The Supreme Court recently overturned a High Court decision approving schemes of arrangement put forward by the Examiner of the Fleming Group, one of Ireland’s largest property developers.

In November 2009 the High Court approved the schemes of arrangement which provided for a 10 year “rescue plan”.  The schemes (described by counsel for the Bank as a “NAMA-style plan”) provided that the profitable “engine” of the Group, the contracting arm, was to be sold. The schemes provided that control of the property development business would be given to the secured bank creditors and proposed selling off the properties over 10 years during which the market was anticipated to recover. The High Court determined that this was preferable to the companies going into receivership or liquidation as more of the money owed was anticipated to be recovered.

A majority of the creditors had voted overwhelmingly in favour of the schemes. ACC Bank, however, a significant creditor, appealed to the Supreme Court on a number of grounds, the most significant being that the High Court had failed to find that any of the companies were capable of surviving as a going concern.

The Supreme Court allowed the appeal thereby defeating the schemes, declaring that an examiner has to establish not only that there is a reasonable prospect for survival of the company, but that there is a reasonable prospect of survival as a going concern.

The Supreme Court compared the schemes with allowing an aircraft to hover in the air for 10 years in the hope that the weather might improve. The Court stated the schemes provided for the survival of the companies in a “holding plan” over ten years and were contingent on the property market improving and having the support of the secured creditors. The profitable part of the Group would be gone and all that would be left was an impaired, effectively dormant property development group. The Supreme Court found the result was not tantamount to surviving as a going concern. The Supreme Court’s decision was generally regarded as unhelpful in the circumstances, particularly as there was overwhelming creditor support for the schemes.  

This decision suggests that in future the courts will place significant emphasis on a trading business plan for survival before companies will be allowed to avail of the examinership regime.  Undoubtedly the courts will have opportunities to elaborate further on the test promoted by the Supreme Court and we will keep you updated on any decisions.