High Court sanctions company scheme of arrangement and stays creditor proceedings under Companies Act 1963.

Neutral Citation [2010] IEHC 538

THE HIGH COURT

[2009 No. 684 COS]

IN THE MATTER OF MILLSTREAM RECYCLING LIMITED IN THE MATTER OF THE COMPANIES ACTS 1963 TO 2009 AND IN THE

MATTER OF AN APPLICATION BY MILLSTREAM RECYCLING LIMITED PURSUANT TO SECTION 201 OF THE COMPANIES ACT 1963

MILLSTREAM RECYCLING LIMITED

APPLICANT

Judgment of Miss Justice Laffoy delivered on the 8th day of November, 2010.

1. The application and its factual basis

1.1 On this petition the petitioner, Millstream Recycling Limited (the Company), seeks the following reliefs:

(i) that the “Final Scheme” of arrangement which has been put to meetings of the creditors of the Company in

accordance with directions given by the Court in its order of 23rd December, 2009 be sanctioned by the Court pursuant

to s. 201(3) of the Companies Act 1963 (the Act of 1963); and

(ii) that all proceedings brought, or contemplated, by Scheme Creditors against the company for damages in relation to

claims arising out of a contamination event as defined in the Scheme be stayed pursuant to s. 201 (2) of the Act of 1963

permanently.

The background to, and the nature of, the scheme of arrangement (the Scheme) is outlined in my judgment delivered on 23rd

December, 2009([2009] IEHC 571) on an application pursuant to s. 201(1) of the Act of 1963 for directions. The “Final Scheme” is the

Scheme which was put before the creditors at the meetings directed by the Court, which were held on 1st July, 2010, the issues

raised by the Court on the application under s. 201(1) having been addressed. Prior to the meetings, the Scheme Creditors, as

defined in the Scheme, had unanimously accepted the proposition put to them in a letter of 11th June, 2010 from Mr. Jim Luby, the

Scheme Manager, that the Court directed meetings be held on 1st July, 2010 notwithstanding that the legal proceedings against Mr.

Gerard Tierney and/or Newtown Lodge Limited, which had been delayed by reason of an appeal to the Supreme Court on an

interlocutory application, would not be concluded by that date.

1.2 Section 201(3) provides:

“If a majority in number representing three-fourths in value of the creditors or class of creditors … present and voting

either in person or by proxy at the meeting, vote in favour of a resolution agreeing to any compromise or arrangement,

the compromise or arrangement shall, if sanctioned by the court, be binding on all the creditors or the class of creditors …

and also on the company ….”

As regards the application of that provision, the outcome of the meetings held on 1st July, 2010 was as follows:

(a) At the first meeting of the Scheme Creditors directed to be held, that is to say, Scheme Creditors other than Scheme

Creditors connected to the Company through common shareholders (non-connected Scheme Creditors), the Scheme was

passed by the requisite majority, in that of eighteen votes cast, seventeen were in favour of the Scheme and one was

against the Scheme. Three creditors abstained. The creditors who voted in favour of the Scheme represented 96% in

value (€29,592,006.32) and 94% in number of those present and voting either in person or by proxy. The creditor which

voted against the Scheme, McCarren & Co. Ltd., the total value of whose claim was €1,252,074.41, informed the Court on

this application that it was not opposing the Scheme. The three claimants who abstained and the value of their claims

were: William Fulton/William Fulton Ltd. (€1,200,741.95); Damien Conlon/D.C. Cattle Ltd. (€920,345.02); and Robert

Fulton (€15,995.79).

(b) At the second meeting, that is to say, the meeting of the Scheme Creditors who are connected to the Company

through common shareholders (the connected Scheme Creditors), the Scheme was unanimously approved by the two

creditors (Hoggs Hogs Ltd. and Hoggs Enterprises Ltd.), whose total claims aggregate €1,384,372.61.

1.3 To put that outcome in perspective, the total value of the claims as assessed and determined by the expert nominated in the

Scheme, Mr. John McGee (the Expert), in accordance with the terms of the Scheme, both in relation to material and non-material

claims, is €33,101,603.49 in respect of non-connected Scheme Creditors. That figure includes the claims of four other creditors who

had not attended the first meeting, whose claims had been admitted and their value determined by the Expert, the individual amounts

of the claims being €4,232.80, €17,849, €91,796 and €6,562, and the aggregate amount of the claims being €120,439.80. As has been

outlined, €1,384,372.61 represents the total value of the claims of the connected Scheme Creditors.

1.4 The largest total claim admitted and determined by the Expert is the claim of Rosderra Irish Meats Group Ltd. (Rosderra) in the

sum of €19,139,505, which represents approximately 58% of the total value of the determined claims of non-connected Scheme

Creditors.

2. Parties who made representations on the hearing of the petition

2.1 Apart from the Company, five parties appeared on the hearing of the petition by legal representatives and submitted written

submissions. The parties, the evidence which they put before the Court, and their respective positions in outline, are as follows:

(a) Staunton Foods Ltd. (Staunton)

Staunton had been late in submitting a claim to the Scheme Manager in accordance with the timeline set out in the

Scheme Proposals. Staunton’s position was set out in an affidavit of Bebhinn Murphy, a member of the firm of solicitors

acting for Staunton, which was sworn on 15th July, 2010. Staunton’s position is that the Scheme should be approved but

on the basis that it is entitled to participate in the distribution to be effected thereunder.

