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Cite as: [2009] IEHC 408

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Judgment Title: Vantive Holdings Ltd -v- Companies Acts

Neutral Citation: [2009] IEHC 408

High Court Record Number: 2009 450 COS

Date of Delivery: 24 August 2009

Court: High Court

Composition of Court:

Judgment by: Cooke J.

Status of Judgment: Approved

Neutral Citation Number [2009] IEHC 408

THE HIGH COURT

2009 No. 450 COS

IN THE MATTER OF VANTIVE HOLDINGS AND IN THE MATTER OF VILLEER DEVELOPMENTS AND IN THE MATTER OF PEYTOR DEVELOPMENTS AND IN THE MATTER OF CARRAGH ENTERPRISES LIMITED AND IN THE MATTER OF PARLEZ INTERNATIONAL LIMITED AND IN THE MATTER OF MORSTON INVESTMENTS LIMITED AND IN THE MATTER OF ROYCETON AND IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009

JUDGMENT of Mr. Justice Cooke delivered on the 24th day of August, 2009
The following are the reasons for the decision of the court on the present application as briefly indicated at the conclusion of the arguments on Friday, 21st August, 2009.

1. In view of the impression that might be given by the representation on this application of a large number of interested parties, including the major creditors, the employees of the petitioning companies and of other companies in the wider group, together with the vigorous opposition expressed by one of the principal secured creditors to the application, it is important to emphasise the limited purpose of this hearing and the sole issue that is now before the court. This is the adjourned hearing of the application made to the court ex parte on 14th August, 2009 upon the presentation of the petition in accordance with O. 75 A, r. 4 (4) of the Rules of the Superior Courts for directions as to the proceedings to be taken in relation to the petition. In the majority of cases, such an application is dealt with immediately and directions given as to the service and advertising of the petition and the fixing of a date for its hearing. Thus, the only issue to be decided by the court at this point is whether this petition should be given a hearing.

2. In this case, de Valera J. adjourned the application because it was a second petition and because of the intervention on that occasion of representatives of both a provisional liquidator who had been appointed to the petitioner and to one of the related companies, Morston Investments Limited, and of ACC Bank plc, which is the principal direct secured creditor of the petitioner and Morston and is indirectly a creditor of other companies in the group. ACC Bank indicated its intention to oppose the petition being heard upon the ground, in effect, that its presentation was an abuse of process because the first petition by the same petitioner had been the subject of a considered judgment of the senior judge of the Commercial Court on 31st July, 2009 (Vantive Holdings v. Companies Acts [2009] I.E.H.C. 384), which was subsequently upheld on appeal. The learned High Court judge rejected that first petition upon the ground, in essence, that it failed to meet the statutory test of s. 2 (2) of the Companies (Amendment) Act 1990 (the “Act of 1990”), as amended, by failing to demonstrate that there was a reasonable prospect of survival of the companies and the whole or any part of the undertaking as a going concern. On appeal that decision was affirmed by a unanimous judgment of the Supreme Court given on 11th August, 2009 (In the matter of Vantive Holdings & ors and in the matter of the Companies Acts 1963 – 2006 [2009] IESC 68). In these circumstances, de Valera J. considered that the circumstances required further examination before a date for the petition could be fixed.

3. In those judgments much of the background detail is given of the corporate structure of the companies in the wider group, the interdependence of the companies, the amount due to the major secured creditors, and the charges, guarantees and cross-securities held notably by ACC Bank, together with the recent trading difficulties leading to the current serious insolvency and a likely overall deficit in excess of €1 billion. It is not necessary therefore to repeat much of that information here and this statement of the courts’ reasons assumes a knowledge of those judgments where the background history and information remains unchanged since 11th August last. In addition, those judgments cite in detail much of the relevant case law concerning the approach of the court to the criteria governing the appointment of an examiner. Insofar as that is relevant to the limited issue now before the court on the present application, that case law too, will not require reiteration or renewed explanation.

