Judgment Title: Re: SIAC Construction Ltd & ors & Companies (Amendment) Act 1990 (as amended)
Neutral Citation:  IESC 25
Supreme Court Record Number: 71/14
High Court Record Number: 2013 486 COS
Date of Delivery: 08/04/2014
Court: Supreme Court
Composition of Court: Fennelly J., Laffoy J., Dunne J.
Judgment by: Fennelly J.
Status of Judgment: Approved
Notes on Memo: Reasons Given
THE SUPREME COURT
Appeal No. 071/2014
IN THE MATTER OF SIAC CONSTRUCTION LIMITED
AND IN THE MATTER OF THE COMPANIES (AMENDMENT) ACT 1990, (AS AMENDED)
AND IN THE MATTER OF SIAC HOLDINGS LIMITED; SIAC HOLDINGS (IRELAND) LIMITED; SIAC BITUMINOUS PRODUCTS LIMITED; SIAC BUTLERS STEEL LIMITED; LILYMOUNT LIMITED; SIAC (CLONDALKIN) LIMITED; SIAC BALDONNELL LIMITED; AND SIAC PROPERTY RENTALS LIMITED; AS RELATED COMPANIES WITHIN THE MEANING OF SECTION 4(5) OF THE COMPANIES (AMENDMENT) ACT 1990 (AS AMENDED)
JUDGMENT of Mr. Justice Fennelly delivered the 8th day of April, 2014.
1. The appeal has come before this Court in truly remarkable circumstances. The SIAC Group of companies has been in examinership since October 2013. The Examiner made proposals for a Scheme of arrangement. On the 7th February 2014, the High Court heard the Examiner’s application for approval of his proposals, when it announced that it would pronounce its decision on 12th February. On that date Kelly J. announced his decision approving the proposals. On that date also, the appellant made its first appearance indicating that it wished to have modifications made to the proposed Scheme. Although it had provided no evidence, the Court permitted it to be heard on Friday 14th February. On that date, it had still produced no evidence. The matter proceeded on the basis of the evidence which the Examiner had placed before the court. The High Court rejected the appellant’s application. The appellant immediately appealed to this Court. It was permitted, exceptionally, an early hearing of its appeal.
2. However remarkable these circumstances, it is clear that the High Court permitted the appellant to appear and argue its case. This Court has entertained the appeal and has heard the appellant as well as the Examiner, the companies and the investor.
3. The Court, on Tuesday 24th February announced that it was dismissing the appeal. This judgment contains the reasons for that decision.
4. I propose, in the first instance, to outline the history of these examinership proceedings. Next I will describe the appellant’s application. Having referred to the relevant statutory provisions and the authorities on the relevant legal issues, I will apply these to the appellant’s appeal.
5. On 23rd October 2013, SIAC Construction Limited (hereinafter “SCL”) presented a petition to the High Court for an order that the protection of the Court be extended to that company and to a number of related companies. The order was duly made and the Examiner was appointed on an interim basis.
6. The petition was based on the Independent Accountant’s Report (IAR) of 23rd October 2013 prepared by Kieran Wallace, Chartered Accountant, of KPMG.
7. SCL was incorporated in 1913. It is the largest trading company of the Group which comprises some fifty trading and non-trading subsidiaries. SIAC Holdings (Ireland) Ltd (“SHIRE”) is the intermediate holding company for the SIAC Group’s trading business which comprises Civil Engineering and subcontracting works. There are three main interconnected divisions in the group: civil engineering, subcontracting and a property division. SCL is the largest trading company in the group.
8. SIAC has for many years been one of the best known and successful groups of companies in the construction and engineering sector of the Irish economy. Its history goes back for about 100 years. It has performed numerous contracts including road infrastructure, has been involved in the construction and widening of our new network of motorways. It operates primarily in the public sector, constructing roads, bridges, railways and water infrastructure for government agencies, local authorities and other state agencies both in Ireland and overseas. It frequently engages in joint ventures with other enterprises. It is a normal contract requirement that SCL provide a bond for the benefit of the client to cover a percentage of the contract sum.
9. SCL, the principal company, was highly profitable until 2011. It commenced to incur losses in 2012 and projected a substantial loss for the year 2013. At the time of entry into examinership it had 145 full-time employees working both in Ireland and the United Kingdom. Following a decline in construction activity in Ireland, as a result of the general financial crisis, it sought opportunities outside Ireland, most materially, for present purposes, in Poland. It was to a large extent difficulties arising on its Polish project which threatened the survival of SCL and of the SIAC group.
