NAMA and the Courts

12th August, 2009

The ruling by the Supreme Court on the Zoe Group is huge news. The actual judgement is very accessible and easy enough to read, its available HERE.

This is of interest to me for two reasons. Firstly, the set up of NAMA is of massive national interest and concern. I intend to debate this bill fully in the Seanad so I am following all issues in relation to it. Secondly, to my great interest I have found that 2 of the properties that triggered the potential insolvency of the Zoe Group are located in Dublin Central (one in East Wall and the other in North Wall).

It appears to me that the implication of the Supreme Court ruling on NAMA is simple. The most controversial part of NAMA is the pricing mechanism. How do you price ‘distressed debt’ (God, Orwell would love that phrase). This is vital as it determines the exposure to the tax payer. Up to this point this decision would be taken in a vacuum, with the main guidance coming from the European Commission in relation to long term land value.

This has now changed. If an insolvency action is triggered by a bank then a value will be assigned to the property owned by Mr Carroll. This is likely to be a low value. Of course this is going to be very different to the ‘long term economic value’ of the land as mandated by the Department of Finance. What will all of this mean?

Firstly, the pricing of liabilities by the Department of Finance will become even more fraught and political (assuming that insolvency is triggered against the Zoe Group). This is because a benchmark will now be apparent to the public.

Secondly, it will probably mean a lower value for such property. This will be good for the tax payer in the short run but could open up greater need for capital injections into BOI and AIB.

Can’t imagine that Minister Lenihan is having much of a summer holiday.