The Irish Independent reports that Aer Arann last night admitted it could no longer pay its debts, but insisted it had a "reasonable chance" of successfully emerging from a court-led restructuring process.

The declarations came as the High Court agreed to appoint a temporary examiner to Aer Arann, which also operates the Aer Lingus regional franchise. The protection extends to September 8, when Aer Arann must return to court with an update on efforts to secure fresh investment and strike deals with creditors.

Last night's statements to the court revealed for the first time that Aer Arann lost €6m in 2008 and another €6m in 2009 and has lost "approximately" €6m so far this year. The losses were blamed on the economic downturn, exacerbated by this year's volcanic ash which strangled forward bookings and triggered massive "duty of care" payouts.

"These combined losses have led to a deficit in shareholder funding of approximately €13m at the end of July," the Padraig O Ceidigh-owned airline said in a statement.

At the court hearing, Aer Arann furnished an independent accountant's report testifying to its viability and stressed that its creditors would be better served by restructuring than winding up the company.

Significant creditors are understood to be supportive of the examinership efforts, including AIB which is owed €3.9m and agreed to provide a fresh €1m overdraft.

Other creditors

Other creditors include the Dublin Airport Authority, Aer Lingus, the Irish Aviation Authority, aircraft leasing companies and regional airports, some of whom count Aer Arann as their only airline.

Aer Arann also stressed that it was actively pursuing fresh investment, with three potential investors having already expressed an interest. A spokesman for Aer Arann last night declined to elaborate on the identity of the potential investors.

Senior sources at Aer Lingus last night rejected suggestions that they would build on their existing franchise arrangement by taking an equity stake in Aer Arann. "We're not going to take a stake," one insisted.

"There's no truth in that whatsoever."

The airline, which was once valued at about €100m, is understood to be seeking investment in the €10m to €15m range, which would heavily dilute the stake of founder Mr O Ceidigh.

Aer Arann employs about 320 people. The airline yesterday said it would "preserve as many of the 320 jobs in the company as possible, and the hundreds of jobs in airports and aviation support services companies".

Sources stressed that Aer Arann's decision to apply for examinership had been "entirely voluntary" and was not due to pressure from any creditors.

Aer Arann's reliance on soon-to-expire state subsidies, known as Public Service Obligation (PSO) routes, has long been commented on as a weakness. However, it is understood that the PSOs now make up less than 30pc of Aer Arann's turnover.

Ryanair last night slammed the subsidies saying it would be calling for an investigation of the PSO subsidies as the Government pays €10m a year to Aer Arann. Sources also dismissed suggestions that Aer Arann's status as an unlimited company meant that founder Mr O Ceidigh would be personally liable in the event of the airline's collapse.

While the Irish-registered Aer Arann is unlimited, it is owned by an Isle of Man company which is ultimately owned by Mr O Ceidigh. "There's no question of unlimited liability coming up," said one source.

The Irish Independent also reports that Goldman Sachs chief global economist Jim O'Neill has described Ireland's downgrade as "pretty insignificant".

"Germany could be entering a period of self-sustaining domestic demand," he said yesterday. "If that were true, it would be of major importance for the rest of Europe. Germany is a third of the euro area. Ireland is tiny, its downgrade is pretty insignificant."

German business confidence unexpectedly rose to a three-year high yesterday, driven by a jump in retailer sentiment.

"What is coming through more and more is evidence of improving domestic demand," Mr O'Neill said. "It's been such a long time since the German consumer has been spending. If it were for real, it's going to turn out to be major."

Mr O'Neill said a spate of "disappointing" US economic reports may prompt the Federal Reserve to embark on a fresh round of quantitative easing.

Recent reports on jobless claims and manufacturing point to slower growth in the world's largest economy. Figures showed that sales of existing houses plunged by a record 27pc in July.

"If we carry on with data like this, yes, it's coming . . . by October for sure," Mr O'Neill said, referring to quantitative easing.

The Irish Times reports that the Revenue Commissioners expect to collect up to €40 million by the end of this year from special investigations into trusts and offshore structures which have been used to evade tax.

Officials are investigating at least 1,133 cases in jurisdictions such as Jersey, Switzerland, Liechtenstein and the Cayman Islands where trusts may have been used to keep funds out of the Revenue’s sight.

Many of these funds were designed to create the impression that the non-resident trustees or entities are the owners of the funds, concealing the identities of the Irish beneficiaries.

The Revenue has already collected around €20 million in voluntary disclosures and settlements from 100 cases, or an average of €200,000 per individual, since last October.

It is now focusing its attention on funds across hundreds of trusts where individuals have not made voluntary settlements.

“The investigation into these 1,133 people is under way and is focusing on identifying undeclared tax liabilities by people who have transferred or settled property, assets or funds to trusts and other similar structures,” according to briefing material prepared by Revenue officials.

Revenue gave taxpayers who had undeclared funds an opportunity to make a voluntary disclosure by September 2009.

The benefits of voluntary disclosure included mitigation of penalties and non-publication as a tax defaulter.

Initial investigations show that most offshore trusts were facilitated by third parties such as fund managers, investment advisors and tax consultants.

Under recently enacted legislation, they have been required to supply information to the Revenue regarding transfers of funds and assets made by Irish residents involving non-resident trustees. The obligation applies to transfers made since December 2003.

As well as the money collected from trusts, Revenue anticipates collecting millions of euro from special investigations into other sectors. These include income from “legacy investigations” such as bogus non-resident accounts (€3 million), single premium life insurance policies (€3 million) and undeclared offshore assets (€3 million.).

Officials expect further significant yields from investigations into other forms of offshore tax evasion.

