Court Initiation
Cases
Motsumi -v- Eden Further Education Ltd (In vol liq) & Anor
[2015] IECA 70
Court of Appeal
Hogan J.
“57. This brings us to the most difficult aspect of this appeal. Can the 190 students with an unliquidated claim for damages against the company be regarded as “creditors” for this purpose? This issue arises because while Ord. 74, r. 68 purports to exclude creditors with unliquidated claims from voting at a meeting of creditors, s. 267(3) of the 1963 Act makes no such distinction.
58. While there are features of the drafting of both s. 266 and s. 267 which are not, perhaps, the most satisfactory or the easiest to follow, the general tenor of the statutory scheme is as follows. Section 266(1) of the 1963 Act envisages that there will be a meeting of creditors following due notice having been given to creditors and s. 266(2) provides for the advertising of such a meeting in daily newspapers. This meeting must be held either on the same day or immediately after the meeting of the company resolving that the company should be wound-up.
59. Section 267(1) of the 1963 Act envisages that a liquidator may be nominated by either the company or the creditors at their respective meetings. If different persons are nominated as liquidator by both the company and the creditors, then the person nominated by the creditors shall be the liquidator. If no person is nominated by the creditors, then the person nominated by the company shall be liquidator.
60. Section 267(2) of the 1963 Act then provides that where different persons are nominated as liquidator then an application may be made to the Court for an order directing who the liquidator shall be. The appeal procedure regulated by Ord. 74, r. 68 must be regarded as giving effect to the right to apply to court envisaged by s. 267(2).
61. It is, of course, the meeting of the creditors which directly concerns us in this appeal. It is important to note that s. 267(3) of the 1963 Act does not distinguish between creditors with liquidated and unliquidated claims, as it refers simply to creditors. While there was no challenge in these proceedings to the vires of Ord. 74, r. 68, the court is nonetheless faced with a direct conflict between the provisions of s. 267(3)(which simply refers to creditors by value) and r. 68 which confines the voting entitlement of creditors at a creditors’ meeting to those with liquidated claims the value of which has been ascertained.
62. Admittedly, the 1963 Act does not define the term “creditor”. But it is clear that s. 267(3) uses the term “creditor” in the same sense as that term is employed in s. 266(1) with regard to a meeting of creditors. A creditor with an unliquidated claim or a claim which is otherwise unascertained would clearly be entitled to attend such a meeting. It is clear from the term of s. 283(1) of the 1963 Act that all such creditors are entitled to prove their debt in a winding-up. There is, moreover, a strong presumption that a word has the same meaning throughout a particular enactment: see, e.g., BUPA (Irl.) Ltd. v. Minister for Health and Children [2008] IESC 42, [2012] 1 I.R. 442,447 per Murray C.J.
63. In these circumstances, I find myself obliged to conclude that the term “creditor” in s. 267(3) includes creditors with unliquidated claims. In these circumstances, inasmuch as there is an apparent conflict between the language of s. 267(3) and Ord. 74, r. 68, the provisions of the statute must necessarily prevail.
64. That, however, is not the end of the matter because s. 267(3) of the 1963 Act nevertheless envisages that the liquidator shall be the person nominated by the majority “in value” of the creditors voting on the resolution. This Court must, where at all possible, seek to ascribe a meaning to this sub-section so that it can work effectively. Yet the statutory scheme did not provide for any mechanism whereby a value can be fairly or objectively ascribed at this juncture to the unliquidated claims of creditors. By contrast, for example, in the context of the admissibility of proof against the company in a winding up s. 283(1) requires that a “just estimate” be made at that point in the liquidation of all actual or contingent claims against the company, including unliquidated claims.
65. In the absence of any such mechanism – such as that contained in s. 283(1) of the 1963 Act – whereby the value of unliquidated claims could be assessed or estimated, it will be all but impossible for the person chairing the meeting of creditors to ascribe a “value” to many unliquidated claims, save, perhaps, where the company itself has already made an estimate of the claim in the statement of affairs or where there are other special circumstances which lend themselves to the ready assessment at this preliminary stage of the value of the claims in some objective fashion.
66. In the present case there was, unfortunately, no method whereby the Chairman could have ascribed a “value” to the claims of the 190 students with unliquidated claims. In these circumstances, the Chairman of the meeting was correct in disallowing these claims for voting purposes.
Conclusions
67. What, then, is the overall conclusion to be reached having surveyed the individual disputed claims? I have determined the Chairman was wrong in refusing to admit the entirety of the Council’s rates claim, so that an additional sum of €98,846 ought to have been allowed. Critically, however, I have held that the claims of the 190 students were properly disallowed for voting purposes by the Chairman at the creditors’ meeting. I have reached this conclusion not because the claims were unliquidated claims, but rather because irrespective of that status, there was no mechanism whereby the “value” of these claims within the meaning of s. 267(3) of the 1963 Act could have been objectively ascertained in these circumstances and for this purpose.
68. This latter conclusion is of some importance, because it is clear that unless the claims of the 190 students should have been accepted by the Chairman of the creditor’s meeting for voting purposes, the majority of votes in value at the meeting would have been in favour of Mr. Fitzpatrick. It follows, therefore, that in the light of that conclusion that these votes were properly excluded, Mr. Fitzpatrick should be deemed to have had the majority of votes in value at the meeting of the creditors of the company.
69. In these circumstances, I would accordingly allow the appeal against the order of Donnelly J. and set aside her order. I would instead declare that at the meeting of the creditors of the company held on 23rd May 2014 the majority in value of the creditors voting at that meeting voted for the appointment of Mr. Anthony J. Fitzpatrick as liquidator. It follows, accordingly, that Mr. Fitzpatrick should be deemed to have been duly elected as liquidator for that purpose in accordance with s. 267(3) of the 1963 Act (as amended).
La Plagne Ltd -v- Companies Acts [
[2011] IEHC 91
Laffoy J.
“5. The petitioner as contingent or prospective creditor issue
5.1 Section 215 of the Companies Act 1963 (the Act of 1963) provides that an application to Court for the winding up of a company shall be by petition presented by, inter alia, a creditor, including a contingent or prospective creditor. However, paragraph (c) of s. 215 provides that the Court shall not give a hearing to a winding-up petition presented by a contingent or prospective creditor until such security for costs has been given as the Court thinks reasonable, and until a prima facie case for the winding up has been established to the satisfaction of the Court. In his grounding affidavit, Mr. Fraher indicated that he was ready, willing and able to provide for such security for costs as the Court might think reasonable. At the hearing on 20th December, 2010 I made an order directing Mr. Fraher to provide security for costs in the form of a bond in the sum of €10,000 by 11th January, 2011, which Mr. Fraher undertook to the Court to provide. On that basis, I was satisfied that one of the pre-conditions set out in paragraph (c) had been complied with. In relation to the other pre-condition, that the Court shall not give the petitioner a hearing until a prima facie case for winding up has been established to the satisfaction of the Court, it would appear that the approach to be adopted by the Court and, in particular, whether it should hold a preliminary hearing on that issue has not been considered by the High Court in this jurisdiction. In Re Fitness Centre (South East) Ltd. [1986] BCLC 518, Hoffman J., delivering judgment in the High Court in the United Kingdom, stated that the corresponding provision of the United Kingdom Companies Act 1985 appeared to prohibit the Court from proceeding with the hearing of the petition until a preliminary hearing on the pre-conditions had been completed. However, his view was that that was not necessarily an insuperable procedural bar, because he considered that he could constitute the proceedings before him as the preliminary hearing, and then, if he formed a view which was favourable to the petitioner as to the question of security for costs and a prima facie case, he could go on immediately to the hearing of the petition. In this case, as Mr. Fraher was also petitioning to wind up the company in his capacity as a contributory, I consider that it was not improper to hear the petition, as I did.
5.2 In reliance on a number of English authorities (Re Fitness Centre (South East) Limited; Sugar Hut Brentwood Ltd. & Ors. v. Norcross [2008] EWHC 2634; and in Re Sass [1896] 2 QB 12, where the insolvency was a bankruptcy rather than a liquidation), counsel for Mr. Ronan submitted that Mr. Fraher does not have standing to petition for the winding up of the company as a contingent or prospective creditor. Mr. Fraher’s case that he is a contingent or prospective creditor is based on the fact that he has guaranteed the company’s indebtedness to AIB, as outlined earlier. Counsel for Mr. Ronan, correctly in my view, submitted that Mr. Fraher’s case was evidentially deficient in that he had failed to set out the precise terms of the guarantee or exhibit a copy of it. A copy of Mr. Ronan’s guarantee was handed into the Court with the consent of counsel for Mr. Fraher. That is in a standard form of AIB guarantee, which was given on 29th June, 2005. On the assumption that Mr. Fraher’s guarantee is in the same form, which is a reasonable assumption to make in the absence of any objection from Mr. Fraher, Mr. Fraher has agreed –
“to pay and satisfy to the Bank on demand all sums of money which are now or shall at any time hereafter be owing to the Bank anywhere on any account whatsoever whether from the [company] solely or from the [company] jointly or jointly and severally with any other person or persons … including … provided always that the total amount recoverable from the Guarantor shall not exceed the sum of €500,000 ….”
In my view, what that agreement means is that the surety, Mr. Fraher, is liable to pay the limit stipulated of €500,000 towards the ultimate balance remaining due after all money obtainable from other sources has been applied in reducing the debt of the principal debtor, the company, to AIB. What the authorities relied on by counsel for Mr. Ronan establish is that, in the event of the insolvency of the company, AIB would have the right of proof in the liquidation of the company for the whole of its debt until it has received one hundred cent in the Euro notwithstanding that it had received some payment from Mr. Fraher as surety and that Mr. Fraher, as surety, would not, by reason of such payment, have any right of proof in the winding up in preference or priority to AIB as creditor. If, however, Mr. Fraher were to pay the whole debt, then, as regards the amount paid, he would be subrogated to the rights of AIB. As a matter of fact on the evidence, Mr. Fraher has made no payment whatsoever to AIB on foot of the guarantee.
