Re Belohn Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 18 April 2013
• Neutral Citation: [2013] IEHC 151
• Court: High Court
• Date: 18 April 2013

[2013] IEHC 151

THE HIGH COURT

No. 129 COS/2013

The Belohn Ltd, In re

No Redaction Needed

IN THE MATTER OF THE BELOHN LIMITED

AND IN THE MATTER OF THE COMPANIES (AMENDMENT) ACT 1990

COMPANIES (AMDT) ACT 1990 S2

COMPANIES (CROSS-BORDER MERGERS) REGS 2007 SI 2974/2007 (UK)

COMPANIES (AMDT) ACT 1990 S3A

COMPANIES (AMDT) (NO 2) ACT 1999 S9

COMPANIES (AMDT) ACT 1990 S4

COMPANIES (AMDT) ACT 1990 S2(1)

COMPANIES (AMDT) ACT 1990 S2(2)

GALLIUM LTD (T/A FIRST EQUITY GROUP), IN RE 2009 2 ILRM 11 2009/22/5449 2009 IESC 8

VANTIVE HOLDINGS & ORS, IN RE 2010 2 ILRM 156 2009/57/14475 2009 IESC 68

COMPANIES (AMDT) ACT 1990 S3(6)

COMPANIES (AMDT) ACT 1990 S29

COMPANIES (AMDT) ACT 1990 S10

COMPANIES (AMDT) ACT 1990 S4(5)(A)

COMPANIES (AMDT) ACT 1990 S4(1)

COMPANIES (AMDT) ACT 1990 S4(2)

COMPANIES (AMDT) ACT 1990 S4(3)

COMPANIES (AMDT) ACT 1990 S6

COMPANIES (AMDT) ACT 1990 S5

TIVWAY LTD & ORS, IN RE 2010 3 IR 49 2010/50/12470 2010 IESC 11

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

COMPANY LAW

Examinership

Petition seeking appointment of examiner - Bar and restaurant business - Petition presented following period of receivership - High Court order appointing interim examiner subsequently set aside - Opposition to petition - Liabilities to bank - Bank appointed receiver - Company continuing to trade - Company making losses - Opinion of independent accountant and interim examiner that reasonable prospect of survival existed - Level of indebtedness - Scheme of arrangement - Payment for bank consistent with value of security - Directors to pay funds into company - Interest from investors - Receiver stood appointed for more than three days - Statutory interpretation - Plain meaning - Whether reasonable prospect of survival as a going concern - Whether to exercise discretion to appoint examiner - Whether cash properly accounted for - Whether wages properly accounted for - Whether prejudice to bank - Whether examiner to be appointed to related holding company - In re Tuskar Resources plc [2001] 1 IR 668 considered - In re Gallium Limited [2009] IESC 8, [2009] 2 ILRM 11; In re Tivway Limited (In Examination) [2010] IESC 11, [2010] 3 IR 49 and In re Vantive Holdings [2009] IESC 68, [2010] 2 ILRM 156 applied - Companies (Amendment) 1990 (No 27), ss 2, 3A, 3(6), 4, 5, 6, 10 and 29 - Companies (Amendment) (No 2) Act 1999 (No 30), s 9 - Examiner appointed (2013/129COS - Finlay Geoghegan J - 18/4/2013) [2013] IEHC 151

In re The Belohn Limited

Facts: The Belohn Limited presented a petition to seek the appointment of an examiner. It had run into financial difficulties in 2009. It had 20 employees and an established business. The Court also considered an application of an examiner to Merrow, a related company.

Held by Finlay Geoghegan J. that there was a reasonable prospect of the survival of Merrow as the holding company of The Belohn as a going concern. The introduction of a new investor for the purposes of a scheme of arrangement might require changes in shareholdings. The Court would make an order for the appointment of an examiner.

1 1. The Belohn Ltd. ("The Belohn") is a company limited by shares incorporated in Ireland on 24 ^th July, 1973. It is the owner of premises at No. 1, Merrion Row and No. 17, Upper Merrion Street, Dublin, in which it operates several bars and a restaurant now under the name "Foley's Bar and Restaurant".

2 2. The Belohn is currently a wholly owned subsidiary of Merrow limited ("Merrow") which, since 2006, is its sole registered shareholder. The shareholders of Merrow are Sean Foley and his wife, Sherry Yan, who are also the current directors of both The Belohn and of Merrow. Prior to 2006, the parents of Sean Foley, John and Isobel Foley, were directors of The Belohn and also appear to have been shareholders.

3 3. On the morning of Saturday 23 ^rd March, 2013, The Belohn presented a petition at a special sitting of the High Court seeking the appointment of Mr. Tim O'Keeffe as Examiner pursuant to s. 2 of the Companies (Amendment) 1990 ("the 1990 Act"). On that day, the High Court (Hogan J.) made an order ex parte appointing Mr. O'Keeffe as Interim Examiner and gave directions for the hearing of the petition. Pursuant to that order and further orders, the petition came on for hearing before me on Wednesday 10 ^th April, 2013. Bank of Scotland plc. ("the Bank"), a secured creditor, was represented and opposed the petition. The Revenue Commissioners were also represented and opposed the appointment of the Examiner.

