NAMA not entitled to acquire €2.1bn McKillen loans, Supreme Court told

NAMA was not entitled to decide to acquire €2.1 billion loans of Paddy McKillen and his companies simply because it believed their size alone represented a “systemic risk” to the banks involved in NAMA, it was argued before the Supreme Court yesterday.

Had NAMA informed Mr McKillen it considered the size of the loan portfolio such a systemic risk, he could have taken steps to address that, Michael Cush, counsel for Mr McKillen, also said.

Mr McKillen had rejected an offer of €1bn for his hotel group in London as he didn’t believe it represented good value but he may have sold it had he been aware of NAMA’s intention, he said.

Mr Cush said it was his case NAMA was required, but had failed, to carry out a qualitative assessment as to whether the loans did represent a systemic risk.

These loans, he said, did not represent such a risk and NAMA failed to address a range of issues to determine if they did, including the solvency of Mr McKillen and his companies, whether any of the loans were impaired or were likely to be impaired and the quality and diversification of the property portfolio involved with most of it outside Ireland.

Counsel was continuing his submissions in the appeal by Mr McKillen and 15 of his companies against the rejection by a three-judge High Court last month of their challenge to the transfer to NAMA of their loans with Bank of Ireland.

The appeal, being heard by a seven-judge Supreme Court, has implications for other loans held by the applicants with other participating financial institutions in NAMA.

A central issue in the appeal is whether the High Court was correct in finding, under the NAMA Act 2009, Mr McKillen had no right to be heard prior to the decision by NAMA to acquire the loans at issue.

Yesterday, Mr Cush said the act provides the agency has a discretion whether or not to acquire bank loans and sets out a list of matters NAMA may take into account in deciding whether or not to acquire those. This suggested there should be some form of qualitative assessment by NAMA in exercising its discretion but, in Mr McKillen’s case, there was no such assessment.

NAMA had said it decided to acquire the McKillen loans because of its belief the extent of the exposure of the relevant participating financial institutions in NAMA — Anglo Irish Bank and Bank of Ireland — to Mr McKillen and his companies of €2bn was such as “to create a systemic risk”.

The High Court had concluded that NAMA, when considering whether or not to exercise its discretion to acquire the loans, had not considered whether the McKillen loans in themselves represented a systemic risk, Mr Cush said. Instead, the court had found NAMA had decided the McKillen loans “contributed” to a systemic risk to Irish financial institutions by reason of those institutions’ exposure to property and development loans in the first place.

The finding was inconsistent with the unequivocal statements of NAMA itself as to the reasons for its decision, counsel argued.

Submissions for Mr McKillen are expected to conclude today after which Attorney General, Paul Gallagher, will begin his submissions for NAMA and the state opposing the appeal.