ANALYSIS:Dissenting bank's move to recoup its cash could be fatal to wider group

MR JUSTICE Peter Kelly didn’t mince his words when he refused to extend court protection and appoint an examiner to six companies controlled by developer Liam Carroll in his Zoe property group.

The judge was highly critical of the company’s survival plan, based on a report by independent accountant Fergal McGrath of Dublin firm LHM Casey McGrath.

He said he had the “gravest reservations” about the projections on future property development and sales contained in the report.

The six companies in the group, led by Vantive Holdings and Jersey-registered Morston Investments, had lodged a report to court which showed that if it had breathing space from its debts – particularly the €136 million owed to the aggressive ACCBank – it could develop existing sites and sell properties over three years and survive.

Mr Carroll argued that if court protection was secured with the appointment of an examiner, then his currently heavily insolvent group could meet debts of €1.3 billion, including €1.27 billion owing to the banks, by the orderly development and sale of assets worth €1.6 billion in this scenario.

This would leave the group with a surplus of €290 million.

Such a likelihood was based on support of all banks and a two-year moratorium on interest payments as envisaged in a business plan drafted in December 2008.

Mr Justice Kelly said that of the banks only ACC “broke ranks” and was unwilling to back the plan. The bank wanted its money back and threatened to take control of or liquidate companies.

In a liquidation the deficit would be greater than €1 billion.

Mr Justice Kelly said that it would be “a remarkable turnaround” if the group could move from an insolvent position to a surplus of €290 million in three years.

He said that the group’s rescue plan was “lacking in reality” and bordered if not trespassed on the “fanciful” given the depressed state of the property market.

The judge didn’t pull his punches in his views on the cosy relationship between the group and all but one of its banks.

“It is sometimes said that when small or modest borrowers encounter difficulties in repaying their loans, then such borrowers have a problem,” said the judge.

“For those with larger borrowings, it is the banks who have a problem. If ever a case demonstrated the accuracy of that proposition, it is this one.”

Without long-term court protection and the support of other banks, Mr Carroll’s rescue plan and in turn his wider property group faces collapse unless the Supreme Court rules in his favour.

The danger posed by ACC looms large – the bank’s barrister, Rossa Fanning, told the court that he could not give “any comfort” to the four Zoe companies in receipt of loans from the bank.

The Dutch-owned lender has security over the firms’ lands in the Dublin docklands at Upper Sheriff Street and East Road, and if Mr Carroll fails in his Supreme Court appeal, then the bank can appoint a receiver to these lands.

The ripple effect of a move on any one of these companies could be fatal for the wider Zoe group.

“If one falls, the rest topple,” said Mr Justice Kelly yesterday.

A call by one of the banks on Zoe’s loans could be the first of many dominoes to fall across the group. It could also have an effect far further afield, damaging the entire property market given the reach of land assets in the Carroll group.

Exposure to ACC’s debts extends to Vantive and Morston, which, according to Zoe’s filings, have provided cross-guarantees €714 million across Mr Carroll’s group beyond the Zoe division.

These guarantees cover a range of companies including one of Mr Carroll’s main development companies, Danninger, which has connections to other groups in his business, including Dunloe, which is developing a 400-acre site in Cherrywood, south Co Dublin.

If ACC appoints a receiver, other banks may be forced to move to protect their own securities given the contagion effect.

The two biggest lenders are Allied Irish Banks (AIB), which is owed 40.8 per cent of the group’s total borrowings of €1.3 billion, and Bank of Scotland (Ireland), which is owed 26.8 per cent. They are followed by Bank of Ireland (9.3 per cent), Ulster Bank (6.7 per cent), Anglo Irish Bank (3.1 per cent), KBC Bank Ireland (1.9 per cent) and EBS (0.7 per cent).

These debts do not include loans in Mr Carroll’s other groups.

The banks could follow another option by financing a scheme similar to settlement made to the group’s unsecured creditors who were paid off in a deal funded AIB and Bank of Scotland (Ireland).

Rival lenders could “take out” ACC, the one dissenting bank by funding the repayment of part or all of the bank’s €136 million debt.

This would also ease one headache facing the State’s “bad bank” Nama, whose biggest customer is likely to be Mr Carroll. Given the scale of his debts he will be one of the first to be moved to the agency.

This would prevent “the collapse of the house of cards”, as the judge put it yesterday. Without court protection, Mr Carroll will need the continued support of his banks to protect him in this mess.

For the plethora of bankers dealing with Mr Carroll’s firms, this will be far from a bank holiday weekend as they frantically seek to help him solve this growing crisis.