Gallium Ltd (t/a First Equity Group)

 
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[2009] IESC 8

THE SUPREME COURT

Geoghegan J.

Fennelly J.

Kearns J.

Appeal No. 007/2009
Gallium Ltd (t/a First Equity Group), In Re
In the matter of Gallium Limited Trading as First Equity Group and in the matter of the Companies (Amendment) Act 1990
An appeal by Gallium Limited
Appellant/Petitioner

007/2009 - Geoghegan Fennelly [nem diss] Kearns - Supreme - 3/2/2009 - 2009 2 ILRM 11 2009 22 5449 2009 IESC 8

COMPANIES (AMDT) ACT 1990 S2

COMPANIES (AMDT) ACT 1990 S2(3)

COMPANIES (AMDT) ACT 1990 S2(4)

COMPANIES (AMDT) ACT 1990 S3

COMPANIES (AMDT) ACT 1990 S3(7)

COMPANIES (AMDT) (NO 2) ACT 1999

COMPANIES (AMDT) ACT 1990 S2(2)

COMPANIES (AMDT) ACT 1990 S3(3A)

COMPANIES (AMDT) ACT 1990 S3(3B)

ATLANTIC MAGNETICS LTD, IN RE 1993 2 IR 561 1991/11/2520

TUSKAR RESOURCES PLC, IN RE 2001 1 IR 668 2001/24/6394

COMPANY LAW

Examinership

Interim examiner - Refusal of petition by High Court - Stay on order - Appeal - Purpose of legislation - Protection period for troubled companies - Report of independent accountant - New evidence on appeal - Explanation for gaps or discrepancies in information - Withdrawal of opposition to examinership - Whether reasonable prospect of survival - Expressions of interest in investment - Onus of proof - Discretion - Whether prejudice to interests of creditors - Absence of opposition to examinership - In re Atlantic Magnetics [1993] 2 IR 561 and In re Tuskar Resources plc [2001] 1 IR 668 considered - Companies (Amendment) Act 1990 (No 27), ss 2 and 3 - Appointment of examiner ordered (7/2009 - SC - 3/2/2009) [2009] IESC 8

In re Gallium Ltd

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JUDGMENT of Mr. Justice Fennelly delivered the 3rd day of February, 2009 .

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Judgment delivered by Fennelly. J. [Nem diss]

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1. On 13 th January 2009, McGovern J, in the High Court, gave an ex temporejudgment refusing the petition of the above-named Gallium Limited ("the company") for the appointment of an examiner pursuant to section 2 of the Companies (Amendment) Act, 1990 ("the Act of 1990") as amended.

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2. An interim examiner had been appointed by the High Court (Gilligan J) on 23 rd December 2008. It was then ordered that the petition be heard on 12 th January. A number of orders have been made staying the effect of the order of McGovern J pending the hearing of this appeal.

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3. The appeal was heard on 20 th January 2009. The Court decided to set aside the order of McGovern J and to appoint the interim examiner as examiner to the company.

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4. New evidence was placed before this Court on appeal, which had the effect of placing an entirely different complexion on matters as they had appeared before the High Court. The Court allowed the appeal and made an order appointing an examiner.

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5. This judgment gives the reasons for the decision of the Court to appoint an examiner.

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6. The Act of 1990 made it possible to rescue troubled companies. It provides for a protection period, a temporary breathing space, provided that the court can be persuaded, on presentation of the petition, that there is a prospect of survival.

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7. Section 2 of the Act, as amended, provides, so far as relevant, as follows:

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(1) Subject to subsection (2), where it appears to the court that-

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(a) a company is or is likely to be unable to pay its debts, and

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(b) no notice of a resolution for the winding-up of the company has been given under section 252 of the Principal Act more than 7 days before the application hereinafter referred to, and

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(c) no order has been made for the winding-up of the company,

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it may, on application by petition presented, appoint an examiner to the company for the purpose of examining the state of the company's affairs and performing such duties in relation to the company as may be imposed by or under this Act.

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(2) The court shall not make an order under this section unless it is satisfied that there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern.

