Supreme Court dismisses Carroll appeal

The Irish Supreme Court has rejected an appeal to have an examiner appointed to several companies in the Liam Carroll-controlled Zoe building group. Temporary protection had been granted to the companies when the appeal was allowed against the recent High Court ruling after the Dutch-owned ACC Bank sought repayment of a €136 million debt. As the Irish Times report notes, the ruling “[leaves Carroll] exposed to insolvency proceedings from banks owed €1.2 billion by the group.”

The Supreme Court found that it was not possible for the court to reach any conclusion about the prospects of survival of the companies as a going concern “in the absence of any evidence about the likely future development of the property market”. The court found that in order to persuade it that the companies have a reasonable prospect of survival “it is perfectly obvious that the some evidence of likely improvement in the property market is absolutely essential”. The court found that neither Mr Carroll or the independent accountant report on which the group’s survival plan was based “makes any attempt to supply this deficiency”. The court said the opinion of the independent accountant is “explicitly based on a number of assumptions, which are not verified by evidence”.

Adds In the comments zone, Dave provides a link to the Supreme Court ruling. Update From the Irish Times – “The High Court has appointed a provisional liquidator to two companies in Liam Carroll’s Zoe Group following an application by ACC Bank today.” RTE report here.According to [yesterday’s] RTÉ report

The Construction Industry Federation said it noted the Supreme Court decision and said it needed to take some time to consider in full the implications of the ruling.

A spokesman for the Department of Finance said that the decision will have no impact on NAMA and it will proceed as planned.

But can NAMA withstand collapse of developer’s €2billion group?

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  • Dave

    You can read the Supreme Court ruling below:

    http://courts.ie/Judgments.nsf/bce24a8184816f1580256ef30048ca50/c736d2e7b220d4e58025760f005afc45?OpenDocument

    Essentially, it upholds the High Court ruling that it was not satisfied that the Zoe Group met the requirement of the Companies (Amendment) Act 1990 and 1999 that an examiner can only be appointed to a company where the Court is satisfied that “there is a reasonable prospect of the survival of the related company, and the whole or any part of its undertaking, as a going concern”. In other words, the Zoe Group failed to satisfy the Court that it had a reasonable prospect of survival as a going concern.

    The Department of Finance is probably correct to say that the Supreme Court ruling will not impact on NAMA since the government are prepared to accept essentially the same set of fanciful assumptions about the value of property and the future development potential of sites that both the High Court and the Supreme Court were not prepared to accept as realistic. If there is any impact, it is likely to be political rather than legal.

    However, the banks have gotten the government on the hook for what will eventually translate as hundreds of billions of taxpayers’ money and that government and the political hacks have no intention of admitting that they have bankrupted the nation, so they are prepared to proceed with that bankruptcy of the nation rather than admit their error. Whether or not the people are prepared to let is a political question but I think the answer is that they are.

  • Dave

    What should worry folks about the judgement (and a few hundred billion of debt should worry even the most stocical taxpayer) is that the banks who supported Liam Carroll’s “fanciful” and “lacking in reality” survival plan all stand to gain from NAMA and all showed very poor business judgement in supporting his survival plan (and in continuing to throw what is effectively good taxpayers’ money after bad by continuing to lend to him) if the Courts are correct in their assessment of his plans and in the uncertain future of property value.

    If Liam Carroll’s companies now collapse, then those NAMA-junkie banks have lost the millions that they lent to him on the basis of his discredited survival plan (in addition to the money they lent to him prior to the bubble bursting). That either shows that those state-rescued banks are still making very poor business decisions (and that capitalism should have been allowed to kill them) or that the moral hazard has effectively become public policy. So, the banks surely are exposed as either idiots (which they’re not) or trying to effectively deceive the Courts by endorsing business plans that are “fanciful” and “lacking in reality” in order to promote their own interest ahead of the public interest.

    It is obvious that the NAMA-junkie banks would not want Liam Carroll’s to be sold prior to NAMA being up-and-running as this would establish the true market value of these impaired assets (which is probably 10% to 20% of their book value). Indeed, some of the assets will not find a buyer, meaning that the value is zero-rated.

