ANALYSIS:Pierse is on the hook for the debts of 19 entities, most of them property development vehicles, writes BARRY O'HALLORAN

ON THE day the Commercial Court appointed Simon Coyle as liquidator to Pierse Contracting, Ireland’s second-largest building and construction group, Mr Justice Peter Kelly remarked that even in an era when we’ve become used to talking about billions, the company’s deficit, €212 million, was an enormous amount of money by anyone’s standards.

The figures that Pierse Contracting brought to the court show a yawning gap between what the liquidator can hope to recover from the assets and the company’s liabilities. The size of the liability and a number of complaints from unsecured creditors, who are owed €50 million, prompted the judge to order Coyle to investigate the company’s activities for the 18 months before the liquidation.

According to an independent accountant’s report, produced for the company’s original application for High Court protection from its creditors, its total liabilities on liquidation were €249.4 million. The assets that could be realised against this came to €26.8 million. This left a shortfall between the two of €212.6 million.

Bank of Ireland, the main secured creditor, gets first call on any proceeds from the insolvency. Its receiver, David Carson, put Pierse’s business and assets up for sale this week, marking the end for the company.

Two things essentially blew a hole in the company’s balance sheet. The first was €75 million of loans to other Pierse group companies and related businesses. Just under €40 million of this was to an entity called Remayne, controlled by Pierse directors and their families, to buy a one-third stake in the overall group’s Irish-registered holding company, Birmayne.

Last month, the company conceded that this is unlikely to be repaid. Its figures show the remaining €35 million or so in loans won’t be recovered either. As the money was owed to Pierse Contracting by the other companies, it went on the asset side of the balance sheet. The fact that the loans cannot be recovered cut the company’s current assets to €26.8 million from just under €129.5 million.

That was strike one; strike two was €77.4 million worth of loan guarantees given mainly to Anglo Irish Bank, but also to Bank of Ireland, to underwrite advances from these institutions to related companies and subsidiaries involved in property development, a number of them in partnership with developer Paddy Kelly and his family, whose empire collapsed spectacularly last year.

This meant that if the relevant subsidiaries could not pay, the debt fell on Pierse Contracting’s shoulders. The banks loaned the money during the property boom and the money was secured against shopping centres, hotels and development sites. Given the mood of the times, it was unlikely that Pierse, its partners or the banks contemplated that the loans would never be repaid, as they were linked to a rising property market.

But we know what happened next. The property market fell off a cliff, and the value of the assets to which the liabilities were tied followed it to a greater or lesser extent, throwing a question mark over the amount that could actually be recovered. The National Asset Management Agency (Nama) has the unenviable task of finding out just what these properties are worth now, as it owns the loans.

Nama has said that no matter what it recovers against the loans that it takes over, it wants the debtors to repay the loans in full. In all, Pierse Contracting is on the hook for debts owed by 19 entities, most, but not all of which, are property development vehicles, and many of which are not in a position to repay the banks or Nama.

One of the biggest is Carrickmines Manor, an apartment and housing development in south Dublin that was a joint venture between Pierse and Redquartz Boundary, which was part of Kelly’s business and has been in liquidation since last year. It is understood that the company, which was placed in receivership two weeks ago, owes Anglo Irish €70 million.

It is not clear just how much Pierse owes as a result of that guarantee. Company accounts show that the bank had a charge over the money due to the building contractor for carrying out the actual construction.

Generally both Pierse Contracting and Kelly and his associates guaranteed the loans to their partnerships. In some cases, they were joint and several, which allowed the bank to pursue any individual guarantor for the full loan should the others default. Others were for specific sums, which allowed the bank no recourse to the creditor beyond the guaranteed figure.

Pierse and Kelly also joined forces in Campshire, the partnership that developed the Clarion Hotel in Dublin’s International Financial Services Centre (IFSC) and the apartments and commercial units surrounding it. This has liabilities in the region of €38 million; at current values, the properties are likely to be worth about €25 million.

The IFSC and Dublin’s docklands were a big focus for Pierse/Kelly ventures. The Origin 8 partnership, whose liabilities are also guaranteed, built the National College of Ireland, and owns the various retail units around that campus.

Another guaranteed entity, Northwall Quay Partnership, was involved in developing and managing property close to the IFSC. The liabilities of Northwall and Origin 8 are modest compared to the other two.

Across the Liffey, the pair bought a premises that belonged to the Project Arts Centre on City Quay. Two partnerships there, City Quay and City Arts, have liabilities of about €12 million.

Pierse didn’t only work with the Kellys. In 2007, it completed work on the Swords central complex, a mixed retail and commercial development in the north Dublin town of the same name, with developers Eamon Duignan and John McCarthy.

Pierse has guaranteed Anglo’s loan to the company behind this, Mall Developments. Company documents show that Duignan and McCarthy gave personal guarantees limited to half the €38 million liability.

The total €77.4 million in guarantees may never be called in, but nevertheless, the number represented a risk to what was a profitable contracting business, and a very real one at that.

Pierse didn’t simply jump into property development because everyone else was doing it. In one sense, in order to be a player in construction, it also had to be a developer.

Simon Kelly, Paddy Kelly’s son, points out that to get contracts, builders often had to get into bed with developers, and carry some of the risk.

At the same time, developers needed the contractors. For example, anyone tendering for projects in the IFSC had to have a turnover of at least €100 million a year. Developers almost always don’t have turnovers on this scale, and contractors almost always do, so they would get a share of any consortium bidding for any project in that zone. That is how Kelly hired Pierse for the Clarion deal.

It was the kind of relationship that characterised the construction and development sector through the boom, and it is a relationship that could well prove toxic to the remaining, productive parts of the Republic’s building industry.