Developer's legal action a 'real threat' to NAMA's work
THE landmark legal action by a developer against NAMA presents a "very real threat" to the agency's "vital work", the Department of Finance claimed in the High Court yesterday.
The department was firing the opening salvo against a High Court bid by developer Paddy McKillen to strike down key sections of the 2009 legislation setting up the toxic bank.
Unemployment and the cost of government borrowing could rise if the work of the National Asset Management Agency (NAMA) is undermined, the department claimed.
The warnings were outlined in court papers submitted by Ann Nolan, an assistant secretary general at the Department of Finance, as the State urged the Commercial Court for an early hearing date for the first legal challenge against NAMA by developer Paddy McKillen.
Yesterday, the Commercial Court fast-tracked entry of Mr McKillen's challenge and fixed October 12 for the hearing, as the agency completed the transfer of the second tranche of loans from Allied Irish Banks, Bank of Ireland, Irish Nationwide Building Society and EBS.
The case is expected to last four days.
Ms Nolan warned that any perception from legal proceedings that the NAMA system was flawed and could falter would "undermine" confidence building within the international markets that the work of NAMA was trying to foster.
Mr McKillen is challenging a bid to transfer €80m of his "unimpaired" loans to NAMA.
Mr McKillen, and 15 of his companies, claim their €80m loans from Bank of Ireland were "fully performing" and their transfer to NAMA would have a "drastic and significantly detrimental" impact on their business and property rights.
They dispute the loans are "eligible bank assets" under the NAMA legislation and have challenged the constitutionality of four sections of the NAMA Act 2009.
Mr McKillen has also expressed "grave concern" about the impact on his reputation of the transfer of the loans to the "toxic bank", the implications for his ability to raise additional facilities and the valuations placed on the loans by NAMA.
His companies had not purchased any Irish assets since 1998 "and hence have not engaged in speculative development", he said.
The State contends the NAMA Act 2009 expressly provides for NAMA to take non-impaired loans and says the fact that NAMA would do so was "explicitly recognised" by the European Commission in endorsing the agency.
Provision for such loans was necessary to enable NAMA to achieve its purpose and any perception the NAMA system was flawed "would undermine the building of confidence within international financial markets which the ongoing work of NAMA seeks to foster", it argues.
In an affidavit, Ms Nolan said that NAMA needed to be the decision maker for the purchase of eligible assets. That was made clear from the outset to the banks and was "the only basis" on which they got state aid.
The bank assets prescribed as eligible for acquisition by NAMA consisted of all the loans from the riskiest part of the banks' portfolios, namely land and development loans and certain associated loans, whether impaired or not, she said.
The case was of "enormous economic significance", chief state solicitor David J O Hagan said when seeking transfer to the Commercial Court.
Michael Cush, for Mr McKillen, agreed the case was urgent but added it was not "a full-frontal attack" on NAMA. It was very important from his clients' perspective and would involve a lot of expert evidence, counsel said.
The proceedings are by Dellway Investments, 14 other companies, and by Mr McKillen against NAMA and the State. The companies also have loans with Anglo Irish Bank and Irish Nationwide, but the action relates to the BOI facilities. Mr McKillen says he is reserving his rights relating to those other facilities.
Mr McKillen wants declarations that the procedures adopted by NAMA are lacking in constitutional justice. The proposed loan transfer breaches the companies' property rights under the Constitution and European Convention on Human Rights, it is also claimed.
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