Bio Marine Ingredients Ireland Ltd v Companies Act 2014

• Jurisdiction: Ireland
• Judge: Mr. Justice Michael Quinn
• Judgment Date: 17 November 2023
• Neutral Citation: [2023] IEHC 641
• Court: High Court
• Docket Number: [Record No. 2023/196 COS]

In the Matter of Bio Marine Ingredients Ireland Limited

and

In the Matter of Part 10A of the Companies Act 2014

[2023] IEHC 641

[Record No. 2023/196 COS]

THE HIGH COURT

Stay – Jurisdiction – Companies Act 2014 Part 10A – Stay sought pursuant to s. 558N of the Companies Act 2014 – Whether High Court was appropriate jurisdiction in which to commence proceedings

Facts: The directors of Bio Marine Ingredients Ltd (the Company), on 20 October 2023, resolved to appoint a process adviser pursuant to Part 10A of the Companies Act 2014, the appointment to take effect on 23 October 2023. The matter came before the High Court as an application for a stay pursuant to s. 558N. After hearing affidavit evidence by the Company and the process adviser, and the submissions of parties notified, the court was satisfied that there was a reasonable prospect of survival of the company and all or part of its undertaking as a going concern, and that it was appropriate to make an order restraining enforcement measures against the Company pursuant to s. 558N. The application was heard and determined on 1 November 2023. The reasons for the decision to grant the stay were given in an ex tempore judgment delivered by the court on that day. At the outset of the hearing, a preliminary question arose as to the appropriate jurisdiction in which to commence the proceedings. Quinn J determined that this was an appropriate case in which to commence the proceedings in the High Court and he gave reasons for that determination. As that question had not previously arisen before the court and was of general importance he stated that he would deliver a reasoned judgment.

Held by Quinn J that only one of the four reasons identified by the process adviser constituted a good reason for the proceedings being brought in the High Court, namely the third reason, which was the process adviser’s reference to “the quantum of the company’s share capital, indebtedness and deficit at a level where it appears to me to be appropriate for the High Court to be the relevant court”. Quinn J noted that the report of the process adviser described the trading and financial history of the Company and the manner in which finance had been raised to date: as at the end of the year 2022, the Company had accumulated losses of €30 million; it had raised finance, both in terms of share capital and debt finance, in an amount of €40.6 million since its establishment; this comprised share capital and premium at €20.2 million, related party loans of €7.1 million, “EIIS share capital” of €6.2 million, collateralised loan notes of €6.2 million and funding from Enterprise Ireland at €750,000. Quinn J noted that the statement of affairs prepared by the directors and submitted to the process adviser in accordance with the terms of the Act disclosed assets having a book value of €11.3 million, but estimated to realise €2.9 million, including its interest in a freehold property at Stonehill, Donegal, and a leasehold property at Egish Food Park, Castleblayney, Co. Monaghan, which was its principal trading location. Quinn J noted that the statement of affairs disclosed the company having 91 unsecured creditors owed a total sum of €9.5 million; those included amounts ranging from small trade balances to significant debts owed to Killybegs Seafoods (€1.6m) and Enterprise Ireland (€871,000); a number of creditors had invested through an entity known as KFO Investments, said to be part of the Killybegs Fishermans’ Organisation; the estimated overall deficit described in the statement of affairs was €15.5 million. Quinn J noted that the Company’s business was the processing of raw whole fish into speciality fish protein products used as ingredients in human and animal foods; it had expended more than €8.1 million on research and development; it had a series of valuable domestic and international contracts and was engaged in contract negotiations with significant multinational food producers; the capital and debt structure involved a blend of share capital, related party loans, Enterprise Ireland contributions and other investment arrangements and it was anticipated that any rescue plan would address all aspects of the balance sheet.

Quinn J held that, in light of the scale of those matters and their complexity, there were good reasons for the proceedings being commenced in the High Court.

Stay granted.

