Court hears €25m AIB loan case

A former senior banker with Allied Irish Banks has told the Commercial Court he is “sceptical” how anyone could have concluded the final terms of an AIB €25 million loan did not involve full recourse to all borrowers.

The loan to businessman Philip Lynch, his family and developer Gerry Conlan was to buy development lands in Waterford.

Tom Barry, formerly head of AIB Corporate Banking, said most business lending by AIB, even at the height of the property bubble, was recourse lending. He did not believe AIB would contemplate a non-recourse loan for development land, including the Waterford lands.

The final AIB loan letter signed by the Lynchs and Mr Conlan on February 8th, 2007, was a full recourse loan, he said. He would be “amazed” a solicitor would think it was non-recourse and believed no person with business experience could conclude that.

However, because an earlier draft loan letter included a condition stating AIB had recourse to Mr Lynch and Mr Conlan, that created potential for confusion, he said.

It would have been prudent for AIB, when deciding to remove that condition in its final loan letter, to have acted on advice from its solicitors to make clear the final letter involved full recourse to all borrowers, he said. If that had been done, there would have been “no confusion”, he agreed.

He also believed, if AIB was told Philip Lynch was withdrawing from the €25 million deal, leaving just Mr Conlan in it, this would have been a “significant negative” for the bank in deciding whether to lend the funds.

Mr Barry reviewed some 13 other loans to some members of the Lynch family and concluded from that review that Philip Lynch, his wife Eileen, son Paul and daughter Therese had engaged in recourse borrowing.

A €1 million Bank of Ireland loan to Eileen Lynch to buy shares in One51 investment group was, in his view, high risk if repayment depended on shares. Shares in One51 were “highly illiquid” and had dropped from €6 a share in 2007 to €1 a share in 2010, he said.

A €1 million Bank of Ireland loan to Philip Lynch to invest in a Redquartz property development at Sawgrass, Florida, was “even higher risk”, he said.

In his witness statement, Mr Barry noted documents discovered by AIB outlined Mr Conlan had loan exposure of some €226.6 million to AIB in late 2006, €14.6 million cash on deposit and a net worth stated to be some €190 million. Mr Barry said he had concluded Mr Conlan typically borrowed from AIB on the basis of full legal recourse to himself.

Mr Barry gave evidence yesterday in the action by Mr Lynch and his family against AIB and two firms of solicitors - LK Shields and Matheson Ormsby Prentice - aimed at preventing the bank pursuing them over the €25 million loan. The family claims they always understood the loan was non-recourse.

AIB denies that claim and is counterclaiming for €25 million judgment orders against the Lynchs and, in separate proceedings, against Mr Conlan. Both law firms deny negligence.

Mr Barry, who was asked by LK Shields to prepare a witness statement for the case, denied suggestions by Brian O’Moore SC, for the Lynch family, he was not an independent witness on grounds including the fact he was formerly employed by AIB and because of dealings between AIB and the Irish Agricultural Wholesale Society.

Mr O’Moore queried Mr Barry’s expertise in business matters and said he was “very troubled” about Mr Barry’s evidence related to the risk nature of other loans to the Lynch family. Brian Kennedy, for LK Shields, said Mr Barry was asked about those matters by his side to support its claim the Lynchs entered into risky transactions.

Earlier, Laurence Shields, founder of the LK Shields firm, agreed he and Mr Lynch got on well for about 25 years, including socially, and that Mr Lynch put a lot of trust in him.

He said he was not personally involved in events in 2006 and 2007 leading up to signing of the €25 million loan. He agreed an email sent by a solicitor with LK Shields to the Lynchs on February 8th 2007 stated the loan involved no legal recourse to the Lynch family and Mr Conlan.

He denied, when the Lynch family had certain contacts with his firm in 2009 about the loan, his firm had a conflict of interest. He was not aware the family were in contact with other solicitors at a stage in 2009 when they were also in contact with his firm, he said.

The case, before Mr Justice Michael Peart, has been adjourned to May 3rd.