Luxembourg investor sues Galway firm over alleged effective cancellation of €2m loan note

A Galway-based company is being sued by a Luxembourg investor over the alleged effective cancellation of a €2 million loan note when it was converted into shares before the firm was sold off.

In Commercial Court proceedings, it is claimed Éire Composites, which designs and manufactures lightweight high-performance materials for the aerospace, marine and motor sectors, was bought by businessman Thomas Flanagan last November despite objections by Carlo Tassara Assets Management Ltd (CTAM), with registered offices in Luxembourg.

CTAM, whose parent Carlo Tassara SpA invested €3.3 million in Éire Composites in 2007, says it is challenging an alleged effective cancellation of a €2 million loan note to the company by its conversion into shares, despite numerous objections (from CTAM).

It is also seeking orders against three Éire Composites directors at the time of alleged conversion – William Costello, Patrick Feerick and Conchur Ó Brádaigh – in relation to personal guarantees provided over liabilities in event of default on loan repayments. CTAM's proceedings are also against Mr Flanagan who, it is alleged, bought the firm in the full knowledge of the loan note conversion dispute.

The case was entered into the fast-track Commercial Court list yesterday by Mr Justice Brian McGovern on the application of Michael Howard SC, for CTAM. Ercus Stewart SC, for the defendants, objected and said his side wanted security for legal costs to be dealt with before the case went ahead.

Mr Justice McGovern said he would admit the case and the issue of security for costs could be dealt with as part of directions for the hearing.

In an affidavit, Claude Le Monnier, a representative of CTAM on the board of Éire Composites, said that following the issue of the loan note, the composites company raised further investment from Údarás Na Gaeltachta. To facilitate this investment, CTAM agreed to convert the interest then due on the loan note to ordinary shares in Éire Composites, he said.

In December 2013, the company needed further investment and CTAM was asked to convert the loan note to ordinary shares, but it was made clear CTAM’s parent company, and its banks, would first have to give consent, he said. If a satisfactory solution was not found, CTAM’s preferred option was to place Éire Composites in liquidation.

Mr Le Monnier said an offer was made by Mr Flanagan to buy all the shares in Éire Composites for €100,000 with a promise of a further €250,000 investment. That offer was accepted by Mr Costello and conditionally accepted by Mr Feerick, he added. In February last year, Mr Flanagan made a offer to buy CTAM’s shareholding for €35,000, which was refused.

CTAM later received a letter from Éire Composites’ solicitor last May alleging, following an agreement reached in December 2013, that it was proceeding to convert the loan note into shares and Mr Flanagan’s buyout offer was to be implemented, Mr Le Monnier says. CTAM protested and refused to attend Éire Composites meeting last June to sign the company accounts.

The defendants had acted in “total disregard” of CTAM’s rights, Mr Le Monnier said. Their claim that consent to the loan note conversion was given in December 2013 was unsustainable and they had bypassed the terms of the loan note to push through the sale to Mr Flanagan, he said.