4. In this second petition, the petitioner and the five related companies which were the subject of the first petition are now joined by Royceton, a further unlimited company in the group which is held as to 50% by Vantive and 50% by Stradbally Investment Company. Royceton too is insolvent and, according to the statement of affairs in the statutory report mentioned later in this judgment, will have a deficit of more than €128 million. Royceton appears to be one of the group companies more actively engaged in trading operations and some of those appearing to support the present petition are employees, creditors or subcontractors of that company. According to the statement of affairs, it is owed €126 million by other companies in the group of which it is estimated only €500,000 might be realisable.

5. As appears from the judgment of the High Court on 31st July, 2009 the first petition was refused by Kelly J. for the primary reason that he found that the statutory report of the independent accountant, Mr. McGrath,under s. 3 (3A) of the Act of 1990 to be inadequate and unconvincing. The learned judge noted that the property valuations upon which Mr. McGrath’s opinion of a prospect of survival was postulated were out of date such that his optimism as to the possibility of a scheme of arrangement leading to a “significant surplus” which would then fund future development, bordered on the fanciful having regard in particular to current conditions in the property market.

6. Furthermore, in a secondary conclusion, Kelly J. indicated that even if some basis had been shown for a reasonable prospect of survival of the companies, he would have been disinclined to exercise the court’s discretion in favour of appointing an examiner. He considered the exercise as presented to be somewhat artificial. It appeared to be designed, in his view, to enhance the value of properties to be realised. Furthermore, of the 650 persons mentioned whose employment was threatened, only 100 or thereabouts were direct employees. The exercise appeared to him to be therefore designed to help shareholders, an objective which was outside the intention of the legislation. Although the judgment refers to a three year business plan, this document was not itself made available to the High Court such that Kelly J.’s appraisal of the statutory test was obliged to rely on the limited information furnished through the contents of the accountant’s statutory report.

7. This latter aspect of the presentation of the first petition received particular attention in the appeal before the Supreme Court and is now one of the crucial features of the opposition by ACC Bank to the hearing of this second petition.

8. Vantive and Morston, two companies at the apex of the group’s corporate pyramid do not themselves carry on any direct construction or development trade but act as conduits through which money borrowed from banks is channelled to other trading companies in the group and repayment of which is invariably secured to the lenders by guarantees from the recipients of those funds backed by charges over assets held in those companies. Two key projects and sites vital to any prospect of survival of the group are those at Sheriff Street/Castleforbes and at East Road in Dublin. The former is vested in the related company, Peytor Developments, and the latter in Villeer Developments. A loan of €62 million from ACC Bank to Vantive is secured by the guarantee of Villeer and a first charge on the East Road property in its favour and a loan from that bank of €69.2 million to Morston is similarly secured through Peytor on the Sheriff Street development.

9. Thus the winding-up of Vantive and Morston would immediately lead to that of Peytor and Villeer and, by reason of the inter-company indebtedness throughout the group, to the inevitable collapse of the group as a whole. As has been noted, this dire prospect is effectively the result of the sudden downturn in 2008 of the property market and the construction industry in both the commercial and residential sectors.

10. As the Supreme Court pointed out, the essential basis upon which it was claimed that there was a reasonable prospect of survival of the companies was that which had been put before the secured creditors in a three year business plan of December, 2008. This apparently proposed that the group could trade out of its difficulties over three years and then continue as a going concern provided a number of essential factors or measures could be agreed or achieved. These included:-
(a) An orderly realisation of non-essential residential properties over a thirty month period;
(b) A disposal of development lands not regarded as vital to the future construction projects;
(c) A moratorium on the banking debts during that period with a roll-up of accruing interest net of rental income;
(d) The continuing financial support of the banks but otherwise no writing down of bank debt or introduction of new equity.

