Recent attempts by Bank of Scotland plc. to enforce its security over the company operating Foley’s Bar and O’Reilly’s Bar in Dublin city centre have been frustrated following various challenges in the High Court culminating in the appointment of an examiner.
Bank of Scotland plc. appointed a receiver to The Belohn Limited, the company operating the two bars, in October 2012. The Belohn Limited and its parent company, Merrow Limited, are reported to owe the bank in the region of €4 million and €1 million respectively.
However, following a challenge in the High Court the receiver was stood down on 22 March 2013 on the basis that the deed appointing the receiver had not been correctly executed by the bank. The company effectively reverted to the control of the directors having been in receivership for five months. This was in spite of the fact that the management by the receiver during that period had resulted in significant changes and that the receiver had advanced discussions with a third party regarding the sale of the bars.
The bank immediately re-issued demands to both companies, providing them with only 45 minutes to comply – a time period which was subsequently heavily criticised by the High Court – and a receiver was appointed to the parent company but not to The Belohn Limited. The companies, who were seemingly unaware of this appointment until the afternoon of Sunday 24 March had been preparing an application to appoint an examiner to the companies although with a significant lack of information which presented significant difficulties in preparing an independent accountant’s report due to the intervening receivership.
When the directors became aware of the appointment of the receiver to the parent company, they made an emergency application to Mr Justice Hogan (at his home) on the Sunday evening to appoint an interim examiner to the two companies. The haste was driven by the fact that the three-day window within which to seek the appointment of an examiner following the appointment of the receiver was drawing to a close.
The Judge made the interim order sought, but only until the following Monday afternoon at 2pm at which point the bank objected to the appointment of an interim examiner to the two companies. The Court ultimately removed the interim examiner appointed to the parent company due to the director’s failure to disclose an offer from the receiver to provide certain papers to the directors following the five-month receivership. The Court requires full disclosure in applications to appoint an interim examiner and although the non-disclosure in this case was accepted to be an innocent mistake, it was fatal to the appointment of the interim examiner to the parent company.
Ultimately the application to appoint an examiner (as opposed to an interim examiner) to The Belohn Limited was heard on 10 April 2013. Following a contested hearing during which the bank objected to the appointment of the examiner and raised issues regarding the management and book keeping of the company, the Court appointed an examiner to The Belohn Limited. In doing so, the Court directed that the examiner investigate and report to the Court on the management issues raised by the bank.
The Court also appointed an examiner to the parent company as a “related company” despite the fact that a receiver had been appointed to that company since March 2013.
The examinership is continuing under the supervision of the High Court and it is understood that a Scheme of Arrangement involving a new investor will be presented to the companies’ creditors (including the bank) in the coming weeks.
This case demonstrates the difficulties which can be encountered for a secured creditor where the appointment of a receiver is successfully challenged by a debtor and the opportunities for survival available to a debtor company through the examinership process.