Re KH Kitty Hall Holdings Ltd & Companies Act 2014

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan,Mr. Justice Gerard Hogan
• Judgment Date: 04 October 2017
• Neutral Citation: [2017] IECA 247
• Docket Number: Neutral Citation Number: [2017] IECA 247
• Court: Court of Appeal (Ireland)
• Date: 04 October 2017

[2017] IECA 247

THE COURT OF APPEAL

Finlay Geoghegan J.

Hogan J.

Finlay Geoghegan J.

Peart J.

Hogan J.

Neutral Citation Number: [2017] IECA 247

Appeal No. 2017 463

IN THE MATTER OF KH KITTY HALL HOLDINGS LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2014

IN THE MATTER OF ML MEYRICK LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2014

IN THE MATTER OF MT MONO TRADING LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2014

IN THE MATTER OF EDWARD LEISURE ASSETS UNLIMITED COMPANY

AND IN THE MATTER OF THE COMPANIES ACT 2014

IN THE MATTER OF NICHE HOTELS UNLIMITED COMPANY

AND IN THE MATTER OF THE COMPANIES ACT 2014

IN THE MATTER OF STYLE CITY LIMITED

AND IN THE MATTER OF THE COMPANIES ACT 2014

IN THE MATTER OF RADICAL PROPERTIES UNLIMITED COMPANY

AND IN THE MATTER OF THE COMPANIES ACT 2014

Debt – Appointment of examiner – Binding agreement – Petitioners seeking appointment of an examiner – Whether there was material non-disclosure of certain facts

Facts: The seven petitioning companies, on the 19th August 2017, applied ex parte to the High Court for an order appointing an interim examiner pursuant to the provisions of Part 10 of the Companies Act 2014. A receiver had been appointed to five of the companies by Deutsche Bank AG on the previous day. Meenan J made an order appointing an interim examiner to the companies in question. One of the complaints made by Deutsche was that there was material non-disclosure of certain facts at that ex parte hearing. There then followed a further hearing in the High Court on 12th September 2017 where the companies applied for the appointment of an examiner pursuant to s. 509 of the 2014 Act. The application was opposed by the major secured creditor, Deutsche, while the Revenue Commissioners adopted a neutral position. The other unsecured trade creditors indicated that they supported the application for examinership. On 15th September 2017 O'Connor J ruled in favour of the appointment of an examiner to three of the companies, namely, KH Kitty Hall, ML Meyrick Ltd and MT Mono Trading Ltd, but he refused to make an order in respect of the other petitioning companies. Those four other companies, namely, Edward Leisure Assets Unlimited Company (ELAU), Niche Hotels Unlimited Company, Style City Ltd and Radical Properties Unlimited Company, all appealed to the Court of Appeal against the decision not to appoint an examiner, whereas Deutsche in turn appealed against the order appointing an examiner to Kitty Hall, Meyrick and MT Mono Trading. One unusual feature of the case was that an agreement had already been put in place in December 2016 (the 2016 agreement) by the parties to provide for the orderly disposal of certain key assets for the purposes of the reduction of the Deutsche debt and, ultimately, to address the unsustainable nature of the companies' debt by providing at the conclusion of that process for a form of debt write-down.

Held by Hogan J that: 1) the companies had demonstrated that they had a reasonable prospect of survival as going concerns in the sense envisaged by the Supreme Court in Re Vantive Holdings Ltd (No.1) [2009] IESC 68; 2) he did not think that there was any lack of candour or failure to make appropriate disclosure when moving the original ex parte application before Meenan J; 3) the fact that Mr Barrett may subjectively wish to retain control of some of the assets of his group was not a material consideration so far as the exercise of the s. 509 discretion was concerned; 4) while it was true that the application for examinership was inconsistent with the performance of the obligations imposed on the companies under the terms of the 2016 settlement, this fact could not in itself be a dispositive consideration for a court determining whether to appoint an examiner under s. 509(1) of the 2014 Act, precisely because the entire examinership system is premised on the assumption that pre-existing commercial contracts (of whatever kind) will be overridden, varied, negated and dishonoured in the wider public interest of rescuing an otherwise potentially viable company.

Hogan J held that he would appoint an examiner to all of the petitioning companies pursuant to s. 509(1) of the 2014 Act. He would accordingly allow the appeals of the companies and dismiss the cross-appeal of Deutsche. Finlay Geoghegan J also handed down a judgment in the matter, Hogan J and Peart J concurring.

Appeal allowed.

