THE HIGH COURT
		1996 211 COS
WESTPORT PROPERTY CONSTRUCTION COMPANY LIMITED
 (IN RECEIVERSHIP)
AND
IN THE MATTER OF THE COMPANIES AMENDMENT ACT 1990
PETITION TO APPOINT AN EXAMINER

Judgment of Mr. Justice Budd delivered on the 13th day of September 1996.

	I regret my inability to have given an ex-tempore judgment on Friday the
6th September, 1996.  I have been abroad on legal matters in Belgium and Luxembourg since then.  I was apprehensive that evening that the effect of several very long days vacation sittings and of a long and late hearing until 8 p.m. on that Friday evening might cause me to reach some overhasty conclusions in making definite decisions on the very eloquent and persuasive submissions which were made by Counsel for all the parties in the matter.  I felt there was good reason to defer my decision and to reflect on the submissions that had been made.  Furthermore, the Petitioners had engaged previously a firm of Accountants, who had been working on their accounts and on producing a business plan and indeed were still preparing up-to-date accounts of the company on such books and information as had been furnished by the directors of the company and in particular by Michael Conway.  It is urged on behalf of the Petitioners that the company has a viable prospect and that another financial institution is waiting in the wings to step into the role of main lender of the sums required to pay off the I.C.C. and also as a lender of funds to complete the proposed second phase of the development in Westport.  Counsel for the I.C.C. and for the receiver have both made strong submissions that the accounts furnished so far by the Petitioners are inconsistent and unreliable and that the prospect of a loan from Anglo Irish Bank is nothing more that a mirage.  While speedy finality is very desirable on such an application for the appointment of an Examiner, perhaps the deferral of the decision may have allowed for the completion of up-to-date accounts as an ingredient in satisfying a potential investor.  I am very conscious that the I.C.C. has already been paid £598,000 on foot of its loan and with the prospect of over £40,000 more in the near future, on the sale of the last flat from Phase 1, the outstanding debt on the loan of £500,000 plus interest seems likely to be about £120,000.  
	This petition is presented pursuant to Section 2 of the Companies (Amendment) Act, 1990 (hereinafter called "the Act") for the appointment of an Examiner, John McStay to Westport Property and Construction Limited, ("the Company").  The first Defendant is the I.C.C. which lent £500,000 to the Company on the security of a debenture dated the 17th August, 1992 supported by guarantees given by the then two directors of the Company, Michael Conway and Vincent Coakley.  Michael Conway holds 60% of the shares in the Company and Vincent Coakley holds the other 40%.  Differences arose between them and Mr. Coakley has resigned as a director.  He does not support the petition to appoint an Examiner.  Mary Conway, wife of Michael Conway has taken his place as a director.  The Company has no employees.  While services put in for Phase 1 may also be utilised in 
Phase 2, the construction of the second block of apartments has not yet begun.  
	The Company has been in financial difficulty.  Mr. Conway has put substantial sums into the Company.  The I.C.C. bank has been paid £598,000 but, despite this, lost patience with the Petitioners and on Monday the 19th August, 1996 Michael McEvoy was appointed as a Receiver over the assets and undertakings of the Company.  On Wednesday, the 21st August, 1996, the petition was presented on the ex-parte application of the Petitioners.  Mr. Justice Barr deferred the case and on the 28th August, 1996 the President of the High Court, Mr. Justice Costello, gave directions as to the service and advertising of the petition and fixed Wednesday the 4th of September, 1996 for the hearing to take place.  Unfortunately on that day I was engaged in hearing an urgent Habeas Corpus application in relation to three young children and had to defer the hearing of this petition until Friday the 6th September, 1996.  
	The appointment of an Examiner was opposed by the I.C.C. and by the receiver.  Counsel for the Revenue Commissioners indicated that the Commissioners had moved from a position of opposition to an examinership to mild support for the appointment of the Examiner.  Unless a new financial backer comes forward the Revenue's prospects of payment appear remote.  Several affidavits have been filed, namely, the affidavit of Michael Conway grounding the petition, which affidavit was sworn on the 20th August, 1996 and his supplementary affidavit sworn on the 5th September, 1996, there is also an affidavit from 
Mr. Michael Browne, the Petitioners' Solicitor.  Affidavits have also been sworn and filed on behalf of the I.C.C., an affidavit having been sworn by Michael O'Connor and there is also an affidavit from Michael McEvoy and one from Vincent Coakley, the former director of the Company who is now the 40% shareholder in the Company.
	There is some conflict.  Nevertheless certain aspects emerge as being fairly clear.  With regard to the situation of the Company, most of the necessary investments in services and the putting in of roads and drains I understand to have been done.  The remainder of the site (the area of Phase 2) has a value, that is, the site area has a value of about £190,000, according to Brian Moran, a valuer.  Secondly, disagreements arose between Michael Conway and Vincent Coakley and as a result Vincent Coakley resigned as a director of the Company on the 7th May, 1996 and Mary Conway, Mr. Conway's wife, was appointed in his place.  Mr. Coakley is still a substantial shareholder.  Clearly, the two previous directors were not pulling in tandem and no doubt that had considerable disadvantages from the point of view of the running of the company.  Thirdly, Bourke, Quinn and O'Meara prepared Statements of Affairs and are still preparing more up-to-date accounts.  They also prepared a management type of plan which has been exhibited by Mr. Conway.  Fourthly, Anglo Irish Bank corp. have expressed positive interest in lending to the project.  This is summed up in a letter of the 27th August, 1996, a copy of which is exhibited and is in the booklet before me, this is a letter to Mr. Brown, the Petitioners' Solicitor and it is dated the 27th August, 1996, which reads:-

