Fraud trial told funds were misused

Aer Lingus Holidays' funds were used without authority to buy Canary Island apartments which are at the centre of a fraud trial, the jury has been told.

Former Aer Lingus chief executive, Mr Cathal Mullan said the company's board never authorised the purchase of the Los Hibiscos apartments in Lanzarote nor the setting up of an Isle of Man company called Delmont Investments.

Mr Mullan, who was chairman of the Holidays subsidiary in the period 19831988 before becoming chief executive of Aer Lingus, said a 1990 Craig Gardner report prepared for the State-owned airline showed that money negotiated for other purchases was used through Delmont to buy the Los Hibiscos complex.

He told prosecuting counsel Mr Erwan Mill Arden SC: "We had no knowledge of this transaction which was not authorised by the board. We had no intention ever to purchase Los Hibiscos."

Mr Mullan added there were no circumstances under which he would not have remembered that Aer Lingus Holidays was going to buy this property and he could find no mention of Los Hibiscos or of Delmont anywhere in the entire transaction for which £5.3 million had been negotiated through a leasing company.

It was the 12th day of the trial of former Aer Lingus Holidays executive, Mr Peter Keely, of Carrig Avenue, Dun Laoghaire and solicitor, Mr Desmond P. Flynn, of Tritonville Avenue, Sandymount, who have pleaded not guilty to conspiracy to defraud.

Both men deny that they conspired together and with Mr Peter Noone, former Aer Lingus Holidays financial controller, on dates from March 1987 to November 1988 to defraud Aer Lingus Holidays by misappropriating funds to purchase part of the Los Hibiscos apartment complex for their own use and benefit.

The jury also heard that two other Lanzarote complexes - La Penita and Las Vegas - were sold in 1991 for £450,000 to the original owner who was paid £2 million for them in 1988. The 1991 sale arose from the then government ordering Aer Lingus Holidays to cease trading.

It was also revealed that though the original owner received £2 million for the La Penita and Las Vegas blocks, the purchase price registered in the Spanish legal document was £1.036 million. Mr Mullan said it was "a widespread practice" in Spain to put a figure far below the commercial value as the taxable value in the document known as an "escritura".

Mr Mullan told defence counsel Mr Hugh Hartnett SC, for Mr Flynn, it was not fortuitous, as counsel suggested, that £5.3 million was negotiated for this deal but "it was planned by somebody in Aer Lingus Holidays management to get extra money to use for purposes that were unintended and unauthorised".

He "absolutely denied" he was aware the surplus was going to be used in this way. He was not guilty of false accounting or of "massaging the accounts".

Mr Mullan told Mr Hartnett (with Mr John Major BL), that when the Government ordered Aer Lingus Holidays to cease trading, the disposal of its assets resulted in "a distress sale" at below their value.

He agreed the apartments in the La Penita and Los Vegas blocks in Lanzarote were not worth £5.3 million. When he signed the documents for Capital Leasing, as chairman of Aer Lingus Holidays, he only focused on the fact that they would pay out the same money to lease them as previously for renting, but could then buy them outright after seven years for 40 per cent of the original cost.

Mr Mullan told Mr Hartnett it was not in contention that purported profit figures for Aer Lingus Holidays in 1986 and 1987 were grossly overstated. Craig Gardner revealed the company didn't make a profit in reality in those years because the accounts had been falsified.

He agreed he signed the accounts as "a true and fair representation" of the financial state of Aer Lingus Holidays. Pressed by Mr Hartnett on the duties of a director to ensure the accuracy of the accounts, he said he had been assured by his management this was so. He had also ordered an internal audit in 1987. Mr Mullan said it was inconceivable that every member of the board could go into the accounts department and check every detail for themselves.

It was the staff's function to produce the accounts and the auditor's to check them.

He said it was not unusual for a body like Aer Lingus to use a non-trading shell company in complicated leasing deals.

The Aer Lingus finance group would have made the necessary arrangements to have the leasing payments passed on to the leasing company. The Craig Gardner report showed that Cara Marketing had been used by someone in Aer Lingus Holidays to create false credit entries in the company's books. Mr Mullan agreed he told the Aer Lingus Commercial Investments Review Group in 1995 that "ALH's [Aer Lingus Holidays'] problems stemmed from inadequate capitalisation compounded by severe losses in 1984", but pointed out he also added that a couple of years of profitable trading would be necessary to solve the problem.