It seems that there’s hope yet for the future. The Judiciary has stood up for the contractual rights of a foreign-owned company and defied the resistance of the Establishment. “What?!?”, you must be thinking. We can’t be talking about Ireland here. But yes. The rule of law in Ireland has prevailed. All that’s necessary is persistence (and a rather large budget for legal expenses). But is there more to it?

The background was a high-stakes gamble on property that Liam Carroll made with borrowed money, systematically channelled into the black hole known as Zoe Group (the parent company of Vantive Holdings and Morston Investments among others). He had made it big-time during the bubble years but a collapsing property bubble set the stage for a dramatic show-down. An imprudent speculator in many respects, he had the reliable backing of domestic banks, unconcerned for their shareholders but rather more concerned for their political allies and their network of cronies. There was, however, a dissenter in their midst in the form of ACC Bank.

The old “Agricultural Credit Corporation”, privatised in 2002 and bought by Rabobank, had gone astray in the froth of the speculative bubble, along with the rest of the banking sector. They found themselves in the unfortunate situation of having lent a vast sum to a property developer who had gambled away most of their capital through huge losses on speculative property “investments”. Unlike most of their Irish banking peers, ACC Bank have a wary foreign owner to answer to. Rabobank are a triple-A rated bank – a now rare breed of solid global banks – that can boast of a financial stability and a deep capital base they can dip into during leaner times, which is the envy of the global banking sector. It is no wonder that one of their Irish subsidiaries, ACC Bank, with its mounting provisions for loan losses, was proving to be a thorn in their side, and they needed to bring it under control. As a global bank with its headquarters in the Netherlands, Rabobank is reluctant to allow a large part of their Irish loan portfolio to rot away while the Establishment scurries about making deals to protect their own short-term interests.

In contrast, the two biggest lenders to the Zoe Group were far more willing to compromise to avoid liquidating the company. Allied Irish Banks (AIB) is Irish-owned and subject to the pressures of its fellow crony club members. Bank of Scotland (Ireland) is a subsidiary of HBOS and Lloyds TSB which have also proven their lack of aptitude for risk management. Both banks have been rescued from collapse by government bailouts. When Zoe Group finally breached its loan covenants, ACC called time and applied to the courts to liquidate the company. The other banks which had financed Carroll were still in denial about the severity of the problems of Zoe and of the wider property slump in general and focused only on the short-term consequences. Liam Carroll appealed for court protection and, according to an Irish Times article, his justification for this preferential legal treatment of his groups’ €1 billion deficit was a truly remarkable “single page outlining the hope value of his assets and two short sentences explaining the valuations and citing their source“.

Despite the Zoe Group being clearly insolvent and Liam Carroll proving unable to offer any credible plan for long-term survival, the banks were still prepared to support a deal involving examinership (a process akin to Chapter 11 bankruptcy for US readers) and reorganisation to keep Zombie Zoe on life-support – with the exception of ACC Bank. They fought a legal battle to liquidate the remaining value of their loans and were portrayed in the press as agressive.  Finally, on 11 August, the Supreme court dismissed Carroll’s appeal.

Perhaps ACC Bank is playing hard-ball to strengthen their negotiating position and force an offer from the other banks to buy out ACC’s loans on favourable terms in return for relenting on their petition for liquidation. Ironically, their own self interest is also in the interests of the taxpayer. A forced liquidation of Zoe Group companies would ensure that the banks realise the losses on the loans before they become a taxpayer’s liability when they are transferred to NAMA. It must be said, the Establishment, a crony-capitalist club of bankers, developers and politicians (predominantly Fianna Fáil) with vested interests, put up a good fight – as far as the Supreme Court, exhausting all domestic legal remedies. A continuation of legal proceedings and even a hypothetical victory involving the granting of court protection and examinership would have simply delaying the inevitable liquidation the hopelessly insolvent company. Thankfully, the result is a victory for ACC Bank and possibly even a rare victory for the taxpayer.

So, are we to congratulate our Supreme Court for upholding the rule of law for a foreign-owned company just as it would for a domestic one? Well, perhaps. That is the best answer I can give because my suspicions remain that the Supreme Court had their hands tied. Ever since Ireland joined the European Union in 1973, it has been subject to the supremacy of European Community Law which is within the jurisdiction of the European Court of Justice. The Supreme Court judges know that if they had ruled in favour of Liam O’Carroll and against ACC Bank, any appeal to the European Court of Justice would have been overruled. They would have lost much credibility.