AIB’s deluded spending spree provided funds for the Lynch family’s costly €25m punt

IT WAS a property deal at the height of the bubble years that is all the more extraordinary when seen from the perspective of IMF-EU funded-Ireland.

AIB, then in the full flush of its deluded lending spree, provided 100 per cent interest-only funding for the purchase, which the parties involved were sure would lead to quick and massive net profits.

Businessman Philip Lynch was hoping to use a sure-fire deal to put some serious money into the pockets of his children.

In order to minimise any tax charge that might arise for them, the children’s names were used when the €25 million loan was being drawn down.

Now it appears inevitable that Lynch, his wife, Eileen, and their four children, Judith Whelan and Therese, Phillipa and Paul Lynch, are going to the subject of a €25 million plus summary judgment order.

The €25 million loan was taken out on February 8th, 2007, with Judith Whelan, who had power of attorney for her parents and siblings, signing on behalf of the family. Developer Gerry Conlon, an equal party in the deal, had signed a day earlier.

The purchasers were given the 100 per cent loan by AIB to buy 86 acres at Kilbarry, Waterford.

Lynch had already come up with his €2.5 million deposit, while Conlon had borrowed his. The two men were to get their deposits back from the €25 million, with the remainder being used to close the deal.

Conlon already had loans running to hundreds of millions of euro from the bank. In fact the bank had exceeded its guidelines in lending so much money to him, and for this reason it wanted Lynch involved in the Kilbarry deal. Lynch did not know this, and thought Conlon was cutting him in on the deal as a mark of appreciation for his contribution as a director of Conlon’s Harlequin Group.

Conlon’s approach to Lynch happened at the outset of 2006. A deposit of €5 million was given to the vendors in April 2006 and by May 2006 the Conlon side was saying the value of the lands had risen to €35 million.

Around the same time Lynch was considering going in with Conlon in the Millennium Project, a €300 million business park plan in Co Kildare. Lynch withdrew because the proposed €129 million loan was being offered by AIB on a joint and several recourse basis.

Conlon was dealing with AIB in relation to the Kilbarry loan. By September 2006, Conlon’s side was hopeful that the value of the Kilbarry lands would be €70 million by the time the deal closed. The lands had been proposed for rezoning in a draft development plan.

By late December the deal had still not been closed. In early January, Lynch and other members of the One51 investment group went to Spain to discuss their plans for the coming year. Back in Dublin lawyers acting for the various parties involved, including AIB, were busy trying to close the deal.

In late January 2007 the Lynch family met to discuss its various investments and plans, including the Kilbarry deal. In his judgment yesterday Mr Justice Peart said the fact that the proposed loan would be secured against the Kilbarry land was confused by the family with the issue of recourse.

They thought that the bank would only have recourse to the land in the event of difficulties with repayment developing.

While he thought this might have been understandable with the children, he found it “incomprehensible” that an experienced businessman like Lynch was “as confused as he appeared to be about what was meant by a recourse and a non-recourse loan, the concept of security, and the difference between them”.

He said that, from his observation of Lynch in the witness box, he was satisfied that his understanding of these matters was “vague and uncertain”, even though this might seem “unbelievable” to others.

The judge speculated that this could be the result of Lynch’s habit of making decisions and leaving the details to others. “Risk runs alongside that modus operandi,” the judge said.

While he was satisfied that the family thought the loan involved no risk, the judge said there was no evidence that Conlon, who was negotiating with AIB, was told that it was the Lynch view that the loan had to be non-recourse or they would pull out of the deal. “The available evidence suggests that AIB was never requested to provide a non-recourse loan,” the judge said.

On February 7th, 2007, Lynch was in London, on his way back from a business trip to Zurich. The following day Judith Whelan signed for the family, and the following day again the loan was issued. The family thought its net profit from the deal would be €21 million.

By 2009 the land had been rezoned and planning permission granted, but the market had changed utterly. The AIB loan was up for renewal. It was only when the family got associated documentation from the bank that it realised the bank’s view was that the earlier loan was on a joint and several basis, for Conlon and the family.

The property, which was once thought to be worth €80 million, is now worth an estimated €3 to €4 million.