Ensure examinership offers are enforceable – MHC
Parties should be wary of directors offering funding in examinership situations, a note by lawyers at Mason, Hayes and Curran has said.
In seeking the appointment of an examiner to Tower Trade Finance (Ireland) Limited, and a related company, a representation was made to the High Court that the directors “are committed to the investment into the company of €150,000 if the examiner is appointed on day one,” the lawyers state.
Promised funds
The directors paid in only €35,000 and the examiner did not bring the failure to pay in the promised funds to the attention of the court early in the examinership.
The proposed schemes of arrangement were not approved, and the companies entered liquidation.
The High Court refused to make an order for the examiner’s costs.
It noted, amongst other things, that an averment in an affidavit by the solicitor for the examiner as regards the nature and extent of the commitment to provide funds by the directors was incorrect.
The Court of Appeal allowed the examiner’s appeal, holding that there had not been a deliberate or grave breach of duty to justify refusing to award any remuneration or costs and that the High Court had been incorrect in holding that the examiner could seek to recover costs from the companies’ directors.
Unenforceable representations
The MHC lawyers state that, in this case, the creditors of the company were left to carry the costs of the examinership, because the directors caused what appeared to be imprecise and, more significantly, unenforceable representations to be made to the court that they would put funds into the company.
It is not uncommon for some party to indicate that they will provide funding, to encourage the court to appoint an examiner, MHC adds.
In light of this judgment, the MHC lawyers are of the view that creditors should try to ensure that any such offer is enforceable.
It may be in the interests of all involved if the examiner gives an undertaking to bring the matter back before the court if such funding is not provided in line with the commitment made and on the agreed timetable.