Lifeline for insolvent financial lender as court approves creditors’ scheme

THE High Court has confirmed the scheme of arrangement for the survival of International Securities Trading Corporation (ISTC), which lends capital to financial institutions and was placed under court protection last November when it became insolvent due to the crisis in the credit markets.

The scheme, which comes into effect on Thursday, was approved yesterday by Mr Justice Peter Kelly in the Commercial Court. It must also be cleared by the Competition Authority.

The scheme provides for a €5m investment by Collins Stewart Europe, a subsidiary of British investment financial services group Collins Stewart, in ISTC. Collins Stewart is also proposing to raise additional convertible loan capital of €2m for development of the business.

The scheme had been passed at creditors’ meetings last week, with about 69% of the votes of international banks, which are owed €435.6m, and trade creditors. The Revenue also supported the scheme.

Bank and trade creditors will receive 12 cent for every euro owed, forcing them to write off debts of €385m. A group of unsecured creditors, listed in the scheme under “subordinated liabilities“, voted against the scheme but were outvoted.

These subordinated creditors include 125 bond investors who put €43m into the firm through Friends First. The group, which also includes institutional and private bond investors in Europe and Asia, will have to write off €270.5m.

The total amount to be written off in ISTC is €820m, including €165m invested in ISTC by wealthy Irish individuals.

ISTC was founded in May 2005 by Tiernan O’Mahoney, former chief operating officer of Anglo Irish Bank, and it employs 18 people. The company’s application for examinership last November followed a warning by a German bank creditor of its intention to file a petition to wind up ISTC within three weeks unless its debt of €176,000 was paid.

In appointing John McStay as examiner, Mr Justice Kelly noted the alternative to examinership would involve liquidation and a “firesale” of ISTC’s assets resulting in a shortfall of 871m. ISTC’s creditors were “a veritable who’s who of the banking world on an international scale”, he said.