Examiner’s Powers
Cases
Re Fate Park Ltd & Ors
[2009] IEHC 375
Finlay Geoghegan J.
“10. Counsel for the Examiner referred to the decision of Finlay C.J. in Re Holidair Limited [1994] 1 IR 416, and submitted that it supported the contention that s. 9(4) conferred a separate and distinct jurisdiction on the court not dependent on an order being made under sub-section 9(1).
11. In Holidair, an order had been made in the High Court pursuant to s. 9(1) and (3) of the Act of 1990, directing that the powers of the directors of the companies in relation to borrowing and the giving of securities be exercisable only by the Examiner, up to a specified limit. Holidair and its subsidiaries had, prior to the appointment of the Examiner, given a debenture to certain banks, under which it was provided that so long as monies were owing to the banks that “none of the companies shall borrow or agree to borrow additional funds secured by existing mortgages or charges” without the prior consent, in writing, of the trustee appointed under the debenture. In the High Court, Costello J. had determined that s. 9(3) of the Act of 1990, did not permit the court to make an order to permit borrowing in breach of the terms of the debenture. The companies and Examiner appealed, inter alia, that decision. There were a significant number of other issues the subject of the appeal which are not relevant.
12. The passage relied upon by counsel for the Examiner is at p. 440, where Finlay C.J. considered the extent of the jurisdiction given to the court by s. 9 of the Act of 1990, in the context of the submissions made. He stated:
“. . . I accept the contention made on behalf of the banks to the effect that s. 9 of the Act of 1990 grants to the court a power to transfer to the examiner any of the powers of the directors but does not except for subs. 4 give to the court any authority to grant to the examiner a power which was not exercisable by the directors. It is clear that subs. 3 of s. 9 was intended to and should be interpreted as giving a very wide discretion to the court in regard to the form of order which it would make under the section. The authority of the court is nonetheless confined in my view by the provisions of subs. 1 of s. 9, as I have indicated, to a transferral of powers exercisable by the directors to the examiner. I have carefully considered the submission made on behalf of the appellants to the effect that the provisions of subs. 4 of s. 9, and in particular the opening words of that sub-section, namely “without prejudice to the generality of sub-sections 1 and 3”, and the fact that subs. 4 then goes on to give to the court a very clear authority to give to the examiner the powers which he would have if he were a liquidator, should be interpreted as meaning that an order made pursuant to s. 9, subs. 1 and 3 could include powers not exercisable by the directors. In a sense there is an inconsistency between the precise terms of subs. 4 and the terms of subs. 1, but in my view this inconsistency cannot be resolved other than by interpreting subs. 4 as an additional authority vested in the court to give to the examiner additional powers over and above those exercisable by the directors [emphasis added]. That has not been done in this case nor was it sought in the High Court and therefore the order made under s. 9, which was clearly made under subs. 1 and 3 thereof does not in my view dispense the examiner from the necessity to obtain the consent provided for in the debenture.”
13. The Chief Justice went on to determine that the Examiner did have a power to dispense with the necessity of obtaining consent of the debenture holders to borrowing, having regard to s. 7(5) of the Act of 1990. That consideration is not relevant to the first issue in this case and s. 7 was subsequently amended by the Companies (Amendment) (No. 2) Act 1999, s. 18, which may alter the effect of that part of the judgment.
14. Particular reliance was placed by counsel for the Examiner on the sentence emphasised in the above extract from the judgment in Re Holidair. In my view, it does not indicate that s. 9 should be construed as conferring on the court a jurisdiction to grant to an Examiner powers he would have if he were a liquidator, in circumstances where the court is not making any order pursuant to s. 9(1) that a function or power vested in, or exercisable, by the directors of the company, is to be performed or exercisable only by the Examiner. Whilst the former Chief Justice refers to an inconsistency between the precise terms of subs. 4 and the terms of subs.1 and indicates that this can only be resolved by interpreting subs. 4 as “an additional authority” vested in the court to give the Examiner additional powers over those exercisable by the directors, he is making this observation in a context where orders had been made under s. 9(1) and (3), and the issue before the Supreme Court was whether or not such orders could include powers not exercisable by the directors. There was no issue before the Supreme Court in Re Holidair as to whether or not the Court could make an order under s. 9(4) independently of making an order under section 9(1).
