It will not be the last property firm to go to the wall

WITH this week’s refusal by the High Court to appoint an examiner to seven companies in the Zoe Developments group, it looks like property developer Liam Carroll has used up his final lifeline in a bid to save his business empire.

The ruling has now placed his Zoe group on the brink of collapse, while the 59-year-old Louth engineer also runs the risk of being declared a bankrupt.

Furthermore, the potential “domino effect” of such an implosion also threatens Carroll’s two other main property vehicles, Dunloe Ewart and Orthanc, with a similar fate.

Zoe, the developer’s main construction group over the past two decades, has effectively been operating on a life-support machine since ACC Bank demanded the repayment of €136m loans from Carroll at the end of last June.

It also emerged during recent legal proceedings that nine petitions to wind up Danninger, the principal building firm within the Zoe group, have been attempted over the past year. Although unsuccessful, it would suggest that Carroll has had to spend considerable sums of money to pay off creditors who have been gathering in increasing numbers at his door since the global economic downturn last autumn.

Now, for the third time in the space of a few months, a senior judge has concluded that Carroll’s 51-company group with its complex web of interdependency and cross-guarantees on loans does not have a viable commercial future and is effectively insolvent.

Patchy and incomplete financial information submitted to the courts, combined with over-optimistic projections on property sales, rental income and continuing low interest rates proved fatal for Carroll’s case.

Despite increasingly desperate efforts by the developer to present so-called, “independent, expert” reports which suggested that Zoe could turn around its financial fortunes by 2011, the High Court and Supreme Court refused to be blinded by data furnished by parties with a naked self-interest in a burgeoning property market and declared that Zoe’s figures simply didn’t stack up.

As Mr Justice Frank Clarke remarked yesterday, Zoe’s own estimation of its prospects for survival were “at the further ends of optimism”.

For Carroll who was at the forefront of the bidding frenzy that characterised the worst excesses of the Irish property boom which saw developers pay wildly-inflated prices on development sites to outbid their rivals, the proverbial chickens have now come home to roost.

Like many other businessmen, Carroll overstretched himself financially in the mistaken belief that talks of a boom in the Irish property market were highly exaggerated.

Worryingly, the unwavering support of the vastmajority of the country’s main lending institutions suggests that most bankers as well as financial advisers and estate agents are still living in a fool’s paradise where they are pinning their future on a rebound in residential and commercial property prices within a relatively short period.

Seven of the eight banks, which are owed a total of €1.3 billion by Zoe companies, have continued to give their backing to the insolvent group in a development that would suggest few lessons have been learnt from recent history.

All lenders with the exception of Dutch-owned ACC have offered Zoe a two-year moratorium on interest repayments on the basis that Carroll can turn around the fortunes of his group by 2011.

Zoe’s two biggest lenders, AIB and Bank of Scotland even advanced Zoe new loans in the recent past to help pay off trade creditors, while Anglo Irish Bank, which is now owned 100% by taxpayers, is still willing to loan a further €76m to Carroll to finish the bank’s new HQ at North Wall Quay in Dublin, even though many observers believe such a project should be mothballed permanently.

Bank of Scotland too has indicated that it will make another €16.6m available to Zoe to complete another development in Dublin notwithstanding the fact that it is already owed €340m by the group and is firmly of the view that it won’t need to write-down any loan repayments.

But the reputation of such “experts” who previously might have been regarded as pillars of the Irish business world has largely been discredited through the judgement of the High Court and Supreme Court this summer.

However, predicting exactly what will happen next is difficult as most commentators will readily admit that the troubles faced by Carroll and other developers against the background of the establishment of the National Asset Management Agency is bringing the entire country into uncharted territory.

Many of the toxic loans now held by banks on sites owned by Zoe are likely to pass over to the Government’s bad bank, although details of the values to be placed on such properties are unlikely to emerge for some time.

Suggestions that the other banks will buy out ACC’s loans of €136m were dismissed by one senior bank executive last night, although it’s unclear if such banks will continue to maintain a united front now that Carroll has seemingly played his last card to save Zoe. An undignified scramble by the various lenders to appoint receivers tonumerous Zoe companies cannot be discounted.

The only sure thing is that Carroll won’t be the last developer to suffer such an ignominious downfall.


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