10. The IAR says that, apart from the decline in the Irish construction market, the largest contributing factor to the Group’s financial difficulties was its contract in Poland.
11. SCL, as part of a consortium with PBG S.A. with a Polish contractor, and two of its subsidiaries (HYDROBUDOWA POLSKA S.A. and APRIVIA S.A.), tendered for and was awarded a €365 million contract, the A4 contract, by the appellant, which is the Polish roads authority (GDDKiA), for the A4 road of 35 km of motorway and bridges from Tarnow to Rzeszow. The contracting authority is GDDKiA, the Polish State Treasury, the appellant in the present matter. I describe it as the appellant.
12. The history of the Polish project is central to the present appeal. Almost the only information available to the Court is contained in the IAR, to which, therefore, it is necessary to refer.
13. While work commenced on the A4 project in August 2010, SCL encountered numerous difficulties from the outset. It complains that it should have had a complete workable design from the commencement. This was not the case. The consortium was forced to carry out a complete redesign on part of the largest key structure, which resulted in severe delays. There were numerous other sources of delay. Extensions of time recommended by the client’s engineer, were never formally issued. A separate arrangement to fund cash flow had to be arranged with a bank, Bank Pekao SA.
14. In June 2012, the joint venture partner, which was the primary funder of working capital through Pekao, entered into an insolvency process under the protection of the Polish courts. At this point almost all bridge construction was complete. SCL offered to complete the venture on its own provided that the recommended extensions of time were granted and that all contractual entitlements were paid. The appellant refused to agree to any such terms.
15. On 24th July 2012, SCL served a 14 day notice of termination on the appellant under the contract claiming that the appellant had failed to perform its obligations under the contract provisions. The contractor, it is claimed, was then entitled to have its bond returned and to claim a contractual penalty of 10% of the contract price (including VAT) and payment of outstanding contractual entitlements. SCL’s share of the penalty, €42 million, would, it is claimed have been €21 million. The IAR does not record, but the Court has been informed that the appellant also served a notice of termination on 25th July 2012.
16. According to SCL, as recorded in the IAR, its contractual claims and other entitlements against the appellant amount in gross value to €210 million, of which SCL’s share is €113 million. These contractual claims include a PVC (price variation) claim of €64 million and circa €87 million concerned with operational issues claimed to be based on the appellant’s failure properly and fairly to administer the contract. The merits of these claims have not yet been assessed. It is acknowledged that many of the claims made by SCL are hotly contested. The most that can be said at this stage is that, assuming substantial work has been performed under the contract, it is not unreasonable to expect that substantial payments are due. All this is the common material for dispute under large building or engineering projects.
17. SCL had provided a contract performance bond in the sum of €10.7 million through Allianz Polska SA. The appellant demanded payment from Allianz. SCL disputed its right to do so. At first it obtained an injunction to prevent this, but the Polish courts reversed this and directed Allianz Polska to pay over the bond. SCL were forced to fund this payment via Allianz plc (in Ireland) and another company. To date €5.9 million has been paid and SCL remains liable to fund further payments: €350,000 in 2013, €2.4 million in 2014 and €2.4 million in 2015. These payments have placed severe strain on the finances of SCL.
18. The final issue relating to Poland concerns trade creditors, i.e., the normal claims for monies due for supply of works and services including rights of subcontractors. The appellant is obliged under Polish law to pay certain creditors’ claims up to certain limits. The IAR says that creditors in Poland have been reduced from €36 million to €7.4 million as a result of payments made by the appellant. These payments have become the subject of one of the claims advanced by the appellant before the High Court and on this appeal, where they take the form of subrogation claims. The IAR says nothing about the possibility that the appellant might be able to recover the sums so paid to creditors on the basis of any right of subrogation, although it might be assumed that such provision would exist under most systems of law. The terms of Clause 12.3 and Clause 20.3 of the Scheme relate to subrogation and set-off and will be considered later.
19. The Independent Accountant, in his report expressed the opinion that, subject to the following conditions, the companies and the whole or part of their undertakings had a reasonable prospect of survival as a going concern. The conditions were:
• SHIRE being granted the protection of the High Court;
• The other seven (7) related entities being granted the protection of the High Court;
• The acceptance of an appropriate scheme of arrangement by the creditors and members of the Companies and its approval by the High Court;
• An investment of such funds that would support the Companies future working capital requirements and allow for the implementation of a scheme of arrangement with the Companies creditors;
• The restructure of Group debt to a level that is sustainable for both the individual companies and the Group as a whole;
• The continued co-operation of the Company’s key suppliers and sub-contractors during the protection period and beyond;
• The continued co-operation of SCL’s Employers/clients on current and future contracts during the protection period;
• The implementation of the Group Restructuring Plan;
• The continuing availability of bonding and insurance facilities;
• The continued co-operation of the Group’s Lenders and the future availability of funding;
• The write down of creditor liabilities;
• Maintenance of tax clearance certificate for contract tendering and collection of debtor balances.
