In the recent decision of Re M.D.Y. Construction Ltd IEHC 676 the Examiner sought to have proposals for a scheme of arrangement confirmed by the High Court pursuant to section 541 of the Companies Act 2014 (the “Act”). The most interesting feature of the case was that the scheme of arrangement was proposed for approval by the Interim Examiner before his appointment was confirmed by the High Court.
Arrangement to be approved the day after application to confirm appointment
Mr Neil Hughes of Baker Tilly Hughes Blake was appointed Interim Examiner of M.D.Y. Construction Ltd (the “Company”) on 20 September 2018. The application to confirm his appointment was listed for hearing on 22 October 2018.
Prior to that hearing (at which his appointment was confirmed) the Interim Examiner delivered a report to the Court, stating that he had engaged with potential investors and formulated proposals for a scheme of arrangement. This engagement included entering into an investment agreement and the issuance of notices convening meetings of members and creditors, pursuant to section 534(2) of the Act, for the purposes of considering and voting on the proposals. Interestingly and somewhat uniquely the meetings of the members and creditors were scheduled for the day after the hearing of the application to confirm the appointment of the examiner, i.e. 23 October 2018.
Power of interim examiner to convene meetings of creditors and members
Quinn J. for the High Court noted that it was certainly unusual, if not unprecedented for an interim examiner to activate Section 534(2) prior to the hearing of the petition, however, there was no dispute over his power to do so.
Creditors to have an opportunity to be heard
The Court commented on the pace at which the Interim Examiner moved and stated that creditors and interested parties should, in the normal course, have the opportunity to be heard at the hearing to confirm the appointment of an Interim Examiner before an Examiner would activate section 534(2). However, Quinn J. emphasised that whilst the Interim Examiner was fully justified in proceeding as he did as Interim Examiner the circumstances as discussed below did not mean that this should be taken as an endorsement of general practice.
“Compelling reasons” for convening meetings prior to confirmation
Quinn J. was of the view that an application for an extension of time for delivering the report required by section 534 would be preferable to convening statutory meetings before the petition had been heard unless there were some compelling reasons otherwise.
In this case, submissions were made on behalf of the Company and a number of other parties, including clients of the Company, that time was of the essence regarding the examinership in circumstances where two important clients of the Company were threatening to terminate their relationship with the Company because of the uncertainty surrounding the examinership. If this business was lost the Company’s proposed survival as a going concern would be significantly diminished.
Investment proposal is a commercial judgment
In confirming the proposed scheme, which had been objected to by certain creditors, Quinn J. noted that the decision as to which investment proposal to accept was a commercial judgment for the Examiner. The Court found that the concerns expressed by the unsecured creditors as to the conduct of the investment process carried out by the Examiner, which were advanced principally by an unsecured creditor who was also a disappointed potential investor, did not evidence any failure by the Examiner and did not amount to a deviation from the proper exercise of his commercial judgment in selecting an investor.
The Court noted that the Examiner was able to demonstrate that the Company had a reasonable prospect of survival as a going concern if the proposals were confirmed and accordingly confirmed the proposed scheme.
This recent decision is instructive in that while it is unusual for an Interim Examiner to enter into a binding investment agreement before the application confirming his/her appointment is determined, it is clearly not beyond his/her remit to do so and will be permitted where there are compelling reasons to do so as arose here.
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