Thursday 23 November 2017

AIB has ignited possible fire sale but it may get its fingers burnt

Anthony O'Reilly
Anthony O'Reilly
Dearbhail McDonald

Dearbhail McDonald

ONLY time will tell, and we may learn soon enough, if AIB's legal victory over businessman Anthony O'Reilly will be a pivotal, pyrrhic, precarious – or even a pointless one.

The bailed-out bank may have, as it is utterly, legally entitled to do, triggered a global scramble to get first dibs on the remaining unencumbered assets of Ireland's former richest man.

Yesterday AIB successfully defeated a bid by Mr O'Reilly, who did not contest his €22.6m debt to the state-owned bank – nor, significantly, its bald assertion that he is broke – to secure a six-month stay on the registration and execution of the mammoth judgment.

Mammoth as it seems, the AIB debt is in fact small change compared to Mr O'Reilly's overall personal liabilities of almost €200m – this after disposing assets of some €150m in recent years.

The big business division of the High Court heard that the one-time billionaire secured an understanding with his main creditors.

According to Mr O'Reilly, these creditors (who had their own security for their loans) knew at all times that when it came to the disposal of his unencumbered assets, he would treat them equally.

He said that this personal oath of equality and fairness was relied upon by the banks and, in turn, he relied on their generous forbearance.

The purpose of the reciprocal arrangement was to allow Mr O'Reilly to realise his assets in what was described as an organised and structured fashion, thereby preventing a fire sale and a global frenzy to get ahead of the queue.

The 78-year-old, arguably Ireland's first international entrepreneur, claimed that AIB was part of this essentially gentleman's agreement.

The bank disagreed, saying a series of standalone and long-expired "standstill" agreements governed its relations with their high-profile client.

AIB is already ahead of the queue.

It is a secured creditor with a court judgment.

Its loans to Mr O'Reilly are ultimately secured on a basket of security including significant tracts, but not all, of Mr O'Reilly's Castlemartin Estate in Co Kildare.

As 'D-Day' loomed, Mr O'Reilly offered all of Castlemartin, including a church and burial ground where the remains of his parents and two grandchildren are interred that had not been offered as security for understandable, humanitarian reasons.

In a best-case scenario, the sale of Castlemartin – already being eyed up by international bloodstock concerns – could meet and even beat AIB's €22.6m threshold.

But AIB is not taking any chances.

Fearful that Castlemartin might not make the grade, it opposed any grace period that would allow those financial institutions standing still to get a move on – or a move ahead of them – in countries such as the Bahamas, where Mr O'Reilly now lives.

It did not even want to give Mr O'Reilly this weekend to make certain arrangements.

Mr O'Reilly wanted to pool all his unsecured assets and produce a "waterfall dividend" payable to all his creditors once surpluses of the secured assets were factored in.

But he effectively torpedoed the notion of this cascade when he swore in one court statement that the sale of his secured assets would not discharge the entirety of AIB's debt.

The first court statement said that "even in the most favourable of selling conditions", the realisation of the assets might not discharge the debt, adding that AIB would have recourse to his unencumbered assets.

He was much more optimistic in a second court statement which expressed hope that the sale of Castlemartin would send AIB on its merry way, or at least 90pc of its way.

High Court Judge Mr Justice Peter Kelly was unmoved by Mr O'Reilly's submissions.

The judge even said that on the evidence before him, the encumbered (secured) assets would probably not be enough even to meet AIB's debts.

As a result of Judge Kelly's ruling, AIB retains its first advantage status.

But if the presence of numerous, low-key lawyers on "watching briefs" in the Commercial Court yesterday is anything to go by, AIB will have to embark on some foreign adventures of its own.

The creditors who stood still now have no option but to break their gentleman's accord.

Who knows where this sorry saga will end.

But having lit the fire, however legitimately, does AIB – whose partial interest in Castlemartin may be devalued by a fire sale in any event – run the risk of getting its fingers burnt?

Irish Independent

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