Judge shocked at AIB security when lending to Carroll firms
A SENIOR judge expressed astonishment that AIB handed out €550m loans to five companies formerly controlled by Liam Carroll with only a letter and the deposit of title deeds as security.
Mr Carroll's biggest lender yesterday moved to protect its loans -- which are in default -- by securing court orders aimed at ensuring the strength of its security.
But High Court judge Mr Justice Peter Kelly said that it was "astonishing" and "extraordinary" given the vast sums involved that AIB's only security for the borrowings was letters of undertakings from a solicitors firm and the deposit of title deeds.
The bank's security was described by the judge as "fairly fragile" and "a far cry from a legal mortgage".
The judge told lawyers acting for AIB that it appeared from court documents that it had never inspected the title to the properties or conducted an investigation into the title.
He also highlighted a series of errors whereby one of Mr Carroll's companies, Danninger, was identified as the owner of various properties when in fact it was owned by other companies within the Zoe group.
Mr Justice Kelly said it was "fortunate" for AIB that the Zoe companies acknowledged the errors and that the intention of the legal undertakings -- to hold on trust the title deeds for AIB -- was to create an equitable mortgage over the portfolio of commercial and residential properties, most of which were located in Dublin.
Yesterday, AIB defended the quality of its security. The bank said that it wanted to appoint receiver William G O'Riordan over those properties in the first stage of a process aimed at recovering the loans which were drawn down subject to a facility agreement in March 2009.
Mr Justice Kelly was told by lawyers acting for the official liquidator for Vantive Holdings and Morsten Investments -- the two key funding companies in the Zoe group -- that issues might arise if there was a defect in the bank's security.
The liquidator is not a party to the case and must decide by Friday morning whether it wants to be joined in the case as AIB's application will be heard on Friday morning.
In court documents, solicitors for AIB said other financial institutions had appointed receivers over various other properties owned by Zoe companies.
Counsel for AIB said the bank was only seeking to appoint a receiver at this stage and, given the state of the property market, would not be seeking to sell properties now.
Mr Justice Kelly said, for such a huge amount of money involved, it was "extraordinary" that security was based on solicitors' letters of undertaking.
He said this was "fragile" security and in some instances the letters mis-stated the name of the Zoe company that owned the property involved.
Given the large number of companies in the Zoe group, it was understandable people got confused, he added.
He made the remarks when admitting to the Commercial Court's list the proceedings by AIB against five Zoe companies: Danninger, Eppo Developments, Fabrizia Developments, Oze Construction and North Quay Investments Ltd.
The bank demanded repayment of loans last October after key companies in the Zoe group were refused court protection.
It is moving under a facility agreement of March 2009 made between it, the five companies and Vantive under which AIB continued loan facilities of some €528m to the five companies and also agreed to make available additional loans.
The bank claims €550m is now owed and it has good security for that amount on foot of letters of undertaking from solicitors for the companies, Cathal N Young, O'Reilly & Company, and the deposit of title deeds.