Re McEnaney Construction Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Finlay Geoghegan
• Judgment Date: 25 February 2008
• Neutral Citation: [2008] IEHC 43
• Docket Number: [2007 No. 484 COS]
• Court: High Court
• Date: 25 February 2008

[2008] IEHC 43

THE HIGH COURT

[No. 484 COS/2007]

McEnaney Construction Ltd, In Re

IN THE MATTER OF McENANEY CONSTRUCTION LIMITED (UNDER THE PROTECTION OF THE COURT)

AND

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

COMPANIES (AMDT) ACT 1990 S18

COMPANIES (AMDT) ACT 1990 S24

COMPANIES (AMDT) ACT 1990 S24(4)

COMPANIES (AMDT) ACT 1990 S24(8)

COMPANIES ACT 1963 S72(1)

COMPANIES (AMDT) ACT 1990 S20

COMPANIES ACT 1963 S72(2)(b)

COMPANIES (AMDT) ACT 1990 S24(5)

COMPANIES ACT 1990 PART XI

COMPANIES ACT 1990 S208

COMPANIES (AMDT) ACT 1990 S24(7)

COMPANY LAW

Examinership

Scheme of arrangement - Reduction of share capital - Specification of alteration to memorandum and articles of association in scheme of arrangement - Whether court has jurisdiction to confirm proposals reducing share capital in company limited by shares unless expressly authorised by Companies Acts - Whether court has jurisdiction to order cancellation of issued shares in capital of company - Companies Act 1963 (No 12), s 72 - Companies (Amendment) Act 1990 (No 27), s 24 - Modified scheme confirmed (2007/484Cos - Finlay Geoghegan J - 25/2/2008) [2008] IEHC 43

Re McEnaney Construction Ltd

The examiner of McEnaney Construction Limited formulated proposals for a scheme of arrangement in relation to the company, held the necessary meetings and made a report thereon to the court on 5 February 2008, recommending confirmation of the proposals. The Court indicated that it could not confirm the proposals for the scheme of arrangement as proposed and adjourned the matter to allow the Examiner an opportunity to consider whether the difficulties could be overcome by modifications to the scheme. The modified proposals were subsequently confirmed by the court. Originally it was proposed to cancel all 100 issued ordinary shares in the company. The company was a single member company. The original proposals also sought to amend the articles of association of the company.

Held by Finlay Geoghegan J., that the court should not confirm proposals which included a provision that the company cancel issued paid-up shares unless the consequent reduction of capital was expressly authorised by the Companies Acts, 1963 to 2006 and section 24(8) of the Act of 1990 did not give the Court jurisdiction to make an order canceling the issued shares in the capital of the company. In fact the Act of 1990 contained no express provision enabling a company to whom an examiner was appointed under that Act to reduce its share capital as part of a scheme of arrangement. The original proposals of the Examiner did not specify the intended alterations to the articles of association as required by section 24(7) of the Act of 1990.

Reporter: L. O'S.

1 Judgment of Ms. Justice Finlay Geoghegan delivered the 25th day of February, 2008.

2 On 11 ^th January, 2008, by order of the High Court, Mr. Michael McAteer was appointed Examiner of McEnaney Construction Limited ("the Company") for the purpose of examining the state of the Company's affairs and performing such duties in relation to the Company as are imposed by or under the Companies (Amendment) Act, 1990 ("the Act").

3 The Examiner, as required by s. 18 of the Act, formulated proposals for a scheme of arrangement in relation to the Company, held the necessary meetings of members and creditors and made a report thereon to the Court on 5 ^th February, 2008, recommending confirmation of the proposals.

4 The report of the Examiner, with the proposal for a scheme of arrangement, was set down for consideration by the Court pursuant to s. 24 of the Act on 12 ^th February, 2008.

5 At the hearing before me on 12 ^th February, no person appeared to object to the confirmation of the proposals for the scheme of arrangement and I was not precluded from confirming the proposals by reason of any of the matters specified in s. 24(4) of the Act.

6 However, there were two distinct reasons for which I was unwilling to confirm the proposals for the scheme of arrangement. Having raised the issues with counsel for the Examiner, in the course of the hearing, and considered his submissions thereon, I indicated that I could not confirm the proposals for the scheme of arrangement as proposed and adjourned the hearing to allow the Examiner, with his counsel and solicitor, to consider whether the difficulties could be overcome by modifications to the scheme of arrangement.

7 On 14 ^th February, 2008, at the adjourned hearing, the Examiner presented modified proposals for a scheme of arrangement which addressed the issues raised by the Court and I confirmed the scheme of arrangement. The modified proposals did not alter the substance of the scheme.

8 As the difficulties presented by the original proposals for the scheme of arrangement are matters which have previously occurred and may re-occur, I indicated that I would set out in writing the reasons for which I considered I could not confirm the original proposals. This judgment is for that purpose.

9 The first issue was the proposed cancellation of all 100 issued ordinary shares in the Company at paragraph 3.1.2 of the scheme of arrangement and, in substance, repeated in paragraph 5.1. The Company was a single-member company. Mr. Sean McEnaney held all 100 ordinary shares of €1. 26973 each credited as fully paid up. The scheme of arrangement was predicated on "the Investor" making available €67,500,000 to the Company, secured on the Company's assets. The Examiner had entered into an agreement with the Investor, Paragraph 3.1.2 of the scheme of arrangement provided:

"The Company's Issued Share Capital of 100 ordinary shares will be cancelled and 100 ordinary shares will be issued to the Investor (75 ordinary shares) and Sean McEnaney (25 ordinary shares) at the Effective Date."

10 This provision was, in substance, repeated in Clause 5.1, though with the slight variation that the existing issued share capital of 100 ordinary shares "will be deemed to be cancelled". I propose ignoring this variation as clearly it is not possible to "deem" shares to be cancelled.

11 The proposal, therefore, was that the Company would, as part of the scheme of arrangement, cancel its existing 100 issued ordinary shares. There was no indication, in the proposals, of the steps intended to be taken by the Company to effect the cancellation of its shares. Upon inquiry by the Court, counsel for the Examiner indicated that if the Court confirmed the proposals, he would seek an order from the Court pursuant to s. 24(8) of the Act that the existing 100 issued ordinary shares in the Company be cancelled.

12 Section 24(8) of the Act provides:

"Where the court confirms proposals under this section it may make such orders for the implementation of its decision as it deems fit."

13 I formed the view that:

14 1. The Court should not confirm proposals which include a provision that the Company cancel issued...