The High Court has been told that the sale of Quinn Insurance Ltd (QIL) to US insurer Liberty Mutual and Anglo Irish Bank was put in jeopardy as a result of the under-reporting of reserves by QIL employees.
The sale of the insurance company to the joint venture was completed last month.
As a result of the sale, all of QIL businesses in the Republic of Ireland, except healthcare, transferred to Liberty Mutual. Liberty will be wholly responsible for the business while State-owned Anglo - now the Irish Bank Resolution Corporation - will have no day-to-day role in the business but will act in a loan recovery capacity.
Bernard Dunleavy, for the joint administrators of QIL Michael McAteer and Paul McCann - who were appointed by the Financial Regulator in April 2010 - told Mr Justice Nicholas Kearns his clients discovered last October that QIL's reserves had been under-reported.
This could have led to the collapse of the sale to the joint venture as the under-reporting of reserves represented a material change to the deal, and affected QIL's cash flows. Counsel said that any collapse would have been "disastrous" for all concerned.
Counsel said there had been a culture of under-reporting of reserves by QIL prior to the appointment of the joint administrators.
After discovering the under-reporting, the joint administrators, who took disciplinary actions against those employees of QIL involved, had to re-negotiate some of the terms of the sale.
The effect of the renegotiation was that a larger tranche of public money being paid out of the State's Insurance Compensation Fund to cover QIL's losses was required to cover QIL's cash flows in the shorter term.
As part of the sale, around €740m of public money is to be paid out of the Insurance Compensation Fund to QIL, including an immediate payment of €320m to facilitate the sale.
As a result of the under-reporting, counsel said payments of €210m from the fund to QIL in January 2012 and €40m in March 2012 were required. Requests for drawdowns from the fund during the rest of 2012 and afterwards will have to be made to the High Court.
Counsel said that while these tranches were bigger than initially expected, the overall effect of the renegotiation meant that, in the long-term, less money may be required from the fund. Had the sale collapsed more than €800m would have been required from the fund, the court heard.
The application for the larger tranche payments was granted by Mr Justice Kearns. The judge agreed to make the order after being informed that the Minister for Finance supported the joint administrators' application.
The judge also said that he would rule in January on an application made on behalf of the joint administrators to approve fees for the costs involved in the administration of QIL.
The costs include fees charged by merchant bank Macquarie Capital Europe Ltd, which was hired by the joint administrators to help sell the insurance group.
Mr Justice Kearns said he required time to consider the application in relation to what the court was told were "substantial" fees.
The judge was also told that efforts to sell Quinn HealthCare were progressing, as were efforts to sell a hotel owned by the company in Cambridgeshire in England.