11. The Supreme Court arrived at the same primary conclusion as Kelly J. in finding that the statutory test had not been met and the judgment focussed on two key facets of the case as then presented. First, the court found it striking that there was nowhere in the material before it “any commitment by any bank to continue to provide financing in the future for the day to day operations of the companies” nor any statement from the companies that they had been given any such commitment. This was clearly a key element in the feasibility of what was proposed to be done over the three years because funds would be required not only for wages and continuing overheads but also for the finishing out of projects currently partly completed and which were to form part of the “orderly realisation” and “trading-out” process. The court pointed out, however, that this missing information was not of itself fatal to the application to the appointment of an examiner as the procuring of financial support was something that could conceivably be addressed during the period of the examiner’s appointment.

12. The more important deficiency identified by the Supreme Court was the lack of an intelligible basis to the statutory report of the independent accountant because the three year business plan upon which its assumptions and projections were based was not placed before the court. The court also found it remarkable, in view of the crucial proposal for an orderly realisation of assets over the thirty month period, that there was no attempt to analyse likely future developments in the relevant property markets. The court stated:-

“In short there is a complete absence of any objective evidence or material in the affidavits filed by the petitioner (again leaving aside for the moment the independent accountant’s report) which could lead the Court to conclude that there was some underlying objective rationale or material supporting the petitioner’s contention that the market conditions would change in the short to medium term so as to permit the properties in question to be disposed of in an orderly manner so as to enable it to benefit from any enhanced value”.

13. The third deficiency identified by the Supreme Court concerned the absence of valuations to support the reasonableness of the projections given by the accountant in Appendix 5 to his statutory report, these projections having been provided to him by the company. The accountant adopted assumptions made in the business plan based on valuations dating from December, 2008 but expressed no opinion as to the reasonableness of those assumptions and projections. The court concluded:-

“Against this background, in order to persuade the court that the companies have a reasonable prospect of survival, it is perfectly obvious that some evidence of likely improvement in the property market is absolutely essential. Neither the affidavit of Mr. Carroll nor the accountant’s report makes any attempt to supply this deficiency. The court has been informed that valuations exist. They have not been placed in evidence. In their absence, it is not possible for the court to reach any conclusion on the question of ‘reasonable prospect of survival’”.

14. In summary, therefore, the petition failed in the Supreme Court because:-
A. There was no evidence of any commitment for future financing of the companies during a period of orderly development and disposal of realisable assets as envisaged in the business plan;
B. The business plan itself which was, in effect, necessary to appreciate the basis of the projections and assumptions in the accountant’s report, was withheld from evidence;
C. Current property valuations which underpin the assumptions and predictions, on which the trading out of difficulties was envisaged, existed, but were withheld by the companies from evidence.

The Supreme Court did not therefore consider it necessary to address the secondary conclusion reached in the High Court in which it indicated that it would, in any event, be disinclined to exercise its discretion in favour of the appointment of an examiner as described in para. 6 of this judgment.

15. It is against that background that the companies now take the step described by Mr. McCann, counsel for ACC Bank as “extraordinary and unprecedented” in seeking to have a second, almost identical, petition heard to appoint an examiner. The petitioners and the six related companies (including Royceton) do so on the basis that they are now in a position to supply the deficiencies of evidence and information identified by the Supreme Court and with an admission that the withholding of the business plan and the property valuations from the court on the first petition had been a mistake. It is explained that while some of that evidence had been available to the companies at the time, a decision had been taken not to proffer it. This decision was taken at the insistence of Mr. Liam Carroll who with his wife, Mrs. Roisin Carroll are the controlling shareholders in the ultimate holding company of the group, Showlay as well as being apparently the ultimate owners of the closely associated groups of Dunloe and Orthanc. This decision is said to have been taken against the wishes of the other directors and against explicit legal advice given at the time. The decision is sought to be explained or excused by reference to Mr. Carroll’s state of health and impaired sense of judgment at that time. Since the delivery of the Supreme Court judgment, Mr. Carroll has been admitted to hospital and his condition is said to be such that he is not able to give instructions to the legal representatives. According to the affidavit of John Roland Pope verifying the present petition, the instructions to bring this proceeding have been given by Mrs. Roisin Carroll as the 50% owner of the group and the resolutions of the petitioner and each of the related companies have been adopted by Mr. Pope and Mr. David Torpey in their capacities as directors of the companies. (As mentioned during the hearing, a possible issue may arise in that regard as to whether the petition ought now to be regarded as a petition of the directors rather than the petition of Vantive Holdings for the purposes of s. 3(1) of the Act of 1990. The court considers that such an issue is more appropriately left to be decided upon if necessary at the substantive hearing of the petition given the limited scope of the issue now before the court.)