(b) Vion Food Group Ltd. (Vion)

Vion, in its written submission, is described as an international food company which has its headquarters in the

Netherlands. No affidavit has been filed on behalf of Vion on the petition and its current solicitors, McCann Fitzgerald,

appear to have become involved with the solicitors acting for the Company and the Scheme Manager on the Friday before

the return date on the petition, which was 19th July, 2010. The position of Vion, which did not submit a claim under the

Scheme Proposals, is that, first, the Court should not sanction the Scheme on the grounds that it is unfair, in that the

Scheme Proposals lacked clarity as to who was entitled to claim under the Scheme and, secondly, there was a lack of

clarity and transparency in relation to the mechanism and process for determining claims which gave rise to a real risk of

unequal treatment. As Vion was not a claimant, the second argument seems to be purely theoretical as it is not directed

to its particular circumstances.

(c) W. & E. Fulton Ltd. (Fulton)

Fulton was one of the abstaining non-connected Scheme Creditors. Three affidavits have been filed on behalf of Fulton,

the first sworn by William Fulton on 15th July, 2010, a second short affidavit sworn by William Fulton on 27th July, 2010,

and an affidavit sworn on 27th July, 2010 by Michael Murphy, a retired solicitor having practised in the jurisdiction of

England and Wales, who has advised Fulton. I consider that Mr. Murphy’s affidavit contains more hearsay and material of

a speculative nature than fact.

In his first affidavit, Mr. Fulton averred as follows:

“I wish to stress at this point in time that I’m not challenging the Scheme per se. I am merely seeking information so

that I can be satisfied that the payment to all the creditors are just and equitable and in anticipation with the

Scheme as envisaged by this Honourable Court. Accordingly I beg this Honourable Court to defer making any

decisions in connection with whether or not the Scheme should be sanctioned at this stage until the transparency

and applicability of the Rosderra claim can be established.

The position adopted by Fulton at the hearing of the petition distilled from comprehensive submissions made on its behalf

involved two alternative propositions, the bases on which they were advanced overlapping to an extent, namely:

(1) Subject to the quashing of the decision to admit Rosderra as a non-connected Scheme Creditor, the Scheme

should be sanctioned with the distributions to the remaining Scheme Creditors being increased pro rata. The basis

on which it was contended that Rosderra should be excluded was that the Scheme, when properly construed and

considered in the context of the affidavit evidence, does not admit claimants in the position of Rosderra as Scheme

Creditors. It was specifically contended that the Scheme contained no mechanism or process for determining

whether a claimant in the position of Rosderra came within the definition of Scheme Creditor and that the Scheme

did not assign that role to the Expert.

(2) Alternatively, if, by reason of lack of jurisdiction or otherwise, the Court is unable to exclude Rosderra, the

Scheme should not be sanctioned. The basis on which the Court was urged to refuse to sanction the Scheme was

that it would be unfair and inequitable to do so for a variety of reasons, but primarily because, it was contended,

the role of the Expert and the manner in which he performed it should be subject to review by the Court. The

consequence if it is not, or cannot be, reviewed by the Court, it was contended, is that Fulton is being treated

unfairly by the combination of the exclusion of its Foyle Meats Ltd. claim referred to later and the inclusion of the

Rosderra claim.

(d) D. C. Cattle Ltd. (D.C. Cattle)

D. C. Cattle was another abstaining non-connected Scheme Creditor. D.C. Cattle adopted a similar position to that

adopted by Fulton, in that it was submitted that the Court should scrutinise the claim of Rosderra and, if it did, it was

urged that it could not be satisfied that the operation and implementation of the Scheme was fair and equitable, that the

Scheme Creditors at the first meeting were properly informed, or that they came to an objective and reasonable

conclusion on the Scheme. On that basis, it was submitted that the claim of Rosderra should be disallowed and the

distribution be effected in relation to the remainder of the Scheme Creditors. The position of D.C. Cattle was confirmed by

the affidavit of Damien Conlon sworn on 16th July, 2010, which contained more advocacy than factual material.

(e) Rosderra

No affidavit has been filed in support of Rosderra’s position, although some correspondence which passed between the

solicitors for Rosderra, Eugene F. Collins, and the Company’s solicitors has been exhibited in the affidavits filed on behalf

of the Company. The position of Rosderra, which was described in its written submission as “the largest pig processor on

the Island of Ireland” and the largest contamination creditor of the Company, was that the Court should give approval to

the Scheme as passed by the Scheme Creditors at the meetings on 1st July, 2010.

While adopting the position that Rosderra had made its claim and it had been admitted and its value determined properly

in accordance with the Scheme, so that there was no good reason for the Court to interfere with its participation in the

Scheme, it was submitted on behalf of Rosderra that the Court did not have jurisdiction to exclude Rosderra as had been

argued on behalf of Fulton and D. C. Cattle.

2.2 The Company has put before the Court a letter of 16th July, 2010 to its solicitors from Sean Gallagher & Company, solicitors

acting on behalf of a non-connected Scheme Creditor – Queally Partnership/Matthewstown Milling Ltd. – the value of whose claim was

determined at €2,266,295 and who voted in favour of the Scheme at the first meeting. In that letter, it was stated that this creditor

voted at the first meeting “with serious reservations”, and that this creditor now supports the position adopted by Fulton in relation

to the petition. Even if this Scheme Creditor had voted against, rather than in favour of, the Scheme, the votes in favour would have

been very comfortably in excess of the “three- fourths in value” threshold required for the Court sanctioning the Scheme under s.

201(3).

