The ownership history of troubled telecom’s company Eircom made sad reading, Mr Justice Peter Kelly said in the High Court yesterday.
The company had been the subject of corporate “pass the parcel” whereby it had changed hands several times and while the players of this game were the winners, it was the parcel — Eircom — which lost out, he said.
The judge made the comments as he appointed an interim examiner because he was satisfied the company is insolvent but has a reasonable prospect of survival under a new business plan.
Examinership can run for up to 100 days, during which time a business plan is implemented to ensure a company can continue as a going concern. The plan must be approved by the High Court.
The application for examinership was brought by Eircom and two related companies — Meteor and ITI — to ensure they could have protection from creditors while implementing the plan, allowing them to trade out of their difficulties.
In appointing Michael McAteer of Grant Thornton as interim examiner, Mr Justice Kelly said the history of the company — originally part of the Department of Posts and Telegraphs, then Telecom Éireann, then Eircom — “makes sad reading for the state and its citizens”.
He noted its strategic importance as the main fixed-line telecommunications provider, and the fact that, at the time of its floatation on the stock market as Eircom in 1999, it had less than €500m debt.
From that point, he said: “One would be forgiven for thinking it became the subject of corporate pass the parcel.”
In 2001, Vodafone took over the mobile phone segment and Valencia acquired Eircom with a debt of €2.1bn. With each change of ownership since, with the exception of the last one, the debt rose dramatically to a “crippling” €4.08bn, he said.
Even though the company was trading profitably, its debt to various classes of creditors now stood at €3.4bn. This week, creditors owed the bulk of that money demanded repayment which meant the company was insolvent, he said.
Profits fell due to a difficult operational climate and it also needed significant capital investment in relation to the roll out of the fibre-optic infrastructure which was key to its competitiveness.
With its main creditors — first and second lien lenders owed nearly €2.7bn — demanding that the debt be serviced as of this week, this had resulted in insolvency, the judge said.
To deal with this, the group of companies had to be restructured under a five-year business plan. The alternative was to go into receivership or liquidation and the consequent knock-on effect for their 5,758 employees, suppliers and 170 contractors, he said.
An independent accountant’s report by PriceWaterhouseCoopers was of the opinion that Eircom had a reasonable prospect of survival subject to a number of conditions including the reduction of staff by 1,000 over the next five years through incentivised redundancy and the acceptance by creditors of significant reduction in what they are owed, he said.
The appointment of an interim examiner would also result in better confidence among Eircom suppliers, he said.
Judge Kelly said he would hear the petition for full examinership on April 18. He directed that a number of firms representing creditors, along with Comreg and the Revenue Commissioners, be notice parties in the case.
The business had to continue as normal in the meantime and he ordered that pre-petition liabilities be paid by the interim examiner so that suppliers would not refuse to supply as this would affect the trading ability of the company. He said €39.7m will be generated during the examinership which would allow for those liabilities to be discharged.