In many jurisdictions when a business seeks a loan from a bank, the loan is secured on the assets of the business and no more. In Ireland, personal guarantees are part-and-parcel of business lending, and a business loan may be secured on a family home or other personal asset. Or just generally secured, so the borrower can’t rely on the limited liability status of a company, and if there is default in respect of the loan, the bank can come looking for personal assets. Having racked up the best part of 100 enforcements (listed here), it seems NAMA is also ratcheting up its efforts to enforce personal guarantees.
Last week, NAMA made five applications in Dublin’s High Court – references 2011 3037 S, 2011 3038 S, S2011 3039 S, 2011 3040 S, 2011 3075 S . Four were against the Grehans (Ray or Raymond, and Danny or Daniel and associated partnerships – the St Lohmans Partnership and the Ashford Partnership) and one against Jim Mansfield . The Grehans are presently represented by Dublinsolicitors Clerkin Lynch. No solicitors have been named on court documents for Jim Mansfield. It is understood the purpose of the five applications is to seek attachments to personal assets of the respondents in respect of personal guarantees on loans now controlled by NAMA. It is reported in the Irish Times that the Grehan actions involve €270m and there will be preliminary hearings today.
NAMA appointed receivers to Jim Mansfield companies on 20th April, 2011. The businessman had been beleaguered for some time after Bank of Scotland (Ireland) had previous taken enforcement action. NAMA appointed receivers to the Grehans on 27th April, 2011 which was more of a surprise as the Grehans were reckoned to be developers with a strong chance of securing approval from NAMA to their business plans. In the case of the appointment of receivers to the Grehans, there followed a farce whereby the receivers were “stood down” only to be re-appointed. There was then a High Court action by the Grehans to reverse the appointment of receivers, an action which failed in the middle of June, 2011. The Grehan/NAMA relationship seems particularly bad-tempered with reports that the Grehans are to be regarded as personae non gratae at their former properties including the Glenroyal hotel.
In addition NAMA, it seems, is ratcheting up its efforts to investigate the finances of developers. Yesterday Ireland’s Sunday Times reported that NAMA had engaged the Kroll organisation to investigate the finances of developer, Sean Dunne, some of whose Irish assets were the subject of enforcement action on Friday last. This comes three months after it was revealed that NAMA itself was hiring investigators to examine the financial affairs of developers.
You can expect NAMA’s actions to be met with some particularly bad-tempered responses from developers. If enforcement action at a corporate level was met with shock and anger, then the pursuit of what developers regarded as personal property is likely to generate even stronger reactions. That said, NAMA is there to maximise the value of its loans on behalf of the State and to stand in the position of the banks and enforce personal guarantees to the maximum extent possible, though presumably that will be tempered with a consideration of recovery costs. We are also likely to see some actions by NAMA in respect of transfers to spouses.
UPDATE: 26th July, 2011. It seems as if the Grehans are not having very much luck at present in the courts. The Irish Independent today reports that yesterday in Dublin’s High Court, the judge, the redoubtable Mr Justice Peter Kelly ruled that the case against the Grehans be transferred to the Commercial Court, the special court that deals with commercial matters under the umbrella of the High Court, and that the case be heard this Fridy 29th July, 2011. The Grehans had objected to the transfer to the fast-track Commercial Court, claiming that NAMA had delayed in bringing the action. Judge Kelly was having none of it and the matter will be heard on Friday. NAMA’s urgency is apparently connected with an imminent sale by the Grehans of UK property expected to realise a reported €18m and NAMA wants to ensure it benefits from that sale. Elsewhere in the article from the Irish Times it is reported that Ray Grehan has provided €27m of personal guarantees against NAMA lending whilst Danny Grehan has personal guarantees of €22m. It is again confirmed that the NAMA action is in respect of a total of €270m of guarantees, of which only €49m is for personal guarantees and the remainder is in respect of corporate guarantees, with €195m guaranteed by just one company alone, Glenkerrin Homes . NAMA was represented yesterday by the barrister, Ciaran Lewis. The Grehans were represented by Mark Sanfey. There is additional reporting by Mary Carolan in the Irish Times.
UPDATE: 9th November 2011. Mary Carolan in the Irish Times probably has the best reporting on tioday’sproceedings at Dublin’s commercial court – part of the High Court. It is reported that, seemingly for the first time in months, the Grehans agreed with NAMA, to a judgement order being entered against them personally. The judgment order reportedly means that Ray is liable for €270m and Danny liable for €265m, it seems that the orderhave some overlap as I don’t think the Grehans owe €600m in total. In addition to the personal orders, two partnerships controlled by the Grehans, Ashford Partnership and St Loman’s Partnership , had judgment orders of €16m and €26m respectively entered against them. An expensive day for the Grehans, but I wouldn’t be surprised if the Grehans now examined the bankruptcy process in the UK to see if that might offer better prospects of a quicker recovery than remaining under NAMA’s thumb.
