Re McSweeney Dispensers 1 Ltd and Others

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 21 December 2011
• Neutral Citation: [2011] IEHC 494
• Court: High Court
• Date: 21 December 2011

[2011] IEHC 494

THE HIGH COURT

[No. 621 COS/2011]

McSweeney Dispensers 1 Ltd & Ors, In re

IN THE MATTER OF MCSWEENEY DISPENSERS 1 LIMITED AND IN THE MATTER OF THE COMPANIES (AMENDMENT) ACT 1990 (AS AMENDED)

AND IN THE MATTER OF MCSWEENEY ASSETS GROUP HOLDINGS LIMITED MCSWEENEY DISPENSERS 7 LIMITED MCSWEENEY DISPENSERS 14 LIMITED MCSWEENEY DISPENSERS 15 LIMITED MCSWEENEY DISPENSERS 17 LIMITED MCSWEENEY DISPENSERS 22 LIMITED MCSWEENEY DISPENSERS 24 LIMITED MCSWEENEY DISPENSERS 26 LIMITED MCSWEENEDY GROUP LIMITED KILCLEGGAN LIMITED AS RELATED COMPANIES WITHIN THE MEANING OF SECTION 4(5) OF THE COMPANIES (AMENDMENT) ACT 1990 (AS AMENDED)

TRAFFIC GROUP LTD, IN RE 2008 3 IR 253

MISSFORD LTD (T/A RESIDENCE MEMBERS CLUB), IN RE UNREP KELLY 20.1.2010 2010/36/9069 2010 IEHC 11

ATLANTIC MAGNETICS LTD (IN RECEIVERSHIP) 1993 2 IR 561

GALLIUM LTD, IN RE 2009 2 ILRM 11

VANTIVE HOLDINGS, IN RE 2010 2 ILRM 156

MCINERNEY HOMES LTD, IN RE UNREP SUPREME 22.7.2011 2011 IESC 31

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

ATLANTIC MAGNETICS LTD (IN RECEIVERSHIP), IN RE 1993 2 IR 561

COMPANY LAW

Examinership

Appointment of examiner - Jurisdiction - Proofs - Group of companies - Opposition by creditor - Receivership - Whether reasonable prospect of survival of company - Whether underlying business capable of generating profit - Whether examinership more advantageous to members and creditors as a whole - Whether interests of employees relevant - Management of company - Whether business badly run - Whether purpose of examinership to save shareholders from unsuccessful investments - Whether purpose of examinership to allow existing shareholder to retain control of company - Whether threshold requirement met - Alternative proposal - Receiver manager - Whether appointment of receiver manager to be preferred over examinership - Whether opposing creditor considered that company had reasonable prospect of survival - Whether court should exercise discretion - Whether opinion of another significant creditor to be taken into account - Whether experience of other significant creditor with examinership and managing receivership relevant - Whether real prospect that investors could be found - Whether appointment of receiver manager designed to meet advantage of appointing creditor only - Whether receivership would protect jobs and enterprise - Whether exclusion from examinership of some companies in group prejudicial to creditor - In re Traffic Group Ltd [2007] IEHC 445, [2008] 3 IR 253, In re Atlantic Magnetics Ltd (in receivership) [1993] 2 IR 561, In re Gallium Ltd t/a First Equity Group [2009] IESC 8, [2009] 2 ILRM 11, and In re Vantive Holdings [2009] IEHC 384, [2010] 2 IR 108 followed - Companies (Amendment) Act 1990 (No 27) - Examiner appointed (2011/621COS - Clarke J - 21/12/2011) [2011] IEHC 494

In re McSweeney Dispensers 1 Ltd

Facts: A petition was presented seeking the appointment of an examiner to a group of companies. There was opposition to the appointment of an examiner from Allied Irish Banks plc. It was unlikely that a scheme could be put in place which did not write down the liability of the group to AIB. It had been contended that the group had not been managed in the most efficient way. AIB suggested that the principal purpose behind the examinership was to enable the existing principal shareholder Mr. Hof to retain control of the company by means of a significant reduction in bank debt. The Court considered whether the companies had a reasonable prospect of survival.

Held by Clarke J. that the Court was persuaded to appoint an examiner. Most of the issued addressed by AIB could be more properly addressed if and when a scheme of arrangement was put forward. As the companies which own the pharmacies were not in examinership, there was no barrier to AIB taking action on foot of its security. It seemed unlikely that a bank would favour a trading receivership where the bank did not consider that the company had a reasonable prospect of survival. The argument by AIB concentrated too much on the possibility for a potential scheme of arrangement being one in which Mr. Hof retained ownership of the company.

