Hats off to Richard Barrett, the property developer who turned an accusation of fraud by Nama into a settlement in which he walked away with a €5 million success fee and €35 million in cash.
There is more than a touch of the John Grisham about it. Not surprisingly, Mr Justice Peter Kelly had to take a few days to get his head around this turn of events, before eventually approving the deal last week as being in the best interest of the liquidation, and both legally and commercially justified. Taxpayers may take some convincing, given the tough talking done in Nama's early days about pursuing developers for every penny they owed.
The details of Barrett's alleged fraud and the subsequent coup are set out in detail in the affidavit supplied to the High Court by Michael McAteer, the liquidator of Treasury Holdings, in seeking to have the deal approved last week.
Barrett, along with his Treasury partner John Ronan, were accused of carrying out two asset-stripping transactions in the dying days of Treasury – which had debts of €2.7 billion, including €1 billion owed to Nama – that in effect defrauded the company's creditors.
One was called the Tail transaction for short. It involved the pair selling themselves Treasury’s interest in a large portfolio of Chinese properties. They bought the shares at an undervalue and using an IOU that was pretty much unenforceable, it was claimed.
The other alleged fraud involved the sale by Treasury to Mr Barrett of two other companies which managed the Chinese properties for something close to one fifth of their real value. This was called the ManCo transaction.
The net effect of these two transactions was to separate the bankrupt carcass of Treasury from the Chinese asset, which has had many names over the past year but is currently called Forterra. Both Mr Barrett and Mr Ronan were significant shareholders in Forterra in their own right, owning in the region of 30 per cent.
As relations between Nama and Treasury took a turn for the worse last year Nama sought to unwind the Tail and ManCo deals. Once the company was put into liquidation, Mr McAteer took charge of the case.
Another plan
According to his affidavit, Mr McAteer had negotiated and agreed preliminary heads of terms with Richard Barrett "to resolve the Tail Transaction and the ManCo Transaction" in January this year, when the latter came up with another plan.
He would get NanFung Investment Management , one of the largest privately owned property developers in Hong Kong, to buy Forterra and the management companies involved in the ManCo deal. The proceeds would be used to make good on the Tail IOU and see the Treasury liquidator get full value for the ManCo transaction. The value to the liquidation of the settlement was €47 million, the court was told.
A couple of things appeared to stick in the teeth of the judge, however. The first being that Mr Barrett was to get a €5 million success fee for putting the deal together, and to walk away with some €36.3 million in cash – the proceeds from the sale of the shares he held directly in Forterra. Mr Ronan is due to get something similar.
It is easy to understand the judge’s unease. Two individuals build a massive property company which collapses, owing the taxpayer €1 billion via Nama. As the business collapses they extract significant assets in a process that the court is told is fraudulent. Then, hey presto, they walk away from the whole mess with millions and Nama’s blessing. It is exactly the sort of thing critics said would happen when Nama was set up.
When push came to shove, pragmatism won out. Mr McAteer told the court he believed it was the best deal for the creditors of the company – that is you and me, the taxpayer – for several reasons. In his opinion protracted litigation would have reduced the value of Forterra because the Hong Kong banks might have withdrawn support for the company. Management might have defected and "general stakeholder confidence would be negatively impacted", Mr McAteer told the court. Mr Justice Kelly would appear to have reluctantly agreed.
But for the taxpayer – still on the hook for €1 billion – the sour taste remains, despite Nama and the liquidator’s best efforts to present the events of last week as some sort of victory.
There is some consolation. It seems that most of Mr Ronan’s windfall will go to repay his other personal debts to Nama. But Mr Barrett seems to have had the last laugh and will get to keep his money. The reason, apparently, is that he, unlike so many of his peers, never gave the sort of personal guarantees that have been their ruin. Hats off indeed.
