Re McInerney Homes Ltd

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 24 September 2010
• Neutral Citation: [2010] IEHC 340
• Judgment citation (vLex): [2011] 1 JIC 1002
• Court: High Court
• Date: 24 September 2010

[2010] IEHC 340

THE HIGH COURT

[No. 475 COS/2010 ]

McInerney Homes Ltd, In re

[2010] IEHC 340

IN THE MATTER OF MCINERNEY HOMES LIMITED

AND

IN THE MATTER OF MCINERNEY HOLDINGS PUBLIC LIMITED COMPANY MCINERNEY CONSTRUCTION (HOLDINGS) LIMITED MCINERNEY CONTRACTING LIMITED MCINERNEY CONTRACTING DUBLIN LIMITED (EACH A RELATED COMPANY)

AND

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

VANTIVE HOLDINGS & ORS, IN RE 2010 2 ILRM 156 2009/57/14475 2009 IESC 68

COMPANIES (AMDT) ACT 1990 S2(1)

VANTIVE HOLDINGS & ORS, IN RE UNREP CLARKE 11.9.2009 2009/57/14401 2009 IEHC 409

COMPANIES (AMDT) ACT 1990 S4(2)

COMPANY LAW

Examinership

Reasonable prospect of survival - Objection to appointment of examiner - Financial position of company - Insolvent - Property market crash - Write down in value of lands - Restructuring of loan - Potential investors - Scheme of arrangement - Related companies - Whether reasonable prospect of survival of whole or any part of undertaking - Whether realistic prospect of being able to solve capital problem - Whether company able to continue to trade profitably - Whether amount recovered through restructuring would be as much as that recovered through receivership - Whether scheme of arrangement could oblige creditor to provide further credit against its will - Re Vantive Holding Ltd [2010] 2 ILRM 156 considered - Companies (Amendment) Act 1990 (No 27), ss 2(1) and 4(2) - National Asset Management Agency Act 2009 (No 34) - Application granted (2010/475COS - Clarke J - 24/9/2010) [2010] IEHC 340

In re McInerney Homes Ltd

Facts Each of the applicant companies successfully applied for the appointment of an examiner notwithstanding opposition from three banks (the Banking Syndicate). The examiner subsequently produced a report and proposed a scheme of arrangement which was opposed by the Banking Syndicate. In essence that scheme provided for the writing down of the debt of McInerney to the Banking Syndicate from well in excess of €110,000,000 to €25,000,000. The Banking Syndicate would have been entitled to have a receiver appointed to try to settle the debt owed to them. The issue before this court was whether the proposals contained within the scheme of arrangement should be confirmed, confirmed subject to modifications or refused. A legal issue was raised on behalf of the Banking Syndicate as to whether there was jurisdiction, under the provisions of the Companies (Amendment) Act 1990 to approve a scheme of arrangement which involved imposing a reduction on the amount to which a secured creditor (such as the Banking Syndicate) might be entitled. The second issue which arose was as to whether, in the event the court did have jurisdiction to reduce the amounts due to secured creditors, the scheme of arrangement in this case was unfairly prejudicial to the Banking Syndicate. Further issues arose out of that second issue concerning the criteria the court should apply in determining whether the scheme was unfairly prejudicial and what approach the court should take in circumstances where conflicting expert evidence, relevant to the issue of prejudice was before the court in the form of affidavit evidence but where no cross-examination had taken place.

Held by Clarke J. in refusing to confirm the scheme of arrangement: That there existed, at the level of principle, a jurisdiction in the court to approve a scheme of arrangement which had the effect of reducing the amounts due to secured creditors provided that the scheme otherwise complied with the provisions of the Companies (Amendment) Act 1990. The appropriate test was to compare the respective entitlements of the Banking Syndicate under the scheme on the one hand and under any likely alternative on the other hand. In this case the alternative was in the form of a receivership model. It was impossible for the court to resolve the matters of conflict and in dispute between the parties regarding the basis for the calculations put forward by the parties because the expert evidence was supplied by way of affidavit and was not subject to cross-examination. However, the Banking Syndicate put forward a credible basis for suggesting that the receivership model they proposed had the potential to generate an income stream which approximated to a current principal sum of the order of €50,000,000. Consequently, the Banking Syndicate had a realistic prospect of doing better under the proposed receivership model than under the scheme of arrangement and therefore the scheme, as proposed, was unfairly prejudicial to the Banking Syndicate.

