McInerney Homes Ltd v Cos Acts 1990

Factual and Procedural Background

On 26 August 2010, the High Court appointed an Examiner to a group of property-development companies collectively referred to here as Company A. At that time Company A owed approximately €110 million to a syndicated lending group comprising Bank A, Bank B and Bank C (“the Banking Syndicate”). After the lenders withdrew working-capital support and imposed a full cash sweep, Company A sought court protection through examinership under the Companies (Amendment) Act 1990.

The Examiner negotiated with a U.S. distressed-asset investor, Investor A, which ultimately offered €25 million to purchase the banks’ secured debt. The proposal required the Banking Syndicate to accept a very substantial write-down.

The High Court conducted five hearings between September 2010 and February 2011. It refused to confirm the proposed scheme, holding that it was unfairly prejudicial to the secured lenders. The refusal generated appeals by Company A and a cross-appeal by the Banking Syndicate. The Supreme Court, constituted by Judge [O'Donnell] (majority) and Judge [Fennelly] (dissent), delivered the judgment summarized below.

Legal Issues Presented

1. What test governs “unfair prejudice” to creditors under section 24 of the Companies (Amendment) Act 1990?
2. Which party bears the onus of proving (or disproving) unfair prejudice at a confirmation hearing?
3. Whether the High Court correctly concluded that the Banking Syndicate would be materially worse off under the scheme than under alternative enforcement options, particularly a receiver-controlled work-out.
4. Whether the High Court was entitled to reopen its first confirmation judgment upon learning that the loans of Bank A and Bank B were likely to be transferred to Agency A.
5. If reopened, whether the potential transfer to Agency A eliminated unfair prejudice for Bank A and Bank B but not for Bank C.
6. Whether the High Court should have entertained a late, higher offer from Investor A after judgment but before the formal order was perfected.

Arguments of the Parties

Company A and the Examiner

• The scheme would save approximately 109 direct jobs and sustain subcontractor employment, aligning with the rescue purpose of examinership legislation.
• The Banking Syndicate’s receiver-work-out model overstated likely recoveries, particularly by erroneously adding a €22 million “Work-in-Progress” (WIP) figure to profits.
• The onus lay on the objecting banks to prove unfair prejudice under section 25.
• The High Court placed excessive weight on the absence of cross-examination and insufficient weight on the Examiner’s independent view.
• Transfer of the loans to Agency A would make the €25 million offer commercially equivalent to the price that Agency A would pay, eliminating prejudice.
• The Court should have accepted Investor A’s late offer of an additional €6.6 million earmarked for Bank C.

Banking Syndicate

• A receiver-controlled work-out could realise about €75 million nominal (≈ €50 million present value); accepting €25 million was therefore unfairly prejudicial.
• The WIP entry accurately adjusted for construction costs already incurred and to be incurred; its exclusion would distort profitability.
• Under section 24 the Court cannot confirm a scheme unless satisfied it is not unfairly prejudicial; therefore the proponent carries the burden.
• Transfer to Agency A was speculative, and even if it occurred the agency would likely pursue a long-term development strategy producing higher recoveries than €25 million.
• Investor A’s “final” offer having been rejected, the proceedings should not be reopened to accommodate a tactical increase.

Table of Precedents Cited

Court's Reasoning and Analysis

Majority (Judge [O'Donnell]):

• Section 24 places a negative obligation: the Court must not confirm a scheme unless satisfied it is not unfairly prejudicial; therefore proponents effectively bear the evidential burden.
• The Banking Syndicate’s receiver-work-out model, though contested, was “credible” and largely mirrored projections originally produced by Company A itself; the Court was unconvinced that the alleged WIP error invalidated the model.
• Valuations from Valuer A, Valuer B and others showed the secured assets’ present value exceeded €25 million; forcing an immediate crystallisation at that level was unfair to secured lenders.
• Re-opening the case to consider potential transfer to Agency A was proper, but even with such a transfer the lenders were likely to recover more than €25 million, so prejudice persisted.
• Investor A’s late improved offer was refused; permitting post-judgment bargaining would undermine the tight statutory timetable and encourage strategic under-bidding.

Dissent (Judge [Fennelly]):

• The Examiner’s independent assessment deserved greater weight; rescuing a viable enterprise and preserving employment align with statutory objectives.
• The WIP figure was improperly included; removing it would narrow the gap between receivership recoveries and the €25 million offer, eliminating disproportionate disparity.
• The majority overstated the likelihood that Agency A would adopt an 11-year receivership model; evidence suggested otherwise.
• On balance, the scheme should have been confirmed.

Holding and Implications

HOLDING: The Supreme Court (majority) DISMISSED the appeals of Company A and upheld the High Court’s refusal to confirm the scheme; it also DISMISSED the Banking Syndicate’s cross-appeal on ancillary points.

Implications: The decision re-emphasises that secured creditors cannot be compelled to accept significant write-downs unless the court is positively satisfied they will not be materially worse off than under realistic enforcement alternatives. The judgment also cautions that late tactical offers risk being struck out as an abuse of process. No new legal test was created, but the case illustrates the court’s rigorous approach to valuation evidence and burden of proof in examinership confirmations.