Fergus Haynes (Developments) Ltd v Companies Acts

Factual and Procedural Background

This opinion concerns a petition by Company A seeking the appointment of an examiner pursuant to section 3 of the Companies (Amendment) Act, 1990. The board of Company A passed a resolution on 18th August 2008 to present the petition, which was filed on 20th August 2008 and heard on 27th August 2008. The petition was grounded on the affidavit of a director and majority shareholder of Company A, which constituted the sole evidence before the Court.

Concurrently, a creditor, Company B, had presented a petition on 7th August 2008 seeking the winding up of Company A. This petition was adjourned pending the Court’s decision on the examiner appointment petition. Company B opposed the examiner appointment, suggesting it was a reaction to the winding-up petition.

Company A, incorporated in 1973, engaged primarily in residential construction, property speculation, and rental activities, operating mainly in The City and The State. Its business expanded from 2004 to 2007 but was adversely affected by a downturn in the property market, leading to cessation of active trading in April 2008. Company A’s recent developments include two major projects: the Stracomer development and the Kinloch development.

The Stracomer development is owned by Company A but is subject to mortgages held by two banks, Bank A and Bank B. Both banks opposed the examiner appointment. The development involves 79 residential units, with some units sold or under construction but incomplete. Company A’s indebtedness to these banks is substantial, with conflicting evidence about funding commitments and enforcement intentions.

The Kinloch development is not owned by Company A but by a director personally. Company A performed construction work there but lacks a formal agreement and is owed a significant sum by the director. The Court noted concerns about potential prohibited transactions under the Companies Act and doubted the director’s ability to discharge the debt. Funding for this development has ceased, and the property’s value was written down in the accounts.

Company A also owns various land banks and properties, including rental properties and a site in London held through an associated company. The Court found it impossible to conclude the extent to which these assets could support Company A’s survival as a going concern.

Company A’s liabilities exceed its assets, with significant trade creditors and bank loans. Aside from Company B and the banks, several creditors appeared with mixed positions on the petition.

Since ceasing active trading, Company A has maintained limited operations, including minor works, rental income collection, and asset preservation, supported by a small number of employees and shareholder loans.

The petition was presented on the basis that Company A is insolvent and unable to pay its debts but seeks protection to restructure liabilities and attract investment, relying on its reputation and land holdings.

Legal Issues Presented

1. Whether there is a reasonable prospect of survival of Company A, and the whole or any part of its undertaking, as a going concern, sufficient to justify the appointment of an examiner under section 3 of the Companies (Amendment) Act, 1990.

Arguments of the Parties

Company A's Arguments

• The appointment of an examiner would allow Company A to restructure its liabilities and seek equity investment.
• Company A’s reputation and expertise, along with its land banks, would make investment attractive.
• An examiner under Court supervision would be better positioned than the directors to pursue investment opportunities.
• The independent accountant’s report supports a reasonable prospect of survival based on completion of the Stracomer development and a scheme of arrangement.

Company B's Arguments

• The petition to appoint an examiner is a reaction to Company B’s winding-up petition.
• There is no real prospect of finding an investor, as Company A has had a de facto moratorium and presented no evidence of efforts to secure investment.
• Support from suppliers is unlikely given Company B’s experience with insurance payouts.
• The independent accountant’s report relies on directors’ estimates without objective valuations or recognition of the need for fresh investment.
• Company A’s credit exposure to its director regarding the Kinloch development may constitute a prohibited transaction under the Companies Act.
• The costs of examinership and ongoing interest were not factored into the financial projections, undermining the viability of survival.
• Given the secured creditors’ positions and the absence of cooperation, a scheme of arrangement is unlikely to succeed.

Bank A and Bank B's Arguments

• Opposed the appointment of an examiner and intend to enforce their security interests.
• Disputed the financial projections and the prospect of survival of Company A as a going concern.

Table of Precedents Cited

Court's Reasoning and Analysis

The Court’s central task was to determine whether Company A presented sufficient evidence to satisfy the statutory requirement of a reasonable prospect of survival as a going concern under section 2(2) of the Companies (Amendment) Act, 1990.

The Court noted that cessation of active trading alone does not preclude survival as a going concern but acknowledged that it diminishes enterprise value.

The evidence before the Court, primarily the affidavit of a director and the independent accountant’s report, was scrutinized. The Court found the accountant’s opinion was based solely on directors’ estimates without objective valuation or verification by independent professionals, undermining its reliability.

Concerns were raised about the lack of evidence of potential investors, supplier support, or feasible schemes of arrangement, especially given the opposition of secured creditors and the financial position of Company A.

The Court also noted unresolved issues regarding Company A’s credit exposure to a director and inconsistencies in the statement of affairs.

Given these factors, the Court was not satisfied that there was a reasonable prospect of survival of Company A or any part of its undertaking as a going concern.

Holding and Implications

The Court REFUSED the petition for the appointment of an examiner.

The direct consequence is that Company A will not receive the statutory protection afforded by examinership, and the creditor’s winding-up petition remains extant. No broader precedent was established beyond the application of existing statutory and case law to the facts presented.