Regan Developments Ltd & Companies Acts
| Jurisdiction | Ireland |
| Judge | Ms. Justice Baker |
| Judgment Date | 01 March 2017 |
| Neutral Citation | [2017] IEHC 156 |
| Docket Number | [2017 No. 25 COS] |
| Court | High Court |
| Date | 01 March 2017 |
[2017] IEHC 156
THE HIGH COURT
Baker J.
[2017 No. 25 COS]
IN THE MATTER OF REGAN DEVELOPMENT LIMITED AND IN THE MATTER OF THE COMPANIES ACT 2014
IN THE MATTER OF MCGETTIGAN LIMITED AND IN THE MATTER OF THE COMPANIES ACT 2014
Company – The Companies Act 2014 – Appointment of receiver – Examinership – Opposition by secured creditors – Material omission
Facts: The petitioners sought an order for the appointment of an examiner for their companies subsequent to the earlier order of the Court whereby an interim examiner was appointed for the relevant companies. The secured creditor objected to the appointment of an examiner on the basis of material non-disclosure and improper motive.
Ms. Justice Baker confirmed the appointment of the interim examiner as the examiner of the relevant companies. The Court held that the examinership process was made to ensure that the interests of all the parties were secured, including the creditors, employees and undertaking as a whole. The Court held that though there was non-disclosure of fact by one of the petitioners, yet it was not to the extent of denying the examinership. The Court held that the primary objection by the objector that the companies wanted to use the examinership process for the refinancing of the secured loan was misconceived as refinancing would require substantial investment, which the companies were unable to provide.
On 23rd January, 2017, a petition was filed in the High Court seeking the protection of the court pursuant to s. 512 of the Companies Act 2004 (‘the Act’) and Neil Hughes was appointed an interim examiner of the two companies, Regan Development Limited (‘Regan’) and McGettigan Limited (‘McGettigan’). This judgment is given on the application, pursuant to s. 509 of the Act that Mr. Hughes be appointed as examiner of Regan, and pursuant to s. 517 that he be appointed examiner of McGettigan, a related company. The petition is opposed by the first secured creditor, OCM EmRu Debtco DAC (‘OCM’) which is owed the sum of approximately €25m by the companies pursuant to various loan facilities and guarantees which OCM had acquired from National Asset Loan Management Limited.
Regan owns and operates the Regency Hotel, which incorporates a convenience store and restaurant, from premises on the Swords Road in the County of Dublin, and McGettigan owns and operates a licensed premise on Queen Street, Dublin 7 and four retail units in Bray, Co. Wicklow.
On 19th January, 2017, OCM served letters of demand on the two companies and on the following afternoon, a Friday afternoon, appointed Anne O'Dwyer of Duff & Phelps as receiver. At the hearing of the petition, an order was made pursuant to s. 522 of the Act that Ms. O'Dwyer shall cease to act as receiver pending further order of the court.
The petition for the appointment of an examiner was first presented before the High Court on Saturday, 21st January, 2015, but the order made by Murphy J. on that day was subsequently vacated on Monday, 23rd January, 2017, following legal argument, and the order restraining the receiver from acting was also vacated. The petition was then presented later in the afternoon of 23rd January, 2017, and that petition now stands for determination in this judgment.
OCM objects to the appointment of an examiner on two grounds:
(a) It argues that there was a material omission from the petition and verifying affidavit of James McGettigan sworn on the 23rd January, 2017 in regard to certain conversations that were had with the receiver on the evening of the 20th January 2017, at the Regency Hotel premises.
(b) It argues that the petition for the appointment of an examiner has been presented for improper motive, and that the purpose of the petition is in truth the protection of the McGettigan's family interest in the various business enterprises of the companies.
Regan is a private company limited by shares incorporated on 11th May, 1960 and its directors and shareholders are various members of the McGettigan family, and it operates a substantial hotel premises at the Regency Hotel, a three- star hotel with leisure and conference facilities, a bar and restaurant, and employs 109 persons on a full and part-time basis. Its turnover in the year ending 31st July, 2016 was €7.5 million, and that was an increase from €6.6 million for the year ending 31st July, 2014. The EBITDA of the company has been in excess of €1 million in the three accounting years 2014, 2015 and 2016.
