Article

Examinership process receives welcome news on petitioners’ costs  

Based on recent Court of Appeal judgement

The Court of Appeal recently provided some helpful insight and direction in respect of the cost of unsuccessful examinership proceedings, Ireland’s formal corporate rescue process. The ruling adds further weight to the spirit of the process as a means of rescuing viable enterprise and preserving employment.

Openhydro Group Ltd v Naval Group & Ors

  • The judgment for the Openhydro case was handed down in May and specifically looked at whether a ‘costs order’ should be awarded against a petitioner in the event that an examinership petition is successfully opposed.
  • ‘Court rules’ provide that in most circumstances, costs should follow the event. This means that the Irish courts will generally tend to award costs against an unsuccessful party in proceedings. However, in certain circumstances, courts have discretion as to whether they should apply this rule or not.
  • The High Court opined that the case was not one in which the court should exercise discretion and deviate from the ‘Court rules’. Accordingly, the High Court awarded costs against the unsuccessful petitioner. The matter was appealed to the Court of Appeal.

Factors considered by Court of Appeal

  • In examinership proceedings, costs are generally not awarded against unsuccessful opposing creditors. To apply the opposite principle in respect of an unsuccessful petitioner would create an “asymmetry” and give rise to potential unfairness.
  • Generally speaking, examinership proceedings are not usual ‘inter partes’, adversarial proceedings. There is a significant public interest dimension to these proceedings given that examinership is seen as a tool to rescue and promote viable enterprise and preserve employment.
  • The Court also noted that unsuccessful petitioners will likely already have incurred significant costs and awarding costs against them may deter the brining of meritorious petitions particularly by petitioners other than the company.
  • The petition was brought in good faith, was not “doomed to fail” and was supported throughout the process by the views of an independent expert and the interim examiner.
  • It was noted that the basis for the High Court’s strict application of the ‘Court rules’ in awarding costs was not “adequately explained” and that the High Court did not engage with the petitioners submissions on the costs issue.

Ruling & Outcome

  • Ultimately, the Court of Appeal ruled partly against the High Court order and awarded an order for costs against the unsuccessful petitioner in respect of 50% of the costs. The costs order was restricted to 50% of costs on the basis that the Court of Appeal was reluctant to interfere with the High Court’s discretion in respect of costs.
  • The Court of Appeal noted that if it was hearing an entirely ‘de novo’ (new) application, it would be inclined to make no order in respect of costs.

Positive impact for Examinership process

The ruling should give some comfort in respect of the cost burden of an unsuccessful examinership petition to parties, particularly those other than the company (minority shareholders & creditors), who may be considering examinership. Such parties should, however, be careful to ensure that such an application is brought on meritorious grounds, in good faith and is supported by evidence of such.

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