STORY OF THE WEEK: A 460-acre site in Co Kildare forms part of the backdrop to the crisis at Punchestown racecourse. Colm Keena reports on allegations and counter-allegations involving secret land deals and the Getty family

According to two recently appointed directors to one of the companies that runs the Punchestown race course, it is approaching financial collapse.

Furthermore, the people who have been running the 460-acre Co Kildare institution - site of one of the most important events on the racing calendar - have made secret land deals at below market rates and have granted undue control over the board of the company to representatives of the Getty family, the two directors allege.

The other directors of Blackhall Racing Company Ltd strongly refute these allegations. The past five years have been marvellously successful ones for Punchestown, years that have seen the transformation of the race course and enormous growth, they say.

They say the Getty investment was approved by the members of the Kildare Hunt Club - which is intimately linked to the company - and the land deals were simply a tax-saving mechanism that formed part of the process of raising funds from the banks.

Whatever about the argument, it is obvious relations at board level are appalling. The Horse Racing Ireland (HRI) authority, formed in November last from the Irish Horse Racing Authority and elements of the Turf Club, is deeply concerned. Its chairman, Mr Denis Brosnan, attended the Four Courts last Friday to hear the two sides air those views publicly in the High Court.

The authority will now play a crucial role in trying to sort out the problem. It has the right to nominate three directors to the nine-member board and must also approve the appointment last November of Mr Nicholas Bullman as chairman.

These decisions may have a crucial role to play in sorting out the row, which developed following Mr Bullman's appointment.

The Kildare Hunt Club was formed in or around 1763 and, in 1902, 466 acres at Punchestown were donated and placed in trust for the club. In 1993, the members voted to set up incorporated companies, including the Kildare Hunt Club Ltd (KHCL) and a number of subsidiaries.

Blackhall Racing Company Ltd, a linked entity, was set up in 1997. It was a £2 company up to 1998, when three million redeemable preference shares of £1 each were issued to a company called GT Equinus Inc as part of the passports for investment scheme.

In July 1997, the trustees of the club granted a subsidiary a lease on Punchestown for 250 years at a yearly rent of £10,000 per year. The rent was not subject to review.

At the same time, the subsidiary sub-leased all the property, bar 10 acres of development land, to Blackhall, for £9,000 per year, again not subject to review.

Mr Bullman and Mr John Ross, a solicitor appointed to the board of KHCL at the same time as Mr Bullman, told the High Court they did not know of these leases until they joined the board, despite being members of the hunt club for many years.

Mr Bullman, a director of Investors Select Advisors Ltd and, as he told the High Court, a successful businessman, was asked at a meeting of the club in May 2001 to review the financial situation at Punchestown. He reported back the following September.

He decided "that in a absence of changes, the company (KHCL) and its subsidiaries would not be able to service their debts and would be likely to go out of business".

Mr Bullman decided the Punchestown operation was cash-flow negative and would remain so until at least May 2004.

"The debts of the company and its subsidiaries were found to be an aggregate of approximately £5.54 million, comprising £1.124 million owing to AIB, £18,000 owing in respect of a recent land purchase, £1.3 million being owed to Horse Racing Ireland and £3 million being due to Equinus."

Mr Bullman's report "also expressed concern as to the propriety of the ... lease and sublease of Punchestown", according to a petition to the High Court submitted by him and Mr Ross.

Mr Ross examined consolidated accounts that had been circulated to club members and decided they showed a loss of £1.6 million for the three years to 2000. He circulated his findings to members.

At the annual general meeting of the club, Blackhall and its subsidiaries, in November 2001, Mr James Osborne and Mr Dermot Cox were unsuccessful when they stood for re-election to the board. Instead Mr Bullman and Mr Ross were elected.

At a subsequent meeting of the board, it was decided PricewaterhouseCoopers (PwC) should investigate the Punchestown finances.

In January, PwC presented a draft executive report to the Blackhall board. Its findings included a recommendation that the leasing arrangements be subjected to a thorough legal review.

It also found that the facilities at Punchestown were not generating sufficient income to cover expenditure.

"If funds are not made available to repay financiers, the club and the company may lose Punchestown," the draft report stated, according to the petition.

The report also found that proper books were not being maintained, financial statements were not in line with the requirements of company law and net assets had been overestimated by £14 million at December 31st, 2001, due to the misdescription of liabilities as capital and reserves.

Net assets should be £1.87 million on the balance sheet and not £15.8 million.

"The accounts for the year ended December 31st, 2000, failed to make any provision for the repayment of grant aid and loans and the redemption of the GT Equinus shares, despite the fact that same were all to fall due within five to seven years," according to the petition.

Meanwhile, Mr Ross, a solicitor, reviewed the Companies Office files in relation to KHCL and its subsidiaries and found inaccuracies, a failure to make any return of the shares allotted to GT Equinus and "an apparent forgery of signatures on documents".

Mr William Fennell, Mr Felix Heffernan and Mr Nicholas McDermott, three farmers who are trustees of the club and directors of KHCL, gave a robust reply in an affidavit to the points made by Mr Bullman and Mr Ross.

They said that Mr Osborne, a former partner with law firm A&L Goodbody, had transformed Punchestown during his five years as chairman. "Mr Osborne and his board oversaw the successful completion of a circa €24.4 million project which transformed an antiquated racecourse to one of the finest National Hunt venues in the world."

The work carried out included virtually replacing the grandstand, introducing corporate boxes and entertainment areas, new racing facilities and a new indoor exhibition and multi-event centre of approximately 60,000 square feet. The latter is not yet operational.

The value of Punchestown had increased from €3.2 million to €30.5 million, with aggregate debt of only €7 million, the trustees said. Income has gone from €736,000 to €2.4 million per annum. Attendance at the April festival, which funds the rest of the year's activities, has gone from 45,000 to 69,600.

On the lease issue, the trustees said the property had to be transferred to corporate entities to facilitate development and the club members voted to allow this in 1994.

A long lease was made to the company, as against transferring the freehold estate, in order to avoid stamp duty.

Value added tax of about €3 million was saved by having a number of leases. Also the transfer was needed to provide security to bankers, GT Equinus and to facilitate the drawdown of grants.

The trustees said that, since Mr Bullman's appointment, the racing activities at Punchestown, which are the primary activity of the various companies involved, "have received little or no mention or attention. The period from January to the festival at the end of April is a most critical period ... Neither Mr Bullman nor Mr Ross have unfortunately been able to provide the necessary leadership."

Mr Brosnan has been in contact with the company to express his concern at the "total lack of direction in respect of the festival", according to the trustees. In particular, there are huge problems with getting sponsors for the forthcoming festival, with sponsors not yet confirmed for more than half the events.

The three men made a strong allegation against Mr Ross. They said he had suggested ways could be looked at to set aside the leases and liquidate the subsidiary companies.

"The effect would be that the bank, GT Equinus and other entities, who have provided facilities to the company for the development, would be without security. The trustees were naturally concerned at this approach, which was tantamount to fraud in equity."

It was for this reason, the trustees said, that they resisted a request from Mr Bullman and Mr Ross that a sub-committee, on which they would form a majority, be formed to look at the title to the leases.

The High Court last week granted an application from Mr Bullman and Mr Ross that a planned meeting of the club be ordered held over until March 7th.

The PwC report was presented to the Blackhall board yesterday. Next week crucial appointments to the Blackhall board are to be made by Horse Racing Ireland.

Both sides in the boardroom split are hoping these appointments will help sort out the row, which currently threatens the future of Punchestown.