Jim’s company Jim Limited owes NAMA €10m on a property now worth €4m. NAMA forecloses on the loan, has receivers appointed to Jim Limited. Jim himself didn’t give personal guarantees and is in fact quite wealthy, he has €20m in the bank in his own name. Should Jim be able to buy property from the receivers appointed to Jim Limited?
John’s company John Limited owes NAMA €100m on a property now worth €30m. John gave a personal guarantee on the loan and John is not very wealthy as an individual with €100,000 in the bank. However John has been married to Mary for 20 years and during the boom-time, Mary became wealthy in her own right and as a normal lawful precaution, John arranged to have some assets put in his wife’s name during the good years. Mary is worth €20m today in her own right. NAMA forecloses on the loan and after John gives NAMA everything he owns in his own right, should John and Mary together be able to buy property from the receivers appointed to John Limited?
Sean didn’t have a company at all, but he personally owes NAMA €5m on a property worth €1m today. He has other wealth of €200,000. NAMA forecloses on the loan, has a receiver appointed to the property and takes all of Sean’s other wealth. Can Sean now work as a consultant to a company that can buy property from the receiver appointed to Sean’s property?
In each of the three cases above, the answer is “no”. NAMA is prevented by section 172 of the NAMA Act from selling loans and property to debtors who have defaulted on loans owed to NAMA. The Agency is also stopped from selling assets to associates of such debtors.
Developers are unhappy with the above state of affairs and think that NAMA can get more for its assets if it is released from the proscription in the NAMA Act. And it would appear economically rational for NAMA to seek to get the most for its assets, as long as it has pursued defaulting developers to the full legal extent feasible. However, as economically rational as it might be to amend the NAMA Act, it may just not be politically or societally acceptable for those whose property debts remain unpaid to subsequently benefit from assets acquired from NAMA. But how much might our principles be costing us? Difficult to say but from time to time – for example here where a defaulting debtor was said to have offered €900,000 for a property eventually sold for €300,000 – you hear stories of developers making offers for NAMA assets and despite their offers being higher than the price ultimately realised, the developer’s offer is rejected by NAMA on account of the provisions of the NAMA Act.
In the Dail this week, the Sinn Fein finance spokesperson Pearse Doherty asked the Minister for Finance Michael Noonan to try to quantify how much our principles are costing us by asking about offers rejected by NAMA because of proscriptions in the NAMA Act. In what must be one of the most gobsmacking displays of bureaucracy ever, Minister Noonan was able to confidently state that NAMA is not losing out because NAMA pre-approves buyers before the buyers can make an offer, and the pre-approval involves buyers declaring they are not proscribed by the NAMA Act!
So we remain ignorant of how much our political and perhaps societal principles are costing us. If the loss was €50m over NAMA’s lifetime, then we might be prepared to stomach that loss. If the loss was €1bn, we mightn’t.
You might ask whether there would be any loss at all because the proscribed buyer would surely only offer the “market rate” This might be correct in some cases but a buyer who has experience of a development would be characterised as a “special purchaser” in the valuation business. Such a “special purchaser” might have unique knowledge or experience with what was their asset and may be prepared to offer a premium over the market rate.
The full exchange is here.
Deputy Pearse Doherty: To ask the Minister for Finance the number of instances in the past 12 months when the National Asset Management Agency has rejected an offer for assets under his control which, firstly, originated from a party the sale to whom the NAMA Act proscribes and secondly. was higher than the price eventually settled on by NAMA; if he will quantify the overall loss to NAMA arising from any such rejections..
Minister for Finance, Michael Noonan: Prospective purchasers of assets controlled by NAMA debtors and receivers are required to sign a declaration under Section 172 of the Act confirming that they are not a connected party within the meaning of that section and of the NAMA Board’s Guidance Note on the Disposal of Real Estate Assets by NAMA Debtors and Insolvency Office Holders which is published on NAMA’s website. As this declaration precedes the evaluation and possible approval of any potential bids relating to the sale of assets under the control of NAMA debtors and receivers, the issue raised in the Deputy’s question does not arise.