    NAMA claims that:

    “Valuations by NAMA will be consistent with EU Commission guidelines and will be based on the current market value of the underlying collateral, adjusted to reflect a longer term economic value which the underlying asset could reasonably be expected to attain.

    Detailed regulations on how the long term economic value is to be calculated are been drawn up by the Minister and will be published in September.

    There will be an opportunity for institutions to seek a review of the price paid, and any review will be carried out by a valuation panel which will report to the Minister.”

    What is the current market value of, for example, the Irish Glass Bottle site that Liam Carrol and his partners paid €450 million during the boom (with the help of a €288 million loan from Anglo Irish Bank)? Probably about circa 10% of what he paid for it. Values that will be paid by NAMA will be based on bogus assumptions about the assumed value of impaired assets and adjusted upwards to “reflect a longer term economic value which the underlying asset could reasonably be expected to attain.” In other words, they’ll invent figures (submitted by third-party ‘experts’ of course) and then they’ll pay higher prices based on the assets aspirational future value.

    If anyone thinks this is about restoring liquidity in the Irish banking system rather than protecting vested financial, personal, and political (domestic and European) interests then they are being very naive. Liquidity in the Irish banking system could have been guaranteed at no risk to the taxpayer by the simple expedient of establishing a new bank, and letting the failed banks collapse.

  • Dave

    Incidentally, Ireland would not be in this mess if it did not join the eurosystem and thereby allow its banks to access to easy credit and allow the EU under the Capital Requirements Directive to determine the leverage ratio for its banks, allowing those banks to borrow as much as they liked within the eurosystem irrespective of capitalisation. None of the major US banks, for example, have a leverage ratio over 20 but none of the major German banks have a leverage ratio under 50. That is because the sovereignty is held by the European Commission who allowed banks within the eurosystem to leverage upwards in order to meet the expansionist monetary policy of the ECB which created these bubbles, not just in property but all through the economy. Most of the financial regulation in this area is devised by the EU. When the Irish Central Bank held sovereignty over the Irish monetary system and the financial sector, the external debt stood at 11 billion punts and the economy was in the Celtic Tiger era. Less than 10 years after transferring the sovereignty to the ECB/EU, the external debt had risen to 1.67 trillion euros and Ireland stood back and watched as the ECB replaced its real economy with an overdraft. If the Irish Central Bank still held sovereignty, it could have devised macroeconomic policies that were suited to Ireland’s economic needs rather than allowing arbitrary monetary polices to be imposed by the ECB. The borrowing was uncontrolled because Ireland had no control over it. It could not, for example, stop the overheating and the over-borrowing by increasing the policy rate at which money was lent because it no longer has the sovereignty to set interest rates. The only thing it could have done was breach EU guidelines and make it harder for banks to lend money by imposing a more rigorous criteria than the EU promoted. However, that would have only limited effect in stopping the bubbles because under EU regulations all eurosystem banks are allowed to sell their products in Ireland, and those banks are not subject to regulation by the Irish Central Bank in setting their own lending criteria. Many economists foretold exactly what would happen to Ireland if it surrendered control of its monetary system to the EU. They were proven right. Monetary union is a political polocy, not an economic policy.

  • Dave

    Lastly, the EU’s paws are all over this NAMA project:

    http://nama.ie/Publications/2009/ImpairedAssets.pdf

    In effect, the taxpayers are being made lible for debts that do not belong to them and that were created under EU rule, so the nation is being made bankrupt at the behest of those who are not elected by the nation and who are not accountable to the nation.

  • Michael McDowell

    If Ulster Bank gave money on fanciful accounts it has nothing to do with Niamh Brenan who would have been out getting tea and biccies for mthe boys at the time.

  • Dave

    Funny, but stated in the negative to avoid libel. 😉

    There isn’t any doubt that the NAMA-junkie banks all supported this insolvent business, so the real question is what are the factors that are allowing these banks to make very poor business decisions.

    As The Examiner reports:

    [i]Mr Justice Kelly had previously refused court protection to the six companies.

    The Judge described the firm’s survival proposals as being “fanciful”. ACC Bank, whose demand for repayments of loans totalling €136m led to the application for protection, had opposed the appeal.

    The companies had argued it had three very strong grounds of appeal, including that it had agreed a business plan six months ago with 88% of their banker creditors.

