Judge says examinerships increasingly failing

A HIGH Court judge has said he is becoming “more and more reluctant” to grant court protection to companies given the high failure rate of examinerships due primarily to their failure to attract the necessary investment.

Mr Justice Peter Kelly made the comments at the Commercial Court yesterday when ending court protection for two companies producing and selling pottery under the Stephen Pearce brand. He was told Bank of Scotland Ireland, the main creditor of the companies, would appoint a receiver to the companies yesterday.

Both the judge and the companies’ examiner, Kieran Wallace, also expressed concern at Bank of Ireland’s action in setting off a debt of some €46,000 owed to it by the companies against monies in a separate BOI account opened by the examiner to facilitate trading during examinership.

When told the Revenue Commissioners had lost out as a result of BOI’s action, the judge remarked: “That’s a surprise, the taxpayer pays again.” The bank had argued it was entitled to act as it had but the examiner disputed that claim as it essentially involved the bank preferring its debt over those of other creditors, particularly the Revenue, Gary McCarthy, for Mr Wallace, said. Counsel for the Revenue argued the bank’s action was “not right”.

The judge said he was concerned at the bank’s action but the issue could be addressed in the receivership.

Last November, the judge had appointed Mr Wallace as examiner to National Crafts Ltd and its wholly owned subsidiary, Penn Castle Ltd, both with addresses at Shanagarry, Co Cork.

Yesterday, on being told investment negotiations had broken down and the companies were insolvent, the judge noted there was an increasing trend in examinerships of companies being unable to find the necessary investment and he was increasingly concerned at the number of failed examinerships.

The Commercial Court was being confronted on “an almost daily basis” by applications for examinerships based on “almost formulaic” reports from independent accountants stating investment would be required, he said. Investors now appeared “as scarce as hens’ teeth” and he was becoming more and more reluctant to appoint examiners where the effect was just to place companies “on life support with no prospect of survival”.

The judge stressed he was making no criticism of the conduct of this examinership and Mr Wallace had done all he could to attract investment. He granted the examiner’s application to end court protection, noting there was no requirement for a winding up order as Bank of Scotland Ireland would be appointing a receiver.

The court also heard of a continuing dispute between Mr Pearce and other shareholders of the company, Patrick and Michael Tattan, but the judge said that was not relevant to the issue of ending court protection.

Mr McCarthy said the examiner rejected as “totally untrue” claims by the Tattans the examiner had favoured Mr Pearce over them in relation to intellectual property rights and other issues.

Michael and Patrick Tattan have alleged unfair dismissal, outstanding wages and oppression of minority interests and have also expressed concern about payments to Mr Pearce. Mr Pearce has said he believed he, at all stages, acted legally and for the benefit of the company.

Colm Allen SC, for the Tattans, said when the application to appoint Mr Wallace as interim examiner was moved last year, the court was not told of the existence of trademarks Mr Pearce had applied for in 2007. Mr McCarthy said the examiner had provided information about the trademarks to the Tattans’ solicitors.