Supreme Court allows appeal against Fleming companies' rescue plan

Friday, 5 March 2010

The Supreme Court yesterday gave its decision on ACC Bank’s appeal by against the High Court’s decision to approve the scheme of arrangement formulated by the examiner. The Supreme Court’s decision in the Fleming case affirmed its previous decision in the Carroll group case (Vantive Holdings), which had provided for a “stand- still” arrangement for a period of years.

In a unanimous decision of the 5 Supreme Court Judges, the Supreme Court allowed ACC Bank’s appeal and overturned the High Court’s decision. Of note in the Supreme Court’s Judgment, delivered by Ms. Justice Susan Denham, was the following;

1.   The Supreme Court accepted that a holding (non-trading) company can be the subject of an examinership, but not on its own. A holding company, as a related 2.  The Examinership legislation is not designed to immunise shareholders from the consequences of a company’s financial difficulties. In this case, two of the companies concerned were unlimited companies, and so the shareholders did not have the benefit of limited liability. The effect of the proposed Schemes of Arrangement would have terminated the liability of the shareholders. This was made by way of comment by the Supreme Court and did not form a basis for its decision.

3.  It is not sufficient for Schemes of Arrangement merely to provide for the companies survival – they must provide for their survival as going concerns. Therefore, Schemes providing for a passive/ dormant “holding pattern” for a period of years in the hope that circumstances may improve do not satisfy the requirements of the legislation.

4.  The Scheme of Arrangement for the construction company provided for the sale of the third party contracting business, described by the Supreme Court as the “viable undertaking” of the company and “the engine of the group”, to a vehicle owned by the proposed investor. The Supreme Court held that this did not provide for the survival of the construction company as a going concern, as the undertaking of the construction company was, in effect, being hived-off into another company. The Supreme Court noted that it is permissible for a Scheme of Arrangement to provide for the sale of a loss-making asset or of a profitable aspect of an undertaking (or a non-core asset) if the proceeds of sale were to be paid back into the disposing company to ensure its survival as a going concern. To survive as such a company would still need to have an undertaking after the disposal. 

• What we do
• Who to contact
• Subscribe to our publications