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Archive for January 10th, 2012

[The judgment is available online here]

Sean Quinn is not apparently a NAMA developer even though he built up a considerable worldwide property portfolio and even though he was, by any measure, a borrower of systemic importance to Anglo, and by extension the State which now 100% owns Anglo (or IBRC as it is now known after its merger with the Irish Nationwide Building Society). But Sean is of considerable interest on here, and his bankruptcy move before Christmas as well the machinations around the shopping centre in Kiev, Ukraine have been covered on here. Given imminent changes in bankruptcy legislation on this side of the Border, Sean’s case is also of interest for highlighting the contrasts in bankruptcy law between the two jurisdictions.

In November 2011, Sean sought and was granted a bankruptcy order. IBRC contested the grant. Today the judge in the High Court in Belfast issued a judgment in which he annulled the previously given order, and it now seems almost certain that IBRC will attempt to bankrupt Sean in Dublin.

The judgment from Belfast is available here, and it makes fascinating reading, and is far less constrained that Judge Kelly’s judgment in December 2011 which saw an order for some €3m granted against Sean’s wife, Patricia.

Personal highlights from the judgment include:

– Sean Quinn says he was “in shock” after Anglo appointed receivers and it became clear Anglo didn’t want him near the business. Perhaps not a surprise that he was “in shock” but it does seem surprising, in light of how the receivership was effected, that he might have entertained a notion of Anglo wanting him to consult with the business in receivership.

– Judge says Sean was hesitant in disclosing details of new business ventures after Quinn group receivership and concludes “on balance of probabilities” lease document on office in Derrylin, Fermanagh was prepared after date claimed by Sean Quinn and was designed to bolster Sean’s present arguments about his centre of main interest being in Northern Ireland

– Commercial lease document relating to Sean Quinn’s current premises in Derrylin, Fermanagh described by judge as a “somewhat curious document” Not drawn up by solicitors, not referred to on Sean’s statement of affairs and despite the monthly rent being only GBP 50 (€60) payable to the landlord described as a friend, apparently necessitating a commercial lease document which referred to remedies in case of default. Also lease signatures weren’t witnessed and no evidence of correspondence involving the premises despite Sean claiming he occupied it since May 2011 and was developing businesses.

– Judge queries invoices from a printers in Tallaght, west Dublin called “Print in Time” which purported to be for letterheads and business cards showing an address of Sean’s new office in Derrylin and says if the invoice was “genuinely dated” then it “is likely” it refers to other letterheads and cards to the ones furnished to the court. Judge also says the invoice didn’t mention compliment slips which Sean furnished to the court.

– Sean Quinn says he was never formally dismissed from the Quinn group

– Judge dismisses Sean’s contention that he was involved in a forestry business in Derrylin by saying “he may well have walked some forestry lands leased to his children but a decision as to whether or not that forestry should be thinned not only does not constitute a business but is a decision of an hour or two”

– Sean says he was meeting former colleagues at the disused tyre factory in Cavan for social reasons and not to conceive a new business. Judge concludes the premises was kitted out “not purely for social reasons”

– Sean says that the bankruptcy form didn’t have enough space to adequately make the full disclosure of facts required. Judge says Sean would have been entitled to affix supplementary sheets.

– Sean didn’t disclose in his bankruptcy application that he had an Irish passport and didn’t have a UK passport, didn’t disclose that he is registered to vote in the Republic and that 20% of his tax is paid to the Revenue Commissioners in the Republic.

UPDATE: 10th January, 2012. The Irish Times has posted an audio clip here in which Sean Quinn, speaking outside the High Court in Belfast, gives his reaction to today’s judgment and after talking about what he claims to be the destruction of the Quinn group by Anglo, says that the group – presumably the Quinn group – will make a loss of €4bn in 2010-2012 and a further €4bn in 2013-2017, he invites journalists to contact him so that he can justify these calculations.

