Supreme Court dismisses McInerney’s appeal against rejection of rescue plan

THE Supreme Court has dismissed, by a majority of three to two, the appeal by building company McInerney against the High Court’s rejection of a rescue plan for the company.

Prior to yesterday’s decision, McInerney Holdings plc had called a separate EGM for July 29 at which it will ask shareholders to place the company in liquidation. Its chairman, Ned Sullivan, told shareholders in a letter that the board and its advisers believed this was the best course of action.

The High Court, in a number of judgments, had rejected the rescue plan on grounds including the company’s creditor banks, particularly Belgium-based KBC, would be unfairly prejudiced by it. All the creditor banks — KBC, Anglo Irish Bank and Bank of Ireland — opposed the plan and sought to have a receiver appointed. Between them the banks are owed €113 million

Yesterday, Mr Justice Donal O’Donnell, Mr Justice Joseph Finnegan and Mr Justice Liam McKechnie comprised the majority court dismissing the McInerney appeal while Mr Justice Nial Fennelly and Ms Justice Fidelma Macken were the dissenting judges.

The court also dismissed the banks cross-appeal against the decision of Mr Justice Frank Clarke to allow the High Court case be re-opened after he had decided all three banks would be prejudiced by the rescue plan.

Mr Justice Clarke revisited his decision after being told there was a likelihood the National Assets Management Agency (NAMA) would take over the loans to McInerney from the two Irish banks. In his final decision, he ruled the plan would be unfairly prejudicial to KBC but, even where a rescue plan was unfairly prejudicial to only one party, it remained unfairly prejudicial.

The banks claimed the €25m sum being offered by an investor, US equity fund, Oaktree Capital, as part of the rescue plan was well below the potential value of the firm’s assets.

In its appeal, McInerney claimed the approach adopted by the banks was simply to “run the business into the ground” whereas, it said, the investor wanted to bring in inward investment at no cost to the taxpayer.

In his judgment, Mr Justice O’Donnell said the case had resulted in the “somewhat surreal scenario” of “teams of lawyers, accountants and assorted experts” engaged in a bitter struggle to gain control of an Irish property development company, “united only in the apparent belief that the development of property in Ireland over the next decade would be a lucrative business”.

Each side confidently outlined their expectations as to market performance over that period, he said. It might be observed the prediction of the future development of the property market here was something that, over the past decade, brought experienced developers and lending institutions “to financial ruin”.

He ruled McInerney had failed to show the receivership model would not have the prospect of a return of significantly more than €25m and also failed to show the proposals were not unfairly prejudicial to the secured creditors. The High Court was correct in concluding it could not approve the proposals, he said.

There was something fundamentally implausible in the companies’ vehement claims the receivership controlled workout would generate a return of only €18m, or might incur losses of €11m, he added.

Mr Justice Fennelly, dissenting, said creditors’ rights to have their interests considered must be placed in the context of the examiner’s function — to examine the feasibility of adopting proposals to enable the company continue as a going concern. He was not satisfied the High Court had a sufficient basis to reach its conclusion the banks had produced a realistic and credible, or merely credible, basis for some of their claims. He was unconvinced by the High Court’s treatment of the hypothesis of the loans of BoI and Anglo being taken into NAMA and noted the banks had been “singularly silent” as to what NAMA was likely to do with the loans.

It was difficult to see how the High Court could have reached the conclusion NAMA would be “likely” to adopt the receivership model when there was no evidence concerning NAMA’s intentions, the judge said. In all the circumstances, he was unconvinced the High Court had correctly found the banks, particularly KBC in the NAMA context, would be unfairly prejudiced.