THE SUPREME Court could hardly have decided otherwise when it upheld the refusal of the High Court to appoint an examiner to six of Liam Carroll’s companies in the Zoe group. In his High Court judgment, Mr Justice Peter Kelly found the future valuations placed on Mr Carroll’s companies to be both “lacking in reality” and bordering on the “fanciful”. The Supreme Court concurred and reached a similar conclusion: that the companies had not provided evidence showing a reasonable prospect of survival and therefore could no longer secure the court’s protection. Mr Carroll’s business plan, it found, simply lacked credibility. How the fortunes of the Zoe companies could be transformed from insolvency and a deficit of more than €1 billion into a €290 million surplus in three years – and in a depressed property market – was never clearly established to the court’s satisfaction.
For Mr Carroll, one of the country’s largest property developers, the failure to secure the court’s protection for his companies was the worst possible outcome, but scarcely surprising. For the Government, the Supreme Court decision has heaped uncertainty upon uncertainty ahead of the recall of the Dáil next month to consider the bill establishing the National Asset Management Agency (Nama).
A worry for the Government must be that even before Nama becomes operational, there may be a fire sale of property assets, further lowering already depressed values and complicating attempts to balance the interests of the taxpayer and the banks. A spokesman for the Minister for Finance has insisted that the Government’s plans are not affected by the court judgment and that Nama will operate in line with European Commission guidelines, assessing the banks’ toxic loans according to their long-term economic value.
ACC secured the appointment of a provisional liquidator yesterday to two of Mr Carroll’s companies to recover €136 million in outstanding loans. Other banks now seem certain to follow and to seek repayment of their loans by issuing demand notices to Mr Carroll’s other companies. This would result in the appointment of receivers and enable banks to seize properties on which they hold security.
But given the depressed state of the Irish commercial property market, there may be little demand for such property in the short term given the absence of buyers and the scarcity of loan finance. After all, banks – already battered by huge loan losses on property – are seeking to recover money owed by developers, are planning to sell their toxic loans to Nama, and are aiming to diversify their loan books away from an over-reliance on property. They are unlikely to finance new lending for speculative purposes in what remains a highly illiquid property market.
Matters should become clearer next month when the Minister for Finance gives more details of the mechanisms Nama will use to value toxic loans. But the stakes could not be higher as the Government takes decisions which will reverberate for years to come.