The High Court confirmed amended rescue schemes for Michael McLoughlin (Pharmacy) Limited and Sundrive Pharmacy Limited after directing that a proposed immunity clause for the examiner be removed and that the Revenue receive priority from a recovery fund up to the payment rate for unsecured creditors.
Mr Justice Clarke’s judgment, delivered on 28 January 2011, gives reasons for rulings made at the confirmation hearing. The court had indicated that it would confirm the schemes if the parties made the required amendments. They agreed on revised terms, and the schemes were ultimately confirmed.
The schemes proposed to protect the examiner from personal liability for actions in the examinership, subject to exceptions including wilful default, gross negligence or fraud. Bank of Scotland objected on principle, while making no allegation that the examiner had acted improperly in this case. The judge concluded that the Companies (Amendment) Act 1990 did not give the court power to approve such an immunity clause. He added that, even if such power existed, the circumstances did not justify its use.
The Revenue’s objection concerned potential tax liabilities under section 438 of the Taxes Consolidation Act 1997, arising from directors’ loans. Its affidavit estimated the possible liabilities at €556,623 for Michael McLoughlin (Pharmacy) Limited and €467,410 for Sundrive Pharmacy Limited, plus possible interest. The amounts had not been finally determined.
The schemes proposed that the Revenue could share proportionately in a residual debt fund made up of net recoveries from efforts to pursue former directors and connected persons. The judge accepted that the Revenue claim could be treated differently because it was large and not yet ascertained, and that payment could wait until money entered the fund. But he found it unfair for the Revenue to receive a lower percentage than other unsecured creditors if the fund contained enough money.
The court directed that the Revenue have first call on the fund until it received the same percentage of its established claim as other unsecured creditors, who were due an initial 10% payment. Any remaining fund would then be shared proportionately under the schemes, except that Bank of Scotland had agreed to waive its entitlement to share. The judgment does not establish the final section 438 liability or say how much was ultimately recovered from directors.