O'Regan fights to hold on to Morrison

Hugh O'Regan is linked to firms which own and operate the Morrison Hotel, writes COLM KEENA

THERE IS an observation somewhere by Ernest Hemingway that people go broke “slowly at first, but then all at once”. You could see the truth of it this week from the evidence heard by Mr Justice Brian McGovern in the High Court where receiver Martin Ferris was trying to recoup €5.3 million from the operator of the Morrison Hotel in Dublin.

He doesn’t really have much chance of getting the money but, if he wins, he might get possession of the hotel.

Back at the height of the boom, the owners of the hotel decided to extend and borrowed €41.5 million from Anglo Irish Bank. Publican and hotelier Hugh O’Regan owned the original hotel and a partnership of O’Regan, property developer Paddy Kelly, and businessman Patrick Dunning, owned the building beside it into which the hotel was to extend.

In June 2006, Anglo valued the hotel at more than €50 million. They knew all three customers and had separate performing loans with them. Nevertheless they altered the loan they were issuing from €43 million to €41.5 million, as they wanted the owners to put in more equity. The money was to be used to pay off Irish Nationwide loans associated with the hotel and the work to connect the original hotel to the older building alongside. It was drawn down in October 2006.

A company called Morrison Hotel Ltd (MHL) operates the hotel which it rents from the owners. The company is 92 per cent owned by O’Regan, with his long-time business partner, Martin Conroy, holding the remainder. The two men were directors of the company, as is Dolores Barry, a director of a number of O’Regan’s businesses.

As part of the deal for the loan, the owners assigned their leases to Anglo. MHL was paying the owners in excess of €800,000 per quarter in rent but the money, in fact, went straight to Anglo.

According to O’Regan and the others in MHL, the hotel operating company put approximately €2 million into work on the hotel and the connection with the building next door. There was a long snag list, and the business of the hotel was disrupted. Also the hotel was hit by the general, sharp downturn in business generally.

By 2008, the hotel operator was under pressure. According to O’Regan, Conroy and Barry, during the course of 2008 it was agreed that the landlords would give their tenant – the hotel operator – a credit of €2 million in recognition of the money it had invested in the hotel.

When Conroy gave evidence about this, he said the idea was first mooted to him in February 2008 by O’Regan and agreed between them about two months later. But then he changed his evidence and said he was unsure about dates.

Barry, in her evidence, also said there was an agreement and that she was told about it by O’Regan. “Was it an agreement by O’Regan with himself?” asked Paul Sreenan SC, for Ferris. No, said Barry. It was between O’Regan and Conroy, with Conroy being the representative of MHL.

O’Regan, in his evidence yesterday, said the agreement in July 2008 was “me basically talking to me”. It was, he said, “a thought”. He never consulted his co-owners, Kelly and Dunning.

He was, he explained, going through “a really traumatic time” because of pressures on his business interests generally, and he was trying to sort matters out.

What is undisputed is that, although the amount involved was significant to MHL’s ability to trade, no note was taken of the agreement, no directors’ meeting of MHL minuted the deal with the landlord, and no adjustment was made to the inter-company account that at the time recorded MHL as owing €2.6 million to the landlords.

Money had been spent on fixtures and fittings for the hotel. Chairs for the bar, TVs for every room and some artwork were bought. By June 2008 MHL was having cashflow difficulties but when O’Regan sought a moratorium on payments to Anglo, the bank refused. However, it agreed a leasing arrangement in relation to the fixtures and fittings. A sale and leaseback was arranged, with Anglo getting the stuff and MHL getting €1.4 million. This happened in July 2008. Immediately more than €800,000 of this was used to pay the rent for the second quarter of 2008, which was overdue. The remainder of the money went to another business with which O’Regan was involved, Dale Associates. Barry was also a director of this company, which had advanced €4 million to MHL.

Despite the Morrison’s difficulties, O’Regan was busy with other, bigger projects. In September 2008, Clubko Ltd got a €22.5 million loan from Anglo as part of its plans for 8 St Stephen’s Green, which O’Regan wanted to develop as an exclusive gentleman’s club. According to David Casey, then of Anglo, the bank issued the money even though it no longer had faith in the club’s business plan.

Casey told the court Anglo took legal advice and was told it was committed to the loan. O’Regan said this loan might have “flipped” his relationship with the bank. Clubko is now in receivership.

As 2008 turned into 2009, O’Regan’s group generally was under increasing pressure. In an internal e-mail, Anglo director Pat Whelan told Casey he felt the Morrison was heading for receivership, which would be embarrassing as O’Regan had just been given a loan for 8 St Stephen’s Green.

A draft report on the Morrison business was produced in April 2009 and highlighted the gravity of the situation. According to the MHL directors, it was about this time that more agreements were arrived at between the landlords and their tenant over the rent, though again no contemporaneous records exist. A rent holiday was agreed, until turnover was back up to €10 million per annum.

Meanwhile, O’Regan was persisting with an enormous project to build a new hotel in Kilternan, Co Dublin. He expressed pride yesterday in the fact that he secured a €180 million loan from Irish Nationwide for the project, last year. That project has also now collapsed.

In July 2009, Ferris was appointed by Anglo as receiver to Thomas Read, Clubko, and the landlord’s interest in the Morrison. O’Regan then put Thomas Read into voluntary liquidation. MHL is a subsidiary and continues to trade. It is, apart from some small rental income, O’Regan’s sole source of income.

In correspondence with solicitors for the receiver, solicitors for MHL started to outline, after the Ferris appointment, the set-offs and agreements it said existed between the landlords and MHL in relation to rent. In response, solicitors for Ferris said this was a “baseless, self-serving” attempt to frustrate Ferris.

What emerged in evidence was that while this correspondence was going on, O’Regan and Barry were in e-mail correspondence drafting a document headed “Memo of agreement of April 2009 between Hugh O’Regan and MHL”. Deals that the memo recorded as having been made in April, such as the 2009 moratorium on rent payments, appeared in later drafts but not in earlier drafts.

The three MHL directors rejected the suggestion that the agreements outlined in the memo were in fact designed to “stymie” Anglo and its receiver. The case is being heard in the Four Courts but Barry gave her evidence by way of video link from the nearby Distillery Building. She was suffering from stress and mental exhaustion, and psychiatry professor Ivor Browne was in attendance.

O’Regan said he is living on €3,000 a month from the Morrison and would soon be vacating the offices at 14 St Stephen’s Green from which he once ran what Mr Justice McGovern called his “business empire”. He said he almost suffered a nervous breakdown when his business group was put into receivership. A medical report was handed in when he was giving his evidence. However counsel Rossa Fanning for Ferris said O’Regan was lying to the court in order to protect his sole remaining income.