Re Claremorris Tourism Ltd

• Jurisdiction: Ireland
• Court: High Court
• Judge: Mr. Justice Baker
• Judgment Date: 09 December 2015
• Neutral Citation: [2015] IEHC 796
• Docket Number: [2015 No. 401 COS]
• Date: 09 December 2015

IN THE MATTER OF

CLAREMORRIS TOURISM LIMITED

AND

IN THE MATTER OF THE COMPANIES ACT 2014

AND

IN THE MATTER OF MOPB DEVELOPMENTS LIMITED AS A RELATED COMPANY WITHIN THE MEANING OF SECTION 517 AND

SECTION 2(10) OF THE COMPANIES ACT 2014

[2015] IEHC 796

[2015 No. 401 COS]

THE HIGH COURT

Company – S. 509 of the Companies Act 2014 – Reasonable prospect of survival of company – Interests of creditors

Facts: The petitioners being the directors of the first named company carrying on the hotel business on the lands owned by the second named company sought an order for protection under s. 517 of the Companies Act 2014. The creditors opposed the petition on the basis that the petitioner failed to establish that the company had a reasonable prospect of survival. The creditors alleged that the present petition was an abuse of the process of law as the true intent of the petitioners was to protect the interest of the second named company being the freehold owner of the land on which the hotel was built.

Mr. Justice Baker granted an order for the appointment of the examiner for the first named company. The Court observed that the purpose of examinership was to rescue the companies in difficulty and the position of a single creditor could not be a determining factor in deciding as to whether reasonable prospects of success of a company existed. The Court opined before appointing an examiner under s. 517 (2) of the Act of 2014, that the Court must examine whether it was going to facilitate the survival of the main company, a related company or both. The Court held that there was no bar for the appointment of an examiner for a related company even if it was a solvent company as the insolvency of the main company would inevitably lead to various obstacles for the solvent companies. The Court found that there was sufficient evidence to hold that the first named company had a reasonable prospect of survival should an examiner be appointed in the form of independent expert reports and no prejudice would be caused to the primary and secured creditor by the examinership.

JUDGMENT of Mr. Justice Baker delivered on the 9th day of December 2015

1 On 10th November, 2015, the directors of Claremorris Tourism Ltd (hereinafter ‘CTL’) presented a petition seeking the protection of the court pursuant to s. 517 of the Companies Act, 2014 (hereinafter ‘the Act of 2014’). On foot of the ex-parte application, Ciarán Wallace was appointed by me as interim examiner of CTL and of a related company MOPB Developments Ltd (hereinafter ‘MOPB’), it being asserted that MOPB satisfied the definition of a related company contained in s. 2(10) of the Act of 2014.

2 Friday the 27th November was fixed as the date for hearing of the petition and it proceeded to a hearing on that date, opposition being made by a number of creditors as follows:

a. Coney Investments Designated Activity Company (hereinafter ‘Coney’), which had acquired the relevant assets and associated securities of Ulster Bank Ireland Ltd., to which CTL and MOPB owe significant monies.

b. The Revenue Commissioners, to which CTL has a liability in respect of corporation tax of approximately €735,714.00 for the last relevant financial year.

c. John Killeen, a shareholder and former director of MOPB commenced proceedings against MOPB on 25th June, 2014 bearing record number 2014/1336S, seeking judgment in the sum of €974,775.00, and on 1st July, 2014 Gilligan J. granted a mareva injunction for this sum over a bank account of the Claremorris Co-Ownership. A motion for judgment in those proceedings was listed to be heard before the Master of the High Court on the 11th November 2015, and the injunction was listed for mention in the Chancery Court on the 19th November, 2015. Mr. Killeen asserts that the purpose of the presentation of the petition seeking the protection of the Court was not bona fide, and that the true purpose was to prevent his further prosecution of those proceedings. One John Finn, also a shareholder of MOPB, issued proceedings for relief from alleged oppression, but did not attend the hearing of the petition.

The company structure and undertaking

3 The petition was brought by the directors of CTL following a resolution made at a meeting on the 7th November, 2015.

4 CTL is a single member private company limited by shares, incorporated under The Companies Act 1963, as amended, on the 7th July, 2004. Its registered office is located at the McWilliam Park Hotel, Claremorris, Co. Mayo. The nominal share capital is €1,000.00, divided into one thousand shares of €1.00 each, the total paid up the share capital being €100.00. The primary object for which the company was established was to carry on the business of operating a hotel and related business, which it does from the hotel premises known as the McWilliam Park Hotel, in Claremorris, Co. Mayo.

