Re Kilashee Schools Company Ltd and Others
| Jurisdiction | Ireland |
| Judge | Mr Justice Peter Charleton |
| Judgment Date | 09 May 2014 |
| Neutral Citation | [2014] IEHC 275 |
| Court | High Court |
| Docket Number | Record numbers: 225 COS;/2014 |
| Date | 09 May 2014 |
[2014] IEHC 275
The High Court
COMPANIES (AMDT) ACT 1990 S2
COMPANIES (AMDT) ACT 1990 S3(7)
COMPANIES (AMDT) ACT 1990 S3
COMPANIES (AMDT) ACT 1990 S4
COMPANIES (AMDT) ACT 1990 S4(2)
VANTIVE HOLDINGS & ORS, IN RE UNREP CLARKE 11.9.2009 2009/57/14401 2009 IEHC 409
TIVWAY LTD, IN RE 2010 3 IR 49 2010/50/12470 2010 IESC 11
BELOHN LTD, IN RE UNREP FINLAY GEOGHEGAN 18.4.2013 2013 IEHC 151
TUSKAR RESOURCES PLC, IN RE 2001 1 IR 668 2001/24/6394
GALLIUM LTD (T/A FIRST EQUITY GROUP), IN RE 2009 2 ILRM 11 2009/22/5449 2009 IESC 8
BRAZILIAN RUBBER PLANTATIONS & ESTATES LTD, IN RE 1911 1 CH 425 1910-11 27 TLR 109 1910-11 103 LT 697
Company Law – Insolvency – Appointment of Examiner – s. 2 and s. 4 of the Companies (Amendment) Act 1990 – The Companies (Amendment) (No 2) Act 1999
Facts: This case concerned applications for the appointment of an examiner in respect of four companies under the Companies (Amendment) Act 1990. The Revenue Commissioners did not object to this. However, the National Assets Loan Management Limited opposed the appointment of an examiner to Faxhill. The National Assets Loan Management Limited managed a loan made to Faxhill in the region of €77 million. An interim examiner had been appointed for Craigford and Marchford. There was no opposition to appointing an examiner to Kilashee. The Court had to consider the extent to which a Company may bring down another Company in a group through debts or be saved by the appointment of an examiner to a related Company.
Faxhill was a property development company that owned shares in the other three Companies. The other three Companies, Kilashee, Craigford and Marchford guaranteed the loan made to Faxhill. Section 2 of the 1990 Act sets out the test to be applied by the Court when determining whether an examiner should be appointed to any of the four Companies. This section states that an examiner should only be appointed when a company is unable to pay its debts and there is a reasonable prospect of it surviving. The Companies (Amendment)(No 2) Act 1999 amended s. 3 of the 1990 Act to clarify matters in relation to deciding if there was a prospect of a company surviving. It stipulates that a petition to appoint an examiner should be accompanied by a report prepared by an auditor of the company or a person qualified to be appointed as an examiner. The purpose of the report is to give a comprehensive overview of the company”s financial position. Section 4 of the 1990 Act allows for the appointment of an examiner to a related company. The Court can make an order under this section if it believes that it would facilitate the survival of a company, or of the related company or both. The four companies in this case were related but Faxhill had the biggest debt. Another consideration under s. 4 is the potential of a related company to resolve its difficulties through a scheme of arrangement. The Court examined each of the four companies prospects of survival and of Faxhill and its relationship with its three related corporations.
Held by Charleton J:
Craigfort offered a hotel product that sustained employment in the local area and Kilashee hotel operated on a profit. The Court decided these companies should be considered as interdependent. The problem for Craigfort, Kilashee and Marchford was Faxhill”s debt of €77 million that was cross-guaranteed by each of them. Despite this, reasonable prospects of survival had been shown in relation to Craigfort and Kilashee. The Court held in Marchford”s case that its hotel had recovered well and was in a reasonably good financial position. Faxhill”s prospect of survival was small as its debts were huge. It was not developing any property, the sale of its assets would not cover the value of its loans and it could not be argued that the company supplied expertise in hotel management marketplace via two of its employees. As a result, the court appointed an examiner to Craigfort, Kilashee and Marchford but not to Faxhill.
