Court of Appeal: Group owing nearly €700m to Deutsche Bank wins examinership appeal

About this case:

• Judgment:
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Overturning the decision of the High Court to refuse the application, the Court of Appeal was unanimous in finding that independent reports demonstrated that the companies were capable of generating sufficient cash to remunerate capital and to service loans.

The principal issue

In the leading judgment of the three-judge Court of Appeal, Mr Justice Hogan stated that the principle issue for the Court to consider was: “Where a creditor and corporate debtor arrive at a binding agreement as to how the excessive debt levels of the company should be dealt with by means of asset sales and, if necessary, debt re-structuring, to what extent (if at all) is the existence of such an agreement a consideration to which the court ought to have regard in determining whether to appoint an examiner under the provisions of Part 10 of the Companies Act 2014?”

Abuse of process

In the High Court, the Bank submitted that the presentation of the petition was an abuse of process by the petitioners by reason of a Debt Settlement Agreement and should be dismissed for that reason.

The High Court judge concluded that it had established an abuse of process – however Justice Hogan stated that it was not clear that it formed the basis of his dismissal of the petition in respect of the four companies; it is not referred to in the High Court judge’s conclusion of his reasons for dismissal and of course he appointed an examiner to three remaining companies, all of which were also parties to the Debt Settlement Agreement.

However, the Court of Appeal was satisfied that the presentation of the petition by the companies who are parties to the Debt Settlement Agreement was not an abuse of process, and that there was no lack of candour or failure to make appropriate disclosure when moving the original ex parte application before Meenan J.

Prospect of survival

In accordance with the tests set out in Re Vantive Holdings (No. 1) IESC 68 and in the High court in Re McSweeney Dispensers Limited IEHC 494 – the Court of Appeal was satisfied that each of the companies and all or part of its undertaking had reasonable prospect of survival as a going concern.

As the reports of an independent expert and the interim examiner demonstrated that the trading companies were well capable of generating sufficient cash to remunerate capital and to service loans, provided that the debt was written down sufficiently and that this could be done in a manner which was not unfair to the owner of that debt, Deutsche.

Accepting that the present application for examinership was inconsistent with the performance of the obligations imposed on the companies under the terms of the 2016 settlement , Justice Hogan stated that “this fact cannot in itself be a dispositive consideration for a court determining whether to appoint an examiner under s. 509(1) of the 2014 Act, precisely because the entire examinership system is premised on the assumption that pre-existing commercial contracts (of whatever kind) will be overridden, varied, negated and dishonoured in the wider public interest of rescuing an otherwise potentially viable company”.

Justice Hogan added that this did not reflect “any view whatever as to whether any scheme of arrangement (if one should be proposed) should ultimately be confirmed: it is simply to say that the existence of the present 2016 debt settlement arrangement cannot in itself preclude the appointment of an examiner, whether on some ex ante basis on the one hand or as to the exercise of discretion on the other”.

Once it was accepted that the companies had a reasonable prospect of survival as going concerns if admitted to the examinership process, then the existence of a prior debt settlement was not in itself a reason to refuse to appoint an examiner on discretionary grounds.

Allowing the appeal, and dismissing the cross-appeal of Deutsche, Justice Hogan stated that if the present case “exposed a weakness in the manner in which the examinership system can operate” then this was ultimately a matter of policy for the Oireachtas to address.

In a ruling with which Ms Justice Geoghegan delivered a concurring judgment, the Court of Appeal held that it would appoint an examiner to all of the petitioning companies pursuant to s. 509(1) of the Companies Act 2014.