JUDGMENT of Mr. Justice Michael Quinn delivered on the 17th day of November 2023

1 . Part 10A was added to the Companies Act 2014 by the Companies (Rescue Process for Small and Micro Companies) Act 2021 which was commenced on 7 December 2021. Its purpose is to provide a framework for the restructuring and survival of financially challenged but viable small companies. The process is broadly similar to that of examinership, which is governed by Part 10 of the Act, but with differences which are intended to limit costs, inter alia, by minimising the requirement for court applications.

2 . Part 10A comprises sections 558A to s. 558ZAJ. It provides for the appointment of a “process adviser” whose principal function is to formulate a rescue plan to secure the survival of the company, and the whole or any part of its undertaking, as a going concern. The process is available only to companies which fall within the definition of a “small company” or a “micro company” in accordance with ss. 280A and 280D of the Act.

3 . A small company is a company which in respect of a relevant financial year fulfils two or more of the following requirements:-

(a) The amount of turnover of the company does not exceed €12 million;

(b) The balance sheet total does not exceed €6 million;

(c) The average number of employees does not exceed 50.

4 . A micro company is a company which fulfils two or more of the following requirements:-

(a) The amount of turnover of the company does not exceed €700,000;

(b) The balance sheet total does not exceed €350,000;

(c) The average number of employees does not exceed 10.

5 . Part 10A provides that, in respect of a company which is insolvent or likely to be insolvent, and where certain other conditions are met, and where it has been demonstrated that there is a reasonable prospect of survival of the company and the whole or part of its undertaking as a going concern, a rescue plan if approved by appropriately convened statutory meetings can be rendered binding on the company and all its members and creditors.

6 . A rescue plan will become binding where the following conditions are fulfilled:-

• (a) It is accepted by at least one class of impaired creditors;

• (b) A period of 21 days passes after filing notice of the acceptance with the Registrar of Companies and with the “relevant court”; and

• (c) No objection is filed within 21 days of the notice (s. 558Y).

7 . Unless objections are made to court, the plan becomes binding after the expiry of the above 21 days.

8 . Where objections are made to the plan the court will hear and determine those objections. It may confirm the plan, modify the plan or refuse confirmation and make such orders as are appropriate.

9 . The key steps in the process are as follows:-

• (1) The company consults a process adviser and must provide him with a statement of affairs and other such information as he requires (the process adviser is a person eligible to act as a liquidator of the company, meeting required criteria as to qualifications and independence);

• (2) The process adviser determines whether there is a reasonable prospect of the survival of the company and the whole or part of its undertaking as a going concern and if so he makes a statutory declaration to that effect;

• (3) The process adviser makes a report to the directors (s.558D). This report is not unlike that of an independent expert which accompanies a petition for the appointment of an examiner. It is a comprehensive report which addresses the company's affairs and finances, a statement of the conditions which he considers are essential to ensure that the company would have a reasonable prospect of survival as a going concern and certain important opinions on his part as to whether the preparation, approval and taking effect of a rescue plan would offer a reasonable prospect of the survival of the company, and recommendations as to what course he thinks should be taken;

• (4) The process adviser is also required to address such matters as details of the extent of the funding required to enable the company continue trading during the rescue period and recommendations as to liabilities incurred before his appointment which should be paid and other information;

• (5) If the directors decide to proceed, they must, within seven days of receiving the process adviser's report, pass a resolution appointing the process adviser to move to the next stage. No court order is required to confirm this appointment and it has the effect of commencing a formal “rescue period”.

• (6) The process adviser is then charged with the function of preparing a rescue plan and convening statutory meetings of members and creditors.

10 . Part 10A contains provisions prescribing the contents of the process adviser's report, the contents of a rescue plan, the grounds on which a rescue plan can be objected to and provisions for other matters such as the treatment of executory and other contracts, and of parties liable for the company's debts.

11 . The role and responsibilities of a process adviser are onerous. Some of his duties correspond to the duties and functions of an examiner appointed pursuant to Part 10. Others correspond to the duties of an independent expert, whose report accompanies a petition for the appointment of an examiner. The “part merging” of these functions is one of the methods by which it is intended that costs savings will be achieved, and this imposes on the process adviser a series of important duties and...