16. That limited issue, as already mentioned, is whether, having regard to the circumstances of the presentation of the first petition and the grounds upon which it was rejected, this court can or should give a hearing to this second petition as now presented. The court is not now concerned with the issue as to whether the evidence now offered is sufficient for the petition to be granted and an examiner appointed, except perhaps to the extent that the court must be satisfied that some purpose will be served by a hearing and that this is not simply a vexatious attempt to seek a reconsideration of matters determined on 11th August last in the Supreme Court. Apart from that factor, the issue as to whether this second petition as now supported in evidence meets the statutory test, will fall to be decided upon in the substantive hearing of the petition and on the basis of a full evaluation of the case now made.

17. The issue as to whether the petition is to be given a hearing raises a number of questions. First, does the Act of 1990 permit the court to entertain and hear a second petition by the same petitioner? Secondly, if there is no legal obstacle to such a hearing, does the presentation of the petition constitute an abuse of process such that it ought not to be heard? Furthermore, are there any other factors which ought to incline the court to refuse to give it a hearing including the possibility that the issue as to a reasonable prospect of survival has already been definitively decided and that there is now no new evidence or information which the court could usefully consider?

18. So far as concerns the existence of any statutory obstacle in the provisions of the Act of 1990, the court considers that no obvious impediment exists. Counsel for the petitioner and for ACC Bank effectively agree that there is no provision which either expressly or impliedly prohibits the presentation of a second petition as such. Section 3(1) clearly contemplates the possibility of concurrent petitions being presented by qualified parties and there seems to be no reason why, for example, if a petition by creditors failed for lack of evidence, it might not be successfully followed by the company’s own petition. It is equally possible to envisage a situation in which the petition of a company might fail for lack of financial support needed during the period required to formulate a scheme of arrangement. If a fortuitous change of circumstance, for example, the unexpected receipt of an important order or an offer to lease an unused premises, alleviated that difficulty, the court would presumably be slow to reject a second petition as such, if a basis otherwise existed for considering that there was a reasonable prospect of saving employment, paying creditors more than in a winding up and of the company surviving thereafter, at least in part, as a going concern. The court accordingly considers that the Act of 1990 does not preclude the presentation of a second petition by the company although, as Mr. McCann contended, it would clearly require the intervention of some special circumstance or explanation.

19. It is next necessary for the court to be satisfied that, if the petition is to be given a hearing, it will not be a futile exercise because, as Mr. McCann suggested, this second petition is in any event “doomed to fail”. He argues forcefully that even if the companies can surmount the obstacle of abuse of process and bad faith in the deliberate withholding of available evidence on the first petition, the present position is not different and there is still no basis upon which it could be said that any reasonable prospect of survival of the companies has been demonstrated. He submits that the letters from the banks supporting the petition at exhibit JRP 44 of Mr. Pope’s affidavit do not constitute evidence of the financial support found lacking by the Supreme Court. They are, he says, vague and non-committal and contain nothing to suggest a willingness on the part of the banks in question to provide the finance required to support the business plan.

20. With regard to the proposed belated production of the business plan and the valuations, ACC Bank submits that this does not constitute a new circumstance for the court to consider because this material is admitted to have been available and that a strategic and wrong decision was taken to withhold it, a decision in which the directors who now resolve to present this petition acquiesced.