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BIG CHRIS :  This is one of those high-powered numbers, isn’t it? [John O’Driscoll’s eyes widen; Chris slams down the sunbed on top of him as hard as he can.] Got some bad news for you, John.

JOHN O’DRISCOLL : What the fuck! [Big Chris slams down the sunbed again on top of John.]

BIG CHRIS:  Oi! Mind your language in front of my boy.

JOHN O’DRISCOLL: Jesus Christ! [Big Chris slams the sunbed on top of him again. Twice]

BIG CHRIS: That includes blasphemy as well. Now tell me, John . . .

JOHN’O’DRISCOLL: Tell you what, Chris?

BIG CHRIS: Tell me John, how you can concentrate on improving a lovely tan, and it is a lovely tan by the way, when you have more pressing priorities at hand?

JOHN O’DRISCOLL: Tell Harry . . .[Big Chris bangs the sunbed down again]

BIG CHRIS: Did I say speak? And it’s Mr Harry to you . . . Now don’t disappoint me and choose your words carefully. You may speak.

JOHN O’DRISCOLL: I’ll have it for Mr Harry in a few days. I have been busy, and I am nearly there.

BIG CHRIS: Son, have a look in his locker.

JOHN O’DRISCOLL: No chance of you lifting this sunbed up is there?

BIG CHRIS: Yeah, all right. [Big Chris lifts it, then smashes it down again] Now, you want me to lift it up again?

LITTLE CHRIS: He’s not poor. Five hundred and sixty pounds and that’s just in his wallet . . . Fuckin’ ‘ell John, you always walk around with that in your pocket?

BIG CHRIS: Oi! Next time you use language like that, boy, you’ll wish you hadn’t!

LITTLE CHRIS: Sorry, Dad.

BIG CHRIS: Right, well, put the rest of the stuff in that, son. You can go home in a plastic bag tonight, John, you owe what you owe and before this tan has faded, you want to have paid. [Chris punches John unconscious and turns the time dial up.]

The Vinny Jones method of collecting debts, from the film “Lock, Stock and Two Smoking Barrels”

Some people in Ireland would like NAMA to pursue a debt collection approach along the lines of Big Chris above. I think many more people though are incensed at the perception that developers who owe millions, hundreds of millions and in some cases billions of euro to the State and who, in total, may not be able to pay back €40bn that is owed -NAMA has taken over loans totaling €74bn at face value and paid €32bn approximately for these loans, and NAMA is projecting an overall profit in Net Present Value terms of €0.8bn – and who still find time to top up their tan or, more familiarly, still retain cars/aircraft/yachts to help transport them between mansions and other luxury real estate.

NAMA has acted to dispel the perception of ostentatious wealth. Its chairman, Frank Daly told an Oireachtas committee in 2010 that “the jets, yachts, Bentleys or whatever are not supported by NAMA and in many cases we will insist they are sold by NAMA to reduce the level of indebtedness.” And last September 2011, the Irish Independent claimed to have seen a document which set out NAMA’s policy on developers’ “trophy homes” ; the policy addressed trophy homes co-owned by developers with their spouses, and it seemed that wives were being required to surrender rights they might have in the property in return for NAMA cooperation. There were separate claims, including in comments on here, that NAMA was requiring developers to sell homes and downsize to more modest property valued at less than €500,000. These claims seemed credible and I note that in the reporting of a recent sale of Bernard McNamara’s mansion on Ailesbury Road, it was suggested that Bernard and the wife would be allowed keep €500,000.

Now let me introduce you to one of NAMA’s most prominent developers, Frank Boyd (pictured here with his wife Rose). Frank does have some interests on this side of the Border but is more well-known in Northern Ireland. One of his companies, Killultagh Estates Limited – “one of Northern Ireland’s largest companies engaged in managing property for rental and investment” – published on 22nd December 2011 its accounts for the year to March 2010 – the accounts are here and they make interesting reading.