Since December 2009, the Revenue has had new powers to require clearing banks in the State to provide information on transfers to and from Ireland involving jurisdictions such as the Isle of Man, Jersey, Guernsey, Switzerland and Liechtenstein.

In the initial stages of its investigation Revenue has sought details of transfers to and from the offshore entities of Irish banks in these jurisdictions.

The probe requires financial institutions to provide information on all transfers over a threshold of €5,000, irrespective of whether the transfer had an Irish connection.

New powers will also allow the authority to access information on developers as uncovered by the National Asset Management Agency (Nama).

The economic downturn and a shortfall in tax means there is now increased pressure on the State to collect as much tax revenue as possible.

The State’s tax take, for example, fell by some €7 billion in 2009 compared to 2008.

The yield from investigations into offshore trusts, however, is likely to be relatively small compared to previous investigations.

DIRT audits yielded around €225 million for the Exchequer, while bogus non-resident and Ansbacher accounts resulted in €419 million and €109 million being returned to the State respectively over the past decade.

The Revenue Commissioners have also been looking to new areas for potential revenue.

For example, it says its financial services unit has been monitoring tax issues arising from the crisis in the banking sector.

This yielded €28 million last year in corporation tax, VAT and stamp duty.

This was due mainly to technical adjustment rather than deliberate attempts to underpay tax.

In addition, its “high-wealth individuals unit” initiated inquiries into around 300 directors and senior executives in the banking sector.

To date, this investigation has yielded around €1 million in tax settlements.

The Irish Times also reports that the High Court yesterday gave troubled builder McInerney Homes protection from its creditors in the first case of its kind to involve a business with debts destined for State bad bank, Nama.

McInerney has been wrestling with €236 million in debt owed to Irish and British banks since last year, but was close to selling a stake to US-based private equity house, Oaktree Capital, for €40 million, a deal that would have recapitalised the business.

The High Court yesterday appointed Billy O’Riordan of PricewaterhouseCoopers as interim examiner to the company, which gives McInerney automatic protection from its Irish creditors, to which it owes a total of €111 million.

The issue is due to be heard again on September 7th. If the court finalises the appointment of an examiner, this will give the company protection from creditors for up to 100 days, which is designed to allow the examiner time to come up with a rescue plan for the company. The company must demonstrate that it has a reasonable chance of survival for this to happen.

McInerney’s Irish debts are owed to a syndicate of three institutions, Bank of Ireland, State-owned Anglo Irish Bank and Belgian lender KBC. The examinership does not affect its British business or lenders.

State agency Nama is due to take over the debt owed to Bank of Ireland and Anglo later this year as part of the sixth tranche of property related debts. While it does not own the debts at this stage, it has the power to approve or disapprove any deal altering the terms of the company’s loans from these two banks.

It did not comment yesterday on the company’s move for protection. Several weeks ago, the banks involved approached the agency with a set of proposals related to the McInerney debt, but Nama did not accept the plan. It told the institutions to return this week with an agreed position. It is understood that they did not return to the agency this week.

The company’s petition said that the banks have cancelled its overdraft and demanded that it hand over 100 per cent of its takings from house sales, “a decision apparently taken under the direction of Nama”.

McInerney stressed that the request to be placed in examinership was not intended as a hostile move against either the banks or Nama. The group maintains that the examinership will speed up its restructuring process and will ensure a better outcome for creditors than receivership.

If it were to invest, US-based Oaktree is committed to putting €40 million into the company, €10 million of which would be earmarked for its Irish operations. Its involvement would depend on the company restructuring its finances. Oaktree generally buys stakes in the businesses in which it invests for the long term.

The Irish Examiner reports that the Government has gone into reverse gear regarding threats to drivers of commercial vehicles used for school runs and other non-business journeys.

Despite his department issuing fresh instructions to motor tax officers that owners of registered commercial transport must sign a declaration pledging not to use the vehicle for domestic purposes, Environment Minister John Gormley insisted such drivers should not fall foul of the law for activities such as travelling to church, or shopping.

Mr Gormley said the restrictions were aimed at drivers like those of "high-end jeeps" who manipulated their vehicle’s tax status to reduce annual levies from €2,000 down to €286.

The Green leader said it was "nonsensical" for critics to claim he had ordered a crackdown as strict regulations had been in place for the past 18 years. It is nothing to do with people doing things fairly. It is to try and catch people who are doing things unfairly.

"There was evidence that people were actively fixing their cars in this way," Mr Gormley told RTÉ.

Mr Gormley admitted in the past he had been ferried in fellow Green minister Eamon Ryan’s commercially registered van and that such occasional trips should not bring people into conflict with the law.

"I think we need to use our discretion here. Clearly the guards have better things to be doing than telling someone if they are bringing a kid to school in a van," he said.

The row exploded after an assistant principal officer in the Environment Department sent out the directive to officials reminding them of the restrictions on commercial drivers.

"It came to her attention – and she acted quite properly – that there was evidence that people were taxing their cars in this way. There has been no new legislation," Mr Gormley said.

The minister denied he was urging gardaí to turn a blind eye to domestic uses, but stressing they should use their "discretion".

"I have no evidence of gardaí setting up check points to catch people with a set of gold clubs in the back," he added. (maybe should read 'golf'?)

The minister also defended his practice of claiming "turning-up" expenses when he was an opposition Dáil deputy.

Oireachtas authorities said there was no case to answer after receiving a complaint about Mr Gormley’s €200,000 expenses bill between 1997-2007.

Part of the complaint centred on payments of €143,151 in "turning-up" expenses for days such as Christmas Eve and New Year’s Eve.

A spokesperson for Mr Gormley said the minister recalled working on such occasions.

Mr Gormley also denied he was opposed to the Poolbeg incinerator in his constituency because he was a "Nimby" (not in my back yard).

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