3. Post-meetings undertakings

3.1 An issue arose before and at the meetings of 1st July, 2010 as to the possibility of some Scheme Creditors having pending claims

to the Department of Agriculture Food and Fisheries (the Department) for compensation under the ex gratia schemes established by

the Department to compensate persons affected by the contamination event. The issue was as to the possibility of such creditor

getting, in effect, a double indemnity, that is to say, being compensated twice for the same loss. On the basis of the evidence before

the Court it would appear that there were only three Scheme Creditors with such claims pending as of 1st July, 2009 and when the

petition came on for hearing, the creditors in question being Rosderra and the two connected Scheme Creditors, Hogg Enterprises Ltd.

and Hoggs Hogs Ltd. Subsequent to the meetings, and outside the terms of the Scheme, the Scheme Manager procured undertakings

from all three creditors, the terms of which I propose to outline.

3.2 The undertakings given by the connected Scheme Creditors were given by each of them in letters dated 16th July, 2010 which

were addressed to the Scheme Manager and to the Company. Each of the letters discloses that each of the connected Scheme

Creditors has an outstanding claim for compensation amounting to €430,573 pending under the Department’s scheme. Each has given

an undertaking to the Scheme Manager in terms similar to the Rosderra undertaking set out below.

3.3 Similarly, in a letter dated 21st July, 2010 to the Scheme Manager and to the company, Rosderra has given an undertaking,

although it has not disclosed in the letter the amount of its outstanding claim to the Department.

3.4 It is convenient to set out the terms of the undertaking by reference to the letter from Rosderra. It is in the following terms:

“In the event that Rosderra receives any further compensation from the [Department’s] scheme (or any other source)

(i.e. compensation in addition to the compensation amount of €26,952,822 already received by Rosderra of which the

Expert was aware when he determined Rosderra’s claim on 28th May, 2010), in order to avoid receiving double

compensation, Rosderra hereby agrees and undertakes to refund to you, the Scheme Manager, a proportion of the

dividend received under the Scheme Proposals, if such compensation would put Rosderra in a better position relative to

the dividend to which it would be entitled under the Scheme than the other Scheme Creditors.”

It is clarified in each of the letters that if, as a result of any claw back by the Department in respect of the dividend payable under

the Scheme, the combination of the compensation received by the relevant Scheme Creditor from both the Department and the

Scheme dividend is less than it would have been had the relevant Scheme Creditor received the Department compensation without

claw back prior to the determination of its claim under the Scheme by the Expert, then the relevant creditor would not be obliged to

refund any portion of the dividend which it had already received from the Scheme. Subject to that stipulation, each of the letters

provides as follows (once again, for convenience, quoting from the Rosderra letter):

“… the proportion of the dividend to be refunded in the event that Rosderra receives any further compensation from [the

Department] would be the proportion which would allow all Scheme Creditors to receive the same pro rata dividend from

the Scheme in respect of each of their Material Loss Claims and their Non Material Loss Claims as if the relevant

compensation amount had been received in advance of the Expert’s claim determination.”

3.5 There are some minor differences between the Rosderra letter and the letters of the connected Scheme Creditors, which, I will

address later when outlining the form of order the Court proposes to make. One difference which it is necessary to allude to at this

juncture is that there is a stipulation in the Rosderra letter in the following terms:

“In circumstances where the purpose of the arrangement outlined above is to ensure that all creditors will share in the

benefit of any additional recovery under the [Department] Scheme or any other source which might otherwise amount to

a double recovery having regard to the dividend payment under the present Scheme of Arrangement, Rosderra requests

that it be a condition of payment of any dividend that each creditor provide an undertaking in similar terms to that

outlined above.”

There is no evidence before the Court that any of the Scheme Creditors, other than the three who have given letters of undertaking,

have the prospect of compensation from the Department or any other source in the future in relation to the loss in respect of which

they are to be compensated under the Scheme. Accordingly, I see no point in imposing an undertaking of the type requested on the

other Scheme Creditors if the Scheme is sanctioned, because to do so would unnecessarily complicate the implementation of the

Scheme and would probably give rise to unnecessary administrative and other costs.

4. The general legal principles in relation to the application of s. 201(3)

4.1 Although counsel for the parties who appeared on the hearing of the petition have referred the Court to various texts and

authorities, I am satisfied that the proper approach of the Court to an application to sanction a scheme under s. 201(3) is succinctly

summarised in the following annotation on s. 201(3) in MacCann and Courtney on The Companies Acts 1963 – 2006 (2008 Ed.) at p.

396 where, citing, inter alia, Re Colonia Insurance (Ireland) Ltd. [2005] 1 I.R. 497 and Re John Power and Sons Ltd. [1934] 412, the

editors state:

“The court will only confirm a scheme if it is satisfied that: (i) sufficient steps have been taken to identify and notify all

the interested parties; (ii)the statutory provisions and procedures and all the directions of the court have been complied

with; (iii)the classes were properly constituted; (iv) the prescribed majority at each meeting acted bona fide and no issue

of coercion arises; and (v) the compromise or arrangement is ‘fair and equitable’ such that an intelligent and honest man,

a member of the class concerned, acting in respect of his interest might reasonably approve …. While the function of the

court is not merely to act as a rubber stamp, nevertheless it will be slow to differ with those who voted at the class

meeting(s) and will not refuse to sanction a scheme merely because as a matter of business judgment, it might have

reached a contrary conclusion regarding the proposals.”

Counsel for Fulton laid particular emphasis on a passage from the judgment of Arden J. at first instance in Re Hawk Insurance Co. Ltd.

[2001] 2 BCLC 480, which passage appears at p. 504 and is in the following terms:

“Part of the function of the court is of course to protect non-assenting creditors, that is those who did not vote and

those who were not notified of the scheme meeting because they were unknown.”