	"Dear Sirs,
	I refer to recent discussions regarding above project.  
The letter is headed Parklands Apartment, Westport Property and Construction Limited in receivership.
	I hereby confirm that the bank will look on this proposal in a positive light and expect a full approval for the project within the next seven days.  Any approval will be subject to our normal banking conditions and we foresee adequate funding level to repay I.C.C. approximately £160,000.  The bank is also considering the finance application to build out the apartments in a positive light."  
That is from Mr. Heskin who is the Banking Manager of Area West of Anglo Irish Bank Corp.
	I accept that uncertainty about the fate of this petition will create an atmosphere which is not conducive to bringing about negotiations which would come to a conclusion favourable to the Company.  However, I felt that on last Friday evening that I had no alternative but to defer giving judgment.  
	The Company, fifthly, has no employees.  However, if the project does proceed then there must be some potential for the giving of employment in the vicinity and in particular to the giving of employment in construction work and all the ancillary services involving sub-contractors and the like which is an area in which Mr. Conway has had some considerable experience over the years.  
	Sixthly, if an Examiner is appointed then the receiver is ousted for the present at least and Mr. Conway who was culpable in respect of the inadequate accounts and the inadequacy of returns being made to the Companies Office would continue to have a role in conjunction with the Examiner in respect of the Company.  
	Seventhly, the attitude of the Revenue is more supportive than opposing of an examinership.  This is indicative of a belief, as I see it, that if the Receiver is kept in situ then the Revenue would have scant prospect of payment of the sums due of about £117,000, whereas the prospect of refinancing and of a completed project does hold out a hope that creditors and the Revenue may in future be paid. 
	Eighthly, it is suggested that the cost of an examinership bringing in a definitive report in three weeks time on the viability of the Company would not exceed £20,000.  In my view, if an Examiner is appointed he would be in a position to assess the situation thoroughly and he may speedily be put in a position so that he can reassure and deal with such a prospective lender or else in the alternative his prognosis of the situation on the basis of his study will be so dire as to bring about the demise of the examinership very speedily.  
	As for the legal principles to be applied I adopt the conclusions as to the law succinctly stated by Keane J. in Butlers Engineering Limited delivered on the 1st of March, 1996 which is an unreported case, quoting from page 5:-

	"The legal principles applicable must next be considered.  Section 2 of the Act provides:
	'(1)	Where it appears to the court that
			(a) 	a company is or is likely to be unable to pay its debts, and
			(b) 	no notice of a resolution for the winding-up of the company has been given under Section 252 of the principal Act more than seven days before the application hereinafter referred to, and 
			(c) 	no order has been made for the winding-up of the company, it may on application by petition presented appoint an Examiner to the company for the purpose of examining the state of the company's affairs and performing such duties in relation to the company as may be imposed by or under this Act.