5.3 Applying the foregoing principles to the facts before the Court, until Mr. Fraher has discharged the whole of the company’s indebtedness to AIB, AIB, as creditor, is entitled to prove in respect of its whole debt and, as Hoffman J. put it in Re Fitness Centre (South East) Ltd. (at p. 521), Mr. Fraher “is debarred by the rule against double proof from making any claim at all”. Not only has Mr. Fraher not discharged the whole or any part of the company’s indebtedness to AIB, it would appear on the evidence that the primary liability of the company to AIB to discharge the entire debt immediately has not crystallised, so that the liability of Mr. Fraher as surety has not crystallised. Accordingly, in my view, Mr. Fraher, in purporting to petition as a contingent creditor of the company, does not have a sufficient interest to maintain the petition, because, as of now, he does not have that status.
6. Petitioner as a fully paid-up contributory
6.1 In reliance on a number of English authorities, counsel for Mr. Ronan submitted that Mr. Fraher, as a fully paid-up shareholder, does not have locus standi to bring the petition.
6.2 The earliest of the authorities relied on was the decision of the Court of Appeal in In re Rica Gold Washing Company (1879) 11 Ch. D. 36. In that case, the petitioner was seeking to have the company compulsorily wound up on the grounds that it was just and equitable to do so. Jessel M.R. made the following observations in relation to the position of a petitioner holding fully paid-up shares (at p. 42):
“He is not liable to contribute anything towards the assets of the company, and if he has any interest at all, it must be that after full payment of all the debts and liabilities of the company there will remain a surplus divisible among the shareholders of sufficient value to authorize him to present a petition. That being his position, and the rule being that the Petitioner must succeed upon allegations which are proved, of course the Petitioner must shew the Court by sufficient allegation that he has a sufficient interest to entitle him to ask for the winding-up of the company. I say ‘a sufficient interest’, for the mere allegation of a surplus or of a probable surplus will not be sufficient. He must shew what I may call a tangible interest. I am not going to lay down any rule as to what that must be, but if he shewed only that there was such a surplus as, on being fairly divided, irrespective of the costs of the winding up, would give him £5, I should say that would not be sufficient to induce the Court to interfere in his behalf.”
6.3 That principle was applied by the English High Court in two cases dating from 1996: Re Othery Construction Ltd. [1966] 1 All ER 145; and Re Expanded Plugs Ltd. [1966] 1 All ER 877. In the earlier of the two cases the petitioner alleged that the company was insolvent and that it would be just and equitable that the company be wound up. In the latter, the petitioner also sought to wind up the company compulsorily on the just and equitable ground, in circumstances where the evidence showed that there would be no surplus available for distribution among shareholders.
6.4 The principle was applied again a decade later by the English High Court in Re Chesterfield Catering Co. Ltd. [1976] 3 All ER 294, which was once again a case in which the just and equitable ground was invoked by the petitioning personal representatives of a deceased member of the company in circumstances where the company had ceased to trade and appeared to be insolvent. In his judgment Oliver J. quoted the passage from the judgment of Jessel M.R. in In re Rica Gold Washing Company which I have quoted earlier and commented (at p. 299):
“However, it is I think clear that in referring to ‘a sufficient interest’ Jessel M.R. meant an interest by virtue of the petitioner’s membership. In order to establish his locus standi to petition a fully paid shareholder must, as it seems to me, show that he will, as a member of the company, achieve some advantage, or avoid or minimise some disadvantage, which would accrue to him by virtue of his membership of the company; for instance, a member of a company might have a strong interest in terminating its life because he was engaged in a competing business or because he was engaged in litigation with the company, but I do not think that that was the sort of interest that Jessel M. R. had in mind.
… it seems to me to be contrary to the principle of all the cases to suggest that, even allowing that there may exceptions to the general rule, a petitioner can demonstrate his locus standi by pointing to some private advantage which he may derive from the winding up and which is unconnected with his membership of the company.”
6.5 The final authority referred to by counsel for Mr. Ronan is a decision of the Privy Council on appeal from the Court of Appeal of Cayman Islands: CVC/Opportunity Equity Partners Ltd. & Anor. v. Almeida [2002] UK PC 16; [2002] 5 LRC 632. In delivering the judgment of the Privy Council, Lord Millett referred to the relevant provision of the Cayman Islands law – that the Court may wind up a company if it is of the opinion that it would be just and equitable to do so – and stated that it was well established that under the corresponding provision of English law a shareholder with fully paid-up shares had no locus standi to present a winding up petition unless there was prima facie evidence that there would be a surplus on a winding up. Although that is as far as that judgment is pertinent to the proceedings before the Court, it is interesting to note that Lord Millett also pointed out that there was no statutory equivalent in Cayman Islands law to the provision in the United Kingdom of which s. 205 of the Act of 1963 is the analogue in this jurisdiction.
6.6 Mr. Fraher’s answer to the contention of Mr. Ronan that, as a contributory, he does not have locus standi is to be found in the following passage from the annotations on s. 215 of the Act of 1963 in MacCann and Courtney on Companies Acts 1963 – 2006 (2008 Ed.), where the editors state (at p. 433):
“Whilst the English courts have been reluctant to allow the holder of a fully paid share to petition to wind up a company unless it can be shown that the member will have a tangible interest in the liquidation, as where there would be a substantial surplus of assets available for members, the Irish courts have been prepared to make a winding up order on a creditor’s (sic) petition even where there is no prospect of a dividend in the liquidation.”
The authority cited by the editors for that proposition is Re Irish Tourist Promotions Ltd. (1963 – 1993) ICLR 382. That case, in which judgment was delivered by Kenny J. on 22nd April, 1974, is usually cited as an example of the deadlock in corporate management category of circumstances in which the Court may wind up a company under s. 213(f) of the Act of 1963 where it is of opinion that it is just and equitable to do so. For the reasons I will outline, I have not found it particularly helpful in determining whether Mr. Fraher has locus standi as a contributory.
6.7 As appears from the judgment of Kenny J., there was a raft of applications to the Court by the principal proponents in the Re Irish Tourist Promotions Ltd. proceedings, namely, Mr. Doherty, the petitioner, who was the owner of 218 (the figure of 219 in the judgment appears to be a typographical error) of the 500 issued shares in the company which were fully paid and who had an agreement with Mr. Smith to purchase 63 shares, but the transfer had not been completed, and Mr. Mullen who was the owner of the remaining 219 shares. The dispute between the petitioner and Mr. Mullen appears to have originated from a business relationship which was extraneous to the business of the company. In 1973, having concluded that the business of the company could not be carried on, the petitioner, in conjunction with a third party, had formed another company which was represented as carrying on the business which the company had previously carried on. An injunction was granted in the High Court on the application of Mr. Mullen to restrain those representations in proceedings under s. 205 of the Act of 1963 which had been commenced by Mr. Mullen alleging oppression by the petitioner. Those s. 205 proceedings had not been heard when the winding up petition was heard.”
In the matter of Connemara Mining Company Plc
[2013] IEHC 123
Laffoy J.
“13. Section 215 of the Act of 1963 provides that an application to the Court for the winding up of a company shall be by petition presented either by the company or a creditor or a contributory. In s. 208 of the Act of 1963 the term “contributory” is defined as meaning –
“every person liable to contribute to the assets of a company in the event of its being wound up . . .”.
Further, there is a proviso in s. 215 to the effect that a contributory shall not be entitled to present a winding up petition unless one or other of two stipulated requirements is met, the second (para (a)(ii)) being that –
“the shares in respect of which he is a contributory, or some of them, either were originally allotted to him or have been held by him, and registered in his name, for at least 6 months during the 18 months before the commencement of the winding up . . .”.
As I have recorded earlier, there is a statement in the petition to the effect that that requirement is complied with. The position of the Company is that, notwithstanding that the Petitioner is not disqualified by reason of non-compliance with s. 215(a)(ii), that does not mean that it has an entitlement to bring the petition.
14. Before leaving the provisions of the Act of 1963, I would observe that paragraph (g) of s. 213 provides that a companymay be wound up by the Court if –
“the court is satisfied that the company’s affairs are being conducted, or the powers of the directors are being exercised, in a manner oppressive to any member or in disregard of his interests as a member and that, despite the existence of an alternative remedy, winding up would be justified in the general circumstances of the case so, however, that the court may dismiss a petition to wind up under this paragraph if it is of opinion that proceedings under section 205 would, in all the circumstances, be more appropriate.”
Clearly, as a member of the Company the Petitioner would be entitled to invoke that provision, but it has not done so.
The jurisprudence of the Irish courts on a contributory as petitioner in company liquidation
15. In the annotation on s. 208 of the Act of 1963 in MacCann & Courtney “Companies Acts 1963 – 2012” the editors state:
“There is U.K. authority to suggest that the court will be reluctant to allow an individual holder of fully paid shares to petition to wind up a company unless it can be shown the company is solvent and that a substantial surplus of assets will be available to the members, since otherwise the member will not have a tangible interest in the winding up. However, it is thought that in this jurisdiction, if the company is insolvent and ought to be wound up, but the directors have failed to take steps either to convene the necessary meetings for a creditors’ voluntary winding up or alternatively to have the company authorise the presentation of a petition in the company’sown name, the court would accede to a petition presented by an individual contributory who, although no longer having any tangible interest in the company because of the net asset deficiency, nonetheless wishes to ensure that there is an orderly realisation of assets for the benefit of the general body of creditors.”
