Shareholder Not Disadvantaged by Debt Deal

Posted: 27th June 2012

Sir David and Sir Frederick Barclay have won what could be an important skirmish in their attempt to take control of three of London's most prestigious hotels.
Property developer, Patrick McKillen, is engaged in a struggle with the billionaire brothers, who already own the Ritz hotel and want to add Claridge’s, The Berkeley and The Connaught to their portfolio.
During a 30-day High Court hearing, Mr McKillen has fought to stop the Barclay brothers taking control of Coroin Ltd, a holding company set up by financier Derek Quinlan in 2004 and which owns the three hotels through subsidiaries.
Mr McKillen, who owns 36% of Coroin, argues that he should have been given the opportunity to buy Mr Quinlan's controlling stake in the company.
A judgment in that case is currently being awaited.
However, a deal by which Barclay brothers-controlled Maybourne Finance Ltd (MFL) acquired £660m of Coroin's debt, secured on the hotels, from National Asset Loan Management Ltd. (NALM) may have a bearing on the outcome of the dispute.
NALM is wholly owned by the National Asset Management Agency (NAMA) which was set up by the Irish government to acquire assets from the country's troubled banks at the height of the financial crisis in 2008.
Judges at the Court of Appeal (Civil Division) have now rejected Mr McKillen's arguments that NAMA acted beyond its lawful powers when the debt was transferred to MFL.
Philip Marshall QC, representing Mr McKillen, had argued that the £660m debt had been acquired by MFL as a means of ‘placing pressure’ on the businessman to sell his shares in Coroin.
Since purchasing the debt in September last year, MFL had demanded ‘onerous terms’ and had insisted that Coroin carry out a £200m rights issue to reduce its debts, claimed Mr Marshall.
He told the judges: ‘The true motive, Mr McKillen contends, is to seek to dilute his interest in the company’.
However, the Master of the Rolls, Lord Neuberger, ruled against Mr McKillen and accepted that NAMA was not obliged either to give Coroin notice, or to consult with the company, before transferring the debt to MFL.
Coroin's loan facilities were originally with the Anglo Irish Bank and the Bank of Ireland but the beneficial interest in them was acquired by NAMA in June 2010. Three days before the facilities were due to expire, in September last year, MFL bought the debts for £660m, plus interest.
Mr McKillen argued that MFL was not a ‘permitted transferee’ for the loans and that NAMA failed to meet its obligations to consult and notify Coroin prior to the transfer. Coroin, it was claimed, was given less than one hour's notice before the transfer took place.
In February this year, High Court judge, Mr Justice David Richards, accepted Mr McKillen's plea that NAMA did not have an unrestricted right to transfer the loans to MFL without first giving notice to and consulting Coroin.
However, overturning that decision, Lord Neuberger, sitting with Lords Justice Toulson and Lewison, ruled that Coroin had no entitlement to notice or consultation prior to the debt transfer.
Robin Dicker QC, representing NALM, had told the judges that restrictions on NAMA's power to transfer assets to third parties would have ‘serious potential consequences’ for the Agency, which is a lynchpin of the Irish Government’s policy to rebuild the country’s economy.
MFL's barrister, Jeffery Onions QC, argued that NAMA has statutory power to transfer loans from its books ‘without borrower consent’.
Agreeing with Lord Neuberger that MFL and NALM's appeal should be allowed, Lord Justice Lewison concluded: ‘Coroin was not entitled either to notice of or to be consulted about the transfer to Maybourne’.
Mr McKillen was refused permission to appeal to the Supreme Court.
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