Mr Justice Frank Clarke turned down the Laragan Developments survival scheme last Thursday because the firm had no independent business or customers of its own and no-one “paid a blind bit of attention” to documents regulating its working relationship with parent company, the Hanly Group.

Justice Clark also criticised inaccuracies in the Independent Accountant’s Report (IAR) submitted to the court and described the treatment of homebuyers who had placed deposits on Laragan apartments as “unfair.”

Last week’s High Court hearing was convened to adjudicate on the scheme of arrangement put together by Laragan examiner Paul McCann of Grant Thornton.

Laragan owes €147m to creditors, including €101m to Alan Hanly, owner of the Hanly Group.

In denying the scheme – which would have paid creditors between 30 and 1 per cent of the amounts owed them – the judge focused on the nature of the relationship between Laragan and the Hanly Group.

In his judgement summary, Justice Clark explained that he had seen an Institute of Architects Building Contract that described Alan Hanly as an employer and Laragan as the builder.

“This would have, had it been complied with, required regular stage payments by Mr. Hanly to Laragan, as an ordinary employer, which might have been changed in the event that a particular unit was sold and the purchaser of that unit took over the building contract.”

However, the judge felt this was not the real situation.

“It seems to me that while these documents were put in place in truth no one paid a blind bit of attention to them.”

“The very fact that in the course of the hearing it was necessary to get an undertaking that if there were to be a change in the price at which apartments were sold Mr. Hanly, rather than Laragan, would take the hit demonstrates that there was no real agreement between Laragan and Mr. Hanly as to how the purchase price would be dealt with.”

Justice Clark felt this undermined the credibility of the working relationship.

“The truth is those and other factors can only lead to the conclusion that there was no true arm’s length business arrangement between Mr. Hanly and Laragan. Laragan was a vehicle of convenience.”

The judge then reflected that it was unusual that a company with no independent business of its own, and no customers, should seek court protection and apply to have its affairs regulated by an examiner.

“The truth is if there was an enterprise or an undertaking in this case it involved not just Laragan, but all of the other entities within the group.

“I think that raised in my mind very serious questions about whether in truth Laragan was the type of enterprise or undertaking that the examinership process is designed to protect.”

Justice Clark also felt that approving the scheme was unlikely to protect employment.

“The only jobs that will be preserved are the jobs of finishing out the existing

contracts, in circumstances where those contracts will, one way or the other – if there be any commercial value to them being finished out – almost certainly be finished out by someone.”

While he stressed that it wasn’t a decisive factor in declining the scheme, Justice Clark was critical of the way depositors had been treated. Homebuyers who had paid deposits of up to €20,000 for properties at Carrickmines Green in South Dublin and Milner’s Square in Santry would have received just 1 per cent back under the scheme.

“It did seem to me on reflection that the way in which the deposit creditors were dealt with was unfair to those creditors.

“In the case of many of the deposit creditors, questions had already been raised long before the company went into examinership as to whether

the company was complying with its contractual obligations. There is no doubt but that the development was well behind time.

“It seemed to me that if any scheme were to be considered it would have to have elevated the deposit creditors to the same status as other unsecured creditors.”

Justice Clark also pointed out that the IAR had contained an inaccuracy that exceeded €10 million.

“I was concerned that some of the information that was put before the court by the company, and in particular by the independent accountant, at the beginning of this process when an appointment to appoint an interim examiner was made, turned out to be inaccurate.

“A court should be better able to rely on the evidence than has turned out to be the case here.”

However, the judge did praise examiner McCann’s work on a difficult case.

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