Paddy McKillen junior claims lender not authorised to give €3m loan

High Court Reporter

Businessman Patrick McKillen junior has claimed in Commercial Court proceedings that a €3 million finance firm's loan he guaranteed to one of his companies was allegedly not authorised under Central Bank regulations.

But the lender, Herbert Street Property Finance Unlimited Company, says McKillen has advanced that claim in bad faith as it was a business loan for an apartment development by a McKillen firm called "The Pinnacle" in Mount Merrion, Dublin, and not towards his personal purposes, which would require authorisation.

McKillen claims, among other things, that Herbert Street Finance entered into the December 2022 loan agreement when it was not a retail credit firm authorised under the Central Bank Act 1997.

The proceedings were admitted to the fast track Commercial Court on Monday on the application of Bernard Dunleavy, for McKillen, and on consent from Martin Hayden, for the defendant.

Judge Mark Sanfey approved directions for the hearing of the case and adjourned it to October.

The court heard that Herbert Street Finance had already brought bankruptcy proceedings against McKillen in relation to the loan and was also seeking judgment against him for €2.14 million.

In his statement of claim, McKillen says not only was the defendant not authorised to make such a loan, but it had applied a fixed interest sum of €1 million on the €3 million loan, or 33.3 per cent, which was not a genuine pre-estimate of any commercial loss and constituted an unenforceable penalty clause.

He claims that €2.3 million of the loan had been paid back and that the height of the outstanding amount due was €700,000.

It is claimed that a WhatsApp message from David Agar, the principal shareholder in Herbert Street Finance, to McKillen on April 11th last referred to "your loan from me".

This was the defendant's representative understanding that the loan was advanced to McKillen personally and was not part of a business-to-business commercial transaction, it is claimed.

McKillen claims his guarantee on the loan was void and/or unenforceable by reason of illegality

It is also claimed the defendant materially and irremediably prejudiced McKillen's right of subrogation as guarantor by its conduct, including by not pursuing his company, Cool Dust, to which the loan monies were first advanced.

Herbert Street Finance's Agar, in an affidavit dealing with the application of entry of the case to the commercial list, said he refuted McKillen's claims in their entirety.

He said McKillen defaulted on the loan repayments, which were to be made over an 18-month period, and when a demand for repayment of the outstanding €2.14 million was not met, proceedings were issued seeking judgment against him for that sum.

A decision in that case is awaited, he said.

Separately, McKillen issued proceedings seeking to dismiss a bankruptcy summons brought against him over the same debt, and a judgment has also been reserved in relation to that, he said.

Agar said it was only after the loan was advanced that it subsequently transpired that the money was being used for purposes other than the Pinnacle development.

It is alleged by the defendant that they were used to pay other liabilities of McKillen and/or of other companies of his.

Agar also said that in an affidavit from McKillen for the bankruptcy challenge case, he (McKillen) acknowledged that in informal communications with Agar, the loan monies would be used for the Pinnacle.

McKillen said in the affidavit he "genuinely expected and intended at that time that the group's financial position would stabilise, that the Pinnacle would be completed, and that the funds would ultimately be repaid from the proceeds of that development".

Agar said it was impossible to reconcile that comment with the claim McKillen is now making that the funds advanced, by agreement with the defendant, "were not applied to the stated commercial purpose of the facility agreement".

He also said the €1 million interest was not a penalty clause but the cost of the finance to which McKillen expressly agreed when the loan was taken out.

McKillen can also not credibly claim he was acting as a consumer when he specifically warranted in the guarantee that he was not acting as a consumer, he said.