21. The appointment of the Interim Examiner was published in Irish newspapers and, on Monday 23rd October 2013 and a Polish translation of this notice was published in Poland in GazetaWyborcza and Rzeczpospolita on 29th October 2013 and 31st October 2013 respectively. Confirmation of the Examiner’s appointment was published in Iris Oifigiúil, Irish newspapers as well as Rzeczpospolita on 8th November 2013, 9th November 2013, and 12th November 2013 respectively. These are nationwide daily newspapers circulating in Poland. Both are widely used by state bodies, receivers and liquidators and businesses.
22. During the same period the appellant was party to proceedings in Poland brought in respect of the calling in by the appellants of the performance bond. In the context of these proceedings the appellant was formally on notice of the examinership process by the 21st of November 2013, at the latest - as the examinership was raised at the Court hearing in Rzesow, Poland where the Company and the appellant (GDDKiA) were parties to the matter heard.
23. The appellant did not, at any time, submit any claim to be a creditor of SCL.
24. The Examiner, in due course, prepared a scheme of arrangement for presentation to the creditors and ultimately to the Court.
25. On 17th January 2014, the Examiner circulated notices together with the Scheme Proposals and related documentation relating to the creditors’ meetings to all Polish creditors. The creditors’ meetings were convened for 27th January 2014.
26. Meetings of the members and creditors of the Company and Related companies duly took place.
27. On 24th January 2014 the Examiner reported to the High Court that an investment of €10.5 had been agreed with investors, namely LKG Investments Limited and Finn Lyden. On that date SIAC (Butlers) Ltd was removed from the list of companies under protection; an order was made for its winding up.
28. The Examiner applied to the High Court ex parte on 29th January 2014 for leave to deliver his report pursuant to s. 18 of the Companies (Amendment) Act 1990 and for the fixing of a hearing date for an application to the Court for sanction of his proposals for the SCL and related companies under s. 24 of the Act. The Court duly granted such leave and fixed Friday 7th February 2013 as the date the hearing of the Examiner’s application.
29. Clause 7 of the Scheme is headed: “CLASSES OF CREDITORS AND EFFECT OF PROPOSALS.” Clause 7.1(a) lists 11 classes of Creditors of the Company as at the Fixed Date.” Leaving secured and preferential creditors and other special classes, most relevantly for present purposes, it lists “Unagreed Creditors” and “Contingent Creditors,” both being unsecured creditors. A number of Appendices contained listings of names of Creditors compiled from Company records. Clause 7(1)(d) provides for Unagreed Creditors as follows:
- whose claim is not included in the Appendices; or
- which appears in the Appendices without the addition of the letter “Y”; or
- which disputes the amount of its claim as it appears in the voting form accompanying these Proposals,
shall be deemed to be an “Unagreed Creditor” for the purpose of these Proposals, which term shall be construed consistently with Clause 9.1(c) and shall be dealt with under the terms set out below."
30. Two Polish creditors, CEMEX and Karmar, appeared in the High Court to object to Clause 9.1(c) of the proposals, which provides:
32. Kelly J reserved his judgment to be delivered on 12th February 2014. On that date he delivered his ex tempore judgment. He dealt with the scheme generally and addressed a number of issues and three objections. He commenced by referring to the report of the examiner as follows:
“The companies are involved in the construction and contracting businesses and have three main areas of activity. They are civil engineering, subcontracting and investments…………………
”The scheme involves the companies being split into two groups. [The learned judge names the individual companies.]
”The proposed scheme will see the investment funds being used to pay the various classes of creditors under the proposals, to pay the examiner’s remuneration and expenses with the balance being used to provide working capital.
“There are minor differences between each scheme by reference to the classes of creditors but in the main, they provide that the payment of a €5m aggregate sum, the secured creditors will be repaid overdraft facilities only in full and on such payment will release their security over the companies’ assets.
