In one of the first examinership applications of the year, the directors of Missford Limited, which operates the Residence Members Club on St Stephen’s Green, applied to have an interim examiner appointed to the company. The full hearing of the application for court protection came before Mr Justice Peter Kelly and he delivered a judgment on 20 January 2010 refusing to extend court protection to the company.

This case, together with a number of cases last year including the Zoe Group, is indicative of an increasingly stringent approach being adopted by the High Court in relation to examinership applications.  In this case, Mr Justice Kelly commented that companies who had flouted their obligations under company and revenue law should not then be allowed to rely on that same legislation to save their enterprises. The court will clearly consider a company’s prospects of survival, but also how the company was managed and has found itself in a position whereby it needs the protection of the court.

Mr Justice Kelly was critical of a number of matters in the case, particularly the circumstances of an outstanding debt due to the Revenue Commissioners of €1.2m.  He strongly criticised the company for relying on retained employee PAYE and PRSI deductions to fund the company’s operations.  He condemned this practice and referred to it as a “form of thieving” whereby a company is being subsidised by the Irish taxpayer. He stated that it at least raised a question mark regarding the propriety of the directors’ behaviour (which included a loan to a related company which is now in liquidation) and added that he was referring his judgment and papers to the Director of Corporate Enforcement for investigation. 

The court also condemned the practice under which retained employees’ PAYE and PRSI deductions are treated as “working capital”. He stated that this afforded a form of respectability to the misuse of monies due to the Revenue Commissioners and should be abandoned.

Positive opinions advanced by the independent accountant and the interim examiner regarding the prospects for survival of the company were regarded sceptically by the judge. He noted that the company had never made a profit, had liabilities in excess of €4.3m and the opinions ran counter to prevailing trends in the hospitality sector during this “unprecedented recession”.

Ultimately, he decided that it would not be appropriate to extend court protection to the company in light of his concerns regarding its management. After a brief adjournment, the company informed the court that it would not be appealing the decision and Zurich Bank, who is owed €2.3 million and supported the application, immediately moved to appoint a receiver to the company.