ACCBank and its partner banks involved in funding the Four Seasons Hotel in Ballsbridge, Dublin, were in talks all day yesterday regarding appointing a receiver to development company Simmonscourt Holdings Ltd.
The banks appointed Mr Pearse Farrell, of Farrell Grant Sparks, several weeks ago to advise on how the hotel could be completed after Simmonscourt ran over budget and was unable to secure further funding. Mr Farrell may be appointed receiver.
It is understood that the banks have been left with a very complicated scenario following the failure of Simmonscourt to bring in the project within budget. ACC yesterday included provision for losses from the project in its financial accounts.
Informed sources said last night that the investors who were scheduled to take ownership of the hotel from Simmonscourt could benefit from the project going significantly over budget, as they could claim tax allowances on the total amount spent. One view was that it may be possible under tax law for the investors to benefit from the project even if the hotel does not open. However, others said the investors would not get ownership of the hotel until it was completed. Significant additional funds are needed to finish the hotel.
The 10 investors are understood to have formed a partnership, the Nollaig Partnership, to take ownership of the hotel. They are understood to be Irish professionals who became involved because of the tax allowances and the prospect of profits from the five-star hotel's operation.
Under tax law hotel owners can get tax allowances on 100 per cent of the capital spent on the construction of the hotel. The allowances can be used over a period of seven years, with 15 per cent of the total amount being allowable each year for the first six years, and 10 per cent for the seventh. The tax allowances can be used against total income, i.e. an investor could use the allowance to reduce his tax bill on earnings from professional fees.
Changes introduced three years ago mean that any deal put in place after December 1997 can only be used as tax allowance on rental income as against overall income. However, the rental income is not restricted to the hotel which is the subject of the deal. ACCBank is the lead bank behind the Four Seasons development. The other banks involved are Anglo Irish Bank, Equity Bank and Scotia Bank.
Sources said it was normal practice in such deals for the partners to put up some cash towards the deal. It would also be normal for the advisers who assembled the partnership to provide guarantees for a certain amount. The Four Seasons partnership advisers are accountant Mr Derek Quinlan and property expert Mr Niall McCormack.
While the banks would have a charge on the hotel property, which is not finished, they would not normally have recourse to the partners. A partly finished hotel would not be a particularly attractive property to try to sell. Who will fund the overrun on the Simmonscourt budget is not clear. The banks may not be able to oblige the partnership to produce more money or to accept new individuals into the deal.
Simmonscourt accounts filed in the Companies Office earlier this month include a note from the auditors, KPMG, stating that the directors "expect that the company will obtain the necessary funding from the project bankers to enable the company complete the project and that the company will be in a position to pay its creditors as they fall due."
"There are significant uncertainties surrounding this which have not been fully in explained," in the notes to the financial statements, according to the auditors.
