The Supreme Court recently allowed an appeal against an order of the High Court discharging an Interim Examiner appointed to Star Elm Frames Limited (In re Star Elm Frames Ltd [2013] IESC 57).

Background

On 3 October 2013 Star Elm Frames Limited petitioned for the appointment of an Examiner following the placing by the Revenue Commissioners of an attachment on the company’s bank account. An Interim Examiner was appointed pending the hearing of the petition on 4 November 2013.

On 4 November 2013 in an ex tempore judgment Charleton J. refused the reliefs being sought and ordered that the protection of the Court be lifted and that the Interim Examiner be discharged on the following grounds:

  • The petitioner had failed to satisfy the Court that the company had a reasonable prospect of survival as a going concern.
  • The Court was not satisfied that it should exercise its discretion in favour of the company, which had collected VAT but had not remitted it to the Revenue Commissioners over a period of a year, and the company had also already defaulted on a “scheme to repay” which had been previously negotiated and agreed with the Revenue Commissioners.

Appeal

The company served a Notice of Appeal on 6 November 2013 and applied for a stay on the Order of Charleton J. The stay was granted with the result that the appointment of the Interim Examiner was to remain in place pending the determination of the appeal.

New Evidence

At the appeal hearing Laffoy J. noted that there was new evidence before the Supreme Court on appeal which, in adopting the words of Fennelly J. in In the matter of Gallium Limited [2009] 2 ILRM 11,” had the effect of placing an entirely different complexion on matters as they had appeared before the High Court”.  In particular, the Court noted the following:

  • The serious concerns previously raised by the Revenue Commissioners with regard to the ability of the prospective investor, originally identified in the petition, to invest in the company in circumstances where a judgment for a sum in excess of €45,000 against the prospective investor in question continued to remain unsatisfied. By the time the appeal was heard, new investors had been identified and no issues arose as to their ability to invest in the company. 
  • The Interim Examiner had filed three subsequent Reports, on Affidavit, since the matter was before the High Court in which he expressed his firm opinion that the company had a reasonable prospect of survival based on updated projected trading calculations which he believed  were both reasonable and achievable.
  • Most significantly, the Interim Examiner also put before the Supreme Court a proposal for a Scheme of Arrangement which envisaged funds of €150,000 being available to implement its terms. While it was not the Supreme Court’s function to express a view on the Scheme of Arrangement, the information contained therein, which had not been available to the High Court, was deemed pertinent to the determination of the core issues sought to be determined on appeal.
  • The company’s second-largest creditor, a supplier, confirmed that it had continued to supply the company since the petition was presented and would continue to do so should the appointment of an Examiner be confirmed.  It also confirmed its support for the application for the appointment of an Examiner, as did the landlord of the unit occupied by the company. The Revenue Commissioners, the company’s largest creditor, continued to maintain its position of not seeking to oppose the petition.

Adopting the approach previously taken In the mater of Gallium Limited [2009] 2ILRM 11 the first question which required to be addressed by the Supreme Court was whether the petitioner had gotten over the threshold stipulated in section 2(2) of the Companies (Amendment) Act 1990 (CAA 1990) and had satisfied the Court on the evidence adduced both before and since the High Court Order on 4 November 2013 that the company had “a reasonable prospect of survival as a going concern”.  Laffoy J. expressly acknowledged that this was very much a borderline case, but concluded that the company satisfied this threshold requirement.  The fact that both the Independent Accountant’s Report (IAR) and the various reports of the Interim Examiner clearly and unequivocally supported the position was identified as the most important factor in reaching that conclusion. 

Laffoy J. acknowledged that while genuine concerns had been raised and cogent arguments made on behalf of the Revenue Commissioners, the Supreme Court was of the view that this was not a sufficient basis for rejecting the opinions put before the Court in either the IAR or in the various reports furnished by the Interim Examiner.

The Supreme Court concluded that the wide discretion of the Court should be exercised in favour of continuing the protection of the Court and appointing the Interim Examiner as Examiner.  She stated that: 

“it is reasonable to conclude that an examinership would be more advantageous to the creditors as a whole than a winding up of the company, which was the only alternative.  It is of particular relevance that no creditor had opposed the appointment of the examiner…. The interests of the company’s thirty one employees, who would inevitably become unemployed if the application were refused, favour continuing the protection of the Court and appointing the Interim Examiner as an Examiner.  At this point in time the Interim Examinership has been in place for over two months and a considerable amount of work has been done by the Interim Examiner in examining the affairs of the company and in formulating the Scheme Proposals. The overall picture at this point in time indicates that the continuance of the protection and the appointment of the Interim Examiner is the course which is least prejudicial to the interested parties and, in particular, to the creditors as a whole.” 

Laffoy J. did not express any view on the proposed Scheme of Arrangement which she noted would, if appropriate, be considered in due course at a confirmation hearing under Section 24 CAA 1990 when interested parties would also have the opportunity of making their views known.  However, a specific recommendation that the proposed provision for the unsecured creditors (of a 2.5% dividend) be re-assessed by the Interim Examiner on his appointment as Examiner was made.

The Examiner’s Scheme of Arrangement was subsequently approved by Order of the High Court on 17 January 2014 resulting in the saving of a total of 31 jobs and which also incorporated a dividend for unsecured creditors (and the landlord) of 5%.

The case demonstrates how the presentation of new evidence, on appeal, supported by a strong Scheme of Arrangement may lead to the successful conclusion of an examinership process.