I accept that that is part of the function of the Court on an application under s. 201(3).

4.2 The editors of McCann and Courtney also note that, in sanctioning a scheme, the Court may impose such conditions or

modifications as it thinks fit in order to ensure that the arrangement or compromise is fair and equitable. As authority for that

proposition they recite the decision of the Court of Appeal in Re Canning Jarrah Timber Co. (Western Australia) Ltd. [1900] 1 Ch. 708.

However, it was submitted by counsel for Rosderra that that proposition is not borne out by reference to the decision in the Canning

Jarrah case.

4.3 Although the factual basis of the Canning Jarrah case is far removed from the factual basis of this application, it is appropriate to

consider it in some detail, as it is the only authority to which the Court has been referred in relation to the Court’s jurisdiction to

modify a scheme. As the head note discloses, the company had passed special resolutions for voluntary winding up and the adoption

of a scheme of arrangement with the debenture holders and the scheme had been assented to by the statutory majority of debenture

holders, as provided in the Joint Stock Companies Arrangement Act 1870. The scheme provided, inter alia, that a new company would

be formed and that the liquidator should enter into an agreement with that company for the transfer to it of the undertaking and

assets of the old company; that the new company should issue debenture stock to the debenture holders of the old company in

satisfaction of their debentures; that every shareholder in the old company should be entitled to claim a share in the new company in

respect of each share held by him in the old company; that the new company should not be bound to allot any share unless the

member entitled thereto should, within three weeks from the sanction of the scheme by the Court, claim his allotment and make a

specified payment on account of the liability thereon; and that as regard unclaimed shares the liquidator should use his best

endeavours to sell the same, and should divide the net proceeds of sale rateably among the non-claiming members of the company.

Subject to the provisions of the Scheme, the new company was to take over and discharge all the liabilities of the old company and

to indemnify the old company. Among the special resolutions passed by the shareholders of the old company was one which

authorised the directors and the liquidator or either of them “to procure underwriting for all or any of the capital of the new company

on such terms and conditions as they or he may approve, and to pay for same out of the assets of the company”.

4.4 At first instance, Cozens-Hardy J. refused to sanction the scheme because he considered that the underwriting agreements,

which had been entered into by the liquidator pursuant to the resolution, were illegal and improper. Counsel for Rosderra drew the

Court’s attention to the interchanges in the Court of Appeal between the members of the Court and counsel for the liquidator and

counsel for three dissentient shareholders. The Court of Appeal in a short, apparently, ex tempore judgment, sanctioned the scheme

on the undertaking of the liquidator (1) to pay the unsecured creditors of the old company in full out of the assets in his hands; (2)

not to act upon the resolution as to underwriting and to procure the cancellation of the underwriting agreements (in respect of which

Lindley M.R. stated, at p. 717, that he agreed with Cozens-Hardy J. in thinking that the Court ought to be very careful about giving

its sanction to such agreements, which involved the payment of commission out of the assets of the company); and (3) that the

three dissentient shareholders of the old company who opposed the scheme should, if they elected within three days to dissent from

the special resolutions passed by the company, be entitled to all statutory rights of dissentient shareholders under provisions of the

Companies Act 1862.

4.5 It is obvious from reading the report in the Canning Jarrah case that Lindley M.R. exacted those undertakings from the liquidator,

who was obviously in a position to give them before the decision of the Court was announced. It was submitted by counsel for

Rosderra that the decision in the Canning Jarrah case illustrates no more than that the Court can confirm a scheme of arrangement

with modification, but that does not mean that the Court can impose modifications without the consent of the parties who would be

bound by such modifications. It was submitted that the authority does not warrant the Court interfering unless there is consent and

that, without consent, there is no jurisdiction to modify the scheme; the scheme must be either sanctioned or rejected. In this case,

it was the position of Rosderra that, as a matter of law, the Court could not sanction a modified scheme, which excluded Rosderra.

4.6 As regards the case made by Staunton to be included in the Scheme, counsel for Rosderra reiterated his submission that the

Canning Jarrah, on which counsel for Staunton relied, only provides jurisdiction for a limited set of circumstances in which a Court can

exercise its jurisdiction to modify, although he did concede that the Court might take the view that it is open to it to allow for the

inclusion of Staunton. It was indicated that Rosderra had no objection, if the Court were to take that position.

4.7 Counsel for Rosderra supported his submission that the Court has no jurisdiction to modify the Scheme by excluding Rosderra, by

referring the Court to s. 24 of the Companies (Amendment) Act 1990, which deals with confirmation of proposals in an examinership,

and, in particular, subs. (3) of which provides that, at the hearing of the Court at which the report of the examiner is considered, the

Court may, as it thinks proper, subject to the provisions of s. 24 and s. 25, “confirm, confirm subject to modifications, or refuse to

confirm the proposals”.

4.8 As regards sanctioning a scheme under s. 201(3) on the basis of undertakings, the Court was referred to a passage in Courtney

on The Law of Private Companies (2nd Ed. at 24.045) to the following effect:

“Where the court is generally speaking happy with the proposed scheme, but has one or two reservations, it is open to

the court to sanction the scheme subject to receiving certain undertakings. This was the approach adopted by Neuberger

J. in Re Osiris Insurance Ltd. [[1999] 1 BCLC 182] where two undertakings in relation to two relatively minor matters were

required before the scheme was sanctioned.”

The undertakings in that case, were directed at the company, and were, indeed, minor matters which, as a matter of common sense,

the company would probably have given effect to in any event.