“The preferential creditors will receive 10% of the debt due in full and final settlement within 21 days. Contingent preferential creditors will likewise receive 10% of the amount due in full and final settlement within 21 days of their claims ceasing to be contingent. Insofar as agreed creditors are concerned, they will receive 5% of their debt within 21 days. Unagreed, unsecured creditors will receive 5% of their debt within 21 days of the claim being determined as agreed unsecured creditors using the mechanism which is set out in the scheme of arrangement. Intercompany creditors will receive zero. Contingent creditors will receive 5% of their debt and what are described as employment appeal creditors are to receive a specified sum which amounts to 60% - 70% of the debt. Insofar as shareholders and members are concerned, the entire issued share capital will transfer to a nominee of the first investor for a nominal consideration.“
36. However, on the evening of Tuesday 11th February 2014, the eve of the delivery of the ruling of Kelly J, solicitors for the appellant contacted the solicitors for the Examiner seeking a copy of the Proposals. On the morning of Wednesday 12th February 2014, they e-mailed the Examiner’s Solicitors. No copy of that email has been provided to the Court: the Examiner has informed the Court that the email said that that, in the light of a counterclaim that the appellant wished to bring against the Company in Poland, it considered itself to be a creditor of the Company in respect of a damages claim and a subrogated claim in respect of payments said to have been made by it to various sub-contractors engaged on the A4 Contract. The email asked that the Examiner consider a modification to the Proposals: (a) to permit the Polish State Treasury to pursue its putative counterclaim before the Polish Courts and outside the Expert determination process under clause 7.2 of the Proposals, and (b) to permit the appellant to step into the shoes of creditors paid by it under the A4 Contract notwithstanding clause 12.3 of the Proposals.
37. Kelly J delivered his ruling on the morning of Wednesday 23rd February, indicating that he would confirm the proposals subject to some queries which he had arising from the amended proposals which ad been delivered on 10th February. Those queries were then dealt with.
38. It was then that counsel for the Examiner informed the Court that correspondence had been received late on the previous evening from the appellant. It was intimated to Kelly J that discussions were taking place between the respective solicitors and that it was anticipated that there might be an agreed revision to the scheme. The matter was put back to Friday 14th February. No agreement proved possible. The Examiner asked the learned judge to confirm the scheme. A solicitor for the appellant was permitted to address the court, as Kelly J put it, “as to why there should be a variation to the schemes to accommodate his particular client’s situation.”
39. It should be immediately noted that the appellant had provided no evidence as to the nature of its interest. It did not even write formally explaining its claim. The appellant explains its omissions, in its written submissions addressed to this Court, by saying that, when it was initially advised that SIAC had entered the examination (for which it does not provide a date) it was “preoccupied with putting together [its] counterclaim in the Polish proceedings...” In the High Court, the appellant advanced essentially two points:
2. The second point was treated by Kelly J as relating to the provisions as to set-off in the scheme. The learned judge refers to the provisions of Clause 12 of the scheme. It appears from the submissions made on the appeal that the appellant’s complaint relates to its rights, under Polish law, to be subrogated, as against the companies (SCL) to the claims of trade creditors such as sub-contractors who have been paid off by the appellant. It is preferable to address this issue as it arose on the appeal. At any rate, insofar as this aspect of the claim was concerned, Kelly J ruled that the appellant was being treated in the same way as all affected creditors. There was no breach of the provisions of s. 22(1)(d) of the Act. Again, the learned judge declined to modify the scheme.
(2) As GDDKiA is not listed in any Appendix to the Scheme and its claim is not accepted, it is an Unagreed Creditor for the purposes of clause 7.1(d) of the Proposals;
(3) Insofar as the claims which GDDKiA has posited are asserted by way of set-off against the existing claims of the Company, the position of GDDKiA is protected by Article 6(1) of Council Regulation EC 1346/2000 (the “Insolvency Regulation”) - viz.
“The opening of insolvency proceedings shall not affect the right of creditors to demand the set-off of their claims against the claims of the debtor, where such set-off is permitted by the law applicable to the insolvent debtor’s claim.” (Consistent with the preservation of the Company’s right of set-ff under Clause 12.3 of the Proposals).
(4) Insofar as GDDKiA seeks to establish a claim for payment against the Company, however, that claim is subject to the provisions of the Proposals applicable to every other Unagreed (and unsecured) creditor. In particular:-
(i) The GDDKiA claims are subject to expert determination under clause 7.2;
(ii) Under Clause 9(1)(c) no interest, penalties, damages (save in respect of personal injuries) or costs (save those which have been awarded prior to the Fixed Date by court of competent jurisdiction) shall be payable by the Company to GDDKiA; and
(iii) Clause 12.3 operates to preclude a subrogated claim for payment or right of indemnity as against the Company in respect of any payment made by GDDKiA, consistent with the preclusion of set-off in respect of a post-insolvency payment claim. Any dispute between the Appellant and the Company as to such a claim falls to be dealt with under Clause 7.2 of the Proposals by way of expert determination.
