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Banks warn debtors’ spouses on debts
06 December 2009 By Samantha McCaughren
The main banks are taking steps to ensure that the spouses of clients with significant debts are made aware of the seriousness of the situation and any personal exposure they may have.
Informed sources said that the banks were using accountancy firms to act as intermediaries to inform family members who might also be held responsible for large loans. The banks are currently making the move with high-net worth individuals whose family members may have cosigned loans and given personal guarantees over the borrowings.
Meanwhile, the Financial Regulator is also clamping down on loans given to the family members of bank directors.
In a note recently sent to financial institutions, it ordered greater transparency in relation to loans to ‘‘connected persons’’ of a director. This increased disclosure is now a condition of the licence of all banks operating in Ireland. There is growing concern that some of the country’s biggest borrowers have transferred money into the names of other family members or trusts.
There are also concerns that family members will claim that they were unaware of the debts faced by the principal borrower, or that they will try to extricate themselves from guarantees given.
One source said that accountancy practices were being used as a ‘‘buffer’’ to make the family members aware of their personal exposure.
One senior accounting source said that there had been a ‘‘flurry of activity’’ over the past 12 months in terms of properties and assets being transferred by wealthy individuals to family members.
Anglo Irish Bank last month issued proceedings against its former chief executive, David Drumm, and his wife, Lorraine.
This legal action relates to a move by the couple to transfer a Dublin property out of their joint names into Lorraine Drumm’s name alone. That would have the effect of putting the property out of reach of the bank.
Legislation introduced earlier this year requires that greater detail be provided in relation to bank loans to directors.
However, the Financial Regulator has given further direction on the level of detail which must be provided in relation to loans to ‘‘connected persons’’. It imposed the additional requirement after ‘‘considering representations received’’.
Spouses have argued in the past that documents were signed in their name without their knowledge or that they had not received independent advice before signing a loan agreement or guarantee. The wife of solicitor Michael Lynn, who had liabilities of €80 million to a number of banks, argued that her signature had been forged on some loan documents and that she had not been aware of all the loans given by banks to her husband.
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