The chief executive of USIT, Mr Gordon Colleary, and other executives knew there was not enough money in key bank accounts when they wrote cheques of up to €3.38 million (£2.7 million), the High Court was told yesterday.
National Irish Bank, which has appointed a liquidator to USIT Ltd - the group's treasury operation - claims the company "created the illusion that there were funds available to meet the cheques".
This was achieved by lodging cheques from other company bank accounts into the account on which the cheques were being drawn, even though "there were no underlying funds to meet the cheques". The practice is commonly known as "cheque kiting".
USIT Ltd - which is registered in Northern Ireland - is the central treasury unit of Dublin-based USIT World, the second largest student travel company in the world. The group has a turnover of €600 million and employs more than 1,500 staff in over 200 offices worldwide. The treasury company is owed some €120 million by other firms in the USIT group and has a deficit of €20 million, the court was told.
The UK operation of USIT World has been put into receivership by Bank of Ireland, the court was told yesterday. It also emerged that STA Travel - USIT's larger rival - has taken over the troubled Dublin company, which is continuing to trade.
STA would not comment on how the liquidation of the treasury operation would affect the sale. The company, which is headquartered in Australia but owned by Zurich-based Diethelm Keller Holding Ltd, may now seek the appointment of an examiner to the rest of the group and possibly challenge the liquidator appointed by NIB.
The bank became concerned about the size of the treasury company's unauthorised overdraft on January 10th. Although the company said it would clear the debt, the lodgments were made up of cheques from other group companies, drawn on other banks, which subsequently bounced.
Officials from the bank met Mr Colleary two days later. He confirmed the financial difficulties and sought fresh funds.
The bank refused, and requested that the company clear its overdraft. Two days later, the bank appointed KPMG to establish what had happened. Mr Ray Jackson of KPMG was told by Mr James Thompson, the chief financial officer of USIT, that the group needed some €80 million in order to survive.
The bank threatened to wind up USIT Ltd on January 16th if it did not lodge €1 million in the overdrawn account. The company lodged $372,000 (€431,000) to the account the next day and said it was either going to seek protection of the courts or cease trading.
It also told National Irish Bank that it was close to selling the business. At midnight the following Wednesday, an 88 per cent stake in the USIT group was sold to STA. However, STA has not yet decided how to proceed.
The court was told that Mr William O'Riordan of PricewaterhouseCoopers, who was representing STA, told KPMG that it was difficult to carry out due diligence because of the lack of financial information.
He said the review was continuing and should take another week, and that STA would provide support to the company if this was viable. At present, STA is overseeing daily operational issues, but if the USIT group could not continue, it would look at examinership or administration.
Regardless of what happens, STA had no plan to inject any funds into the treasury operation, KPMG was told.
Mr Colleary, who founded USIT in 1956, said yesterday he was precluded from commenting by his agreement with STA. The businessman is also the chairman of Tribune Newspapers, the publisher of the Sunday Tribune.