	'(2)	Without prejudice to the general power of the court under sub-section (1), it may in particular make an order under this section if it considers that such an order would be likely to facilitate the survival of the company and the whole or any part of its undertaking as a going concern.''

	Section 3, sub-section (3) provides that:

	'A petition presented under Section 2 shall be supported by such evidence as the court may require for the purpose of showing that the petitioner has good reason for requiring the appointment of an Examiner.'

	The factors which should be taken into account by the court in deciding whether an Examiner should be appointed have been considered by the Supreme Court in two cases.  In Re Atlantic Magnetics Limited, (1993) 2 I.R. 561.  Lardner J. said:

	'In some cases the evidence may make it clear that the survival of the company is not a  practical possibility and the order is likely to be refused.  In other cases the evidence may give a strong possibility of requisite adjustment.  With requisite adjustment the company will survive and prosper therein.  Here it may be clearly possible to make an  order appointing the Examiner.  In other cases, such as the present, the evidence may not lead to a clear-cut conclusion.  There may, as here, be a conflict of evidence on matters concerning the company's affairs.  In such a case by what standards should the court make its decision?  It seems to me that the standard is this: does the evidence lead to the conclusion that in all the circumstances it appears worthwhile to order an investigation by the Examiner into the company's affairs and see can it survive, there being some reasonable prospect of survival?'

	Finlay CJ, with whose judgment Hederman, Egan and O'Flaherty JJ concurred, said of this passage:

	'I am satisfied that this analysis of the situation arising under Section 2 and, in particular, the learned trial judge's statement of the standard to be applied to the question in a case which was not clear-cut is correct, subject to the minor qualification that I would consider it more in accordance with my view of the true standard if the last line of the quotation were to read: 'there being some prospect of survival.'

	At an earlier part of his judgment the learned Chief Justice rejected the criterion that had found favour in England when the courts were considering the corresponding legislation in that jurisdiction, ie, that the court should be satisfied that there was 'a real prospect' of the survival of the company.  He also said that the importance of the evaluation carried out by the court at the stage when the petition was being presented:

	'goes no further than that a court should be very slow indeed to make an order pursuant to either of the sub-sections of Section 2 where it considers that there is no identifiable possibility of the survival of the company.'
	
	McCarthy J. with whom Egan J., also agreed said:

	'I reject the real prospect test: I would adopt the test applied by Lardner J. omitting the words 'there being some reasonable prospect of survival'.  It is not that I consider such may not enter the equation but it appears to me to be difficult to come to any firm conclusion on such a matter until the Examiner has carried out his preliminary task within the first statutory period, that of three weeks.'

	McCarthy J. also explained the policy of the Act thus:

	'It is, I believe, of great importance to bear in mind in the application of the Act that its purpose is protection: protection of the company and consequently of its shareholders, its work force and its creditors.  It is clear that Parliament intended that the fate of the company and those who depend upon it should not lie solely in the hands of one or more large creditors who can, by appointing a Receiver pursuant to a debenture, effectively terminate its operation and secure, as best they may, the discharge of the monies due to the inevitable disadvantage of those less protected.  The Act is to provide a breathing space albeit at the expense of some creditor or creditors.  The time scale is short: the role of the Examiner is hedged around by duties and the restrictions of time.'

	The latter passage was expressly approved by Finlay CJ in the case of 
	Re: Holidair Limited, 1994, 1 ILRM, 483, in a judgment in which he also reaffirmed the criteria he had indicated in Re: Atlantic Magnetics Limited and with which the other members of the court unanimously agreed.  
	The jurisdiction of the court to appoint an Examiner is not limited, as Finlay CJ noted, to cases in which the court considers that it would be likely to facilitate the survival of the company and the whole or part of its undertaking as a going concern.  It arises in every case where the company is or is likely to be unable to pay its debts and has not been wound up or no petition for winding-up has been presented within the preceding seven days.  It would appear, however, that while the jurisdiction is not thus confined to cases where it will facilitate the survival of the business, the court should be very slow to make the order unless, in the words of the Chief Justice, there is at least an identifiable possibility that it will survive.  It is also clear that the terms of Section 2 confer a wide discretion on the court in deciding whether to appoint an Examiner.  While the court is bound to exercise that discretion having regard to the particular circumstances of each case, it must do so judicially and with strict regard to the criteria laid down by the Supreme Court in the decisions already cited.