The authority relied on by the editors for the proposition in the last sentence in that quotation is the decision of the High Court (Kenny J.) in Re Irish Tourist Promotions Limited (22nd April, 1974, Unreported).
16. The position of a fully paid up shareholder who seeks to have a company wound up was considered more recently by this Court in Re La Plagne Limited [2012] 1 ILRM 203. However, the ratio decidendi of that case was that the petitioner who had invoked paragraph (e) of s. 213 had not demonstrated that the company he had sought to have wound up was unable to pay its debts.
17. The position of a fully paid up shareholder of a company who sought to be heard on the hearing of a petition to wind up the company at the suit of a person who claimed to be a creditor and alleged that the company was deemed insolvent by reason of failure to comply with his demand under s. 214(a) of the Act of 1963, to dispute the Petitioner’s debt, in circumstances where the shareholder in question was a fifty per cent shareholder and the other fifty per cent shareholder was supporting the petition, was considered by this Court in Re Forrest Lennon Business Support Services Ltd. [2011] IEHC 523. However, I do not consider that decision, which is under appeal to the Supreme Court, to be of particular relevance to the argument advanced on behalf of the Company in this case that the Petitioner does not have locus standi to petition to have it wound up.”
MCR Personnel Ltd -v- Companies Acts
[2011] IEHC 319
Laffoy J.
“4.1 Section 216 of the Act of 1963 deals with the powers of the Court on hearing a winding up petition and provides that the Court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit. While that provision obviously envisages the hearing of the petition against the background of compliance with the various provisions of the Rules of the Superior Courts, 1986 (the Rules), rules 7 to 12 of Order 74 of which set out the requirements which the petitioner must comply with, including the requirement in rule 10 that the petition be advertised seven clear days before the hearing, and of the petitioner seeking relief in the terms of the prayer of the petition, it must also, by implication, confer on the Court jurisdiction to make the appropriate order when the petition comes before the Court in circumstances in which all of the requirements of the Rules have not been complied with and the petitioner is not pursuing a winding up order. In any event, the Court must have inherent jurisdiction to deal with the latter situation.
4.2 Whether the Court is exercising statutory jurisdiction under s. 216 or its inherent jurisdiction in the circumstances which arise on this application, in my view, the primary consideration is the proper application of Order 99 of the Rules, which provides, inter alia, that the costs of and incidental to every proceeding are at the discretion of the Court and the normal rule is that costs follow the event.
4.3 I do not think it would be appropriate for the Court to lay down a strict rule that a petitioner whose debt has been satisfied before the petition comes before the Court, where the petition has not been advertised, should not be entitled to the costs of presenting the petition. While I am acutely conscious of the importance of the factor which motivated Nourse J. in following the “modern practice” in Re Shusella Ltd. only where the petition has been advertised, that the Court should be astute in ensuring that creditors do not use the winding up process as a debt collection process, nonetheless, there are other factors to which the Court should have regard in considering an application by a petitioner for his costs. One is that, if the debtor company is not at risk of having to discharge the costs of the petition where it discharges the debt after the petition is presented but before it is advertised, there will be little incentive for the debtor company to comply with the s. 214 demand prior to the presentation of a petition. Another factor is that, if the petitioner has to bear the costs of the presentation of the petition to recover a debt to which he is clearly entitled, the defaulting debtor company gets off “scot-free”, whereas the wronged petitioning creditor is penalised in costs. Further, in my view, it is contrary to common sense that there should be a practice whereby the petitioning creditor whose debt is discharged after presentation of the petition but before it is advertised will only have an entitlement to costs of presenting the petition in circumstances where the overall costs are unnecessarily ratcheted up by requiring him to advertise for no other reason than to comply with the Rules.
4.4 In the light of the factors outlined above, it seems to me that every case must be decided on its own facts, both in relation to the period before and the period after the presentation of the petition.
4.5 In this case, having regard to the history of the debt and the petition as outlined earlier, the petitioner, whose debt was payable under the settlement of High Court proceedings which had been made a rule of Court, was wholly justified in serving the s. 214 demand when he did, and was justified in bringing the petition when the s. 214 demand was not met. It was only when the petition was presented that the company discharged the debt, which was clearly lawfully due. It was discharged at a time when the petitioner had ample time in which to advertise the petition in compliance with the Rules. On the basis of the normal rule, that costs follow the event, in my view, the petitioner is entitled to his costs, viewing the event as the successful recovery by the petitioner of the debt due to him, rather than the winding up of the company which he sought, which had ceased to be necessary. That approach meets the justice of the case. The approach adopted in Re Shusella Ltd. would not; the company would have a genuine grievance if the Court inflicted on the company, in addition to the costs which have already accrued, the costs of advertising the petition unnecessarily.
5. Order
5.1 There will be an order striking out the petition together with an order that the petitioner is entitled to the costs to date against the company, such costs to be taxed in default of agreement.”
Lycatel [Ireland] Ltd -v- Companies Acts
[2009] IEHC 264
Laffoy J.
“The legislation and the Rules
The jurisdiction of this Court to wind up a company is derived from s. 212 of the Act of 1963. The succeeding sections govern the procedure to be followed and the powers of the court. Section 213 sets out the cases in which a company may be wound up. Paragraph (e) thereof is the provision which was originally invoked by Wavecrest and is now being invoked by Cronosell. It stipulates that the company is unable to pay its debts. Section 215 sets out the parties who may petition to wind up, who include creditors. On the basis of the evidence put by Cronosell before the court, I am satisfied that Cronosell is a creditor who would have a right to present a petition and that it would be able to rely on the deemed insolvency provision contained in s. 214. Section 216 deals with the powers of the court on the hearing of a petition to wind up and provides as follows:
“On hearing a winding-up petition, the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit, but the court shall not refuse to make a winding-up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.”
……
The basis on which Wavecrest opposed an order under O. 74, r. 18 is that the rule is predicated on the petition having been advertised, which was not done in this case.
The authorities relied on by the parties
Counsel for Wavecrest referred the court to two authorities.
The first is a decision dating from 1884 in Re United Stock Exchange Limited, ex parte Philp & Kidd (1884) 28 Ch D 183. In that case, a winding up petition had appeared in the court list from time to time over a seven month period, during which it had not been advertised. When counsel on behalf of the petitioner sought leave to withdraw it, the company did not oppose the application. However, a shareholder who wished to oppose it, who had not been cited by service, claimed that he was entitled to have his costs paid. Pearson J., having referred to the relevant section of the Companies Act 1862, then in force and the relevant rule as to advertisements, stated that the course of the proceedings is that the petition is first to be presented, and then the advertisements are issued. In relation to a situation where the petition has not been duly advertised, he asked the rhetorical question whether creditors or contributories had a right to appear. He answered that question as follows:
“To my mind, until advertisements have appeared no person is a party to the proceedings except the petitioner and the company, and I am at a loss to see how contributories, who are represented by the company until they get a separate existence and locus standi, can have any right to come to court. To my mind it is an entire mistake to suppose that a contributory has a right to appear until after advertisements. I am not referring to cases where there may have been some fraud. It may be that a person who has no locus standi otherwise is entitled to come to Court and say that a fraud is being perpetrated. That is an exceptional case. This is not a case of that kind.”
The shareholders’ application for costs against the petitioner was refused.
That decision was applied more recently in the second authority cited by counsel for Wavecrest – the decision of the Supreme Court of the Australian Capital Territory in Re a Company (1980) 35 ACTR 36, in which judgment was given on 19th September, 1980. In that case, a creditor, having made a statutory demand, presented a petition to wind up the debtor company. The petition was set down for a date to be heard. However, before that date the company settled with the creditor and the creditor sought leave to withdraw the petition in chambers to avoid it appearing in the legal diary published in the Canberra Times. Having referred to the decision of Pearson J. in Re United Stock Exchange Limited, Kelly J. stated as follows:
“It is clear, therefore, in my opinion, that it is the advertisement which invites other creditors or contributories to become parties and until advertisement of a petition the only parties to it are the petitioner and the company. I am, incidentally, informed by the solicitor for the petitioning creditor that he had received no notice of anybody’s intention to support or oppose the petition.”
Leave was given to withdraw the petition and a direction was given that the name of the company should not be published.
In my view, neither decision relied on by counsel for Wavecrest is apposite because neither was concerned with a specific power conferred on the court of substitution of a petitioner for a winding up order. The parameters of the jurisdiction in relation to the exercise of such a power must be determined by reference to the rule which creates the power. In other common law jurisdictions the power to substitute is much more elaborate than the rule in this jurisdiction. The important point for present purposes is that in this case the primary issue falls to be determined by reference to the proper construction and application of rule 18.
…..
Conclusion
There is a logical procedural scheme to be discerned in Order 74. The petition is presented, formalities are complied with in the Central Office, it is then advertised and, if it is presented by a party other than the company, it is served on the company. Service by a creditor gives the company standing. The invitation in the advertisement gives a person who has an interest in whether the petition is acceded to or refused standing to make submissions to the court, subject to compliance with the requirements of rule 15, which the court may waive. The scheme provides a structure within which parties who may be affected by the exercise of the court’s discretion under s. 216 are put on notice of, and afforded an opportunity to express their views on, the petition. The scheme facilitates the court in the exercise of a discretion which inevitably affects persons other than the petitioner and the company. The purpose of the advertising requirement within the structure is to put parties affected by the proceedings on notice.
