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McInerney Homes Ltd (in examination) & ors & Companies Acts
Neutral Citation:
[2011] IEHC 61
High Court Record Number:
2010 475 COS
Date of Delivery:
High Court
Judgment by:
Clarke J.

Neutral Citation Number: [2011] IEHC 61

2010 475 COS












JUDGMENT of Mr. Justice Clarke delivered the 17th February, 2011

1. Introduction
1.1 This examinership process has been one of the most hard fought in recent times. As evidence of that fact it is only necessary to note that this is the fourth written judgment which I have had to deliver during the course of the process. In addition, there were a number of oral rulings. Terms are used in this judgment with the same meaning as in the previous judgments.

1.2 When McInerney first sought the protection of the court by the appointment of an examiner, that application was strongly resisted by the Banking Syndicate. For reasons set out in a judgment delivered on the 24th September, 2010, Re McInerney Homes and the Companies Acts [2010] IEHC 340 (“the appointment judgment”), I was persuaded that it was appropriate to appoint an examiner. However, I took the unusual step of requesting the examiner to report back at an early stage on certain questions which seemed to me to be important for the purposes of deciding whether there was, in truth, any realistic prospect of an acceptable scheme of arrangement being brought forward for the rescue of McInerney. Arising from that, and subsequent, interim reports of the examiner a number of further contested hearings took place at which the Banking Syndicate opposed a continuation of the examinership. However, it seemed to me, for reasons which I addressed in oral rulings given on each such occasion, that it was appropriate to allow the examinership to continue as it seemed to me that there continued to be a realistic possibility of the examiner being able to produce a scheme which might, arguably, be capable of confirmation.

1.3 In passing I should note one matter concerning one of the interim rulings to which I have referred. I did note, in the course of one such ruling, that I was not persuaded that anything had changed sufficiently so as to lead me to discontinue the examinership. I have noted that some commentators have suggested that it might be inferred from those comments that the onus had shifted to those opposing examinership (in this case the Banking Syndicate) to establish that there was not a prospect of survival rather than the traditional jurisprudence which makes it clear that it is for a company or other petitioner seeking examinership to establish that the relevant company or companies has such a prospect of survival. I should simply note that no such change in the jurisprudence was applied. The reason for the comments to which I have referred stemmed from my view that the onus of establishing a reasonable prospect of survival which rested on McInerney at the initial appointment hearing had been discharged. An examiner had been appointed. In those circumstances it seemed to me that it would only be appropriate to bring the examinership to an early end if it became clear that the examinership could not be successful. It was in the unusual circumstances of this examinership, where I was called on to review the continuation of the examinership during its course, that it seemed to me to be appropriate to continue with the examinership unless it had been shown that matters had changed sufficiently to allow a conclusion to be reached to the effect that the examinership would not succeed.

1.4 Be that as it may, the examiner ultimately presented his proposals in the form of a scheme of arrangement. The Banking Syndicate opposed the confirmation of that scheme. For reasons set out in a judgment delivered on the 10th January, 2011, Re McInerney Homes and the Companies Acts [2011] IEHC 4 (“the confirmation judgment”), I was persuaded that the scheme of arrangement proposed was unfairly prejudicial to the Banking Syndicate and refused to confirm the scheme on that basis. The matter was put in some four days later for the purposes of making orders (including questions which were anticipated as possibly arising in the event that McInerney should wish to appeal). However, when the matter came back before the court counsel for McInerney invited me to revisit the confirmation judgment on the basis of what was said to be new information. For the reasons set out in a further as yet unreported judgment delivered on the 28th January, 2011, Re McInerney Homes and the Companies Acts (Unreported, High Court, Clarke J., 28th January, 2011) (“the revisit judgment”), I was persuaded that I should, on the limited basis set out in that judgment, reopen matters.

1.5 At least in very general terms the basis for and focus of the reopening was the likelihood or otherwise of those aspects of the Banking Syndicate’s loans which were held by B of I and Anglo Irish being acquired by NAMA. Further affidavit evidence directed to that end was introduced and a further hearing ensued. I should also note that in the run-up to that further hearing, McInerney sought both discovery and leave to cross examine some of the deponents of affidavits filed on behalf of the Banking Syndicate. In an oral ruling given after the hearing in question I indicated that I was not, at that stage, satisfied that either order was necessary, although I left over the possibility that, depending on the way in which issues might develop at the full hearing, it might be necessary to allow limited cross examination. In the event it did not seem to me, at the full hearing, that there were any issues which it was necessary to resolve and in respect of which cross examination would have been necessary to enable such a resolution to take place. To the extent necessary I will refer to this question when dealing with the specific areas of contention between the parties.

1.6 Finally, it should be noted that while McInerney took on the principal burden of attempting to persuade me that I should now reach a different conclusion to that set out in the confirmation judgment, the examiner also addressed some argument to like effect.

1.7 This judgment is directed to the issues which arose. I, therefore, turn to those issues.

2. The Issues
2.1 As indicated earlier and as set out in the revisit judgment, I was satisfied that the only question which it was appropriate to revisit was the extent to which a view as to the possibility or probability of the B of I and Anglo Irish loans going into NAMA might effect an assessment of whether it could be said that the Banking Syndicate was unfairly prejudiced.

2.2 However, within that overall question, a number of subsidiary issues arose. The issues appeared to me to be the following:-

      A. Certain issues concerning the proper approach of the court in the unusual circumstances which pertained in this case. It will be necessary to refer to those issues in greater detail in early course.

