IBRC investigators face tough task in assessing what was commercially sound

The Government is hoping to start taking the heat out of the Siteserv controversy by announcing the terms of a review of IBRC deals, conducted by the bank’s special liquidators Kieran Wallace and Eamonn Richardson and overseen by retired High Court judge Mr Justice Iarfhlaith O’Neill.

The retired judge has been asked to oversee the process and manage any perceived conflicts of interest due to the fact KPMG – the firm which employs the special liquidators – was previously heavily involved in Siteserv.

The Opposition will try to keep the pressure on the Government – their success in doing this will depend in large part on what new facts emerge. For now the affair rumbles on and, for the Government, has already overshadowed the build-up to today’s spring statement on the economy.

The review is to cover transactions that happened between January 21st, 2009, when Anglo Irish Bank was nationalised, and February 7th, 2013, the date of the IBRC liquidation. (IBRC took on the assets of Anglo and Irish Nationwide). It will cover any transactions involving a loss of €10 million or more, apart from asset transfers to Nama.

The special liquidators are also asked to identify any other transactions “giving rising or likely to give rise to potential public concern, in respect of the ultimate returns to the taxpayer.”

Controls

Specifically, the review will look at the processes and controls used in these deals and whether there is “prima facie evidence of material deficiencies in the performance of their function” by the IBRC board and management.

The terms of reference also say that the review should examine whether it can be concluded “from any relevant documentation, data or interviews” that any of the transactions “were not commercially sound in respect of the manner in which they were conducted, the decisions made or the outcomes achieved”.

The special liquidators and the retired judge – who will monitor any “actual or perceived conflicts of interest” – therefore have a wide brief to conclude by the end of August.

The Government has undertaken to launch further investigations in the event that anything is uncovered. Finance Minister Michael Noonan’s statement said the KPMG special liquidators were best placed to carry out this review, but – notwithstanding the appointment of the retired judge – this issue will remain the focus of political debate.

There are understood to be roughly 35 transactions covered by the €10 million loss provision. These will include deals done with some of the IBRC’s major borrowers in restructuring arrangements, as well as asset sales such as Siteserv. In some cases, such as Siteserv, IBRC borrowers were involved in purchasing assets being sold by the bank.

Key focus

Siteserv will obviously be a key focus, and the review would be expected to cover why IBRC allowed Siteserv to run the sales process, why trade bidders were excluded and why shareholders were given a €5 million payment to sign up. The extent of the €100 million debt write-down will also be examined.

A range of other deals will also be probed, looking at dealings the IBRC had with its list of high-profile borrowers and restructuring deals involving major corporations. It was always assumed that many of these deals involved debt write-offs, though details have generally not been available. Consistency in IBRC’s approach is likely to be one focus of the review.

A key issue for the special liquidators will be how to make a call on what would have been commercially legitimate at the time, taking into account the pressure on IBRC to sell down its assets and the uncertainties faced in dealing with major borrowers. We will never know, for example, what price might have been received for Siteserv if the bank had appointed a receiver, as opposed to letting the firm run the process. In the case of Siteserv, and other deals, the investigators will have to make a call on whether anything was not commercially sound. It won’t be an easy job.