5 MOPB is a private limited company limited by shares, incorporated in the State on the 15th May, 2005 with a registered office at Dalton Street, Claremorris, Co. Mayo. It has a nominal share capital of €100,000.00, divided into one hundred thousand shares at €1.00 each, of which €1,000.00 is paid up share capital. John Killeen and John Finn each hold 22.5% of the shareholding in the company, the balance of the shareholding being held by the three current directors of CTL. MOBP is the owner of the entire shareholding in CTL. The objects for which MOPB was established was to engage building and site development, and it is the owner of the lands in which the McWilliam Hotel is constructed.

The inter-company connections

6 The principal activity of CTL is the operation of a four star hotel and leisure centre at Claremorris, Co. Galway. It commenced trading on the 28th October, 2006 in the hotel which comprises 103 bedrooms and associated restaurants, function room, conference and leisure facilities. The company employs 122 people on a full-time and permanent part-time basis, and is described in the grounding affidavit as ‘major employer in the local area’. The hotel, as well as having a broad local customer base, is described as a popular wedding and music entertainment venue.

7 The hotel has confirmed bookings for twenty-nine weddings for 2016 and ten for the calendar year 2017, and is holding booking deposits in respect of these.

8 The ownership structure of the hotel was established with a view to qualifying for then available tax relief schemes. The freehold in the site was acquired by MOPB by conveyance and transfer made on the 2nd December, 2005. MOPB granted a 99-year lease to a group of tax investors, the ‘Claremorris Co-ownership’, on the 2nd December, 2005. For convenience I will describe the 99- year lease as the ‘investor lease’, and the lessees as ‘the investors’ where necessary. None of the investors have appeared at the hearing of the petition.

9 The investors entered into a development agreement with MOPB for the development of the hotel, and made an agreement for sub lease on the 5th December, 2005 with CTL, to which was annexed a draft occupational lease agreed to be executed when the development was complete.

10 The agreement for lease was the focus of some of the argument before me on the hearing of the petition, as the draft lease was never executed.

11 The purchase and fit out of the hotel was largely funded by way of various facilities advanced by Ulster Bank Ltd. Briefly, the hotel site was purchased by MOPB on foot of funding advanced by Ulster Bank, secured by way of a debenture made on the 2nd December, 2005. The building and the development of the hotel was also funded by Ulster Bank Ltd. by way of a loan to MOPB, secured inter alia by that debenture and by other securities, including a guarantee and indemnity from the three current directors and the said John Finn and John Killeen, as well as by a mortgage or charge made between the tax investors and that Bank. The fit out works were carried out by CTL also on foot of secured funding advanced by that Bank, and the tax investors in turn financed the payment of the contract price pursuant to a development agreement with MOPB, through a loan from that Bank, secured inter alia by a charge over receivables and various guarantees and indemnities.

12 The final link in the chain of the ownership structure is three put and call option agreements executed on the 5th December, 2005 between the investors and MOPB, by which was granted inter alia the right to the investors to require the purchase of the hotel by MOPB, and the right to MOPB to purchase the leasehold interest in the investor lease, and subject in each case to express conditions.

13 On the 25th March, 2014 the investors served a call notice on MOPB to acquire its leasehold interest in the hotel for the option price of €15,288,745.00. MOPB disputes the validity of the exercise of the option and/or the option price therein identified, but for the purposes of the petition, it has confirmed that it does not have the funds to close the sale.

14 The loan to the investors was secured inter alia by an interest guarantee account with a balance of in excess of €2 million held with Ulster Bank, and which is earmarked such that it may be available only for the purpose of the acquisition by MOPB of the leasehold interest of the investors in the hotel. The petitioner suggests that this capital fund might be made available to creditors in the context of an examinership.

The primary task in examinership: reasonable prospect of survival

15 Section 509(1) of the Act of 2014 sets out where:

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

(b) no resolution subsists for the winding up of the company, and

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

the court may, on application by petition presented, appoint an examiner to the company. Section 509(2) sets out that...