15. Construing subs. 9(4) in accordance with the ordinary meaning of the words used by the Oireachtas in the context of s. 9, it appears only capable of meaning that where an order is made under subs. 9(1) that that some or all of the functions or powers of the directors be performable or exercisable only by the Examiner, the court, in addition to including an order under subs. (3) (limited in accordance with the decision of the Supreme Court in Re Holidair, i.e. that it may not include powers not exercisable by the directors), may also provide pursuant to subs. (4) that an Examiner have all or any of the powers that he would have if he were a liquidator appointed by the court. Such powers may, of course, be additional to powers exercisable by directors.
16. Having formed this view on the submissions made by counsel and a consideration of the terms of s. 9 in the context of the Act of 1990 and the Supreme Court decision in Re Holidair Limited, I was comforted to find that the former Chief Justice Keane, writing extra-judicially in the 4th edition of ‘Company Law’ at paragraph 37.58, appears to take a similar view. He there states:
“The court, may, in circumstances set out in s. 9 of the 1990 (No. 1) Act vest all or any of the directors’ powers exclusively in the examiner on his application. The court may only make such an order where it considers it just and equitable to do so, having regard to any of the following considerations:”
He then sets out paragraphs (a) to (d) of subs. 9(2) and continues:-
“Where such an order is made, the court may also order that the examiner is to have the same powers as a liquidator in a compulsory winding-up.” [Emphasis added].
20. Accordingly, I have concluded that the Examiner has not made out any grounds which would enable the court exercise a jurisdiction under section 9(1). Further he has not made out a ground that it is just and equitable that the court make an order that any powers of the directors should be performable or exercisable only by the Examiner. In the absence of the court making an order under s. 9(1), for the reasons already set out, the court has no jurisdiction to make any order granting the Examiner the powers of a liquidator appointed by the court.
Ladbrokes (Irl) Ltd & ors
[2015] IEHC 381
Cregan J.
“The issue of locus standi
65. The Examiner and the companies have raised the issue as to whether the Applicant has locus standi to make its current application under the Act.
66. Section 13 (7) of the 1990 Act, now s. 532 (9) of The Companies Act 2014, provides as follows:
“A company to which an Examiner has been appointed or an interested party may apply to the court for the determination of any question arising out of the performance or otherwise by the Examiner of his or her functions”.
67. Section 508 (1) defines an “interested party” as a “creditor… or member of the company”.
68. The Examiner in his first affidavit stated that he believed that the Applicant had not demonstrated its locus standi to make the application.
69. However I am satisfied on the affidavit evidence before the court that the Applicant is indeed a creditor of the company. Mr. Bent states at para. 2 of his first affidavit “for the avoidance of any technical arguments as to standing, Boylesports has agreed to buy a debt owed by the petitioner and on completion of that transaction will be a creditor of the petitioner”.
Does the court have a statutory jurisdiction to consider this issue?
71. The statutory jurisdiction which is invoked by the Applicant is s.532 (9) of the Companies Act 2014.
72. This section provides that
“A company to which an Examiner has been appointed or an interested party may apply to the court for the determination of any question arising out of the performance or otherwise by the Examiner of his or her functions.” (Emphasis added).
73. The Applicant submits that once it has established that it is “an interested party” and that it has locus standi as a creditor, it is then in a position to apply to the court “for the determination of any question arising out of the performance by the Examiner of his functions”.
74. It is submitted both by the Examiner and by the companies that even if the Applicant is a creditor, (which they dispute) such an interested party may only apply to the court qua creditor or qua member for the determination of any question arising out of the performance by the Examiner of his functions.
75. However I am of the view that the language of the statutory section is so broad that it permits an interested party to apply to the court for the determination of any question which may arise out of the performance by the Examiner of his duties. The statutory section does not seek to relate the questions which the interested party may raise, to their status as a creditor or member. Moreover it does not seek to limit the range of questions which may be raised by an interested party. Whilst it does mean that a creditor may seek (as in the present case) to raise a question as to how the Examiner is treating a potential investor and whilst that question might not seem related to the status of a creditor in the Examinership, nevertheless I am of the view that the words in the statute “for the determination of any question” – must be given their full and proper meaning. Therefore, this allows a member or creditor to raise any question which arises out of the performance by the Examiner of his functions.
76. I am satisfied therefore that the court does have statutory jurisdiction to entertain this application.
Does the court have an inherent jurisdiction to consider such an application?