    The banks had agreed to provide finance to pay off third-party unsecured creditors and for ongoing development and to put a moratorium on repayments of the debt for two or three years.

    Under the business plan there would be no write down of the debt, nor was additional investment required.

    Michael Cush SC for the companies said that Mr Justice Kelly had not given due weight to the level and the type of support the company received from seven out of the eight banks it owes money to.

    The Court heard that Bank of Ireland, AIB, Bank of Scotland (Ireland), Ulster Bank, KPC Bank support the examinership and Anglo Irish Bank are neutral, while EBS had not opposed the application.

    AIB was the largest lender, accounting for 40% of the monies owed, Bank of Scotland Ireland 23.8%, ACC 10.7%, Bank of Ireland 9.3%, Ulster Bank 6.7%, Anglo Irish 3.1%, while Ulster Bank, KPC and EBS were owed smaller amounts.[/i]

    I would suggest that it is because the ‘moral hazard’ has become public policy and this organised distortion of the property market is to be undertaken with the purpose of artificially distorting property asset values until the taxpayers of this state can be fully and successfully held liable for debts of private businesses within the eurosystem.

    As the Supreme Court pointed out, mere opinion unsubstantiated by any supporting evidence is being accepted as the basis by which ‘professionals’ can prop up fanciful assumptions that suggest that these companies are viable as going concerns when they are manifestly insolvent, and these professionals are very curiously coy about how they word their support:

    [i]”In my opinion, subject to the following conditions, the companies, and the whole or any part of its undertakings, would have a reasonable prospect of survival as a going concern:

    • A scheme of arrangement allowing for rescheduling of the repayment of bank debt to include interest roll up (net of rental income) and a moratorium on capital repayments (net of proceeds of asset disposal) being accepted by the creditors and approved by the High Court.

    • A scheme of arrangement providing for a compromise with inter Group creditors.
    • Retention of key Management.”

    It is to be noted that the accountant expresses no view about the reasonableness of the projections in Appendix 5 or about the assumptions upon which they are based. He restricts himself to saying that he has discussed these matters with the management of the companies. Consequently, the court does not have the benefit of any opinion from the accountant bearing on the viability of the projections.

    The opinion of the independent accountant is explicitly based on a number of assumptions, which are not verified by evidence. The accountant himself refrains from expressing any opinion about them. Those, such as valuers, who have made the assumptions, have not given evidence; nor have their reports been put in evidence. The report of the independent accountant is not based on evidence. Thus it cannot be of any value in assisting the court to determine whether the companies have a reasonable prospect of survival.[/i]

  • Dave

    [b]Continued[/b]

    The banks concerned, while supporting these insolvent companies, are being equally coy about how they express their support on Court record, but they nonetheless fail to damn these companies to the Court, leaving it up to others to hoodwink the Court if they can:

    [i]In his written submissions counsel for the petitioner contended that the actions of all the bank creditors who exercising forbearance on repayments and support for the petitioner’s application, “speaks louder than words”. However, it cannot be without some significance that none of those banks have spoken in support of the proposition that there is a reasonable expectation of the survival of the petitioner as a going concern if an examiner is appointed. There may be other advantages to the bank creditors if an examiner was appointed short of the survival of the petitioner as a going concern such as the more orderly or controlled disposal of assets but that is of course not the test. The relevant fact is that the basis on which the banks support the petitioner’s application has not been articulated to the Court and no opinion has been expressed on their behalf that the appointment of an examiner could reasonably be expected to result in the survival of the company as a going concern.[/i]

    This is being robbed with a fountain pen.

  • Dave

    “…until the taxpayers of this state can be fully and successfully held liable for debts of private businesses within the eurosystem.”

    To clarify that: Irish banks – private businesses who were loaned money from other private businesses within the eurosystem without any guarantee of their loans from the Irish taxpayer – cannot repay the money they owe to other banks within the eurosystem, so the EU is being used to argue that systemic risk applies to all banks within the eurosystem rather than just to national banks, and so that national government should make taxpayers liable for the debts of these private businesses. This political intervention in the system allows those foreign banks within the eurosystem to reclaim their money not from those they loaned it to at their own risk and who cannot now repay it but from those they did not loan it to, i.e. the taxpayers.