      B. The likelihood or otherwise of NAMA acquiring the B of I and Anglo Irish part of the McInerney loans.

      C. To the extent that those loans might not be acquired by NAMA, whether it is appropriate for the court to take any different view of the overall position in relation to prejudice than that set out in the confirmation judgment.

      D. To the extent that those loans might be acquired by NAMA, what the position of B of I and Anglo Irish would be in circumstances where, in that eventuality, it appears clear that B of I and Anglo Irish would simply obtain whatever amount was fixed as a result of the NAMA Act as being the appropriate amount to be paid by NAMA in respect of those loans.

      E. Also, in the eventuality that the relevant loans were acquired by NAMA, what the position of KBC would be in circumstances where the Banking Syndicate would then consist of NAMA and KBC with KBC having an approximate 26% share in the McInerney liabilities. Under this heading two subsidiary questions arose. The first was as to whether NAMA was likely to proceed, in those circumstances, with the long term receivership model proposed by the Banking Syndicate (which was the subject of detailed analysis in the confirmation judgment). The second was as to the position of KBC in the event that NAMA indicated that it did not wish to proceed with that long term receivership.

2.3 It seems to me that I should turn first to the question of the proper approach of the court to this application.

3. The Approach of this Application
3.1 The first point of note is that it is highly unusual for a court to revisit a written judgment after same has been delivered. In my view, in those circumstances, a court should be careful not to allow either party to seek to re-litigate matters which were already fully and fairly heard and determined at the hearing which led to the written judgment save only to the extent necessary to deal with the question or issue which led to the judgment being revisited. To permit such a course of action would be to court procedural chaos. Where, in exceptional circumstances, the court does allow a matter to be revisited, then the “revisiting” should be confined to whatever questions or issues led the court to consider that the interests of justice required such a revisiting to occur in the first place. No wider latitude should be permitted. It seems to me, therefore, that the only matters which it is proper for me to revisit at this stage are the various NAMA related matters to which I have referred. The only basis put forward for inviting me to revisit was the suggestion that there was now evidence of a likelihood of the B of I and Anglo Irish loans going into NAMA. It is only issues which derive from that question which can, in my view, properly be the subject of a revisiting at this stage. The other side of that coin is that the findings made in the confirmation judgment stand save only to the extent that it may be legitimate to look again at any aspect of the conclusions set out in that judgment in the light of whatever findings I must now make on the NAMA related issues.

3.2 In that context, it is necessary to say something about the findings made in the confirmation judgment and also about the fact that I declined McInerney’s application to cross examine at this hearing, insofar as both of those matters were urged as factors to be taken into account in relation to determining the proper approach to the issues which arose at this hearing.

3.3 I turn first to the question of the status of the findings made at the confirmation hearing. As is clear from the confirmation judgment, I concluded that the Banking Syndicate had put forward a credible case that the long term receivership model proposed could produce an income stream with a present value of about €50,000,000. Counsel for McInerney described that finding as representing a “low threshold”, presumably based on the fact that I went no further than determining that the Banking Syndicate had made out a credible case to the relevant effect. However, it seems to me that to so describe the confirmation judgment might be apt to mislead. It must be recalled that the reason why I felt that it was not possible to choose between the expert evidence tendered on behalf of, respectively, the examiner, McInerney and the Banking Syndicate, in the confirmation judgment, was the absence both of cross examination or any obvious flaws in the respective experts’ views. As pointed out in the confirmation judgment, it is possible for a court to reject expert evidence on one of two bases. First, it may be that contrary expert evidence is tendered and the court may prefer that contrary expert evidence in whole or in part. However, in order to reach such a conclusion it is necessary that both sets of experts be cross examined so that the weaknesses, if any, in the respective expert views can be tested and the court can reach an overall conclusion based on all of the evidence. As no cross examination occurred in this case such an exercise was not possible.

3.4 Second, it is, of course, open to one side or the other to point to what are said to be obvious flaws in the expert evidence tendered by its opponent. If the court is persuaded that such flaws exist, then the court can reject the evidence to the extent that the flaw identified may undermine all or appropriate aspects of the evidence. As an example of such an exercise it is perhaps appropriate to refer to Hanafin v. Minister for Environment [1996] 2 I.R. 321. In the course of the hearing of the election petition in that case, expert evidence was tendered on behalf of the petitioner to the effect that expenditure by the government in promoting a yes vote in the so called Divorce Referendum (which expenditure had been found by the Supreme Court to be unlawful in McKenna v. An Taoiseach (No. 2) [1995] 2 I.R. 10) had influenced the result of that Referendum so that the result of the Referendum should, it was argued, be set aside. For reasons carefully analysed in both the judgment of a divisional High Court and the Supreme Court, a non-suit was allowed by the High Court and sustained in the Supreme Court on the basis of both courts’ view that the expert evidence tendered by the petitioner did not stack up to a sufficient extent to meet the onus of proof. That analysis, of course, arose in a case where there was no competing evidence as the application with which the courts were concerned was a non-suit application which occurred after only the petitioner’s evidence had been tendered.

3.5 For reasons which I set out in the confirmation judgment, I was not satisfied that there were any such flaws in the expert evidence of the Banking Syndicate in this case. It is in that context that the term “credible case” needs to be seen. The Banking Syndicate’s evidence had been challenged on both of the above bases. Contrary expert testimony had been put forward but there had been no cross examination. Argument had been put forward suggesting obvious flaws in the Banking Syndicate’s expert analysis, but that argument did not persuade me that such flaws existed.