4.9 Having considered the matter, I have come to the conclusion that, insofar as the Court has jurisdiction to sanction the Scheme

subject to modification, it is a very limited jurisdiction. Although counsel for Rosderra opposed the proposition advanced by Fulton

that Rosderra should be excluded on the basis that, inter alia, the Court does not have jurisdiction to modify the Scheme, in reality,

the Fulton proposition was not that the Scheme should be modified but that the Scheme does not cover the Rosderra claim.

Therefore, it is unnecessary, and it would be inappropriate, to endeavour to delimit the extent of the Court’s jurisdiction to modify a

creditors’ scheme of arrangement at the Court sanction stage of the process, that is to say, on an application under s. 201(3), save

to the extent that the issue will be addressed in dealing with the Staunton claim later.

4.10 However, I am satisfied that the Court has jurisdiction to sanction a scheme of arrangement subject to receiving undertakings,

including undertakings from benefiting parties which are advantageous to other benefiting parties who would be bound by the scheme

if it were sanctioned.

5. Application of the law to the facts: issues

5.1 In broad terms, I am satisfied that the formal proofs are in order and that the statutory provisions and procedures and the

directions of the Court in its order of 23rd December, 2009 and in its order of 12th July, 2010, in relation to the hearing of the

petition, have been complied with. The issue as to whether the classes were properly constituted was effectively dealt with in my

judgment of 23rd December, 2009, in which I directed two separate meetings. I am satisfied that the submissions made on behalf of

Fulton do not warrant revisiting that issue. I am also satisfied that the meetings were properly conducted on the basis of the

evidence adduced, including the minutes of the meetings.

5.2 The issues which remain are:

(a) whether the Scheme is fair and equitable having regard to the issues raised by Fulton and the other Scheme Creditors

who support Fulton’s position in relation to the inclusion of Rosderra, which also addresses the issue raised by Vion;

(b) the issue raised by Staunton as to its exclusion;

(c) whether it is appropriate to sanction the Scheme subject to the undertakings proffered by Rosderra and the

connected Scheme Creditors.

6. Fair and equitable: the Rosderra inclusion issues

6.1 As I understand it, the factual basis of the claim of Vion is that its claim is similar to that of Rosderra. In its written submission it

is stated that it has a claim against Mr. Michael Monagle (Monagle) a pig farmer who supplied Vion with pigs which had been fed with

contaminated pig feed supplied by the Company. Its claim is for the sum of £7.5m (€8,346,316). In Appendix 3 to the Scheme

Proposals, which were circulated to creditors in January 2010, which lists the claims summary as at 13th January, 2010, Monagle’s

claim is shown as including three elements, one of which is a claim for £7,500,000. As I understand the position, the Expert did not

allow that element of Monagle’s claim. Vion’s position is that it did not take any steps to submit a claim against the Company because

its claim, in the first instance, was against Monagle. The legal basis of Vion’s contention that the Scheme should not be sanctioned is

that it is not fair and equitable, which is founded on an attack on the provisions of the Scheme, and, in particular, the provisions

which identify who is entitled to submit a claim under the Scheme and the provisions which deal with the admission and determination

of the value of claims by the Expert.

6.2 The legal basis of Fulton’s contention that the Scheme should not be sanctioned if the Court cannot exclude Rosderra, is that

Rosderra does not come within the definition of Scheme Creditor and its claim should not have been admitted by the Expert. The

factual basis of that contention is that Rosderra did not purchase the contaminated product directly from the Company. As I

understand the position, and it is anything but clear from the documentation before the Court and there is no real factual evidence in

relation to it, Rosderra purchased animals from persons who had purchased contaminated product from the Company. Fulton supports

its contention that Rosderra’s claim should not have been admitted on the basis that part of Fulton’s claim in the sum of £82,231,

which was not admitted by the Expert, related to a third party claim against it in that sum by Foyle Meats Ltd., which had a

contractual relationship with Fulton and which was affected by the meat recall order in Northern Ireland as a result of the

contamination event.

6.3 In response to Fulton’s affidavit and its written submissions, the Company filed an affidavit of Robert Hogg sworn on 10th August,

2010, in which he averred that a significant number of the creditors whose claims were admitted under the Scheme had no

contractual relationship with the company, or, alternatively, did not purchase product from the company, listing the relevant

creditors. Without expressing any definitive view on the factual position, which would be inappropriate in the circumstances, it is

pertinent to observe that it would certainly seem arguable that most of the creditors listed by Mr. Hogg conducted their business with

the Company through an agent. However, in relation to one example given, McCarren, which voted against the Scheme, but is not

now opposing it, it is averred that it is a pig processor and is in the same position as Rosderra, whatever it is. Those observations

illustrate the real factual vacuum within which the Court is operating.

6.4 I have outlined the Scheme in my judgment of 23rd December, 2009. For present purposes, it is necessary to focus on the

provisions of Clause 11 of the Scheme by reference to the schedule of definitions at the end of the Scheme. Clause 11.1 set out the

purpose of the Scheme as being “to deal with all claims against the Company arising from the Contamination Event”, which expression

was defined as “the discovery as Dioxins and PCBs in the Company’s animal feed”. Consistent with that provision is –

(a) the definition of “claims” as the “total yet to be ascertained value of compensation sought due to the Contamination

Event”,

(b) the definition of “liability”, which is defined as any claim against the Company arising from the Contamination Event,

and

(c) the definition of “Scheme Creditors” as parties “entitled to compensation arising from the Contamination Event”.