	In that context, it should be noted that the majority judgments in the Supreme Court in Re Atlantic Magnetics Limited expressly approved the formulation of the test by Lardner J. at first instance with what Finlay CJ described as the minor qualification of the omission of the adjective 'reasonable' in the last sentence.  To the extent that the judgment of McCarthy J. suggests that the passage in Lardner J.'s judgment only represents the appropriate test if one omits the words 'there being some reasonable prospect of survival', it appears in my respectful view to go further than what is contained in the judgment approved by the majority and not to form part of the ratio of the decision.
	It is also, of course, the case that elsewhere in the judgment Finlay CJ spoke of the extreme hesitation with which a court should appoint an Examiner where there is no identifiable possibility of the survival of the company.  It is not altogether clear, given the immediate context of that remark, that it was intended to suggest a lower threshold for the appointment of an Examiner than that indicated by Lardner J. with the qualification already mentioned.  It should be borne in mind that, as already mentioned, the court is not confined in appointing an Examiner to cases in which the company may survive.  For example, even if the Examiner reports that the company will not survive, the breathing space thus afforded and the information assembled by the Examiner might lead a creditor to the conclusion that its interests would be better served by the appointment of a receiver rather than a winding-up.

	Considerations of that nature might lead the court to appoint an Examiner even where there was no possibility of the company's surviving.  However, I think I should approach the present case on the basis that the court's jurisdiction to appoint the Examiner will arise provided that there is at least a possibility that the company will survive if an Examiner is appointed.
	It is also relevant in the present case to note that Lardner J., again in a passage approved by Finlay CJ, drew a distinction between cases in which there is a contest of evidence as to the state of the company's affairs and those in which the evidence makes it clear that the survival of the company is not, in his words, a practical possibility.  Clearly where there is such a conflict, the application of the criteria approved by the Supreme Court becomes of particular significance, although they must be borne in mind by the court considering the petition in every case.

	It is almost superfluous to point out that while the purpose of the Act is the protection of the company and, as a result, its shareholders, employees and creditors, the court must never lose sight of the drastic abridgement that the giving of that protection effects to the rights of the last mentioned category and I do not think that the judgments to which I have referred would lend any support to the view that the court must disregard those consequences in deciding whether an Examiner should be appointed.  In particular, it should be borne in mind that even the comparatively short breathing space of three weeks given by the appointment may have serious consequences for the creditors, given the fact that their normal remedies remain in abeyance, while the control of the company remains in the hands of those who, in some cases at least, have contributed significantly to its insolvency.

	The onus clearly rests on those presenting the petition to establish that there is, at least, an identifiable possibility that the company will survive as a going concern if an Examiner is appointed.  This is obviously not met by a bald assertion that such a possibility exists."

	I adopt the test set out by Keane J, as being, is there an identifiable possibility that the company will survive as a going concern if an examiner is appointed?  What 
Mr. Justice Keane said at page 11 in the Butlers Engineering case is instructive as to the matters which he considered in applying the test: 
	
	"In this case there is no doubt that the initial requirements of Section 2(1) have been met.  Nor indeed is there is any serious contest on some matters.  The three companies are grossly insolvent and, if anything, the scenario suggested by their own financial advisers is gloomier than that favoured by, for example, the receiver.  Nor is there any conflict as to a primary cause of the companies' present calamitous position.  It is related by the petitioners themselves to the dispute of BSC which has forced the companies to look elsewhere for their supplies of raw materials.  There is not a scintilla of evidence before the Court to suggest that there are any proposals in being to remedy this critical situation.  On the contrary, one of the companies' major suppliers, Preussag Stahl AG, is not only declining to supply the company but is actively opposing the appointment of an Examiner.  The contracts which the petitioners hope may rescue the company from its present light will be incapable of fulfilment unless the companies can obtain the necessary raw materials.  There is no indication in the affidavits supporting the petition as to how this difficulty will be overcome if an Examiner is appointed.  In such circumstances, the possibility of outside investment is obviously of critical importance if the companies are to have any hope of being saved by the appointment of an Examiner.