3.6 It follows that, for the purposes of these proceedings, I must take the Banking Syndicate’s position on the long term receivership model (as established on that credible basis by its experts) as being the case. As noted in the confirmation judgment, in a case where cross examination takes place in relation to experts’ views as to the likely course of future events, the court may come to a range of conclusions. In some cases it may be possible to estimate with some significant degree of precision what is likely to occur. For example, the “value” of a property is taken to be the price for which a willing vendor would sell and which a willing purchaser would be prepared to pay. In the absence of an actual sale on the open market, after proper promotion, then a view as to “the value” of a property is an expert estimate of what would, in theory, happen, if the relevant property were offered for sale. In a proper and ordinarily functioning market, and in circumstances where there were no unusual features to the asset under sale such as made prediction as to its likely value problematic, then it would be expected that there would not be too great a difference between the views of experts as to the value of the asset concerned. However, it is not an exact science. Where a court may have to pick on an exact figure as to the value of an asset for the purposes of any particular piece of litigation (for example because the value of an asset may form part of the proper calculation of damages), the truth is that determining one exact figure as the value is a convenient and sensible, if slightly inexact, description. The truth is that there is probably a range of possible outcomes to the theoretical sale which might be contemplated. Provided that the market is functioning well, then it is likely that that range would be narrow, in the absence of unusual circumstances. Picking the centre point of that range is as realistic a way of fixing a value as any other.

3.7 The prediction of the outcome of a complex and long-term process such as the proposed receivership model put forward on behalf of the Banking Syndicate is, of course, a lot more problematic. The range of factors, which could, arguably, affect the outcome, are many. One might, for instance, consider the likely progress of house prices over the next ten years, the trend in building costs, the state of the Irish economy as a whole (which might well influence both of those factors), the extent, if any, to which a receiver or a receivership vehicle might find it more difficult to build at the same price or sell at the same price as a company such as McInerney, and a host of others. In those circumstances, it is hardly surprising that there might be legitimate views about any or all of those and other factors which might lead, in turn, to there being a much wider range of possible outcomes which competent experts might predict. In many such circumstances, the court may take the view that there are a wide range of outcomes which can realistically be expected. In some circumstances, such as when it is necessary to award damages today, it may be that the court, nonetheless, has to reduce that wide range of possibilities to a single figure. In those circumstances, the court will conduct an exercise of assessing the range of possible outcomes and the likelihood of any particular part of that range occurring, and come to what seems to be a fair, single figure.

3.8 The exercise with which I was concerned at the confirmation hearing was somewhat different, in that the question which needed to be addressed was as to whether the Banking Syndicate could be said to have been unfairly prejudiced. In turn, relying on In Re Traffic Group [2008] 3 I.R. 253, I expressed the view that a creditor who was likely to be disproportionately worse off under a proposed scheme of arrangement compared with an alternative result such as liquidation or receivership, would have a strong case for establishing unfair prejudice. The position of the Banking Syndicate under the scheme of arrangement was, of course, fixed at €25,000,000. The likely outcome of the receivership model, as proposed by the Banking Syndicate, would, of course, give a whole range of possible results. However, on the basis both of the evidence and the way in which the case was approached, I was satisfied that the Banking Syndicate had put up a credible basis for its contention that that outcome approximated to a present value of something of the order of €50,000,000, thus, clearly, establishing unfair prejudice. Had there been cross-examination it might, of course, have been the case that I would have taken a view that the range of likely outcomes was somewhat different from that proposed by the Banking Syndicate and might have had to have engaged in a more detailed analysis of whether, having regard to the range which I considered realistic after cross examination, it could be said that the Banking Syndicate was unfairly prejudiced. A creditor, for example, who may be able to point to some possible, though remote, eventuality, which might lead to them being better off under a liquidation, is unlikely to be able to satisfy the court as to unfair prejudice. On the other hand, a creditor who can point to a significant probability of being worse off by a material margin under a proposed scheme may be in a much different position. In between, it would be necessary for the court to conduct an appropriate analysis and come to a fair overall conclusion.

3.9 However, to describe the position that pertained at the confirmation hearing as one in which the Banking Syndicate only met a low threshold is, in my view, an inappropriate way of looking at things. The Banking Syndicate produced a prima facie case that it would achieve results approximating to a current value of €50,000,000. It was not possible to reject that prima facie case in the absence of a contrary expert view coupled with cross-examination (which did not occur), or the establishment of obvious flaws (of which I was not persuaded). The end position was, therefore, that the expert evidence of the Banking Syndicate stood. That position remains. It is not open to McInerney to seek to go behind it. I must, therefore, in my view, approach this judgment on the basis that the relevant expert evidence tendered on behalf of the Banking Syndicate still stands and still forms an appropriate part of the assessment which I must now make.

3.10 On the subject of the absence of cross-examination (despite McInerney’s request) at this latest hearing, it is necessary to make a number of comments. First, it must be recalled that I did not reject cross-examination outright. Rather, I indicated that I was not, at the time of the relevant application, persuaded that cross-examination was necessary to resolve any issues which might arise. I did, however, indicate that it might be that, as a result of the hearing, cross-examination might be necessary to resolve conflicts of fact which were necessary of resolution in order to reach a fair conclusion. In that context, I required counsel for the Banking Syndicate to arrange that the relevant deponents would be available in the event that cross-examination became necessary. It is important to remember, therefore, that had it appeared that there was a conflict of fact, which required to be resolved in order that a fair determination be made, then cross-examination remained available. Second, it did not, in the end, appear to me that there were any such conflicts, and, insofar as relevant, I will refer to the issues in question while analysing the evidence. In those circumstances, it does not seem to me that the absence of cross-examination is relevant one way or the other.

