Re Fergus Haynes (Developments) Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Laffoy
• Judgment Date: 01 September 2008
• Neutral Citation: [2008] IEHC 327
• Court: High Court
• Date: 01 September 2008

[2008] IEHC 327

THE HIGH COURT

[No. 347 COS/2008]

Fergus Haynes (Developments) Ltd, In re

IN THE MATTER OF THE COMPANIES (AMENDMENT) ACT, 1990(AS AMENDED)

AND

IN THE MATTER OF FERGUS HAYNES (DEVELOPMENTS) LIMITED

COMPANIES (AMDT) ACT 1990 S3

COMPANIES (AMDT) ACT 1990 S3(3B)

COMPANIES (AMDT) ACT 1990 S2(2)

COMPANIES (AMDT) (NO 2) ACT 1999 S2(2)

RE TUSKAR RESOURCES PLC 2001 1 IR 668

COMPANY LAW

Examinership

Petition seeking appointment of examiner - Petition to wind up company also pending - Some creditors opposed to examinership - Accountant's assertion that company would have reasonable prospect of survival - Company not trading for four months - Whether requirement for objective evidence of accountant's opinion - Whether requirement for indication of how scheme of arrangement to be achieved - Whether sufficient evidence of reasonable prospect of survival of company adduced - Whether non-trading company a going concern for purposes of jurisdiction of court - In Re Tuskar Resources plc [2001] 1 IR 668 and In re Atlantic Magnetics Ltd (in Receivership) [1993] 1 IR 561 applied - Companies (Amendment) Act 1990 (No 27) s 2 - Petition to appoint examiner refused (2008/347COS - Laffoy J - 1/9/2008) [2008] IEHC 327

In re Fergus Hynes (Developments) Ltd

Facts: section 2(2) of the Companies (Amendment) Act 1990 provides, inter alia, that "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 it s undertaking as a going concern". The company applied to the High Court pursuant to section 3 of the Act of 1990 seeking the appointment of an examiner. A petition by a creditor of the company seeking to have the company wound up by the High Court was adjourned pending the outcome of the petition to appoint an examiner. The petitioner contended, inter alia, that the company could be saved as a going concern and that an examiner would be in a position to attract further investment which would be more likely to be more advantageous to the members and creditors as a whole than a winding up of the company.

Held by Laffoy J in dismissing the petition that the petitioner had adduced insufficient evidence to satisfy the court that, if an examiner were appointed, there would be a reasonable prospect of the survival of the company, and the whole or any part of its undertaking, as a going concern. In reaching that conclusion, the court found that the company had little enterprise value as opposed to asset value.

Reporter: P.C.

1 Ms. Justice Laffoydelivered on the 1st day September, 2008.

The proceedings

2 This is a petition by Fergus Haynes (Developments) Limited (the Company) seeking the appointment of an examiner pursuant to s. 3 of the Companies (Amendment) Act, 1990 (the Act of 1990). The resolution of the board of the Company that a petition be presented to this Court seeking the appointment of an examiner was passed on 18 ^th August, 2008. The petition was presented on 20 ^thAugust, 2008 and, pursuant to directions given, it was listed for hearing on 27 August, 2008. The petition is grounded on the affidavit of Charles Fergus who is the owner of 99.995% of the issued share capital of the Company and is a director of the Company. That affidavit is the only evidence before the Court.

3 There is pending before the Court a petition presented on 7 ^th August, 2008, by Atradius Credit Insurance N.V. (Atradius), a creditor of the Company, seeking that the Company be wound up by the Court. That petition was also listed for hearing on 27 ^th August, 2008 but it was adjourned pending the decision of the Court on theCompany's petition to appoint an examiner. The appointment of an examiner was opposed by counsel for Atradius, who invited the Court to draw the inference that the petition to appoint an examiner was a reaction to the petition to wind up. I think it reasonable to draw that inference on the basis of the evidence before the Court.