77. The next question which arose was whether the court might have an inherent jurisdiction to consider this application. Given that the Examiner is an officer of the court it seemed to have been accepted by all sides that the court has an inherent jurisdiction to review any obviously wrongful actions of the Examiner. Thus, if the Examiner were to engage in a fraud, or were to engage in any actions which might result in a secret profit for the Examiner, the court could intervene to exercise an inherent supervisory jurisdiction over such actions by an Examiner. However Mr. Gallagher SC for the companies submitted that if such an inherent jurisdiction exists at all, it exists where the court has identified a wrong doing but not where the court is considering a decision of an Examiner in the exercise of his commercial judgment. Mr. Gallagher SC also submitted that such an inherent jurisdiction could not be activated by an aggrieved bidder.
78. I also note that Kelly J. in the matter of Eircom Ltd. (Kelly J. ex tempore 17th May, 2012) stated as follows:
“However reliance is also placed on the inherent jurisdiction of the court. I would require a lot of persuasion indeed to be satisfied that the court should identify an inherent jurisdiction which is in excess of a specific statutory jurisdiction which regulates who may make applications of this sort. But I will assume for the purposes of this ruling that locus standi has been established.”
79. In the Eircom case the court considered an application under s.13 (7) of the Act which is the identical provision to the current provision of the Companies Act 2014 which is under consideration in this matter.
80. In the circumstances therefore, whilst I am of the view that a court does indeed have inherent jurisdiction to review acts of wrong – doing by an Examiner, it is clear that the actions complained of in this case could not in any way be described as acts of wrong – doing. The Examiner in this case is an experienced Examiner and insolvency practitioner and the acts which are complained of are actions which he has taken, in his view, in the best interests of conducting the Examinership.
81. In those circumstances I am not entirely convinced that the court does have an inherent jurisdiction which could be triggered by any concerned or aggrieved party to review acts of the Examiner, in the performance of his duties, in circumstances where the statute itself has prescribed that the only persons who may make applications of this sort are creditors and members of the company. However it may be that future cases might involve an entirely different set of facts and I do not believe therefore that it is necessary to decide this issue one way or another in the context of this application.
Is the decision complained of a decision of the Examiner?
82. The Applicant also submitted that the decision of the Examiner was not in fact a decision of the Examiner at all but was rather an act of the companies. However having considered the submissions of Mr. McCann SC for the Examiner and also Mr. Gallagher SC for the companies’ I am satisfied that the decision to withhold confidential information is indeed a decision of the Examiner.
83. It may well be that the companies formed the view that this confidential information should not be disclosed for reasons of commercial sensitivity and that the Examiner adopted the companies’ decision. However the Examiner has also sought the views of a number of other experienced insolvency practitioners who also have experience of Examinerships and they have agreed with his decisions. Moreover the Examiner has stated in a number of averments in his affidavit that it was his decision.
84. Having considered all the affidavit evidence and all the submissions, I am satisfied that the decision complained of is a decision of the Examiner himself. It may have been influenced by the companies’ viewpoint but it is nevertheless the decision of the Examiner.
Was the decision of the Examiner an exercise of his commercial judgment?
85. Having considered the affidavit evidence, I am of the view that the decision of the Examiner was an exercise of his commercial judgment on this matter.
86. The issue of what information should be given to potential investors is a matter for the commercial judgment of the Examiner. If he gives too little information, he runs the risk of not getting a full or proper bid. If he gives too much information – or all the information sought by Boylesports- he might then get a full and proper bid from Boylesports but other bidders might reduce their bids to discount for the fact that the company is now increasingly vulnerable to competitors when it exits the Examinership. From Boylesports’ point of view, they say they are frustrated; from the Companies’ point of view, they say the release of this information will damage the companies.
87. The weighing up and calibration of these competing interests is a matter for the commercial judgment of the Examiner.
88. Moreover, Mr Fennell says that he has exercised his commercial judgment and Mr McAteer (another experienced insolvency practitioner) supports his position. Mr McAteer states that he believes sufficient information has been provided to permit a detailed bid (see para. 18 of his report). Likewise Mr Charlton and Mr Luby support the Examiner’s position.
89. I would therefore conclude that the decision of the Examiner was an exercise by him of his commercial judgment.
What is the standard of review of an Examiner’s decision?
90. The next question which arises is, what is the standard of review of an Examiner’s decision.
91. The question of the standard of review of an Examinership was considered by Kelly J. in the Eircom decision.
92. However, before I deal with that, an analogous question as to what is the correct test by which the court would interfere with the actions of a liquidator was considered by the Court of Appeal in the UK in Re. Edennote Ltd 1996 2 BCLC 389 where LJ Nourse stated as follows at page 394:
“Mr. Rayner James accepts and asserts that those authorities propound the correct test, namely (fraud and bad faith apart) that the court will only interfere with the act of a liquidator if he has done something so utterly unreasonable and absurd that no reasonable man would have done it.”
