Re McInerney Homes Ltd and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 10 January 2011
• Neutral Citation: [2011] IEHC 4
• Court: High Court
• Date: 10 January 2011

McInerney Homes Ltd & Ors, In re

IN THE MATTER OF McINERNEY HOMES LIMITED IN EXAMINATION (UNDER THE COMPANIES (AMENDMENT) ACT 1990 )

AND,

IN THE MATTER OF McINERNEY HOLDINGS PUBLIC LIMITED COMPANY IN EXAMINATION (UNDER THE COMPANIES (AMENDMENT) ACT 1990 )

AND,

IN THE MATTER OF McINERNEY CONSTRUCTION (HOLDINGS) LIMITED IN EXAMINATION (UNDER THE COMPANIES (AMENDMENT) ACT 1990 )

AND,

IN THE MATTER OF McINERNEY CONTRACTING LIMITED IN EXAMINATION (UNDER THE COMPANIES (AMENDMENT) ACT 1990 )

AND

IN THE MATTER OF McINERNEY CONTRACTING DUBLIN LIMITED IN EXAMINATION (UNDER THE COMPANIES (AMENDMENT) ACT 1990 )

AND,

IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009

[2011] IEHC 4

[No. 475 COS/2010]

THE HIGH COURT

COMPANY LAW

Examinership

Scheme of arrangement - Secured creditors - Secured creditors proposing to appoint receiver - Criteria to be applied in determining whether scheme of arrangement unfairly prejudicial - Evidence - Approach of court where conflicting expert evidence on affidavit and where no cross examination occurred - Whether jurisdiction to approve scheme of arrangement imposing reduction on amount owed to secured creditors - Whether secured creditors had realistic prospect of doing better under proposed receivership model than under scheme of arrangement - Whether scheme of arrangement unfairly prejudicial to secured creditors - Re Alabama, New Orleans, Texas and Pacific Junction Railway Co [1891] 1 Ch 213; Re Lehman Brothers International (Europe) (In administration) (No.2) [2009] EWCA Civ. 1161; Re Atlantic Magnetics Ltd [1993] 2 IR 561; Re Antigen Holdings [2001] 4 IR 600; Re Traffic Group Ltd [2007] IEHC 445, [2008] 3 IR 253; Boliden Tara Mines v Cosgrove [2010] IESC 62 (Unrep, 21/12/2010); Re Laragan Developments [2009] IEHC 390 (Unrep, Clarke J, 31/7/2009) considered - Companies Act 1963 (No 33), s 201 - Companies (Amendment) Act 1990 (No 27), ss 11, 18, 22, 24 & 25 - Scheme not approved (2010/475COS - Clarke J - 10/1/2011) [2011] IEHC 4

In re McInerney Homes Ltd

MCINERNEY HOMES LTD, IN RE UNREP CLARKE 24.9.2010 2010 IEHC 340

COMPANIES (AMDT) ACT 1990 S24(3)

COMPANIES (AMDT)) ACT 1990 S18

COMPANIES (AMDT)) ACT 1990 S18(1)(A)

COMPANIES (AMDT)) ACT 1990 S22

COMPANIES (AMDT)) ACT 1990 S22(1)(D)

COMPANIES (AMDT)) ACT 1990 S24(4)(C)(II)

COMPANIES (AMDT)) ACT 1990 S24

COMPANIES (AMDT)) ACT 1990 S25

COMPANIES ACT 1963 S201

COLONIA INSURANCE (IRELAND) LTD, IN RE 2005 1 IR 497

EMPIRE MINING CO, IN RE 1890 44 CH D 402

ALABAMA, NEW ORLEANS, TEXAS & PACIFIC JUNCTION RAILWAY CO, IN RE 1891 1 CH 213

MADRAS IRRIGATION CO, IN RE 1891 1 CH 228

COMPANIES (AMDT)) ACT 1990 S11

T & N LTD & ORS, IN RE 2005 2 BCLC 488 2004 EWHC 2361 (CH)

LEHMAN BROTHERS INTERNATIONAL (EUROPE)(IN ADMINISTRATION)(NO.2) 2009 EWCA CIV 1161 2009 WLR (D) 323

ATLANTIC MAGNETICS LTD, IN RE 1993 2 IR 561

HOLIDAIR LTD, IN RE 1994 ILRM 481

COMPANIES (AMENDMENT) ACT 1990 S25(1)(D)

ANTIGEN HOLDINGS 2001 4 IR 600

TRAFFIC GROUP LTD, IN RE 2008 3 IR 253 2008 2 ILRM 1 2007/58/12501 2007 IEHC 445

BOLIDEN TARA MINES v COSGROVE UNREP SUPREME 21.12.2010 2010 IESC 62

LARAGAN DEVELOPMENTS LTD, IN RE UNREP CLARKE 31.7.2009 2009 IEHC 390

1 JUDGMENT of Mr. Justice Clarke delivered the 10th January, 2011

1. Introduction

2 2 1.1 Each of the applicant companies successfully applied for the appointment of an examiner notwithstanding opposition to that appointment coming from three banks. (that is Anglo Irish Bank Corporation Limited, Bank of Ireland Plc and KBC Bank Plc) (collectively "the Banking Syndicate"). My reasons for appointing an examiner notwithstanding that opposition are set out in Re McInerney Homes Limited & Ors and the Companies Acts [2010] IEHC 340. The examiner has now produced his report and proposes a scheme of arrangement. The Banking Syndicate opposes the approval of the scheme of arrangement.

