IN THE COURTS:A Cork-based specialist kitchen and bathroom company grew fast but wasn't profitable, writes COLM KEENA.

PATRICK O’CALLAGHAN, former managing director of Delta Homes (Ireland) Ltd and the 2004 Ernst Young Emerging Entrepreneur of the Year, was in court yesterday seeking protection under the Bankruptcy Act.

Delta, a Cork-based company incorporated in 2002 to manufacture specialist kitchen and bathroom units, grew fast, with a turnover of about €17 million by 2005.

It went into receivership in September 2006.

When Gary McCarthy, for O’Callaghan, yesterday referred to Delta as a profitable company, Ms Justice Elizabeth Dunne pulled him up.

It wasn’t a profitable company, she said; it was a growing company.

McCarthy said it had experienced tremendous growth. However, its collapse had left O’Callaghan insolvent, as he had signed personal guarantees on behalf of the company.

O’Callaghan was seeking to be appointed an “arranging debtor” under the bankruptcy legislation. If his application was not approved, it was likely he would be declared a bankrupt, McCarthy said.

Arranging debtors are protected by the courts if they can come up with a scheme of arrangement which is backed by three-fifths of their creditors in terms of numbers and value.

Opposing the application were two of O’Callaghan’s creditors – Kitchen Accessories Ltd and Cork Builders Providers Ltd. They are owned, respectively, by the Gowan and Heiton groups.

Both earlier this year initiated proceedings against O’Callaghan seeking to have him declared a bankrupt.

It became clear during the case that O’Callaghan is facing difficulties, and legal challenges, on a number of fronts. His home is up for sale and he is, the court was told, living on a loan of €21,000 given to him by a relative in March.

Caroline Costello, for the builders providers, said she wasn’t happy with the quality of disclosure being made. She said she also had concerns about Mr O’Callaghan’s business dealings.

“A major part of the difficulties with Delta Homes was that there was a serious overstatement of stock,” she said. The board had removed O’Callaghan from his position because the board was misled, she said.

Bank of Scotland (Ireland) was seeking to make him and two other directors personally liable for the company’s €1 million-plus debts, she said.

Cork Builders Providers had gone to court to get the transfer of O’Callaghan’s home in Co Cork into his wife’s name declared void, she said. The transfer had been registered in October 2006. A family holiday home in Co Kerry had been sold.

Properties owned by O’Callaghan in Jamaica had been sold as a result of an agreement dated January 2007. “My client had nothing from the disposal of the properties,” she said.

O’Callaghan was pursuing a business project in Dubai but there was no information available as to how this was being funded.

His declaration of liabilities submitted to the court, she said, envisaged monthly expenditure of more than €12,000 “yet, on his own petition, he is insolvent and owes more than €1.7 million”. This was “quite incredible,” she said. His expenditure included his wife’s expenses of €1,500 per month.

Costello was concerned that, if his application was successful, property acquired afterwards would “not be caught”. Her client was owed €400,000.

Mark O’Connell, for Kitchen Accessories, said he too had concerns about O’Callaghan’s disclosure. There were expenses of €620 per month for trips to the Middle East, yet O’Callaghan said he was unemployed.

His client was owed more than €63,000 since November 2007 and he urged the court to refuse the application and to keep pressure on O’Callaghan to complete a suggested private arrangement for the settlement of this debt.

McCarthy, for O’Callaghan, said the income proposals for his client were proposals and the court would have a role in monitoring the proceeds of anything that might arise from dealings in Dubai.

There would be a very small dividend for creditors if O’Callaghan was made a bankrupt, even if the transfer of the house was declared illegal, he said.

What happened in the past was not before the court and no authorities had been quoted for the contention that “because of his personal behaviour in the past” O’Callaghan was not worthy of protection under the Act.

Ms Justice Dunne granted the application.

Statistics from the Official Assignee, Chris Lehane, show 10 bankrupts and six arranging debtors in the period to the end June of this year, compared to eight and one respectively, for all of last year.