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Archive for August 17th, 2010

With news reports today that putative NAMA-bound developer, McInerney, is about to apply for examinership and with Bloxham Stockbrokers saying that this will be the first test on NAMA’s bar on banks reducing the amount owed on a loan, this entry looks at the impact examinership might have on NAMA.

To summarise what has been reported about McInerney : the company is reported as owing €236m to the banks. Two NAMA banks, Bank of Ireland and Anglo are reported to be members of a syndicate that is owed €111m. McInerney is reported to be in talks with an American investment company, Oaktree Capital, about a rumoured €30-40m injection of capital. McInerney is a large building and development group and its loans are said to be scheduled for transfer to NAMA after tranche 3.

So what is examinership? It is an Irish invention (closely similar to US Chapter 11) stemming from the Companies (Amendment) Act 1990 which allows “directors, creditors, contingent or prospective creditors – including the employees” to apply to the High Court in Ireland to have an examiner appointed with the aim of addressing an immediate threat to the company’s survival and with the hope of working out a survival plan acceptable to creditors whilst preventing creditors from taking action to wind up the company or recover debts. For the application to be successful, the company must

(a) be insolvent and unable to pay it’s debts and

(b) be able to demonstrate that it has a reasonable prospect of survival

If the application is successful then the examiner gets 70-100 days generally (though that can be extended) to examine the viability of the company and to produce a “scheme of arrangement” which can be presented to the creditors for approval. The creditors are categorized according to them being secured, preferential and unsecured and their views are sought on the scheme. As long as agreement to the scheme can be obtained from at least one category of creditor the scheme is then presented to the Court for approval.

Examinership is different to receivership and liquidation and is seen as a way for the stressed company to take the initiative to resolve its issues. In 2008 examiners were appointed to 70 firms compared with 35 in 2007. According to research by Grant Thornton fewer than one third of companies entering examinership will survive and most will end up in liquidation.  Firms in examinership can repudiate leases. Last year Liam Carroll’s Zoe Group unsuccessfully applied for examinership whilst Cork-developer the Fleming Group applied for and was granted examinership and indeed the High Court approved its scheme of arrangement only for ACC Bank to appeal the approval to the Supreme Court which reversed the decision and which eventually saw a liquidator being appointed to the Fleming Group.

So what’s the issue for NAMA? Bloxham Stockbrokers are reported to have said in a note yesterday that McInerney’s examinership will be the first time NAMA’s bar to banks reducing the value of its loans is tested. They are probably referring to section 71(2) of the NAMA Act which says

“A participating institution shall not without the prior written approval of NAMA—

(a) deal with any of its eligible bank assets otherwise than in the ordinary course of its business,

(b) deal with any of its eligible bank assets in such a way as to prejudice or impair NAMA’s prospective interests or priorities in relation to such a bank asset,

(c) compromise any claim or release, vary, relinquish or otherwise take or omit to take any action if its doing so could reduce, lessen or impair any security, right, obligation, ranking or priority held or enjoyed, directly or indirectly, in connection with such a bank asset, or

(d) amend or vary any contract relating to such a bank asset unless contractually obliged to do so”

UPDATE: 20th August, 2010. It has been suggested that section 94 of the NAMA Act may also be relevant though it does in fact partly reference section 71.  Section 94 states

“94.—After the service of an acquisition schedule on a participating institution, until the date of acquisition for each bank asset specified in the acquisition schedule, the participating institution—
(a) shall continue to hold and manage each bank asset concerned in accordance with section 71,
(b) shall not make nor permit the making of any change to the bank asset concerned without NAMA’s written consent, and
(c) shall notify NAMA in writing of any change in the bank asset concerned of which the participating institution is
aware.”

So if McInerney successfully applies for examinership, this may mean that NAMA’s interests are subordinated to the interests of other creditors and NAMA may end up taking over McInerney’s loans with Anglo and Bank of Ireland but their nominal value might be reduced by a court-approved scheme of arrangement. Of course if NAMA try to use the NAMA Act to stop the scheme of arrangement, then it risks a State-aid anti-competition action if it acts in a non-commercial manner.

Will McInerney’s application be the start of an avalanche of similar applications. Perhaps – some developer companies might take the view that the possibility of a successful examinership with reduced loans is worth the cost – what have they to lose. And the court and other arms-length creditors might be easier to deal with than NAMA who have all sorts of pressures bearing down on it, and not all of them are purely commercial.

UPDATE: 26th August, 2010. RTE reports that McInerney have successfully applied for interim examinership and tehe High Court in Dublin has appointed joint interim examiners – William O’Riordan and Declan McDonald of PricewaterhouseCoopers.  RTE reports that the interim examinership covers McInerney Homes and “McInerney Construction (Holdings) Limited, McInerney Contracting Limited and McInerney Contracting Dublin Limited. But McInerney Holdings’ UK and Spanish divisions, as well as its commercial arm Hillview Developments, are not affected by the court move. ” There has been no reported comment from NAMA. Last weekend the Sunday Business Post reported “Nama is expected to make a decision on the revised proposal in the coming days, according to reliable sources. If Nama vetoes the deal, the company is contemplating making a court petition for the appointment of an examiner.” This will be the first known case where NAMA is exposed to dealing with a developer in examinership.

UPDATE: 27th August, 2010. Emmet Oliver and Laura Noonan at the Independent report “McInerney, which is already attracting interest from a US investment fund, said last night it went into examinership after NAMA told its banks to cut funding to the company. However, it is understood NAMA rejects this claim.”. I think that NAMA can expect some industry-based criticism in coming weeks particularly as it commits itself to action in respect of the first developer business plans.

UPDATE: 27th August, 2010. The Irish Times seems to have the best detail on McInerney’s examinership. It says that McInerney must return to the High Court in two weeks on 7th September, 2010 to have an examiner confirmed. Should they be successful then they will enjoy court protection for 70-100 days. The article says that NAMA was due to take over McInerney’s loans in tranche six (in December 2010 if you believe newspaper reports earlier this week). It is still unclear what part NAMA has played in the run-up to  the application for receivership. The Irish Times says “several weeks ago, the banks involved approached the agency with a set of proposals related to the McInerney debt, but Nama did not accept the plan. It told the institutions to return this week with an agreed position. It is understood that they did not return to the agency this week.” The newspaper also for the first time reveals the third member of  the Irish sydicate owed €111m by McInerney – it’s KBC with Anglo and Bank of Ireland already having been identified as being owed €83m.

UPDATE: 6th September, 2010. With McInerney due back at Dublin’s High Court tomorrow 7th September, 2010 the Sunday Business Post reports McInerney blaming NAMA for vetoing agreement with Bank of Ireland and Anglo and forcing McInerney to seek the protection of the courts through examinership. It is a mystery why NAMA would apparently seek to play hardball – perhaps the hearing tomorrow will reveal more.

UPDATE: 7th September, 2010. McInerney were back in court today and it seems the Irish syndicate of banks BoI and Anglo as well as non-NAMA institution KBC were opposing the examinership which is not yet confirmed – the syndicate is reportedly owed €114.5m. Ulster Bank and Bank of Scotland Ireland are reported to be neutral on the examinership. NAMA has been strongly criticised by McInerney for vetoing a restructuring plan at the start of August 2010. The case has been adjourned until Friday 10th September. If McInerney are successful in their application they will be granted court protection from creditors for 70-100 days.

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