Cerberus was the name of the three-headed dog that guarded the gates of Hades. It definitely was not the type of a dog one would trust to get too close to. Perhaps the same applies to its namesake – the New York investment firm that in Scotland is probably best known for buying large parts of Clydesdale Bank’s commercial property portfolio.
Similarly to the three-headed dog, Cerberus Capital Management does not have a reputation for being warm and cuddly. It is therefore understandable why a lot of the Borrowers were unpleased, to say the least, when their borrowing was transferred to Cerberus without them having much of a say in the matter.
While there has been a lot of disquiet about these transfers (MBM represented several clients in such cases, the latest being the Court of Session action raised by Tweed Homes against Clydesdale), it is the Project Eagle scandal in Ireland that has brought the activities of Cerberus not only into the public eye but also under the scrutiny of both the UK’s National Crime Agency and now also by the US Department of Justice.
What was it? In short it was Cerberus’ acquisition of the National Asset Management Agency’s (“NAMA”) Northern Ireland loan portfolio.
As it is well known, Ireland was one of the countries’ worst hit by the financial crises. In the wake of the crisis, the country set up NAMA to acquire distressed loans and later sell them at discounted prices. Cerberus purchased the Northern Ireland portfolio with a face value of £4.5 billion from NAMA for a mere £1.3 billion in April 2014.
Scandal in July 2015
In July Mick Wallace, a member of the Irish Parliament, contended that £7 million was put in an offshore bank account to pay off an unidentified Irish politician or political party in connection with Project Eagle.
It transpired that £7 million had indeed been put into an offshore account. For what purpose, however, was less than clear. When Cerberus bid for NAMA’s Northern Irish loan portfolio, it was represented by the American law firm Brown Rudnick. The US lawyers, in turn, retained a Northern Ireland law firm, Tughans, to provide local counsel.
At the start of the year, Tughans’ managing partner, Ian Coulter, stepped down unexpectedly with little explanation. After Mr. Wallace’s accusation, Tughans admitted that Mr. Coulter had diverted the £7 million in professional fees owed to the firm to an account in his name without the knowledge of his partners. The £7 million turned out to be part of the fee paid to Brown Rudnick and Tughans by Cerberus.
While no particular politician was identified as the intended recipient of the £7 million, there was a lot of speculation. And things did not just end with political scrutiny – criminal investigations into Project Eagle were also commenced by the National Crime Agency.
US Department of Justice investigations
Now it has transpired that the US Department of Justice is also looking into the allegations of irregular payments surrounding Project Eagle. The DoJ involvement not only adds a further dimension to the scandal but also indicates that investigations into Project Eagle are unlikely to go away any time soon
Impact on the Clydesdale portfolio transfers?
So how does all of this impact the Clydesdale commercial property portfolio sale to Cerberus? It may not but it does raise some questions. For example, at how much undervalue did Cerberus purchase the portfolio and what is the likelihood of a pay-off scandal similar to the one in Ireland surfacing in the UK? Only time will tell but one thing is certain – there are a lot of disgruntled ex-Clydesdale customers who now find their borrowing with Cerberus. If any dubiety about the legitimacy of the circumstances surrounding the transfers were to arise then Cerberus may also face further investigations in Scotland.
Contact MBM Commercial LLP
If your Clydesdale borrowing was transferred to Cerberus but you have an ongoing dispute with Clydesdale or if you have any queries arising from this article then please contact our Dispute Resolution team on 0131 226 8200.