Anglo and Drumm at odds over loan deal

A FACILITY letter under which a €7.65 million loan was given to former Anglo Irish Bank CEO David Drumm in 2008 to buy bank shares had described the loan as a “non-recourse” loan, meaning the bank could only redeem the loan against the shares purchased, the Commercial Court was told yesterday.

Both Mr Drumm and the bank say this description was a “mistake” and the loan was actually a “recourse” loan.

The bank denies Mr Drumm’s claim that this acceptance by him was a factor in the parties allegedly reaching agreement to allow him a reasonable time to pay off the loan, and for the bank not to move against his family home or take legal action.

This acceptance by Mr Drumm was a “valuable benefit” to Anglo because, when it was nationalised in 2009, its shares were virtually worthless and the entire loan to Mr Drumm would have had to be written down if it was a “non-recourse” loan, his counsel Declan McGrath said yesterday.

Anglo denies it had given Mr Drumm any concession for his acceptance that the loan was a recourse loan.

The full hearing of Anglo’s proceedings against Mr Drumm for €8.3 million arising from the loan and interest is expected to take place later this year.

As well as opposing the bank’s claim for the €8.3 million, Mr Drumm has counterclaimed for €2.6 million over the termination of his employment and loss of bonuses.

Now living at Stage Neck Road, Chatham, Cape Cod, Mr Drumm has claimed in letters to Anglo that he has sufficient assets to meet his liabilities to the bank, and that its demand for immediate repayment is premature, in breach of loan agreements with him and amounts to harassment.

Mr Drumm has also claimed he and his wife Lorraine have given undertakings relating to their former family home in Malahide, which has been transferred into Mrs Drumm’s name in what Anglo alleges is a fraud on creditors, but the couple claim was for “taxation reasons”.

Yesterday, Mr Justice Peter Kelly was told Mr Drumm has agreed to discover documents evidencing his claim for mental distress arising from the bank’s actions. He will also discover all documents relating to the transfer of the family home.

Paul Sreenan, for Anglo, said it had agreed to discover a range of categories of documents, but argued documents sought relating to alleged contacts and negotiations between it and Mr Drumm over his loan extended over too long a time period.

After Anglo was taken over by the State, the bank’s lawyers and auditors were concerned at how the loan was to be treated in the bank’s annual accounts for 2008 as, at that time, there was much controversy about loans to other Anglo executives, including former chief executive Sean FitzPatrick.

The issue had delayed publication of the bank’s accounts.

It was agreed between the bank and Mr Drumm that the 2008 loan facility would be replaced by a 2009 “recourse” facility which did not include the “non-recourse language”. Mr Drumm had written to Anglo on January 28th, 2009 setting out his understanding of the agreement, but received no correspondence until June 2009.

Mr Drumm was later told by Eugene Murray of Anglo that its lawyers were reviewing its loans in light of a relationship framework agreement with the Minister for Finance. This was “a clear attempt” to negate the effect of the agreement between Anglo and Mr Drumm as to how his loans were to be treated, counsel said.

Mr Justice Kelly said he was satisfied there was “toing and froing” between Mr Drumm and Anglo from December to June 2009, and Mr Drumm was entitled to discovery of documents relating to such contacts, including phone contacts, up to July 1st, 2009 – not January 31st, 2009, as the bank had argued.

The judge also said Mr Drumm’s side could seek sworn replies from Anglo to questions relating to deferred bonus payments to employees leaving the bank between January 2005 and January 2010, and to payments in lieu of notice to senior executives over the same period. Mr McGrath said his side had the name of some persons who had received such payments.

Mr Drumm also sought documents related to his claim that his privacy rights were interfered with through alleged leaks by Anglo of his banking details to others, including the media. An Irish Times article of October 16th, 2009 referred to having seen bank records of Mr Drumm, counsel said.

Mr Justice Kelly directed Anglo to discover documents relating to any communications by it to the media between September 23rd and October 21st, 2009.

Mr Drumm was not entitled to discovery of communications between Anglo and the Department of Finance about accounts, as any such communications would have occurred when the State owned the bank, he added.