	The information as to the possibility of new investors coming forward is sparse in the extreme and while I fully understand the need for commercial confidentiality to be observed in matters of this nature, it is obvious from what is said in the last report of the companies' present financial advisers that the potential investors who had been approached in mid-December last had been presented with information which, through no fault of those advisers, had proved to be misleading and the hoped-for investment had failed to materialise.  

	I have already referred to the state of the companies' accounts.  A
	petitioner who undertakes the onus, however modest, of satisfying the Court that there is an identifiable possibility of the survival of the company or at least a part of its undertaking as a going concern most present the Court with at least some reliable evidence as to the state of the company's finances.  That is probably of importance in most cases.  In a case such as the present where the companies are insolvent on a catastrophic scale and their borrowing requirements, if they are to keep trading during the limited period the examinership, may well exceed £1,000,000, it is vital.  Yet the Court is left in the position, on evidence that is uncontradicted, that far from there being such evidence before the Court, the fundamental statutory obligation of the companies to keep proper books and records has been disregarded to such an extent that their auditors felt obliged to qualify their statutory certificate to the comprehensive extent already mentioned.  It is also by no means clear that the present application enjoys the unqualified support of all the directors of the companies and, while this is not a conclusive consideration, it cannot increase one's confidence in the course proposed on behalf of the petitioning creditors.  	I am satisfied that the petitioners have not established that there is any identifiable possibility that these companies or the whole or any part of their undertaking will survive as a going concern if an Examiner is appointed."

	I also think that the head note in Re: Atlantic Magnetics Limited, 1993 2IR 561 gives a useful summary of the relevant provisions and also indicates the approach of the Supreme Court.  The critical part of the head note is the holding by the Supreme Court that, upon construction of the framework and detail of the Companies (Amendment) Act, 1990 including the specific time scales imposed requiring an Examiner to report back to the High Court within three weeks from the date of his appointment and the termination of the examinership within three months unless by special order that period were extended for a further 30 days, the basic purpose of the appointment of an Examiner was for him to examine the situation, affairs and prospects of the company and therefore there was no onus of proof on the petitioner to establish as a matter of probability that the company was capable of surviving as a going concern: instead, the Court should enquire does the evidence lead to the conclusion that in all the circumstances it appears worthwhile to order an investigation by the Examiner into the company's affairs to see whether it can survive, there being some prospect of survival.  The test which has been adopted by the Supreme Court is certainly a considerably less stringent test than that adopted by the English Courts dealing with the comparable provisions in England.  I adopt the test, as being an elucidation of the principles set out by Supreme Court, as stated by Mr. Justice Keane and I propose to apply his test to the findings which I make on the material before me.
	It is urged on behalf of the Petitioners that:-

1.	The Company has a potential viability and that there is an identifiable possibility of the survival of the Company.

2.	That Mr. Conway in his past enterprises and as an entrepreneur in that part of the world has always paid his creditors in the past and he himself stresses that he regards his reputation in this respect as being very much on the line.

3.	£598,000 has already been paid to the I.C.C.  The amount outstanding to the I.C.C. is on one calculation £160,000 or on another calculation £120,000 (if the proceeds of sale of the last flat in the first phase has gone through and the money been paid to the I.C.C.).  Thus only £160,000 or £120,000 is presently due to the I.C.C. on foot of this loan.  The remnant of the site after the Phase 1 apartments have been sold off is worth about £190,000 according to Mr. Moran and the I.C.C. also has the security of guarantees from Mr. Conway and from Mr. Coakley and the guarantee given by Mr. Conway is in addition supported by the equitable deposit of the title deeds of a property of considerable value; and evidence has certainly been adduced before me that it is of value well in excess of £160,000.  

4.	Difficulties arose because of a conflict on the Board of the Company which have since been resolved by the resignation by Mr. Coakley as a director.  Now of course Mr. Coakley is still a holder of 40% shareholding in the Company but for the fact of day to day pulling in tandem of two directors of the Company that would not appear to be an immediate problem at this stage.  The slump in the property market in 1994 and 1995 has, it was urged, ceased and thus there are better prospects for sales of such apartments picking up.  The hope is expressed that the high interest rates previously prevailing and certain costs, which were incurred in respect of a related development, will not recur.  Those costs in respect of the related development were the subject of very strong criticism indeed by Counsel for the I.C.C.

