Firms claim plan makes strong case for survival

SEVEN COMPANIES in Liam Carroll’s beleaguered Zoe property development group have argued that new evidence presented to the High Court represented “an overwhelming case” for their long-term survival.

Counsel for the companies said the evidence, comprising detailed property valuation reports, letters of support from some lenders and a more extensive independent accountant’s report, represented “an exceptionally strong case” for the appointment of an examiner.

Mr Justice John Cooke was hearing evidence in a fresh petition for the appointment of an examiner to the six original companies that unsuccessfully sought protection in the High Court and Supreme Court earlier this month, and a seventh company, Royceton, which is controlled by Mr Carroll.

The case was adjourned until 10.30am today when ACCBank, which is owned by Dutch lender Rabobank, will make its case against the group’s second bid for protection in a month.

ACC’s threats over unpaid loans of €136 million precipitated the first petition last month. The group has debts of more than €1.2 billion.

The court accepted the lodging of the new petition in a late sitting last Friday night, enabling the companies to make their case yesterday for the petition to be heard.

The High Court and Supreme Court had rejected the companies’ survival plan, ruling that they failed to provide evidence to support it and found it was neither credible nor reasonably viable.

At the outset yesterday, Mr Justice Cooke asked whether, under company law, a second application could be permitted if the first one was rejected. And if this were possible, should the court hear a petition containing new evidence, some of which could have been made available in the first petition?

The companies argued that he had the discretion to accept the petition and put it to a full hearing.

Michael Cush SC, for the Zoe group, said the companies failed to submit the group’s December 2008 business plan, including valuations, in the first application for protection last month because Mr Carroll refused to submit it, against legal and financial advice, and the advice of his fellow directors, John Pope and David Torpey.

Mr Pope, finance director, said he underestimated the stress Mr Carroll was under at the time and that his decision-making had been impaired. Mr Pope said Mr Carroll was the group’s “driving force” and “ultimate decision-maker”.

The court was told that Mr Carroll’s health was a concern following his hospitalisation last week and that he was not in a position to give instructions. Explaining the failure to submit the business plan to support property forecasts, Mr Cush said that Mr Carroll had been “operating under stress” at the time.

The judge was handed two doctor’s letters, showing that Mr Carroll attended his GP on July 14th, three days before the six companies originally sought court protection, though the doctor’s diagnosis was not disclosed in court.

Mr Carroll’s wife Róisín, a 50 per cent shareholder in Showlay, the holding company behind Zoe, said she had been concerned about her husband’s health in recent weeks, according to an affidavit from her solicitor.

The companies said that Mr Carroll had not decided to reverse his decision to exclude the business plan and valuations, but that the application was proceeding following a resolution by Mr Pope and Mr Torpey. Mr Carroll’s wife was also supporting the petition.

Mr Cush asked that the valuations on individual properties be kept confidential, but if they could not be examined in private, the directors would not object to them being presented in open court.

Mr Cush said that the companies were presenting new evidence addressing two major issues upon which the Supreme Court had rejected the first application.

The court found that the companies had failed to show ongoing financial support from their banks. Mr Cush said several banks had now provided this evidence.

Mr Cush said that, on the issue of absence of property valuations – another reason for the court’s rejection – the new petition contained affidavits from valuers.

Property valuers CBRE and Hooke MacDonald estimated in December 2008 that, in orderly sales and development of assets, the group’s investment properties could be worth €408 million, development sites €750 million and freehold property €52 million.

The court heard that, despite a fall of between 10 per cent and 15 per cent this year on investment properties and a decline of 15 per cent to 25 per cent on development land, the group had sold 53 units at 2008 prices or higher, generating €11 million in sales.

A further 51 properties were sold as social and affordable housing, while another eight properties could have been sold but were leased instead.

The group’s residential property valuer, David Cantwell of Hooke MacDonald, said he believed that, over the 30 remaining months of the business plan, 150 residential properties could be sold each year at prices at or within 10 per cent of forecasts.

The valuers said that, if the firms were liquidated and assets sold in a short space of time, it would have “a highly significant adverse consequence for the market generally”.

The group’s new independent accountant, David Wilkinson of KPMG, which devised the group’s December 2008 business plan, estimated the group has a net worth of €10 million, with assets of €1.36 billion and debts of €1.35 billion. The court heard that a reduction in interest rates this year had brought savings of €23.4 million.

Some 641 residential properties had also been leased out, yielding €10.4 million, some €3 million more than estimated in the plan. Rental income was generating €38.5 million, meeting 68 per cent of falling interest costs.

Mr Cush said the group’s planned sale of its stake in shipping group ICG had not materialised, but the shares were generating dividends. He said there had been no development on three planned office blocks at North Wall Quay in the Dublin Docklands, including the proposed new Anglo Irish Bank headquarters, but the bank was willing to provide €8 million for development, pending a ruling on planning.

Mr Wilkinson’s report found the companies had a reasonable prospect of survival if a scheme of arrangement was put in place and there was a moratorium on capital loan payments to the banks. The court heard Mr Wilkinson concluded there may be a possible debt writedown of €10 million.

The survival plan was contingent on continuation of financing from group lenders. Mr Cush said the National Asset Management Agency (Nama) may have a positive impact on the level of credit available to the companies.

Representatives for Allied Irish Banks (AIB) and Bank of Scotland (Ireland), the two largest lenders to the group, told the court that the banks supported the petition.

KBC Bank Ireland said that it was also supporting the companies’ petition, while Ulster Bank and Anglo Irish had no objections.

Ten contractors and service providers to the Zoe group and Mr Carroll’s main development company, Danninger, supported the petition. They included Joseph Flynn Site Excavations, Traynor O’Toole architects and Kirby Group Engineering.

Some 83 per cent of the debts to unsecured creditors was paid off. Counsel for employees of Royceton told the court they support the application.

Mr Cush said that the application for an examiner was unlikely to prejudice ACC, which was relentlessly pursuing its own commercial self-interest. He said that AIB, Bank of Scotland (Ireland) and Bank of Ireland, which represented 76 per cent of the group’s overall debts, were owed almost seven times more than ACC and were supporting the petition.

The case resumes today.