WILMINGTON, Del Oct 8 (Reuters) - A tenacious U.S. hedge fund and an Irish property developer were blocked on Tuesday by a U.S. federal judge from digging into the secretive communications that led to Ireland's decision to liquidate former Anglo Irish Bank.
Elliot Management, billionaire Paul Singer's hedge fund, and John Flynn failed to convince a U.S. Bankruptcy Court judge to allow them to demand a broad range of information that they said could prove the bank was solvent when put into liquidation.
"The court is not inclined, at least for now, to perform a forensic analysis of Ireland's legislative and executive departments," said U.S. Bankruptcy Court Judge Christopher Sontchi of Wilmington, Delaware.
The former bank was at the heart of last decade's property boom and bust in Ireland and the lender was put into an accelerated liquidation during an emergency session of Ireland's parliament in February.
Now known as Irish Bank Resolution Corp, or IRBC, the liquidating bank applied in August for U.S. court protection to prevent creditors from going after more than $1 billion in U.S. assets.
While the liquidator overseeing the former bank won an initial legal skirmish on Tuesday, a battle still looms over whether Sontchi will grant IBRC protection under Chapter 15 of the U.S. bankruptcy code.
No date has been set for that hearing, which will be decided based on legal arguments rather than with a trial complete with witnesses as Elliott had sought.
Elliot Management owns $75 million in notes issued by IBRC and wanted to investigate its allegations that politics drove the decision to liquidate the bank. That decision led to assets being undervalued to the detriment of creditors, who had expected the bank to be gradually wound down over a decade, according to Elliott.
Chapter 15 protection would freeze any U.S. litigation against IBRC, including a case in Manhattan's federal court brought by Flynn alleging he was overcharged $11 million by IBRC.
The liquidators acknowledge Flynn was overcharged, but dispute the amount he is owed.
Flynn failed to convince Sontchi to allow him to proceed with his lawsuit in Manhattan's federal court.
"You win some, you lose some," Flynn said on the way out of court after five hours of hearings and testimony. His lawyer was less philosophical.
"We're off to Philadelphia," said Lawrence O'Neill of the O'Neill & Co, referring to the U.S. Court of Appeals for the Third Circuit.
Van Durrer, an attorney for Skadden, Arps, Slate, Meagher & Flom, who represents IBRC, declined to comment on the possible appeal.
While Chapter 15 protection is routinely granted to foreign companies by U.S. Bankruptcy Courts, last year Judge Harlin Hale in Dallas denied recognition of a Mexican proceeding involving glassmaker Vitro SAB.
Without U.S. bankruptcy court protection, creditors were able to secure judgments against Vitro's assets in U.S. state courts, which helped lead to a settlement. The creditors in that case were also led by Elliott Management.