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Banks wait as Kelly considers options
27 March 2009
‘‘My liabilities exceed my assets.” This simple admission from celebrated property developer Paddy Kelly in the High Court last week sparked a wave of speculation in Irish banking and property circles.
Kelly went on to admit that he was on the verge of bankruptcy and was investigating ways to handle his web of debt, which some observers believe could be as high as €500 million.
With many developers in similar difficulty and with the State-owned Anglo Irish Bank the largest of Kelly’s creditors, all eyes will be this case, which could set interesting precedents.
So what are Kelly’s options?
Examinership
It would be very difficult to appoint an examiner to Kelly’s many businesses because they are so complex and because the developer has provided personal guarantees for many of his projects.
Bankruptcy
Declaring himself bankrupt is unlikely to be a serious option for Kelly. His holdings are so complex that the process could take longer than a decade and he would be unable to resume his long career as a developer and speculator. In the meantime, all outgoings would have to be approved by a court-appointed insolvency professional.
Scheme of arrangement
In court, Kelly mentioned he was examining the possibility of implementing a personal scheme of arrangement. This process, allowed under the Bankruptcy Act, would see Kelly’s creditors accept an agreed payment in final settlement of their debts.
Court protection
Under the Bankruptcy Act, Kelly can apply for court protection from his creditors in advance of finalising any scheme of arrangement. However, it is unclear what kind of protection the court can grant against secured creditors as a comparable case has yet to be heard. Before any settlement is agreed, 70 per cent of creditors must vote in favour of the package offered.
Private trustee
Rather than seek court protection, Kelly could attempt to broker a voluntary settlement with his array of creditors. Usually, this less-expensive option involves the appointment of a private trustee to act on his behalf. However, if he goes down this route, Kelly would need all his pursuers to back a proposed scheme as disgruntled creditors could still take individual claims against him.
Implications for investors
Many of Kelly’s partners in his various developments might favour a scheme of arrangement. Even though some debts would be written down, developments would be kept alive, including current billion-euro projects in Italy, Florida and Bray.
Banks watchful
If Kelly does manage to get backing for a scheme of arrangement agreement from creditors such as Anglo Irish, there will be huge interest in the amount of debt written down. Any agreement could become a benchmark for other developers in similar difficulty.
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