ANALYSIS:THE EPIC 11-week quest for court protection for Liam Carroll's Zoe group, his heavily insolvent property development business, ended in just a matter of minutes in the Supreme Court yesterday
The case began life as a rushed application late on Friday, July 17th, and a pre-emptive strike to prevent the Dutch-owned ACCBank collapsing the group as it aggressively sought the repayment of €136 million in unpaid debts.
The battle ended with little more than a whimper concerning procedural matters from the group and its significant legal team comprising two senior counsel, two barristers, law firm Eversheds O’Donnell Sweeney and a team from accountants KPMG.
The liquidation of two companies at the apex of the group appears little more than a formality leading to the collapse of one of the largest property development groups in the country.
The Chief Justice John Murray extinguished any hope of the group securing the appointment of an examiner who could have put in place its survival plan, saying that the group should not have been allowed to proceed with a second bid for court protection after a first attempt was rejected.
The first application had been shot down by both the High Court and the Supreme Court but Mr Justice John Cooke allowed the group to apply to appoint an examiner for a second time on August 21st.
Yesterday the Chief Justice ruled that the second bid for examinership and court approval for a rescue was an abuse of process and the administration of justice.
The Supreme Court found that Zoe companies had in their first application for protection “consciously and deliberately” withheld from the court information which was available to them and could have been obtained by them.
The court was referring to a key business plan drafted last December by KPMG for the Zoe group and Mr Carroll’s two other groups, Dunloe and Orthanc, which set out how they proposed to survive the collapse of the property market. The group had also failed to submit letters of support from seven lenders to the group in the first application. (ACC was the only bank opposed to the plan.)
These letters would have backed up the group’s claim that the banks would provide further loans to keep the group afloat over the course of the three-year plan and show they were willing to accept a two-year moratorium on interest payments due on loans.
The Chief Justice said that although no bad faith was involved in the Zoe group’s decision not to submit this evidence, the second petition for protection nonetheless amounted to an abuse of process.
The Supreme Court will give its reasons in full next Wednesday.
Carroll and his wellbeing played a crucial part in the ultimate failure of the group’s attempts to secure protection. The High Court was told by Zoe group’s finance director John Pope last August that Carroll had been suffering from stress when he chose not to submit the crucial business plan in the first application and that his judgment had been impaired. Pope said that he had underestimated the stress that his boss was suffering.
This proved fatal for the group’s survival plan when the High Court and Supreme Court rejected the first bid for protection saying that insufficient evidence had been offered to show that the group had a reasonable chance of survival given the current and likely future state of the property market.
Carroll was hospitalised between the first and second applications for examinership and unable to direct the second bid.
The costs of the case are significant and likely to be added to the Zoe group’s massive debt pile of €1.3 billion, almost all of which is owed to the group’s eight lenders.
The two petitions for protection were before the courts on 18 days - 13 days in the High Court and five days in the Supreme Court. Eight senior judges heard submissions by the group over the 11 weeks.
Mr Justice Murray said last month that Zoe’s appeals were having “a very heavy effect on important cases” and other parties were having to wait a significant time to have their cases heard.
Legal sources estimated that Zoe’s own bill from the various actions stands at about €500,000.
ACC, which is owned by Dutch financial giant Rabobank, is not expected to be able to recover its costs as the court is likely to award costs against Vantive Holdings, the Zoe group company that led the two failed petitions, given that the bank’s appeal was successful and that the company is heavily insolvent.
Then there are the costs faced by the Zoe group’s employees, contractors, suppliers, creditors and six other lenders who made appearances in court supporting the second bid for protection.
The group now faces the prospect of an array of receivers being appointed by its banks over the group’s companies to protect the lenders’ interests in assets supporting loans of €1.3 billion.
A stay remains until next Wednesday over two High Court orders liquidating Vantive and Morston Investments, two companies at the apex of Zoe which channelled bank loans down to property companies across the group.
An appeal by Zoe against the appointment of the liquidator seems little more than a moot issue given that the group is facing a shortfall of more than €1 billion and the door has been slammed shut on examinership/protection.
The group could argue that the court has discretion not to appoint liquidators to the firms, but the prospect of the companies’ avoiding being wound up is slim.
A receiver appointed by ACC in August can now take control of four of the seven Zoe companies that sought protection following the Supreme Court’s decision.
These companies own prime sites in the north Dublin docklands. The receiver is likely to adopt the same position to be taken by the National Asset Management Agency, the State’s “bad bank”, if and when the legislation setting up Nama is passed and it takes over loans with a face value of €77 billion from the banks for a discounted price of €54 billion.
There is still the possibility of ACC’s €136 million debt being bought out by Zoe’s two largest lenders – Allied Irish Banks (AIB) and Bank of Scotland (Ireland) (BoSI) – but the chances of this happening are remote given that this would set a dangerous precedent in other cases of heavily indebted developers where smaller lenders seek repayment from big lenders.
While the banks examine the potential fallout from the Supreme Court’s ruling, they will be preparing to issue demand letters seeking repayment of their loans on the back of which they can move to appoint receivers.
If this proceeds as expected, the receivers are likely to adopt a sit-and-hold approach with the group’s assets as they wait until life reappears in the property market and they can recover more of the money owing by the group.
The big unknown is how Zoe’s foreign lenders – BoSI, KBC Bank Ireland and Ulster Bank – will react. They account for almost half of the group’s debts and do not have the luxury of selling loans to the only buyer around (Nama).
ACC’s owner Rabobank may seek to sell the properties backing its loans in an effort to recoup as much of its €136 million debt as possible to appease the market which is fearful that Rabo’s small Irish subsidiary may cost the bank its treasured triple-A rating.
This is the big imponderable. However, one thing is certain: yesterday’s ruling leaves the fate of Carroll’s group in the hands of his banks. His reign over the Zoe property empire is coming to a close.
Simon Carswell is Finance Correspondent