3.11 In the context of McInerney’s application to cross examine it should be recalled that the principal basis on which McInerney sought to have me revisit the confirmation judgment was an email from a Ms. McSparran of the B of I legal department. That email seemed to imply that a transfer of the B of I McInerney loans to NAMA was imminent. Ms. McSparran has since sworn an affidavit indicating that she had no formal or informal information on whether the loans in question were to be acquired by NAMA. She stated that she used NAMA as a means of seeking to expedite the due diligence process. It was not sought to cross examine Ms. McSparran and I, therefore, accept her explanation. It is said on behalf of the Banking Syndicate that it follows that the basis for seeking to have the confirmation judgment revisited no longer holds. There is a sense in which that is true. However, it is now clear on the evidence that the inference sought to be drawn from the email in question is largely true. It is, in fact, highly likely (although not, as one might have inferred from the email, certain) that the relevant loans will go into NAMA. There is, therefore, a real basis for looking again at the conclusions reached as to prejudice in the confirmation judgment for to assess prejudice without taking into account the NAMA consideration would be unreal.

3.12 In summary, it seems to me, therefore, that the question that I need to ask is whether the new materials in relation to the NAMA question can lead to a different conclusion as to unfair prejudice. I must approach that question on the basis that the Banking Syndicate’s expert evidence concerning the likely outcome of the long-term receivership model stands and remains the proper basis for my judgment. Against that background, it is necessary to turn to the NAMA-related issues which I have already identified. It seems to me that the first two issues can be dealt with quickly and can be taken together.

4. The Likelihood of the Loans going into NAMA and the Consequences of the Loans not being so Acquired.
4.1 At the end of the day, there did not seem to me to be any significant difference between the parties on the first of those questions. Mr. Michael Murray, who gave affidavit evidence on behalf of B of I and the Banking Syndicate, accepted that it had always been his view that NAMA would acquire the loans, although he suggested that that eventuality was not certain, and pointed to the fact that in the case of the Pierse Group of Companies, NAMA had not acquired the relevant loans when Pierse was the subject of a failed examinership. Precisely what factors influenced NAMA in deciding not to acquire the Pierse loans was not apparent and it was not clear to me what weight, if any, could really be attached to the Pierse example. Precisely how one describes the likelihood of the loans of B of I and Anglo Irish going into NAMA is, in truth, probably more a matter of semantics than substance. NAMA has, as is its entitlement, declined to express any view. In those circumstances the best the court can do is to estimate the likelihood on the basis of available material.

4.2 I am happy that my assessment of the issues which now arise should be conducted on the basis that there is a significant degree of likelihood (though not a certainty or virtual certainty) that the relevant loans will be acquired by NAMA. It did not seem to me that the cross-examination of any witnesses could lead to any more precise evaluation. What is to be predicated is what NAMA will do. All that any party to these proceedings can do is to point to the objective factors relevant to NAMA which might be material in NAMA deciding to acquire. Those materials were before the court and were the subject of argument. It did not seem to me that the opinion of any of the relevant deponents as to what was likely to happen, based on those materials, was capable of the kind of detailed analysis which might lead to a more precise view as to the likelihood of NAMA’s future actions. Nor did it seem to me that there was, in truth, any real dispute on the matter which was capable of being resolved.

4.3 So far as the second of the above matters is concerned, it seems to me that, for the reasons which I have already sought to analyse, I must continue to operate on the basis that, if NAMA should choose not to acquire the B of I and Anglo Irish loans, the Banking Syndicate will be significantly and unfairly prejudiced for all of the reasons set out in the confirmation judgment. For the reasons which I have already set out, it does not seem to me to be appropriate to go behind the findings in that judgment in that regard.

4.4 In summary, therefore, I must approach this judgment on the basis that there is a significant likelihood that NAMA will acquire the B of I and Anglo Irish aspects of the Banking Syndicate loans, but that if it does not so acquire, the prejudice to the Banking Syndicate will be exactly the same as that which led to me finding unfair prejudice in the confirmation judgment. In those circumstances, it is next necessary to turn to the position of B of I and Anglo Irish in the event that NAMA acquires their aspect of the Banking Syndicate loan.

5. The Position of Bank of Ireland and Anglo Irish
5.1 In the event that NAMA acquires the relevant loans, then it is obvious that the position of B of I and Anglo Irish will be dependent on the amount which NAMA will pay for those loans. Both the NAMA Act and the Regulations made under it provide for the valuation methodology to be adopted on the acquisition by NAMA of loans. The process is complicated but appears to follow a logical sequence. First, it would appear that, in the case of a loan in respect of property, a valuation of the underlying property which is given as security for the loan is conducted. It will be necessary to return to the date by reference to which that valuation is made in due course. However, obviously, in the case of property loans, a significant element of the valuation of the loan itself is a valuation of the security given for that loan. Certainly, in cases where there is no other likely means of repayment of the loan in question, other than out of the property which is given as security, then there may, in practical terms, be little difference between the value of the loan and the net realisable value of any security held.