21. Mr. Cush on behalf of the petitioner argues that the evidential position is now not only materially different but that there is an overwhelming case for the appointment of an examiner which the court should and must hear. He says that the information as to banking support had not been available to the companies at the hearing of the first petition - express confirmation had been sought from the banks but had not been forthcoming. But it is said that their continuing support had been implicit in the stance that they, apart from ACC Bank, had adopted at the time. Questioned on this by the court, Mr. Cush said he had no instructions as to why confirmation of support had not been forthcoming then. He submitted that it lay primarily with the banks themselves to explain why. (During the hearing, the representative of AIB confirmed that the bank had been asked to confirm its support for the purposes of the first petition but at the time, while supportive of the appointment of an examiner, the bank did not feel in a position to do so.)

22. While admitting, as already explained, that the business plan and property valuations had been available, but were withheld on the insistence of Mr. Carroll, Mr. Cush informed the court that both of these items would now be given to the court. He requested that their contents be treated as confidential, presumably on the basis that such evidence be treated as taken otherwise than in public pursuant to s. 31 of the Act of 1990. However, should the court refuse such an application, Mr. Cush confirmed that the evidence would be proffered unconditionally.

23. In those circumstances, the petitioner’s case as now presented is based on a new statutory report from Mr. David Wilkinson as independent accountant, in which he expresses the opinion that the information furnished to him by the management of the companies for the purpose appears to be reasonable and that, in his opinion, the companies would have a reasonable prospect of survival as a going concern on the basis of the key considerations he sets out in s. 6.7 of the report and subject to the conditions which he then lists in the summary which follows that paragraph.

24. Amongst the factors thus considered in forming that opinion are the valuations of the commercial properties and developments sites provided by the firm, C.B. Richard Ellis Ireland and of the residential properties by Mr. David Cantwell of Hooke & MacDonald Ltd. Each of these experts had provided valuations for the purpose of the 2008 business plan and now give revised valuations taking account of changes in the property markets in question since the earlier appraisals.

25. As already indicated, it will fall to the court hearing the petition to decide whether the present petition, based on this new report and valuations, meets the statutory test. For the purpose of the present issue, the court considers it sufficient to note that, for example, as appears from the affidavit of Mr. Enda Luddy of C.B. Richard Ellis, the four categories of commercial property had been valued by him in December on two different bases as having total values of:-
(a) €644 million if disposed of within six months by way of forced or distressed sales; and
(b) €1.211 billion if subject to an orderly disposal over three years on the assumption that the market would stabilise.

26. In his affidavit he expresses the opinion that the commercial property market is now near bottom, based on his experience and on current economic indications of an improvement in the economy generally. He expresses the belief that the assumption in the business plan of an orderly disposal over three years should now be revised to assume a disposal over a period of between three to five years. On that basis he considers that the values attributable to the freehold properties will then be between 10 – 15% below the values given by him in December, 2008 and those with development sites will be within a range of 15 – 25% below the 2008 values. Mr. Luddy also expresses the view that if the entire property portfolio of the group was to be released for sale on the Irish market as a result of a winding up of the companies, there would be significant adverse consequences for the market generally.

27. Finally, the petitioner proposes to adduce in evidence a report prepared by Messrs. Goodbody, stockbrokers (exhibit JRP 45 of the affidavit of Mr. Pope) as to the likely improvement in economic conditions both internationally and domestically. Subject to understandable caveats, this report expresses the view that “there is a reasonable prospect that the Irish economy will witness growth again in 2011 mainly on the back of an improvement in external trade”.

28. As has been emphasised, the substance and effect of these reports, valuations and opinions will require to be examined in detail on the hearing of the petition and in the light particularly of the deficiencies identified by Kelly J. and by the Supreme Court in the evidence presented on the first petition. For present purposes this court is satisfied that the material is of sufficient apparent cogency and detail to warrant that the petition be heard and that the material be considered. Contrary to Mr. McCann’s assertion, the court does not find that this petition is obviously doomed to fail. If there had been no first petition and no prior rejections and if the evidence and material now to be proffered was the basis of a first petition to appoint an examiner to these companies, the court considers that it would be impossible to find that the petition would be refused a hearing upon the sole ground that it discloses, on its face, no basis for demonstrating the existence of a reasonable prospect of survival of the enterprise in whole or in part.

