Zoe property group begins fresh High Court petition

Beleaguered developer Liam Carroll’s Zoe property group has begun a fresh application for court protection, claiming it has a reasonable prospect of survival based on a three year business plan supported by its major banker creditors.

Central to the group’s case for survival are its claims that mainstream economic opinion believes the recession will bottom out by 2010 with a general recovery beginning in 2011; the property market here will improve by 2011 and valuations by estate agents of some €644 million for the group’s properties in a ‘firesale’ and €1.2 billion over a 3-5 year period.

An independent accountant’s report by David Wilkinson of KPMG presented to the court also said Nama (National Asset Management Agency) will have a positive impact on Irish banks with credit becoming more readily available in 2010 and 2011 than now.

Reports by experts for ACC Bank take issue with several of the group’s claims.

A report by UCD Professor Morgan Kelly claims the Irish property market remains inactive despite substantial price falls, predicts the fall in property values will be “large and prolonged” with property prices possibly returning to mid-1990s levels, one third to half of their peak values, for the next ten years or longer.

When Michael Cush SC, for the Zoe companies, said Professor Kelly was “much more pessimistic” than other economists and the Zoe side had fully responded to his claims, Mr Justice Frank Clarke observed Professor Kelly was “laughed at” in 2007 when he predicted property prices here would fall by up to 50 per cent.

Professor Kelly was “almost right”, the judge said.

The judge also noted Bank of Scotland Ireland is the only bank who was actually stating it believed the group had a reasonable prospect of survival. BOSI has advanced a further €50 million to finance the group’s business plan, the court heard.

The application by the seven Zoe companies began today before Mr Justice Clarke in a packed High Court and is supported by or “not objected to” by the group’s major bankers. A number of creditors represented in court also supported the petition.

The Revenue Commissioners adopted a neutral stance while ACC is the only entity opposing the application. Lyndon MacCann SC, for ACC, said it was “a lone voice crying in the wilderness”.

The petition is by Vantive Holdings and Morston Investments Ltd — the two funding companies for the Zoe group — and four other Zoe companies: Villeer Developments; Peytor Developments; Carragh Enterprises Ltd; Parlez International Ltd and Royceton.

In the event of liquidation, the companies would have an excess of €1.1 billion liabilities over assets, according to the independent accountant’s report.

A previous petition for protection, also brought by Vantive, Morston, and other Zoe companies was rejected in recent weeks by both the High Court and Supreme Court which strongly criticised the absence of evidence to support the claims of a resonable prospect of survival.

Today, Mr Cush said there was considerable evidence now before the High Court addressing the previous High and Supreme Court criticisms, including letters from some banks about continuing to provide financing to the group.

Counsel said the court also had evidence, including a report from Dermot O’Leary of Goodbody stockbrokers, to the general effect the recession would bottom out in 2010 and recovery would begin in 2011.

There was also evidence the property market would improve and, “most importantly”, no challenge by ACC to the valuations provided by CBRE and Hooke & McDonald for each individual property of the group, he said.

While ACC had questioned the methodology by which those valuations were reached, it had not disputed the actual figures provided. John McCann of BNP Paribas had provided an affidavot for his side to the effect the methodology was valid, counsel added.

Mr MacCann said his side had understood there were issues of confidentiality concerning the valuations and that was ACC addressed the matter in the way it had.

Mr Cush said the issue the court had to decide was whether the group had a reasonable prospect of survival (RPS) but the test did not require it to prove “probability” of survival, especially where there was conflicting expert evidence.

There was also no guidance from case law about the projected period of time for survival.

His case was, by 2011, the group would be solvent in the sense it would have sufficient income to meet interest repayments on bank loans and would have a surplus of some Eu 20 million assets over liabilities (some €1.32 billion assets against €1.3 billion liabilities). He said income would come from rents, sales and dividends.

Counsel said the group also had the benefit of a moratorium on bank debt repayments provided by all major bankers except ACC and there were indications of possible further “flexibility” by the banks. The group was currently meeting some 68 per cent of its interest repayments and the bank’s moratorium essentially ensured the group’s solvency for some 15 months or longer.

The case continued today when ACC will outlined its opposition to the application.