A kingpin of local industry comes undone

QUINN GROUP:FOR FORMER tycoon Sean Quinn and his family, Thursday, April 14th, 2011, was their day of reckoning. At 5.30 that morning a team of 87 people set out from Dublin to wrest control from the family of the business empire Quinn had built up over the preceding 38 years.

The group of legal and financial professionals sent north by Anglo Irish Bank (now the Irish Bank Resolution Corporation) were accompanied by security personnel.

The Quinn Group, founded in the extraction of gravel from Quinn’s farm in Derrylin, Co Fermanagh, in the early 1970s, included cement, glass, radiators, hospitality, financial services and property interests.

Quinn was a local hero who transformed the economy of the Cavan/Fermanagh area, but he had a fatal flaw: a propensity for reckless investment decisions. From 2005, Quinn had been engaged in investing in shares using high-risk contracts for difference, a form of investment that can yield high returns when trends are right but which magnifies losses when the investment turns sour.

By April of this year, the Quinn debt to the bank was a whopping €2.88 billion, largely due to borrowings that arose after Quinn’s investment in Anglo shares had begun to go spectacularly wrong.

The group itself had further debts of €1.3 billion due to banks and bondholders.

IBRC appointed a receiver, Kieran Wallace of KPMG, over the shares of Quinn Group (ROI) Ltd, the company owned by the Quinn children that sat at the top of the business empire.

The appointment was crucial to a deal that would see a restructuring of the group’s debt, the sale of its insurance business, a clean out of the board, and the removal of the Quinn family from the management, operations and ownership of the group.

Businessman Paul O’Brien took over as chief executive from Liam McCaffrey, a long-time Quinn associate. Other Quinn associates were also removed from the board.

Crucially, it was envisaged that the move, part of one of the largest and most complex restructurings in Irish corporate history, would not lead to any job losses. The group employs thousands and is a cornerstone of the Fermanagh/Cavan economy, a fact that made the issue a highly charged political one in the Border area.

It was announced that a joint venture between US insurance giant Liberty Mutual and IBRC had preferred bidder status for the takeover of the Quinn insurance business. Quinn and his family had made efforts to fashion a bid for the business but these had come to nought.

On the Monday after his business empire had been taken from him, Quinn issued a statement to the media. The IBRC move “was the greatest upset for me and my family in my entire business career”. He said he and his colleagues had spent the previous year working on a proposal for the group that was economically viable and would allow his family discharge its debts to the Irish exchequer.

He expressed his concern for those affected by what had happened and said the group businesses were among the most progressive in the world. “Our mistake was to place an overreliance on the Irish banking system and the many predictions for continued sustained growth in the Irish economy from some of the country’s leading financial-services experts.”

If there was an element of blaming others for the risks he and his family had assumed in that statement, it was a precursor to legal actions the family was about to take in a range of jurisdictions.

The largest restructuring in Irish corporate history was soon joined with one of the largest courtroom battles in Irish legal history. Emotions were running high in Cavan and Fermanagh.

On the night Quinn’s statement was issued, a large dumper truck was driven into bollards at the entrance of the headquarters of the Quinn group in Derrylin. In August, O’Brien’s BMW 4x4 was destroyed in an arson attack outside his home on an estate in Co Meath. In its wake O’Brien estimated in excess of €1 million in damage had been caused to Quinn Group buildings and property since the takeover. He said job losses could arise if the attacks continued.

Donal Carlin, a scaffolder who works for a company that contracts for Quinn, told The Irish Times that, in the north Cavan/south Fermanagh area, Quinn “has close to 100 per cent support” but that people didn’t want the criminal attacks to jeopardise what was left of Quinn’s former empire. Quinn himself made a number of statements unequivocally condemning the attacks.

At the end of May, Quinn’s wife Patricia, and the couple’s children, Aoife, Collette, Brenda, Ciara and Sean jnr, brought a case to the Dublin High Court claiming loans totalling €2.34 billion due to IBRC were unenforceable because they were issued for the illegal objective of market manipulation.

The family had signed guarantees at the time the bank was issuing huge loans. The loans were being used to pay for margin calls arising for the family as its contracts for difference investment in Anglo turned spectacularly sour. At the time bank’s share price was in danger of complete collapse, and this was a cause of profound concern to the bank at the highest levels. The Quinn family’s investment, which had been built up secretly, was equal to more than a quarter of the bank’s shares.

The guarantees and share pledges sought were unconscionable, the court was told, as they were entered into when borrowing to support Anglo’s share price in circumstances where the bank knew the precarious financial position of the institution, but the Quinns did not. Sean Quinn was later joined to the action by the courts at the request of IBRC.

This case was at the core of what became a web of complicated proceedings in Ireland, Sweden, Cyprus, Ukraine and Russia. The family began to resist the now state-owned bank’s efforts to seize control of properties located around Europe and further afield that were worth up to €500 million, despite the fact IBRC had mortgages on the properties and share pledges on the companies that owned them.

These legal battles continue. Meanwhile events in Russia, Ukraine and elsewhere have created fears that manoeuvres are being orchestrated to wrest the properties from the web of international companies that own them, so as to frustrate IBRC’s efforts. This allegation forms the core of a set of proceedings brought by the bank against the family and which have yet to be heard. The defendants include the Quinns; a relative, Peter Quinn; and Stephen Kelly and Niall McPartland, Sean Quinn’s sons-in-law.

The odd goings on in Russia and elsewhere include the allegation that events in Russia led to Sean Quinn’s nephew, Peter Quinn, becoming the owner of a Russian company that owns a commercial building in Moscow worth $180 million (about €137 million) in return for a payment of €1,000.

The bank has also alleged Peter Quinn, who was involved in managing the family’s international property interests, took €4.5 million in accumulated rent from an account in a Russian bank and moved it beyond IBRC’s reach.

The bank remains unable to get control over annual rental payments in Russia and Ukraine that total tens of millions of euro.

A series of court applications in Russia and Ukraine from parties other than the Quinn family or the bank have also raised fears that persons entirely unconnected with either could end up in control of one or more of the properties concerned, at the expense of the Irish State.

On November 11th, the 64-year-old once believed to be Ireland’s richest businessman was declared bankrupt in Northern Ireland after a surprise application in Belfast. The court was told Sean Quinn had assets of less than £50,000 (about €60,000) and a pension that would bring in less than £10,000 a year. He had been taken off the payroll of the Quinn group earlier that year, as had a number of members of his family.

IBRC brought a challenge against the Quinn bankruptcy, arguing that he was a resident of Cavan and thereby not entitled to bankruptcy status in Northern Ireland, where the conditions are less onerous than in the Republic.

The bank also got summary judgment orders for more than €2 billion against Quinn in the Dublin courts in the wake of the Northern Irish bankruptcy decision, a move Quinn condemned as pointless and vindictive. The bank also told the Dublin courts it believed Quinn had a shareholders’ agreement with his children that allowed him exercise an option over the Quinn Group shares prior to his 70th birthday.

The year ended with Quinn, famous for his dislike of publicity, having to attend court in Belfast as he and IBRC battled over his right to his Northern Ireland bankruptcy status, which could see him absolved of his debts (and back in business?) within two years.