93. The UK Court of Appeal accepted that that was the correct test to apply. The court also stated that it was unnecessary and perhaps confusing to introduce “into the court’s control of the acts and decisions of liquidators the language of its control of administrative action”.
94. In The Law of Administrators and Receivers of Companies by Lightman and Moss the learned authors state at page 361:
“When called upon to review the exercise by insolvency office holders of their powers, the court has said that in the absence of fraud it “will only interfere…if [they have] done something so utterly unreasonable and absurd that no reasonable man would have done it.” [Re Edennote Ltd].
The question is not whether the court would have acted in the same way or would have reached the same conclusion as the insolvency practitioner. Nor will the resulting transaction be set aside where it has established merely that a reasonable practitioner may have acted differently or reached a different conclusion as long as the course of action pursued by the administrator was one that a reasonable practitioner could reasonably have contemplated. The legal basis for interference is the office holder’s perversity or irrationality. To this extent it can be said that in exercising his powers for their proper purposes, the administrator is under a duty to act rationally.
As well as being under a general duty to act in the interests of creditors as a whole, the fiduciary character of the administrator’s status as agent and office holder means that he must act impartially and even handedly as between different creditors and different classes of creditors. In this respect his position is analogous to a trustee who is required to hold the balance fairly between income and capital beneficiaries. Thus the administrator cannot unduly favour one creditor or one class of creditors over another and in the formulation of his proposals he cannot be seen to side with any particular constituency.”
95. This issue and this authority was considered by Kelly J. in the Eircom decision, a decision which is similar to the decision under review. In the Eircom decision, Whampoa Ltd and DW Investment Management Ltd LP sought directions from the court pursuant to s.13 (7) of the Companies Amendment Act 1990. The Court held that Hutchinson Whampoa had no locus standi but that DW Investment Management Ltd was arguably a creditor of the company. Kelly J, despite his misgivings, stated that he assumed for the purposes of his ruling that locus standi had been established because in his view it was important to give a determination on the merits of the application. In that case the application for the directions which were being sought were to:
(a) Direct the engagement between the Examiner and Hutchinson and to give due consideration to Hutchinson’s proposal to invest in the company.
(b) To enjoin the Examiner to allow Hutchinson into phase two of the investment process.
(c) A direction to the Examiner to permit Hutchinson to have access to documents referred to in the due diligence list.
(d) To make directions allowing the Applicants access to the valuation report prepared for the Examiner by Jeffries International.
(e) To make an order postponing creditors meetings which were due to take place the next day.
96. It is noteworthy that one of the directions sought in the Eircom case was a direction permitting Hutchinson to have access to documents referred to in the due diligence list.
97. In considering these issues on the merits Kelly J. stated as follows:
“Now if I return for a moment to the reliefs which are sought in the notice of motion. There is considerable difficulty, even if I was to find in favour of the Applicants, in making orders of the type sought. For example an order to provide for the engagement between parties seemed to carry with it very considerable difficulties having regard to the observations of Mr. Justice Murphy in the Bula decision to which I was referred. But even allowing for all of that and assume for a moment that I could make orders of this sort, ought I to do so. What is being said on behalf of the parties who are opposing this application is that to do so would interpose into the Companies Amendment Act of 1990 a procedure which cannot have been envisaged by the legislature and in respect of which there will be no justification for me embarking upon. It would mean, it is said, that the court would, in effect, be micromanaging the Examinership and that the statute does not set up either an appeal mechanism from decisions made by the Examiner, nor a form of judicial review of the Examiner’s decisions, particularly if those decisions involve a commercial judgment being exercised by him. And I think it is important to bear in mind that the statute which entitles an Examiner to be appointed presupposes that the appointment of such a person will involve the court giving the appointment to somebody who has particular knowledge and expertise. And that is why there is an affidavit at the time of the appointment as to the fitness of the person to act as Examiner and why invariably Examiners are drawn from insolvency practitioners, who would have an accountancy qualification and would have considerable business experience involving insolvent entities.
The court has neither the expertise, nor indeed the backup to make commercial decisions. The court is here in a supervisory role and to decide legal issues. And in the event of the Examiner either misbehaving or doing something which is wrong in law there may well be an ability for the court to intervene in such circumstances. But in areas of commercial judgment it seems to me that the court’s scope for intervention is very limited. And I’m not sure at all that the Act envisaged anything like an application of this sort (a) because it doesn’t envisage an appeal mechanism or a judicial review mechanism. And the wording of subsection 7 speaks about the determination of a question rather than the giving of precise and definite instructions to an Examiner as to how he is to go about his function.
