The High Court has dismissed a second petition by seven companies associated with the Zoe Group seeking court protection through examinership, ruling that they had not established a reasonable prospect of survival as going concerns.
In a judgment delivered on 11 September 2009, Mr Justice Clarke said the group’s revised business plan relied on a proposed partial moratorium on interest payments, potentially lasting two years. The court assessed whether the group could reasonably be expected to survive after that period. It did not decide the terms of any possible scheme of arrangement; no examiner was appointed.
The application followed the rejection of an earlier petition by the High Court and the Supreme Court. Those courts had found that the first application lacked sufficient evidence, including direct evidence of future bank support and property valuations. The second petition included new financial material and was allowed to proceed to a full hearing by Cooke J. That earlier decision addressed whether the petition should be heard, not whether the companies met the test for examinership.
The petitioners argued that rental and dividend income would improve enough by 2011 to cover interest costs and group overheads. Justice Clarke identified two material problems in a key projection for the first seven months of 2011: it included a full year’s ICG dividend in a seven-month period and nine months of commercial rent in a seven-month calculation. He said correcting the figures left interest cover below 90%, with a further shortfall against projected overheads.
The court also considered evidence about future interest rates and the property market. It concluded that higher interest costs were highly likely by 2011 and 2012, while additional rent and property value gains were uncertain. The judgment said a range of favourable conditions would need to occur together for the group to meet its liabilities after the proposed moratorium. On the evidence, that outcome was too remote to amount to a reasonable prospect of survival.
The judge separately considered the seven companies. He found that Carragh, Parlez, Peytor and Villeer would not independently meet the statutory survival test. Vantive, Morston and Royceton were closely dependent on the group’s overall financial position. Because the group had not met the threshold, none could be admitted to examinership.
The court therefore held that it lacked jurisdiction to appoint an examiner and dismissed the petition. Although the judge said he would have exercised his discretion in favour of an appointment if the survival test had been met, that conditional view did not change the outcome.