The Supreme Court allowed Gallium Limited’s appeal and appointed the interim examiner as examiner, reversing the High Court’s refusal to appoint one. Its judgment, delivered on 3 February 2009, gave reasons for the decision made after the appeal hearing on 20 January.
Gallium, which trades as First Equity Group, had petitioned for examinership in December 2008. The High Court refused the petition on 13 January, citing concerns about the quality of evidence on the company’s prospects and financial information it had given two creditors.
On appeal, the company supplied explanations for discrepancies in earlier projections. Director Alan Barry said a reported €4.5 million pre-tax profit for 2007 included a €2.5 million unrealised gain that was later reclassified. He said a forecast of £10 million profit for 2008 had been expressed in the wrong currency and predated the sharp fall in asset values after the 2008 banking crisis. The two creditors who had opposed the petition withdrew their opposition and supported examinership after receiving the explanations.
The interim examiner, Kieran Wallace, told the Supreme Court he remained of the view that the company had a reasonable prospect of survival and reported six expressions of investment interest. Other creditors, including the principal secured creditors and the Revenue Commissioners, took a neutral position; several unsecured creditors supported the petition. No creditor opposed it at the appeal.
The company’s independent accountant reported a surplus of €2.18 million if it continued as a going concern, but a deficit of €24.12 million on liquidation, when unsecured creditors were unlikely to receive a dividend. The accountant’s survival opinion depended on conditions including a scheme of arrangement, recovery of loans advanced to projects, collection of fees, equity investment, VAT refunds and property sales.
The court stressed that survival did not have to be shown as probable, but the petitioner had to satisfy the statutory reasonable-prospect test. Appointment remained discretionary, and the court had to weigh relevant interests, including those of employees and creditors. It said the company operated in an extremely risky business and faced adverse prospects, particularly for unsecured creditors if liquidated. But liquidation appeared even more hazardous, and no one argued that examinership would prejudice creditors or others.
The Supreme Court said it was satisfied an examiner’s appointment was warranted. The order gave the company the protection of examinership to allow the rescue process to proceed; the judgment did not approve a scheme of arrangement or guarantee the company’s survival.