Developers and banks see wisdom in cutting a deal

EXAMINERSHIPS:THERE ARE straightforward reasons why developers are opting for examinership when the banks come calling for their money.

It gives them the benefit of High Court protection against creditors, which means no debts can be enforced against their business while the examinership lasts; it buys them up to 100 days to find a solution to their immediate problems, and thus the hope that they can emerge with a new deal with their lenders, and some or all of their operations intact.

But lawyers point out that it’s likely that the banks will still have to buy into any rescue deal agreed at the end of the process. “It will be largely dependent on the attitude of the banks,” says Neil O’Mahoney of commercial law firm, Eversheds O’Donnell Sweeney.

Their attitude matters not only to property developers like Tivway, the Fleming group company placed in examinership yesterday, but also to the rest of us.

If that process fails, the only other options are receivership and/or liquidation.

These are effectively nuclear options, as they determine the value of developers’ properties. This will in turn quantify the amount the banks have lost on property loans, and influence the rules under which the Government’s rescue agency will operate. The upshot will be that billions more of taxpayers’ money may have to be spent on recapitalising the banks.

Examinerships are supervised by the court and designed to rescue troubled businesses and their jobs, where the companies have a chance of survival. But to succeed, the final rescue deal – known as a scheme of arrangement – must have the support of a majority in terms of the value of the debts and numbers of one class of creditors.

Barry Lyons, a partner with solicitors Lyons Kenny, says that if a creditor can show the court that the final rescue deal will unfairly prejudice their interests, and they would fare better in a receivership or liquidation, then the examinership ends and the process moves on to one of the other two.

He argues that it should benefit the banks to play a proactive part in the examinership, as in the current circumstances the outcome is probably going to be better than receivership or liquidation.

Lyons Kenny acted for the owner of Dublin’s Ocean Bar, Birchport Ltd, last year. At the end of that process, Dutch-owned ACC, whose pursuit of loans given to Tivway and Liam Carroll’s Zoe group has prompted both to go into examinership, played a key role in the settlement of that case.

The bank accepted a deal where the company will repay €950,000 against a secured debt originally for €1.37 million. The balance of the loan was treated as unsecured, and ACC accepted 10 cent in the euro against this amount.

The deal allowed the business to return to trading profitably with a loan it could afford. The other option would have been for the bank to appoint a receiver and, as O’Mahoney’s colleague in Eversheds, Raymond Lambe, pointed out in the firm’s subsequent 2009 Spring Update, sell the pub in a depressed market

The High Court approved the deal. But the bank co-operated with the process and ultimately agreed to have the value of a secured loan reduced. Lyons says that it is ironic that ACC now seems to be taking the opposite tack in other cases.