UPDATE: 10th November 2011. The Irish Independent today carries some reaction from Ray Grehan to yesterday’s proceedings. It seems that filing for bankruptcy in the UK is indeed n option being examined. Ray also says that NAMA has sold “three properties” in the UK for “€50m less” than the Grehans had previously agreed. No further specific information is given but as far as I can tell, NAMA has finalised a sale of the Crowne Plaza in Shoreditch for 10% more than was agreed by the Grehans (comparing Sunday Times report in October 2011 with a Sunday Business Post report in September 2011 where Ray made a claim about a sale he had agreed for the hotel). So I don’t know how credible that claim is.
UPDATE: 15th November, 2011. The Financial Times reports that Ray(mond) Grehan has put his fourth floor one-bedroom leasehold apartment at One Hyde Park on the market for GBP 5.6m which the FT claims is a discount to the GBP 6.3m which one-bedroom apartments in the exclusive development overlooking Hyde Park (on one side) and a stone’s throw from Harrods. Others might say it’s beside a main road and the views on the Knightsbridge side are pretty mediocre (yes you can see Harvey Nicks but you are also staring at the Knightsbridge Tube station entrance and a very, very busy road junction). At close to GBO 6,000 psf plus a presumably eye-watering annual service charge, it doesn’t look like bargain basement even at GBP 5.6m. The estate agent details are here together with photographs and a floor plan. It is interesting that it is Ray who is reportedly putting the property on the market and that NAMA will benefit from the sale, I guess this is what the Americans call a “short sale” where a borrower in financial doo-doo is allowed sell his property so as to avoid a distressed sale.
UPDATE: 3rd December, 2011. Simon Carswell in the Irish Times reports that NAMA is taking legal action in Canada in relation to an apartment bought for CDN $1.6m (€1.2m) by Ray Grehan just days after he temporarily achieved the dubious record of having the largest personal judgment ordered against him in Dublin’s High Court (overtaken now by the Sean Quinn judgment). The apartment is referred to as a ““a condominium suite and related units” at The Residences at the Ritz Carlton in Toronto”, Ontario, Canda and is said to have been purchased by Ray on 16th August 2011, and there was a subsequent reported transaction on 17th November, 2011 when Ray is said to have transferred the property to a company called 2295661 Ontario Inc for nil consideration. NAMA is seeking to reverse the November 2011 transaction which according to the Irish Times is claimed by NAMA to be “made with the intent to defeat, hinder, delay or defraud creditors of Grehan”. There is no reporting on NAMA’s position in relation to the original purchase of the property in August 2011. Presumably the Agency will seek to establish the source of the funds used to purchase the property and if these funds can be matched to the statement of means which presumably Ray Grehan produced for the court hearing in Dublin. Doesn’t look good…
UPDATE: 6th December, 2011. The Irish Independent reports that NAMA has secured a “European Enforcement Order” (EEO)which allows the Agency to pursue assets belonging to the Grehans in all EU countries without the need for intermediate litigation. In other words, if NAMA identifies a Grehan asset in Finland, for example, it can apply to the Finnish courts to take possession of that asset and doesn’t need show indebtedness on the part of the Grehans. It seems that in order to secure a EEO, the Grehans need to have consented to it, which is presumably what they did at the start of November 2011 when NAMA secured the judgment against the brothers, by consent.
UPDATE: 7th December, 2011. There is quite a confusing story by Simon Carswell in today’s Irish Times about the Toronto apartment which does include the claim “he [Ray Grehan] does not intend challenging the Canadian action on the basis that he claims there is no equity left in the apartment given that it has fallen in value to the level of bank debt owing on the property” Apparently Ray did not include the apartment in his NAMA business plan submission, but that is confusing because Ray’s plan was submitted in 2010 and the apartment was only bought in August 2011, so why would Ray disclose it as an asset in 2010? There is also a claim in today’s article from a source close to Ray that the recent transfer from Ray to a Canadian company was done so as “to save stamp duty”. Apparently Ray Grehan himself has not commented on the stories, but it all looks very curious indeed.
UPDATE (1): 14th December, 2011. The Irish Independent today reports that NAMA has initiated legal action in New York to stop the sale of an apartment in Manhattan owned by Ray Grehan and his wife. The apartment at the Centria Condominium on West 48th Street beside the Rockefeller Centre (Rockefeller Plaza) was reportedly bought for USD 1.38m in May 2007 and reportedly is subject to a USD 300,000 AIB mortgage. The property is seemingly valued at USD 950,000 and the newspaper reports that the Grehans wanted to sell it. NAMA is seeking to stop the sale, and no doubt will seek to have any equity in the building set off against the €300m judgment secured against Ray Grehan.
UPDATE (2): 14th December, 2011. RTE reports that NAMA has secured at the High Court in London a worldwide order preventing Ray Grehan disposing of any assets. Interesting that the order was obtained in London, perhaps that’s a reflection that Ray may be intending to move to the UK permanently.