6.5 An aid to the proper construction of the Scheme, in my view, is identifying the only definite source of funds available to meet the

claim of claimants when the Scheme was formulated, when the order of the Court was made on 23rd December, 2009 to hold the

meetings, when the Scheme was advertised and when the meetings were held on 1st July, 2010, which was the fund of €6.5m

referred to as the Insurance Proceeds from the insurance cover which the Company had with FBD Plc (FBD). As an aside, as I

understand it, the possibility of having the insurance policy and, in particular, the indemnity limit of €6.5m, construed by the Court,

which was addressed in the judgment of 23rd December, 2009, did not materialise. In any event, the source of the funds available to

meet the claims made under the Scheme, in my view, is a crucial factor in the proper construction of the Scheme and, in particular,

determining the nature of the claims which gave entitlement to compensation arising from the Contamination Event, because the

primary purpose of the Scheme was to distribute the Insurance Proceeds. The provision in Clause 11.3 for two categories of claim,

material loss claims and non-material loss claims, was a consequence of that fact. Material loss claims and non-material loss claims

were distinguished in Clause 11.3 and in the schedule of definitions by reference to whether they fell within the Products Liability

Section of the policy with FBD or did not fall within it. I see nothing in Clause 11 of the Scheme, either express or implied, which

justifies the conclusion that “claim against the Company arising out of the Contamination Event” is limited to customers of product

from the Company or claims based on a direct contractual relationship between the claimant and the Company, rather than claims

founded on tort or on some other legal basis. There is no inconsistency, ambiguity or lack of transparency in the Scheme in that

regard.

6.6 As regards the argument made on behalf of Vion that the advertisements and notices in respect of the Scheme lacked clarity as

to who was entitled to claim and, in particular, failed to make clear that parties like Vion in respect of whom an indemnity was being

sought were entitled to claim directly on their own behalf, in my view, it does not stand up. The advertisements complained of, the

advertisements directed by the Court in the order of 23rd December, 2009, which were published at the end of January 2010, invited

claims from any “creditor” in respect of “all losses it may have sustained as a result directly or indirectly out of the supply by the

Company” of contaminated products. In that context, in my view, “creditor” would be understood by a person reading the

advertisement as synonymous with claimant. The explanatory memorandum issued by the Scheme Manager and the claim forms and

the notice which accompanied the claim forms, in my view, were consistent with the provisions of the Scheme. That notice, headed

“Important Notice”, emphasised the distinction between claims for material loss and claims for non-material loss as defined in the

Scheme by reference to the FBD insurance policy. It unambiguously placed sole responsibility on the claimant to make its own

assessment as to the nature of its claim having regard to that categorisation and recommended that the claimant obtain legal advice.

It also emphasised that examples given on the claim form were for guidance only and should not be taken as being definitive. The fact

that Vion, apparently, concluded that it could not make a claim directly under the Scheme, in my view, cannot be attributed to lack

of clarity in the Scheme and does not mean that the Scheme was unfair or inequitable.

6.7 In relation to the contention that the Expert did not have a role in determining whether a claimant came within the definition of

“Scheme Creditor”, in my view, that argument is not sustainable. It is implicit, if not spelt out, in Clause 11.3 of the Scheme, and in

the subsequent provisions of Clause 11, that the task of the Expert, which was to “determine both the quantum and … categorisation

of the claims of the Scheme Creditors”, necessitated the Expert reaching a conclusion whether or not the claim was a claim which

should be admitted for determination of value and categorisation. Clause 11.18 of the Scheme expressly provided that the value

specified by the Expert might be “a zero value” in the event that he considered that insufficient information had been supplied by the

Scheme Creditor (presumably, meaning claimant), inter alia, to “determine whether any Liability exists”, liability in that context

meaning whether there was a claim against the Company arising from the Contamination Event. That provision clearly signals that the

Expert was entitled to reject a claim, if he concluded that the claimant was not entitled to compensation arising from the

Contamination Event, although the rejection was formulated as zero value. Any other interpretation of the Scheme does not make

sense.

6.8 Accordingly, the categorisation process involved the Expert deciding in the first instance whether the claim was a claim against

the Company arising from the Contamination Event and then determining whether it fell within or without the Products Liability Section

of the insurance policy with FBD. In the schedule of definitions the Expert was identified. It is worth noting that his profession is that

of loss adjustor. His role was described in the schedule of definitions as “to review, categorise and determine the value of the claims

of Scheme Creditors”. It was provided that he would have the assistance, as required, of a lawyer. In the events which happened, he

had the assistance of Mr. John O’Donnell, S.C. It was not the role of the Expert to determine liability in the sense in which liability

would be determined by an arbitrator or by a court, addressing issues as diverse as the legal basis of the cause of action,

foreseeability, remoteness of damage, causation and suchlike. His role was as an Expert evaluating and categorising claims made

under a scheme of arrangement. The significance of the fact that the role was performed by a loss adjustor was that five sixths of

the funds which were definitely available, the Insurance Proceeds, were to be allotted and distributed pro rata to material claims,

which were defined by reference to the FBD insurance policy, whereas the remaining one sixth covered non-material claims. It is

noteworthy that, although the Insurance Proceeds are to be apportioned between material and non-material claims in those shares

and that the Litigation Dividend (if any) is to be distributed on a total quantification of claim basis pro rata, and it is not clear on

what basis other than, presumably, commercial reality and commonsense those provisions are formulated, no party has contended

that the approach adopted in the Scheme in relation to those matters is intrinsically unfair or inequitable.