The Company's trading history and current position

4 The Company was incorporated on the 26 ^th April, 1973. It has carried on the business of the construction of residential houses, property speculation and rental of plant and machinery and holiday homes. It operates primarily from Bundoran, County Donegal. Its principal business activity in the construction of residential housing has been in the areas of South Donegal and North Leitrim. From the evidence presented, the Company's business expanded considerably in the years 2004 to 2007. The most recent audited financial statements available are for the year ended 31 ^st December, 2006. However, the Company's turnover in the recent past has been adversely affected as a result of the general downturn in the property market. In consequence, the Company ceased actively trading in April, 2008. The Company has been primarily involved in two developments in the recent past: the Stracomer development in Bundoran, County Donegal; and the Kinloch development at Kinloch, County Leitrim.

5 The Company's current position is reflected in the current status of those developments, its land banks and other properties, its liabilities to creditors and its current activities. I will consider each in turn.

Stracomer development

6 The Stracomer development is owned by the Company but is subject to mortgages and charges in favour of Bank of Ireland (BOI) and Bank of ScotlandIreland (BOSI). Both BOI and BOSI appeared on the hearing of the petition and opposed the appointment of an examiner. According to the workings for the statement of affairs as at 31 ^st July, 2008 appended to the independent accountant's report referred to later (the workings), the directors' estimation of bank loans is €11.886 m. The Court was not given a breakdown of that figure between the various banks. However, the Court was informed that the indebtedness of the Company to BOSI at 22 ^nd August, 2008 was €7.778 m, on which interest was accruing at a daily rate of €1, 618.58. The Court was informed that the Company is indebted to BOI in the sum of €2.6m.

7 The Stracomer development is a residential development which will comprise 79 houses to be constructed in two phases. There are 53 residential units in phase one, of which 20 units have been sold and 33 units are at various stages of construction. Binding contracts are in existence for the sale of four of the 33 units. While the purchasers of the four units are anxious to complete the purchases, the Company has not been in a position to complete.

8 The four units in question are charged in favour of BOSI. It was represented in the petition and averred to in the grounding affidavit that BOSI had confirmed to the Company that it was willing to make the requisite funds available to the Company to complete the necessary works to the four units on a phased basis. In response to the petition, the solicitors for BOSI wrote to the solicitors for the Company on 26 ^th August, 2008 informing them that they were opposing the appointment of an examiner and that they were considering their options in relation to the enforcement or preservation of their security position. At the hearing of the petition, counsel for BOSI vigorously opposed the appointment of an examiner and informed the Court that BOSI wishes to exercise its rights under its securities.

9 It was also represented in the petition and averred to in the grounding affidavit that BOI had agreed to fund the Company in relation to completion of the residential units in the Stracomer development over which it has security as and when binding contracts are entered into. At the hearing of the petition, the Court was informed by the solicitor for BOI that there is no arrangement in place for BOI farther funding the operations of the Company and BOI is in the process of issuing a demand with a view to enforcing its security.

10 The case as presented on behalf of the Company envisages the Stracomer development being built out within three years. The Company estimates that, if all of the 79 units were sold, the outcome would be as follows:-

11 (a) As regards the units on which BOI has security, the indebtedness to BOI would be fully discharged and there would be a profit of €543, 221.00 accruing to the Company; and

12 (b) In relation to the units secured in favour of BOSI, there would be a shortfall of €339, 558.00 on the Company's indebtedness to BOSI, so that BOSI would rank as an unsecured creditor in respect of that sum.

13 Counsel for BOSI took issue with the proposition at (b). He asserted that the surplus at (a) would be swallowed up by a floating charge on the assets of the Company which BOSI shares with Anglo Irish Bankcorp plc (Anglo), leaving nothing for the unsecured creditors.

Kinloch development

14 The Company does not own the Kinloch development. It is owned by Mr. Fergus personally. Mr. Fergus engaged the Company to construct and develop residential units on the Kinloch development but there is no formal written agreement in place. The Company is owed approximately €3.6m by Mr. Fergus in respect of theworks which the Company has carried out. In the grounding affidavit, Mr. Fergus has averred that he believes that "in time" he "will be in a position to deal with this liability". The evidence discloses per the statement of affairs as at 31 ^st July, 2008, that, on the directors' estimation, the Company has trade creditors of €5.750 m. It is represented in the petition and averred to in the grounding affidavit that approximately two-thirds of the Company's creditors in the estimated sum of €2.5 m relate to the Kinloch development. That averment is not reconcilable with the figure in the statement of affairs.

15 Counsel for BOSI submitted that the directors of the Company have a serious issue to answer in relation to whether the Company's...