(5) If, on determination by the expert, in accordance with Clause 7.2, it is found that the GDDKiA is entitled to payment in respect of any part of its claim against the Company (notwithstanding the significant claims made by the Company against GDDKiA) it will rank for dividend under the Proposals in respect of that claim for 5% in the ordinary way.
(6) This treatment of GDDKiA is not unfairly prejudicial. GDDKiA is treated precisely the same way as every other creditor of the Company asserting a claim by way of interest, penalty, damages or cost. On a winding up, a liquidator could choose to pursue GDDKiA for the same claims as now maintained by the Company – in which case the same set-off rules would apply as apply in the examinership. If GDDKiA established a claim over and above the Company’s claim, it would rank as unsecured in the winding up for such payment and would receive a nil return. In fact they do better under the Proposals – their right of set-off is preserved and there is, subject to expert determination, some prospect of a 5% return on any claim established before the expert.
42. The appellant has now appealed to this Court. The Notice of Appeal claims that the High Court judge was mistaken in rejecting its claim to have been unfairly prejudiced. The Scheme, it is claimed, is unfairly prejudicial insofar as it precludes the appellant from maintaining any claim for damages and/or from making any subrogation claims.
43. It must once more be noted that neither the High Court nor this Court has any evidence before it with regard to the amount or the nature of the appellant’s claim. The nature of the relationship between the appellant and SCL is, at least to some degree, apparent from the IAR. The relevant parts of that report have been summarised earlier.
44. At a general level, it is apparent that the appellant is the contracting authority which awarded the contract for the construction of the 35 km A4 road including bridges to the joint venture in which SCL was a participant. The material in the IAR is evidence of a contractual relationship between the parties for a period of some two years from 2010 to 2012. Substantial work was performed under the contract. SCL has outstanding claims against the appellant, which it has quantified at some €113m. It is obvious that there are very serious unresolved disputes between the parties. Nonetheless, the general picture is one where the appellant appears to be a debtor to SCL for very substantial sums. The appellant has not, at any stage, placed any material before the High Court or this Court to displace the prima facie picture that the appellant is a debtor rather than a creditor. It has not submitted any claim as a creditor.
45. The appellant has, in very general terms, summarised the respective claims and counterclaims as follows in its written submissions in which it is described as the “Polish State Treasury”:
2. In addition, the Polish State Treasury is entitled to damages against SIAC and PGB following service of a termination notice by it on SIAC on July 25th for non performance under the principal contract including ‘slow progress’ and the fact that SIAC had itself served a notice of termination of the contract on the previous day, July 24th 2012.
3. The quantum of the Polish State Treasury damages claim under the contract amounts to PLN207,893,546.28 (Contractual penalty PLN 176,361,140.69 and interest accrued PLN 31,532,405.59) (€49,498,463 approximately) as a result of the consortiums failure to complete the contract. SIAC for its part has commenced proceedings in Poland seeking payment of approximately €30 million, (in response to which the Polish State Treasury has lodged a counterclaim claiming damages and interest. SIAC has also intimated that it intends to bring further claims (as set out in paragraph 1.41 of the IAR) totalling an additional €83 million making in total claims for €113 million. These claims by SIAC, as acknowledged in the IAR, will be ‘vigorously defended’ by the Polish State Treasury and are strongly disputed.
4. In summary therefore the Polish State Treasury claims that SIAC is indebted to it in an aggregate amount of approximately €70 million whereas SIAC has intimated that it has claims against the Polish State Treasury for approximately €113 million. In the event that the Polish State Treasury prevails in its claims against SIAC, as it believes it will, SIAC’s liability to the Polish State Treasury is almost double the amount owed to its secured creditors (€37 million) and some €18 million more than the total amount owing to the unsecured creditors (€53 million). (The amount owing to the Polish State Treasury by SIAC may rise in the event that further claims are made by SIAC’s sub-contractors against it).
2. secondly, arising out of sums paid to subcontractors of SCL.
50. It should be noted that the appellant made its late intervention in the High Court in support of an application for modification of the Scheme of Arrangement proposed by the Examiner. The submissions of counsel for the appellant at the hearing of the appeal appeared to go further. Faced with the undisputed opinion of the Examiner that, in a liquidation, there would be no dividend at all for unsecured creditors, including the appellant, he submitted that the Court should find unfairly prejudice even if that were to result in their being no payment for any unsecured creditors, presumably including Polish sub-contractors and suppliers.