6.9 I am satisfied that the process provided for in Clause 11.8 and the succeeding clauses of the Scheme by virtue of which the

Expert fulfilled his task was fair and equitable and designed to ensure equality of treatment in accordance with its terms. While a

relatively tight timeframe was provided for submission of claims and for dealing with requests for information from the Expert, those

provisions bound all claimants. It was provided that claims would be determined by the Expert without direct input from the Company,

although he was given an absolute discretion to request such information from the Company as he considered necessary in order to

deal with particular claims. It was provided that just over a month before the meetings were to be held, the Expert would notify the

claimant of the outcome of his evaluation if a lower value than claimed (presumably, including zero value) had been determined or if

the categorisation of the claim would result in a lower dividend to the claimant than the claimant had sought. While there was no

appeal against the decision of the Expert, the fact is that each claimant knew before the meetings how it would be affected by the

Scheme it if were to be approved at the meetings.

6.10 Clause 11.22 of the Scheme provided that the Expert’s determination, as to both value and categorisation, was to be final and

binding on both the Company and on the Scheme Creditors and was not subject to appeal in any circumstances. That provision was

also reflected in Clause 11.8 and it was emphasised in the “Important Notice”, which accompanied the claim forms. However, as a

general proposition, it cannot be the case that the determination of the Expert in accordance with the Scheme is wholly immune from

review by the Court. The law on the position of an expert in a context which is wholly contractual was set out by this Court (Clarke

J.) in O’Mahony v. O’Connor [2005] 3 I.R. 167 in the following passage (at p.184):

“There is no doubt that there is ample authority for the proposition that where parties agree to be bound by the report of

an expert, such report cannot be challenged in the courts on the ground that mistakes have been made in its preparation

unless it can be shown that the expert had departed from the instructions given to him in a material respect or had in

some way acted in bad faith, see Jones v. Sherwood Services Plc [1992] 1 W.L.R. 277”.

On this application, the Court’s function is fundamentally different to its function in relation to a dispute as to the enforceability of

the findings of an expert in a solely contractual context. On this application the Court’s function is a statutory function to sanction a

scheme of arrangement, which, if sanctioned, will bind not only relevant parties who are in agreement with the implementation of the

scheme, but also relevant parties who oppose its implementation. Therefore, it must be the case that the scope for reviewing the

findings of the Expert is at least as broad as was indicated by Clarke J. in relation to a purely contractual situation, and argument can

certainly be made that it is broader.

6.11 Further, there is no doubt that, in construing and applying s. 201(3), the Court must do so in a manner which is consistent with

the provisions of the Constitution, as counsel for Vion submitted, referring to the decision of the Supreme Court in East Donegal Co-

Operative v. Attorney General [1970] 1 I.R. 317. Similarly, the Court must construe and apply s. 201(3) in a manner compatible with

the European Convention on Human Rights (Convention). In that latter context, counsel for Fulton made submissions on the provisions

of Clause 11.22 having regard to the right to access to the courts protected by Article 6 of the Convention, by reference to some

English authorities, including the decision at first instance in Re Hawk Insurance Company Ltd., (at p. 500) and the decision of the

High Court in Re Pan Atlantic Insurance Co. Ltd. [2003] BCC 847, which was alluded to in my judgment of 23rd December, 2009.

6.12 However, in this case, it is not necessary to explore the constitutional right or the Convention right of a participant in the

Scheme to have access to the Court or the scope of the jurisdiction to review the determination of the Expert further, because no

factual basis has been advanced to support the contention that the determination of the Expert requires to be reviewed. As Vion did

not participate in the process, it is difficult to see how it has standing to challenge the manner in which the process was conducted.

Fulton has adopted an inconsistent approach in that, on the one hand, it has acknowledged that the Expert followed the process as

laid down in the Scheme, save that it improperly included the claim of Rosderra, while, on the other hand, it complained about the

exclusion of the Foyle Meats Ltd. claim by the Expert. However, the fundamental reason why the Court does not have to consider the

scope of Clause 11.22 or its jurisdiction to review the Expert’s determination in the context of an application under s. 201(3) any

further is that there is no evidence before the Court to support the contention that the Expert acted improperly in admitting the claim

of Rosderra.

6.13 To illustrate that point, Rosderra’s claim was categorised as being, in part, a material claim and, in part, a non-material claim, the

material component being valued at in excess of €8m. As regards that component, the test which the Expert had to apply was

whether the claim by Rosderra was a claim against the Company which arose out of the Contamination Event and which fell within the

Products Liability Section of the FBD policy. There is no evidence whatsoever before the Court on which one could form a view as to

whether the Expert properly applied the test. Indeed, the FBD policy is not before the Court.

6.14 In summary, for the reasons I have outlined, I find that there is no basis for the contention that the Scheme is not fair or

equitable or that the claims evaluation process was implemented in a manner which was unfair or inequitable. I see no basis for

subverting the decision of the majority of the Scheme Creditors, who participated and whose votes exceeded the statutory threshold

provided for in s. 201(3) and who, I am satisfied, acted bona fide and voluntarily, by refusing to sanction the Scheme.

7. The Staunton inclusion issue

7.1 The issue raised by Staunton Foods Ltd. was predictable because it was the subject of an application to the Court in March 2010,

which was dealt with in a judgment which was delivered on 26th March, 2010. On 12th July, 2010, the Court directed that Staunton

be given notice of the hearing of the petition.

