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Irish High Court Upholds the Primacy of an Examiner’s Commercial Judgment in Key Decision in the Ladbrokes Examinership
Julie Murphy-O’Connor, Partner, and Kevin Gahan, Senior Associate, Corporate Restructuring and Insolvency Law Group, Matheson, Solicitors, Dublin, IrelandIntroduction
In June 2015 the Irish High Court, in the examinership of Ladbroke (Ireland) Limited, Ladbroke Leisure (Ireland) Limited and Dara Properties Limited (the 'Companies'), handed down a key decision in respect of the obligations of an examiner when engaging with potential investors during the examinership process, upholding in such circumstances the primacy of the examiner’s commercial judgment, which commercial judgment is subject to review by the court only to the extent that it is so 'utterly unreasonable and absurd that no reasonable man would have done it'.
Key features of an examinership
Examinership is a restructuring process available in Ireland to insolvent or potentially insolvent companies under Part 10 of the Companies Act, 2014 (the '2014 Act') and is modelled to a large extent on the Chapter 11 process in the United States. The examiner’s function is to formulate proposals for a compromise or scheme of arrangement between the company, its members and creditors, which typically involves a combination of new investment, adjustment of the rights of members and the writing down of debt. The proposals are then put to a vote of each class of the company’s shareholders and creditors. Where at least one class of impaired creditors votes in favour of the proposals, confirmation of the proposals is then sought from the court. If approved by the court the proposals become binding on the members and creditors of the company, including any creditors who voted against the proposals. In brief, a petition is presented to the court (usually by the company, but standing is also afforded to shareholders, directors and creditors of the company) for the appointment of an examiner, who is usually an insolvency practitioner. The petition, which must be accompanied by a report of an independent accountant, must demonstrate to the court that the company has a reasonable prospect of survival as a going concern. The presentation of the petition affords the company extensive protection from its creditors for a period of 70 days, which can be extended to 100 days.
Background
Ken Fennell of Deloitte (the 'Examiner') was appointed examiner of the Companies in April 2015, which at the time had approximately 200 betting shops and 840 employees in Ireland and a turnover of EUR 415 million in 2014. The Companies are members of the Ladbrokes group of companies, one of the world’s leading online and betting groups.
Following the appointment of the Examiner, a number of potential investors, including Boylesports (one of the main competitors of the Ladbrokes group in Ireland), expressed an interest in investing in the Companies. The Examiner put in place a process to manage the expressions of interest received and set out a time frame for the investment process.
The examinership regime envisages an examiner acting with expedition as the initial deadline for an examiner to formulate proposals for a compromise or scheme of arrangement with the creditors of the company is 35 days, which can be, and invariably is, extended by the courts first to 70 days and subsequently to 100 days. It was in this context that a strict time frame of approximately 16 days was put in place by the Examiner to manage the investment process. On 3 June 2015 Boylesports brought an application to the High Court under section 532 (9) of the 2014 Act, which provision entitles any interested party to apply to the court for the determination of any question arising out of the performance or otherwise by the examiner of his functions. Boylesports contended that the information which it had requested from the Examiner in its indicative offer letter, and which it believed was necessary for it to make a proper investment proposal in respect of the Companies, had not been made available to it and that this decision had not been a decision of the Examiner but rather a decision of the Companies. Boylesports also argued that the short time frame the Examiner had imposed on the investment process was unreasonable and unnecessary.
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