But even if the Applicants surmount all of those difficulties and the form of orders they seek is capable of one being granted and one which is capable of being enforced, by what standard is the conduct of the Examiner to be judged on an application such as this?
There is no authority on point in respect of an Examinership in this jurisdiction but I am very much inclined to take the view that the observations of the courts in England which are encapsulated in a passage from Lightman and Moss on the Law of Administrators and Receivers of Companies is persuasive. It persuades me that the court should only intervene in respect of the behaviour of an Examiner in very limited circumstances. What the courts in England have said in respect of insolvency practitioners, who admittedly are not on all fours with an Examiner but where there are many similarities, and I believe that this is the appropriate test to apply here, that passage from Lightman reads as follows” [Kelly J. then set out part of the passage referred to above and then continued].
“I believe that that is the appropriate standard to apply in looking at the decisions of the Examiner here which are sought to be impugned. So assuming that the Applicants don’t have locus standi difficulties, assuming that they don’t have difficulties as to the form of reliefs which they seek, assuming that the court is prepared to read section 13 (7) in the way which they suggest and to regard the definition of “determination of any question” as extending to this sort of relief then that is the standard that has to be applied.
I am quite satisfied having had the benefit of all this evidence that in this case the Applicants assuming that they have an entitlement to make this case, fall far short of demonstrating to the court that the Examiner here has done something which is “so utterly unreasonable and absurd that no reasonable man would have done it”.
98. Subsequently in his judgment Kelly J. also stated:
“On the contrary I believe that there was an entirely rational and reasonable basis for the Examiner to come to the conclusion which he did. It involved him making, in part at least, a commercial decision. He is the person qualified to make that decision not the court. I do not accept that this is an application which is entirely about process. It also involves the consideration of the merits to some extent of the proposal which the Examiner has given favour to and the proposal which was made by Hutchinson. He made his decision in the context of the commercial realities of that and, in my view, is not now to be the subject of that discretion which he exercised being set aside by the court on this application.
Consequently, for these reasons, I refuse the reliefs which were sought in the notice of motion.”
99. There are many elements of the learned judge’s views which are of application to the present case. Kelly J. stated that he did not accept that the application in that case was one which was “entirely about process” but that it also involved consideration of the merits of the proposal. In the same way here, although the decision of the Examiner is to some extent about the investment process, (i.e. about what commercial information to provide to a potential investor) it is also about the substance of how the Examiner conducts the Examinership investment process.
100. The Applicant, by contrast, seeks to argue that in certain cases there is a different standard and to rely on Re. Capitol Films Limited (in administration) [2011] 2 BCLC 359. In this case Mr Snowden QC sitting as Deputy Judge of the High Court stated at p. 398 of his decision:
“I do not think that the line of cases exemplified by Re Edennote are an appropriate analogy on the question of costs in this case. I accept that the court will generally defer to the commercial judgment of the office-holders where what is in issue is a challenge to the office-holders’ assessment of the merits of one particular bid for a company’s assets over another, or whether, for example, it might be possible to obtain an increased bid for those assets given more time. However, as I have indicated above, applications under paragraph 71 raise additional and different issues. They require the court to determine whether it is appropriate to prevent the holder of a fixed charge from enforcing his security rights and to permit the administrator to undertake a sale which promotes the purposes of the administration more generally. Such an application requires the court to balance the competing rights and interests of the holders of fixed charges with the rights and interests of the other creditors: see Re ARV Aviation Ltd [1989] BCLC 664. On that type of issue, the court does not simply apply the Edennote approach and defer to the administrators’ business judgment provided that it is rational: the court will decide for itself how to resolve the competing interests of creditors: see e.g. Re Buckingham International plc (No.2) [1998] BCC 943 at 960-961 (CA).”
What is the appropriate standard?
101. The Examiner says that his decision is a commercial judgment made in the best interests of the company. He says therefore on the authority of Eircom, Edennote and Lightman and Moss that the Court should only set aside his decision if “it is so utterly unreasonable and absurd that no reasonable man would have done it.”
102. The Applicant, by contrast, submits that the appropriate test to use is that laid down in Re. Capitol Films Limited i.e. that in an application such as this, the Court must balance the competing rights and interests of the parties.