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8. Subsections (3) and (4) deal with proof of a company's insolvency, a matter which is not in issue in the present case.

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9. Section 3 provides that a petition may be presented, inter alia,by the company. The court may appoint an interim examiner (section 3(7)).

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10. The Companies (Amendment) (No 2) Act, 1999 made provision for an independent accountant's report to assist the court in deciding the key question, set out in section 2(2), as to whether the company has "a reasonable prospect of......survival."

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11. That Act introduced two new sub-sections into section 3 as follows:

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a "(3A) In addition to the matters specified in subsection (4), a petition presented under section 2 shall be accompanied by a report in relation to the company prepared by a person (in this Act referred to as 'the independent accountant') who is either the auditor of the company or a person who is qualified to be appointed as an examiner of the company.

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b (3B) The report of the independent accountant shall comprise the following:

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(a) the names and permanent addresses of the officers of the company and, in so far as the independent accountant can establish, any person in accordance with whose directions or instructions the directors of the company are accustomed to act,

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(b) the names of any other bodies corporate of which the directors of the company are also directors,

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(c) a statement as to the affairs of the company, showing in so far as it is reasonably possible to do so, particulars of the company's assets and liabilities (including contingent and prospective liabilities) as at the latest practicable date, the names and addresses of its creditors, the securities held by them respectively and the dates when the securities were respectively given,

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(d) whether in the opinion of the independent accountant any deficiency between the assets and liabilities of the company has been satisfactorily accounted for or, if not, whether there is evidence of a substantial disappearance of property that is not adequately accounted for,

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(e) his opinion as to whether the company, and the whole or any part of its undertaking, would have a reasonable prospect of survival as a going concern and a statement of the conditions which he considers are essential to ensure such survival, whether as regards the internal management and controls of the company or otherwise,

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(f) his opinion as to whether the formulation, acceptance and confirmation of proposals for a compromise or scheme of arrangement would offer a reasonable prospect of the survival of the company, and the whole or any part of its undertaking, as a going concern,

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(g) his opinion as to whether an attempt to continue the whole or any part of the undertaking would be likely to be more advantageous to the members as a whole and the creditors as a whole than a winding-up of the company,

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(h) recommendations as to the course he thinks should be taken in relation to the company including, if warranted, draft proposals for a compromise or scheme of arrangement,

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(i) his opinion as to whether the facts disclosed would warrant further inquiries with a view to proceedings under section 297 or 297A of the Principal Act,

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(j) details of the extent of the funding required to enable the company to continue trading during the period of protection and the sources of that funding,

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(k) his recommendations as to which liabilities incurred before the presentation of the petition should be paid,

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(l) his opinion as to whether the work of the examiner would be assisted by a direction of the court in relation to the role or membership of any creditor's committee referred to in section 21, and

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(m) such other matters as he thinks relevant.".

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12. The company presented a petition to the High Court seeking the appointment of an examiner on 23 rd December 2008, grounded on an affidavit of Mr Tom Dowling, one of the company's two directors and shareholders. This was supported by the report of an independent accountant. Gilligan J made an order on that date appointing Kieran Wallace, Chartered Accountant, of KPMG, as Interim Examiner of the company until 12 th January. He ordered the advertisement of the petition and fixed Monday 12 th January 2009 for the hearing of the petition.

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13. The petition came on accordingly for hearing before McGovern J. Two creditors, represented by counsel, opposed the petition, relying on an affidavit sworn by one of them, Mr Barry Lyons. For present purposes, it will suffice if I refer to the single aspect of that affidavit which caused concern to McGovern J. Mr Lyons deposed that information furnished by Mr Tom Dowling, on behalf of the company, in January 2008 regarding the financial state and prospects of the company had turned out to be "incorrect and inaccurate." In particular, Mr Lyons claimed that Mr Dowling said in an e-mail of 21 st January that the company had made a pre-tax profit of €4.5 million in 2007 and that he could anticipate a profit of Stg£10 million in 2008. He also complained generally about the quality and extent of information...

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