7.2 The Scheme provided that all claims against the Company arising out of the contamination event should be submitted to the

Expert in the prescribed form on or before 12th February, 2010. It was provided that Scheme Creditors who had not submitted a

prescribed Creditor Claim Form by that date would be deemed to have no claim and any claims received after that date would not be

enforceable. The evidence is that Staunton only learned of the Scheme Proposals on 23rd February, 2010, just eleven days after the

deadline. It then submitted a claim, but it was not accepted by the Scheme Manager. On the application to Court on 23rd March,

2010, the Court held that its function under subs. (1) of s. 201 was exhausted when the order of 23rd December, 2009 was made and

that it did not have jurisdiction to interfere with the implementation of the steps towards the holding of the creditors’ meetings on 1st

July, 2010, which were matters which were governed by the terms of the Scheme itself. The application to intervene was refused.

However, the Court made it clear that Staunton was not precluded from pursuing any issue which might be raised if the Scheme was

approved and it came back to Court to be sanctioned, as has happened.

7.3 The position adopted by Staunton is that the Court should not sanction the Scheme in a manner which precludes Staunton from

having its bona fide claim dealt with in accordance with the Scheme, because to do so would be fundamentally unfair and inequitable.

The primary basis on which Staunton makes that contention is that the provision in the Scheme, which excludes from participation

therein claims not brought by 12th February, 2010, if approved by the Court, has the effect of arbitrarily and permanently excluding

Staunton from pursuing its legitimate and bona fide claim against the company, because it will not be able to participate in the

Scheme and the permanent stay on proceedings against the Company will prevent it having access to the Court. The submission that

the cut-off date of 12th February, 2010 was arbitrary is based on the contention that the cut-off point for bringing claims in the

prescribed form was unfairly tight, particularly for claimants like Staunton, which did not have a contractual relationship with the

Company, while, on the other hand, the timeline within which the Expert had to determine the value and categorisation of the claims

and within which the scheme manager prepared for the creditors’ meetings was ample to allow Staunton’s claim to be accepted, even

though out of time. In essence, what Staunton want is that the Scheme should only be approved of on the basis of an undertaking

by the Company that its claim will be dealt with under the Scheme.

7.4 With a considerable degree of prescience, the value of the claim of Staunton was determined by the Expert on the same basis as

other Scheme Creditors’ claims under the Scheme, on a without prejudice basis. The Expert put a total value of €329,868, made up of

a material loss claim of €27,921 and a non-material loss claim of €301,947, on Staunton’s claim for the purposes of this application,

although that was not a final determination because further information was required from Staunton. However, what is significant is

that a claim of that value would result in a dividend, estimated at approximately €26,000, being paid to Staunton, if it were included

in the Scheme, and a proportionate reduction in the dividend payable to all of the other Scheme Creditors. That estimated dividend

represents 0.41% of the total estimated dividends of €6,318,500 out of the Insurance Proceeds.

7.5 The position adopted on behalf of the Company at the hearing of the application was expressed as neutral, in the sense that, if

the Court was persuaded that Staunton’s claim should be included, it should be sanctioned, rather than that the whole Scheme would

fall on a claim which is going to yield a dividend of only €26,000. However, there was no concession on the part of the Company that

the timeframe for making a claim was too short and the point was made that all of the other claimants, whether having a contractual

relationship with the Company or not, were able to make their claims in time.

7.6 As I have recorded earlier, the position of Rosderra, which of all of the Scheme Creditors will incur by far the largest reduction of

its dividend if Staunton is admitted, indicated through its counsel was that it was not objecting to Staunton being included. I think I

am correct in stating that the other Scheme Creditors who were represented at the hearing did not express a view on the issue. In

the overall context of the Scheme, the de minimis principle does seem to come into play in relation to the claim of Staunton, as its

counsel submitted. Therefore, I propose making it a condition of the sanctioning of the Scheme that the claim of Staunton, as

determined by the Expert in accordance with the Scheme, as if it had been submitted by 12th February, 2010, will be met on the

same basis as the claims of the other non-connected Scheme Creditors. I do so on the basis that it is the fair and equitable, and also

the common sense, approach to adopt, given the relatively minor impact the decision will have on the generality of creditors. Having

regard to the view I have expressed earlier in relation to the limited jurisdiction of the Court to modify a scheme on an application

under s. 201(3), insofar as there is a modification of the Scheme inherent in that decision, it is a very minor modification in that it has

extended the time for submitting a claim by a relatively short period, which has not impeded the process. However, it is appropriate to

acknowledge that the decision is based more on pragmatism than on principle.

8. Undertakings/order

8.1 The differences between the Rosderra undertaking and the undertakings of the connected Scheme Creditors referred to earlier

relate to who is responsible for the calculation of the amount of the excess dividend which is to be refunded in accordance with the

undertaking, if it arises, and the obligation on the party giving the undertaking to furnish information to the Scheme Manager as to

the receipt of further payments from the Department. It seems to me that there is a lack of transparency in the Rosderra letter of

undertaking in relation to those matters, by comparison to what is provided for in the letters of undertaking from the connected

Scheme Creditors. Therefore, I consider that Rosderra should give undertakings to the Court in similar terms to the undertakings to be

given to the Court by the connected Scheme Creditors.

8.2 Accordingly, I propose making an order under s. 201(3) sanctioning the Scheme subject to –

(a) the condition that the claim of Staunton, as determined by the Expert in accordance with the Scheme, as if it had

been submitted by 12th February, 2010, is included for distribution purposes in the Scheme on the same basis as the

claims of the other non-connected Scheme Creditors; and

(b) the connected Scheme Creditors and Rosderra giving undertakings to the Court in the terms outlined.

The Company will be given liberty to apply to Court in relation to any issues arising out of the undertakings.

8.3 There will also be an order under s. 201(2) permanently staying all proceedings and restraining all further proceedings by the

Scheme Creditors against the Company in relation to claims arising out of the Contamination Event as defined in the Scheme.