103. I have considered the cases and textbooks relied on by all of the parties. I note that in Re. Capitol Films Limited the question which the court was considering was how to balance the competing rights of the holders of fixed charges with the rights and interests of other creditors.
104. I also note that in Re. Wogans (Drogheda) Limited [1993] 1 I.R. 157 the High Court and the Supreme Court also considered whether a Deed constituted a fixed charge or a floating charge. This was an application by the Examiner brought by way of a motion for directions in the High Court seeking a declaration that the Respondent did not hold a fixed charge over the debts of the company. There was no discussion in that case about the standard to be applied. The only issue under consideration was whether the charge was a fixed or floating charge. It was therefore a question of law.
105. Having considered these principles and authorities, I am of the view that the standard to be adopted by the court in considering questions on such applications depends on whether the question raised is:
a) A question of law
b) A question of fact (e.g. the commercial judgment of the Examiner).
106. If it is a question of law then the court must determine that question of law by reference to the appropriate legal principles.
107. If it is a question of fact, and if there is a contest about how the Examiner has exercised his commercial judgment, then the court should apply the criteria in Eircom and Edennote.
108. It is clear, in my view, having considered all the affidavit evidence, and all of the submissions that the central question which the court is being asked to determine in this application is a question of fact. The plaintiffs are seeking certain information; the Examiner has decided not to provide such information. The Examiner says that in making this decision he has had to balance all of the various interests involved, including the interests of the companies, the creditors and the employees. He says that in making this decision he has exercised his commercial judgment having regard to all the facts of the matter.
109. In my view therefore the central issue which the court is being asked to decide is a question of fact i.e. whether the decision made by the Examiner is a proper exercise of his commercial judgment. Therefore the standard is the Eircom/Edennote standard.
Has the decision of the Examiner failed the requisite standard?
110. The Examiner has given reasons for his decisions. His reasons are that the information which is being sought is commercially sensitive. He also believes that if the information is released to companies engaged in the bidding process those companies could subsequently, if they are unsuccessful in the bidding process, (or if they withdraw from the bidding process), use that information to target specific betting shops of the companies and thereby to damage the business of the companies. That is a valid commercial judgment of the Examiner. There is no suggestion that it is not made bona fide. If there was such a suggestion, there is absolutely no evidence to suggest that it is not being made bona fide.
111. Moreover, the Examiner has to balance the competing interests involved in the various investment proposals. On the one hand there is the competing interest of the companies who do not wish to release this commercial information because it is commercially sensitive and because it could do damage to the companies when the companies exit the Examinership process. On the other hand, Boylesports say that they need this information to make a full and properly informed bid for the company. They say it would be a lame duck bid. Mr. Gallagher SC submits that if this information is supplied to Boylesports it might depress any price which the Ladbrokes UK parent company might be prepared to bid for the company, because even if such a bid is successful their competitor now has vital confidential information which it can use to target the most profitable stores or betting shops of the Irish business. This exchange neatly encapsulates the competing interests which have to be balanced in this situation.
112. The Examiner has said that he has considered all the issues and that he has exercised his commercial judgment in such a way as to refuse the information being sought because it is highly sensitive, commercial, confidential information which if given to a trade creditor such as Boylesports might damage the company if and when it exits Examinership.
113. In the circumstances, I am of the view that the decision of the Examiner to withhold the commercial information is not so “utterly unreasonable and absurd that no reasonable man would have done it”.
114. I am satisfied that this decision was properly made by the Examiner within the scope of his commercial judgment and I am also satisfied that it is not utterly unreasonable and/or absurd. Therefore the relevant standard is met.
Conclusion
115. In the circumstances I am of the view that the application must be refused.”
In re Edenpark Construction Ltd.
[1994] 3 I.R. 134
Murphy J.
“Section 29 of the Companies (Amendment) Act, 1990, gives an extraordinary priority to the remuneration, costs and expenses (including liabilities of the company which are deemed to be expenses) of an examiner. If sanctioned by the court such remuneration, costs and expenses are payable not merely in priority to other claims against the company concerned but in priority to those creditors who are the legal owners by way of security of the assets to which recourse may be had for the payment of such indebtedness. Perhaps this provision might not have seemed so far-reaching were it not for s. 10 of the same Act which deemed certain liabilities of the company itself to be expenses of the examiner and accordingly to enjoy the same priority. Section 10 aforesaid (as originally enacted) provided as follows:
“(1) Where an order is made under this Act for the winding-up of the company or a receiver is appointed, any liabilities incurred by the company during the protection period which are referred to in subsection (2) shall be treated as expenses properly incurred, for the purpose of section 29, by the examiner.
