THE former board of Anglo Irish Bank has lodged a statement of affairs with the Department of Finance saying that they believed the bank was solvent up until the moment they were removed as directors.
The statement, which took an epic eight months to produce, will be pored over by creditors of the bank who hope to sue the State for billions if they can prove the liquidation was unlawful.
The old board of Anglo, which was chaired by former Fine Gael minister Alan Dukes, sets out the circumstances which caused the bank to go into liquidation.
They state that the banks' then directors believed Anglo, later IBRC, was solvent and had a surplus of assets over liabilities up until the moment the State changed the rules.
Crucially, the directors explain the steps taken by the Government to create a situation that led to Anglo going into liquidation.
First, at the instruction of the Government, the Central Bank withdrew its funding support for the bank, making it immediately cash-flow insolvent (that is, it did not have sufficient money to meet its debts as they fell due).
Second, the Central Bank, which held a promissory note as security on its financing of Anglo, seized this note and exchanged it with the Exchequer for €25bn.
Anglo's board had valued this promissory note at over €3bn more, or over €28bn.
The change in valuation immediately created a €3bn-plus hole in Anglo, making its balance sheet insolvent – and thus making liquidation inevitable.
This sequence of events is what creditors of the bank, including hedge funds in America and Germany, will use as the basis for any action.
The hedge funds allege that the bank's insolvency was a "contrived" situation by the State, which was intended to defraud creditors. They are examining how the Government said that Anglo would continue until 2020 but did not make it clear the plug could be pulled overnight.
They are also looking at how related parties, all owned by the State, were, they allege, used to manufacture an insolvency scenario.
Two funds, Burlington Alpha and Burlington Beta, which are linked to Elliott Management, the hedge fund controlled by US billionaire Paul Singer, have begun a case against the bank's special liquidator KPMG. Munich-based Xaia Investments has also stated it is considering taking legal action.
Other creditors including Sean Quinn's family, who are suing the bank for over €2bn, may also try to use the statement of affairs to argue that the liquidation was unlawful.
On Tuesday, the court battle by Singer and others will continue. They are seeking to halt the US liquidation, freeze €1bn worth of former Anglo assets, and win discovery of documents including Anglo board meeting minutes and Anglo treasury office tape transcripts.
A key witness in that case has submitted that he warned Nama over Anglo "fraudulent activity" allegations referred to in other current US court proceedings as 'Tibor', as far back as 2010.
Emails seen by the Sunday Independent show Eddie Fitzpatrick, a bank charges expert, wrote to Nama in January 2010 warning that this alleged overcharging meant Nama was overpaying by billions for loans being transferred from Anglo.
He flagged "potential problems with interest calculations of loans that are being transferred from various financial institutions to Nama. Over the past number of years, we have recovered in excess of €12m in refunds for clients (where total borrowing was probably in the region of €300m)".
"As I understand it, loans to the value of approximately €80bn are being transferred from the banks to Nama. We estimate that as much as €10bn to €12bn of this could be as a result of overcharging, meaning that Nama could be paying €6.36bn more than they should," he claimed.
"I would welcome a meeting with representatives of NTMA/Nama at your earliest convenience."
Fitzpatrick says that Nama declined to meet with him. Nama didn't respond when contacted on Friday.
In further emails, Fitzpatrick asked that Nama confirm that it would be independently checking that the interest applied to loans is correct, saying: "I will again reiterate that from our experience up to 80 per cent of accounts checked have highlighted interest discrepancies. And again using figures from Nama we estimate that as much as €12bn could be at stake here."
A Nama executive responded to Fitzpatrick, saying it had no cause to doubt information received from Anglo or other banks. "We have no cause to dispute that data which we will be receiving due to the extensive procedures and audit checks which will be conducted. An extensive and extremely complex valuation process is being performed and this will capture all the necessary data," he said.
Paul Singer's lawyer filed a further document related to compel discovery of documents related to Anglo/IBRC on Friday.