Former newspaper tycoon Tony O’Reilly has been declared bankrupt by a court in the Bahamas, despite objections from AIB, one of his main creditors. Creditors will now confer about a possible deal on the sale of his assets and the division of the proceeds.

The ruling of Judge Milton Evans in Nassau will protect Sir Anthony’s assets from moves by creditors in advance of an agreement being reached. However, it is still open to AIB to challenge the right of the Bahamas court to adjudicate on assets in other countries, an issue the bank argued at the bankruptcy hearing.

The Supreme Court in Nassau heard that 90% of O’Reilly’s creditors were open to a proposed agreement, the exception being AIB. The bank creditors include ACC, BNY Mellon, EFG Bank Trusts (Bahamas) and Lloyds.

AIB has taken the hardest line on the money owed to it by O’Reilly, 79, once dubbed Ireland’s richest man. In the summer of 2014, AIB moved against O’Reilly in the High Court in Dublin to enforce a €22.5m judgment.

In those proceedings it was revealed that O’Reilly’s total liabilities amounted to about €195m. According to the businessman, he owed money to ACC Bank, Bank of Ireland, Ulster Bank, Mellon Bank, EFG Bank Trust Bahamas and Lloyds. He also has substantial debts owed to US vulture fund Loan Star, which acquired the borrowings O’Reilly had with Anglo Irish Bank.

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Colossus

For four decades, Tony O’Reilly was a colossus on the Irish business scene, keeping a number of balls in the air in Ireland while at the same time holding down the CEO role at American food giant Heinz.

He lived the tycoon lifestyle too, flying on his private jet between swanky homes in Ireland, France, America and the Bahamas. With his wife Chrys, O’Reilly – a horse racing enthusiast – mixed with the great and the good and, thanks to his work with The Ireland Funds charity, even secured a knighthood from Britain’s Queen Elizabeth.

How his debts mounted up is not known. Some observers trace O’Reilly’s woes back to 2001, when the newly privatised eircom was on the market. Denis O’Brien was coming off the back of his home run with Esat Digifone and he fancied taking on the eircom challenge.

But O’Brien was outmaneuvered by O’Reilly’s Valentia consortium, with Sir Anthony proving to be much more adept at greasing the unions. O’Brien then went off to the Caribbean to build an even bigger mobile fortune with Digicel, but he hadn’t forgotten the joust with his older rival.

What aggrieved O’Brien even more, apparently, was the content and tone of reporting in newspapers owned by O’Reilly of proceedings at the Moriarty Tribunal. It was established to probe the award of a mobile phone licence to O’Brien’s group, and O’Brien was incensed by the conduct of the inquiry and the negative comment about him that appeared in print.

Spectacular

The main source of O’Reilly’s wealth was Independent News & Media (INM). After establishing a virtual monopoly in Ireland, he expanded INM into the UK, South Africa, Australia and New Zealand. Though the edifice was constructed on debt that proved to be unsustainable, the operating results were spectacular.

The high water mark was 2007, when operating profit was €350m. O’Reilly owned a quarter of the shares and his annual dividends came to about €20m a year.

O’Reilly’s monthly cashflow from INM wasn’t bad either. In 2007, his salary and bonus came to €1,730,000, plus a €450,000 pension payment. In addition, the company funded the chief executive’s substantial travel and entertainment expenses.

The INM board had 14 non-executive directors, whose independence from O’Reilly was criticised by corporate governance experts. To a large extent, he ran INM as a personal fiefdom.

In 2005, O’Brien embarked on a strategy to wrest INM from O’Reilly’s grasp. Through that year, O’Brien spent €55m building up a 3% stake in the newspaper group. His presence on the share register was revealed in January 2006 and the die was cast. Over the next three years, O’Brien and O’Reilly both splurged on buying INM shares to strengthen their respective positions.

From January 2006 to June 2008, O’Brien spent €520m building his stake up to 25%. In the same period, O’Reilly spent €80m to inch his equity holding up to 28%. O’Reilly borrowed to fund some of those share purchases, using INM shares as security for loans.

The value of this security plummeted in subsequent years. For instance, the nine million INM shares that are security for AIB’s loans were valued by the market at €1.3m in 2014. Yet when O’Reilly bought nine million INM shares in April 2008, his outlay was €19m.

Bad Luck

O’Reilly also had bad luck with his other major investment, Waterford Wedgwood. He became involved with the crystal glass company in 1990 and as deputy chairman steered the brand onto a fast growth track. In 2001, giftware sales collapsed after the 9/11 terrorist attacks and Waterford Wedgwood never recovered its momentum.

Through the 2000s, O’Reilly and his brother-in-law Peter Goulandris poured in more equity as the group staggered under a €540m debt burden. In January 2009, the banks placed the company in receivership, wiping out the estimated €400m that O’Reilly and Goulandris had invested in the company.

