McKillen loses US legal bid to sue former Anglo over ‘Maple 10’ loan

Judge rules IBRC liquidators would be ‘severely prejudiced’ if he permitted case

Paddy McKillen and  Tony Leonard argued in a US court action that the Maple 10 loans, aimed at propping up Anglo’s share price in the 2008 deepening financial crisis, were “illegal” when made. Photograph: Frank Miller

Paddy McKillen and Tony Leonard argued in a US court action that the Maple 10 loans, aimed at propping up Anglo’s share price in the 2008 deepening financial crisis, were “illegal” when made. Photograph: Frank Miller

 

Property developer Paddy McKillen and his business partner Tony Leonard have lost a bid to sue the former Anglo Irish Bank in the US courts over Mr McKillen’s Maple 10 loan.

Delaware bankruptcy court judge Christopher Sontchi rejected a motion by Mr McKillen, Mr Leonard and their company Clarendon Properties seeking clearance from the US court to take a legal action against the Dublin-based liquidators of Irish Bank Resolution Corporation, into which Anglo was merged.

The two businessman and their property company sued IBRC’s liquidators, Kieran Wallace and Eamonn Richardson, alleging in the Delaware bankruptcy court – where the bank’s US subsidiary is being wound up – fraud, misrepresentation and breach of duties of care to Mr McKillen over the €45 million loan.

IBRC sued Mr McKillen in the Irish courts in July 2014 to recover a quarter of the loan extended by the bank to the businessman who, with nine other long-standing borrowers of Anglo, took a 10 per cent stake in the bank with the loans from the institution, helping Anglo unwind Seán Quinn’s investment in July 2008.

Mr McKillen and his business partner turned to the US court to fight the case, prompting the liquidators to argue that it was an attempt to “end-run” the bank’s action to recover the loan in the Irish courts.

‘Severely prejudiced’

In a ruling on Wednesday, the judge said the State-owned IBRC and the liquidators would be “severely prejudiced” if he allowed the action proceed in the US.

“Their duties, their actions, their authority arises under Irish law and I think that having to litigate an action here based on activity that occurred over in Ireland, though it may have some effects in the United States, would be very prejudicial,” he said.

The judge warned that Mr McKillen and Mr Leonard did not have “jurisdiction” in the US court to fight their legal case there. He said there was “a real danger of bootstrapping” – a legal term concerning an attempt to gain jurisdiction over a non-jurisdictional matter by a circuitous route.

This was well beyond the scope of a “chapter 15” bankruptcy that covers cross-border insolvency cases such as the liquidation of Anglo Irish Bank out of the Irish courts dealing with a US subsidiary, he said.

The judge said the legal action was “well beyond the scope” of this kind of bankruptcy. It would be “a misuse of” and “counterproductive of” chapter 15 bankruptcy and “well beyond what was contemplated” by this chapter of US bankruptcy law.

“You would have a heck of a hard time of finding foreign representatives if, by being appointed a foreign representative in the United States, you were subject to this kind of suit,” he said.

Mr McKillen and Mr Leonard had argued in the US court action taken during the summer that the Maple 10 loans, aimed at propping up Anglo’s share price in the 2008 deepening financial crisis, were “illegal” when made.

In their application to the court, they referred to the guilty plea of former Anglo Irish Bank chief executive David Drumm to criminal charges of authorising the illegal loans in June.