51. In legal terms, the appellant claims that it is treated in an unfairly prejudicial manner in terms of ss. 24 and 25 of the Act. The Examiner is required to satisfy the Court that the proposals being put forward are not unfairly prejudicial. In addition, it is submitted that the Scheme is inconsistent with the cornerstone of insolvency law which is that creditors in the same class and position are to be treated equally and without favour. It relies on s. 22(1)(d) of the Act which requires that “the proposals provide equal treatment for each claim or interest of a particular class.”
52. Both the Examiner and the Company object in the strongest terms to the late entry and attempted participation of the appellant in the proceedings. They object, in particular, to the failure of the appellant to place any information before the High Court. The Examiner has disputed both the basis of the subrogation claims and their quantification. It claims, for example, that the appellant paid subcontractors out of money provided to it pursuant to the bond mentioned above. The Examiner claims that the appellant was aware of the examinership process by 21st November 2013 at the latest but submitted no claim.
53. The Examiner submits that the appellant’s submissions are based on a number of misconceptions. In particular, he says that the Scheme does not in terms preclude the Appellant from “maintaining a claim against SIAC for damages and interest and for any subrogated claims.” A damages claim, it is said, may be maintained by the appellant but only by way of set-off against the Company’s claims, though not for payment and that a similar position may apply in respect of a subrogated claim for payment. The Examiner also says that any such claims are unagreed claims subject to the provisions of Clause 7 of the Scheme and subject also the Company’s right to assert set-off under Clause 20.3 of the Proposals. The examiner’s position as to the extent to which the appellant may be entitled to raise a defence of set-off in the Polish courts is considered later in this judgment.
54. The Examiner makes a submission, which he describes as fundamental, namely the failure on the part of the appellant to recognise the very real substantial protection it enjoys by way of set-off against the Company’s very substantial claims against it. He explains that the existence and availability of this right of set-off goes a significant way to explaining the fair treatment of the Appellant. While the appellant is equally impaired with the other creditors in terms of exclusion from payment of the claims it advances, the fact that it is a substantial debtor and that any rights of set-off which it claims to have under Polish law are preserved, means that it at least holds the prospect of obtaining some value from its asserted damages claim. Clearly, the Examiner is here referring to the context of claims against the Appellant in the Polish courts. It should be noted here that the Court has no information about the provisions of Polish law on these issues.
55. He rejects the appellant’s claim that he has failed to provide any rationale for the exclusion of any payment in respect of penalty, interest and damages. In an affidavit sworn on 6th February 2014, the Examiner had deposed as follows:
15. I say that a certain number of creditors have argued that this stance is unfairly prejudicial to their interests. While perhaps more appropriately a matter for legal submission, I say believe that it is not so in circumstances where the same treatment is applied in the proposals across all of the creditors of [the Company], and where, if the Company was wound up or placed into receivership, the creditors concerned would recover nothing in respect of their claims. Furthermore, there is a finite amount of investment available to the Company and, therefore, any further dividend to these creditors could only be paid at the expense of the other creditors. In the circumstances, while certain creditors will undoubtedly feel aggrieved that I have decided my proposals to disallow such penalty claims, I do not believe that this can properly be characterised as being inequitable in any way or unfairly prejudicial to the interests of such creditors.
16. In addition, I say that the investment is conditional on the Scheme being approved and implemented without material modification and the investors have confirmed to me that they are not agreeable to such a potentially significant change to the amounts to be paid to creditors particularly where the goodwill of many of the creditors who would be adversely affected is of importance to the continued trading of the Company. If the creditors who are claiming in respect of "damages" were in a separate class, given the level of uncertainty in relation to the precise quantum of claims, it would not have been possible to offer a percentage recovery (other than one which was much lower than 5%) but rather a defined amount of money would have had to have been made available to meet their claims with a consequence of potentially long delay in making any payments to support all of the claims had been agreed. In those circumstances, the creditors, in my view, would have fared worse than they will if the scheme proposed by me is approved by this Honourable Court and implemented.”
57. The Companies, in their separate submissions in support of the position of the Examiner, especially argue that the appellant should be limited to the submissions it made to the High Court, namely that it was unfairly prejudiced and that it sought modifications of the Scheme. They argue that the Examiner has sworn uncontroverted affidavits to the effect that there are insufficient investment funds to bring provide for a modified Scheme of Arrangement in which the appellant would receive a 5% dividend. Thus what the appellant seeks is, in fact, impossible. It accepts that, in some circumstances, a comparison with how a creditor raising an objection, would fare on a liquidation may be relevant to determining unfairly prejudice. However, in circumstances where the ultimate effect of a creditor’s action would be to deprive all the other unsecured creditors of a dividend rather than securing any improvement in its own position, the result may be different.
