The High Court has said the official liquidator of DR Developments (Youghal) Ltd must obtain court approval before completing any proposed arrangement with AIB Bank plc for the sale of the company’s charged property and the handling of sale proceeds or remuneration.
In a judgment delivered on 25 July 2011, Ms Justice Finlay Geoghegan said no arrangement was then in place for the court to sanction. The liquidator’s application had changed during the hearing. The proposal, as the judge understood it, was for him to sell the charged assets and agree terms with AIB, including release of its charges. Those terms remained unfinished.
The company was wound up on 17 May 2010, when Gerard Murphy was appointed official liquidator. Its main assets were a partly completed development called Radharc Na Mara in Ballyvergan East, near Youghal, and a small site at Porter’s Lane, Youghal. The judgment noted difficulties with the development, including a bond in favour of Cork County Council, planning conditions requiring some units for social and affordable housing, and outstanding transfer of common areas.
The liquidator told the court that, based on figures supplied by AIB and his understanding of property values, the bank’s debt substantially exceeded likely sale proceeds. The judge proceeded on assumptions that the charges were valid and the sums claimed by AIB were owed. She also recorded that the liquidator had investigated the site, engaged an engineer and valuer, and negotiated with the council.
The judge said a liquidator may sell company property under the Companies Act, subject to the court’s control. Where charged property is sold, the liquidator must generally pay gross proceeds into the liquidation account. The court may, however, approve an arrangement in advance for proceeds to go directly to the secured creditor in return for releasing its charge, potentially with agreed deductions for costs and expenses.
She said any agreement must distinguish proceeds from assets subject to fixed charges from those subject only to floating charges, where relevant. She also set out that remuneration paid by a creditor such as AIB for work benefiting it requires court sanction, given the liquidator’s duties to the company and the potential conflict of interest.
The court did not grant approval for a sale, release of charges, indemnity, costs payment or remuneration. The judgment said that if the liquidator and AIB reach agreement, he should apply for the court’s sanction before the sales. Without an order in advance, gross proceeds must be lodged in the liquidation account, with court duty payable.