Quesada Developments Ltd & The Companies Act, 2014

CourtHigh Court
JudgeMs. Justice Baker
Judgment Date21 December 2017
Neutral Citation[2017] IEHC 793
Date21 December 2017
Docket Number[2017 No. 290 COS]



[2017] IEHC 793

[2017 No. 290 COS]


Insolvency - Companies Act 2014 - Bona fide - Disputed loans - Liquidation - Examinership process

Facts: An Examiner filed a petition for examinership for the confirmation of the proposals for a scheme of arrangement, which was opposed by two directors and shareholders of a company. The main facts in the case were that the company was insolvent and it was unable to pay the debt and it sought the protection of the Court in those circumstances. The present case brought into focus the question of the extent to which a Court should favour the examinership process over liquidation in a suitable case. The case also revolved around the loan disputes of the directors, which related to a large extent to the VAT treatment of rates paid by the company to its landlord.

Ms. Justice Baker granted an order for the confirmation of the scheme as proposed by the Examiner as it had a reasonable chance of survival, and because of the fact that the resolution mechanism was sufficiently robust to deal with the issues. The Court held that the remedial measures proposed in the scheme were adequate to deal with the disputed directors loans.

JUDGMENT of Ms. Justice Baker delivered on the 21st day of December, 2017

Neil Hughes ('the Examiner') was appointed examiner of Quesada Developments Limited ('the Company') on an interim basis on the 11th August, 2017, and confirmed by my order of 5th September, 2017. The period of protection has been extended and this judgment is given on the application by the Examiner for confirmation of proposals for a scheme of arrangement ('the Scheme'), which is opposed by two directors and shareholders of the Company.


The petition for examinership was presented to the court by Mr. Brendan O'Hanlon, one of three directors and shareholders of the Company and who now opposes the Scheme. The Scheme is also opposed by another director and shareholder, Mr. Dermot McSherry.


The Examiner in his grounding affidavit describes the examinership as 'most unusual and contentious', and it is clear from his affidavit and the affidavits of the persons who opposed confirmation of the Scheme that the process has been acrimonies and difficult.


Quesada operates a nursing home known as Beechpark Nursing Home and Convalescent Centre in Dunmurry West, Co. Kildare. The Company has 56 employees and occupies under an informal letting agreement a purpose-built nursing home facility for the care of elderly and infirm persons who live there on a long term or permanent basis. It is accepted by all parties that the nursing home is well run and that it provides a very high standard of care for all of the residents.


The Company is insolvent and was unable to pay its debts and sought the protection of the court in those circumstances. The auditors of the Company have resigned and there were operational losses which gave rise to ongoing management difficulties. The members of the Company are Mr. O'Hanlon and Mr. McSherry and Thomas Ryan, each of whom is an equal shareholder and director. The shareholders have been embroiled in proceedings pursuant to s. 212 of the Companies Act ('The Act') which Mr. O'Hanlon says were commenced by him and his fellow shareholder Mr. McSherry in order to prevent the continued outflow of money to Mr. Ryan from Company resources. A receiver was appointed to the nursing home premises from which the Company trades, and the receivership effectively stayed those proceedings, as no agreement could be reached with the receiver regarding the right of the Company to occupy the nursing home premises.


A source, albeit not the only source, of the dispute between Mr. Ryan on the one part and Mr. O'Hanlon and Mr. McSherry on the other part which gave rise to the proceedings under s. 212, and which form the backdrop to the confirmation hearing, relates to the director's loan account of Mr. Ryan, and to a lesser extent of Mr. O'Hanlon and Mr. McSherry. In simple terms Mr. O'Hanlon and Mr. McSherry argue that Mr. Ryan is indebted to the Company in a significant amount, sufficient they argue to meet the ongoing financial needs of the Company, and that it is Mr. Ryan's indebtedness to the Company which has caused it to become insolvent. Mr. Ryan on the other hand argues that he is a creditor of the Company, and that any claimed director's loan is offset by an amount owed by the Company to him in respect of other matters.


The directors' loans disputes relates to a large extent to the VAT treatment of rates paid by the Company to its landlord, and to the fact that Mr. Ryan and his wife are said to have used their own personal VAT registration number to deal with VAT claims and refunds. Mr. Ryan holds the legal title in the nursing home premises, on trust for himself and Mr. O'Hanlon and Mr. McSherry as tenants in common in equal shares.

