)
While examinership and liquidation figures for 2020 remained relatively stable with only a slight increase, analysis does seem to indicate that we can expect an increase in both towards the end of 2021 or whenever Government subsidies are phased out and creditors come knocking.
Over the past year, we’ve seen a number of judgements which give pause for thought for directors looking down the barrel of insolvency. The case of St Mary’s Centre (Telford) (“the Company”) delivered one such judgement.
In September 2020 Mr Justice Quinn refused to appoint an Examiner to the distressed healthcare facility. Lavelle Partners advised and acted on behalf of the Company.
Below, we give an overview of the case itself, the judgement, and the implications the judge’s decision might have for future cases.
Background
St.Mary’s Centre (Telford) was a Company wholly owned by the Religious Sisters of Charity and which operated a nursing home and disability centre on lands owned by the Religious Sisters of Charity on the Merrion Road in Dublin 4. In May 2020 the Board of the Company decided, for several reasons (mainly financial constraints), to close the nursing home.
In July three senior managers of the Company resigned with immediate effect. This lead the Board (all of whom were volunteer, non-Executive directors) to resolve to apply to the High Court to wind up the Company and to apply to appoint provisional liquidators to the Company.
Ms Justice Gearty appointed Neil Hughes and Dessie Morrow of Baker Tilly as joint provisional liquidators of the Company pending the full hearing of the petition to wind up the Company.
When the matter returned before the High Court in September 2020, Counsel for the employees and residents confirmed their intention to petition the Court to appoint an Examiner to the Company to investigate if there was any way the Company could be saved from liquidation.
The hearing of the petition to appoint an Examiner took place in late September 2020 with the Company and the Joint Provisional Liquidators opposing the application and the HSE, HIQA and the Revenue remaining neutral.
To appoint an Examiner, the Court must be satisfied that the Company has a reasonable prospect of survival. The petitioners for Examinership submitted two independent expert reports prepared by Aidan Garcia Diaz of Sabios in which he expressed a view that there was a reasonable prospect of survival.
Decision
Mr Justice Quinn found that the petitioners had failed to prove that there was a reasonable prospect of survival. He found that the independent expert reports failed to address how the Company would be funded in the future and failed to address the issue of the Company’s lease of the premises and how it could remain on site. He stated:
“Essentially the difficulty with the evidence of the independent expert is that it is, as the company have submitted, a series of general assertions without evidence either as to the availability of long-term funding, any prospect of the company being capable of investment by an external party and aspects outside the control, wholly outside the control of the company are not addressed and in particular the question of how it would continue to occupy the premises at Merrion Road. “
The Judge had regard to the positions of the HSE and the Religious Sisters of Charity and the fact that they neither provided a long-term commitment to fund the Company at the level it was funded previously (HSE) or to lease the land to the Company on the favourable terms previously provided (Religious Sisters of Charity.)
He also noted with approval the fact that the HSE, the Religious Sisters of Charity and the Joint Provisional Liquidators were working towards achieving appropriate provision for the residents of the disability centre and to ensure that appropriate care was provided during this transitional period, which could take up to two years. The Judge stated that he was “not persuaded that the appointment of an examiner will make a definitive difference to these ongoing and live discussions.”
In refusing to appoint an Examiner the Judge also cited the fact that the appointment of an Examiner would bring with it “its own further complexities, costs and uncertainties.”
Subsequently, in October 2020 Mr Justice Quinn made an Order winding up the Company and appointed Neil Hughes and Dessie Morrow as Official Liquidators.
While he refused examinership and approved the liquidation Mr Justice Quinn did make some very interesting and notable comments on both processes:
“Examinership is a method in company law by which a company and all or part of its undertaking can be saved. Examinership is not the only method by which the undertaking or activity of a company can be preserved or continued. By contrast, a liquidation usually entails the cessation of the business and undertaking of a company followed by its ultimate dissolution. Not every liquidation results in the final cessation of the company’s activity. Liquidation can be used to facilitate a temporary continuance of a business pending an orderly winding up or a transfer of that activity to another company or an entity better placed to continue it.”
Learnings
It’s standard practice for courts to appoint an examiner to save a company in distress. Liquidation is usually thought of as a last chance saloon, only used when a company can’t be saved. However, Mr Justice Quinn’s judgement shows that examinership is not the only option when it comes to saving jobs and the continuation of business and transfer of activities to another entity.
About the author: Dermot McClean, Solicitor on the Insolvency Team