58. Finally, the Court agreed, in the special circumstances of this case, to hear counsel for the investors, LKG Investments Limited and Finn Lyden, although that entity is not one of the parties listed in s. 24(1) of the Act as “persons [who] may appear and be heard at a hearing under subsection (1)…” The Examiner and the Companies supported the intervention of the investor. Counsel for the appellant did not object. The Court considered that it had power to hear the investor and noted that the High Court had permitted the investor to intervene in a number of cases. The Court considered that it was of special importance to ascertain the attitude of the investor to any modification of the Scheme to accommodate the interests of the appellant. In the event, the position was very simple. The investor made it abundantly clear that it would not accept any modification to the Scheme with that end in view. Put bluntly, it was not prepared to complete its investment in circumstances where the Scheme was to be rewritten.
60. The appeal must be strictly limited to those aspects of the decision of the High Court. The scope of the appeal, therefore, and this judgment is limited to a consideration of whether, in the respects alleged, the scheme is unfairly prejudicial to the appellant.
61. Section 22(1)(d) of the Companies (Amendment) Act, 1990 requires that “the proposals provide equal treatment for each claim or interest of a particular class”.
62. Section 24 provides as follows:
i) the proposals are fair and equitable in relation to any class of member or creditors that has not accepted the proposals and whose interest or claims would be impaired by implementation; and
ii) the proposals are not unfairly prejudicial to the interests of any interested party.
64. The appellant’s claim was, in the light of a counterclaim that it wished to bring against the Company in Poland, it considered itself to be a creditor of the Company in respect of a damages claim and a subrogated claim in respect of payments said to have been made by the Appellant to various sub-contractors engaged on the A4 Contract.
65. The notion of "unfair prejudice" in the Act requires to be considered from at least two points of view. Firstly, there is the question of whether the objector is unfairly treated by comparison with how he would be likely to fare in a liquidation. Secondly, a court will have regard to his treatment vis-à-vis other creditors.
66. There can be no question, on the facts of the present case, of the appellant being the victim of unfairly prejudice by reference to the outcome of a liquidation. It must, for this purpose, be regarded as being an unsecured creditor. Assuming the appellant to be a creditor, the position is simple. It would, like all other unsecured creditors, recover nothing in a liquidation. Clarke J in Re Traffic Group Ltd  3 IR 253 considered the possibility that, on a winding up, there might be more funds, on the facts of that case, available to meet the entitlements of the Revenue as preferential creditor. At page 264 of the report he said:
68. The case for the appellant is quite narrowly focused on two provisions of the Scheme, namely Clause 9(1)(c) which excludes it from making a claim for penalties, interest or damages and Clause 12.3 insofar as, it is claimed, it precludes it from participating, to the extent of 5%, for its subrogated claims.
69. There are two aspects to the notion of unfairly prejudice. The underlying assumption is that the person in question is, to begin with, prejudiced, that is to say that his interests as a creditor (or, where relevant, a member) are adversely affected or impaired by the proposals. It is the inevitable consequence of the insolvency to a company is that every creditor will, in that sense, suffer prejudice no matter what proposals are put forward. But prejudice is not enough to trigger the court’s obligation to refuse to confirm the proposals. It must in addition be unfair. Unfairness, in turn comprises two essential aspects, the general notion of injustice and the more specific one of unequal treatment.
70. The Act, however, does not seek to define or to preordain what is to be considered to be “unfairly prejudicial” in any particular case. I would adopt the approach outlined by O’Donnell J in his judgment in Re McInerney Home Ltd  IESC 31:
73. Whether a set of proposals is unfairly prejudicial to any particular interested party will involve a comparison of the treatment of that party with any similarly situated interested party. The court will also take account of any aspects of either party’s individual position which places it at either an advantage or disadvantage. The court will take account of the totality of the circumstances. The interests of each creditor will depend on its setting.
74. A good illustration of a judge considering and weighing in the balance the different individual aspects of creditors’ claims is to be found in the judgment of McCracken J in Re Antigen Holdings Ltd.  4 I.R. 600. He was concerned, respectively, with the right of the banks as creditors to recover normal rates of interest weighed against the length of time it would take to discharge their debts within the capacity of the company to pay wighed against the benefits to trade creditors if the company was to be rescued. Here is how he approached the matter at page 603:
The purpose of the scheme is to ensure the viability of the company. This can only be done if there is a reasonable time span in which to discharge the debt and if there is an amount being paid which is within the capacity of the company to pay. Now the vast bulk of remaining creditors are trade creditors who are presumably going to continue trading with the company. I do not think it is unfair they should get some priority because they are going to keep the company going.