UPDATE: 15th December, 2011. It is reported by the Irish Times and Independent today that a condition attached to the judgment granted in the UK’s High Court yesterday is that Ray and his wife and children are entitled to GBP 5,000 (reported as €5,000 in some Irish media) per week for living expenses, but it is understood the judge didn’t specifiy the source of that funding. NAMA is certainly NOT providing it, so the obvious conclusion is that it will come from assets still under Ray’s control. It is understood that Ray will have to declare any such income which he receives as living expenses to NAMA together with revealing its source. It is reported by Simon Carswell in the Irish Times that “the court approved the payment of living expenses of €5,000-a-week to Mr Grehan in the face of objections from Nama, which wanted them capped at €1,250. The judge said Nama could apply to have them reduced, which the agency now plans to do.”
On a slightly different matter, is the Bank of Ireland undergoing a ‘credit event’ ?
A MEGA-haircut for bond holders ??
@Joe, just examining the Minister’s statement now
http://www.finance.gov.ie/viewdoc.asp?DocID=6943
They have tendered previously for the subordinated bonds but it would be unlikely to be a tender now for senior bonds given the willingness of private investors to invest in the equity – argument been if there is equity value, there definitely is value for the bondholders.
But it should be shown as a positive as
a) it shows other investors are willing to buy BKIR stock at 10c, same price as the government has underwritten the rights issue
b) it saves money that was committed, so savings for the state to reduce our national debt (as long as people don’t expect it to mean a easier budget (we still need to control our general government deficit)
c), probably more importantly, it shows a willingness of external money to invest in Ireland – doesn’t matter how, it is a positive for the country as a whole.
@ NWL There is a consistent problem when dealing with Irish owned businesses because of the regular separation of core assets such as property from the trading business.
If core assets were left in the trading company rather than moving them into a separately owned company then the bank could treat the business as an “legal person” in its own right rather than demanding personal guarantees by the directors. The problem was caused by so many people wanting to become the next Seán Dunne or Ray Grehan.
Personal guarantees should be sought by any supplier to a business where the core assets are held separately from the trading entity.
Much of this separation happened because almost every business became involved in some form of property play. For example the industrial unit occupied by a business would be owned by the director who would use the rent received to pay the interest on the loan. The trading business would also make pension contributions on his behalf into a personal pension with the intention of drawing down part of the pension fund as a tax free lump sum to pay off the capital. In this way the director takes the most valuable asset from the business without paying tax. Indeed tax deductions have been granted on both the loan interest and the capital repayments via relief for pension contributions.
Another version involved the setting up of a holding company with two subs, one trading and the other holding the property. Because of the group structure and the main activity was carrying on a trade, a disposal of the property asset still qualified for relief under Section 626B.
The problem now arises not just for the property developers, but those with trading businesses who were sold such structures. The core asset may now be worth far less than the loan, the trading company as a separate legal person is entitled to a long lease at a market rent, leaving the director to make up the difference.
On a slightly different subject, I was looking at the accounts of one partnership put together for a hotel development. About 25% of the total cost was raised by capital contributions to buy in to the partnership, with the balance coming from an interest only loan. Most of the members of the syndicate borrowed their personal contributions and now find themselves in hock with an asset worth less than half of the original cost. I gather the financial institution is now demanding substantial capital contributions to bring the syndicate loan down to the level of the asset’s current value. Many of the members of this syndicate were serial “investors/speculators”. Ouch!
This Action by NAMA is very welcome .About time they got their act together , and go after what is in effect the assets of the citizens of Ireland .The Developers are not now it seems been protected by their Fianna Fail political pals in the department of Finance. It is outrageous that these developers are still in the laps of luxury when ordinary citizens are struggling to keep their shoebox homes over their heads.
@NWL
I think it is perfectly reasonable of NAMA to call in the personal guarantees.
In general the NAMA approach shoud have been:
‘ if you work with us you get keep you house and a reasonable pension plus a modest retainer if we retain your services.
If you choose not to work with us, or frustrate our objectives or start to try to hide or protect assets, then we will come after you for everything, house, pension, the works. Its up to you to make up your mind. You have 24 hours’.
So far some of these people have had almost 4 years to protect their personal positions through salaries, pensions schems, assets transfers etc.
I say 4 years because the coming crisis was evident to developers in 2007 as work started to dry up in the drawing offices. NAMA should have taken this approach with one month of being set up. Not a year and a half down the road.
@Niall
Well done to point out the structure of Irish business, a structure mainly driven in that direction through favourable tax schemes, tax breaks etc.
Indeed from a public policy perspective, as witnessed by the Superquinn saga, this is now another disaster and bloody bad economics. Good businesses and even not so good ones with a fighting chance of survival are being brought down by now publicly owned banks. The reason they are being brought down is in an effort to get back a property loan that is extraneous to the business itself.
It is dreadful public policy in an environment where every viable business and every viable jobs counts.
CoStar rehashed some old news this morning.
http://www.costar.co.uk//en/assets/news/2011/November/NAMA-gets-court-order-to-wind-up-Glenkerrin/?dm_i=UQT,LLLF,4KQZWH,1R22T,1
Agreed not a great ‘look’.
http://theresidencestoronto.com/
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