The Foley’s/O’Reilly’s bar saga, which played out over a nine month period ending in July 2013, resulted in numerous court applications, three written judgments of the High Court and the appointment at various stages of receivers, interim examiners, examiners and liquidators to the companies involved.
Receivership
In October 2012 Bank of Scotland plc appointed a receiver to The Belohn Ltd, the company which operated the two bars located on the corner of Merrion Row and Merrion Street, Dublin. The Belohn Ltd and its parent company, Merrow Ltd, were reported to owe the bank in the region of €4 million and €1 million respectively. On Friday 22 March 2013, following a High Court challenge, the receiver was stood down on the basis that the deed of appointment had not been correctly executed by the bank.
The bank held two charges over the assets of The Belohn Ltd, one created in 1981 and a latter charge created in 2008. The 1981 charge provided that the bank could appoint a receiver “by writing under its seal” and it specifically excluded the operation of section 24(1) of the Conveyancing and Law of Property Act 1881, which would have allowed the bank to appoint a receiver by writing under hand. The 2008 charge provided that the bank could appoint a receiver either under seal or under hand.
The bank appointed the receiver on foot of both charges which secured separate parts of the two bars. However, the deed of appointment was executed under hand only. As the bank had failed to comply with the requirements of the 1981 charge, the Court held that the appointment of the receiver was void. The Court noted that a receiver’s authority is derived entirely from the instrument under which he is appointed and an appointment is not valid unless it is made in accordance with the terms of the instrument. It further noted that an invalidly appointed receiver may be a trespasser on the property concerned.
Although the bank had complied with the terms of the 2008 charge, the Court held that as the business and premises secured by the two charges were “inextricably intertwined”, the appointment under that charge was void too.
As a result, the company effectively reverted to the control of the directors, having been in receivership for five months, during which time the receiver had had advanced discussions with a third party regarding a possible sale of the bars.
Later that same afternoon, the bank re-issued letters of demand to both companies, giving them only 45 minutes within which to repay their debts in full – a time period which was subsequently criticised by the High Court. A receiver was appointed to Merrow Ltd that evening, although not to The Belohn Ltd.
Then Examinership
On Saturday 23 March, the directors made an ex parte application (without notice to the bank) before Mr Justice Hogan for the appointment of an interim examiner to The Belohn Ltd, which was duly granted.
The directors did not learn of the appointment of a receiver to Merrow Ltd until the afternoon of Sunday 24 March. On so learning, they made an emergency application at the home of Mr Justice Hogan, again ex parte, to place Merrow Ltd under the protection of the court. The haste with which the application was brought was driven by the fact that the three-day window under section 3 of the Companies (Amendment) Act 1990 within which to seek the appointment of an examiner following the appointment of a receiver was drawing to a close.
An application for the appointment of an examiner must ordinarily be accompanied by an independent accountant’s report. However, if the court is satisfied that the absence of such a report is by reason of “exceptional circumstances” outside the control of the petitioner, it has discretion to place the company concerned under the protection of the court for a limited period. In this case, the “exceptional circumstances” relied upon by the directors of Merrow Ltd were that, given the intervening receivership, they did not have access to the necessary documents to prepare the report.. Hogan J accepted this reason and made a provisional order granting Merrow Ltd interim protection until 2 pm the following day.
The following afternoon, the matter was back before the Court with the bank objecting to the appointment of an interim examiner to the two companies. The Court affirmed its decision to appoint an interim examiner to The Belohn Ltd, finding that the directors had been wrongfully excluded from the company for six months and an independent report on the present state of affairs of the company would be of benefit to all parties concerned.
In relation to Merrow Ltd, the bank alleged a lack of candour on the part of the directors in presenting the ex parte petition. The bank referred to evidence which showed that the receiver had been willing to return the necessary documents to the directors. It submitted that the directors’ failure to disclose this to the Court undermined their argument that the independent accountant’s report could not have been prepared in time. Although the judge accepted that the non-disclosure was a bona fide error, as the information was objectively relevant and highly material to the exercise of his discretion to place the company under the protection of the court, he set aside his earlier order.
The application to appoint an examiner to The Belohn Ltd was heard on 10 and 11 April 2013. Following a contested hearing during which the bank raised issues regarding the management and book-keeping of the company, the Court made an order appointing an examiner to The Belohn Ltd. The Court acknowledged the bank’s concerns as regards the management and book-keeping of the company and directed the examiner to report to it within three weeks on whether (i) all cash received by the company over a particular period had been properly accounted for; and (ii) all payments made to staff had been properly accounted for and provision had been made for PAYE and PRSI payments.
In doing so, the Court noted that an investigation of the claims made by the bank would be required by any potential investor and that the directions of the Court merely brought “forward the timescale in which this aspect of the work must be done”. As discussed below, the directors/shareholders of both companies also made certain commitments regarding the costs of the examinership to assuage the concerns of the bank.
Significantly, the Court also appointed an examiner to Merrow Ltd as a “related company” under section 4 of the Companies (Amendment) Act 1990. This was despite the fact that an examiner could not be appointed to Merrow Ltd in its own right, a receiver having been appointed to that company since 22 March 2013. The Court found that under section 4(1) of the 1990 Act, it has jurisdiction, where it appoints an examiner to a company, to make, either at the same time or at any time thereafter, an order appointing the examiner to be an examiner to a related company. The Court noted that the scheme for court protection of a related company under section 4 differs significantly from that of a principal company and, in particular, there is no restriction on appointing an examiner to a related company where a receiver has stood appointed to such a company for more than three days.
And Finally Liquidation (and Receivership) …
The examinership ended on 17 July 2013 when it proved not possible for the examiner to recommend confirmation of the proposed Scheme of Arrangement.
On the application of the bank, the Court appointed an official liquidator to The Belohn Ltd and to Merrow Ltd. Separately the bank re-appointed a receiver and manager to both companies.
Cost to the Creditors
When presenting the petition for examinership, the directors/shareholders had agreed to provide funding to cover the examiner’s fees, costs and expenses in the event that the examinership failed. As part of that arrangement, the examiner undertook that if he was unable to get approval for a Scheme of Arrangement, he would not seek an order for his remuneration or costs in excess of that amount.
These undertakings by the directors and examiner were offered to meet objections by the secured creditors as to the amount of the costs they would suffer if the examinership was unsuccessful, a ground of objection to examinership frequently made by secured lenders.
Contributed by: Ruairi Rynn