I should also say while the court has power to make modifications, which is what is being sought by the banks, the court cannot re-write the scheme. In my view if the banks were to be paid interest, or the alternative they suggest, repaid all their capital immediately, I think there would clearly have to have been new meetings of the creditors to consider this and of course this would carry with it the possibility that the creditors would not accept it and would not accept what would be effectively a new scheme and that would be most undesirable. It is also undesirable in the present case to postpone the final decision because this is a company which effectively has to some extent to keep trading.”
76. Firstly, under Clause 9(1)(c) no interest, penalties or damages are payable by the Companies. Insofar as the appellant is concerned that means SCL. The appellant says that it has a claim against SCL in Poland for a penalty amounting to 10% of the contract price. It quantifies this claim in its written submissions at €49,498,463. That is the only evidence we have about it. The Examiner accepts that Clause 9(1)(c) prevents the appellant from making a claim for payment of this sum under the Scheme. He says that Clause 9(1)(c) applies equally to every creditor: there is no difference of treatment and no and fairness. He justifies this stands by referring, amongst other things, to the subjective nature of these claims, the expense involved in measuring and assessing them and, ultimately, by the lack of availability of monies to meet them. The appellant counters by claiming that it is in a unique position or, at least, that it is in a different position from other creditors such as trade creditors. They commence by having an underlying liquidated claim, of which they can receive 5%.
77. Secondly, the appellant complains that it is precluded by the terms of Clause 12.3 from recovering its subrogated claims. This is unfair, the appellant says for the following reason in particular. The ordinary trade creditor of SCL in Poland is entitled to recover 5% as an unsecured creditor. The appellant is obliged under Polish law to discharge of debts due to subcontractors of SCL and, it says, it has done so to the extent of some €20m. It is unjust, the argument goes, to preclude the appellant, which steps into the shoes of these subcontractors, from recovering in exactly the same way as the subcontractors themselves. What is more, the subcontractors will be entitled under the Scheme in respect of any excess over what the appellant is obliged to pay.
78. For the purposes of dealing with these objections, I propose to give the benefit of the doubt to the appellant and to take its claims as set out in their written submissions and quoted above at their face value.
79. Looking at the account given in those submissions of the respective claims and counter claims of SCL and the appellant, it is clear that, on any view, SCL has very substantial claims outstanding against the appellant in Poland. It is acknowledged that SCL (SIAC) has already commenced proceedings in Poland for €30 million and it has quantified its total claims at €113 million. These amounts are, of course, speculative at this stage. So also are the appellant's claims. It would appear, as the Examiner acknowledged in his submissions to the Court that the appellant enjoys the very considerable advantage of being able to raise its own claims by way of counterclaim or set off or whatever equivalent exists in Polish law by way of defence or reduction of SCL’s claims. The Examiner acknowledges that the Scheme does not purport to, even if it could, prevent the appellant from raising by way of defence any of its claims in accordance with Polish law in the courts of Poland.
80. That consideration appears to me to apply to both headings claim. However, special note may need to be taken of the provisions of Clause 12.3. On its face, it appears to provided that each creditor “ shall be deemed to have waived any and all rights and claims in subrogation against a Company which he may now have, of which may arise at any time.” Counsel for the Examiner, in his submissions to this Court, did not claim that this provision could preclude the appellant from raising its subrogation claims by way of defence in the Polish courts. The position, therefore, is that, insofar as the appellant has rights pursuant to the contract or by way of subrogation, which may, insofar as Polish law allows, be set up by way of a defence of set-off, against any claims of SCL in Poland, the Examiner accepts that the scheme does not purport to affect those rights.
81. Looking at the totality of its situation, the position of the appellant is that, on all the evidence before the Court and, having regard even to the terms of the written submissions it has presented, it is a very substantial debtor of SCL in Poland. There is no suggestion from the Examiner that the Appellant will not be entitled, under Polish law, to raise any of its claims by way of set-off, defence or counterclaim in the Polish courts. That position sharply distinguishes it from other creditors, in particular unsecured creditors who are entitled to recover only 5% of their claims. Even assuming there to be an element of unfairness in not permitting the appellant to recover 5% of its claim to recover a penalty or the value of its subrogated claims, and ignoring the fact that all creditors are subjected to the same provisions, any such disadvantage is largely if not totally counter-balanced by its right to raise these claims in full by way of defence, set-off or counterclaim in Poland.