WHEN ANGLO Irish Bank, his largest creditor, rejected Seán FitzPatrick’s offer last week, he had little choice but to file for bankruptcy, which the High Court granted on Monday. From a position where his liabilities were almost €100 million greater than his assets, Mr FitzPatrick’s legal status as a bankrupt now means he cannot borrow more than €650 without first disclosing that status.
For the former Anglo Irish chief executive, the court judgment represents a major fall from grace: from business hero of the Celtic Tiger boom to arch-villain of the banking crisis. The disgraced banker had presided over a financial institution worth €13 billion at its peak. However, his financial fate for the next 12 years – unless he can clear his debts before then – remains in the hands of the official assignee in bankruptcy. He will take control of Mr FitzPatrick’s assets and deal with his creditors.
Mr FitzPatrick has acknowledged he was the architect of his own downfall. He could not say otherwise. He has accepted “full responsibility for my own ruin”, and expressed regret for his creditors’ losses. But his very many professional misjudgments are inexcusable. As chief executive of Anglo Irish, he developed a business model that involved reckless lending to a small number of major property developers. Banking rivals, AIB and Bank of Ireland, concerned not to lose market share, subsequently matched Anglo’s aggressive lending approach, with disastrous consequences. A domestic property bubble was further inflated and - with the onset of the global credit crisis – quickly punctured.
In all this, taxpayers remain the ultimate losers. The bank, which was nationalised last year, will receive some €22 billion from the State. Even more money may yet be required to ensure its survival. However, Anglo’s chief executive, Mike Aynsley, has readily acknowledged that much of the €22 billion invested may not be recovered.
Anglo Irish was right to reject Mr FitzPatrick’s offer to his creditors of some private deal to repay his debts over time, and so avoid bankruptcy. That offer might have resulted in creditors receiving more, and much sooner, than the bankruptcy process may deliver – given its bureaucratic and costly nature and the wide range of Mr Fitzpatrick’s many investments. However, it is most unlikely that public opinion would have accepted any such arrangement.
The bankruptcy of one major business figure, and the likelihood that some others may follow, should revive debate about the nature of Ireland’s bankruptcy laws. Critics have claimed the Bankruptcy Act – although enacted just two decades ago and under review by the Law Reform Commission – is outdated and out of line with the law in neighbouring jurisdictions. Certainly, a bankruptcy term of 12 years in Ireland will seem excessive when bankruptcy penalties in the UK apply for only 12 months. Also, if as some lawyers claim, people are moving to Britain or Northern Ireland to benefit from a less restrictive bankruptcy regime, there must be concern that our bankruptcy provisions offer an incentive to do so.