5.2 However, it is a fundamental element of the NAMA legislation that NAMA should have regard to what is described as long-term economic value. Without going into great detail, the concept behind long-term economic value stems from an acknowledgement that the current market for property in Ireland is not functioning normally so that the amount that could be achieved today for an asset is probably below what could reasonably be expected to be achieved for the same asset when the market returns to normality, even allowing for the fact that an appropriate discount needs to be applied to reflect any risks involved in entertaining that delay, and also the delay itself. In the case of a normally functioning market, one would expect that the current value of an asset ought to be more or less the same as the long-term economic value, for those operating in the current marketplace are likely to broadly apply the same sort of criteria in assessing likely future movements in the value of the property concerned, coupled with an appropriate assessment of any relevant risks. Thus, in the case of a normally functioning property market, that market today will “price in” any possible future movements in the value of the relevant property, having regard to the likelihood of that movement occurring. However, the assumption behind the NAMA legislation is that the market is not now currently operating in a normal way, such that the current market value of property, in the sense of what could actually be achieved in the marketplace today, falls below that long-term economic value. In those circumstances, NAMA conducts an exercise of assessing the long-term economic value of the relevant property asset, which may involve assessing the value of any rent being received in respect of the property, and the likely price that could be obtained for the property in the future, both of which cash receipts being discounted appropriately to reflect both time and risk.

5.3 On top of that, NAMA also has to consider whether there are any other factors which influence the value of the loan beyond the value of underlying property assets on which the loan is secured. For example, where there are legal problems with the security then an appropriate discount has to be included. Where there are or may be other sources of payment on the loan in question (beyond the value of the relevant asset or assets), then that also needs to be taken into account. It is, after all, the loan which is being acquired by NAMA, and thus, it is the loan that needs to be valued.

5.4 Certain materials relating to the way in which NAMA has, in fact, operated, were put before the court. These materials included reports published by NAMA and a report of October, 2010 by the Comptroller and Auditor General into NAMA. Certain objective facts can be ascertained from those reports. First, at least at an overall or global level, valuations are given for the current market value of properties which were, or are anticipated to be, the security for loans to be acquired by NAMA. Up to the point of the Comptroller and Auditor General’s report, it would appear that 30th November, 2009, has been used as the valuation date for such property valuations. Likewise, evidence was tendered on behalf of B of I and Anglo Irish, that, to date, all loans have been assessed on the basis of a property valuation as of that date. It is true to say that the NAMA Act permits NAMA to fix different dates for different loans so that there is no guarantee that that date will be used for all loans. However, it does appear, on the evidence, that it is highly likely that that date has been used on all loans up to this point. It would be surprising if a different date were used for participating institutions, other than B of I and Anglo Irish. To the current property market value figure is added an uplift to reflect long term economic value. It would seem that that uplift is calculated by reference to a detailed analysis of the likely returns from any relevant property, whether in the form of rent or an ultimate sale, discounted in accordance with a table which has been determined by NAMA and is referred to in the Controller and Auditor General’s Report. While it is not possible to say what the uplift in any particular case may have been, the overall figures produced suggest that the long term economic value is taken to be a significant margin above the current market value. However, from that sum needs to be deducted the existing costs of NAMA in respect of due diligence (that is the cost of investigating the proper value of the loan to be acquired) together with a provision in respect of future costs of enforcement. This latter figure, as I understand it, reflects the fact that, in order to recover the long term economic value, NAMA may have to spend money on enforcing at least some of the loans so that the true value of the loan to NAMA must be reduced by making an appropriate allowance for the fact that NAMA will have to expend such monies as part of recovering whatever it can on the loan.

5.5 At a global level it would appear that, in respect of the first tranche of loans acquired by NAMA, the amount of the “uplift” to reflect long term economic value slightly exceeded the cost of due diligence and enforcement so as to leave the amount actually paid slightly above the current market property value. On the second tranche it would appear that the costs of due diligence and enforcement exceeded the uplift so that the amount paid was slightly below the current property value. Precisely what inference can be drawn from those undoubted facts must be open to very considerable doubt.

5.6 First, all of the figures are given at a global level and doubtless mask significant case to case variations. Second, the explanation for the difference between the fact that, in the first tranche, the amounts actually paid slightly exceeded the current market value of the underlying property with the fact that, on the second tranche, the amount actually paid was less than the current property market value may, and I emphasise may, be at least partly explicable on a basis put forward by counsel for McInerney. That suggestion stemmed from the fact, which only became apparent as a result of affidavits filed in the course of the hearing, that the date of 30th November, 2009, appears to be used universally as the property valuation date. However, the long term economic value of the property asset concerned is based on an assessment of money that is actually likely to come in in respect of that property at some stage in the future. It may well be that, as time goes on, any such estimation as to the likely future value to be obtained in respect of properties may reflect current market conditions rather than the conditions which obtained in November, 2009. If that be so it might be realistic to expect that the long term economic value would be somewhat less today than it would have been at a somewhat earlier stage, for the estimation of the likely receipts to be had in the future in respect of any property may need to be downgraded as a result of any deterioration in the property market which might be anticipated to effect the likely return form that property in the future. Whether this is in fact so is impossible to tell. It merely represents one possible explanation.

5.7 Under this heading it seems to me that the starting point has to be to note that there are only two parties who would have been in a position to give the court more information as to how a valuation by NAMA of the McInerney loans is likely to be carried out. The first is NAMA. NAMA declined to make any information available. The second are those members of the Banking Syndicate who have experience in dealing with NAMA. It must be the case that experts employed by the various participating institutions in NAMA have acquired significant expertise in the way in which NAMA actually values loans which it acquires. Those experts will have been involved in putting forward the materials relied on by the relevant financial institutions for their own valuations. Those experts will, doubtless, have seen what the ultimate result in individual cases was. It must be highly likely that any such expert would have been in a position, from their expertise and their experience of dealing with NAMA, to have given a real view on what the likely outcome of a NAMA valuation process in respect of the McInerney loans would be. No such evidence was tendered.

