Carroll fails to get court protection for Zoe firms
Property developer Liam Carroll has failed to get court protection for companies in his Zoe group.
A High Court judge today refused to continue court protection to the firms in the building group after rejecting as “fanciful” and “lacking in reality” survival proposals heavily dependent on a greatly improved property market which suggested the companies could turn a €1 billion deficit into a €300 million surplus within three years.
Mr Justice Peter Kelly granted, “with misgivings”, a stay on his refusal pending an appeal to the Supeme Court on Tuesday.
He also expressed the view the proposed survival scheme for the six companies (on whose fate many of the other 51 companies in the Zoe group depend) “seems envisaged to help shareholders whose investment has proved to be unsucessful”. That was not the objective for which the examinership legislation was envisaged, he said.
All of the group’s major banker creditors and the Revenue adopted a neutral stance towards the examinership application but ACC Bank, which prompted the protection petition by demanding repayment of €136 million loans earlier this month, signalled after today’s judgment it may yet move against the companies if the judge’s decision stands.
AIB and Bank of Scotland Ireland are the largest lenders with 40 and 23.8 per cent of the €1.1 billion borrowings respectively. The companies produced the three year survival plan after meeting with the banks last December and securing agreement of all except ACC.
The petition for protection was brought by Vantive Holdings which, with Jersey-registered Morston Investments Ltd, is the parent companies of around 50 companies known as Zoe Developments. It was moved after four companies - Villeer Developments, Peytor Developments, Caragh Enterprises Ltd and Parlez International Ltd - were presented with demands from ACC for the repayment of loans.
Refusing protection, Mr Justice Kelly dismissed as “lacking in reality” the views of an independent accountant Fergal McGrath (whom the judge noted is a member of the group’s auditors LHM Casey McGrath ) the companies could achieve “a remarkable turn around” within three years from a deficit of more than €1.2 billion to making a profit of some €300 million.
He noted the proposed survival scheme involved proposals to enhance site values through planning permission, the building out and development of existing sites and the aggresive marketing of completed residential commercial and retail units. It was claimed this would generate “a significant surplus” which would then be used to fund future development.
“Given current market conditions and with little or no prospect for improvement in the future on the basis of all the current economic indicators, this degree of optimism on the part of the independent accountant borders, if not actually trespasses, on the fanciful,” the judge said.
“What market is there likely to be over the next three years for the sale of sites even with planning permission and the sale of residential commercial and retail units?” he asked. “The commercial market, particularly in Dublin, where much of the companies’ properties are, is grossly oversubscribed and the residential sector is hardly moving at all.”
It was notable, since the companies’ business plan was initiated last December and the banks had paid off its ordinary trading creditors “except, notably, the Revenue”, and with an “aggressive marketing and competitive policy”, only 39 residential units had been sold notwithstanding the enormity of the developments carried out.
The plan involved “extraordinary” forbearance by the group’s banker creditors in agreeing to a two year moratorium on interest payments and effectively refraining from calling in massive loans. This forbearance was “remarkably absent” when the banks were dealing with smaller borrowers, he remarked.
“In truth the banks can do little else but forbear because if they take action to recover the monies due to them by these companies, they will bring about a collapse of the house of cards that is the petitioner, the related companies and indeed the wider group that is associated with them.”
The banks had therefore stood back and not only took no steps to recover the monies but some banks actually advanced more sums to pay off the companies unsecured creditors.
“It is sometimes said that when small or modest borrowers encounter difficulties in repaying their loans, then such borrowers have a problem. For those with larger borrowings, it is the banks who have a problem,” he said. “If ever a case demonstrated the accuracy of that proposition, it is this one.”
He had the “gravest reservations” about the projections on which the independent accountant relied given the extraordinary collapse of the property market and little of no indication of a revival in its fortunes.
The projections were based on discussions with the companies management and out of date valuation reports by two firms - CBRE and Hooke & McDonald, who could not be considered fully independent having worked for the group in the past.
The propsed survival scheme was also most unusual as it would not require any investment in the companies or a write down of debts. One or both such elements figure in practically all schemes relating to companies in examinership, the judge noted noted.
No investment was required because the banks would continue to provide funds towards development of the lands and no write down was envisaged because the banks were the only creditors, he noted.
In all the circumstances, he was not satisfied the companies had a reasonable prospect of survival. Even if so satisfied, he would exercise his discretion to refuse protection because there was “something artificial” about what was proposed.
The only creditors involved are the banks and they would be able in any event to take steps to reclaim their debts and deal with the property involved, he noted. They would be expected to maximimse its value as they saw fit.
The judge also noted the number of direct employees was about 100. Another figure of 650 mentioned was largely made up of subcontractors who would be required if the partly completed developments were to be finished, he said.
Earlier, the judge noted the six companies were part of a “Byzantine corporate structure” and their three directors were Mr Carroll, David Torpey and John Pope who respectively held a total of 203, 166 and 62 company directorships.