(2) The liabilities referred to in subsection (1) are those certified by the examiner at the time they are incurred, to have been incurred in circumstances where, in the opinion of the examiner, the survival of the company as a going concern during the protection period would otherwise be seriously prejudiced.
(3) In this section, ‘protection period’ means the period, beginning with the appointment of an examiner, during which the company is under the protection of the court.”
It follows, therefore, that to elevate liabilities of the company to the status of expenses of the examiner the following must occur:
(1) The liabilities must be certified by the examiner to have been incurred in circumstances where the survival of the company as a going concern would otherwise be seriously prejudiced;
(2) That the prejudice must be foreseen as occurring in the period which commenced with the appointment of an examiner and terminating with the cessation of the protection;
(3) That the certification by the examiner must take place at the time when the liabilities are incurred.
Thus it can be said at once that a liability incurred by a company in procuring the appointment of an examiner could not be a “certifiable”liability as the relevant period would not have commenced when the liability was incurred. Again it is obvious that an expense incurred by the examiner is not a liability of the company and does not require certification. The section does not expressly provide that the examiner should certify in writing and accordingly it was argued by counsel on behalf of the former examiner that verbal or parol certification sufficed. Whilst no authority was opened in support (or in rebuttal) of that proposition, I would accept that ordinarily the word “certify” does not necessarily connote a document in writing. Where such is required a draftsman would be expected to include the words “in writing”. However even accepting that a certificate in writing is not a legislative requirement, one would have thought that it was an obvious and inescapable administrative necessity. Even where written documentation exists in the present case, it is by no means clear that the examiner directed his mind to the essential ingredients of a certificate for the purposes of s. 10 aforesaid. In the absence of such documentation it is difficult to ask those creditors whose rights are postponed to accept that the parol certification was correct in its terms and in its content.
In the paragraph which I quoted from the second affidavit of the examiner, he stated that “it was necessary to certify certain expenses”.Whilst I would have assumed that the word “expenses” was an error and should have read “liabilities”, undoubtedly the schedule referred to includes both expenses and liabilities. But it is also significant that in the same paragraph the examiner states that the liabilities were certified by him “at the time they were incurred” and goes on to say that he did so as he considered they were necessary to ensure the survival of the companies, but he does not say that it was his opinion that the survival of the companies would be seriously prejudiced “during the protection period”. It seems to me there is a vast difference between these two situations. As the Supreme Court noted in In re Atlantic Magnetics Ltd. (In receivership) [1993] 2 I.R. 561, the Act of 1990 provides time limits which are strictly limited. Indeed it is envisaged that the entire process would be completed in fifty one days. Of course these limits may be extended but they represent the time scale envisaged by the Oireachtas and afford guidance as to how the actions of the parties concerned should be judged. Clearly there is a difference between forming an opinion that the survival of a company might be seriously prejudiced during a period limited to six or seven weeks and a period which is wholly indefinite. Furthermore, it is significant that the paragraph from the examiner’s affidavit makes no reference to a parol certification.
……
It has been pointed out in many cases that an examiner appointed under the Companies (Amendment) Act, 1990, does not as such have an executive role. He does not have functions akin to those of a receiver or liquidator. In the absence of some particular order of the High Court, he may not usurp the functions of the board of directors of the company over which he is appointed and it is the board or its officials who will continue to manage the business of the company during the period of protection and the continuance of the examinership. The important function which the examiner must perform during the strictly limited period of the statutory moratorium provided by the Act of 1990, is to examine the affairs of the company and to prepare and deliver a report containing the information specified in s. 16 of that Act. In particular the examiner must state his opinion as to whether the whole or any part of the undertaking would be capable of survival as a going concern and indicate whether the formulation and confirmation of any proposals for a compromise or a scheme which would facilitate such survival. Nobody doubts the importance or difficulty of that task nor would one question the professional expertise which may be involved in performing it.
An executive role, if it may be so described, which is likely to fall to most examiners would be the duty to review at the request of the directors (or perhaps a potential creditor) liabilities intended to be incurred by the company during the protection period with a view to forming an opinion as to whether the survival of the company as a going concern during the protection period would be seriously prejudiced if such liabilities were not in fact incurred.