5.8 The absence of such evidence must, of course, be put down to B of I and Anglo Irish, for it is those parties who would have had access to the relevant expertise. In the absence of such evidence I have to do the best I can. I accept that it is likely, on the evidence, that NAMA will value property as of November, 2009. It is probable that that valuation would be significantly higher than a valuation of the same property conducted in the middle or latter part of 2010, for it is clear that the property market continued to fall during that period. By how much the earlier valuation would have exceeded the latter is something on which one can only speculate. Earlier valuations by McInerney were made on a going concern basis which may not accord with NAMA’s valuation methodology. The extent to which the long term economic value of the relevant properties might exceed their current market value (at November, 2009) is again a matter of speculation. There is at least a case for the proposition put forward by counsel on behalf of McInerney which suggests that, along with the worsening property outlook would come a more pessimistic long term economic value for the likely long term receipts from any given property. Whether this is so or not is impossible to tell. Doubtless experts who have had the benefit of dealing with NAMA over time might have been able to assist, but no such expert evidence was made available. It is a fact that, as and between tranche 1 and tranche 2 of the loans going into NAMA, the position of the amount actually paid vis-à-vis the property current market value disimproved by a material amount. If that position is, at least in material part, due to a worsening property value outlook, then it might be expected that the position would dis-improve further in the case of a valuation being conducted today because of the continuing decline in property values which the evidence suggests has occurred. If that be so, then there is a real risk that any gain which McInerney might achieve by having its properties valued, for property valuation purposes, as of November 2009, as opposed to today, might be offset by a more pessimistic view of the uplift that might be attributable to long term economic value which, when also offset against any due diligence and recovery costs, might lead to a significantly reduced sum being paid for the loans.

5.9 It should be noted that the NAMA valuation methodology also makes an allowance for so called “qualifying advances” being amounts advanced by the relevant bank to the borrower after the NAMA process began. There were significantly conflicting figures put forward by the Banking Syndicate and McInerney as to the amount of the qualifying advances that would be allowed to B of I and Anglo Irish in the event that NAMA should acquire the McInerney loans. It is not possible to resolve that dispute nor did it ultimately seem to me to be necessary to resolve it. Qualifying advances are, in fact, taken into account in the figures for the relationship between current property market value and amounts actually paid by NAMA to which I have already referred.

5.10 I also gave some consideration to the question of whether any inferences could be drawn from the expert views on the value of the long term receivership model as a guide to a possible NAMA valuation. After all I have already ruled those expert views to be credible and to represent the appropriate basis for assessments to be made in this judgment. It is, indeed, clear that NAMA can advance funds for working capital to allow further development take place if such development meets NAMA’s criteria so that ongoing development is not, of itself, inconsistent with the NAMA scheme. It might be suggested that a credible €50,000,000 present value of that model would suggest a NAMA valuation for the whole loan well above €25,000,000 (B of I and Anglo Irish would, of course, only get their proportion of that sum). However, I am not satisfied that any such inference can be drawn. There are a number of reasons for this. First, it is by no means clear that the NAMA valuation methodology would be comparable with that model which includes positive and profitable cash flows deriving from future developments on what, at least in some cases, are green field sites. Second, the relevant discount rate taken from figure 2.1 of the Comptroller and Auditor General’s Report (being the figure for land and development loans with a loan to value ratio of 100% or higher) would seem to be 15.89%. It will be recalled that the discount rate used by the Banking Syndicate experts was less than half that. As much of the positive cash flow is anticipated to arise in the later part of the 10 to 11 year period of the receivership, the application of such a large discount rate would have a very significant downward effect on the present value. For these and other reasons there does not seem to me to be any inconsistency between accepting a €50,000,000 present value on the receivership model and not being satisfied that NAMA would necessarily value the full loan at significantly more than €25,000,000.

5.11 Frankly, attempting to predict what NAMA might pay for the loans in question is, on the basis of the materials which were before me, a matter of little more than pure speculation. I am not, therefore, satisfied that it is appropriate to conclude that it is likely that B of I and Anglo Irish would do significantly better in a NAMA valuation today than they would under the scheme of arrangement. Nor am I satisfied that cross examination of deponents on their affidavit evidence would have advanced matters under this heading.

5.12 In dealing with that point I should touch on a final argument put forward on behalf of the Banking Syndicate. Argument was advanced to the effect that it would be surprising if the Banking Syndicate did not believe that it was going to do better in a NAMA acquisition than under the scheme of arrangement, for otherwise, it is said, the Banking Syndicate would have accepted the amount on offer under the scheme of arrangement. There is certainly some logic to that position. However, in the absence of any realistic basis for assessing just by how much the Banking Syndicate might expect to do better and, indeed, whether its position in relation to any decision taken now by NAMA to acquire loans may be less beneficial than a decision that might have been taken some months ago when the Banking Syndicate originally decided to oppose these measures, it is very difficult to assess what weight should properly be attached to the possibility that the Banking Syndicate might do better from NAMA. That is particularly so in circumstances where, for the reasons which I have set out, its seems to me that the Banking Syndicate could have put before the court more detailed and cogent evidence as to the “claims experience” in respect of NAMA loans which might have allowed for a realistic appraisal of the value which NAMA was likely to put on the loans in question. If B of I and Anglo Irish have really assessed the relative likely outcomes with the benefit of expert advice then it is surprising that that analysis was not placed before the court.

