Recovery of FitzPatrick loans may be lengthy process

ATTEMPTS by Anglo Irish Bank to recover over €70m in unpaid loans from its former chief executive and chairman Seán FitzPatrick could prove a complex and lengthy process, according to legal and financial experts.

It is understood the state-owned bank initiated High Court legal proceedings against the former banker earlier this week after Mr FitzPatrick indicated that he is not in a position to repay the loans.

Anglo is seeking summary judgment for €70.4m. The figure outlined in court documents suggests thatAnglo had already reached agreement with Mr FitzPatrick on the remainder of the €106.5m which he owed the bank in March 2009.

However, it appears that Mr Fitzpatrick has informedsenior Anglo executives that he is not in a position to realise any more money to pay off any outstanding loans as he has no further unencumbered assets.

The likelihood is that many of Mr Fitzpatrick’s investments may now be in negative equity.

However, Anglo is entitled to pursue Mr Fitzpatrick for any assets including his family’s home in Greystones, Co Wicklow. However, the situation becomes more complex if some assets are held jointly or have been transferred to the ownership of other family members, as well as if they are held in foreignjurisdictions.

Anglo’s latest action is the first necessary step in a typical three-part legal action which creditors have to go through in order to recover an unpaid debt.

By lodging papers in the High Court, Anglo will seek to satisfy the High Court of the money owed by Mr FitzPatrick which would result in a judgment in favour of the bank.

The second step would be for Anglo to register that judgment so that the bank would have a legal claim over the assets it would hope to acquire in order to pay off that debt. Such a move is considered prudential as other financial institutions may also have a claim over the same asset (or a portion of it).

The final step, which Anglo may not wish to execute until there is a recovery in the global economy thereby boosting the value of most assets, would be to seek a court order in favour of the bank for the possession and sale of an asset.

How Anglo approaches its legal options will largely be dependent on the terms of the loan agreements and the underlying security or guarantee offered by Mr FitzPatrick. It is believed that the loans owed to Anglo by the ex-banker are “fully recourse” which means that the bank is entitled to go after any assets owned by Mr Fitzpatrick in order to recover its money.

The majority of the €70.4m sought by Anglo is believed to be secured on shares in the bank owned by Mr FitzPatrick which are largely deemed worthless.

In the event that some of Mr FitzPatrick’s assets have been transferred to the ownership of his wife or other family members, Anglo could still take control of such assets if it could persuade the court that such a transfer was made at a time when the banker was known to be insolvent.

“It is open to a judge to set aside such a transfer if he deemed that it was carried out with the intent of putting an asset beyond the bank,” said one financial expert.

However, such a rule generally does not apply to the principal private residence of a debtor. If held in joint ownership, the bank would only be entitled to seek a judgement in relation to the 50% of the asset owned by Mr FitzPatrick.

But it is highly unlikely it could force the sale of the property until such time as both owners vacated the premises and/or if another mortgage lender had a charge on it.

Nevertheless, one financial expert said yesterday that Anglo could argue that the Fitzpatrick family did not need to live in such a large property.

“There is very little case law in this area and it would be interesting to see how a court might decide if such an argument was made,” said one senior accountant with a long experience of handling liquidations and examinerships.

In terms of pursuing Mr Fitzpatrick’s assets outside the jurisdiction, which are known to include an interest in a Nigerian oil field, Anglo may have to take legal proceedings in both Ireland and abroad to regain control of such investments.

According to financial experts, another option for Anglo would be to seek to have Mr Fitzpatrick declared bankrupt which would enable the bank to seek access to a portion of his pension income which is estimated at €533,000 per annum.

It is also possible that Mr Fitzpatrick might reach some arrangement voluntarily with his former employer to hand over some of his pension income to repay outstanding loans, although this is considered unlikely.

Similarly, any attempt by Mr Fitzpatrick to leave the jurisdiction on a permanent basis while known to be insolvent could result in him being deemed bankrupt.

Because he would have submitted such documentation when seeking loan approval in the past, it is believed Anglo has a substantially complete list of Mr FitzPatrick’s assets.