Talks between Sean Quinn's family and
the liquidator of IBRC about a legal settlement might have come as a surprise
to some people. The high profile and vitriolic battle between both sides since
the old Anglo Irish Bank moved on Sean Quinn's business in 2011, would
This toxic financial and legal war
has been both nasty and for the Quinns at least, personal. Two Quinn family
members spent time in prison for contempt of court. Another, Peter Darragh
Quinn, failed to show up in court for a contempt hearing, opting to hide north
of the border instead.
Actions by some Quinn family members
have forced IBRC to spend four years and tens of millions of euro trying to
take possession of properties pledged as security by the Quinns on loans that
remain unpaid.
It is a battle that has seen action
in courts from Dublin and Belfast, to Stockholm, Cyprus, Belize, Panama, Kiev,
Moscow and Hyderbad in India.
A settlement between both sides of
all outstanding legal issues might yield a higher financial return to the
liquidator and the taxpayer than continuing with the fight. However, it will
raise questions of moral hazard and would vindicate the actions of the Quinns
in deliberately putting assets beyond the reach of the bank.
So, what is there to settle and why
might the IBRC liquidator, under the instruction of the Minister for Finance,
do a deal?
The Quinns are taking a High Court
action against IBRC, the State and the Central Bank. They claim €2.3bn of loans
given by Anglo to the family to cover Sean Snr's CFD gambling in Anglo shares
was an illegal transaction by the bank. The High Court action is expected to
begin in June.
If the Quinns win, they will seek
massive damages from the State. Even if they lose, the case will dredge up old
sores, sensitivities and probably new information that could be very
embarrassing for the Central Bank, the Department of Finance and Anglo.
If the Quinns lose, IBRC would then
be obligated to pursue the Quinn family on foot of the €500m worth of personal
guarantees they gave on those loans.
The family have not been pursued
pending the outcome of the High Court action. But the IBRC liquidator would be
expected to take personal assets and homes of Sean Quinn's son and daughters.
Sean Quinn's multi-million euro home in Cavan is owned by the Quinn children
and would also be up for grabs.
It is hard to see the IBRC liquidator
having much of an appetite for all of that. It is hard to see him getting a
buyer for Sean Quinn's home after it had been repossessed. It would prove
messy, lengthy, expensive and probably not yield a lot of money.
Sean Quinn may be bankrupt but it is
worth noting that we have no idea how much the Quinn children hold in personal
assets.
IBRC is also suing some members of
the family for deliberately seeking to put hundreds of millions of euro worth
of international property beyond the bank's reach in a scheme described by a
High Court judge as "mesmerisingly complex", "reeked of
dishonesty" and aimed at "feathering their own nests."
A full settlement would probably see
this action dropped.
The Quinns still owe IBRC €2.8bn. The
bank has already made a provision against about €2.3bn of that money. Does that
mean, in a settlement, the Quinns would pay nothing towards that bill? The idea
that they could just walk away and retain their personal assets after borrowing
€2.8bn and pledging €500m in guarantees, would be an affront to every person
struggling to pay their mortgage or facing bankruptcy and repossession.
IBRC has already spent between €30m
and €50m in legal and other fees trying to get control of property assets
pledged as security on Quinn loans. It would do well to get €200m for what was
originally €500m worth of assets. Some of those assets have been hived off to
various international entities and IBRC is still locked in legal battles to
gain ownership.
The Quinns say they are not the
beneficiaries of those properties. Presumably, in the event of settlement, all
legal actions seeking to recover tens of millions in missing rent and ownership
of these assets would simply stop.
The sad fact is that the delays
caused to IBRC by the behaviour of Quinn family members has cost the
liquidators time and money. During the years it took to get control of property
assets in Ukraine and Russia, their value has plummeted on the back of economic
uncertainty and currency collapses.
The value of assets that were pledged
as security has been driven down by the responses of the Quinns. This will
result in several hundred million euro less flowing back to the exchequer.
IBRC liquidator Kieran Wallace will
do the maths on all of these cases. As a liquidator he has a specific and
defined job to do. On paper, that job does not include issues of moral hazard
or the punishment of the appalling behaviour by some of the Quinns.
He will want to complete the
liquidation and get as much back for the taxpayer as he can. As a politician
Michael Noonan will have to take a broader approach. He will have to concern
himself with how doing a deal will look politically. What would such a deal say
about fairness and accountability in our society?
He will have to weigh up the
financial pragmatism of a deal, with the question of fairness and the moral
vacuum it could create.
It is too early to say exactly what
the terms of a deal might look like. On some issues the Quinns have a point.
For example, if Anglo had not lent
them all that money, their losses would only have been the €300m deposit that
was put down on the CFDs. It would have been a big hit, but only 10pc of the
€3bn that was actually lost.
However, for that to happen every
other bank would have had to say no to Sean Quinn and declined to fund his CFD
losses. At a time when banks were falling over each other to lend, it is highly
unlikely that no other bank would have lent the money.
Did Anglo cross all of the Ts and dot
all of the Is on every detail of these loans or are there gaps in the paperwork
as claimed by the Quinns?
However, there are aspects to the
collapse of the Quinn empire that have shown some of the Quinns in a very poor
light.
Selling on millions in group debts
for as little as €1,000 or a laptop was a deliberate attempt to thwart the
State-owned bank.
The High Court even found that the
asset-stripping exercise continued after they were ordered not to do so.
Awarding massive new salaries from
subsidiary companies while Anglo was literally at the door is another.
The mechanisms used in the clean up
of the banking crash have not been transparent enough given the extent of the
taxpayer losses. Whether its Nama, receiverships or liquidations, they don't
have the transparency mechanisms which give people at sense that they are
getting the full story.
As the likes of Nama and the IBRC
liquidation move towards their endgame, resolving final investigations and
pieces of litigation will move centre stage.
Out-of-court settlements may result
in better financial outcomes but might not be the best thing for society as a
whole. I can only presume the details of a confidential out-of-court settlement
in the Quinn case would not even be published.
There is a sense of fatigue with
people about all of this. They are scarred by the financial crash but also want
to move on.
Settling this litigation would speed
up the completion of the IBRC liquidation and allow the liquidator to
distribute any surplus to creditors/the exchequer more quickly.
That is money that could be used to
fund investment or tax cuts. It is very tempting for the government.
The question is whether something
else, less quantifiable would be lost in the process.
There is no doubt that Sean Quinn
achieved something extraordinary in business and job creation. But he blew it.
And it has cost him and all of us dearly.
I never believed the State would
allow the Quinn High Court action to go ahead. Similarly, I could never
envisage IBRC/Anglo pursuing the Quinns for their personal guarantees. I first
speculated back in December 2012 that a deal would be done.
As with so many other aspects of this
€60bn financial crash and clean up, we will never know the full story.
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