The purpose of the power of substitution of a petitioner conferred by r. 18 is succinctly explained in the following passage from French on Applications to Wind Up Companies (Oxford University Press, 2nd Ed., 2008) at p. 245:
“Without provision for substitution, an insolvent company could delay being wound up by paying off petitioning creditors one by one, forcing other creditors to present and advertise new petitions, then waiting until the petition by each creditor was at or near hearing before paying that creditor off too. In order to counter these tactics, several creditors would have to present petitions simultaneously. As Needham J. said in D.M.K. Building Materials Pty Limited v. C. B. Baker Timbers Pty Limited [(1985) 10 ACLR 16 at p.19]:
‘The purpose of substitution, in my opinion, is to ensure that once a prima facie right to the winding up of a company has arisen, the company should not escape from that position except upon the basis of fair dealing with all its creditors, not merely by paying off the particular [applicant].’”
I reject the argument advanced by counsel for Wavecrest that r. 18 is predicated on the petition having been advertised. On the contrary, each of the circumstances outlined in r. 18 as giving rise to the discretion to substitute may arise even if the petition has not been advertised. On the basis of my experience of dealing with the Chancery 2 List, each of those circumstances is more likely to arise when the petition has not been advertised than when it has. I find that the power conferred by r. 18 applies even if the petition has not been advertised.
Accordingly, in this case, even though the petition was not advertised, in my view, Cronosell, as a creditor who would have a right to present a petition, has standing to apply to be substituted under Order 74, rule 18. Therefore, the court has jurisdiction to hear Cronosell’s application and make an order on foot of it. Although, as I understand the position, notice was not given by Cronosell to Wavecrest in accordance with r. 15, I consider it proper to entertain Cronosell’s application and I consider that it should be granted.
Connemara Minings Company Plc -v- Companies Acts
[2013] IEHC 225
Laffoy J.
“Criteria for determining whether the Company is unable to pay its debts
43. In aid of establishing the ground for making a winding up order provided for in paragraph (e), that the Company is unable to pay its debts, s. 214 identifies three circumstances in which a company shall be deemed to be unable to pay its debts, the only one of which, paragraph (c), can be invoked by the Petitioner in this case. Paragraph (c) requires that –
“. . .it is proved to the satisfaction of the court that the company is unable to pay its debts, and in determining whether a company is unable to pay its debts, the court shall take into account the contingent and prospective liabilities of the company.”
44. In this jurisdiction, there is no authority directly in point on the criteria to be applied in determining whether a company is “unable to pay its debts” for the purposes of s. 213(e). However, the meaning of “insolvency” in relation to a company was considered in a different context by the High Court (Barron J.) in H. Albert de Bary and Co. NV v. O’Mullane (High Court, Unreported, 2nd June, 1992) where Barron J. stated:
“Insolvency is essentially a matter of assets and liabilities. If liabilities exceed assets, the position is one of insolvency. But the reverse is not necessarily true. A company is not solvent because its assets exceed its liabilities. It cannot for example take into account assets which it requires to remain in existence save insofar as they may be used as security to raise finance. The test is ultimately, can it pay its debts as they fall due . . ..”
As authority for the last sentence in that passage, Barron J. cited the decision of the Supreme Court in Crowley v. Northern Bank Finance [1981] I.R. 353. That case concerned whether, for the purposes of s. 288(1) of the Act of 1963, the company was solvent when it created a floating charge within twelve months of the commencement of its winding up so as to avoid the floating charge being invalid. In his judgment, Kenny J. stated (at p. 358):
“‘Solvent’ and ‘insolvency’ are ambiguous words. It has now been established by the decided cases that, for the purposes of s. 288 of the Act of 1963, the test to be applied in determining this question is whether immediately after the debenture was given, the company was able to pay its debts as they became due. The question is not whether its assets exceed in estimated value its liabilities, or whether a business man would have regarded it as solvent.
. . . The question whether a company was solvent on a specified date is one of fact and it involves many difficult inferences. . . .”
On that basis, the test to be applied by the Court on this petition in determining whether the ground provided for in paragraph (e) of s. 213 has been satisfied is whether the Company was able to pay its debts as they became due when the petition was presented on 23rd January, 2013.
45. Although acknowledging that there has been a dearth of English case law on the topic, counsel for the Petitioner submitted that the Court should apply what has come to be known as the “cash flow test”, not the “balance sheet test”. Counsel did not point to any Irish authority which expressly considered the test. However, he did point out that it has come to prominence in Australian jurisprudence, where it is used for both bankruptcy and company liquidations. It was submitted on behalf of the Petitioner that the factors to be examined by the Court when considering the application of the cash flow test to the petition before the Court include the following:
(a) the inability to pay debts includes the inability to pay debts as they fall due;
(b) only readily realisable assets can be used to determine the Company’s solvency; and
(c) any “purported” future funding of the Company must be credible.
The factor at (a) is certainly part of Irish law, having regard to the decision of the Supreme Court in Crowley v. Northern Bank Finance although, there is no specific authority in this jurisdiction as to how far into the future the Court must look to determine whether or not the Company can meet its debts as they fall due. In relation to the factor at (b), the Petitioner properly conceded that, in determining whether a company is able to pay its debts as they fall due, the Court is not limited to assessing whether cash in hand was adequate to cover the debts. Where other assets have to be resorted to, the factor at (b) certainly accords with common sense. If a company is relying on borrowings or raising capital by a share issue to meet current liabilities, the application of the factor at (c) also accords with common sense. Accordingly, while I do consider that in an appropriate case the factors at (b) and (c) may be relevant in determining whether a petitioner has proved that the company the subject of the petition was unable to pay its debts as they fell due at the relevant time, each petition must be considered on its own facts. It is unnecessary to express any view on the appropriateness of the cash flow test as distinct from the balance sheet test, having regard to the facts before the Court.”
In the matter of Dublin Cinema Group Ltd
[2013] IEHC 147
Charleton J.
“Discretion on winding up a company
Patrick Ussher in Company Law in Ireland (Dublin, 1986) analyses section 205 and with characteristic clarity and concision states:
Section 205, said Kenny J. in Re Westwinds Holding Co. Ltd., “made a profound change in the remedies available to a shareholder.” For the first time in Ireland the court was given a discretion to remedy unprincipled conduct in the company even where no legal rights had been infringed, and a flexibility to suit the remedy to the matters of which complaint was made.
As noted in Courtney, The Law of Companies, 3rd Ed., (Dublin, 2012) at p 631:-
Section 205 of the Companies Act 1963 provides a very useful remedy where the relation ship between shareholders has broken down. Where oppression is found, the court has many options open to it, although the usual order is for the purchase or sale of either party’s shares. An order to wind up a company under s.213(f) of the Companies Act 1963 on the ground that such is just and equitable may have disastrous consequences for all concerned.
The discretion, however, is not without boundaries. Clearly, section 205 does not exist to enable the High Court to become a substitute board of directors. Before the powers of the High Court may be invoked, there must be proof of the wrong as described by Ussher that underpins the remedy, even though, as he says, that wrong may not amount to the infringement of legal rights. A petitioner must show that “the affairs of the company are being conducted or that the powers of the directors of the company are being exercised in a manner oppressive to him or any of the members (including himself), or in disregard of his or their interests as members”. In Colgan v. Colgan & Colgan (Unreported, Costello J., 22nd July, 1993) unfortunate differences had arisen amongst the sons of the petitioner as successors to his enterprise. The court made an order that the respondents should be required to buy out the petitioner at a valuation determined by the court. That, however, was an instance where the powers under section 205 had been specifically invoked and not, as in these proceedings, where the only application that was brought was one to wind up the company on the just and equitable ground under section 213(f).
Section 205 was clearly introduced into company law in consequence of the 1962 Jenkins Committee on the reform of company law in the neighbouring jurisdiction and our section in Ireland is modelled on the equivalent England and Wales provision, which in turn is based on paragraph 212 of that report. Section 216 of the Act of 1963, on the other hand is about winding up a company under any of the grounds set out in section 213 of the Act. Under section 216 the court is given generalised powers on hearing any petition for a winding up. The court may dismiss the application to wind up the company, or adjourn the hearing conditionally or unconditionally, or may make an interim order, or make any other order that it thinks fit. The section goes on to say that a court should not refuse to make a winding up order because of an inequality between mortgaged assets or an absence of assets in the company and the assets that are available on a winding up.
Section 213(f) has a long and venerable history that is supported by case law going back to Ebrahimi v. Westbourne Galleries Ltd. [1973] A.C. 360 and to Re Westwinds Holding Company Ltd. (Unreported, Kenny J., 21st May, 1974). Section 213 generally states that a court may order that a company should be wound up on a number of individually specified grounds. Section 213(a) sets out that if “the company has by special resolution resolved that the company be wound up by the court” it may be wound up. That is not the case here. Section 213(b) has been repealed by the Companies (Amendment) Act, 1983. Another ground for winding up is under section 213(c) where “the company does not commence its business within a year from its incorporation or suspends its business for a whole year”. In other words, that it has become a redundant company. Under subsection (d), the ground for winding up is that the members are reduced below two or below seven, depending on the kind of company involved, accepting of course the exception in relation to shareholding through another company. The most common reason for winding up is that the company is unable to pay its debts – the ground under subsection (d).
The supposed ground that arises here is under section 213 (f). It is claimed that after hearing evidence from both the petitioner and the respondent it would be lawful to invoke the jurisdiction to dissolve the company on the basis that “the court is of opinion that it is just and equitable for the company……be wound up.” That section could apply here, depending on how the facts of this disputed relationship are found. The circumstances for a just and equitable winding up certainly include a situation where a company is a quasi-partnership in the sense that its background is of two or more friends, two or more family members, or two or more business partners operating together through a limited liability or other corporate vehicle for the purpose of carrying on their business and where there is a situation of deadlock within the company. In other words, as in the cases cited, where behind the company there are a small number of investors who have gotten together through a less than formal start and who have operated not at arms length but, because of the ties of family or affection, based on long mutual co-operation between them. When that kind of governance breaks down, it can be just and equitable to wind up such company. But any application when made under section 213 does not necessarily exclude the plenitude of powers expressly available to a court under the plain wording of section 216.
