Re Step One Permanent Solutions Ltd

• Jurisdiction: Ireland
• Judge: Ms. Justice Baker
• Judgment Date: 06 May 2015
• Neutral Citation: [2015] IEHC 284
• Court: High Court
• Date: 06 May 2015

[2015] IEHC 284

THE HIGH COURT

[No. 126 COS/2015]

Step One Permanent Solutions Ltd, In re

IN THE MATTER OF STEP ONE PERMANENT SOLUTIONS LIMITED AND

IN THE MATTER OF THE COMPANIES ACTS 1963 - 2012

Insolvency – Companies (Amendment) Act 1990 – Prospect of survival.

Facts: The applicant sought an order pursuant to s. 2(1) of the Companies (Amendment) Act 1990 for the appointment of an Examiner to the claimed insolvent company. The applicant contended that it had several blue chip companies as clients and therefore, it had a good prospect of doing profitable business in the current financial year. The respondent opposed the application stating that there was no reasonable prospect of survival of the company. The respondent further alleged that the company did not have a concrete proposal to change the business model of the company.

Ms. Justice Baker held that the application for an order pursuant to s. 2(1) of the Companies (Amendment) Act 1990 for the appointment of an Examiner to the claimed insolvent company would be declined. The Court refused to appoint an Examiner. The Court observed that the applicant, by failing to disclose certain material matters, had demonstrated poor governing skills. The Court stated that the concern of the respondent being the only creditor with a claim of large amount of money would not be ignored.

1 1. Application was made pursuant to s. 2(1) of the Companies (Amendment) Act 1990 by Petition presented on 20 ^th April, 1015, for the appointment of an Examiner to this company which is opposed by the Revenue Commissioners. Following the initial ex parte application to me, at which the appointment of a provisional examiner was not sought, directions were given in regard to service and advertisements and Revenue is the sole creditor having an interest in the matter which has voiced opposition to the appointment. The matter proceeded on affidavit evidence on Thursday 30th April 2015 and a number of affidavits have been served on behalf of each party.

Background facts

2 2. The company is a recruitment company and specialises in the provision of temporary skilled and unskilled employees to a number of sectors, primarily the industrial and catering sectors in a number of spheres including State and private hospitals and other institutional customers. The company was incorporated on the 14 ^th February, 2011 and some time later in October 2011 it took over the business of AGC Temps Ireland Limited, a company was then in liquidation, and avers it gave valuable consideration for that purchase.

3 3. The company employs 16 permanent members of staff, and up to 400 persons on a temporary basis, and while the company is the employer of those persons it does not directly engage them to work but offers their services to its clients in the hospitality and other service industries. Of significance to the matter before me is that it is the company that is responsible for collecting PAYE and PRSI from its temporary employees, and for passing this onto Revenue. The company takes payment from its clients in respect of each of the persons made available by it for the business of those clients, and the company accordingly charges VAT on invoices to these clients.

4 4. The company has incurred very substantial revenue debts, both in the form of the VAT that it itself has levied, and the PAYE and PRSI deducted from and payable on behalf of its temporary and permanent employees.

5 5. The company has its registered office at Unit 1, Block 2, Tallaght Retail Centre, Belgard Road, Tallaght, Dublin 24, described in the Petition as a deprived area of Dublin and the Petition asserts that the loss to that local economy were the company to be wound up would be detrimental to the area.

6 6. The company is owned as to 99.55% by Julian Smith, who swore three affidavits in the Petition, his grounding affidavit of the 24 ^th March, 2015, a replying affidavit of the 22 ^nd April, 2015 and his second replying affidavit of the 29 ^th April, 2015. The balance of the shareholding is held by the other director Douglas Memery, a young man who is full time student and who plays little or no role in the company. The undisputed evidence of Revenue would suggest that in the course of a Revenue audit Mr Memery showed little or no knowledge of the operation of the company or of its day to day trading or financial status.

