A Supreme Court judge has questioned the evidence used to find that a proposed examinership scheme would unfairly prejudice banks owed more than €100 million by the McInerney companies. In a dissenting judgment delivered on 22 July 2011, Mr Justice Fennelly said he would allow the companies’ appeal, but proposed no form of order because he was dissenting.
The appeal concerned proposals for McInerney Homes Limited and McInerney Contracting Limited under the Companies (Amendment) Act 1990. The High Court had found the scheme unfairly prejudicial to the Banking Syndicate, which comprised Bank of Ireland, Anglo-Irish Bank and KBC. Fennelly J’s judgment set out his reservations about that conclusion; it did not state the Supreme Court’s majority disposition.
Fennelly J said the examiner carried the burden of showing, on the balance of probabilities, that the proposals were not unfairly prejudicial. He said that assessment should take account of examinership’s purpose of rescuing viable businesses and jobs, and compare creditors’ position under the scheme with likely alternatives such as liquidation or receivership.
One central dispute was the banks’ estimate that a controlled receivership workout would return €75 million over 11 years, compared with €25 million under the examiner’s proposals. The workout figure included about €22.4 million described as “WIP Release”. The companies argued that work in progress represented costs already incurred by the businesses, not money a receiver would receive as income.
Fennelly J said the banks’ model deducted construction costs from expected sales proceeds, then added the WIP figure to reach the estimated recovery. He noted that the examiner had questioned how the additional cash flow would arise. He also criticised the late explanation of the figure by the banks’ counsel, saying it was given without affidavit evidence and was an unsatisfactory basis for deciding a factual issue. In his view, without the WIP addition the projected receivership return would be close enough to €25 million that it would not establish unfair prejudice or a disproportionate disparity.
He also challenged the High Court’s treatment of a possible transfer of Bank of Ireland and Anglo-Irish Bank loans to NAMA. Fennelly J said there was no evidence from NAMA and the banks had not supplied evidence about NAMA’s likely valuations, business plan or approach to long-term receivership workouts. He considered the conclusion that NAMA was likely to adopt the 11-year model unsupported by the evidence described in the judgment.
Fennelly J said he was not convinced the High Court had correctly applied the burden of proof or that the banks, particularly KBC in the NAMA scenario, would be unfairly prejudiced. He would have allowed the appeal. As his was a dissent, he did not propose another form of order.