State had to liquidate IBRC to protect financial system, US court hears

Lawyers for State-owned Irish Bank Resolution Corporation, formerly Anglo Irish Bank, pleaded for protection from a US bankruptcy court saying that the liquidated bank was a “very unique” case.

The Delaware bankruptcy court heard the bank’s case for Chapter 15 bankruptcy protection, guarding about €1 billion of US assets and blocking legal actions against it, at a hearing yesterday.

US-based Irish developer John Flynn and two US companies Castleway and Walnut Properties, owned by Swiss-based developer John McCann, are challenging IBRC’s attempt to secure court protection.

They claim to be disadvantaged as creditors and borrowers by the Government’s passage of emergency legislation in February putting the bank into special liquidation. The law was passed as part of the restructuring of the €35 billion State bailout to reduce the annual cost of the nationalised bank.

After a hearing of more than four hours, US bankruptcy judge Christopher Sontchi asked both sides to submit documents outlining the factual evidence and conclusions of law setting out their arguments.

The judge requested the written submissions by next Tuesday because of the importance of the issues raised, and said that he would rule on the case as quickly as possible.

He granted a request from Mr Flynn’s lawyer putting a stay on IBRC selling loans linked to the Blackrock and Galway Clinics, in which the property developer is a shareholder, pending his ruling.

'Overcharged'
Flynn is suing IBRC in a separate action in a New York court for being overcharged by $11 million, while Castleway and Walnut are contesting the decision of the bank and the State's National Asset Management Agency not to release security on properties so they can repay $60 million in loans.

They argue that the US court should not recognise the liquidation because it was driven by the Minister for Finance acting only in the interests of the Irish State, not the bank’s creditors.

In the summing up by the both sides, the judge heard a short history of Ireland’s financial crisis. US lawyers for the bank argued that the crisis required the emergency special liquidation legislation.

IBRC’s lawyer Van Durrer of law firm Skadden Arps asked the court to protect IBRC under Chapter 15, a section of US bankruptcy that allows the US courts to recognise foreign insolvencies, saying that the Irish Government passed the IBRC legislation to protect the country’s financial system.

The global financial crisis had left Ireland like many "too big to fail" financial institutions requiring a bailout and that the court must keep this in mind when deciding on whether to protect IBRC, he said.

Crisis
Ireland has "reached out" to the US courts at a time of "serious financial crisis" and had passed a law to deal with its crisis, said Mr Durrer. "They should get a pat on the back rather than criticism," he said.

Dan O’Neill, a lawyer for Mr Flynn, claimed that private testimony in depositions given by the bank’s special liquidator, KPMG accountant Kieran Wallace, showed there was “a conspiracy going on behind the scenes” from October 2012. The Government and KPMG were “plotting” to liquidate IBRC, “get rid of the bad bank” and appoint Mr Wallace as a special liquidator in February 2013, he said.

Mr O’Neill argued that the Government’s goal in passing the IBRC Act liquidating the bank was not to protect all creditors. “The goal here is to get back the money we gave these guys,” he said.

Mr Durrer said the claim by the objectors that Mr Noonan would issue a ministerial instruction to give the bank’s assets away below a market value “borders on the ludicrous”.

The Minister cannot act arbitrarily and his actions are subject to a public review process, he said. Mr O’Neill said that creditors could not challenge any directions issued by the Minister to the liquidators.

Irish senior counsel Michael Forde and barrister Jarlath Ryan, expert witnesses for Mr Flynn, gave evidence in court yesterday via video link from Dublin.