Zoe Group fail again to have an Examiner appointed

[z109]

I remember reading a report of the judge's first decision and I thought his comments were odd and I thought that he misunderstood the numbers. In the application for the appeal, the Zoe Group claimed this as well.

Brendan

I think what's interesting is Mr. Justice Kelly didn't misunderstand the numbers, he didn't believe them. On that score, the appeal was that the judge 'misunderstood' according to Zoe, but I think what was at stake was whether the judge is allowed to make an independent judgement or whether he must take projections presented at face value.

That the Supreme Court rejected it is damning.

That Mr. Justice Clark also didn't believe the new projections in the second case is even more so!

People talk about secured creditors being willing to undertake further lending, but one of the points, I believe, that the court has to look at is what will happen to future unsecured creditors - is there a risk that the company will remain in an insolvent position and run up further debts for which there is no likelihood of payment. Secured creditors who can offload their debt to the state are in a much happier position than unsecured creditors...

 

[Bronte]

I remember reading a report of the judge's first decision and I thought his comments were odd and I thought that he misunderstood the numbers. In the application for the appeal, the Zoe Group claimed this as well.

Judge Kelly is the leading legal brain on examinership and has presided over many cases. There is no way he misunderstood the numbers, he's the only one who seems to understand the reality that this case was based on crazy projections as far as I can see.

 

[Brendan Burgess]

I don't dispute that the projections were optimistic, but when I first heard the judge's comments, I had assumed that he had misunderstood them. I hadn't seen the numbers, but I assumed that the scheme did not propose what he had summarised.

When they appealed to the Supreme Court, they claimed that the judge did not understand them. So I felt that my original assumption was correct.

Is there a good summary of the figures anywhere? Is the report in the public domain?

Brendan

 

[canicemcavoy]

I don't dispute that the projections were optimistic, but when I first heard the judge's comments, I had assumed that he had misunderstood them. I hadn't seen the numbers, but I assumed that the scheme did not propose what he had summarised.

I'm just curious as to why you are so keen to believe Zoe over 3 judges. Certainly the company itself has past form.

 

[z109]

I don't dispute that the projections were optimistic, but when I first heard the judge's comments, I had assumed that he had misunderstood them. I hadn't seen the numbers, but I assumed that the scheme did not propose what he had summarised.

When they appealed to the Supreme Court, they claimed that the judge did not understand them. So I felt that my original assumption was correct.

Is there a good summary of the figures anywhere? Is the report in the public domain?

Brendan

This, I think, is the claim that Mr. Justice Kelly did not understand the figures (from the Supreme Court judgement):
http://courts.ie/Judgments.nsf/bce2...c736d2e7b220d4e58025760f005afc45?OpenDocument

Counsel for the petitioner also took issue with the statement of the learned trial Judge that the companies in question “would move from their present position of insolvency with debts well in excess of a billion euro to having net assets of just short of €300,000,000, the precise figure being €290,436,290. A comparison between the consequence of a liquidation and the current position of the company was not appropriate. When examining the turnaround envisaged by the petitioner so as to enable it and the related companies to survive as a going concern the starting point should be the present trading position of the petitioner and related companies as set out in the statement of affairs produced at Appendix 1 of the independent accountant’s report. This shows an excess of liabilities over assets of some €265,000,000. Thus, the business plan of the petitioner and related companies does not involve a movement, it was submitted, “from their present position of insolvency with debts well in excess of a billion euros to have net assets of just short of €300,000,000” as stated by the learned trial Judge but rather a change of the balance sheet of the appellant and related companies from €290,000,000 approx. This would represent an improvement in the company’s asset position of €555,683,771 over a period of three years. Counsel submitted that while this may be an optimistic view it is far from the €1.3 billion turnaround assumed by the learned trial Judge. Even if that projection represents an overestimation of the likely recovery by up to 50% this would still result in the company’s return to a position of solvency. Given the key factors relied upon by the petitioner with the support of the creditor banks and the independent accountant it was submitted that the petitioner and related companies should be treated as having established a reasonable expectation of their survival as going concerns.

