Judge rejects legal challenge by developer against IBRC
US bankruptcy judge refuses to lift temporary court protection for the bank
A US bankruptcy judge has rejected a legal challenge by a developer against Irish Bank Resolution Corporation, formerly Anglo Irish Bank, and refused to lift temporary court protection for the bank.
The Delaware bankruptcy court also rejected an application by two US funds, holders of the bank’s subordinated debt, in which they are seeking a wide range of documents held by the Government and the bank that might provide more details about the emergency legislation liquidating the bank in February.
In two victories for the special liquidators of the State-owned bank yesterday, US bankruptcy judge Christopher Sontchi rejected the applications in legal proceedings aimed at stopping the bank’s special liquidation status in Ireland being recognised in the US courts under what is known as a Chapter 15 bankruptcy.
IBRC’s liquidators Kieran Wallace and Eamonn Richardson of KPMG filed for bankruptcy in Delaware in August as Chapter 15 bankruptcy guards foreign companies from legal actions in the US while they are liquidated at home. They are seeking to protect IBRC’s US assets of about € 1 billion.
Developer John Flynn, who is suing IBRC for fraud in a New York court relating to overcharging, and two funds linked to US billionaire Paul Singer and his hedge fund Elliott Capital Management want to block the US bankruptcy petition. The Elliott funds are trying to recoup $75 million in debt from IBRC.
Mr Flynn and the funds say that IBRC’s special liquidation, grounded in emergency legislation passed by the Dáil in an overnight session in February, disadvantages them as creditors in favour of the State.
Judge Sontchi refused to lift temporary court protection, pending a full hearing of the court on whether to recognise the special liquidation of the bank in the US courts. This freezes Mr Flynn’s lawsuit.
Describing the liquidated bank as a “mini-Lehman situation” though with comparably lower costs than in the case of the failed US bank, he said he saw no harm in delaying the Flynn litigation in New York.
The court was told yesterday that KPMG had charged fees of € 5 million for the liqudation since February, while A&L Goodbody, solictiors for the liquidators, were charging € 1 million a month in fees.
He ruled that it was “premature” – for now at least – to permit the two funds to perform a forensic analysis of the decision-making behind the Government’s emergency legislation to liquidate the bank.
The judge said that the records being sought by the two Elliott-owned funds were not relevant to the issues before the court or in the control or knowledge of the liquidators.
Allan Brilliant, lawyer for the funds, told the judge that the liquidators were asking the court to “walk through” the recognition of the Irish liquidation and “rubber-stamp” everything in the Irish statute.