5.13 All in all, it seems to me that I should conclude that there is a possibility that NAMA might pay more to B of I and Anglo Irish than is available under the scheme of arrangement but that the chances of that happening and the extent to which it may be realistic to expect that it might happen, are so speculative as to provide little basis for a real assessment of prejudice.

5.14 Against that background, it is necessary then to turn to the question of KBC.

6. The Position of KBC
6.1 Two questions arise under this heading. KBC is not a participating institution for NAMA purposes. Therefore, it is clear that NAMA cannot acquire the KBC aspect of the McInerney loans. In the event that NAMA acquires the rest of the loans, then the question which arises is as to what happens next.

6.2 The more straightforward question is as to the extent to which KBC’s agreement would be necessary in order for NAMA to enforce the McInerney loans by means of sale of McInerney assets.

6.3 There was much debate at the hearing before me concerning the NAMA guidelines in relation to the way in which NAMA proposes to deal with non-participating institutions. Those guidelines are made under the NAMA Act but are, as was pointed out by counsel for McInerney, subject to the Act. It should, however, in addition be noted that some of the provisions in the guidelines are included by virtue of undertakings given by the Government to the European Commission in the course of the process which led to the making by the European Commission of a decision which had effect of permitting the NAMA scheme to be put in place, notwithstanding European State Aid Rules. It is unnecessary to go into the detail of those issues save to note that they were fully explored in Dellway & Ors v. NAMA & Ors in both the divisional High Court [2010] IEHC 364 and the judgment of Fennelly J., writing on that topic for the Supreme Court [2011] IESC 4. The only point of relevance to this judgment is that, insofar as the Code of Practice may be designed to implement commitments given in clear terms by Ireland to the Commission, it may be that those commitments are directly effective such that the Code of Practice may have an additional status in that regard. As the Commission decision was designed to prevent unfair state aid, it had a particular focus on ensuring that non-participating institutions were not unfairly disadvantaged.

6.4 For example the Commission Decision at para. 127 records a commitment by the Government that vesting orders will not be used in the content of syndicated loans without the agreement of all syndicate members. Other similar commitments are noted which are designed to ensure that powers which NAMA might have (beyond those which the original lender might have had) are not to be used to prejudice the position of non-participating institutions who may have an interest in the same loans or properties. These commitments are reflected in the Code of Practice.

6.5 It seems to me, therefore, that the appropriate way to approach the question of the legal position as and between KBC and NAMA is to look at the position that now pertains between B of I and Anglo Irish, on the one hand, and KBC, on the other hand. The issue under the heading seems to turn on the proper interpretation of Clause 6(h) of the so called inter lender agreement, being an agreement entered into between the lenders to McInerney. That Clause provides as follows:-

      “With the consent of the Lenders to discharge any charge created by the Security insofar as it relates to all or any part of the undertaking property or assets of any member of the MCH Group on such terms as may be thought fit by the Lenders.”
It seems clear from that Clause that a unanimous decision of all of the lenders is required in order that security be discharged. It follows that, in the event of NAMA taking over the position of B of I and Anglo Irish under the loans, that agreement continues in force such that security cannot be discharged in respect of any part of the loans without the agreement of KBC.

6.6 On the other hand, it seems equally clear that, in those circumstances, NAMA will then, of itself, constitute an “instructing group” within the meaning of the Interlender Agreement because NAMA will then have more than 66% of the loan. NAMA will then be entitled, under the provisions of, for example, Clause 9.1, to direct that certain enforcement actions be taken.

6.7 The real question seems to come down to one of whether a sale by NAMA, as a mortgagee of the relevant McInerney assets, to a third party, as a means of enforcing the loan, amounts to a discharge of security for the purposes of Clause 6(h). If it does, then it is clear that NAMA would not have the right to carry out that action without KBC’s consent for it is clear that a discharge of security requires a unanimous decision. On the other hand, if such a sale is not taken to be a discharge of security, then it would appear that NAMA, as successor to B of I, in its capacity as Facility Agent and Security Trustee under the Interlender Agreement, may well be entitled to sell without KBC’s consent. It would be wrong to reach any concluded view on this question. It may come about that the B of I and Anglo Irish loans are acquired by NAMA and that a dispute arises between NAMA and KBC as to their respective entitlements in those circumstances. It would be wrong to prejudge that question especially in circumstances where NAMA is not a party and was not heard on the question.

6.8 In my view the most that can be done at this stage is to indicate that there are significant arguments either way. As this is a question of law no cross examination could have advanced matters under this heading.

6.9 The other question which arises under this heading is as to what NAMA is likely to want to do. Despite being requested NAMA has declined to give any indication as to what course of action it might adopt in the event that it acquires the B of I and Anglo Irish loans. What NAMA is likely to do must, therefore, remain a question of speculation. However, for the reasons which I have already set out, I am persuaded that I must approach this judgment on the basis that the findings contained within the confirmation judgment relating to the likely performance of the long term receivership model remain in place. On that basis, it seems to me that I must approach the question of what NAMA is likely to do from a starting point where it has been shown that there is a credible basis for believing that a return with a present value of €50,000,000 is available under that model, but where the current sales value of the relevant properties is perhaps of the order of €23,000,000 to €25,000,000 with a slight uplift if a longer period for sales (but allowing an appropriate discount for delay) is permitted. In those circumstances there is at least a prima facie basis for believing that NAMA might regard the potential gain under the long term receivership model as more attractive than an immediate or medium term sale. Given the findings in the confirmation judgment (which, for the reasons which I have set out, I do not propose revisiting) it follows that that is a likely scenario. It is, of course, possible that NAMA may take a different view. But NAMA has chosen not to enlighten us as to the view which it is likely to take. It does not seem to me that any inference can properly be drawn in this regard from the position that NAMA has adopted in relation to the Banking Syndicate’s opposition to the examinership and desire to appoint a receiver. I can, therefore, only base this judgment on the materials available. On the basis of the assessment contained in the confirmation judgment and in the absence of any view from NAMA, it seems to me that I must conclude that NAMA is likely to view the long term receivership model as being more economically valuable than a short or medium term sale (unless a price well above €25,000,000 can be achieved).

