Revenue to challenge legality of €500,000 loan to Cork-based AI firm Altada

If Revenue is correct in its contention that the €500,000 loan is unlawful, the appointment of a receiver over the Co Cork company in November 2022, on foot of a petition from four lenders, would also be invalid, court heard

Allan Beechinor is chief executive and founder of Altada Technology Solutions.

The Revenue Commissioners plans to bring a court application challenging the legality of a €500,000 loan made to troubled artificial intelligence firm Altada when it was allegedly heavily insolvent.

The High Court heard on Monday that Revenue continues to be concerned about the September 2022 debenture, whose terms stipulated it was to be repaid to the four lenders within eight months along with an additional €500,000 “premium”.

Revenue’s counsel, Arthur Cunningham, said the State agency, owed more than €2m from Altada, will bring an application asking the court to declare the debenture is unlawful.

It will bring the application, as a creditor owed more than €2m from Altada, including €1.6m in preferential debt, with or without the support of the company’s liquidator, whose report highlighted the impugned loan, Mr Cunningham said.

If Revenue is correct in its contention that the €500,000 loan is unlawful, the appointment of a receiver over the Co Cork company in November 2022, on foot of a petition from the four lenders, would also be invalid, the court heard.

Revenue’s “firm view” is that Altada’s assets are owned by the company itself and are under the control of the liquidator, rather than with the receiver, said Mr Cunningham.

The agency takes issue with the prospect that payment would be made to the four lenders out of Altada’s assets and has concerns about payment of the receiver’s fees, which totalled some €680,000, he said.

The receiver has given a court undertaking not to dispurse any funds from a sale of the firm until after January 27, and will discuss with the parties which costs can be disposed of after that date.

The court heard about a number of twist and turns in the efforts to achieve a sale of Altada since last Wednesday’s hearing.

The court was informed last week that liquidator John Healy, of Kirby Healy Chartered Accountants, and receiver Nicholas O’Dwyer, a partner at Grant Thornton, would work together to achieve a sale of the company’s assets by the end of last week.

Rival bids

Two rival bids were discussed before the court. The receiver, Mr O’Dwyer, accepted a bid from technology entrepreneur Eoin Goulding through his company Cometgaze, while the liquidator, Mr Healy, accepted a higher bid from Datech, which is controlled by a former investor in Altada, US businessman Jeffery Leo.

Mr Healy was appointed as liquidator of Altada after Datech petitioned the court in December for the firm’s winding-up.

On Monday, David Whelan, counsel representing the liquidator, said Datech’s offer had seemed to be superior and required examination. The Friday evening deadline imposed by the liquidator for the close of the sale to Datech passed without the contract concluding, he said.

Mr Whelan said Altada was “in a sense a wasting asset” whose value will reduce if a deal does not conclude quickly. In those circumstances, he was not objecting to the sale to Cometgaze.

Barrister Declan Murphy, for the receiver, said his client, as agent of the firm, now intends to plough on with a sale to Cometgaze, despite a reduction in the price on offer due to an extension of the lapsed sale deadline. The latest agreement imposes a new deadline of 10pm on Tuesday for completion of the sale.

The delay, and resulting “price chip” to Cometgaze’s offer, has been to the detriment of the company and its creditors, said Mr Murphy. His client is reserving his position about potential legal consequences arising from this situation, he added.

Mr Murphy told the court the receiver does not believe the liquidator’s latest report to the court is “full, fair or accurate”, representing instead a narrative to justify the liquidator’s actions. He said the receiver takes no pleasure from being “vindicated” in his belief that the rival bid from Datech was not going to materialise.

The receiver did not believe Datech’s offer was “real or better” than Cometgaze’s proposal and he has taken all steps to achieve the “best price reasonably attainable” for the company’s assets.

Staff threat to walk away

Staff were threatening to walk away from the firm if Datech purchased it, and this would lead to an increase of €1.3m in preferential claims, essentially wiping out the €1m surplus funding offered by Datech, Mr Murphy said.

Barrister Stephen Byrne said his client, Datech, was still willing to proceed with its proposal with no “price chip” attached. The offer stood regardless of any alleged threat by Altada’s employees to walk away, he said.

There was “no basis” for the receiver’s suggested reasoning for why Datech did not proceed with the sale by the deadline, Mr Byrne added. His client provided proof of funds to the liquidator and was given a “very narrow window” within which to complete the sale and transfer funds, he explained.

Mr Justice Brian Cregan set out a timeline for the exchange of submissions between the parties who will participate in Revenue’s application for a declaration about the loan’s legitimacy.

There was no other motion before him on Monday, and it was not for him to “give a green light or a red light to any party” on the sale of the company, he said.

The judge adjourned the case until Friday morning when it will be mentioned again.