7 7. The company was profitable in the years ended 31 ^st December, 2011, and 31 ^st December, 2012, but it became loss making thereafter and made significant losses in the year ended 31 ^st December, 2014. The affidavit evidence suggests that the company has been profitable for the first three months of this financial year. The company had a turnover of €2.05 million in 2011, and €8.19 million in the 2014.

8 8. The company is insolvent. The amount of its current liabilities is somewhat less than clear, and for present purposes I note that the estimated statement of affairs prepared as an appendix to the independent accountant's report (the "IAR"¥) of Terry Noone shows liabilities of €2.84 million, net assets of €1.7 million, showing a net deficit of €1.14 million. The main asset of the company is its debtor's book with a value of over €2 million, representing the amount due by its clients in respect of the temporary employees placed through the recruitment process. Its main funding is provided through a company Close Brothers which provides a finance facility on an invoice discount basis, and it has a floating charge over these book debts. In broad terms, one reason identified for the cash flow pressures that the company experiences arises from the time its takes for its clients to pay, an average of 92 days, and the fact that the invoice discounting is available only in respect of 75% of those invoices, subject to a maximum of €1 million.

9 9. The company has significant historic and ongoing Revenue liabilities, the historic liabilities at 31 ^st October, 2014 being approximately €934,574 which was reduced by €502,247 as a result of an agreed monthly instalment arrangement. However the company has continued to fall into arrears of current Revenue liabilities, and Revenue has in recent weeks sought the repayment of current taxes in full together with payment of the historic debt. Total Revenue liability is stated in the Petition to be €1,312,575 as at 31 ^st December, 2014. The amount of Revenue liability was in dispute at the hearing but it is not doubted that the Revenue liability is considerable and comprises both current and historic elements.

10 10. The company is acknowledged to be significantly under funded in capital terms, and it is asserted that the absence of a stable financial base is the reason for its current insolvent state. The company also blames the general downturn in the economy, particularly with regard to the cuts in funding of the HSE and other State bodies, which has resulted in significant downward price pressure and the consequent drop in margins. The company also accepts that there has been a deficit in the management of the company, but says that this has been rectified in particular by the putting in place of an arrangement for the preparation of monthly management accounts.

11 11. Finally, the company asserts that it has a dependable and blue chip client base including the HSE, most Dublin hospitals, and other large commercial companies. Trading projections up to the 31 ^st December, 2015 contained in the IAR suggest that the company will trade profitably in the current financial year and particular emphasis is placed on the fact that the HSE in particular has in place a freeze on the increase in persons employed full time by that organisation which has the direct effect that that body has a need for temporary part time and full time staff which can be provided by the company.

The IAR

12 12. Mr Noone has expressed a view, having assessed the likely return from creditors and the other factors mentioned in his report, including the position of employees, that an attempt to continue in whole or in part the undertaking of the company is likely to be more advantageous to the members and the creditors of the company and those employees. He has concluded that the company taken as a whole or in part has a reasonable prospect of survival as a going concern and he makes this assessment based on the happening of certain conditions or events as follows:-

a) A restructuring of the invoice finance, in particular to provide more than €1 million in such finance which is the limit of the current facility.

b) Control of the company by implementing more stringent management requirements.

c) The acceptance of a scheme of arrangement by creditors and members to be approved by the High Court

13 13. Mr Smith in his affidavit is confident these conditions can be met and deposes to the fact that negotiations are ongoing with Close Brothers and with other possible interested parties with a view to making additional or further capital provision and/or direct equity investment.

The attitude of Revenue

14 14. Revenue opposes the appointment of an Examiner for the following reasons:-

a) That the company does not have a reasonable prospect of survival, and in particular it points to the fact that the company has used its Revenue liability as a form of bank, or "bank of last resort" and that no concrete proposal has been put in place to change its business model

b) That pursuant to s. 4A of the Companies Amendment Act 1990 the court should decline to hear the Petition, as it is asserted that the petitioner has failed to disclose material information and failed to exercise utmost good faith

c) That the court should in the alternative refuse to exercise its wide discretion to grant relief on the grounds that the principals of the company have carried on the...