The High Court confirmed schemes of arrangement for Cara Pharmacy companies after examining separate agreements for payments to the group’s ultimate beneficial owners, directors Ramona Nicholas and Canice Nicholas. The court concluded that the payments did not unfairly prejudice creditors in the particular circumstances of the case.
The schemes covered the trading companies but not Cara Pharmacy Group Unlimited Company, the ultimate holding company. Renrew Ltd agreed to invest €14.15 million, funded by secured creditor Elm Corporate Credit DAC. Under the proposals, preferential creditors were to receive their agreed debt in full, key suppliers were to be paid in full over time, and other unsecured creditors were to receive 5 cent in the euro. The secured creditor was to receive the equivalent of 80% of its debt.
Creditors and members voted on the proposals on 10 December 2020. One creditor class voted against: the preferential creditors of Cara Pharmacy ULC. The proposals were otherwise approved by the voting classes. The court initially considered the confirmation application in December, then postponed making an order while new pharmacy contracts with the Health Service Executive were negotiated. After those contracts were agreed, the court confirmed the proposals on 28 January 2021. The written judgment, delivered by Mr Justice Denis McDonald on 25 February 2021, set out the reasons.
The judge scrutinised an agreement dated 10 December that had not been included in the Examiner’s report and was produced to the court only after the judge raised concerns. It provided for €200,000 to each of the Nicholases: €29,000 in statutory redundancy and €171,000 as an ex gratia employment-termination payment. The agreement also ended their employment and included restrictions on competing and soliciting employees and suppliers. The judge said the payments were significant alongside the creditor write-downs, and criticised the agreement’s confidentiality terms and its late disclosure to the court.
The court found that the agreement was concluded after the creditor meetings, so the payments could not have been disclosed to creditors before their vote. The judge accepted there was no evidence that the timing was deliberate. He also found that the €125,000 previously transferred to solicitors had been spent on professional fees, and that none of it was paid to the Nicholases.
The court considered the investment substantially greater than the group’s independently assessed asset value of €8.06 million and found that the agreement ended the threat of costly proceedings challenging the examinership. Those circumstances provided a commercial rationale for the payments and weighed against a finding of unfair prejudice.
The judge said payments or other benefits to directors, shareholders and indirect beneficial owners should generally be disclosed to creditors before they vote, and scrutinised by the court. He also said court papers should normally arrive at least three days before a hearing, with 24 hours an absolute minimum except in extraordinary circumstances.