5.	If Phase 2 can be completed at a cost of £620,000 as suggested on behalf of the Petitioners and the units can be sold for at least £60,000 each then, if those figures are correct, there would appear to be a viable prospect of creditors receiving payment.  
	
	Counsel for the petitioners contrasted this situation and this prospect with the utterly hopeless situation that was prevailing in the Butlers Engineering case.  
	Counsel on behalf of the I.C.C. in retort submits that firstly the petition should be dismissed "in limine" for two reasons:

1.	He says that the petition was not accompanied as required by Section 33(c) of the Act by a proper statement of the assets and liabilities of the Company.  I think that an attempt has been made to put in a Statement of Affairs in so far as figures were known to Mr. Conway.  In paragraph 9 in particular of Michael Conway's affidavit figures were given and a Statement of the Affairs of the Company was also exhibited as of the 10th July, 1996 as drawn up by Bourke, Quinn and O'Meara.  Part of the contents of his supplementary affidavit is an update of this information.  Counsel for the I.C.C. points to a discrepancy in the figures between those in paragraph 9 and those on page 81 of the booklet being Exhibit A in Mr. Conway's supplemental affidavit.  However, this copy of the faxed accounts from Bourke, Quinn and O'Meara is dated the 27th  August, 1996 and I accept this was produced in order to try to comply with the undertaking given by Mr. Conway to produce a further Statement of Affairs dated within seven days of the petition.  While this further Statement of Affairs may not have reached the I.C.C. within the seven days and criticism can and is made of the further Statement of Affairs, nevertheless it seems to me that I should not stop the matter at the threshold of the Court in all the circumstances.  

2.	It is submitted that the Statement of Affairs is unreliable and that the viability of the company all hinges on the intervention of the alternative lender putting up at least £160,000 plus the further development costs of about £620,000.  

3.	The I.C.C.'s security will be whittled away if the appointment of an Examiner is made.  I might add to this also that there is the factor of uncertainty and delay which is introduced into the work of a Receiver, who is stopped in his tracks, if there is the appointment of an Examiner and that no lending institution likes to have its power of putting in a Receiver fast under a debenture taken away or at least watered down and diluted.  

	As for the Receiver's situation, at the outset objection was taken by Counsel for the Petitioners to  the locus standi of Counsel for the Receiver.  I ruled that Counsel for the Receiver was entitled to be heard.  This had been done in a number of such cases and the Receiver's Counsel had been heard by Costello P. already in this case (see Order made 28/8/96).  In my view the Receiver has a real interest in the matter and can assist the Court from his, albeit brief, perusal of the books and his study of the assets and liabilities of the company.  For the Receiver it was submitted:-

1.	The books and records furnished by Mr. Conway were inadequate, incomplete and unreliable with a lack of information on cash receipts, planning and legal matters and the alleged debt to Mr. Conway and an alleged and disputed debt of Mr. Coakley.

2.	The Statement of Affairs takes no account of the costs of receivership, examinership, VAT or interest accruing.

3.	The appointment sought is to protect a proprietary company rather than employees, a feature in other such petitions.

	It is true that the Company has no employees in the strict sense, but if Phase 2 does go ahead then this would be likely to give employment in the vicinity of Westport.
	I have come to the conclusion after reflection that the Petitioners do satisfy the test set out by the Supreme Court in Altantic Magnetics and elucidated by Keane J. in Butlers Engineering.  Despite the cogent criticisms of Counsel for the I.C.C. and the Receiver, I am persuaded that there is at least a viable possibility that the Company will survive if an Examiner is appointed.  His examination also may well provide more complete figures so as to convince a lender of the feasibility of the completion of the entire project.  Furthermore, I am impressed by the sums already paid to the I.C.C. and Mr. Conway's desire to preserve his good reputation with creditors.  The I.C.C. also seems to have adequate security to cover the outstanding sum whether of £160,000 or £120,000, despite such "whittling away" as may occur at least during the period of 3 weeks while the Examiner assesses and reports, which hopefully will produce a restoration of confidence previously eroded by Mr. Conway's failure to ensure proper accounts and to keep the I.C.C. in particular adequately informed so as to give faith in the Company's enterprise.