Re Holidair Ltd

• Jurisdiction: Ireland
• Judge: Finlay C.J.,BLAYNEY J.
• Judgment Date: 07 March 1994
• Neutral Citation: [1994] IESC 1
• Court: Supreme Court
• Docket Number: [1994 No. 16 Cos.]
• Date: 07 March 1994

HOLIDAIR LTD

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

IN RE HOLIDAIR LIMITED AND RELATED COMPANIES

[1994] IESC 1

FINLAY C.J.

O'FLAHERTY J.

EGAN J.

BLAYNEY J.

DENHAM J.

63/94

THE SUPREME COURT

Synopsis:

COMPANY

Charge

Nature - Debenture - Assets - Class - Book debts - Fixed or floating charge - Test applicable - (63/94 - Supreme Court - 7/3/94) - [1994] 1 I.R. 434 - [1994] 1 ILRM 481

|In re Holidair Ltd.|

CONTRACT

Terms

Efficacy - Period - Cessation - Statute - Provisions - Conflict - Company directors" borrowing powers - Powers exercisable by examiner to company - Powers exercisable despite prohibition in debenture - (63/94 - Supreme Court - 7/3/94) - [1994] 1 I.R. 434

|In re Holidair Ltd.|

STATUTORY INTERPRETATION

Enactment

Purpose - Company - Insolvency - Protection - Period - Borrowing powers of examiner to company - Exercise of powers prohibited by debenture - (63/94 - Supreme Court - 7/3/94)

|In re Holidair Ltd.|

WORDS AND PHRASES

"Action ... taken to realise ... security"

Company - Insolvency - Protection - Period - Borrowing powers of examiner to company - Exercise of powers prohibited by debenture - Debenture holder's demand that payments received from company's debtors be paid into specified bank account - Whether demand constituted an action taken to realise security - (63/94 - Supreme Court - 7/3/94) - [1994] 1 I.R. 434 - [1994] 1 ILRM 481

|In re Holidair Ltd.|

COMPANY

Insolvency

Court - Protection - Examiner - Appointment - Powers - Borrowing - Extra finance needed - Creditor's debenture - Whether fixed or floating charge created - Prevention of exercise of company's power to raise further finance - Effect of debenture on examiner's statutory powers - Companies (Amendment) Act, 1990, ss 5, 7 - (63/94 - Supreme Court - 7/3/94) - [1994] 1 I.R. 434

|In re Holidair Ltd.|

Citations:

COMPANIES (AMDT) ACT 1990 S5(2)(d)

ATLANTIC MAGNETICS, IN RE 1993 2 IR 561

COMPANIES (AMDT) ACT 1990 S9

COMPANIES (AMDT) ACT 1990 S9(4)

COMPANIES (AMDT) ACT 1990 S9(1)

COMPANIES (AMDT) ACT 1990 S9(3)

COMPANIES (AMDT) ACT 1990 S7(5)

COMPANIES (AMDT) ACT 1990 S5(1)

COMPANIES (AMDT) ACT 1990 S29(3)

COMPANIES (AMDT) ACT 1990 S10(2)

KEENAN BROTHERS LTD, IN RE 1985 IR 401

YORKSHIRE WOOLCOMBERS ASSOCIATION LTD 1903 2 CH 284

WOGANS (DROGHEDA) LTD, IN RE 1993 1 IR 157

1 JUDGMENT delivered on the 7th day of March 1994by Finlay C.J.[O'FLAHERTY, EGAN, DENHAM CONC]

2 This is an appeal brought by the companies concerned and by the Examiner appointed by order of the Court pursuant to the Companies (Amendment) Act, 1990 against certain orders and declarations made by Costello J. in the High Court in relation to applications by the Examiner concerning the affairs of the companies concerned. The particular orders and declarations are contained in an order of the 25th February 1994 which was the result of a judgment delivered upon the hearing of applications and which judgment was delivered on the 19th February 1994.

3 The particular orders and declarations which became an issue on this appeal were as follows:

4 1. A declaration that AIB Capital Markets plc., AIB Bank plc. and Banque Nationale de Paris S.A. (the Banks) have a valid fixed charge over the book and other debts of M.F. Kent & Co. Ltd., M.F. Kent & Co. International Ltd. and Clonmak Ltd. (the Companies).

5 2. A declaration that the demand made by the Banks to the Companies in letters dated the 31st January 1994 and the 3rd February 1994 was not prohibited by Section 5(2) (d) of the Companies (Amendment) Act, 1990 (the 1990 Act) and must be complied with.

