Carroll wins stay of High Court order on Zoe group

The Supreme Court has granted court protection to several companies in developer Liam Carroll’s troubled Zoe building group pending the outcome of their appeal next week against the High Court’s refusal to appoint an examiner to them.

Michael Cush SC, for the companies, argued Mr Justice Peter Kelly made a number of errors when refusing examinership, including setting out his own views on the state of the property market and rejecting as “fanciful” claims the companies, who have bank borrowings of some €1.1 billion, could achieve a surplus of some €300 million in three years.

The three-judge Supreme Court with Chief Justice Mr Justice John Murray, presiding and sitting with Mr Justice Nial Fennelly and Mr Justice Nicholas Kearns, placed a temporary stay until a full appeal hearing next Tuesday on Mr Justice Kelly’s order after finding the companies had arguable grounds of appeal against it.

ACC Bank, whose demand last month for repayment of €136 million loans led to the application for protection, had opposed the stay.

Rossa Fanning, for ACC, said it initially adopted a position of “guarded neutrality” to examinership but, having reflected on the High Court ruling, now wanted the Supreme Court to affirm that refusal. Counsel also argued there was no jurisdiction under the relevant provisions of the Companies Act for a stay on a refusal of examinership.

All other bankers creditors, including AIB and Bank of Scotland Ireland (who between them are owed some 64 per cent of the companies’ loans) supported the companies application with the Revenue Commissioners adopted a neutral position.

Mr Justice Kelly had last Friday refused court protection to the six companies, on whose fate the other 51 companies in the Zoe group depend, after rejecting as “fanciful” and “lacking in reality” survival proposals heavily dependent on a greatly improved property market.

He also said the proposed survival scheme seemed directed at helping shareholders whose investment has proved to be unsucessful, which was not the objective for which examinership legislation was envisaged.

The petition for protection is by Vantive Holdings which, with Jersey-registered Morston Investments Ltd, is the parent companies of around 50 companies known as Zoe Developments. It was moved after four companies - Villeer Developments, Peytor

Developments, Caragh Enterprises Ltd and Parlez International Ltd - were presented with demands from ACC for repayment of loans.

Mr Cush said today, unless a stay was granted on the refusal, an appeal might prove pointless as ACC had indicated no comfort for his clients and could take whatever steps it considered fit.

Counsel said his side had three “very strong” grounds of appeal. The first was the examinership application was moved in the “highly unusual” circumstances of the companies having agreed a business plan six months ago with 90 per cent of their banker creditors who were very positive about the plan.

The banker creditors had agreed to: a) provide finance to enable the discharge of third party unsecured creditors and that had been done; (b) provide finance for ongoing development, development being the group’s business and; (c) “most

extraordinarily”, to put a moratorium on repayment of the debt for two or three years, which period could be extended.

To have such a scheme with that level of pre-planning prior to seeking protection made this application unique, counsel said. The High Court had erred in not giving significant weight to this factor when assessing whether the companies had a reasonable prospect of survival.

Mr Cush also argued the High Court erred in a second respect in how it considered the property valuation element of the application. Mr Justice Kelly, he submitted, had gone beyond the evidence in substituting his own views on the property market for

December 2008 valuations provided by two firms of estate agents - CBRE and Hooke & McDonald.

While those specific valuations were not exhibited in the petition documents, they were included in the business plan submitted to the banks by the companies last December, counsel said. The High Court had erred in not regarding those valuations as truly independent because the two estate agents had previously carried out work for the companies.

The third ground of appeal was that the High Court “misunderstood” the basis of the turnaround anticipated for the companies, Mr Cush said. The High Court had taken the anticipated deficit of €1.1 billion on a winding up basis and queried how the companies could achieve a €300 million surplus within three years.

The €1.1 billion figure was the “wrong starting point” and the correct starting point was the current deficit of some €260 million, counsel said. Based on that latter figure, the companies believed they could achieve a surplus of some €300 million in three years time.

While the High Court judge had correctly stated, even if he considered there was a reasonable prospect of survival, he nonetheless had a discretion to refuse protection, he had erred in the exercise of that discretion as he had “mischaracterised” the banks’ position and made findings about their intentions in supporting the petition which were “wholly unsupported” by the evidence.

The High Court also made no reference at all to evidence the property market could not absorb this amount of property coming onto the market if court protection was refused, counsel added. The collapse of these companies would have implications for many others and this, with all the other factors, made a very strong case for examinership.

The fact an examiner would have to make his first report to the court within 35 days also tilted the balance in favour of examinership, counsel said. If no stay was granted, protection would be removed, the appeal would be rendered nugatory and the status quo would be altered.

Giving the Supreme Court’s decision granting the stay, the Chief Justice said there is a constitutional right of appeal and the normal situation is that a stay is granted where an appeal is brought promptly and there is a stateable appeal.

He was satisfied the companies had arguable grounds of appeal but stressed that was not a reflection on the merits of the appeal. It was also evident, in the circumstances of this case, the appeal itself would be moot were a stay not granted.

Mr Justice Murray also told Mr Cush his legal submissions should address the High Court’s views concerning the adequacy of the report of an independent accountant which grounded the companies claim of having a reasonable prospect of survival.