A ruling on how the examiner to the Thomas Read Group must collect fees could have implications for group examinerships, writes Laura Slattery
THE COLLAPSE of the Thomas Read Group with debts of €26 million has had few winners. Everyone from Diageo to DJ Carey was a creditor of the group.
But the unsuccessful attempt to rescue what was once the biggest pub group in Dublin generated a lengthy round of fees claims from professionals involved in the examinership process – fees that were challenged by the receiver and yesterday reduced by the High Court.
In a case that could have implications for other group examinerships involving a large number of subsidiaries, Ms Justice Finlay Geoghegan also ruled that the examiner must claim his fees on a pro rata basis from each of the 13 companies within the group, according to how much time and money had been spent on each.
The High Court said the 13 companies within the group – some of which are more asset-rich than others – were not “jointly and severally liable” to pay the examiner’s costs, as the examiner had sought.
According to Graham Kenny, partner in Lyons Kenny solicitors, which represented the examiner, the judgment is significant because it forces the examiner to consider the consequences of acting for a “poor” subsidiary, even though a subsidiary that is asset-poor in the eyes of an examiner may be the one that is most capable of trading profitably.
In some ways, the story of Sharmane Ltd, the principal trading company in the Thomas Read Group, is just an ordinary tale of what can happen when a company fails in Ireland. Between the appointment of an interim examiner in November and the failure in March to agree a survival scheme with some creditors, including ACCBank, Sharmane and the related companies had racked up more than €1 million in professional fees.
By the time the receiver, Martin Ferris, was put in place by ACCBank, a typical list of brief fees, phone consultations, booklet preparations, e-mail correspondence and other work had mounted up to a total of €1,072,126 charged by the examiner and his team.
The examiner, Kieran McCarthy of chartered accountants Hughes Blake, sought costs including VAT of €554,109 for the services of his office. The examiner’s legal costs arrived at €518,016, including VAT: within this, Lyons Kenny sought costs of €346,275. Senior counsel on the case sought costs of €104,611, while the junior counsel sought €66,271. All sums here include VAT.
It was a complex case. A total of 13 companies within the group were put into examinership at the end of 2008; in February, four were liquidated, leaving nine trading profitably. Some legal fees – such as the brief fees paid to the barristers – were charged by a multiple of 13. Documents seen by The Irish Times give a breakdown of the fees incurred during the examinership, including legal charges of up to €450 an hour for the services of Lyons Kenny solicitors.
Administrative charges were typically charged at a rate of €250 an hour – for example, a fee of €1,250 was charged for five hours spent by one employee to scan, photocopy and prepare booklets for court. Drafting letters and e-mail correspondence came with a fee of €300 an hour, while stamping and filing all motions and affidavits made during the course of the examinership was conducted at a cost of €250 an hour, or €2,000 for eight hours.
In February, the examiner agreed with the directors of the companies in the Thomas Read Group and ACC, that he would accept costs, remuneration and legal fees at €580,000, plus VAT, as part of a successful scheme of arrangement arising out of the examinership. This broke down as €300,000 in remuneration for the examiner and €280,000 in legal fees, and was to have been immediately paid.
According to the ruling, the examiner said he had agreed this lower sum “in the context of a desire to achieve a positive result and to preserve jobs and maximise dividend to creditors”.
But because no survival scheme emerged, the examiner incurred “a very significant amount of extra work”, and he withdrew his offer of the “discounted” rate. The examiner sought an extra €159,465, excluding VAT, for his remuneration and a further €146,416 in legal fees (again excluding VAT).
Yesterday, Ms Justice Finlay Geoghegan ruled that the examiner and his legal team should receive the €580,000 agreed in February, plus an additional 25 per cent, plus VAT. The ex-VAT total of €725,000 reduces the original ex-VAT bill by more than €156,600.
The fees part of the ruling was “a fairly generous halfway house”, according to Graham Kenny, whose own remuneration is affected. But he believes the ruling on how the fees can be recovered will have an impact on the type of cases solicitors take on.
“If you have a poor subsidiary, you can’t recover that amount from a richer subsidiary,” he notes. “It shifts the focus. The reason for section 29’s super-preferential treatment for the examiner is so that he wouldn’t be worried about getting his fees and could focus on the recovery of the business. Now the examiner is not going to be thinking ‘which of these is going to be giving the most jobs and trading profitably’, but ‘which of these will I most likely to be able to get my fees out of’.”
The Thomas Read Group, which operates Dublin pubs including the Bailey, the Globe, Ron Black’s and Lincoln’s Inn, may yet turn out to be an early example of the difficulties that arise in group examinerships.
Is the process of obtaining court protection to assist in the survival of a company merely an expensive precursor to an inevitable receivership – a step that ultimately reduces the pool of money available to the group’s creditors?
Kenny says this is not the case, and that the process almost always attracts investors. “In all of the examinerships we have carried out, the creditors have got more money as a result of the process.”
Last week, the Minister for Enterprise Mary Coughlan said she believed certain professional groups, including lawyers, were not yet feeling “the chill winds of economic reality” and should reduce their fees. Kenny did not want to comment on the level of legal fees in general, except to say that solicitors will not act unless there is an inducement.
