ANALYSIS:The Supreme Court did not believe the Zoe group had a credible survival strategy, writes SIMON CARSWELL
THE SUPREME Court’s decision not to grant court protection to Liam Carroll’s Zoe property development group rested on the credibility of his survival plan, a single page outlining the hope value of his assets and two short sentences explaining the valuations and citing their source.
The future of Mr Carroll’s Zoe Group – which, with two other groups, Dunloe Ewart and Orthanc, make up his property development empire – rested on a plan to develop his existing sites and the orderly disposal of assets over three years and forbearance from his banks and their loans of €1.2 billion.
Three Supreme Court judges – the Chief Justice, Mr Justice John Murray; Mrs Justice Susan Denham and Mr Justice Nial Fennelly – expressed reservations about the business plan that, if enacted, could move the Zoe Group from insolvency and a deficit of more than €1 billion to a surplus of €290 million.
A one-page statement of the group’s affairs, based on the likelihood of survival, showed that the group would have assets with a future value over three years of €1.6 billion, more than enough to cover debts of €1.3 billion.
The statement, seen by The Irish Times, shows that if existing sites were developed over three years and there was an orderly sale of properties, then the group’s completed residential developments would be worth €193.7 million, projects under development €251 million, land banks €546.9 million and commercial investment properties €411 million.
The court heard that the valuations on the commercial properties were provided by CBRE while estate agents Hooke MacDonald offered the valuations on the residential properties. It was two lines at the end of the page relating to these valuations that the judges took most issue with.
Mr Justice Fennelly said it was “extraordinary” that there was “great reliance” on a pre-agreed business plan which was not exhibited to the court and neither were the property valuations.
The court was being asked to rely on two lines in the independent accountant’s report referring to valuations and assumptions of an orderly disposal of property over the next few years, he said.
The Supreme Court concluded that it was not possible for it to reach any conclusion about the prospects of survival of the six Zoe companies as a going concern “in the absence of any evidence about the likely future development of the property market”.
The court found that in order to persuade it that the companies have a reasonable prospect of survival “it is perfectly obvious that some evidence of likely improvement in the property market is absolutely essential”.
The court found that neither Carroll or the independent accountant report on which the group’s survival plan was based “makes any attempt to supply this deficiency”.
The court said that the basis on which the banks support the appointment of an examiner has not been articulated to the court and no opinion has been expressed on their behalf that the appointment of an examiner could reasonably be expected to result in the survival of the company.
The judges concluded that Carroll’s companies had “not established that its strategy for the future orderly disposal of the key assets of the company is credible or reasonably viable”.
Lyndon MacCann SC, representing Dutch-owned ACCBank whose threats to liquidate Zoe companies over unpaid €136 million loans precipitated the entire legal showdown, said it was “baffling” that the companies had failed to demonstrate any evidence of a possible upturn in the property market on which their survival plan depended.
ACC had adopted a much harder position in the companies’ appeal of the High Court’s refusal to appoint an examiner. Having seen the draft legislation for “bad bank” Nama, ACC had changed from “guarded neutrality” to opposing the appeal as it felt its position would be prejudiced by the Nama legislation.
The bank’s counsel said that the independent accountant had “not bothered” to talk to valuers to assess the integrity of the figures and appeared only to talk to the management of the companies.
“The big lacuna is that these valuations have not been put before the court and one cannot test the valuations,” said MacCann.
The Zoe Group said earlier that the valuations were “highly confidential” and could have been put to the court. At one point, the Chief Justice even suggested that the chief executives of the banks may have to be called to give evidence on the survival plan.
Ultimately, it was the failure of Carroll’s group to back up the future valuations, which Mr Justice Peter Kelly sitting in the earlier case described as “lacking in reality” and bordering if not trespassing on the “fanciful”, that spelt the end of Carroll’s attempt to secure court protection.
The court heard that five banks – AIB, Bank of Ireland, Bank of Scotland (Ireland), KBC Bank and Ulster Bank – supported his survival plan. AIB and Bank of Scotland (Ireland) had helped fund the paying off of 86 per cent of trade creditors, any one of whom could have threatened to liquidate the group. Anglo Irish Bank and EBS building society, remained neutral on whether they would support the application. ACC was the only bank threatening to topple the group and this was enough to lead to this precarious scenario for Carroll. The Supreme Court’s ruling yesterday evening leaves his business desperately exposed.
