A legal challenge by a developer is threatening to shatter the central plank of the Irish government’s strategy to resolve the Republic’s chronic banking crisis.
The National Assets Management Agency was established just under a year ago to take over, at an agreed discount, the 81bn euros in loans currently crippling the country’s five main financial institutions, Allied Irish Banks, Bank of Ireland, Anglo Irish Bank, the Educational Building Society (EBS) and Irish Nationwide.
But now, in a case to be heard by the Irish Commercial Court this October, one of the Republic’s major developers, Paddy McKillen, is contesting the right of the state agency to take over his loans. He has already won the opening skirmish in the High Court, which gave him the go-ahead to challenge the constitutionality of the legislation setting up NAMA.
McKillen, whose interests include the Jervis Street Shopping Centre in Dublin and a share of the Maybourne Hotel Group in London, which owns the five-star Claridge’s and Connaught hotels, has become a champion for some developers, who resent the impact NAMA is having on their livelihoods. Privately, they will be applauding his efforts to shout stop.
In the High Court, McKillen, and 15 of his companies, claimed that 80m euros in loans from Bank of Ireland are “fully performing” and that their transfer to NAMA would have “a significantly detrimental” impact on the business. While the action relates only to the Bank of Ireland facility, the outcome could also affect 800m euros in loans that he has from Anglo Irish Bank, and loans from Irish Nationwide.
In his affidavit, he described NAMA as an “unjust and disproportionate attack” on his property rights and said that being associated with the transfer of loans to what he called a “toxic bank” could affect his reputation.
The state’s case is that the NAMA legislation allows for the transfer of performing as well as impaired loans. A Finance Department official argued that any perception the NAMA system was flawed would undermine confidence in international markets and push up government borrowing costs. “The case is of enormous economic significance,” said state solicitor David J. O’Hagan.