If a court must consider whether it is just and equitable to wind up a company, it seems to me that a court must also consider whether there is any other order available to the court under section 216 that would be more just and equitable. That is especially so, it seems to me, where it is not just the original people founding and running the company that are involved. Where substantial numbers of employees are added in to the matrix of justice and equity because they depend on the company, it is hard to see why the wide discretionary powers under section 216 should be ignored in favour of a hedged-in assessment of the breakdown of a quasi-partnership in the guise of a company and the remedy that can traditionally be applied of winding up. Where a company expands to embrace the dependency of many more than the original founders and their successors, there are other people to be thought about. Nor is the just and equitable ground for winding up to be applied without proper consideration of not just how the company started but also what the company may have developed into. It is to be noted that section 205 refers, in particular, to oppression of a member or a disregard of their interests. It is to be remembered as well that whereas section 205 is a specific provision that is predicated on particular grounds, the existence of that specific provision does not thereby fetter the court’s wide powers on the hearing of a winding up petition under section 216.
The canons of construction require that I should give every section of every Act a meaning and should not presume that the Oireachtas is using surplusage or rhetorical devices in setting out the law. It is clear from the wording of the various provisions quoted that I have to give a meaning not only to the dismissal of a winding up petition under section 216, or the adjournment of a winding up petition instead of a dismissal under section 216, or the making of an interim order instead of a winding up petition, but I must also give a meaning to the power of the court, instead of winding up a company, to make any other order that it thinks fit. Clearly, the Oireachtas contemplated that a wide discretionary power was to be exercised by the High Court in hearing any winding up petition. That is not surprising as a winding up order involves the dissolution of a corporation, a most serious step. An application under the just and equitable ground does not at all exclude the kind of sensible powers that are characteristic of section 205 in the rectification of a company’s affairs without the need to wind it up. Nor are such wide powers as described in section 205 excluded by the absence of any petition to that end. The Oireachtas would not have used the words in section 216 in their wide form but for an intention to give full and appropriate powers to a court on hearing any winding up petition under any of the individual grounds set out in section 213 and the wording of section 216 does not limit a court to any one particular aspect of the discretion to be exercised thereunder. Section 213(f) in enabling a company to be would up on just and equitable grounds does not exclude the implication of sensible powers to rectify the divisions within a company that are characteristic of many of the orders under section 205 simply because section 213(g) expressly incorporates those powers where a company is in danger of being wound up because of oppression or disregard of a member’s interests. My view is that if circumstances are shown in evidence to exist whereby it is appropriate that one or other family member or quasi-partner should, on fair compensation, leave the management or membership of the relevant company in respect of which a winding up petition is brought on the just and equitable ground, then any appropriate order that the court “thinks fit” is an order I am empowered to make under section 216. What would be the alternative? In the event that I were to take a contrary view, it seems to me that I would be exceeding my jurisdiction which, as a judge, is merely to apply the law as the Oireachtas sets it out for me to apply and instead, to limit the wide and untrammelled powers of discretion which are clearly granted on the hearing of any petition to wind up a company under section 216.
I might add to that analysis that the code of company law should not be construed so that one section is excluded from the context of the entirety of the legislation in which it is set. The Court is obliged to consider the entire of Companies Act 1963 and the legislation which amends it, including, in particular, the Companies (Amendment) Act 1990, as amended, which empowers a court to save a company in an examinership application where there are shown to be grounds whereby a company may survive into the future on a new and usually slimmed-down basis following a scheme of arrangement with creditors, with a reasonable prospect of survival and where the application is not made, for instance, for fraudulent reasons or in order to avoid a revenue liability or against a background of disregard of the law or the reckless accretion of debt.
Taking into account the wide powers that are given to the High Court on hearing any application to wind up a company and the lack of statutory qualification to same and in particular my duty not to construe section 216 in isolation, I would regard it as an unnecessary fettering of the court’s power for me to construe the phrase “on hearing a winding up petition, the court may dismiss it, or make any other order that it thinks fit” as excluding the power to order the petitioner Paul Anderson to buy out the shares of the respondent Paul Ward or vice versa or to make any order that will fairly restore appropriate governance to this important company. In looking to whether it would be just and equitable to wind up a company, of course a court must look to whatever alternatives to that ultimate step might also meet the justice and equity of the situation. It would be wrong of me to construe section 216 in such a way that was merely procedural; thereby rendering the wording to no more than the powers of a court to order an adjournment or to make the kind of order that typifies rules of court. The Oireachtas could not have intended powers akin to merely secondary legislation in placing such responsibility as is described in section 216 in a court that has to exercise a decision as to whether a company should cease to exist or whether an alternative order that fits the particular circumstances. It is clear that if a company may survive on a basis which is reordered by the court by the making of a sensible order on hearing a winding up petition, that such may be a viable alternative to winding up a company or dismissing a winding up petition. My decision is that instead of winding up a company or dismissing a winding petition, the court is also entitled to make such order as is appropriate as between the shareholders provided it is just and equitable with a view to reordering the company so that it may survive profitably into the future.
Result
In light of the foregoing, on the hearing of this petition under section 213(f) to wind up the company on the just and equitable ground, the Court has options other than simply making a winding up order or dismissing it and, instead, under section 216 “the court may… make… any other order it thinks fit”. Plainly, that can include a share buy-out at an appropriate rate as between two shareholders such as the petitioner and the respondent to this petition. That may be the solution here, but one which in these circumstances requires oral evidence.”
Coolfadda Developers Ltd -v- Companies Acts
[2009] IEHC 263
Laffoy J.
!The issue
The issue is whether it would be a proper exercise of the Court’s discretion to adjourn the company’s petition to wind up and to continue the appointment of Mr. McAteer as provisional liquidator for an indefinite period to enable the company to build out existing contracts.
The Court’s discretion generally
Section 216 of the Act of 1963, dealing with the powers of the Court on the hearing of a petition to wind up a company, provides:
“On hearing a winding-up petition, the court may dismiss it, or adjourn the hearing conditionally or unconditionally, or make any interim order, or any other order that it thinks fit, but the court shall not refuse to make a winding-up order on the ground only that the assets of the company have been mortgaged to an amount equal to or in excess of those assets, or that the company has no assets.”
The traditional attitude of the Courts in relation to applications to adjourn winding up petitions is succinctly summarised in the following passage in Companies Acts 1963 – 2006 (McCann & Courtney 2008 ed.) (at p. 436):
“The Court is reluctant to grant lengthy adjournments of creditors’ petitions. Adjournments are often undesirable because the winding up order (if made) dates back to the presentation of the petition. Furthermore if the matter is not dealt with quickly the books of the company tend to be out of date or lost (quite apart from any question of dishonest behaviour on the part of the Officers). Officers and employees who could provide valuable information sometimes leave and cannot be traced. Dispositions made between the presentation of the petition and the making of the winding up are void and any delay increases the number of these transactions and make their examination more difficult. In certain circumstances the Court has granted an adjournment pending litigation between the parties.”
As authority for the proposition set out in the last sentence in that quotation, the editors cite the decision of McCracken J. in Re Genport Limited [1996] IEHC 34. In that case, the petition was a creditors’ petition. McCracken J., having considered s. 213 of the Act of 1963, which provides that a company “may” be wound up in certain circumstances, and having referred to the statement of McCarthy J. in Re Bula [1990] 1 I.R. 440, to the effect that s. 213 “gives to the Court a true discretion which should be exercised in a principled manner that is fair and just”, went on to consider two matters which were of concern to him in the exercise of his discretion. The first was an allegation that the petitioner was not really bringing the petition to secure her own debt, but was doing so for the benefit of Crofter Properties Limited and/or Mr. Hugh Tunney, who was the effective owner of that company, the real motive being not to recover the petitioner’s debt but to prevent further litigation against Crofter Properties Limited and/or Mr. Tunney by Genport Limited. McCracken J. held that such an ulterior motive, which was not necessarily an improper motive, taken by itself was not sufficient to persuade him to exercise his discretion against winding up the company. He outlined the second feature as follows:
“The principal asset of the Company is its leasehold interest in a very substantial premises in Morehampton Road, and the goodwill of the hotel, restaurant and night-club business carried on therein. If a winding-up Order is made, the lease will be forfeited, which will of course be greatly to the benefit of Crofter Properties Limited, but as I understand it would leave little in the way of assets remaining for the creditors. I think it is highly significant, and it is a matter which I am entitled to take into account under s. 309 of the Companies Act 1963, that the company is trading successfully, and that four trade creditors, being the only trade creditors who have appeared on the Petition, all are opposed to granting the winding-up Order. They clearly believe that it is in their interests as ordinary creditors that the company should continue to trade. I am also influenced by the fact that there is substantial litigation between the Company and Crofter Properties Limited which is part heard. I think it would be difficult for a liquidator to take up such an action at the stage which it has reached. Indeed the liquidator might decide not to continue the action, as he might feel that it was all rather pointless if the principal asset had gone.”
McCracken J. decided that “the combination of the ulterior, although not necessarily improper, motive and the fact that a winding-up may not be of any real benefit to the ordinary creditors” was sufficient to persuade him to exercise his discretion in refusing the making of the winding up order. However, he did not dismiss the petition, but merely put a stay on it pending the outcome of the then current litigation, with the liberty to re-enter.