Clearly the examiner would be conscious of the fact that the certification of his opinion in that behalf would give to such liabilities a very special priority and cause an unexpected deferment or postponement of other creditors. Good housekeeping would suggest that the circumstances in which the liability was intended to be incurred and the nature thereof would be recorded in writing for submission to the examiner and that the examiner in turn would certify, again in writing, his opinion as to the effect which the failure to incur such liabilities would have on the survival of the company during the protection period. Certainly one would expect the examiner to maintain a clear distinction between expenses which he incurred and the liabilities incurred by the corporate entity whether or not those liabilities were certified by him under s. 10 aforesaid.
In conclusion, firstly, the examinership should have terminated at least some weeks before it did and secondly, the examiner erred in the manner in which he purported to certify the liabilities of the company under s. 10 aforesaid. It would be impossible to identify the precise date upon which the examinership should have been terminated and it would be difficult to assess what affect the earlier completion would have on the fees proposed by the examiner. But doing the best I can, I feel that the fees proposed by the examiner should be allowed at the rate proposed by him but reduced as to the time expended by an overall figure of 20%. Accordingly, I would allow his fee at £84,376.00 plus V.A.T.”
In re Don Bluth Entertainment Ltd.
[1994] 3 I.R. 149
Murphy J. 149
“First, it was contended on behalf of the examiner that s. 10 conferred upon the examiner a discretion which could not be reviewed by the court. Alternatively, it was contended that, if the decision of the examiner could be reviewed at all, it would only be by analogy to the principles applicable where a judicial review is made of an administrative decision and that, accordingly, the decision of the examiner should not be set aside unless it was made:
(a) in bad faith,
(b) for an improper purpose, or
(c) on a basis that was manifestly unreasonable.
…….
As the combined operation of ss. 10 and 29 of the Act of 1990 will frequently result in some creditors of a company being paid in full at the expense of the creditors who hold securities over the assets of the company or creditors who would have enjoyed a statutory preference under s. 285 of the Act of 1963 if the insolvency of the company in question had resulted in a liquidation rather than an examinership, it is important that an examiner should exercise great care and professional expertise in issuing certificates under s. 10 aforesaid. I would anticipate that an examiner from whom a certificate is sought would require the directors managing the business of the company to submit to him their proposals in relation to any particular liabilities which they proposed to incur and to satisfy him as to how the services or goods to be obtained would benefit the company, and in particular how they would contribute to the survival of the company “during the protection period”.
…….
The Act of 1990 does not confer any priority on the costs of persons petitioning for the appointment of an examiner and indeed on the 8th October, 1992, no order was made for the costs of the petitioners. Furthermore, the general scheme of the Act could not have envisaged the petitioner procuring a priority for his costs by means of certification under s. 10, as ordinarily the examiner would not be appointed until after the expense of the petition had been incurred. It would seem to me to be inappropriate to alter the scheme of the Act by the fortuitous event that a provisional or interim examiner might be appointed and that his certificate would give to the petitioner a priority which the legislation had withheld. In so far as the examiner purported to certify liabilities already incurred, it is clear that the certificate has no statutory effect. In so far as the liabilities related or may have been intended to relate to contemporaneous liabilities in respect of proceedings for the appointment of an examiner, it seems to me that the certificate is likewise invalid for the reason offered by counsel on behalf of the official liquidator, namely, that the protection period during which the survival of the company falls to be considered is a period which commences with and postulates the exsitence of an examiner so that the appointment of an examiner or proceedings for that purpose can have no bearing on the survival of the company during the relevant period.
Insofar as the company required the services of their solicitors to advise them in relation to the execution of documentation with regard to the various substantial borrowings required to meet the weekly wages bill and for other current purposes, it is easy to see how an examiner could regard the failure to incur such liabilities as prejudicial to the survival of the company as a going concern during the protection period.
In the circumstances, it seems to me that the court can not sanction as expenses of the examiner for the purposes of s. 29 of the Act of 1990 any liabilities incurred by the company on foot of the bill furnished by Messrs. A. & L. Good-body insofar as the same relates to proceedings to obtain the protection of the court or the appointment of an examiner under the Act of 1990.
Having regard to the amount of the bill and the attitude adopted by the Revenue Commissioners, it seems to me to be appropriate to direct taxation of the bill as all or part of it will be a debt provable in the liquidation. Certain brief fees and the refreshers referred to in the bill would not appear to be in line with the figures of which evidence was given and accepted by me in the appeal from taxation which I heard in Smyth v. Tunney [1993] 1 I.R. 451. However, it would be a matter for the Taxing Master to express his judgment on the quantum of the fees but I will expressly direct that he should segregate the costs and issue a certificate as to those relating to the proceedings for the appointment of the examiner and a certificate in relation to the balance of the work done.