A business partner of developer Paddy McKillen has described "a state of panic in the boardroom" in the day last year when NAMA transferred the debt in three top London hotels to the billionaire Barclay brothers.
Mr McKillen is suing the Barclay twins in the London High court in a legal battle for control of Coroin which owns Claridges, the Berkeley and the Connaught hotels.
Liam Cunningham told the court that on 27 September 2011 "there was quite a state of panic in the boardroom," and he said that the directors "certainly didn't know it was about to happen".
Mr Cunninham who runs Mr McKillen's Dublin office, said Coroin felt that NAMA should have consulted them and that the debt transfer to the Barclay brothers "came as a bolt out the blue".
Earlier in a witness statement, Mr Cunningham described the transfer of the debt as being a fait accompli.
He said in the statement that Coroin was given at most 57 minutes to respond to the proposed transfer by NAMA of the loan facility to the Barclays.
The judge has rejected an application by Mr McKillen requesting disclosure of emails written and received by Sir David Barclay.
Mr Justice David Richards ruled today that Sir David could not be compelled to release emails relevant to the case because they had been received or sent through an email account controlled by Sir David's wife.
Sir David and Sir Frederick Barclay who live outside the UK, have made it clear that they will not come to court to give evidence in person.
The High Court has been told the company controlling three top London hotels had been "a very unsteady corporate structure", before the Barclay brothers acquired €800m of the hotels' debt from NAMA last September.
Richard Faber, who is a director of a company controlled by the Barclay brothers, described in evidence the events leading up to the transfer to the Barclays of the Coroin debt last September.
He said he had been dealing with "a very unsteady corporate structure ahead of a deadline for a rollover of the debt on 30 September. The reality was that the Coroin was in a hopeless position."
Earlier in 2011, Mr McKillen had been in negotiations with the Barclays over a funding deal for Coroin.
But Irish financier, Derek Quinlan, who had established Coroin to acquire top London hotels, entered into an agreement with the Barclay twins to sell his shares to them.
Mr Faber, who has worked for the Barclays for 12 years and who was once married to Sir Frederick’s daughter, told the court that he had written to Brendan McDonagh, the chief executive of NAMA on 21 February 2011, offering to acquire Mr Quinlan's loans.
It gave the Barclays a controlling stake of 64% in Claridges, the Connaught and the Berkeley hotels, leaving Mr McKillen with the remaining 36%.
Mr McKillen says this was in breach of a shareholder agreement which required Mr Quinlan to offer his shareholding to existing shareholders first before selling it to third parties.
Faced with the loan facility running out at the end of September last year, Mr Faber said "it had become clear in the eight months we had been involved that the company was unable to structure a senior loan."
Mr Faber described how he had consulted Sir David who had suggested hiring Goldman Sachs. Mr Faber said that "hiring Goldman Sachs on 22 August to refinance a £660m obligation in a month was a completely hopeless and futile prospect but the legal rationale was that we should hire them."
Mr Faber added that "we hired Goldman Sachs because that was the advice we were given and because Liam Cunningham was keen to do it and we respected that."
"We had various exchanges with Mr Cunningham about various solutions before the September 2011 rollover. Sir David Barclay did part of the drafting. He was very helpful".
In a witness statement lodged with the court, Mr Faber says that it was in the context of the Barclay brothers 2011 agreement with Mr McKillen that they first approached NAMA about refinancing Coroin.
Mr Faber says the approach to NAMA "was not something which was done secretly behind Mr McKillen's back, as Liam Cunningham seems to suggest."
Mr Faber's witness statement also contains the wording of a text message from Sir David to him.
Referring to Mr McKillen's assertion that the Barclays were in breach of a shareholder agreement which required Mr Quinlan to offer his shareholding to existing shareholders first, Sir David says: "Paddy is a liar he knows his pre rights are not ownership but just a right of first refusal."
Mr Faber said in an earlier written statement that: "The suggestion that I, or anybody in the Ellerman group, or Sir David and Sir Frederick, set out to injure Mr McKillen or ignore his rights is wrong. On the contrary, we were very much aware of his rights and went out of our way to accommodate him in light of those rights."
Mr Faber said: "Assets like the Connaught, the Berkeley and Claridge's do not come on the market very often.
“These and the very few other similar hotels are something that Ellerman [the Barclays' company] would naturally keep an eye on, looking for opportunities, whether to take control and run the hotel, or to buy and make a turn on it.
“The hotels are well known brands and they are profitable. In fact, these hotels are about the last of their type likely to come to market. The collapse of the Irish banking system and economy was well known and it was widely known that some of the shareholders in Coroin were in financial difficulty as a result."
Mr Faber also says that Mr Cunningham, asked about the possibility of a "soft loan" for Mr McKillen from the Barclays during negotiations in May 2011.
Mr Faber describes this as "a loan which would have no interest payable in the early part of its term".
Mr Faber said Mr Cunningham "alluded to Mr McKillen's cash flow difficulties."
He said the possibility of a loan being made to Mr McKillen was raised again by Mr Cunningham during a meeting in Monaco in the week commencing 30 May 2011.
Mr Faber's witness statement also deals with the Barclays' unsuccessful attempt to buy Mr McKillen's loans from the IBRC, formerly Anglo-Irish Bank.
