Minister has stake of just 9pc, but could be hit for full €1.9m
THE James Reilly debt default controversy has prompted questions about why the health minister tied himself into a deal where he and four others were all jointly and severally liable for a €1.9m debt.
In 2000, Mr Reilly, along with former Fine Gael councillor Anne Devitt and 11 others joined together to build the Greenhills nursing home in Carrick-on-Suir.
Also an investor is the Indian doctor who operates the home, Dr Dilip Jondhale.
Five of the investors, including the two politicians, were recourse investors. This means that they could be held liable for the bank loans taken out to fund the project.
In other words, the banks funding their nursing home investment could go after other assets if they failed to meet their obligations.
This could lead to a situation where they would have to dispose of some other assets in order to repay the debt.
In addition, the five recourse investors also signed up to making themselves jointly and severally liable, meaning that each of them could be pursued for the full amount of the debt.
Mr Reilly told the Dail on Wednesday his stake in the deal is just 9pc. But being jointly and severally liable means he, and the others, are collectively liable for the €1.9m debt.
Finance experts said last night that banks advancing money for a deal like this would insist on the members of an investment consortium being jointly and severally liable, as protection for the banks.
UCD law lecturer and barrister James McDermott explained that being jointly and severally liable for a deal ties all the members of the consortium together.
The lecturer said: "It's very difficult to sell a 9pc interest in any property without the agreement of those who own the other 91pc.
"The other problem is that often when you have a co-ownership agreement, one of the things that the bank will insist upon is that the partners are jointly and severally liable.
"In other words, the minister wasn't just responsible for his share, but the bank could go after him for all the monies outstanding and the minister would have to go after the other borrowers."