Meanwhile, O’Brien ratcheted up the pressure at INM, with a frontal assault on board governance. In 2008, the company’s operating cashflow was €250m and O’Reilly pocketed €27m in dividends. In March 2009, O’Brien’s lieutenants Leslie Buckley, Paul Connolly and Lucy Gaffney were appointed to the INM board. Two months later, O’Reilly resigned as CEO and from the board of directors.

O’Reilly received a €1.4m compensation payment and €1m for his pension. But the Independent lifestyle tap had been turned off for good. In another blow, INM’s trading units were hammered by the recession through 2009 and the dividend was scrapped.

Suddenly, because of O’Brien, O’Reilly was adrift without cashflow to keep servicing his loans. To compound the misery, the tanking of the INM share price decimated his paper wealth, and the value of securities pledged for his borrowings.

Escape Route

In 2010, O’Reilly’s adviser Bernard Somers, a former INM director, sought agreement from lenders for a standstill arrangement to allow O’Reilly time to sell off assets to pay down the debt. His assets included stakes in his son Cameron’s company, Landis & Gyr, and large shareholdings in Heinz, oil explorer Providence Resources and INM.

The Landis & Gyr and Heinz shares were duly sold and in 2012 it briefly seemed that Providence’s oil discovery off Cork might provide O’Reilly with an escape route from that investment. That didn’t happen, and there was no respite on the media front either.

In May 2007, O’Reilly’s INM shareholding was worth about €800m. Two years later, in May 2009, when he exited the company, that value had diminished to €60m, and it cratered further after that.

To fund the bumper dividend payouts and share buybacks, O’Reilly left INM with €1.3bn debt on the balance sheet. When debt rollovers stopped with the credit crunch, and the bottom fell out of the newspaper advertising market, the company tottered towards insolvency.

Though chairman Leslie Buckley and O’Brien pulled the group back from the brink in 2013, O’Brien had also been blindsided by INM’s sharp trading reversal after 2007. He had his revenge on O’Reilly, but it had cost him dearly.

Some reports indicate that O’Reilly’s indebtedness stood at about €300m four years ago, and various asset disposals pared it down to €200m in 2014. But with little prospect of the INM or Providence shares delivering a get-out-of-jail card, AIB moved against him.

The state-owned bank lent O’Reilly €8m in March 2009, half of which was used to repay a director’s loan. In May 2011, AIB lent another €13m to refinance an existing loan. Security for the loans, apart from O’Reilly’s guarantee, extended to 237 acres of land at his country home in Castlemartin, Co Kildare; the gate lodge and caretaker lodge at Castlemartin, but not the main house; Shorecliffe House, his holiday home on six acres in Glandore, Co Cork; and 8.9 million INM shares.

Furious

When AIB did the math, it decided that this security was not worth the €22.5m it is owed. As O’Reilly was in default with the borrowing terms, in June 2014 the bank secured summary judgment. The effect was that AIB could enforce the judgment against O’Reilly’s unencumbered assets outside its specific securities.

AIB acknowledged in court that it was jumping the gun on the other bank creditors. AIB had entered into a formal standstill agreement with O’Reilly in October 2013 but this expired at the end of December 2013 and was not extended.

O’Reilly was furious at AIB’s actions. He had given his word to all the banks that whatever he realised from disposal of unencumbered assets would be shared out in proportion to the outstanding debt.

In all likelihood, every lender would take a bath but the pain would be shared equally. O’Reilly asked Justice Kelly to put a stay on AIB’s judgment for six months. He pleaded in his affidavit: “AIB is secured over a portion only of the property at Castlemartin. The bank is aware that the value of its security will be maximised if the whole estate is sold, and it is also aware that its security would not entitle it to force such a sale. I am arranging the sale, as I said I would.

“The price to be realised for Castlemartin is absolutely crucial; not just to the plaintiff, but to my other creditors and to myself. I am hopeful, that the price realised would be sufficient – when both property sales are completed together with the sale of other assets secured by the plaintiff – to discharge the bank’s debt in full.

Equal Treatment

“In the course of my dealings with all of my creditors I have been anxious to ensure equal treatment as between all the lenders. I have followed this path for two reasons. Firstly, it is consistent with the manner in which I have always conducted my business that I try and treat people with whom I am engaged in any undertaking with fairness.

“Secondly, I was keen to ensure that I would secure forbearance for my lenders by reassuring them that none of them – as between themselves – would obtain any priority in respect of the realisation of my unencumbered assets.”

Justice Kelly refused the stay, noting: “On the evidence before me, the probability is that the encumbered assets will not be sufficient to discharge the indebtedness to AIB.”

O’Reilly sold Castlemartin to Liberty Global’s John Malone, as well as his townhouse on Fitzwilliam Square (€3.2m) and the Glandore holiday home (€1.75m).

A substantial part of O’Reilly’s unencumbered assets (i.e. not pledged as security for borrowings) are in the Bahamas. He has a home at Lyford Cay, a private gated community where the neighbours include Sean Connery.