Private equity fund Blackstone's affiliate Carbon Finance failed to disclose key facts to the High Court when it sought to have O'Flynn Construction Group placed in examinership, it was claimed yesterday.
Blackstone acquired the O'Flynn group's €1.8 billion debts from Nama in May, giving it the right to take control of the assets against which the loans are secured in the event that the Cork-based business cannot repay them.
The High Court last week appointed Michael McAteer of Grant Thornton as interim examiner to four trading O’Flynnn companies following an application from Blackstone subsidiary, Carbon Finance, which had placed other parts of the group, including its parent, in receivership. It claimed that the construction and property empire was insolvent.
Michael Cush SC, for the O'Flynn group, told the High Court yesterday that Carbon was "guilty of the most extraordinary non-disclosures" when it applied for the examinership and, as a result, had failed in its obligation to act with the utmost good faith.
Mr Cush said Carbon had failed to make it clear to the court that none of the O’Flynn Group’s companies was in default on any loans and that they had substantial amounts of cash on hand, which were more than enough to meet interest payments due in September.
The barrister told Ms Justice Mary Irvine that Carbon had also failed to make it clear to the court that it had access to large amounts of information on the O'Flynn Group, dating back to before it bought the debts in May.
Mr Cush added that a claim the group’s directors had not made any proposals for the repayment of personal loans was misleading, as this issue had been raised in correspondence between the company and Carbon. A demand for the repayment of those debts, which are about €16 million, was used to trigger the receivers’ appointments.
The group and its directors and shareholders, brothers Michael and John O’Flynn, are asking the High Court to overturn the appointment of the examiner and the receivers. They claim that Carbon took those steps simply to gain control of the group’s assets and had intended doing this since it bought the loans from Nama.
The pair are in dispute over the terms of the loan agreements. The O’Flynns maintain that Carbon’s interpretation of those conditions is likely to trigger a default on the debt.
They say that what Carbon has done is an “improper use” of examinership legislation.
Mr Cush said yesterday that in its original petition, Carbon said this was needed in the group’s case to allow the debt to be restructured and to facilitate a fresh investment of €16 million into the business.
He argued that as Carbon is the group’s main creditor, the court’s intervention was not needed for either of those purposes, but crucially, was needed for a third purpose outlined in the petition, that is to take control of the assets.
The court heard yesterday that Carbon instructed its lawyers to prepare proceedings for examinership on July 14th, more than two weeks before it actually sought the appointment on July 29th.