Examinership has a statutory time limit of 70 days, extendable to 100. All the rules were broken and a new record set in the McInerney case, which lasted for 331 days. Ultimately, the Supreme Court upheld the High Court’s refusal to confirm the examiner’s scheme.
The examiner had proposed to the court that a US investor invest €32m in the companies and that the €114m owed to a banking syndicate (Anglo Irish Bank, Bank of Ireland and KBC) be written down to €25m and paid off. The banks opposed this, claiming that they would recover significantly more under a long term receivership plan.
The High Court refused to confirm the examiner’s scheme on the basis that it was unfairly prejudicial to KBC. Notwithstanding this finding, the High Court considered that, since all creditors are required to take pain, in an appropriate scheme, it would have the power to approve proposals to write down the amount of the debt due to a secured creditor, on the basis that its security would only be released on payment of this reduced sum under the scheme of arrangement. This aspect of the High Court judgment was not appealed.
The High Court delivered five judgments on the complex issues which arose in this case and both sides appealed various aspects of its findings. The end result, however, was that the Supreme Court, by a 3-2 majority, found that the High Court was correct in its refusal to confirm the scheme.
The Supreme Court did, however, say that to force secured creditors to accept a particular offer and to forego the opportunity of seeking a higher return is to treat them in an unfairly prejudicial fashion. Although there may be circumstances in which a creditor is asked to accept less than it would obtain on a liquidation or a receivership, such circumstances would require “weighty justification”.
It will be interesting to see what the courts consider to be a “weighty justification” and it is likely that any secured creditor who wishes to oppose an examinership will rely on this description of its rights by the Supreme Court.
William Fry acted for the McInerney companies concerned.
Contributed by Niamh Cacciato, Michael Quinn.
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