Reporter: E.F.

1. Introduction

2 2 1.1 On 26 ^th October, 2011, a petition was presented seeking the appointment of an examiner to the above companies (collectively "McSweeney" or the "group"). For practical reasons it was not possible to make the application for directions required by the Rules of the Superior Courts until the following day.

3 3 1.2. Therefore, on the 27 ^th October, 2011, that directions motion was moved and as a result of a further application an interim examiner was appointed to McSweeney. Following exchanges of affidavits, the matter then returned before me for a substantive hearing of the petition on the 8 ^th November, 2011, and after hearing almost two days of argument, I adjourned the matter on the 9 ^th November, 2011, to consider my decision in the light of the evidence and the submissions of the parties present.

4 4 1.3 In substance, there was opposition to the appointment of an examiner only from Allied Irish Banks plc ("AIB"). In addition, I was satisfied that the formal proofs for the appointment of an examiner were established and that the only issue of substance on which it might have been appropriate to decline to appoint an examiner was the issue raised on behalf of AIB.

5 5 1.4 The issue of the appointment of an examiner, therefore, turned on the merits of the opposition of AIB. Having regard to the urgency of the matter, I reserved judgment for two days and delivered a ruling on the 11 ^th November, 2011. On that occasion I indicated that I would, at a later stage, deliver a written judgment as to the reasons for concluding that an examiner should be appointed. This judgment is directed to that end. Given that the only issue of substance which arose stemmed from AIB's opposition, it is necessary to start by setting out the basis of that opposition.

2. The Opposition

2 2 2.1. While the opposition of AIB was put forward under a number of headings, each heading had, as its basis, an alternative put forward on behalf of AIB which derived from its stated intention to appoint what was described as a "trading receiver" to McSweeney. For reasons which I will analyse in a little more detail later in the course of this judgment, a number of features of the group were important to that opposition.

3 3 2.2. First, it was accepted by counsel on behalf of McSweeney, when moving the application for the appointment of an interim examiner, that it was unlikely that a scheme of arrangement could be put in place which did not write down, in some way, the liability of the group to AIB. Second, the petition was only presented in respect of some, but not all, of the companies which were originally within the group. The group operates principally as a series of pharmacies. It is proposed to allow a number of pharmacies to close and consequently the companies which operated those pharmacies were not the subject of an examinership application.

4 4 2.3. In addition, it was contended on behalf of AIB that the group had not been managed in the most efficient way possible. Furthermore, an issue of significant controversy was raised arising out of the fact that, in late 2007, a significant number of pharmacies previously owned by the group were sold in circumstances where €51.73m was realised. The manner in which those monies were applied is set out later in this judgment and is not a matter of dispute. However, on the basis that a significant amount of the money which derived from that sale had been used to benefit the shareholders or other ventures in which the shareholders had an interest, it was argued that there was now an obligation on the shareholders, if they wished to interfere with the amount owing to AIB, to make a significant contribution themselves. In addition, it should be noted that an indicative proposal had been made on behalf of the existing principal shareholder, Mr. Geert Hof, for the introduction of further funds in the context of a scheme of arrangement.

5 5 2.4. Against that background, AIB suggested that the principal purpose behind the examinership was to enable the existing shareholder to retain control of the company by means of a significant reduction in bank debt but in circumstances where the business had been badly run and significant capital extracted. It was argued that that was not an appropriate purpose for examinership. Before turning to the specifics of the issues raised, it is appropriate to set out a relatively brief history of the relevant facts.

3. The Facts

2 2 3.1. In 1987 Mr. Hof acquired Tohers The Chemists in Co. Sligo through McSweeney Asset Group Holding Limited, which is now the parent company for the wider McSweeney group of companies. From 1995 the group aggressively expanded increasing its portfolio from four premises to 21 by 1999. In 2003 the group was reorganised for the purposes of minimising audit, compliance and administration effort, to facilitate easier security on loans and to enable the pooling of cash within the group. Later, the group again expanded such that in the period between 2002 and 2006 a further ten shops were acquired.

3 3 3.2. In 2007 and 2008, two of the shareholders, who between them owned 50% of the shareholding in McSweeney, respectively retired from the group. As such, in order to reduce bank debt but also to buy back their shares, it was decided to dispose of a number of outlets. The units chosen were those which had reached maturity in terms of development, turnover and profitability. Each trading unit was then moved into an individual company and then in November 2007, the relevant companies were sold to Celesio for...