4 4. There is a complex and unusual background both to the presentation of the petition and the ultimate form of application made pursuant to the petition. I propose setting out briefly the main events as the detail is well known to the principal parties, being The Belohn, Merrow, their directors and the Bank. The Revenue Commissioners, by now, are also appraised of the relevant details.

5 5. The Belohn, historically, had banking facilities with the Industrial Credit Company Ltd. On 7 ^th August, 1981, it created a charge over the property known as No. 1, Merrion Row and other assets in favour of the Industrial Credit Company, which subsequently changed its name to Bank of Scotland (Ireland) Ltd ("BOSI"). The Belohn continued to obtain facilities from BOSI and in 2006, was granted a facility of €3.75 million on the terms of a facility letter dated 12 ^th May, 2006. The Belohn created a charge over its premises known as No. 17, Upper Merrion Street in favour of BOSI on 3 ^rd April, 2008 as security for its facilities.

6 6. In 2007, BOSI granted a facility of €1 million to Merrow which is secured, inter alia, by a floating charge over that company created by a debenture dated 12 ^th November, 2007. In the facility letter of 13 ^th September, 2007, the purpose of that facility was stated to be the acquisition of The Belohn. This letter provides for security to be given, inter alia, over the assets of The Belohn. Payment of interest on the facility was effected by the payment by The Belohn to Merrow of what is referred to as a "management charge". Merrow does not appear to have had any other source of income and its only activity is the holding of shares in The Belohn.

7 7. On 31 ^st December, 2010, pursuant to an order of the Court of Session in Scotland, the business of BOSI vested in the Bank and BOSI thereafter ceased to exist pursuant to the provisions of the Companies (Cross-Border Mergers) Regulations 2007.

8 8. The Belohn appears to have run into financial difficulties from approximately 2009. In 2012, there were significant negotiations between The Belohn and the Bank in relation to its liabilities. These were unsuccessful and on 10 ^th October, 2012, the Bank purported to appoint Mr. David O'Connor ("the Receiver") to be Receiver and Manager of the properties at No. 1, Merrion Row, Dublin and No. 17, Upper Merrion Street, Dublin and other property and assets referred to in the mortgage debentures dated 7 ^th August, 1981, and 3 ^rd April, 2008.

9 9. Mr. O'Connor, as Receiver, took over the running of the bars and restaurant and the directors were excluded from the business consequent to his appointment from 11 ^th October, 2012. Mr. O'Connor continued to trade the bars and restaurant and whilst there is some dispute about one employee, I am satisfied for present purposes he continued to employ all the prior employees in the business.

10 10. On 18 ^th December, 2012, Merrow commenced proceedings in the High Court challenging the appointment of Mr. O'Connor as Receiver under Record No. [2012 No. 695 COS]. Those proceedings were case-managed, multiple affidavits sworn by both sides and ultimately the matter was heard and judgment given by the High Court (Gilligan J.) on 22 ^nd March, 2013. In that judgment, handed down on the morning of 22 ^nd March, 2013, Gilligan J. concluded that the purported appointment of Mr. O'Connor pursuant to the debentures of 7 ^th August, 1981, and 3 ^rd April, 2008, was void and that Mr. O'Connor did not stand validly appointed as Receiver and Manager over the property and assets of The Belohn as charged by those debentures. The conclusion was primarily based upon the requirement in the 1981 debenture that the Bank "appoint by writing under its seal a receiver of the mortgage property …". The appointment had not been made under seal. On the same day, in the early afternoon, orders were made pursuant to the judgment declaring Mr. O'Connor not to stand validly appointed.

11 11. At 4.15pm on the same day i.e. 22 ^nd March, 2013, the Bank, through its solicitor, made demand upon The Belohn for the amount then due, stated to be €4,192,663.83 plus continuing interest. Payment was sought to be made by 5.00pm that day. At the same time, a demand was also made on Merrow for the payment of €1,068,684.41 plus continuing interest also by 5.00pm on that day.

12 12. The Receiver made arrangements to hand back the control of the business of The Belohn to its directors. However, primarily due to an absence of insurance, the directors were unable to re-open the bars and restaurant until Saturday 30 ^th March, 2013. The Belohn has continued to trade since that date.

13 13. However, in the meantime, at 5.10pm on Friday 22 ^nd March, 2013, the Bank appointed Mr. O'Connor as a Receiver over all the property, undertakings and assets of Merrow pursuant to a debenture creating a floating charge of 12 ^th November, 2007. The fact of that appointment was not communicated to Merrow until approximately 4.30pm on Sunday 24 ^th March, 2013, notwithstanding the immediate communication of the demand for repayment and the contact between Mr. O'Connor's office and representatives of The Belohn and Merrow during Saturday 23 ^rd March, 2013.

14 14. On receipt of that information, Merrow arranged to present a...