will offer new evidence to appeal against the decision on Tuesday.

Shane Hickey

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source: http://www.guardian.co.uk/world/2013/mar/03/ireland-bankruptcy-tourists-tougher-treatment-english-courts


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