JUDGMENT delivered by Ms. Justice Finlay Geoghegan on the 4th day of October 2017

1 This judgment is given in the appeal and cross appeal from the order made by the High Court (O'Connor J.) on 15th September, 2017 refusing the appointment of an examiner to, and dismissing the petitions of, Edward Leisure Assets Unlimited Company ('ELAU'), Niche Hotels Unlimited Company ('Niche'), Style City Limited ('Style') and Radical Properties Unlimited Company ('Radical') and appointing an examiner to KH Kitty Hall Holdings Limited ('KHKH'), ML Meyrick Limited ('ML Meyrick') and MT Mono Trading Limited ('MT Mono'). The companies named in the title are collectively referred to as the 'companies' or 'petitioners'.

2 The respondent to the appeals and appellant in the cross appeal is Deutsche Bank AG ('the Bank') to whom the companies are collectively indebted in the order of € 684m. It is a secured creditor of most if not all of the companies. It was not the original lender to the companies. It acquired the debt and connected securities and rights from NALM in September 2015. Since that date there have been protracted dealings between the Bank and the companies and their ultimate owner Mr Barrett.

3 I am grateful to my colleague Hogan J who has set out in greater detail in his judgment the factual background to the presentation of the petition, the proceedings before the High Court and the High Court judgment which I do not propose repeating. I am also grateful for his fuller consideration of all the issues raised on the appeal and cross appeal to which I will simply refer to as 'the appeal'. I simply wish to address certain issues having regard to the factual position next referred.

4 The unusual factual feature of the position of the Bank is that, in addition to being a secured creditor which has appointed a receiver to five of the companies (on 18th August 2017), it entered into a written agreement with all of the companies, and others, on 22 December 2016 for the purpose as recited therein 'of documenting the settlement arrangement which the Bank has agreed with the Barrett Connection in respect of the liabilities of the Barrett Connection to the Bank ...' ('the Debt Settlement Agreement').

5 Central to the Bank's opposition to the appointment of an examiner to the companies is the Debt Settlement Agreement. In the High Court, and also before this Court, it submitted that the presentation of the petition is an abuse of process by reason of the Debt Settlement Agreement. It also submitted on appeal, in the alternative, that if the Court concluded it had jurisdiction to appoint an examiner that it should, in exercise of its discretion, refuse to make the appointment by reason of the Debt Settlement Agreement.

Abuse of process

6 In the High Court, the Bank submitted that the presentation of the petition was an abuse of process by the petitioners by reason of the Debt Settlement Agreement and should be dismissed for that reason. The High Court judge at para. 42 of his ex tempore judgment concluded that it had established an abuse of process. This finding notwithstanding, it is not clear that it formed the basis of his dismissal of the petition in respect of the four companies; it is not referred to in the High Court judge's conclusion of his reasons for dismissal and of course he appointed an examiner to three remaining companies, all of which were also parties to the Debt Settlement Agreement.

7 The court does have an inherent jurisdiction to dismiss a petition seeking appointment of an examiner under Part 10 of the Companies Act 2014 ('the 2014 Act') if its presentation is an abuse of process. The Supreme Court in Re Vantive Holdings [2010] 2 IR 118 held that the bringing of a second petition on foot of crucial and material evidence deliberately withheld from the Court in the course of a first petition and the reliance on evidence that could have been produced at the first petition hearing constituted an abuse of the process and prima facie was a bar to the second petition proceeding. As pointed out by Murray C.J. at para. 20 of that judgment 'abuse of process may take many forms according to the context or the nature of the proceedings...' However, at the core of actions which constitute an abuse of process are ones which abuse the due process of the administration of justice. On the facts in Vantive it was the behaviour during the first proceedings which made the presentation of the second petition an abuse of process.

8 Section 510(1) of the 2014 Act confers (subject to certain express exceptions which do not apply) a statutory entitlement on a company to present a petition seeking the appointment of an examiner (and thereby obtain protection of the court). That statutory entitlement must of course be exercised for the intended purpose. The commencement or pursuit of proceedings for an improper or ulterior purpose may constitute an abuse of process: Sean Quinn Group Limited v. An Bord Pleanála [2001] 1 IR 505. The evidence before the Court indicates that the companies are genuinely seeking to have an examiner appointed for the statutory purposes of Part 10 of the 2014 Act, namely the rescue of the currently insolvent companies and their survival and that of their undertakings as going concerns. Hence, even if it were to be the position that the presentation of a petition for the appointment of an examiner under the 2014 Act is a breach of their contractual...