Reporter: L.O'S.

1. Introduction

2 2 1.1 Each of the applicant companies ("McInerney") is a company within the McInerney Group of Companies ("McInerney Group"). There are further companies within that group which are not the subject of this application. McInerney, in one form or another, has been a house builder in Ireland for upwards of 100 years. In common with many companies in the construction and development sector, McInerney has suffered a significant financial reversal in recent years due to the collapse of the property market. McInerney is currently insolvent.

3 3 1.2 In those circumstances, an application was brought by McInerney in which the appointment of an examiner was sought. A petition was presented on the 26 ^th August, 2010, and the usual application for directions was, as required, made on the same day. In addition, an interim examiner, Mr. William O'Riordan ("Mr O'Riordan") was appointed by the court (Clark J.) on the same occasion when the directions motion was heard.

4 4 1.3 The relevant directions were complied with and the substantive hearing of the application to appoint an examiner initially came before Finlay Geoghegan J. on the 7 ^th September last. Because there was opposition to the appointment of an examiner from three banks (that is Anglo Irish Bank Corporation Ltd, Bank of Ireland plc and KBC Bank plc) (collectively "the Banking Syndicate"), it was necessary for the application for the appointment of an examiner to be put back for a short number of days until the 11 ^th September when it came on for hearing before me. Certain other creditors either supported the application through correspondence or adopted a neutral position. The creditors supporting the application were, in the main, small unsecured trade creditors. The formal proofs which are required to be established for the appointment of an examiner were all in place, together with satisfactory evidence of compliance with the directions previously given by Clark J. In substance, therefore, the issue which I had to try concerned the objection taken by the Banking Syndicate to the appointment of the examiner.

5 5 1.4 Having regard to the urgency of the matter, I indicated to the parties that I would give a brief ruling on the following Monday, that is the 13 ^th September. On that occasion I ruled that Mr. O'Riordan should be appointed as examiner, but that I would give reasons for coming to that view in a judgment to be delivered today. This judgment is directed towards setting out the reasons for coming to that conclusion.

6 6 1.5 In addition, I did give a specific direction to the examiner on the 13 ^th September to report to me on certain matters which were of importance to the examinership. I set out some brief background to that direction in a verbal ruling on the 13 ^th September. I also propose dealing more fully with the reasons for giving such a ruling in the course of this judgment.

7 7 1.6 In the context of the fact that the real issue was as and between McInerney on the one hand and the Banking Syndicate on the other hand it is first appropriate to turn to the objections raised by the Banking Syndicate.

2. The Objections

2 2 2.1 While focusing on the objections raised by the Banking Syndicate it is, of course, important to recollect that the onus of proof rests on the petitioner to establish any matters necessary for the purposes of the appointment of an examiner. See Re Vantive Holding Ltd [2010] 2 ILRM 156. However, it was accepted by all concerned that the formal requirements for the appointment of an examiner had been met. In substance, therefore, the only real issue was as to whether the questions raised by the Banking Syndicate were such as ought preclude the appointment of an examiner. Two sets of issues were raised on behalf of the Banking Syndicate. First, it was said that, looking at the McInerney Group as a whole, no reasonable prospects of survival of the undertaking or any part it had, it was said, been established. In order to consider that issue it was necessary to turn first to the case put forward on behalf of McInerney as to such potential survival. I will set out my views on that question in early course.

3 3 2.2 In addition, the Banking Syndicate suggested that, even if I were to be satisfied that there was some reasonable prospect of survival of all or part of the McInerney Group taken as a whole, it was said that I could not be satisfied, at least in respect of some of the companies named in the title to these proceedings, that the prospects for survival of all or a part of the undertaking of each such company had been established. I will set out my views on that issue later in the course of this judgment.

4 4 2.3 There was, therefore, an attack on the adequacy of McInerney's case, both at the overall level of the prospects of survival in respect of the group as a whole and at a narrower level in respect of individual companies within the group. There were not, in reality, any significant discretionary issues raised which were suggested as being sufficient to warrant the court not appointing an examiner if, contrary to the Banking Syndicate's primary submission, I was satisfied that there was a reasonable prospect of survival both...