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Sunday 16 June 2019

Nama will be in dock at Treasury court case

High Court action to offer a devastating critique of way Nama appointed receivers, writes Ronald Quinlan

Treasury Holdings developers Johnny Ronan, left, and Richard
Treasury Holdings developers Johnny Ronan, left, and Richard Barrett

WHEN Nama chairman Frank Daly was chairman of the Revenue Commissioners, it's known that he liked to read the Sunday papers.

The stories Frank liked the most were the ones in which he found out which high-flyer had a new Bentley, a new helicopter or even a private jet waiting on the tarmac to spirit them away to faraway places at a moment's notice.

Armed with that information, the then Revenue boss liked his people to find out where the money to buy the boomtime baubles had come from, and more importantly, whether tax had been paid on it.

Given Frank Daly's longstanding interest in the lifestyles of Ireland's rich and famous, it wouldn't be entirely unreasonable to suggest that before he ever joined Nama, he may have known something of at least one aspect of the lives of Richard Barrett and Johnny Ronan given the huge success they have enjoyed since founding Treasury Holdings in 1989.

What he probably didn't know that much about though, was how the Treasury chiefs do business, and just how fiercely they protect their interests if someone threatens it, be that by accident or design.

All that will change this Tuesday when Mr Daly and his closest colleague, Nama chief executive Brendan McDonagh come face to face with Messrs Barrett and Ronan in the High Court for the start of what is expected to be the most significant challenge yet to the State's toxic loans agency and the veil of impenetrable secrecy in which it operates. Central to proceedings is the developer's bid to have Nama's appointment of receivers to 36 of its prime Irish property assets overturned.

In taking the case against the State's so-called 'bad bank', Treasury is, according to sources familiar with the matter, prepared to do everything within its still-considerable power to secure victory, and in the process expose what it sees as Nama's "misleading, unreasonable and entirely unacceptable" behaviour in relation to its business.

The first casualty in what is gearing up to be a bitter legal battle between the two sides, sources say, will be the strict secrecy that Frank Daly and Nama's chief executive Brendan McDonagh have time and time again insisted is essential in the dealings they have with the developers on their books.

Indeed, the Sunday Independent understands that in setting out its case, Treasury is determined to fix both Mr Daly and Mr McDonagh firmly in its crosshairs, with a series of allegations in relation to their personal handling of negotiations.

While many people may find it difficult to accept the arguments put forth by two high-profile developers given all that has been said and written about the role the property industry has played in Ireland's economic downfall, Treasury's engagement of world-renowned economist, Dr Michael Cragg as an expert witness on its behalf, will prove painful to Nama and its already battered reputation.

Dr Cragg -- who heads up the hugely-respected global economic consultancy, the Brattle Group -- is no stranger to cases such as the one Treasury is now fighting, having conducted research, testified, published, taught and made presentations on the economic crisis and all its elements including bank failures and property financing.

Chief among the investigations he has conducted are the failure of Lehman Brothers -- the favoured fall guy of governments across the Western world for their countries' respective economic woes. Notwithstanding his impressive CV, Dr Cragg is probably best known here in Ireland as a colleague of Nobel Economics Laureate Joseph Stiglitz, with whom he co-authored a major critique of Ireland's so-called bailout deal with the EU/IMF/ECB 'troika'.

Armed with information in relation to Treasury's dealings with Nama in the months leading up to the final breakdown of relations last month, Dr Cragg is understood to have compiled a devastating critique of the agency and the strategy it employed in Treasury's case.

Most harmful to Nama will be Dr Cragg's charge that its appointment of receivers to Treasury did not follow an economically reasonable due process, the results of which could see the value of the company's property assets destroyed.

It is understood that Dr Cragg will say that Nama's actions neither serve its interests or that of Treasury. Perhaps most crucially, he will say Nama's actions do not serve the wider public interest.

Informing the economist's conclusion to a significant degree is a claim in relation to the manner in which Nama chief executive Brendan McDonagh and Nama chairman Frank Daly are alleged to have personally handled discussions with Treasury chiefs in the final weeks before the agency's board decided on the appointment of receivers.

According to well-placed sources, Treasury will claim that both Mr Daly and Mr McDonagh "actively dissuaded" them at a meeting on November 8 last from seeking to bring proposals from two potential investors -- Australian bank Macquarie and US real estate giant Hines -- before Nama's credit committee on December 6 or its board on December 8.

The same sources claim that Mr McDonagh told Treasury at the November 8 meeting that Nama didn't want to discuss the issue of investor bids until the company had agreed a formal term sheet with his agency.

Interestingly, Treasury's submission of its final creditors' strategy came on December 7, a day after Nama's credit committee had decided to recommend the appointment of receivers to the agency's board.

Should Treasury be able to prove to the court for example that Nama's credit committee and board were unaware, or only partially aware of the existence of two significant third-party investors for Treasury's portfolio when they made the decision to pull the plug and appoint receivers, Messrs Daly and McDonagh will have some serious explaining to do.

For while a significant segment of the Irish public may have drawn some degree of solace from media reports of Nama's 'no-nonsense' attitude towards developers over the past two years, they won't be happy if they find out that the agency's strategy has ended up costing them more money through the loss of a major foreign investment by either Hines or Macquarie.

Incredibly, offers from the two investors were on the table right up until 4pm on January 25 last -- a time and date which marked the end of a two-week standstill period in which Treasury chiefs desperately sought to put together a deal that would wind back Nama's decision to appoint receivers.

The High Court is expected to hear claims that proposals from Hines and Macquarie received only "limited evaluation" during those two weeks and that receivers were appointed at 4:01pm precisely once the deadline arrived.

In the case of Hines' proposals, an email sent to Nama a full 45 minutes before the 4pm deadline, was not brought to the attention of the agency's board. Sources close to Nama confirmed this to the Sunday Independent, saying: "It [the email] wasn't passed on as officials felt it wouldn't have an impact on the board's decision."

In the case of Nama's treatment of Macquarie's offer, Treasury is expected to claim in court that the agency rejected an offer that was some €68m higher than a previous offer it had accepted from CIM. Also expected to feature in Treasury's evidence are claims that Nama effectively undermined at the last minute an offer from the Malaysian government backed SP Setia for its Battersea Power Station site in London with what one well-informed source describes as "unreasonable and untimely demands".

Had the offer been accepted, the source says that Treasury would have been able to pay back 100 per cent of its Battersea loans.

Dr Michael Cragg, for his part, would appear to be at a loss as to why Nama decided not to accept proposals from either Macquarie or Hines for the Treasury assets it has now placed into receivership.

Dr Cragg's view that Nama's behaviour towards the two potential investors was "economically irrational" will be especially embarrassing for the agency as it seeks to maintain the dwindling confidence of the State whose economic interests it was established to protect.

Sunday Independent

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