As is clear from French on Applications to Wind Up Companies (Oxford University Press, 2nd ed., 2008) at para. 4.4.5.2, there is a strong and well established policy of discouraging long or repeated adjournments of winding up petitions in the United Kingdom. Indeed, the second, third and fourth sentences in the passages from Companies Act 1963 – 2006 referred to above are based on the Practice Direction of the Chancery Division (Companies Court), which was issued by Brightman J. in 1977 and is to be found at [1977] 3 All ER 64.
Courtney in The Law of Private Companies (Butterworths, 2nd ed., 2002) at para. 25.053 cites the decision of the English High Court, Chancery Division in Re Demaglass Holdings Limited [2001] 2 B.C.L.C. 633 as an example of the exceptional circumstances in which the Court will accede to a request to have the hearing of a petition adjourned. In that case, receivers who had been appointed to the company by a debenture holder sought to have the winding up petition adjourned so as to enable them to dispose of certain stock more advantageously. While there is an interesting analysis as to the correct approach for the Court to adopt where the Court has to decide whether or not to make a winding up order against the opposition of creditors, receivers and so forth, Neuberger J. characterised the application before him, which was an application for adjournment for ten weeks, as a “temporary refusal” rather than an “outright denial” of the right of a petitioning creditor to a winding up order. He concluded that the Court should be less reluctant to adjourn the hearing of a winding up petition than it would be to dismiss the petition, in each case over the wishes of the petitioner, especially where the adjournment was for a relatively short period. He acceded to the receivers’ application.
A more recent example from the United Kingdom of the court being prepared to stay a winding up petition, which is referred to in Companies Acts 1963 – 2006 at p. 431, is Re Minrealm Limited [2008] 2 B.C.L.C. 141. In that case the petition was presented by the persons who represented a majority of the board and there was evidence that monies owed by them to the company would, if repaid, be sufficient to render the company solvent again. The court exercised its discretion to adjourn the petition pending the quantification and payment of interim sums due to the company in separate proceedings.
None of the authorities to which I have referred above involved the adjournment of a winding up petition in the context of the continuation of the appointment of a provisional liquidator. Apart from the special position of insurance company insolvency, particularly where there is a cross-frontier dimension, which I will deal with separately, the only example which is to be found in the textbooks referred to earlier of such a situation arising is the following passage from French (op. cit):
“There have been exceptional cases in which the court has accepted adjournments for several years so that a company’s assets could be protected by a provisional liquidator without the company being wound up.”
The authority cited by French is Re Rafidain Bank (2000) L.T.L. 23/3/2000. The history of the provisional liquidation and scheme of arrangement in relation to Rafidain Bank, as set out on its website, discloses the very unusual circumstances in which the provisional liquidators were appointed on the petition of the Bank of England over Rafidain Bank in February 1991. The circumstances which gave rise to the application flowed from the invasion of Kuwait by Iraq in August 1990, the imposition of international sanction on Iraq and the subsequent freezing of the assets of the bank in the United Kingdom at a time when the bank was subject to very substantial claims from creditors. It would appear that almost eighteen years later the provisional liquidators are still in place.
…..
The law provides two methods of dealing with the insolvency of a company under the supervision and protection of the court. One is winding up and the other is examinership.
As is explained in Courtney (op. cit.) at para. 23.001, examinership is the process whereby the court places the company under its protection and enables the court to appoint an examiner to investigate the company’s affairs and to report to the court on its prospects of survival. Where survival can be achieved, the court may sanction a scheme of arrangement, which often involves part payment of the company’s creditors and which enables the company to continue in business. It is clear from the affidavit of Mr. Slattery verifying the petition that the possibility of applying to have an examiner appointed was considered by the company but not pursued. I think it reasonable to infer that the directors concluded that they would not be in the position to satisfy the Court that there was a reasonable prospect of the survival of the company and the whole or any part of its undertaking as a going concern.
Winding up, or liquidation, as both terms suggest, is the process whereby assets of the company are got in, realised and distributed among the persons entitled thereto by law and eventually the company is dissolved. Pending the making of a winding up order, s. 226 empowers the Court to appoint a liquidator provisionally at any time after the presentation of the petition. The primary function of the provisional liquidator is to ensure the preservation of the company’s assets until the winding up order is made.
What is proposed in this case by the company, the petitioner, is an extension of the appointment of the provisional liquidator and the continuation of his powers in a manner which is clearly not envisaged by the Act of 1963. Indeed, I would go so far as to say that the proposal goes against the spirit and intendment of the Act of 1963. The appointment of the provisional liquidator is a stopgap measure pending the making of the winding up order and the appointment of the official liquidator, whose function is to liquidate the company in accordance with law. The official liquidator is given powers by virtue of s. 231 of the Act of 1963 to achieve that objective, including, power “to carry on the business of the company so far as may be necessary for the beneficial winding up thereof” (s. 231(1)(b)). As a matter of principle, I do not think it would be a proper exercise of the Court’s discretion under s. 216 to postpone the making of a winding up order so as to enable the provisional liquidator, who was appointed after the presentation of the petition, to continue conducting most aspects of the business of the company with a view to maximising the assets of the company. To do so would be contrary to the scheme of the provisions in the Act of 1963 in relation to compulsory winding up.
There may be exceptional cases in which a court would countenance adopting the approach urged by the company in this case. Having regard to the circumstances of the company, as disclosed in the petition and the verifying affidavit, in my view, this is not an exceptional case and the approach advocated would not be warranted.”
Re Genport Ltd., Re
1996] IEHC 34
McCracken J.
“Section 213 of the Companies Act, 1963 sets out a list of circumstances in which a Company “may” be wound-up by the Court. There is no doubt that the matters proved by the Petitioner bring the Company within one of those circumstances, namely, that the Company is unable to pay its debts, due to the provisions of Section 214 which deems a Company unable to pay its debts if there has been a demand in writing requiring the Company to pay a sum due, and the Company has for three weeks thereafter neglected to pay such sum. However, it is quite clear that Section 213 is not mandatory, and there remains a discretion in the Court. The correct approach was set out by McCarthy J. in In Re Bula Limited, (1990) 1 I.R. 440 at page 448 where he said:-
“I would hold that a creditor is prima facie entitled to his order so as to shift the initial burden to those who oppose the winding-up; the petitioner does not have to demonstrate positively that an order for winding-up is for the benefit of the class of creditors to which he belongs, but, if issue is joined on the matter, and a case made that the petition is not for that purpose but for an ulterior, though not in itself improper object, then the burden shifts back to the petitioner”.
5. In the same judgment, McCarthy J. held that the section “gives to the Court a true discretion which should be exercised in a principled manner that is fair and just.”
6. In the present case it has at all times been alleged by the Company that the winding-up Petition has been brought by the Petitioner on the instigation of her employer, Mr. Hugh Tunney, who had financed her litigation in the action in which the debt was incurred, and that the purpose of the application to wind-up was to prevent the Company from continuing proceedings against Crofter Properties Limited. Although the proceedings referred to in the original Affidavit filed on behalf of the Company have now concluded, there still are proceedings in being between these parties, and the Company still makes the same argument in relation to those proceedings.
7. It is not in dispute that the Petitioner is owed the debt on foot of which the Petition has been brought, in the sense that she has a judgment for that sum, which, although under appeal, has not been stayed. She therefore has a prima facie right to obtain a winding-up Order. There are, however, two matters which concern me in the exercise of my discretion.
8. Firstly, it is alleged that the Petitioner is not really bringing this Petition to secure her own debt, but is doing so for the benefit of Mr. Tunney and/or Crofer Properties Limited. It is further alleged that the real motive in bringing this Petition is not to recover the debt, but to prevent further litigation against Mr. Tunney and/or Crofter Properties Limited. Taken by itself, I do not know that that is a sufficient ulterior motive to persuade me to exercise my discretion against the Petitioner. It is not necessarily an improper motive, as Crofter Properties Limited are themselves very substantial creditors of the Company, and therefore have a perfectly proper commercial interest in preventing the Company from using its assets in litigation. It may well be in the interests of the creditors in many cases that a winding-up Order be made to prevent a highly litigious company from spending all its assets on what may be doubtful litigation.
9. In the present case, however, there is a second feature. The principal asset of the Company is its leasehold interest in its very substantial premises in Morehampton Road, and the goodwill of the hotel, restaurant and night-club business carried on therein. If a winding-up Order is made, the lease will be forfeited, which of course will be greatly to the benefit of Crofer Properties Limited, but as I understand it would leave little in the way of assets for the remaining creditors. I think it is highly significant, and it is a matter which I am entitled to take in to account under Section 309 of the Companies Act, 1963, that the Company is still trading successfully, and that four trade creditors, being the only trade creditors who have appeared on this Petition, all are opposed to granting the winding-up Order. They clearly believe that it is in their interests as ordinary creditors that the Company should continue to trade. I am also influenced by the fact that there is substantial litigation between the Company and Crofer Properties Limited which is part heard. I think it would be difficult for a liquidator to take up such an action at the stage which it has reached. Indeed a liquidator might decide not to continue the action, as he might feel that it was all rather pointless if the principal asset had gone.
10. Accordingly, while neither might in itself be decisive, in my view the combination of the ulterior, although not necessarily improper, motive and the fact that a winding-up may not be of any real benefit to ordinary creditors are sufficient to persuade me to exercise my discretion in refusing to make the winding-up Order. However, as I intimated during the hearing, I am not going to dismiss the Petition, but I will merely stay it pending the outcome of the current litigation. Either party will have liberty to re-enter the Petition on giving seven days notice to the other party.”
Goode Concrete (In Recievership) -v- Companies Acts
[2012] IEHC 439
Laffoy J.
