Friday 31 October 2014

O'Flynn case shows it's time to re-assess Nama

Developer Michael O'Flynn's battle with US private equity giant Blackstone has to be a wake-up call for the 
Government, writes Ronald Quinlan

Published 17/08/2014 | 02:30

Minister for Finance Michael Noonan. Photo: Collins
Minister for Finance Michael Noonan. Photo: Collins
Developer Michael O'Flynn. Photo: Michael MacSweeney/Provision

It's only been a month since Nama chiefs Frank Daly and Brendan McDonagh sat and basked in the warm glow reflected by Finance Minister Michael Noonan as he outlined Nama's achievements in a press conference at the Department of Finance.

Referring to the findings of the review he had ordered into Nama's operations, the minister trumpeted the "very significant role" Nama had played in attracting investment into Ireland, the support it had given to the construction industry and expressed his confidence that it would "play a major role" in our economic recovery.

Given his previous and distinctly cool attitude to the State agency while in opposition, Mr Noonan's endorsement must have been music to the ears of Messrs Daly and McDonagh.

But even as he gave journalists the "good news" on Nama, the Minister should have acknowledged that there was always room for improvement at the agency.

Mr Noonan's interest in Nama achieving its potential had been illustrated in December 2011 with his establishment of the Nama Advisory Group. Chaired by former HSBC CEO Michael Geoghegan, the group counts Nama chairman Frank Daly among its members and has responsibility for advising the finance minister on any issue he might raise with them in relation to Nama's overall strategy and its day-to-day operations.

Had Mr Noonan engaged more actively with this advisory group, he could have tempered his praise for Nama somewhat in the light of several legal cases that were already in train and in view of the fact that the Garda Bureau of Fraud Investigation was still actively investigating 16 complaints made against individual Nama employees, both past and present.

In the case of the legal actions to which it was a party, just nine days later, on July 25, Mr Justice Brian Cregan ruled that Nama had acted "unlawfully" in calling in €22m in loans owed by the US-based developer John Flynn.

Nama, the judge said, had breached its statutory duty of transparency by giving "inaccurate and misleading" reasons for calling the debt in and had not given Mr Flynn the "right to be heard". Instead of giving the "real reasons" for calling in his debts, the agency's explanations were "misleading or spurious", he added.

Three days on from the Flynn ruling, the garda investigation moved up a gear with the arrest and charge of former Nama portfolio manager Enda Farrell on 13 counts of intentionally disclosing information that he knew to be confidential Nama information in May, June and July 2012.

But while the above controversies have cast clouds over Nama, the furore which has blown up over developer Michael O'Flynn's battle with US investment giant Blackstone for control of his property empire could prove to be the one issue which forces Mr Noonan to radically re-assess the agency which, according to legislation, acts on his direction.

Hailed by Nama CEO Brendan McDonagh last April as "further and continued evidence of the current and continued strong investor appetite for real-estate assets and property-related loans in Ireland", the sale of the €1.8bn in O'Flynn Group loans to the so-called vulture fund was to have marked the beginning of an accelerated disposal of Nama assets.

Within three months of the deal's completion, however, and just as Nama chairman Frank Daly was setting out his agency's €3bn plan for new housing and the further development of Dublin's docklands, tensions between Michael O'Flynn and his new American lenders were already bubbling just beneath the surface and poised to erupt in spectacular fashion.

Notwithstanding the best efforts of Mr O'Flynn, his finance director Brendan Lenihan and their group's solicitor Patricia O'Brien to meet demands for additional information on the O'Flynn Group finances, Blackstone subsidiary Carbon Finance took the nuclear option on July 29 last with a successful application to the High Court for an examiner to be appointed to certain O'Flynn Group companies.

That appointment was reversed last Wednesday with Ms Justice Mary Irvine's damning finding that Carbon had not acted in utmost good faith and had not fully disclosed all relevant information to Judge Brian McMahon when he agreed to its application for the appointment of an examiner. However, Michael O'Flynn faces the daunting prospect of a full trial this October, the outcome of which will determine what involvement, if any, he and his brother, John, will have in the future in a business they have built up over the last 36 years.

Having seen from the sidelines the difficulty the O'Flynns have experienced since exiting Nama, a number of other developers still with the agency are understood to be far less enthusiastic about having their loans sold to international investors. In the absence of co-operation from its borrowers, Nama could find it difficult to meet its target of bringing property portfolios of €250m to the market in every quarter as it seeks to wind up its operations ahead of its original 2020 wind-down date.

The rapid disintegration of relations between the O'Flynns and Blackstone has also raised eyebrows in political circles in relation to Nama's sale of developers' loans to funds whose legitimate drive for profit may not necessarily sit with the best interests of the Irish taxpayer.

It also raises questions in relation to the warmth of the welcome so-called vulture funds such as Blackstone have been given at the highest levels in Government as they sift through the wreckage left by the implosion in 2008 of our economy.

Where Mr Noonan has applauded what he described as the "current investor interest" being shown by funds such as Blackstone, Taoiseach Enda Kenny has gone further in his endorsements.

Indeed, on June 24 last Mr Kenny was pictured with a shovel and grinning for the camera as he turned the soil over in a flowerbed at Blackstone's official opening of the Doubletree Hilton in Dublin. The hotel, formerly known as the Burlington, was acquired by Blackstone in 2012 for some €67m - a mere fraction of the €288m developer Bernard McNamara had paid for it in 2007.

Sunday Independent

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