A High Court judge has granted court protection to Chartbusters home entertainment stores, employing 267 people, on foot of reports indicating it has a reasonable prospect of survival if certain conditions, including the closure of 17 of its 37 stores, are met.
While agreeing today to appoint an examiner, Mr Justice Peter Kelly accused the company's founder, Richard Murphy, of "sharp practise" and "sleveenism" in his treatment of a major creditor who had sought to wind up the company.
Because of Mr Murphy's conduct in staving off the winding up petition by Winchurch Investments Ltd through giving it a post-dated cheque which was later stopped, Mr Justice Kelly said he was making Mr Murphy personally liable for the legal costs — estimated at some €20,000 — of that winding up petition.
The judge noted Winchurch had agreed last October to adjourn its winding up petition on the basis of the post-dated cheque and Chartbusters had subsequently petitioned for court protection. While such conduct was not enough to deny the hearing of the petition for examinership, he wasn't to be taken as endorsing it and it was "a form of sharp practice or sleveenism of which the courts disapprove".
"It has to be brought home to company directors they have obligations," the judge said. If a company director was going "to play ducks and drakes" with the court, they would not be looked on sympathetically.
He was giving his judgment on the application for examinership which was opposed by two substantial creditors — Winchurch and Lombard Ireland, who are owed some Eu 1.8 million between them. Other creditors owed some Eu 18 million between them,
including the Revenue, adopted a neutral position.
The judge said the company is insolvent and would have a shortfall between assets and liabilities of some Eu 246,000 as a going concern and of some Eu 4.8 million if wound up.
He said both Winchurch and Lombard Ireland believed the company had no reasonable prospect of survival, both had voiced concerns about the management of the company and Lombard also claimed its core business — renting and selling DVDs — was dead.
After Mr Murphy gave Winchurch a bank draft for Eu 49,973 and post-dated cheque for Eu 42,972 on October 28th 2008 in part discharge of Chartbusters debt, Winchurch had agreed to adjourn its winding up petition. Winchurch was later informed by Allied
Irish Banks the post-dated cheque had been stopped because it had been reported lost. In the interim, the petition for examinership, grounded on Mr Murphy's affidavit, was moved. Winchurch said it never got an explanation from Chartbusters why the
cheque was reported lost.
The judge said he did not have to find whether Mr Murphy had breached requirements to act in good faith in relation to a petition for examinership. If there was a breach, he did not believe it was so serious as to warrant denial of the hearing of the
petition as this would be exceptionally unfair to the 267 employees.
He noted the opposing creditors argued the company's core business had no real future. Against that, reports from the independent account and interim examiner expressed the view the company had a reasonable prospect of survival although some shops
would have to close. Their view was supported by the fact the number of expressions of interest by potential investors had risen from 7 to 17. He also took into account other creditors were not opposing examinership.
Given all those factors, the judge said he would appoint interim examiner Neil Hughes as examiner to the company and this decision meant the winding up petition must fall. He was awarding costs of the winding up petition against Mr Murphy personally
rather than give Winchurch a "hollow" costs order against Chartbusters. Mr Murphy could appeal that costs order if he chose, the judge added.
Chartbusters was incorporated in 1993. It has told the court, as a result of competition and changes in technology generally, it had successfully diversified into internet services and tanning booths. Mr Murphy has said he hopes 20 stores currently
operating profitably will be retained.