The Scheme

The Scheme provides for the investment by Daleland Limited, a company controlled by the wife of Mr. Ryan, of the sum of €150,000 into the Company, the cancellation of existing shareholdings, the resignation of Mr. O'Hanlon and Mr. McSherry as directors, and in practical terms the Scheme will have the effect that Mr. Ryan takes over the running of the Company and its enterprise. In a parallel transaction Daleland Limited has agreed with the receiver to purchase the freehold interest in the nursing home premises and Daleland Limited has agreed to grant an occupational release to Quesada for the purpose of the nursing home business.


The Examiner has expressed an opinion on affidavit and in his report prepared for the purpose of s. 534 of the Act that the conditions set out in the Independent Expert's Report (IER) for the survival of the Company have been met, that the implementation of the Scheme will ensure that the continued employment of the 56 employees, and that the Company has what he describes as a 'very good prospect of survival'. During the currency of the examinership the Company has retained the confidence of its key suppliers and Mr. Hughes is confident that should the Scheme be confirmed no difficulty will arise with HIQA with regard to the smooth transition to new management of the nursing home facility.

The directors' loan account

From the s. 534 Report and from the affidavits and the submissions on behalf of Mr. McSherry who appeared through counsel, and of Mr. O'Hanlon who represented himself, it is clear that one of the reasons for the financial difficulties in the Company was the total breakdown of the relationship between the members and directors, and the s. 212 proceedings which remain live, have been costly in terms of resources, and show the extent to which the owners of the Company and the directors have found it impossible to continue to work with one another.

The investment process

Mr. Hughes explains the process engaged by him in seeking investment proposals regarded as essential in the IER to provide sufficient working capital for the Company and to pay a dividend to creditors. The process resulted in the preparation of the Scheme and the holding of meetings of classes of creditors and members on the 9th November, 2017.


The Examiner considered that the creditors of the company should be divided into separate classes being: super preferential creditors, preferential creditors, (both of which classes voted in support); unsecured creditors which are impaired, and which accepted the proposals; the connected creditors which class voted against; and contingent personal guarantee creditors, being Mr. Ryan and Mr. O'Hanlon, the meeting of which class was inquorate.


One class therefore of impaired creditors, the unsecured trade and supply creditors of the type that one would expect in a nursing home business, voted in favour. The threshold requirement in s. 541(4)(a) of the Act is met. This is not in dispute.


The Scheme provides for a very small dividend of 5% to these creditors, but it is noteworthy that the Examiner avers on affidavit that he has retained the confidence of these creditors in the course of his examinership notwithstanding the insolvency of the Company and the fact that they are significantly impaired in the Scheme. This fact supports the view of the Examiner that the Company has a good prospect of survival.


Mr. Hughes calculates that the return to all creditors is better in the examinership than it would be in a liquidation, where the unsecured creditors and connected creditors would receive no dividend and the preferential creditors would receive 4.4%, instead of full payment of its debt as provided in the Scheme.

The confirmation hearing

Revenue was represented by counsel and proposed a number of modifications to the Scheme, which were ultimately accepted by the investor Mr. Ryan and by the Examiner. Details of the modification are set out later in this judgment.


It is clear from the s. 534 Report that the primary issue in the examinership was the issue of the directors' loans which Mr. Hughes investigated and analysed, but in respect of which he was unable to come to a determination. This issue became the centre of the argument at the confirmation hearing.


The Examiner explains that for the purposes of ascertaining the position with regard to the directors' loans he took the figures from the last set of audited accounts prepared in 2015, which had been signed by Mr. O'Hanlon and Mr. McSherry, but not by Mr. Ryan. They show that Mr. Ryan indebted to the Company in the sum in round figures of €147,000. They also showed that the other two directors were owed the sum of €94,000 each by the Company.


The extent of disagreement is apparent from an example: Mr. Ryan's position is that he is owed a sum of €234,000 by the Company and...

To continue reading

Request your trial

VLEX uses login cookies to provide you with a better browsing experience. If you click on 'Accept' or continue browsing this site we consider that you accept our cookie policy. ACCEPT