And here is the put-down from the Supreme Court:

However for the purpose of deciding whether a petitioner has satisfied the Court as to the first step in the test it is not sufficient for a petitioner to simply demonstrate that the assets of the company could be disposed of in a more orderly fashion to the benefit of its creditors since the provisions of subsection (2) preclude that as a sufficient test at that stage. Equally the fact that liquidation might be a far less attractive option from the point of view of the members of the company or its creditors is not sufficient to meet the test laid down in subsection (2) nor is the fact that the chances of the company surviving being simply better than an inevitable collapse following liquidation sufficient to meet the test. In order to be satisfied that a company has a reasonable prospect of survival as a going concern the Court must have before it sufficient evidence or material which will permit it to arrive at such a conclusion on the basis of an objective appraisal of that evidence or material. Mere assertions on behalf of a petitioner that a company has a reasonable prospect of survival as a going concern cannot be given significant weight unless it is supported by an objective appraisal of the circumstances of the company concerned and an objective rationale as to the manner in which the company can be reasonably expected to overcome the insolvency in which it finds itself and survive as a going concern.
The opinion of the independent accountant as set out in the report which a petitioner is required to provide to the Court under the provisions of the Act, must be given due weight. Again, the weight to be attached to the accountant’s opinion will depend on the degree and extent to which he supports that opinion by his or her own objective reasoning and the appraisal of material or factors relied upon for reaching his or her conclusions.
Since, the court may not make an order appointing an examiner unless it is satisfied that there is a reasonable prospect of the survival of the company as a going concern, it follows that there is an onus on the appellant to satisfy the court that such a reasonable prospect exists. The applicant must provide objective evidence to satisfy the court of this fact. Examinership is a process designed to facilitate the rescue or survival of companies in financial difficulties. Whether the appointment of an examiner is supported by creditors of the company and the extent and reasons for that support is a relevant consideration but not determinative in considering whether there is a reasonable prospect of survival.

So, no misunderstanding, no mistake.

 

[z109]

Note also, it has since emerged that the total debt owed by the Carroll group is 2.6-2.8 bn and that the 1.3bn just related to the Zoe part:
[broken link removed]

 

[Brendan Burgess]

Hi Yog

That is exactly it.

The judge thought that a turnaround of €1.3 billion was needed, when it was "only" €300 million to breakeven.

But the assumptions underlying the turnaround of €300m were too optimistic.

Brendan

 

[z109]

Hi Yog

That is exactly it.

The judge thought that a turnaround of €1.3 billion was needed, when it was "only" €300 million to breakeven.

But the assumptions underlying the turnaround of €300m were too optimistic.

Brendan

Well, not quite. The judge was right to take the turnaround of 1.3 bn as that is what the difference between liquidation now and recovery is. The estimates for the value of the assets are rather at odds with the liquidation value, a value that seems to be undisputed.

Which sort of leaves the estimates of current value as fanciful, never mind the projections for disposal - how does a mark-to-market and a book value differ by a billion euro exactly? Could it be that the book value of the assets is wildly inflated? How indeed, does one propose to add that much value to sites/properties that no-one else can realise (hence the low market price for the assets)?

The difference between the book value - 1 bn and the liquidation value 300mn also has implications for NAMA. It suggests that the assets backing loans of 1.3 bn to the Zoe group are at an LTV of 433%. Even if we take the book value at face value, that is an LTV of 130%. So much for 75% LTV...

We're gonna need a bigger haircut...

 

[Brendan Burgess]

"Book value" has very little meaning in this context.

Even in ordinary economic circumstances, there is a huge difference between going concern value and liquidation value.

If one assumes that it is a going concern, which is a fundamental basis of the examinership legislation, then the correct figures would be to consider the turnaround from the current going concern valuation to the one post examinership, or the one three years down the line.

The judge may be quite right to cast doubt on the going concern value. The judge may be quite right to cast doubt on the likelihood of a turnaround. But he was wrong to compare the liqudation value now with the going concern value post examinership. That overstated the challenge. That is not to say that the decision to to appoint an examiner was wrong - it's just that this element of it was wrong.



Brendan

 

[z109]

But he was wrong to compare the liqudation value now with the going concern value post examinership. That overstated the challenge.

Not according to the Supreme Court on the basis of the law as it stands.

