Traffic Group Ltd in examination (under the Companies (Amendment) Act 1990)

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 20 December 2007
• Neutral Citation: [2007] IEHC 445
• Docket Number: [2007 No. 348 COS]
• Court: High Court
• Date: 20 December 2007

Traffic Group Ltd, In Re

IN THE MATTER OF TRAFFIC GROUP LTD IN EXAMINATION (UNDER THE COMPANIES) (AMENDMENT) ACT, 1990

AND

IN THE MATTER OF THE COMPANIES ACTS, 1963 TO 2006

[2007] IEHC 445

[No. 348 COS/2007]

THE HIGH COURT

COMPANY LAW

Examinership

Scheme of arrangement - Revenue opposing scheme - Whether scheme should be approved despite petitioner's lack of candour - Whether scheme should be approved where less beneficial to creditor than winding up - Re Selukwe Ltd (Unrep, Costello J, 20/12/1991) and Re Antigen Holding Ltd [2001] 4 IR 600 followed; Re Wogans (Drogheda) Ltd (Unrep, Costello J, 7/5/1992) considered - Companies (Amendment) Act 1990 (No 27), ss 18, 24 and 25 - Scheme approved (2007/348COS - Clarke J - 20/12/2007) [2007] IEHC 445

Re Traffic Group Ltd

an examiner was appointed over the affairs of the company on the petition of the principals of the company. The examiner presented a scheme for the reorganisation of the affairs of the company which had the support of all of the petitioners and creditors, save the Revenue Commissioners who opposed the scheme on the basis that the petitioners, immediately before the presentation of the petition, had made various payments to the company's bank which had the effect of reducing their exposure as guarantors and which had not been disclosed to the court at the presentation of the petition. The evidence was that the scheme had a real chance of enabling the company to keep trading out of its difficulties and preserve employment.

Held by Clarke J in confirming the scheme of examinership that the actions of the principals of the company in the run up to, and during, an examinership could be a factor to be taken into account in deciding whether to confirm or refuse a scheme of examinership. However, there also had to be weighed in the balance the underlying object of the legislation.

Creditors whose interests were impaired by a scheme could object to the scheme on the grounds set out in s. 25 of the Act of 1990.

The principal focus of the legislation was to enable, in an appropriate case, an enterprise to continue in existence for the benefit of the economy as a whole and t enable as many as possible of the jobs which may be at stake to be maintained for the benefit of the community in which the relevant employment was located. Therefore, a court should lean in favour of approving a scheme where the enterprise, or a significant portion of it, and the jobs or a significant portion of them, were likely to be saved, especially if appropriate remedial measures could be put in place to mark and deal with the consequences of any lack of candour or other inappropriate action on the part of those charged with the management of the company.

The lack of candour and inappropriate action on the part of the petitioners were not so gross as to justify refusing to approve a scheme which seemed to have a high chance of successfully preserving the enterprise and most of the jobs associated with it.

Reporter: P.C.

COMPANIES (AMDT) ACT 1990 S18

WOGANS (DROGHEDA) LTD, IN RE UNREP COSTELLO 7.5.1992 1992/9/2889

COMPANIES (AMDT) ACT 1990 S25

SELUKWE LTD, IN RE UNREP COSTELLO 20.12.1991 1992/4/1028

ANTIGEN HOLDINGS LTD & CASTLEHOLDING INVESTMENT CO LTD, IN RE 2001 4 IR 600 2001/1/111

1. Introduction

2 2 1.1 The company named in the title to these proceedings ("Traffic") has been the subject of examination over the last number of months. On the 22 ^nd of August, 2007, Martin Ferris ("The Examiner") was appointed interim examiner of Traffic and was, thereafter, appointed as examiner of the 14 ^th of September, 2007.

3 3 1.2 On the 28 ^th of November, 2007, the examiner presented his report under the provisions of s. 18 of the Companies (Amendment) Act, 1990 ("The Act"). The report put forward a scheme for the reorganisation of the companies affairs which had met with general support at the various meetings required to be conducted by the provisions of the Act, save that the Revenue Commissioners, in their capacity as a significant preferential shareholder, maintained opposition to the approval of the scheme.