Frank is the sole director of the company, his wife Rose having resigned as a director in November 2010.

I must say that I was confused a little by the accounts for this company.

On page one, the company says its banker is Ulster Bank which is not a NAMA bank at all. You have to go to the very last page of the accounts, page 28 to see that in note 23, the company refers to NAMA for the very first and only time, and admits that its loans -elsewhere shown totaling GBP 228m or about  €276m at current exchange rates – have been transferred to NAMA. The company accepts that, in note 23, “the company is now dependent on the ongoing support of NAMA, and its other lender, and will continue to require such support until the economy has sufficiently recovered from its downturn and the company is successful in realizing the full value of the properties included in investment properties and those properties held by the unit trusts” It’s not clear what is meant by “its other lender” as the note says that the company’s loans have been transferred to NAMA. Further it is said that “the company’s banking facilities have expired and are repayable on demand” though even this is slightly confusing because elsewhere the bank debt is split between repayable within 12 months and repayable after one year.

Earlier in note 15, the company says that the loans are secured on a variety of securities including, “personal guarantees and indemnities by directors”

In the introduction to the accounts, four risks are identified as facing the business but not one of the risks relates to the decline in value of the investment properties owned by the company, and as you read on you will see that the company booked GBP 40m in impairments and revaluation of its investment properties in 2010!

I was interested by the form of words used by the auditors, Maneely McCann, in giving their opinion on the accounts. Under the heading “QUALIFIED OPINION ARISING FROM LIMITATION OF SCOPE” the auditors say “Except for the financial effects of any such adjustments, if any, as might have been determined had we been able to satisfy ourselves as to the valuation of investment properties and units in unit trusts, in our opinion the financial statements: – give a true and fair view of the state of the group’s and parent company’s affairs as at 31 March 2010 and the group’s loss for the year then ended – have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and – have been prepared in accordance with the requirements of the Companies Act 2006”. Does this mean the accounts have been given a potentially damaging qualified auditors’ opinion? I think it does, but the form of words used is novel.

We find out later in the accounts that “although the director has valued the investment properties and units in the unit trusts, taking in account the value of the properties held by the unit trusts, to the best of his ability, there is no active market from which he could make an assessment of the open market value of the investment properties or units in the unit trusts”

I was also interested to see that in the year to March 2010, the company booked GBP 14m of impairments, but the previous year booked nil. Given that the Northern Ireland market residential peaked in 2007 and is now down 44% from peak, I might have expected earlier provisioning. There is, additionally, GBP 25m booked for revaluations in 2010 compared to GBP 18m in 2009.

So Frank’s company owes NAMA approximately GBP 228m, it seems, and its assets are valued at GBP 242m and the valuation of the assets is based on Frank’s own judgments and appear to be subject to a qualified audit opinion. Indeed according to the balance sheet, the company’s net asset position has fallen from GBP 53m in 2009 to just GBP 2m in 2010. So NAMA’s loans look precariously close to the value of the entire company based on a valuation by one person, Frank. Having said that, the company is still solvent and there is no suggestion that the loans are not being serviced in accordance with the loan terms, though the accounts do say the facilities have expired.

Now let me introduce you to Frank’s residence (or “gaff” as Big Chris may say), the Rademon Estate in county Down – 500 acres and a country pile dating from 1667 (pictured here). Hard to put a value on it, but the 500 acres alone would seem to indicate somewhere in the millions. Now if it is unacceptable for NAMA debtors on this side of the Border, who depend on NAMA for ongoing support, to retain trophy homes, why is a developer in Northern Ireland seemingly retaining what appears to be the trophiest of trophy homes? Is NAMA’s sensitivity in its dealings with Northern Ireland leading to different debt collection policies?

NAMA has not responded to a request for its policy on developers’ homes or, or to a request for comment on whether or not the Agency operates a policy with developers on this side of the Border that differs to the treatment of Northern Ireland developers.

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