Liam Carroll, one of Ireland’s largest property developers, has failed in his bid to secure court protection for his six property development companies. Yesterday the Supreme Court refused to overturn a High Court decision rejecting the appointment of an examiner to the six companies (In the matter of Vantive Holdings & ors and in the matter of the Companies Acts 1963 – 2006 [2009] IESC 68). The Supreme Court held that there was no reasonable prospect of survival for any of the companies concerned.

    

The examinership process under the Companies (Amendment) Act 1990 (as amended) is a rescue procedure aimed at helping insolvent companies survive and therefore it is an alternative to liquidation. It involves obtaining High Court protection from creditors for a limited period, while an independent court appointed examiner considers the company’s affairs with a view to formulating proposals for a compromise or scheme of arrangement between the company, its members and its creditors which will allow the company survive as a going concern. Before a court can appoint an examiner it must be “satisfied” that there is “a reasonable prospect” of the survival of the company as a whole or part of its undertaking as a going concern. The critical piece of evidence accompanying the petition is the report of the independent accountant showing that there is a reasonable prospect of survival. If the examinership is successful the court will sanction the compromise or scheme of arrangement.
  
Facts

The petitioner, Vantive Holdings ("Vantive") and related companies form an integral part of a group of related contracting, development and investment companies known as the Zoe Group. ACC Bank recently made a demand upon Vantive for the repayment of loans of €63,960,000. The letter of demand under section 214 of the Companies Act 1963 meant that if the company failed to discharge its liabilities within 21 days it would be deemed to be insolvent. In response Vantive petitioned the High Court in July 2009 for an examiner to be appointed.

    
The High Court refused the application as it concluded that Vantive had failed to show to the satisfaction of the court that there was a reasonable prospect of the survival of the companies. The court, in particular, expressed reservations about the projections on which the independent accountant had relied on in forming his opinion that the companies would have a reasonable prospect of survival as a going concern. The court was of the view they were lacking in reality because of the property market collapse and the lack of any indication of its revival. In addition, even if it had been satisfied that there was a reasonable prospect of survival of the companies the court would nonetheless, in the exercise of its discretion, have refused the application as, in its view, the exercise seemed designed to assist shareholders whose investment had proved to be unsuccessful.  Vantive appealed this decision to the Supreme Court.

 
Decision
Vantive's three year business plan in which it purported to show its ability to trade out of its current state of insolvency was not given to the court. The Supreme Court found that it was not possible to decide on the companies’ survival prospects “in the absence of any evidence about the likely future development of the property market”. It noted the absence of any objective evidence in Vantive’s affidavits which could lead the court to conclude that there were some underlying objective rationale or material supporting its contention that the market conditions would change in the short to medium term so as to permit the properties in question to be disposed of in an orderly manner. The court noted that it was striking that there was no evidence furnished showing any commitment by any bank to continue to provide future financing for the companies’ day to day operations.

    
Therefore, the court concluded that the petitioner had not established that its strategy for a future orderly disposal of the key assets of the company was credible or reasonably viable and thus that the key test of there being "a reasonable prospect of survival" had not been satisfied. It is important to remember that even if the company petitioning for an examiner to be appointed establishes that there is a reasonable prospect of survival, the court has a discretion in relation to the appointment and can refuse the petition after taking into account all relevant interests. The Supreme Court in its judgment have reiterated this important fact.

    

Today the High Court has appointed a provisional liquidator to two of the companies (Vantive and Morston Investments Ltd) following an application by ACC Bank to wind up those companies.

  
If you have any queries on this or how the examinership process works please contact Daniel Cashman, Head of Beauchamps Banking & Finance Unit on d.cashman@beauchamps.ie