4 4 1.3 In those circumstances a substantive hearing of an application to confirm the scheme took place before me at which counsel on behalf of the examiner and counsel on behalf of the petitioners commended the scheme to the court, while counsel on behalf of the Revenue Commissioners put forward argument as to why the court should not confirm the scheme. No other members or creditors played a role at that hearing. Having been informed by counsel on behalf of the petitioners and counsel on behalf of the examiner that, for practical reasons, a decision to approve the scheme would be unlikely to be effective unless immediately made, I indicated to the parties that I would inform them of my decision on the following day, but would reserve until a further occasion my detailed reasons for having come to the view which I would express.

5 5 1.4 On that basis, I ruled on the following day that the scheme should be confirmed subject to obtaining from the petitioners an undertaking as to non involvement to which I will refer in due course. That undertaking being forthcoming, I made the appropriate order confirming the scheme. This judgment is directed to setting out the reasons which led me to come to that conclusion. I should start by setting out the general circumstances in which the company went into examinership.

2. Background

2 2 2.1 Traffic commenced trading in October, 1985. Its principal promoter was a Dennis Booth. Traffic initially traded from a green field site at the IDA Centre in Prussia Street in Dublin. Its main business was the design, manufacture and wholesale of ladies fashion garments. The company was initially very successful and, by 1993, had established the brand "Traffic" and had reached a turnover of IR£4, 000, 000, employed two hundred people and had a customer base of the order of three hundred retail shops. Traffic continued to trade profitably until the early years of this decade, but those profits declined from a sum in excess of €200, 000 in 2002, to under €70, 000 in 2005. That downward trend continued, if not accelerated, giving rise to losses in excess of €500, 000 in 2006, and even greater losses of almost €700, 000 in the first seven and a half months of 2007 (that is up to the time of the presentation of the petition in respect of examinership). It may be that some of the losses attributable to 2007 were, in truth, more accurately attributable to 2006 by reason of an overvaluation of stock in 2006. The severe downturn in the financial success of Traffic was attributed to a range of factors which it is not necessary to detail here as they are not relevant to the issues which I have to address. However, by the time of the presentation of the petition in this case it was estimated (in that petition and in the supporting evidence) that the company had a deficiency of in excess of €850, 000 on a going concern basis, and not far short of €1, 500, 000 on a winding up basis. For reasons which will become clear, the true position was a little worse than that. It will be necessary to return to some of the details of the financial position of Traffic as given to the court in the petition and in the verifying affidavits filed at that time, as those matters formed an important part of the basis for the opposition of the Revenue Commissioners to the confirmation of the scheme.

3 3 2.2 In any event against that background the company was admitted into examinership, and I now turn to the procedural history of that examinership.

3. Procedural History

2 2 3.1 This Court (Kelly J.) made an order for the appointment of an interim examiner on the 22 ^nd of August, 2007. On the 14 ^th of September, 2007, Edwards J., appointed the examiner. Orders extending the time for the delivery of the final report (with consequential orders extending the period of protection) were made by Kelly J., on the 31 ^st of October, 2007, and Finlay Geoghegan J., on the 15 ^th of November, 2007. It is important, in the context of the issues which I have to decide, to note that, in the course of seeking such extensions of time, the examiner brought to the attention of the court certain actions of the company in the immediate run up to the presentation of the petition which had been a cause of some concern to him. As those matters form the basis of the Revenue's opposition, I will deal with them in detail in due course. I am told that the Revenue suggested, at the relevant time, that, on the basis of those concerns, no extension of time should be granted. However, the relevant extension was, in fact, granted and it was indicated by the court that such matters could, if relevant, be raised by the Revenue before the Judge who would ultimately have to consider confirmation of the final report.

3 3 3.2 It is also important to note that the various statutory requirements in respect of the examiners final report have been met. Furthermore, all of the evidence suggested that the implementation of the scheme set out in that report gives the company a real chance of survival. Indeed that aspect of the case was not contested by the Revenue. I was, therefore, faced with a situation where it was clear that the statutory prerequisites for the exercise of the court's entitlement to approve and confirm the scheme were all in place, and further that it was a case where there was no doubt but that the company had a real chance of survival if the scheme was implemented. It is also clear that that most of the jobs (at least 16 out of 24) are to be retained. Against that background it is appropriate to turn next to the reasons put forward on behalf of the Revenue Commissioners for opposing confirmation of the scheme.

4. The...