McInerney rescue plan rejected by judge

THE HIGH Court has turned down a proposed rescue plan for housebuilder McInerney because it was unfairly prejudicial to its bank creditors.

McInerney Homes and some of its associated businesses in the Republic were placed in examinership and under High Court protection from their creditors last September.

The company owed €113 million to a syndicate of three banks, Anglo Irish, Bank of Ireland and KBC, whose debts were secured against McInerney’s land bank, its main asset.

Yesterday, in the High Court, Mr Justice Frank Clarke said he would not sanction a rescue plan for the company, backed by potential investor, Oaktree Capital, which proposed offering the banks €25 million in full and final settlement of the debt.

Mr Justice Clarke ruled that the plan, drawn up by examiner, Bill O’Riordan of Pricewaterhousecoopers, was unfairly prejudicial to the interests of the bank syndicate, which had opposed both the examinership and the rescue plan.

The syndicate proposes to put the company in receivership and recover its money by building houses on McInerney’s sites around the Republic and selling them.

The banks calculate that doing this over a period of up to 11 years would yield a cash flow of €75 million which would ultimately lead to them recovering €50 million of their debt.

McInerney disputed this, predicting that cash flow would be about €18 million, ultimately yielding €11 million for the banks.

Mr Justice Clarke said it was not possible to say definitively that one set of figures was right and that another was wrong. However, he was satisfied the banks had made a credible case to support their position.

He pointed out that, as Oaktree was willing to pay €25 million to the banks, to settle with the other creditors and to provide €5 million in initial working capital, it had to be assumed that the company believed it had a reasonable prospect of making a return on that.

At the same time, he said the banks were willing to forgo €25 million to pursue their extended receivership, and it had to be assumed that they also believed that they would make a reasonable return on that sum.

“On the facts of this case, I am satisfied that the banking syndicate has a realistic prospect of doing better under the proposed receivership model than under the scheme of arrangement,” Mr Justice Clarke said.

He added that the scheme was unfairly skewed against the banks, and he would have to refuse to allow the scheme.

McInerney remains under the court’s protection until Friday at least. The company has the option of appealing the ruling, but had not made any decision last night.

The examinership system allows for insolvent companies, with a reasonable prospect of survival, to get court protection from their creditors for up to 100 days while the examiner draws up a rescue plan for the business.

If the rescue plan is unfairly prejudicial to one or more of the affected creditors, the courts can refuse to allow it.

Justice Clarke also ruled that a secured creditor can be made to accept a discount on their loan in an examinership.