McKillen challenge a 'real threat' to Nama

THE LEGAL challenge by businessman Paddy McKillen and several of his companies to the proposed transfer of €80 million in “non-impaired” loans to the National Assets Management Agency (Nama) presents a “very real threat” to the “vital work” of Nama and must be decided urgently, the State has argued before the Commercial Court.

Mr Justice Peter Kelly yesterday granted the State’s application to have the case fast-tracked by the Commercial Court and fixed October 12th next for the hearing, expected to last four days.

Mr McKillen and 15 of his companies claim their €80 million loans from Bank of Ireland are “fully performing”, and their transfer to Nama would have a “drastic and significantly detrimental” impact on their business and property rights.

They dispute the loans are “eligible bank assets” under the Nama legislation, and have challenged the constitutionality of sections of the Nama Act 2009. Mr McKillen has also expressed “grave concern” about the impact on his reputation internationally of the transfer of the loans to the “toxic bank”, the implications for his ability to raise additional facilities and the valuations placed on the loans by Nama.

His companies had not purchased any Irish assets since 1998 “and hence have not engaged in speculative development”, he said.

The State contends the Nama Act 2009 expressly provides for Nama to take non-impaired loans, and says the fact Nama would do so was “explicitly recognised” by the European Commission in endorsing the agency.

Provision for such loans is necessary to enable Nama to achieve its purpose, and any perception the Nama system was flawed “would undermine the building of confidence within international financial markets which the ongoing work of Nama seeks to foster”, it also argues.

The case is the first legal challenge to the Nama legislation and is of “enormous economic significance”, the Chief State Solicitor, David J O Hagan, said in his certificate yesterday seeking transfer to the Commercial Court, the big business division of the High Court.

Michael Cush, for Mr McKillen, agreed the case was urgent and consented to transfer. The case was not “a full-frontal attack” on Nama, but was very important from his clients’ perspective and would involve a lot of expert evidence, counsel said.

Mr Justice Kelly directed that Mr McKillen’s application for leave to bring the judicial review proceedings will be heard in tandem with the substantive judicial review in a “telescoped hearing”. Under the Nama Act, an application for leave for judicial review of its procedures has to establish “substantial grounds” for leave to be granted.

Urging a speedy hearing, Brian Murray, for the State, said if the court upheld the claims that Nama’s definition of “eligible assets” was flawed, it would have “very significant implications” for Nama’s operation.

In an affidavit on behalf of the Minister for Finance, Ann Nolan, assistant secretary in the Department of Finance, said the performance by Nama of its functions, as provided for in the 2009 Act establishing it, “is vital to the viability of the financial system of the State and the wider economy”.

The Minister said it was clear the principal uncertainties in relation to asset quality in the Irish financial system lay in the land and development loans of credit institutions and the largest aggregate associated exposures in credit institutions.

Those assets posed “the main systemic risk” to the financial sector in Ireland and the most significant obstacle to the recovery and restoration of lending by the financial system. It was proposed that those assets would be transferred to Nama, and this was why Nama was established.

The bank assets prescribed as eligible for acquisition by Nama consisted of all the loans from the riskiest part of the bank’s portfolios, namely land and development loans and certain associated loans, whether impaired or not, she said.