“18. The earliest of the two Irish authorities on which counsel for the Company relied in support of his contention that the petition should be dismissed because the Petitioner has an ulterior motive in seeking a winding up order is the decision of the Supreme Court in In re Bula Ltd. [1990] 1 I.R. 440. There are certain similarities between the facts at issue in that case and the facts underlying this petition, for example, it was common case that Bula Ltd. was hopelessly insolvent and it was already in receivership. However, the facts are dissimilar in that in the Bula case the petition to wind up was presented by the secured creditors who had appointed the receiver. The making of a winding up order was opposed by a creditor, Muster Base Metals Ltd. (Munster), which had judgment against Bula Ltd. for approximately €690,000, which it had registered as a judgment mortgage over certain land of Bula Ltd. The ulterior motive alleged on the part of the petitioners was summarised as follows in the judgment of McCarthy J., with whom the other Judges of the Supreme Court concurred, (at p. 447):
“… four days before the Munster judgment registered as a judgment mortgage would have achieved a certain priority as a secured creditor, the banks presented a petition for the winding up of Bula, which presentation, if the petition were granted by an order for winding up, would nullify the Munster claim to priority over unsecured creditors. It was avowedly for the purpose of defeating the Munster manoeuvre towards becoming a secured creditor that the petition was presented. It was not for the purpose of recovering the banks’ debts….”
19. Dealing with the manner in which a court should adjudicate on a petition where there is opposition grounded on an allegation of ulterior motive on the part of the petitioner, in the Bula judgment McCarthy J., having referred to s. 213 of the Act of 1963, which provides that a company may be wound up by the Court if the company is unable to pay its debts, and s. 309, which provides that the Court may have regard to the wishes of the creditors or contributories of the company, in the case of creditors regard being had to the value of each creditor’s debt, stated that s. 309 gives the Court “a true discretion which should be exercised in a principled manner that is fair and just” (p. 448). He continued:
“I would hold that a creditor is prima facie entitled to his order so as to shift the initial burden to those who oppose the winding up; the petitioner does not have to demonstrate positively that an order for winding up is for the benefit of the class of creditors to which he belongs, but, if issue is joined on the matter, and a case made that the petition is not for that purpose but for an ulterior, though not in itself improper object, then the burden shifts back to the petitioner.”
20. Later, in the context of addressing an argument, which had not been advanced at first instance, that a winding up order and consequent appointment of a liquidator, who would have statutory power of sale to be exercised under the control of the Court, would create a better prospect of a sale of the assets than the receiver’s efforts, in a passage relied on by counsel for the Company, McCarthy J. stated (at p. 450):
“More to the point, however, it is inevitable that a liquidator, court appointed, with all the independence of action and professional integrity that would be at his command would lack the enthusiasm and momentum that would be second nature to the guarantors, who, presently, control the progress of the action. This is indeed a step further in the argument; it is, in effect, saying that a liquidator, suitably monitored by the court, would be as effective in pursuing a legitimate claim of Bula as those presently in command. In my view, there is no reality in this suggestion. With the best will in the world, a court attempting such supervision is very much in the hands of the liquidator; it is his enthusiasm or lack of enthusiasm that will govern the decisions of the court – it is he who brings the matter to court – it is he who presents the case, so to speak, for continuing with litigation or ending it. In a real sense he is dominus litis, however vigilant the court may wish to be and however resourceful those upon whom notice must be given of any intended application to the court.”
Those observations were clearly obiter, but they do reflect the reality of the situation under consideration in that case and, indeed, the situation under consideration in this case. McCarthy J. went on to hold that where a petition is brought by secured creditors whose security attaches to the entire assets of the debtor company and who have appointed a receiver whose power of sale is, effectively, at least as great as that of a liquidator, the Court should refuse its aid (p. 451). Accordingly, the petition was dismissed.
21. The other Irish authority relied on by counsel for the Company is the decision of the High Court (McCracken J.) in Re Genport Ltd. [1996] IEHC 34. Once again, there are certain similarities between the factual basis of that case and the facts underlying the petition under consideration here. The petitioner, who had been one of four defendants in an action brought by Genport Ltd. and another plaintiff had the benefit of an order for costs against the plaintiffs, including Genport Ltd., and had taxed the costs and had a certificate of taxation certifying the costs due to her. She served a s. 214 demand for the amount so certified on Genport Ltd., which was not complied with, and she then presented a petition to have Genport Ltd. wound up. However, there was a further set of proceedings in being between the same parties, which arose out of the original dispute between Philip Smith and Genport Ltd., on the one hand, and Hugh Tunney and Crofter Properties Ltd., on the other hand, the genesis of which was a landlord/tenant relationship in relation to Sachs Hotel on Morehampton Road in Dublin, which was ongoing. Having quoted from the judgment of McCarthy J. in In re Bula Ltd., McCracken J. stated (at para. 6):
“In the present case it has at all times been alleged by [Genport Ltd.] that the winding up petition has been brought by the Petitioner on the instigation of her employer, Mr. Hugh Tunney, who had financed her litigation in the action in which the debt was incurred, and that the purpose of the application to wind up was to prevent [Genport Ltd.] from continuing proceedings against Crofter Properties Ltd.”
22. In a passage in his judgment (at para. 8) relied on by counsel for the Petitioner, McCracken J. later stated:
“It is further alleged that the real motive in bringing this Petition is not to recover the debt, but to prevent further litigation against Mr. Tunney and/or Crofter Properties Ltd. Taken by itself, I do not know that that is a sufficient ulterior motive to persuade me to exercise my discretion against the Petitioner. It is not necessarily an improper motive, as Crofter Properties Ltd. are themselves very substantial creditors of [Genport Ltd.], and therefore have a perfectly proper commercial interest in preventing [Genport Ltd.] from using its assets in litigation. It may well be in the interests of the creditors in many cases that a winding-up Order be made to prevent a highly litigious company from spending all its assets in what may be doubtful litigation.”
It was submitted on behalf of the Company that the facts here are materially different to the facts under consideration by McCracken J., in that the Petitioner is not a substantial creditor of the Company but merely has an order for costs arising from the Competition Proceedings and, more importantly, there is no question of the assets of the Company being used to further the Competition Proceedings because the reality is that the Company has no unsecured assets.
23. In my view, the ratio decidendi of the judgment of McCracken J. in Re Genport Ltd. is to be found in the last paragraph (para. 10) of the judgment in which he stated:
“Accordingly, while neither might in itself be decisive, in my view the combination of the ulterior, although not necessarily improper, motive and the fact that a winding-up may not be of any real benefit to the ordinary creditors are sufficient to persuade me to exercise my discretion in refusing to make the winding-up order.”
The basis on which McCracken J. concluded that a winding up might not be of any real benefit to the ordinary creditors was that the principal asset of Genport Ltd. was the hotel, which was held by Genport Ltd. under a lease which would be forfeited if a winding up order was made, which would be greatly to the benefit of Crofter Properties Ltd., the lessor, leaving little in the way of assets for the remaining creditors. Genport Ltd. was still trading successfully in the hotel. Four trade creditors who appeared on the hearing of the petition all opposed the making of a winding up order. McCracken J. concluded that it was in the interests of the ordinary creditors that Genport Ltd. should continue to trade. McCracken J. stated that he was also influenced by the fact that there was substantial litigation between Genport Ltd. and Crofter Properties Ltd. which was part heard and it would be difficult for the liquidator to take up such an action at the stage which it had reached. He expressed the view that a liquidator might not continue the action, viewing it as pointless if the principal asset, the hotel, was gone.
24. As I have recorded, the outcome in the Bula Ltd. case was that the Supreme Court dismissed the petition. In the Genport Ltd. case, McCracken J. did not dismiss the petition but he merely put a stay on it pending the outcome of the pending litigation.
25. For completeness, it is appropriate to record that the petition to wind up Genport Ltd. was subject to a later judgment of McCracken J. delivered on 6th November, 2001, to which there is reference in Troon Developments Ltd. v. Harrahill [2009] IEHC 590, which was put before the Court by counsel for the Petitioner in this case. The outcome of the application to re-enter the petition was that McCracken J. adjourned the petition generally, but again with liberty to re-enter.
….
Company’s cross-claim
28. In delivering judgment in the Supreme Court in Re WMG (Toughening) Ltd. (No. 2) [2003] 1 IR 389, McCracken J., with whom the other Judges of the Supreme Court concurred, outlined the legal basis on which a company may oppose a petition to wind up on the ground that the underlying debt is disputed or that the company has a cross-claim against the petitioner for monies in excess of the amount claimed by the petitioner from the company. He stated (at p. 392):
“There is no real dispute between the parties as to the proper test to be applied by the court in the circumstances. That test is set out in the judgment of Buckley L.J. in Stonegate Securities v. Gregory [1980] Ch. 576 at p. 579, and has already been approved by this court in In re Pageboy Couriers Ltd. [1983] I.L.R.M. 510. The passage reads at p. 512:–
‘If the Company in good faith and on substantial grounds disputes any liability in respect of the alleged debt, the petition will be dismissed, or if the matter is brought before a court before the petition is issued, its presentation will in normal circumstances be restrained. That is because a winding up petition is not a legitimate means of seeking to enforce payment of a debt which is bona fide disputed.’
It is also accepted by the parties that the subject matter of the bona fide dispute may in fact not be the debt itself but rather a cross-claim by the company against the petitioner. The issue, therefore, is whether the company’s claim in the present case is a claim made in good faith and on substantial grounds. It is clear that the issue is not whether the company will succeed in its claim, but whether it is a bona fide dispute which should be determined by the courts in the normal way without putting the company’s existence at risk.”
