The Supreme Court has dismissed appeals by McInerney Homes Limited and related companies against the High Court’s refusal to approve an examinership scheme. The Court concluded that the companies had not satisfied it that the proposal was not unfairly prejudicial to secured creditors.
The judgment, delivered by O’Donnell J. on 22 July 2011, concerned a proposed restructuring under the Companies (Amendment) Act 1990. The scheme offered the banking syndicate €25 million against debts of about €110 million. The companies argued that the banks’ alternative, a receiver-controlled work-out of property developments over time, would produce much less than the banks projected.
The Supreme Court said the statutory test required the court to be satisfied that a proposal was not unfairly prejudicial to any interested party. In assessing that question, the Court compared the proposal with the likely alternatives available to secured creditors. It rejected the companies’ argument that the banks alone had to prove unfair prejudice: the party seeking approval had to persuade the court that the statutory condition was met.
The companies challenged the receiver’s projected returns, including a €22 million allowance for work in progress. The Court was not satisfied that this amount had been wrongly included. It also found the companies had not established that the other disputed assumptions about construction costs, sale prices, staffing or planning risks made the receiver’s calculations wrong. The Court acknowledged that the forecasts were uncertain, but considered it plausible that a secured lender could recover significantly more than €25 million by holding or developing the properties.
The High Court had reopened its earlier decision after learning that the National Asset Management Agency (NAMA) was likely to acquire loans held by Bank of Ireland and Anglo Irish Bank. The Supreme Court upheld the decision to reopen that limited issue, but disagreed with the High Court’s reasoning about the likely effect of a NAMA acquisition. It considered that the evidence did not support assuming NAMA would acquire the loans and then sell the properties at about €25 million. On the more plausible scenarios, the banks could recover more than under the scheme.
Oaktree Capital Management later offered an additional €6.6 million for KBC alone. The Supreme Court upheld the refusal to reopen the proceedings to consider that revised offer. It said the offer came after judgment and after Oaktree had maintained that €25 million was its final offer; allowing a new bid at that stage could undermine the examinership process. The Court did not decide the merits of the revised offer.
The Supreme Court dismissed the companies’ appeals against the refusals to confirm the scheme and against the refusal to consider the revised offer. It also dismissed the banks’ cross-appeal against reopening the limited NAMA issue. The scheme was not approved.