THE failure of Butlers Engineering to have an examiner appointed, leading to the return of the receiver Mr Ray Jackson to the company, signifies a change in emphasis by the courts in considering applications likely to facilitate the survival of the company.

Described in court as "the largest private steel fabricators and erectors in the Republic of Ireland", Butlers Engineering Group is based in Portarlington, Co Laois, with 65 employees.

The group consisted of two trading companies and a parent company. Butlers had been in serious financial difficulties and the ICC appointed a receiver on February 16th. Three days later Butlers presented a petition for the appointment of an examiner.

The application was opposed by ICC and Irish Intercontinental Bank, owed £4.6 million and £1.2 million respectively, and also by a trading creditor and main steel supplier, Preussag Stahl AG, owed approximately £1 million. Five trade creditors, owed approximately £400,000, supported the appointment of an examiner.

In refusing to appoint an examiner, Mr Justice Keane made certain observations:

. Somewhat unusually, the petition was presented, not by the company but, in the case of the two trading companies in the group, by a creditor owed £9,900 and, in the case of the parent company, by a shareholder;

. It was not clear that the application enjoyed the unqualified support of all the directors of the companies. This could not increase confidence in the course proposed by the petitioning creditor;

. The original statement of affairs exhibited with the petitions showed liabilities exceeded assets by £1.8 million, but a subsequent statement drastically revised this figure up to £15.6 million;

. The auditors of the companies stated that they were unable to give a true and fair view of the state of the companies' affairs as at March 31st, 1994, because of the unsatisfactory state of the companies' books and records and lack of explanations and information on material amounts included in the financial information.

The judge said that the court's jurisdiction to appoint the examiner arises, where there is a possibility that the company would survive if the examiner was appointed to facilitate the survival of the company. He said, in particular, that it should be borne in mind that even the short breathing space of three weeks given by the appointment may have serious consequences for the creditors, given the fact that their normal remedies remain in abeyance while the control of the company remains in the hands of those who, in some cases at least, have contributed significantly to its insolvency.

The onus rests on those presenting the petition to establish that there is, at least, an identifiable possibility that the company will survive as a going concern if an examiner is appointed.

In looking at the application Mr Justice Keane concluded:

. As a result of a dispute with British Steel, Butlers was forced to look else where for raw materials. Preussag Stahl F who had been supplying steel, was opposing the appointment of an examiner. There was no suggestion, therefore, as to how Butlers would obtain raw material to complete vital contracts;

. The information as to the possibility of new investors coming forward was sparse in the extreme. Since mid December investors had been sought but none materialised;

. Some reliable evidence as to the state of the companies' finances should be available but in this case such information was not available and the fundamental statutory obligation of the companies to keep proper books and records had been disregarded to such an extent that their auditors felt obliged to qualify their statutory certificate.

The court concluded that the petitioners had not established any identifiable possibility that the companies or the whole or any part of their undertaking could survive as a going concern and refused the application for the appointment of an examiner.

In the past, banks and secured creditors have been unsuccessful in opposing the application for appointment of examiners and they will, therefore, see the Butler decision as somewhat of a victory.

Certainly, banks have been at pains to point out the very real prejudice which they have suffered as a result of some spectacularly unsuccessful examinerships.

Their views have been echoed in the Company Law Review Group's first report which recommended that the court must be satisfied that there is a reasonable prospect of the company surviving and to assist the court, the petition for the appointment of an examiner must be accompanied by a report of an independent accountant.

The banks know that companies which are insolvent, but capable of some form of survival as a going concern, can and will continue to seek the protection which the Companies (Amendment) Act, 1990, affords. The significance of the Butlers' decision is that it requires companies seeking an examiner with a view to survival must produce more realistic commercial information to show an identifiable possibility that the company will survive as a going concern.