Next phase in Sean Dunne vs Nama battle beckons

A hearing in a Connecticut court yesterday was meant to have been an opportunity to agree procedures to fast-track the discovery of information between Sean Dunne and the National Asset Management Agency (Nama) and move their protracted and fractious legal battle closer to trial.

An unexpected application, however, from the insolvent property developer to withdraw his US bankruptcy bid last week has thrown a spanner in the works.

Tactically, the dismissal application was a curious move by Dunne in a bankruptcy case he began in March last year.

Facing the prospect of being declared bankrupt in Ireland on foot of Ulster Bank's pursuit of a €165 million debt, Dunne turned to a Connecticut federal court last year for protection from creditors owed €700 million by filing for Chapter 7 personal bankruptcy.

Since then, he has been engaged in a cat-and-mouse game with his two biggest creditors – Nama and Ulster Bank – through the Connecticut bankruptcy court before Judge Alan Shiff. The State loans agency and the bank have judgements of €185 million and €164 million respectively against him, but the overall sums owed to both are much larger, accounting for most of his debts. Almost all his liabilities arise from developments undertaken during the Irish property boom.

Lost battle

Despite his efforts to benefit from the more lenient US bankruptcy regime, Dunne lost his battle with Ulster Bank, the lead financier of his audacious 2005 plan to turn Ballsbridge into the Knightsbridge of Dublin. He was also adjudicated a bankrupt by the

Irish High Court

in July last year.

This put him in the unprecedented situation of enduring convoluted bankruptcy cases on both sides of the Atlantic, a unique prospect and in contrast to many of the bankruptcy tourists who fled the Irish regime for overseas courts seeking quicker escapes from insolvency.

Dunne’s exit from bankruptcy, slipping free of his debts with a fresh financial start and a much-sought-after discharge in the US, did not seem so assured after Nama brought a legal challenge, or an adversary proceeding, against the Co Carlow-born developer in July last year.

The State loans agency in effect transferred an existing legal action taken against Dunne and his wife Gayle Killilea Dunne, the former newspaper gossip columnist, in Connecticut superior court in 2012, a state court, to the Connecticut bankruptcy court, a federal court.

Nama had claimed Dunne fraudulently transferred assets, including a share in a property in Geneva, to his wife before their relocation to the US in 2010. The agency also claimed that Killilea- Dunne was acting as a front for Dunne, allowing him to develop property in multimillion-dollar deals in the US on the basis he was an employee of his wife’s companies, when the money used to finance the deals was originally his and had been transferred fraudulently by him.

Vigorous challenge

The couple vigorously challenged that case and Dunne’s defence to Nama’s objection to his discharge from his debts has been equally hard-fought over the past 13 months in the US bankruptcy case, with both sides litigating on every procedural twist and turn.

Over four meetings with his creditors between June last year and February this year, Dunne disclosed more details about his finances, while refusing to answer key details, citing the restraints of the in-camera rule covering Irish family law proceedings with his first wife.

In December, he admitted he agreed in 2005 to transfer €100 million to Killilea- Dunne, about a fifth of his fortune, in return for “love and affection”, making his wife financially independent.

For the most part, the fight between the sides since then has been dominated by Nama trying to get to the bottom of all husband-to-wife cash and property transfers and the couple’s attempts to stop the agency.

Killilea-Dunne has described Nama's actions as a fishing expedition and argued her privacy and that of her children is at risk from Nama's attempts to question at least 14 third parties, from law firms to property agents to banks – and including John Dunne, one of the developer's sons from his first marriage – about the couple's finances.

Manhattan development

Nama also wants to know more about a potentially highly profitable $22 million project that Killilea-Dunne and John Dunne are developing in the trendy SoHo area of Manhattan, on which the bankrupt developer has said he is acting as an adviser as an employee of their company.

Should Dunne be successful in withdrawing his US bankruptcy case – and that is not a foregone conclusion – this debtor-versus-creditors fight may not shift to the Irish bankruptcy court exclusively. Nama is likely to restart its legal action, currently on hold, against the couple in the Connecticut state court, continuing this bitter transatlantic dispute.