The first legal challenge against NAMA was heard by the Irish High Court from 5 October 2010 to 14 October 2010 and judgment was delivered earlier this month on 1 November 2010.

The legal challenge brought by property developer, Patrick McKillen and a number of his companies centred around €80 million of loans. These loans were earmarked to move in the second tranche of transfers to NAMA.

The primary grounds of McKillen's challenge were as follows:

  1. That all of the loans are fully performing.
  2. That he is a Property Investor rather than a Developer.
  3. That a transfer of his loans into Nama would have a detrimental impact on his business and property rights which, under the European Convention of Human Rights, should be respected.
  4. That the concept of NAMA is lacking in natural and constitutional justice insofar as it denies his companies the opportunity to argue that their loans are not in fact eligible bank assets.

McKillen was comprehensively defeated in his application with the Courts main rulings being as follows:

  1. NAMA, alone, had the discretion to decline loans and there was no need to take into account considerations such as the geographical spread of McKillen's assets.
  2. McKillen's rights were not adversely interfered with under the procedures used by NAMA. Even if there was interference the Court stated that, the interference was "tangential".
  3. NAMA's decision on 11 and 14 December 2009 to acquire McKillen's loans took place before NAMA was created in law on 21 December 2009. Despite this the Court held that NAMA was able to subsequently adopt this prior decision.
  4. The Court held that the EU decision approving NAMA in February 2010 did not preclude unimpaired loans from being acquired by NAMA.
  5. The Court held that NAMA was a proportionate response to the challenge facing the State. Further it held that the Act was not unconstitutional

An appeal application was made by McKillen on Friday 5 November with leave being granted to McKillen to appeal the decision on the fair procedures argument. In our next edition we shall comment more fully on the judgement and the impact on NAMA's operation.

Administration Extensions – Get in Early!

The appointment of an administrator automatically expires after one year, however, in certain cases an administrator may be able to extend the length of the administration by a period of a further 6 months with the consent of the creditors. Nevertheless, in many cases the administrator will have to make an application to the High Court for an extension of this time period.

Recent decisions emanating from the Courts in England highlight the importance of administrators making extension applications as early as possible. It is evident that the Courts are becoming increasingly exasperated at what they perceive to be significant delay on the part of administrators in making such applications.

Occasionally, the English Courts have made orders which are burdensome and draconian upon administrators where they perceive that there has been significant delay. These include:

  1. Listing applications for an oral hearing, causing administrators to incur additional and greater costs than if the application is heard on paper.
  2. Seeking more extensive evidence to be put forward in support of the application. In this regard, administrators have in some cases been ordered to attend Court and explain the reasons for the delay.
  3. Administrators have also been asked to answer questions about the administration and orally advance reasons for the extension.
  4. Most importantly, in certain cases, it has been ordered that the costs of the extension application be borne by the administrators personally, rather than as an administration expense.

The consequences of failing to make an application to extend the administration are potentially disastrous for an administrator. This includes potentially irrecoverable administration fees and costs; potential claims against the administrator for failing to act in the best interests of creditors; and additional costs being incurred by secured creditors being forced to enforce directly or an alternative insolvency process having to be instigated.

We are well versed in bringing extension applications, so please contact us should you require any assistance in this regard.

Case Update

Pre-Packs and Preferential Payments?

The High Court in England approved a pre-pack sale involving the Law Firm Halliwells despite the fact that part of the purchase monies were to be held on trust to repay loans of individual partners to a bank. Even though this arrangement preferred the bank, it was acknowledged that the proposed sale, which was in the best interests of the creditors, would not have proceeded without such an arrangement being in place.

This is a helpful judgment as it illustrates that the Courts take a pragmatic view of what is commercially in the best interests of the creditors.