News Analysis

Thursday 28 August 2014

Maeve Sheehan: One headache after another for shamed Dr Reilly

With huge debt, budget overruns and accusations of stroke politics, Reilly looks to be in bad shape

Published 02/12/2012 | 05:00

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FIVE months have passed since the beleaguered Health Minister, James Reilly, became the first serving minister to be named in Stubbs Gazette over an unpaid debt of €1.9m arising from his soured investment in a nursing home.

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Gracing the pages of Stubbs was a source of profound political embarrassment for Reilly that came out of the blue – even Reilly, who was in Cyprus at the time, had no advance notice of it.

The minister returned to give a long and complicated account to the Dail of the business affairs that led to his humiliating public shaming as a debt defaulter, blaming it on "complex litigation surrounding an investment 12 years ago".

In theory at least, the debt could leave Reilly facing bankruptcy and ultimately his removal from office. But the controversy was soon overshadowed by other crises in his office, such as the burgeoning overruns in the health budget and his alleged political interference in selecting locations for primary care centres. The row has rumbled on since July, with Reilly as recently as last week bombastically dismissing claims of "stroke politics" in his last- minute addition of a couple of sites in his constituency to a carefully selected priority list.

The primary care centre row has deflected attention from the more intractable problem of the minister's complex finances and the €1.9m judgement hanging over him.

In his statement last summer, Reilly assured the Dail that he would meet his financial obligations. Behind the scenes, attempts to reach a settlement are making painfully slow progress, according to an informed source.

At the time, it was suggested the judgement would be honoured by October. That deadline has now passed.

The trouble is that Reilly and the other four investors named alongside him in Stubbs – including former Fine Gael councillor Anne Devitt – are reliant on the bank's agreement to finance a buy-out of the eight other investors who registered the €1.9m judgement. As long as the nursing home remains embroiled in litigation, according to an informed source, raising the finance to fund this will be difficult.

It is understood that the most the bank will offer is €1m – far short of what they need, according to the source. There are "offers out there" which have not been accepted, and "negotiations are ongoing". With the legal rows over the nursing home dragging on, a settlement is far from imminent.

James Reilly's financial problems are a legacy of the Celtic Tiger boom years, when the professional classes, along with builders and carpenters and public servants, joined the great property rush.

But then, running a suburban GP's practice was never going to satisfy Reilly's ambitions. The son of two successful doctors, both of whom were active in medical politics, Reilly had ambitions far beyond his north Dublin practices in Lusk and Donabate.

He was a medical entrepreneur, one of the first GPs to invest in state-of-the-art premises, and an advocate for the profession, rising to become president of the Irish Medical Organisation, before he forged a political career in 2007.

Over the last two decades, he has featured as a director of companies such as Winston Publishing, Irish Medical Educational Services, and Loughton Construction, along with his wife, Dorothy, which is now dissolved. He is currently a director of Lusk Property Services, which manages the Lusk Town Centre, where one of his practices is based.

Reilly's success earned him enough to fund the purchase of an 18th-century mansion and estate, Laughton House in Co Offaly, which opens to the public to avail of tax breaks. The family home is a more modest house in Rush, not far from the 86-acre family farm – which he also owns – in Lusk. He and his family also have a holiday home in Doonbeg and numerous plots of land, as listed on the Dail's register of interests.

As Reilly put it, he went into politics "late in life" at the age 52, with a passion to change the system, a successful medical and business career under his belt. One of the people who helped draw Reilly into politics in the first place was former Fine Gael councillor Anne Devitt. As well as being on friendly terms with him, she was also involved in the business deal that has now come back to haunt him.

Like many others at the time, Reilly and 12 other well-heeled investors came together in 2000 to build a nursing home in Greenhills in Carrick-on-Suir in Tipperary. One of the attractions at the time for such investors was the generous tax break on offer.

This well-heeled group of 13, who included Reilly, Anne Devitt and a group of doctors, solicitors, an engineer and an IT expert, personally invested around £60,000 each and collectively borrowed from Bank of Ireland to finance the bulk of the development.

Eight of the 13 invested on the condition that the other five would buy them out after 10 years, releasing them from their loan obligations to BoI.

The group of five "recourse owners" – including Reilly, Anne Devitt and a doctor, Dilip Jondhale – agreed to this. But by the time the June 2011 deadline for the buy-out approached, circumstances had changed dramatically. The property market had crashed and the nursing home was embroiled in litigation.

When the nursing home was built, Jondhale and his wife took a lease on the premises and ran the business. As time passed, the Jondhales claimed there were problems with the building and withheld rent from the investors. The matter ended up in the High Court, where an order was made in favour of the investors earlier this year. But the Jondhales are now appealing to the Supreme Court. There were also separate Circuit Court proceedings taken against the couple.

All of this litigation proved to be a major obstacle when, in June 2011, the investors tried to raise the sum of €1.9m to buy out the eight as they had originally agreed.

The eight investors started legal proceedings, which culminated in Reilly and the other four consenting to a High Court judgment of €1.9m last February. Reilly and the others were given stay of execution until April. But still unable to pay the debt by then, judgment was registered against them in June.

And the Jondhales' appeal of the High Court case to the Supreme Court means more lengthy litigation that will continue to hamper efforts to raise the finance to fund the €1.9m buy-back.

Although Reilly removed himself from all involvement in the nursing home after becoming minister, he remains lumbered with the debt. He has been trying to extricate himself from the business since before the general election propelled him into office last year. As Dr Reilly told the Dail, he tried to sell his 9 per cent stake to the other owners but, unsurprisingly, none would bite.

After the election, he consulted the ethics watchdog, Sipo, which advised him to transfer his 9 per cent interest to a blind trust. He needed the bank's permission to do it. But the bank wouldn't agree to it because of the legal actions.

So Reilly transferred power of attorney to a third-party solicitor to sell his interest – he even reduced the price by half – but again there were no takers.

The well-heeled professionals who secured the €1.9m judgement against Reilly and others are not baying for the minister's blood, according to the informed source.

If they don't get their money, their options include calling in the sheriff to seize assets to the value of €1.9m, or – worse – instigating bankruptcy proceedings.

But according to the source, the best outcome for all is to end the litigation, which would clear the way for the bank to finance a buy-out of the investors.

The Supreme Court appeal over the nursing home that's slowly making its way through the system certainly won't help their case.

This is not the only financial issue that Dr Reilly has had to deal with lately. Bank of Ireland secured a charge over the minister's family farm in Baldrummond, Lusk, during the summer. It is understood that there are other borrowings on the stately pile in Moneygall.

The minister abandoned plans a couple of years ago to develop a health centre in Airside, Swords, with two other doctors. The property was worth an estimated €5m during the boom but was put back on the market during the summer for €750,000.

And in September, an architectural firm issued legal proceedings against Reilly and the two other GPs, David Reilly and Stan Natin, for allegedly unpaid fees, which they dispute.

Fianna Fail announced last week that it was tabling a vote of no confidence in the minister because of the revelations in huge volumes of documents released under the Freedom of Information Act about his selection of primary care centres in his constituency. Dr Reilly was spared another Dail debate on his competence because of a technicality which means that a vote of confidence can't be tabled twice in six months. That vote will now be tabled in March, giving the minister a reprieve.

He may well have shaken off the palaver over the primary care centres by then, but it seems his finances just keep getting more complicated.

A spokesman said this weekend that the minister's legal advisers are still working on a resolution to the matter.

Sunday Independent

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