A High Court judge has appointed an examiner to Chartbusters' home entertainment stores, employing 267 people, based on evidence it has a reasonable prospect of survival if certain conditions, including the closure of some stores, are met.
While agreeing to appoint an examiner, Mr Justice Peter Kelly accused the company's founder, Richard Murphy, of 'sharp practice' 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 was not 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 judgement on the application for examinership which was opposed by two substantial creditors - Winchurch and Lombard Ireland, who are owed some €1.8m between them. Other creditors owed some €18m between them, including the Revenue, adopted a neutral position.
The judge said the company was insolvent and would have a shortfall between assets and liabilities of some €246,000 as a going concern and some €4.8m 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 €49,973 and post-dated cheque for €42,972 on October 28 2008 in part discharge of Chartbusters debt, Winchurch had agreed to adjourn its winding up petition. Winchurch was later informed by Allied Irish Banks that 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 received 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 that 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.
