Carroll’s survival plan ‘lacking in reality’
Mr Justice Peter Kelly, in the High Court, described as “fanciful” survival proposals heavily dependent on a greatly improved property market which suggested the companies could turn a €1.2bn deficit into a €300 million surplus within three years.
He granted “with misgivings”, a stay on his refusal pending an appeal to the Supreme Court on Tuesday.
The judge also expressed the view that the proposed survival scheme for the six companies — on whose fate many of the other 51 companies in the Zoe group depend — “seems envisaged to help shareholders whose investment has proved to be unsuccessful”.
That was not the objective for which the examinership legislation was envisaged, he said.
All of the group’s major banker creditors and the Revenue adopted a neutral stance towards the examinership application but ACC Bank, which prompted the protection petition by demanding repayment of €136m loans earlier this month, signalled after yesterday’s judgment it may yet move against the companies if the judge’s decision stands.
AIB and Bank of Scotland Ireland are the largest lenders with 40% and 23.8% of €1.2bn in loans respectively.
The companies produced the three-year survival plan after meeting with the banks last December and securing agreement of all except ACC.
The petition for protection was brought by Vantive Holdings. Vantive and Jersey-registered Morston Investments Ltd, are the parent companies of about 50 companies known as Zoe Developments.
It made the move after four companies — Villeer Developments, Peytor Developments, Caragh Enterprises Ltd and Parlez International Ltd — were presented with demands from ACC for the repayment of loans.
Refusing protection, Mr Justice Kelly dismissed as “lacking in reality” the views of an independent accountant, Fergal McGrath (whom the judge noted is a member of the group’s auditors LHM Casey McGrath) the companies could achieve “a remarkable turn around” within three years from a deficit of about €1.2bn to making a profit of €300m.
He noted the proposed survival scheme involved proposals to enhance site values through planning permission, the building out and development of existing sites and the aggressive marketing of completed residential commercial and retail units. It was claimed this would generate “a significant surplus” which would fund future development.
“Given current market conditions and with little or no prospect for improvement in the future on the basis of all the current economic indicators, this degree of optimism on the part of the independent accountant borders, if not actually trespasses, on the fanciful,” the judge said.
“What market is there likely to be over the next three years for the sale of sites, even with planning permission and the sale of residential commercial and retail units?” he asked. “The commercial market, particularly in Dublin, where much of the companies’ properties are, is grossly oversubscribed and the residential sector is hardly moving at all.”
It was notable, since the companies’ business plan was initiated last December and the banks had paid off its ordinary trading creditors “except, notably, the Revenue”, and with an “aggressive marketing and competitive policy”, only 39 residential units had been sold notwithstanding the enormity of the developments carried out.
The plan involved “extraordinary” forbearance by the group’s banker creditors in agreeing to a two-year moratorium on interest payments and effectively refraining from calling in massive loans.
This forbearance was “remarkably absent” when the banks were dealing with smaller borrowers, he remarked.
“In truth, the banks can do little else but forbear because if they take action to recover the monies due to them by these companies, they will bring about a collapse of the house of cards that is the petitioner, the related companies and, indeed, the wider group that is associated with them.”
The banks had not only took no steps to recover the monies but some banks actually advanced more sums to pay off the companies unsecured creditors.
“It is sometimes said that when small or modest borrowers encounter difficulties in repaying their loans, then such borrowers have a problem. For those with larger borrowings, it is the banks who have a problem,” he said. “If ever a case demonstrated the accuracy of that proposition, it is this one.”
Justice Kelly had the “gravest reservations” about the projections on which the independent accountant relied. The projections were based on discussions with the companies’ management and out-of-date valuation reports by two firms — CB Richard Ellis and Hooke & McDonald, who worked for the group in the past.
The proposed survival scheme was also most unusual as it would not require any investment in the companies or a write down of debts. One or both such elements figure in practically all schemes relating to companies in examinership, he noted.
No investment was required because the banks would continue to provide funds towards development of the lands and no write down was envisaged because the banks were the only creditors.
In all the circumstances, Justice Kelly was not satisfied the companies had a reasonable prospect of survival. Even if so satisfied, he would exercise his discretion to refuse protection because there was “something artifical” about what was proposed.
The only creditors involved are the banks and they would be able in any event to take steps to reclaim their debts and deal with the property involved, he noted. They would be expected to maximise its value as they saw fit.
Earlier, the judge noted the six companies were part of a “Byzantine corporate structure” and their three directors were Mr Carroll, Mr David Torpey and Mr John Pope who respectively held a total of 203, 166 and 62 company directorships.
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