The €240m Mr McKillen owes the IBRC is secured on the three London hotels and the Jervis shopping centre in Dublin.
Mr Faber said he "certainly believed that it was open to us to buy his loans if we could and I understood that this was precisely IBRC's role: to realise such debts. I admit that buying such debts would no doubt be of advantage to us in our pursuit of Coroin.
“If Mr McKillen went into default we would be able, if we owned the debts secured against his Coroin shares, to enforce.
“I obviously accept that if the security allowed for us to replace Mr McKillen as director, and we held it, we would do this. It's also alleged that we want the debts so that we may attempt to make it difficult for Mr McKillen to participate in any rights issue.
“I am not sure what the basis for the allegation is. No doubt our ability to do so would depend upon his financial position and the terms of any loans, which we do not know.
“However, the main and obvious reason for buying the debt would be to enforce if we can. Again, I see nothing wrong in any of this: it is all a perfectly legitimate way of trying to take control over Coroin, which is what we have all along been trying lawfully and effectively to achieve."
Mr Faber's written witness statement to the court outlines the Barclays' version of their dealings with Mr Quinlan.
Mr Faber said: "In 2010, Mr Quinlan was known to Sir David and Sir Frederick. We knew he was a shareholder in Coroin and in a weak financial position following the Irish banking crisis and property collapse."
Mr Faber described meeting Mr Quinlan and Sir David Barclay in Gstaad in Switzerland in January 2011: "I believe I met Sir David briefly. He was not well. Mr Quinlan was due to arrive the following morning. Sir David was unable to meet him on 13 January. So I had dinner with Mr Quinlan on 13 January and we only met Sir David on the morning of 14 January.
“We discussed the purchase of Mr Quinlan's shares and a (non-binding) ageement in principle was reached that we would buy his shares on the basis of an enterprise value of £900m, i.e. about £80 million for Mr Quinlan's shares.
“Mr Quinlan explained, and it was clear to us, that this was provisional on us working out a way of dealing with the pre-emption issues.
Later, back in London Mr Faber described visiting Mr Quinlan at his home to get him to sign an agreement. "We came up with a one-month exclusivity agreement, which was hardly much, but we could not do anything more in light of pre-emption, as I understood it.
“So I had to go round to Mr Quinlan's house in Putney with the exclusivity agreement. I was running late for dinner elsewhere and arrived at about 7 or 8 o’clock, to find the house in what I can only describe as a state. Mrs Quinlan and her small children were in tears and I surmised that Mr Quinlan had been subjected to some very strong words from Mr McKillen or those acting for him, during the afternoon.
“It was very embarrassing having to get Mr Quinlan to sign the exclusivity in these circumstances, but he did, which seemed to be a great relief to him and Mrs Quinlan. Certainly, it was a relief for me."
Referring to Mr Quinlan's loans, Mr Faber said: "We became aware at some point that Mr Quinlan's shares were charged to his various lenders. Part of his shareholding (22.08% of the shares in Coroin) was secured in relation to his loans held by Bank of Scotland (Ireland) with his other 13.32% of the Coroin shares being secured to NAMA.
“However, we did not know the details and so I had to be sent them by Mr Quinlan's team. Mr Quinlan was naturally keen for the Barclays to become his creditors in place of the various banks and NAMA, if he could achieve this, no doubt hoping they would be more conducive lenders."
"I had no reason to believe that this purchase triggered any pre-emption provision (and still do not believe that it did), since all that was being done was Bank of Scotland (Ireland) being replaced by us as security holder, not the transfer of any interest in the shares, which remained with Derek Quinlan."
Mr Faber denies that Mr Quinlan became what he describes as the Barclays' "stooge" on the board of Coroin: "I should point out that what I said about the independence of Mr Quinlan as a director was, from my perspective, true: he was not our "stooge", simply doing what we told him as a director of Coroin.
“Mr Quinlan was his own man, even if he was in an alliance with us. While we certainly had him in a very strong position, given that we owned the former Bank of Scotland (Ireland) loan, I never presumed that he would necessarily and always do what I asked him to.
“Indeed, the only issue of substance raised during the period at any board meeting was the NAMA refinancing and there was never any division on that front where Mr Quinlan followed us against Mr McKillen or was or needed to be directed by us."
However, Mr Faber describes how the Barclays moved to replace Derek Quinlan on the board of Coroin: "I was involved in the discussion leading to this. We exercised our rights as the legal shareholder for a number of reasons.
“Initially, we had been content that Mr Quinlan should continue on the board, as he had when Bank of Scotland (Ireland) had held the debt.
“However, as time went on we began to have a number of concerns and to see the advantages of replacing him. First, there was a practical problem of Derek's travel and lack of availability for meetings, which he no longer seemed greatly interested in. But much more importantly, the last thing we wanted was to have on the board one of Ireland's most notoriously "embattled" former property tycoons.
“Mr Quinlan and his difficulties were constantly the subject of press comment. It was very bad for our ability to deal with banks to have someone like him on the board, when, frankly, there was no clear reason to do so. At the same time, we had Mr Quinlan sign a power of attorney in our favour in relation to the voting of his shares. This enabled us to control the votes of the shares, which was obviously desirable. With the benefit of hindsight, I am not sure why we waited so long before replacing Mr Quinlan."
