The High Court confirmed a rescue scheme for Traffic Group Ltd, finding that the company had not fully disclosed a charge and substantial payments involving Bank of Scotland Ireland (BOSI) before entering examinership. The court also criticised the charge as inappropriate because it could benefit guarantors who were members of the Booth family. It nevertheless approved the scheme, subject to an undertaking that the petitioners would not act as Traffic directors for at least 18 months.
In a judgment delivered on 20 December 2007, Mr Justice Clarke said the scheme offered a high chance of preserving the business and most of its jobs. At least 16 of the company’s 24 jobs were expected to remain. The Revenue Commissioners opposed confirmation, while the examiner and petitioners supported the scheme.
Traffic had traded since 1985, designing, manufacturing and wholesaling ladies’ fashion garments. Its financial position had deteriorated: the company recorded losses exceeding €500,000 in 2006 and almost €700,000 in the first seven and a half months of 2007. The petition estimated a deficit above €850,000 on a going concern basis and nearly €1.5 million on a winding-up basis. The judge said the true position was somewhat worse.
The Revenue relied on two transactions shortly before the examinership petition. Traffic granted BOSI a charge over company assets, although BOSI had previously been unsecured. The charge could reduce the likelihood that BOSI would call on guarantees supported by money lodged with the bank by members of the Booth family. Traffic also paid about €340,000 off its BOSI payline account, reducing the guarantors’ exposure.
The judge found the petition and supporting affidavit did not give the court adequate details about the charge, the payments or their possible consequences. He said the charge was open to significant criticism because Traffic was insolvent or close to insolvency and the arrangement could benefit guarantors who were family members of the promoters or the promoters themselves.
He did not, however, decide that the payments amounted to a fraudulent preference. They were due, followed the company’s usual payment practice and may have been necessary to maintain BOSI’s support. The court could not safely determine within the examinership timetable whether a liquidation would have led to a finding that the payments were recoverable. Nor did the court find the scheme unfairly prejudicial to the Revenue on that uncertain basis.
Under the scheme, BOSI was treated as an unsecured creditor and, like other unsecured creditors, would receive 10 per cent of its liabilities; it could seek the balance under the guarantees. The court considered that disregarding the charge and the 18-month undertaking would help prevent those responsible for the criticised conduct from benefiting. It concluded there was no sufficiently weighty reason to refuse confirmation given the prospects of saving the enterprise and most of its jobs.