Mr Justice Peter Charleton delivered on the 9th day of May 2014
These are applications under the Companies (Amendment) Act 1990 to appoint an examiner to these four related companies, Kilashee, Faxhill, Craigfort and Marchford. The Revenue Commissioners have appeared and offered no opposition in respect of any company. National Assets Loan Management Limited opposes the appointment of an examiner to Faxhill. An interim examiner is already in place for Craigfort and Marchford but not for Faxhill or Kilashee; though there is no opposition to appointing an examiner to Kilashee.
Under the Act of 1990, creditors and members are entitled to oppose the appointment of an examiner. Here the interest of the opponent comes from it managing a loan to Faxhill originally made by AIB Bank plc which was taken over by the National Assets Management Agency following the banking crisis of 2008. The dimensions of the loan are disputed but the probability is that it is in the sum of €77 million. It was made directly to Faxhill. This is a property development company. It also owns the shares in the other companies, directly or through intermediany companies. Kilashee, Craigfort and Marchford guarantee diese loans. In addition these companies may have mortgage obligations, though these do not require analysis in this judgment. There has been some discussion as to whether the objector has behaved reasonably in managing the loan and guarantee obligations. This has been brought into the case by way of argument as to the discretion of the Court should a case for the survival of some or all of the companies be made out. In so far as it is necessary to express a view on the limited evidence before the Court, the debt obligations appear to have been managed reasonably by the objector. Issues as to planning permission, unauthorised expenditure of funds and proper communication by the borrower Faxhill with the objector have also been debated. It is clear, however, that any issue as to discretion is minor compared to the difficult issue as whether an examiner should be appointed to any of the companies but particularly to Faxhill.
The central question is the extent to which a company may bring down another in a group through debts or be saved through having an examiner appointed to a related company. Here the company most challenged by debt is Faxhill. In that company's case there is no chance of any write down, but the corporate guarantees of Kilashee, Craigfort and Marchford may potentially be the subject of a scheme of arrangement. Often, guarantees of a company's debts are by directors and authorising a scheme of arrangement following on examination of a company has no effect on those personal obligations. This may be different because the guarantors are corporate. But, that is for another day.
A brief explanation of how these companies interact is called for. Faxhill has two directors and shareholders. Kilashee, Craigfort or Marchford share the same directors. There are no shareholders in those companies save for Faxhill or its corporate nominees. Faxhill also employs a chief financial officer who oversees the companies as a group and the management structures of Faxhill are claimed to be supplied to the other companies from it; this despite the directors of all the companies being the same two people.
There are valuable assets in the various companies. Faxhill holds a property portfolio and part of that portfolio is shares in the other companies and their assets. Central to all of this is the Kilashee House Hotel and Spa. This hotel is in a beautiful location between Kilcullen and Naas in County Kildare. In Naas town there is a related establishment called Lawlor's Hotel, an urban hotel controlled by Marchford. The landowning of the Kilashee hotel and surrounding grounds is complex. This map assists in understanding it:
The Kilashee hotel is on land owned by Craigfort and this amounts to about 15 acres; deep blue. Craigfort also runs the hotel and employs about 182 staff in that regard. Close by are lands used by the hotel to draw water from wells and for car parking and for quiet walks by guests and this is in the ownership of Kilashee and the area here is about 25 acres; light blue. So 40 acres in all are in use by the hotel through Craigfort and Kilashee. Contiguous and to the East are 223 acres of agricultural land which has planning permission for a golf course, about 90 acres, and the rest housing developments and this is in the ownership of Faxhill; white colour. In addition and completely seperady, Faxhill holds two further sites and three residences in its property portfolio; a site at Dublin Road in Naas; 3.5 acres near Newbridge in County Kildare; a nice mews house at Morehampton Lane in Donnybrook; a partially completed residence in Athgarvan in County Kildare; and a 4 bedroom dwelling on Dublin Road in Naas. There has been an expression of interest dated 28 th April 2014 in this portfolio but with no figures crystallising at this point. Finally, to complete the employment picture, Lawlor's Hotel in Naas employs just over 60 people who take their contracts from Marchford and Faxhill employs the group managing director and the group financial officer; just 2 people.
The test for appointing an examiner is set out in section 2 of the Companies (Amendment) Act 1990 as amended:
(1) Subject to subsection (2), where it appears to the court that-
(a) a company is or is likely...
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