A HIGH Court judge has said it is “astonishing” that unpaid loans of some €544 million from Allied Irish Bank (AIB) to several companies in developer Liam Carroll’s troubled Zoe Developments group were secured on what he said was generally regarded as a “fairly fragile” form of security.

Mr Justice Peter Kelly said the security was letters of undertaking from solicitors for the Zoe companies to hold on trust for AIB the title deeds to a large number of properties owned by the defendants. Such form of security was “a far cry from a legal mortgage”, he said.

AIB now wants to appoint a receiver over those properties in the first stage of a process aimed at recovering the money owed under a facility agreement of March 2009.

Dealing yesterday with AIB’s proceedings to appoint William G O’Riordan as receiver and to secure orders aimed at ensuring it has good security over the properties, Mr Justice Kelly said it was “fortunate” for AIB that the defendant Zoe companies were acknowledging the intention of the letters of undertaking was to create an equitable mortgage over the relevant properties.

The judge was, however, told by the liquidator for two other Zoe companies – Vantive Holdings and Morsten Investments, the two key funding companies in the group – that issues might arise if there was a defect in the bank’s security.

The liquidator is not a party to the case and will have to consider quickly whether to bring an application to be joined to the case as AIB’s application will be heard this Friday.

The properties are mostly located in Dublin and include both commercial and residential developments.

In court documents, solicitors for AIB also said other financial institutions had appointed receivers over various other properties owned by Zoe companies.

The judge told Denis McDonald SC, for AIB, yesterday that it appeared from court documents that AIB had never inspected the title to the properties nor conducted an investigation into title.

Mr McDonald said the only inspection was as outlined in the affidavits. He said the bank has solicitors’ letters of undertaking and the relevant title deeds had also been deposited with it. The bank was only seeking to appoint a receiver at this stage and, given the current property market, would not be seeking to sell properties now.

For such a huge amount of money, almost half a billion euros, it was “extraordinary”, the judge said. The letters of undertaking were “fragile” security and in some instances misstated the name of the Zoe company which owned the property involved.

Given the large number of companies in the Zoe group, it was understandable people got confused, he added. He made the remarks when admitting to the Commercial Court list the proceedings by AIB against five Zoe companies.

Bernard Dunleavy, for the companies, said they were not opposing AIB’s application to appoint a receiver or for “well-charging” orders (orders declaring good security) over the properties.

Mr Dunleavy said the monies were loaned and paid over, the letters of undertaking were agreed and there was no defence to the claim.

He added that the defendants’ financial difficulties were well known and they were concerned not to become involved in more litigation than was necessary.

AIB’s action is against Danninger, Eppo Developments, Fabrizia Developments, Oze Construction and North Quay Investments Ltd.