A forensic investigation into loans from Fade Street Social restaurant company, which is in examinership, to three companies in which Dylan McGrath was a director and two of which Vincent Melinn had been a director, has been conducted by staff at recovery specialists Azets.
Details emerged as chartered accountant Dessie Morrow, of Azets, who is examiner to the business, successfully applied to Judge John O’Connor in the Circuit Civil Court on Tuesday for more time to save the restaurant, which owes Revenue €1.7 million, by enticing a preferred investor to pump money into a rescue scheme.
Judge O’Connor, in a report, was told that almost €4.5 million in funds had been transferred to three struggling food and drinks companies related to Fade Street Social, all of which eventually collapsed despite the intercompany loans, partially due to Covid.
Mr Morrow said he and his staff had undertaken an independent and comprehensive review of intercompany ledgers as a result of which they had separated the loan transactions into categories based on the type of transaction and nature of the expenditure to which the funding had been applied.
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These included transfers to directors, unknown transactions, intercompany transfers, payments to Revenue, payments for rates, staff wages, insurance, professional fees, creditor payments, cash and credit card lodgements, and building works.
“Should the protection period be extended, it is my intention to conclude my investigation into this matter,” Mr Morrow told Judge O’Connor in written evidence. “The next phase of this review will involve an assessment of the financial position of [Fade Street Social] at the time the funding was provided together with an understanding of the reasoning as to why the payments were facilitated.”
He said he had not yet concluded a view as to whether any breach of finance laws arose, given the provision of funding to companies with common directors.
“This will all form part of the further work required in this matter,” Mr Morrow informed the court.
Barrister Stephen Brady, counsel for the examiner, said Mr Morrow had made significant progress in identifying six potential investors in the ailing restaurant which has continued trading during the examinership. The extra time would allow him to conclude a legally binding agreement with the proposed preferred investor, once identified.
Sally O’Neill, counsel for the Revenue Commissioners, said Revenue was not objecting to an extension of time for the examinership but pointed out that her client had “serious concerns” in relation to the intercompany loans and the level of them.
Barrister Ross Gorman, counsel for Fade Street Social, told Judge O’Connor the company was supporting the extension of time.
Mr Morrow said the engagement with key suppliers had been positive to date and the majority of suppliers had expressed a willingness to continue to trade with the company through examinership, during which he and his staff would closely monitor the cash-flow performance of the company.
He said a total of 17 investors had shown an interest and actual investment proposals had been received from six parties, some of which he would invite to conduct accelerated due diligence and address any queries raised.
The response from the majority of creditors had been positive and supportive of formulating proposals to save the company.
The court heard that all outstanding Revenue returns had been made to enable the Office of the Revenue Commissioners to finalise its claim in the examinership. Mr Morrow awaited details of Revenue’s ultimate claim, initially estimated at €1.7 million.
The examiner said existing employees remained in their position and he anticipated the company would remain a significant employer post-examinership if his proposals were approved.
Mr Morrow said the directors of Fade Street Social – Dylan McGrath and Vincent Melinn, who was also company secretary – had also served as directors of the three related companies that previously operated in the restaurant trade. Significant loans which had been advanced to these related companies by Fade Street Social had been written off as irrecoverable but remained part of his ongoing forensic review.
The related companies were Shelbourne Social, in which Mr McGrath and Mr Melinn had been sole directors; Prime Steak “Rustic” in which Mr McGrath was the sole director; and Home RBVR Brasserie Sixty6 in which Mr McGrath and Mr Melinn had been sole directors.
He said Shelbourne had been loaned €1,392,997, Rustic €2,215,072 and Brasserie €868,754. He added there had been in excess of 4,000 individual transactions with the related companies since June 30th, 2021 and his staff had been required to review each transaction on a line-by-line basis.
Copies of recipient company bank statements to confirm the ultimate beneficiaries of fund transfers provided to the related companies and a full review of all transactions in Fade Street Social’s bank statement were undergoing continuing review by his staff.
Judge O’Connor extended time for the examinership into September.