3 3 1.2 As a result a hearing took place on the 20 ^th and 21 ^st December last, for the purposes of deciding whether the court should, pursuant to s. 24(3) of the Companies (Amendment) Act 1990 ("the 1990 Act"), "confirm, confirm subject to the modifications, or refuse to confirm" the proposals contained within the scheme of arrangement. In addition, it should be noted that the Revenue Commissioners ("Revenue") opposed one aspect of the proposed scheme of arrangement. However, the opposition of the Revenue related solely to the treatment of a sum of money owed to the Revenue which, in the context of the scheme as a whole, was not material. The opposition of the Revenue did not, therefore, go to the root of the scheme and is capable of being dealt with separately from the fundamental objection taken on behalf of the Banking Syndicate. I, therefore, propose dealing with the Revenue objection at the end of this judgment.

4 4 1.3 The formal requirements specified in the 1990 Act for the approval of a scheme of arrangement were established. Save for the Revenue objection, to which I have already referred, no other party opposed the approval of the scheme of arrangement. The issue which I had to decide was, therefore, in substance, whether the objection raised on behalf of the Banking Syndicate was such as ought to lead me to refuse to confirm the scheme of arrangement proposed.

5 5 1.4 Finally, before going on to consider the issues which arose, it is appropriate to record that the proposals under consideration related solely to McInerney Homes Ltd ("Homes") and McInerney Contracting Ltd ("Contracting"), the examinership in respect of the other companies named in the title to these proceedings having been terminated at a stage prior to the hearing to which I have referred.

6 6 1.5 Against that background, it is appropriate to turn to the issues which arose so far as the Banking Syndicate was concerned.

2. The Issues

7 2 2.1 At an early stage of the hearing discussion took place involving counsel for respectively Homes and Contracting ("collectively McInerney"), the examiner, and the Banking Syndicate. There was broad agreement that the issues which needed to be addressed were as follows.

8 3 2.2 First, there was a legal issue raised on behalf of the Banking Syndicate as to whether there was jurisdiction, under the provisions of the 1990 Act, to approve a scheme of arrangement which involved imposing a reduction on the amount to which a secured creditor might be entitled. Both the examiner and McInerney argued that such a jurisdiction existed, while the Banking Syndicate contested that proposition. That issue turns on the proper construction of the 1990 Act to which I will shortly turn.

9 4 2.3 It obviously follows that in the event that the Banking Syndicate are right in their contention that no such jurisdiction exists, the scheme of arrangement in this case cannot be approved for there is no doubt but that it seeks to require the Banking Syndicate to take a very significant reduction in the amount which is owing to it. If that issue is, therefore, found in favour of the Banking Syndicate, then that is an end to the matter. However, the Banking Syndicate went on to note that, in the event that there was, at the level of principle, such a jurisdiction then any such jurisdiction was subject to the general overriding requirement under the 1990 Act that a scheme of arrangement be not unfairly prejudicial to any creditor. At the level of principle, neither the examiner nor McInerney disagreed with that proposition. However, there was a significant dispute between the parties as to whether, on the facts of the case, it could be said that the scheme proposed was unfairly prejudicial to the Banking Syndicate. The second overall issue which arises is as to whether, in the event that there be a jurisdiction to reduce the amounts due to secured creditors in the context of a scheme of arrangement, the scheme proposed in this case is unfairly prejudicial to the Banking Syndicate.

10 5 2.4 However, as part of that general issue a number of what might be called sub-issues were apparent from the legal submissions made in writing by the parties in advance of the hearing. It will be necessary to explore these issues in due course. However, in outline the questions which arose were:

11 (a) What criteria were to be applied in determining whether a scheme of arrangement was unfairly prejudicial to secured creditors;

12 (b) What the approach of the court should be in circumstances where conflicting expert evidence, relevant to the question of prejudice, had been put before the court in the form of affidavit evidence, but where no cross examination had taken place; and

13 (c) In the light of the answers to (a) and (b) whether the scheme in this case, on the facts, is unfairly prejudicial.

14 6 2.5 As the legal issue to which I have first referred is a stand alone issue, I propose dealing with that question first. I, therefore, turn to the proper construction of the 1990 Act.

3. The Construction of the 1990 Act

15 2 3.1 Section 18 of the 1990 Act provides that an examiner shall "as soon as practicable after he is appointed, formulate proposals for a compromise or scheme of arrangement in relation to the company concerned" (subs. (l)(a)). Section 22 deals with the contents of proposals for a compromise or scheme of arrangement. However, save for the provisions of s. 22(1)(d), which require equal treatment for each claim or interest arising out of a particular class, the provisions of s. 22 do not appear to be prescriptive as to the nature of the scheme of arrangement which may be proposed. Likewise, s. 24, which deals with the confirmation of proposals, while requiring certain formal matters to be established, such as the acceptance of at least one class of impaired creditors, is otherwise principally concerned with giving the court jurisdiction to ensure that the proposals...