From the decision:

In his submissions counsel for the petitioner submitted that the correct starting point for the assessment of the current state of the petitioner and related companies is that disclosed in the statement of affairs of June 30th 2009 which discloses an excess of liabilities over assets in the amount of €265 million rather than the much more negative picture that necessarily emerges from the statement made by the independent accountant concerning the excess of liabilities over assets in the event of a liquidation. The real issue, and this was addressed by the learned High Court Judge is whether the petitioner and related companies have discharged the onus on them to satisfy the Court, on the basis of objective evidence or material, that a most critical part of their proposals for the future of the Group, namely the orderly disposal of key properties is sufficiently sound for the Court to rely upon it when deciding whether there is a reasonable expectation that the companies can survive as a going concern.

Given the inability of the petitioner to satisfy the Court that the part of their proposals relating to the orderly disposal of key properties was sound, the Court had no alternative figure to take than the liquidation value which was not disputed.

In effect, Zoe took out their shotgun, loaded both barrels and shot both their feet off before stuffing them in their mouth by giving a credible liquidation figure and an incredible going concern figure, one not backed up by any evidence other than assertion. The onus of proof of going concernedness is on the company, it is not up to the Court to prove that the company has no future.

But you may take the argument up with the Supremes, if you like

 

[canicemcavoy]

Well, it looks like Liam wants his fifth turn on the merry-go-round anyway:

http://www.rte.ie/business/2009/0914/carroll.html

Carroll to appeal to the Supreme Court again
Monday, 14 September 2009 14:55
The seven companies controlled by developer Liam Carroll, which were refused High Court protection last week for the second time, are to appeal that decision to the Supreme Court.

Counsel for the companies told the High Court this afternoon that they had considered the judgement over the weekend and intended to appeal.

The Court was told that the earliest the Supreme Court can sit is early next week.

 

[Sunny]

Well, it looks like Liam wants his fifth turn on the merry-go-round anyway:

http://www.rte.ie/business/2009/0914/carroll.html

The guy and his legal team are taking the mickey at this stage. I hope they included all these legal fees in their recovery plan.

 

[Shawady]

Can a case only be appealed to the Supreme court on a point of law?

This is just playing time for NAMA.

 

[Shawady]

2 companies to be wound up. A 7 day reprieve for the remainder.

[broken link removed]

 

[steviel]

So given this judgement and the appointment of a liquidiator, but its 1 week suspension, am I right in thinking that when (i would think a 99% probability at this stage!) the supreme court refuse protection next Tuesday, the companies will immediately be put into receivership and the holding companies will automatically be wound up, with no further applications needed by ACC?

What does this mean in reality? Will everything just stay how it is until NAMA (given that there is no market out there), or can receivers acting for ACC force property liquidiation before NAMA kicks in?

 

[Bronte]

What does this mean in reality? Will everything just stay how it is until NAMA (given that there is no market out there), or can receivers acting for ACC force property liquidiation before NAMA kicks in?

Can't answer this but ACC don't want a property liquidation, they want the other banks to pay them their exposure as they are practically bottom of the pile in relation to Liam Carroll's assets.

 

[Brendan Burgess]

There are figures given in today's Irish Times

Zoe owes 8 banks: €1.297 billion
The value at 30/6/2009 was €1.1 billion

Valuers to the group told the High Court that the properties would be worth €644 million in distressed sales over 6 months.

 

[JoeB]

I was wondering about the legal fees...

Can Liam O Carroll use up all the remaining money in the bank paying legal fees thus ensuring no creditors get a penny?

I don't imagine that his solicitors would be working for free.. so they must expect to get paid, but if the company is broke how will that happen?, unless Carroll is free to spend his last remaining pennies on ridiculing the legal system? and on multiple appeals?

Can the courts not insist that he spends no more money on appeals as the company cannot afford it, so effectively the creditors are paying for the appeals...

 

[Bronte]

I've been trying without success to find a post I did about the fact that Zoe were able to go back to court twice, an injustice, so I'll have to post here.

Today is a great day for the law and justice in Ireland. It's a good day when one institution of the state is working properly and without fear or favour or undue influence.

 

[canicemcavoy]

Agreed, Bronte. Also, the court made it clear that Carroll attempted to do was "an abuse of court process". At least some people in this state can't be won over by vested interests.