29. It is also appropriate to bear in mind in this regard, that the appointment of an examiner and the investigation of the feasibility of arranging the continuance of the companies as a going concern will be supported by all of the banking creditors, other than ACC Bank, as well as by employees of companies in the group, sub-contractors and other trading creditors who have appeared on this application.

30. There remains therefore the central issue raised by ACC Bank namely, that this second petition is an abuse of process because the issue as to whether an examiner should be appointed has already been decided and the case now to be made by the companies is the case that could and should have been made originally. It is now conceded that the business plan and valuations could have been produced but a strategic decision was imposed by a 50% owner and acquiesced in by other directors to withhold them. No attempt was made before the Supreme Court to adduce those items as new evidence at that stage. By seeking now to mend their position, the companies are acting in bad faith, in breach of the clear duty imposed by s. 4A of the Act of 1990, as amended, and the court should therefore decline to hear the petition.

31. In support of the argument that this second petition is an attempt to circumvent the determination of the issue by the Supreme Court and thus an abuse of process, Mr. McCann has relied on the rule in Henderson v. Henderson (1843) 3 Hare 100, as more recently explained and applied in the United Kingdom courts in Johnson v. Gore Wood & Co. [2002] 2 AC 1 and by the Supreme Court in this jurisdiction in Carroll v. Ryan [2003] 1 IR 309 and A.A. v. Medical Council [2003] 4 IR 302.

32. The rule in Henderson v. Henderson is to the effect that a party to litigation must make its whole case when the matter is before the court for adjudication and will not afterwards be permitted to reopen the matter to advance new grounds or new arguments which could have been advanced at the time. Save for special cases, the plea of res judicata applies not only to issues actually decided but to every point which might have been brought forward in the case.

33. In its more recent applications this rule is somewhat mitigated in order to avoid its rigidity by taking into consideration circumstances that might otherwise render its imposition excessive, unfair or disproportionate. (See A.A. v. Medical Council [2003] 4 IR 302 and Mitchell v. Ireland & Ors. [2007] IESC 11.)

34. Mr. Cush does not dissent from the effect of the rule as thus explained but emphasises that it applies to inter-partes litigation where its rationale lies in the need for finality to litigation and in the vexation that would otherwise be caused to defendants repeatedly brought into court. Under the Act of 1990, the issue is, however, one between the petitioner and the court only and it is the court which must be satisfied as to whether a prospect of survival of an undertaking has been shown. Mr. Cush refers in particular to the judgment of MacMenamin J. in A.G. v. Abinbola [2006] I.E.H.C. 325.

35. Mr. Cush does, however, accept that if this court found that the presentation of the present petition involved an abuse of process or bad faith on the part of the petitioning companies, it would have a discretion to refuse to give it a hearing.

36. Having considered the arguments advanced by counsel both orally and in their written submissions, the court is satisfied that it would not be justified to refuse to give the petition a hearing notwithstanding the circumstances and reasons for rejection of the first petition.

37. In the first place, the court considers that this is not a situation in which the rule in Henderson v. Henderson is properly applicable. Provided that on the hearing of the petition the court is satisfied that the material now proffered in demonstration of the reasonable prospect of survival of the undertaking answers the deficiencies identified by the Supreme Court and meets the statutory test of s. 2(2) of the Act of 1990, as amended, the court would be entitled to appoint an examiner. The procedure is not a matter of inter-partes litigation in the sense of the rule but a plea for the intervention of the court to protect the undertaking in the interests of the companies, their creditors, employees and other interested parties. There will be evidence and information before the court which was not provided to the Supreme Court so that the High Court will not be ruling upon the same subject matter as has already been disposed of by the Supreme Court. The matter is not, therefore, res judicata in the strict sense of that concept. The reasons why that new evidence and information was not before the Supreme Court is a matter which goes to the issue of abuse or bad faith and to the exercise of the court’s discretion to decline to hear the petition for that reason.