The primary source of difficulty experienced by Regan which has led to it becoming insolvent is two-fold: The business of the hotel has been severely negatively impacted by a well-publicized shooting of a member of the public in the hotel in February, 2016. The company had significant liabilities to AIB which were transferred to NAMA and ultimately sold by NAMA to OCM. The company also has other substantial and secured liability, the next largest one being a debt to Carval of €635,400.00 which has a second ranking fixed charge over the assets of Regan. The company was, as were many businesses in the sector, adversely impacted by the financial crisis, and, as a result of limited cash flow in the years between 2008 and 2013, limited expenditure was committed to refurbishment and upgrading of the hotel. Regan accepts that the further prospects of the hotel are more likely to be positive should sufficient capital expenditure be employed to increase the standing of the hotel to a four- star hotel at minimum.
McGettigan is a guarantor of the liabilities of Regan, and would be solvent and able to show positive trading apart from this. It operates a public house on Queen Street in Dublin City Centre, and owns four retail units in Bray, Co Wicklow. The business is described as ‘relatively stable’.
The two companies have operated on a revenue compliant basis save for recent tax liabilities. Revenue does not oppose the petition.
It is agreed that the companies are insolvent, and for present purposes that they have a reasonable prospect of survival, subject only to the securing of investment to support the further working capital and investment requirements of Regan and the restructuring or resolution of existing secured debt. The only creditor who opposes the petition is OCM, but it would be fair to say that it is most substantial creditor by far, and the other secured debt ranks second behind it.
OCM opposes the appointment of an examiner on the overlapping but separate discretionary factors identified in the Act.
Section 518 of the Act, formerly s. 4A of the Companies (Amendment) Act 1990, states as follows:
‘The Court may decline to hear a Petition presented to it, or, as the case may be, may decline to continue hearing such Petition if it appears to the Court that, in the preparation or presentation of the Petition or in the preparation of the report of the independent expert, the Petitioner or independent expert –
(a) has failed to disclose any information available to him or her which is material to the exercise by the Court of its powers under this Part; or
(b) has in any other way failed to exercise utmost good faith.’
These provisions are a statutory recognition of the common law duty of good faith explained by Costello J. in Re Wogans Drogheda Ltd. (No. 3) (Unreported, High Court, Costello J., 9th February, 1993) as follows:
‘When an application is made by a company for a protection order under the 1990 Act it seems to me that the directors and all those associated with the application (including their professional advisers) are obliged to exercise the utmost good faith and that the statutory duty exists not just on an ex-parte application to appoint an interim examiner but also on the application itself.
This is because (a) of necessity the Court must depend to a considerable extent on the truth of what it is told by the company and (b) because of the potential injustice involved in the making of a protection order when the proper course is to wind up the company. This duty involves an obligation to disclose all relevant facts material to the exercise by the Court of its discretion. A fortiori, it involves a duty not to deliberately mislead the Court by false evidence.
Not every breach of duty to exercise good faith will amount to an abuse of the Court's processes. But where an application for a protection order is made on evidence which is known to be false this amounts to an abuse of the process. When an application is made for an improper reason, this also amounts to an abuse of the process of the Court’.
Clarke J. quoted that dicta with approval in his judgment in Re Traffic Group Ltd. [2007] IEHC 445, [2008] 3 I.R. 253 in which he considered it was possible to make an order by which the wrongdoing of the petitioner was recognised and suitably dealt with, and in that context he accepted an undertaking by the petitioners not to be involved in the business of the company for a period of time after the conclusion of the examinership process.
Irvine J., in O'Flynn v. Carbon Finance Ltd. & Ors. [2014] IEHC 458, emphasised the extent of the duty on all persons associated with the presentation of a petition to exercise the utmost good faith and disclose all relevant information to the court hearing the petition, and that the test at that stage of the process does not engage the question of whether the company is likely to emerge successfully from examinership. She said the following at para. 113:
‘In this regard the behaviour of the petitioner in relation to disclosures is highly relevant. It is not a defence to a failure to exercise the utmost good faith to say that the companies are...
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