Inside the world of business
Limited liability is a two-way street
THE CREDITORS who complained yesterday about the corporate structure of the Mansfield business at Citywest are quite correct.
Although many accountants and others familiar with modern corporate practice might wonder what the fuss is about, the fact is that incorporation and limited liability are privileges granted by society to promote enterprise.
Part of the bargain is that companies granted limited liability – ie companies whose owners are shielded from the debts of their businesses – must publish accounts so that those trading with them can assess the risks involved.
But the Mansfield HSS structure involved the Irish company being owned by Isle of Man companies that do not have to publish accounts. Somewhere along the line, there is a limited company that guards the Mansfields from the debts of HSS. Yesterday’s meeting was told that an entity called Parke Associates plays a key role.
Whatever about the detail, the family gets the best of everything, the creditors the worst.
The use of unlimited Irish companies owned by Isle of Man companies became commonplace during the boom, not least with the property developers who helped destroy so much wealth. The practice contributed to the loss of common sense during the middle years of the Noughties. The ending of such practices might be one lesson business we could learn from the mistakes that have been made.
PAC spat should be a bit of an eye-opener
CLEARLY ALL is not sweetness and light between the head of the National Asset Management Agency (Nama) Brendan McDonagh and Financial Regulator Mathew Elderfield.
Both men have a lot on their plate but that has not stopped them taking the time to have a semi-private spat – courtesy of the Committee of Public Accounts (PAC) – over who should investigate whether or not the banks misled the Government about the size of their loan losses in the run-up to Nama being established.
The row has its origin in McDonagh’s appearance at the PAC where he was scathing about the banks’ behaviour and was quoted as not disagreeing with a leading statement from Fianna Fáil TD Michael McGrath to the effect that “false, misleading information” was provided to the agency in a systematic way which could have led to a “huge overpayment by the taxpayer” .
McDonagh suggested helpfully that the Financial Regulator might take a look. This, in turn, provoked a letter from Elderfield appearing to pass the issue back to Nama, asking what it was going to do about it. McDonagh replied that Nama was going to do nothing as any offence that might have been committed predated its creation in late 2008.
If anyone had the authority to investigate the issue it was Elderfield, Nama implied, while pledging full co-operation.
Elderfield subsequently wrote to the PAC saying that Nama had backed down, which led chairman Bernard Allen to accuse McDonagh of making a major U-turn. McDonagh is understandably furious and plans to set the record straight when he appears before PAC this week, possibly turning the tables on Elderfield by asking why he has not investigated the issue of the banks’ misleading public disclosures of estimated haircuts under his own powers. Hopefully McDonagh and Elderfield have at least got some insight into how the political system allowed the mess they are trying to clean up to come about.
Close to decision time for STT
IT IS getting close to decision time for Singapore-based STT, which has been in the driving seat at Eircom for almost a year. According to Bank of America Merrill Lynch, it has two options now that the cat is well and truly out of the bag about the likelihood of Eircom breaching its loan covenants. If the Singaporeans believe Ireland and Eircom have turned the corner, they should move now to restructure its balance sheet in order to get the best deal from bondholders.
If they have not made up their minds, they should inject a “small” amount of fresh equity, around €25 million, in order to avoid a covenant breach over the next year as they see how things pan out for Ireland and Eircom.
Bank of America warns that the austerity measures agreed by Ireland may lead to high single-digit declines in revenue. Against this, they argue there are risks associated with delaying, such as ground being lost to UPC in fibre.
It’s a finely balanced argument and division over which strategy to follow may have contributed to the surprise departure of Eircom’s chief financial officer Peter Cross last month. Which way STT eventually jump will speak volumes about international perception towards Ireland.
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