38. The court is not convinced that the presentation of this second position is so obviously tainted by abuse of process or bad faith in the sense of s. 4A of the Act of 1990, as amended, such as would warrant its being refused a hearing. It is true that the explanation now given for the non-availability of confirmation of bank support on the first petition as noted by the Supreme Court has been less than satisfactory. The court might have expected some explanation as to which banks had been asked, what they had been asked for and what the reactions, if any, had been. On the other hand, it may not be entirely surprising, given the current economic and banking climate, the sheer magnitude of the group’s potential deficit and the uncertainty surrounding the prospects of a petition, that no bank was then prepared to risk giving anything in the nature of an explicit written commitment which would be used in court.

39. It is also true and now conceded that insofar as the business plan, the valuations and the evidence of likely evolution of economic conditions and of the property markets is concerned, the whole case might have been made on the first petition and that the strategic decision not to do so was mistaken, deliberate and contrary to legal advice.

40. Nevertheless, for the purpose of the present issue it can at least be said that, however mistaken or misguided that decision was, it does not appear to have been a malevolent attempt to conceal matters from the court with a view to misleading it. The existence of the business plan and the valuations was known and the plan had been given to and discussed with the bank’s creditors. Mr. Carroll’s decision, so far as the court can tell, appears to have been motivated by a fear that the public disclosure of the individual values attributed to specific properties would jeopardise the prospect of realising their best prices in the future.

41. In the final result, however, the court’s view is that the overriding consideration in this situation must be the legislative objective of securing, if feasible, the interests of the creditors, the employees, of those doing business with the companies and of the economy as a whole, by investigating any reasonable prospect of survival of the enterprise in whole or in part.

42. As has been indicated in the case law cited by both Kelly J. and the Supreme Court, in particular the passages cited from Traffic Group Ltd. v. Companies Acts [2007] IEHC 445 and In the matter of Gallium Limited trading as First Equity Group [2009] IESC 8, the focus and purpose of the examination process is not to help shareholders but to investigate whether some part or all of an enterprise can be arranged to continue for the benefit of employees and of the wider community. The companies are insolvent and if, upon investigation by an examiner, they are incapable of being restructured in order to survive, they will be wound up. The investment of the shareholders is gone. For that reason, the possible interest of the members in a future recovery of their investment is not a factor which is weighed in applying the statutory criteria for the appointment of an examiner.

43. It must also be borne in mind that the objective of the appointment is to provide a standstill period or breathing space in which the examiner will investigate the affairs of the company with a view to formulating and proposing a possible scheme of arrangement to procure the survival of the undertaking. Implicit in the arguments against hearing this petition is the suggestion that in doing so the court might, in a sense, allow the companies to “get away with something”. As it was put by Kelly J. in the High Court, “…the whole exercise seems designed to help shareholders whose investment has proved to be unsuccessful”. It may well be that upon closer examination of this second petition the court will come to the same conclusion. Nevertheless, at this point the court would simply observe that the future interest of the creditors and the members, will be determined, not by the hearing of the petition or the appointment of an examiner, but by the terms of any scheme of arrangement that may ultimately be adopted. Such a scheme may radically alter both the structure and ownership of the subject companies by the introduction of new investors resulting in new management.

44. Accordingly, just as the court should not permit protection to be extended to a company where the purpose is to help shareholders whose investment has been lost, it should not be deterred from so doing because it disapproves of past mistakes, misjudgements or even misconduct on the part of owners or directors if it is otherwise satisfied that it is demonstrated that there is a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern. To ascertain whether that is so in the present case on the basis of the evidence and information now proposed to be presented, it is necessary to hear the petition.

45. For these reasons the court finds that there are good grounds to give this second petition a hearing.