6.10 There remains, however, the point made by McInerney that the long term receivership model does not, it is said, fit easily into NAMA’s published documents concerning the type of arrangements which it would wish to enter into with its borrowers having regard both to its own business plan and the sort of business plans which it has indicated it wants to see coming from borrowers who wish to maintain a continuing relationship. There is no doubt that there are significant differences between what is contemplated in the long term receivership model and NAMA’s expressed view as to what it feels should be contained in an ongoing business plan. In that context it must be remembered that receivers appointed by the Banking Syndicate will, in effect, become the companies to which they are so appointed. They will be the borrowers so far as NAMA is concerned. At least at one level there does not seem to be any great difference between NAMA dealing with a company which is itself the relevant borrower or NAMA dealing with a receiver who has the power of management of the relevant company. If a plan makes sense from NAMA’s point of view, it should continue to make sense whether NAMA is dealing with a company or with a receiver although, of course, NAMA may well have regard to the difference in personnel that would thereby be brought about in deciding whether the plan is likely to be achieved.

6.11 The real question which then arises is as to whether the likely additional financial benefits which I must hold (consistent with the confirmation judgment) are likely to flow form the long term receivership model might, in NAMA’s mind, be outweighed by the fact that that model does not fit easily within the framework of either NAMA’s own business plan or the business plan which it requires of borrowers. In the absence of any indication from NAMA as to its view, the answer to that question must, in my view, be pure speculation. The form of business plan which NAMA has indicated that it wishes its borrowers to put in place is, it seems to me, properly described as guidance. There is no reason in principle why NAMA cannot, for good reason, depart from the parameters of its desired business plan if there is another model which seems, to NAMA, to be preferable in an individual case so as to provide a greater recovery for the taxpayer. While NAMA’s own business plan does recognise a need to recover significant sums within a shorter timeframe than the long term receivership model suggests, that does not necessarily mean that, in the individual circumstances of a case (such as McInerney), NAMA might not take a different view. No materials have been put before the court to suggest the type of decision that NAMA may have made in any comparable case. It did not seem to me that cross examination could have led to any more precise view under this heading.

6.12 At the end of the day it seems to me that the position of KBC needs to be stated in the following way. First, there is a possibility that KBC may be able to obtain some leverage vis-à-vis NAMA, depending on the resolution of the legal question to which I have referred. Indeed, even the existence of a potential dispute in that regard might provide some such leverage. Second, there is a possibility that NAMA may, in any event, want to go down the road of the long term receivership or, perhaps, a variation on it that would be acceptable to KBC. In either eventuality it is difficult to come to any conclusion other than that there is a real possibility (to put it no higher) that KBC may be able to position itself in a way where it will do better as a co-lender with NAMA than it would have done had it simply been paid a proportionate amount to the sums which NAMA might pay to B of I and Anglo Irish when acquiring their aspect of the Banking Syndicate loans. It seems unlikely that anyone within the Banking Syndicate expects that NAMA would pay significantly less for the loans than is available under the scheme of arrangement for if that were truly the case, it would be surprising indeed if the Banking Syndicate did not jump at the sum on offer under the scheme of arrangement. If, therefore, there is a real possibility that KBC will do materially better than that, even if the loans of B of I and Anglo Irish do into NAMA, it follows that there is a realistic possibility that KBC will do materially better than under the scheme of arrangement in that eventuality.

7. Conclusions
7.1 I am not, therefore, satisfied that anything in the new materials before the court leads me to change the view which I expressed in the confirmation judgment to the effect that KBC is unfairly prejudiced. There is some possibility that the relevant B of I and Anglo Irish loans will not go into NAMA at all in which case KBC’s position is exactly as described in the confirmation judgment. Even if the loans in question go into NAMA, then the position of KBC is, for the reasons just analysed, in my view one where there is a real possibility that KBC will do materially better than under the scheme of arrangement. It seems to me that in those circumstances KBC remains a creditor of whom it can be said that the scheme will operate in an unfairly prejudicial way.

7.2 On balance I am not satisfied that the same can now be said in respect of B of I and Anglo Irish. There is, of course, the possibility that the relevant loans will not go into NAMA. However, for the reasons earlier analysed it seems to me that it is significantly likely that the loans will go in and, therefore, the possibility that they may not needs to be very heavily discounted. Likewise, I am not satisfied on all the (limited) materials available that there is a real basis for concluding that B of I and Anglo Irish would do sufficiently better under a NAMA payment for their loans such as would render the position of B of I and Anglo Irish under the scheme of arrangement disproportionately worse so as, in turn, to render the scheme unfairly prejudicial to them.

7.3 However, a scheme is unfairly prejudicial where it is unfairly prejudicial to one creditor. KBC is such a creditor. Despite the additional materials I remain of the view that the scheme is unfairly prejudicial to KBC and the scheme must, nonetheless, therefore, still be declined confirmation.

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