The High Court has refused to confirm a scheme of arrangement for McInerney Homes Ltd and McInerney Contracting Ltd, finding it unfairly prejudicial to the Banking Syndicate of Anglo Irish Bank Corporation, Bank of Ireland and KBC Bank.
In a judgment delivered on 10 January 2011, Mr Justice Clarke said the scheme would reduce the companies’ debt to the banks to €25 million, payable almost immediately. The banks’ liabilities were described as well in excess of €110 million. The scheme also involved investment by Oaktree to pay the banks and other creditors and provide working capital.
The banks opposed confirmation, arguing that a receivership could produce a greater recovery. Their evidence projected cash flows of about €75 million over 10 or 11 years, which they said had a present value of roughly €50 million. McInerney and the examiner challenged the assumptions, including projected sales prices, construction costs, work in progress and the risk of land being dezoned. They argued that, after adjustments and a higher discount rate, the receivership return could be substantially lower.
The competing projections were presented in affidavit evidence, without cross-examination of the experts. The judge said he could not resolve the conflicts, but found the banks had provided a credible basis for their estimates. He concluded that the Banking Syndicate had a realistic prospect of doing better under its proposed receivership model than under the scheme. On that basis, he found no countervailing factor sufficient to prevent the scheme being unfairly prejudicial to the banks.
The judgment also decided a separate legal question: the 1990 Act permits a court, in principle, to approve an arrangement reducing amounts owed to secured creditors, provided the scheme otherwise meets the Act’s requirements. That conclusion did not determine whether this particular scheme was fair.
Revenue had objected to the proposed treatment of money owed to it. The court described that objection as separate from the banks’ central challenge and did not decide it, because refusal of the scheme made the issue moot. The examinerships of the other companies named in the proceedings had ended before the confirmation hearing. The court’s order was to refuse confirmation of the scheme.