Blackstone used examinership to take over assets, court told

US private equity fund Blackstone's "real purpose" in having O'Flynn Construction Group placed in examinership is to get control of its assets, the High Court heard yesterday.

Blackstone bought the property and building group's €1.8 billion loan from Nama in May, including the right to take control of the assets if it defaults. Following an application from the fund's subsidiary, Carbon Finance, earlier this week, the High Court placed O'Flynn's four trading companies under its protection and appointed Michael McAteer of Grant Thornton as their interim examiner.

Carbon also appointed Grant Thornton as receivers over assets in Ireland and abroad, and installed its own directors over the group's companies, ousting managing director Michael O'Flynn, his brother John and their colleagues from the businesses.

Yesterday, the O'Flynn group's lawyer, Michael Cush, told the High Court the move's real purpose was to give Blackstone control over the business's assets. He said Carbon claimed the companies were insolvent, required the restructuring of their debts and an investment of €16 million. However, he argued Blackstone did not need the court's intervention to restructure the debts.

While the barrister acknowledged that it was not unusual for a creditor to apply for examinership, he pointed out that Carbon gave no notice of its application to the directors and shareholders, which he said, “is entirely unheard of”. He added that the US investor knew that had the O’Flynn’s known of Carbon’s plans, they would almost certainly have opposed them.

Prospect of survival

Mr Cush argued it was an improper use of examinership legislation, which is designed to provide a rescue mechanism for troubled companies that otherwise have a reasonable prospect of survival.

He also stressed that the loans to the group were not in default and that the business was not insolvent.

The companies and the O'Flynns are seeking to have the examiner's appointment overturned and to remove the receivers, who were appointed on foot of personal loans. Mr Justice Peter Kelly agreed to hear both issues on Tuesday.

Their lawyer also challenged the fact that the High Court waived the need for an accountant’s report before appointing the interim examiner. This is normally required, but the court has the jurisdiction to waive it in exceptional circumstances. The report has to be provided on August 7th.

However, the O’Flynn group said that Carbon had most of the material needed to provide the report when it made the application on Tuesday and said it could present evidence to show this.

Affidavit

The O’Flynns also claim that Carbon failed to disclose all relevant material matters to the court in its application. In an affidavit, the group’s finance director,

Brendan Lenihan

, says that this includes the fact that the companies were not “in default of any payment obligation under any relevant facility acquired by Carbon”.

It emerged in court that the O’Flynns and Carbon are in dispute over the interpretation of the loan agreements. In an affidavit, group managing director Michael O’Flynn says that he believes the US fund’s approach to those contracts would have forced the group to default on its debts, thus allowing it to enforce it security over its assets.

As a result, he says he had a real concern Carbon simply wanted control of the group’s assets.

"This apprehension was confirmed to me at an open meeting with Anthony Myers of Carbon on July 18th, 2014," he states. "On that occasion, Mr Myers stated that Carbon 'wanted the assets'."