6 3. A variation of an order made by the Court on the 1st February authorising the Companies to borrow by providing that all future loans and the terms of all future loans to the Companies must first be approved in writing by AIB Capital Markets plc. as trustee under debenture to which the Banks were entitled and that no amount be drawn down on foot of such loans without such prior consent.

7 4. An order authorising the companies to borrow up to a sum of £1million from Chandler Enterprises Ltd. provided always that such borrowing must first be approved in writing by the trustee.

8 The letters referred to above by the Banks to the Companies dated the 31st January 1994 and the 3rdFebruary 1994 were in effect letters drawing attention to the negative covenant contained in the debenture owned by the Banks prohibiting borrowing without the prior consent in writing of the trustee and a direction to pay the proceeds of book debts owed to the company when discharged into an identified bank account in the AIB Bank in Clonmel in the name of the trustee. These letters were written after the date of the appointment of the Examiner.

9 In his judgment in this case delivered on the 19th February Costello J. at the commencement set out with his usual clarity and brevity the history of the matter which came for his decision on that date. This history is as follows:

"On the 20th January 1994 Holidair Ltd. petitioned the Court for the appointment of an Examiner under the Companies 1990 (Amendment) Act and the protection which would follow such appointment both for itself and for 18 related companies (the Kentz Group). On the 21st January the Court appointedMr. Hugh Cooney, interim examiner, and on the 27th granted the relief sought in the petition. The Statement of Affairs indicated that there were substantial sums due to the Revenue Commissioners by the Kentz Group and to a consortium of banks who were secured creditors. On the 1st February and again on the 7th February the Examiner applied for and obtained orders under Section 9 of the Act authorising him to exercise the director's borrowing powers. The reason for these applications was his belief that the formulation and acceptance of a scheme of arrangement under the Act depended on securing a substantial equity investor and that the continued survival of the Group in the short term was dependent upon the ability of the Companies to fund their current operations for the following six to eight weeks by raising loans. In granting authority to exercise the Directors borrowing powers, the Court on both the 1st and 7th February also ordered that the Examiner should certify under Section 10 of the Act that the sums borrowed were "expenses" and thereby give their repayment priority under Section 29 at the end of the protection period. But a number of problems have arisen in the exercise of these powers resulting from the fact that the banks are holders of a debenture dated the 15th November 1984 by virtue of which they claim a fixed charged over inter alia the Companies bookdebts. If this is correct, then the Companies borrowing needs for working capital during the protection period is greatly increased."

10 The learned trial judge then referred to the application by the Examiner which was then before him by two motions for directions and declarations of a number of issues which had arisen from conflicting constructions of the debenture holders rights under the debenture. Having considered the submissions made before him and also the legal principles which appear to be applicable he made the orders and declarations to which I havereferred.

11 Since the submission made on behalf of the Examiner to the Court has been that the chance of a satisfactory arrangement in regard to the affairs of these Companies depends very much indeed upon the continuance of the companies who are involved in the construction industry as going concerns during the period of protection so as to permit the possibility of a substantial investmentof equity from an outside source which has already been identified, this Court gave extremely urgent and expedited consideration to the appeals arising from the orders made in the High Court. The effect of the orders made in the High Court having regard to the attitude of the banks who were the holders of the debenture was that it appeared impossible that the affairs of the company could be continued on a going concern basis if the terms of the order made by Costello J. on the 25th February 1994 must be adhered to. The urgency of the situation was not only to the companies concerned but to a very substantial workforce indeed whose continued employment depended on all these matters.

12 The broad issues arising on the hearing of this appeal between the Appellants consisting of the Companies and the Examiner who made similar and coinciding submissions and the Banks who were the Respondents consisted of conflicting contentions as to what the real intention and purpose of the 1990 Actwas. The purpose and many aspects of that Act were considered by this Court in the case of Re Atlantic Magnetics Ltd. (in receivership) 1993, 2 I.R. 561.

13 In the course of his judgment in that case, McCarthy J. dealt with what he was satisfied was the purpose of the Act in the following terms at Page 578.

"It is, I believe, of great importance to bear in mind in the application of the Act that its purpose is protection - protection of the company and consequently of its shareholders workforce and creditors. It is clear that parliament intended that the fate of the company and those who depend upon it should not lie solely in the hands of one or more large creditors who can by appointing a receiver pursuant to a debenture effectively terminate its operation and secure as best they may the discharge of the monies due to them to the inevitable disadvantage of those less protected, the Act is to provide a breathing space albeit at the expense of some creditor or creditors."

14 I am satisfied that this identification of the purpose of the Act is correct, it is consistent with the view of the Court expressed in a judgment which Idelivered in that case concerning specific questions with regard to the powers of an examiner which were raised before the Court. Counsel for the Banks in this case stated that...