McKillen bids to halt transfers

 

Businessman Paddy McKillen has told the High Court that he has been treated unfairly by having his loans transferred to the National Asset Management Agency.

Counsel for Mr McKillen, whose legal challenge against Nama and the State began this morning, said the procedures adopted by the agency was a denial of the businessman's constitutionally protected rights to fair procedures.

Mr McKillen is trying to stop the transfer of about €2 billion in bank loans to Nama, claiming that it will be "the cause of significant adverse effect on him and his companies, and particularly on their financial well-being".

Michael Cush SC, for Mr McKillen and 15 of his companies, told a three-judge division of the court that it would not be in his client’s nature to bring this action at this time but for his absolute conviction that he has been treated unfairly.

Nama was set up by the Government last year to remove the most toxic loans from the banks. It is acquiring bad land and development loans and associated investment property and other loans totalling €73 billion from five banks.

The court was told that Mr McKillen is a property investor rather than a developer. His properties are valued at between €1.7 billion and €2.8 billion and there are loans totalling about €2.1 billion secured against those properties with banks participating in Nama.

Mr Cush said that all of the loan repayments are being met and that in aggregate the income being generated on the properties amount to 1.7 times the required interest to be paid.

There are 62 properties and they are shopping centres, hotels and offices, generating €150 million in income a year. They are 96 per cent let to "blue-chip tenants" on 25-year leases, said Mr Cush, which was a "truly remarkable figure in the current climate".

The interest cover might have fallen below the permitted ratios on some loans as agreed with the banks but in aggregate terms it was well above the typical level of 1.2 times interest cover.

Mr Cush said that 26 per cent of Mr McKillen's property portfolio is in Ireland, with most of the remainder in the UK, France and the US. Just 2.5 per cent of his portfolio was land and development.

Representing the State in court is the Attorney General, Paul Gallagher SC, with two other senior counsel, before the President of the High Court, Mr Justice Nicholas Kearns, with Mr Justice Peter Kelly and Mr Justice Frank Clarke.

Counsel for Mr McKillen claimed that the definition of development loans in the Nama legislation was "exceptionally broad" and that the powers of the agency were "extensive".

The definition on eligible bank assets for transfer to Nama was "extraordinary broad" and had a "cascading effect" bringing in other loans held by a borrower.

The legislation also stacked the odds against the banks in seeking to object against the transfer of particular loans, Mr Cush told the court.

Borrowers moving to Nama are not entitled under the legislation to know if their loans are moving to the agency and the grounds for which they are moving. They also cannot make representations to stop them moving, said Mr Cush. Borrowers "can do absolutely nothing", he said.

"This must be the most complete statutory shut-out that has come before the court," he said, adding that Nama's procedures were a "total abrogation" of fair procedures.

Mr Cush said his case centred on five key points — (1) the procedure adopted by Nama and the broad definition of “eligible bank assets” in the Nama Act denied Mr McKillen’s constitutional right to property and fair procedures.

There was no legal case which allowed complete abrogation of the right to make representations
prior to acquisition of loans and Mr McKillen was shut out by the Nama Act from any remedy.

It was also argued (2) that Nama, in exercising its discretion whether to acquire the loans, failed to have regard to relevant considerations and (3) the December 11th/14th 2009 decision to acquire the loans was taken at a meeting prior to the actual establishment of Nama, was not validly ratified and was null, void and of no effect.

Having regard to the February 2010 European Commission decision approving Nama, it was argued (4) at least some of a borrower’s loans must be impaired before any are acquired but none of Mr McKillen’s loans were impaired. If that was incorrect and it was also wrong to argue fair procedures must be read into the Nama scheme, then (5), the relevant provisions of the Nama Act are unconstitutional given the breadth of the definition of eligible loans.

Nama’s only record of its decision to acquire €2.1 billion in Mr McKillen’s loans was contained in one word — “disagree“- on an Excel spreadsheet, counsel said.