29. The last paragraph in the passage quoted in the next preceding paragraph was quoted in this Court by Clarke J. in Re Emerald Portable Building Systems Ltd. [2005] IEHC 301. Clarke J. also referred to the position adopted by the Court of Appeal in England and Wales in In Re Bayoil S A [1999] 1 All ER 374, quoting from the judgment of Nourse L. J., inter alia, the following passage (at p. 155):
“I emphasise that the cross claim must be genuine and serious or if you prefer one of substance, that it must be one which the company has been unable to litigate and it must be in an amount exceeding the amount of the petitioner’s debt.”
Counsel for the Company also referred the Court to a passage from the judgment of Laddie J. delivering judgment in the Chancery Division of the High Court of England and Wales in Re VP Developments Ltd. [2005] 2 BCLC 607 (at p. 616) in which it was stated:
“The relevant question is whether the cross-claim is closely related to the petition debt. If it is, the Court will allow one to be set off against the other. On the assumption that the cross-claim is serious and substantial, it may have the practical effect of eliminating the petition debt.”
….
31. The fact that the Company initiated the Competition Proceedings just short of two years ago and has apparently prosecuted them diligently, even to the extent of lodging €195,000 in Court on foot of the order for security for costs, when viewed against the Petitioner’s attempt to have the Company wound up with the obvious objective of, as I have found, stymying the Competition Proceedings, leaves one in no doubt that in order to exercise the Court’s discretion under s. 216 of the Act of 1963 in a principled manner and justly and fairly the petition should be dismissed.
Meridian Communications Ltd. v. Eircell Ltd.
[2001] IESC 42
Supreme Court McGuinness J.
“31. I now turn to the matter of the petition under the Companies Acts which Eircell have proposed to bring. The principles applicable where it is sought to restrain the presentation of a winding-up petition have been fully and clearly set out by Keane J. (as he then was) in the High Court in the case of Truck and Machinery Sales Limited v Marubeni Komatsu Limited [1996] 1 IR 12 . These are set out in the head note as follows:-
“(a) Since a winding-up petition was not a legitimate means of enforcing payment of a debit which was bona fide disputed, the presentation of a petition would, in normal circumstances be restrained if the company, in good faith and on substantial grounds disputed all liability in respect of the debt claimed.
(b) Where a company admitted its indebtedness to the creditor in a sum exceeding £1,000 but disputed the balance, even on substantial grounds, the creditor should not normally be restrained from presenting a winding-up petition.
(c) Even where the company appeared to be insolvent, the Court, might in the exercise of its equitable jurisdiction, restrain the presentation of the petition where it was satisfied that the petition was being presented for an ulterior or collateral purpose and not in good faith; but that the Court must approach the position of such a company with the interests of the creditors particularly in mind.
(d) the jurisdiction to restrain the presentation of the petition should be exercised only with great caution.
(e) Since an application to restrain the presentation of a winding-up petition involved not the restraint of an alleged violation of a Plaintiff’s right but of the exercise by a creditor of his right of access to the Courts, the normal considerations of a fair question to be tried, the adequacy of damages as a remedy and the balance of convenience did not arise; instead, it was for the Plaintiff to establish at least a prima facie case, which would in many instances be established by evidence that the petition was bound to fail or, at the least, that there was a suitable alternative remedy.”
32. This Court accepts that these are in principle the correct standards to be applied.
Metafile -v- Companies Act
[2006] IEHC 407
Laffoy J.
“Failure of substratum: the law
As is pointed out in Courtney on The Law of Private Companies, 2nd Edition, at para. 25.087, since the advent of the ability to alter a company’s objects clause, the failure of a substratum ground as a basis for a petition to wind up the Company has become somewhat anachronistic. That point is enforced where, as here, the objects clause has been drafted in the broadest possible terms. In fact, I have not been referred to any Irish case in which that ground was relied on.
In Re Kitson & Co. Ltd. [1946] 1 All E.R. 435, Lord Greene M.R. rationalised the substratum ground in the following passage of his judgment at p. 438:
“It must be remembered in these substratum cases that there is every difference between a company which on the true construction of its memorandum is formed for the paramount purpose of dealing with some specific subject-matter and a company which is formed with wider and more comprehensive objects. I would explain what I mean. With regard to a company which is formed to acquire and exploit a mine, and, accordingly, if the mine cannot be acquired or if the mine turns out to be no mine at all, the object of the company is frustrated, because the subject matter which the company was formed to exploit has ceased to exist. It is exactly the same way with a patent, as, in the well known German Date Coffee case. A patent is a defined subject matter, and, if the main object of a company is to acquire and work a patent and if it fails to acquire that patent, to compel the shareholders to remain bound together in order to work some other patent or make some unpatented article is to force them into a different adventure to that which they contracted to engage in together; but, when you come to subject matter of a totally different kind like the carrying on of a type of business, then so long as the company can carry on that type of business, it seems to me that prima facie at any rate, it is impossible to say that the substratum has gone.”
In that case, Kitson & Company had been incorporated in 1899. The first object set out in its memorandum of association was to acquire and take over as a going concern a business known as “Kitson & Company” and all or any of its assets and liabilities. Its second object was to carry on the business of locomotive engine manufacturers, iron founders etc. As a matter of construction, Lord Greene held that the main and paramount object of the company was to carry on an engineering business of a general kind, and the memorandum did not limit that paramount object or restrict the contemplated venture of the shareholders to the carrying on of the business of Kitson & Co. Although the business of Kitson & Co. which had been acquired 46 years previously was sold in 1945, it was held that this did not amount to a destruction of the substratum of Kitson & Company Limited. The Court of Appeal dismissed the petition to wind up.
The decision in the Kitson case was distinguished by the Chancery Division of the English High Court in Re Perfectair Holdings Limited [1990] BCLC 423. There are undoubtedly similarities between that case and this case. The company which it was sought to liquidate was a holding company which held property. The business was carried out through a wholly-owned subsidiary which traded out of that property. In order to resolve a dispute between the shareholders, it was agreed that one faction would purchase the shares of the subsidiary, the holding company would sell the property and then the holding company would be put into liquidation. The shares in the subsidiary were sold in accordance with the agreement, as was the property of the holding company. Thereafter the assets of the holding company consisted of cash. One faction sought to have the holding company wound up. This was resisted on the basis that it had a pending action for damages against the subsidiary and that the prosecution of this claim constituted a justification for keeping the holding company in existence. Having referred to the Kitson case and Re Taldua Rubber Company Limited [1946] 2 All E.R. 763, Scott J. stated (at p. 434):
“It is not clear that either of the companies involved in the two cases was, so to speak, a partnership company such as the company in the present case undoubtedly was. But nevertheless I accept the general principle set out in those cases. The memorandum of any company to which the loss of substratum argument as a ground for winding up is to be applied must be construed. If when construed there are some commercial activities that the company is capable of discharging consistently with its memorandum and if some members of the company want that commercial activity to be pursued by the company, prima facie at least, there is no more to the case than that, the just and equitable ground will not have been made out.
Of course, if three-quarters or more of the shareholders want the company wound up, they do not need to come to court and ask for a winding up order. They can put the company into voluntary winding up by means of a resolution passed at a general meeting.”
However, Scott J. stated that the case before him had features which distinguished it from the two cases to which he had referred. He found that it had been common ground ever since the sale of the subsidiary that the holding company would never again engage in any commercial activity whether by way of holding assets or subsidiaries with a view to profit or by way of carrying on business on its own account. On the basis of those facts, he stated as follows (at p. 345):
“So this is a case where, although the company stands possessed of a substantial amount of cash and has the money to go back into commercial activity if the majority so desires, that is not the position. The majority does not so desire. Even since the conclusion of the ‘heads of agreement’ the majority has been content and perhaps determined to get in all the assets of the company, realise all the assets, have them reflected in cash and wind up the company. All of that, in my judgment, is a process of liquidation.
Counsel for the respondents said, and correctly said, that the sale of property and the bringing of actions is part of the normal business of an incorporated company. So it is. The sale of property and the prosecution of actions is for all companies, I would think, a legitimate ancillary purpose, ancillary to its principal objects. A trading company litigates to get in debts. It litigates for a variety of other reasons for the purpose of enhancing or protecting its principal object, its trading activity. A holding company does likewise for the purpose of protecting its assets that it holds for profit. The distinction between cases like that and the present case is that it is not for the purpose of any trading object that the assets of Holdings were being realised, that the action against Perfectair is being prosecuted. All of this has taken place and is taking place for the purpose of liquidation.”
Referring to the second paragraph in the above passage, counsel for the petitioner submitted that the position is the same here. In my view, it is not. When the Settlement was entered into, while the only asset of the Company was already in the course of being sold, it was clearly envisaged that the petitioner’s stake in both Carrig and the Company would be bought out. Taking the Settlement at face value, it was not envisaged that either Carrig or the Company would be wound up. Subsequently, Carrig was wound up at the instigation of the petitioner with a view to recovering the debt owed by it to him. Here the sale of the Company’s asset and the winding up of Carrig were not part of an arrangement under which the Company was ultimately to be wound up. Accordingly, in my view, the position here is not analogous to the situation with which Scott J. was dealing and there is no basis for adopting the approach he adopted on the facts of this case.”
Fencore Services Ltd -v- Companies Acts
[2010] IEHC 358
Laffoy J.
“Counsel for the petitioner referred the Court to one English authority – the decision of the High Court in Re Southard & Co. Ltd. [1979] 1 WLR 546. He also cited three recent decisions of the High Court: Re Hayes Homes Ltd. [2004] IEHC 253; Re Permanent Formwork Systems Ltd. [2007] IEHC 268; and Re Balbradagh Developments Ltd. [2009] 1 IR 597.
In the Southard case Brightman J. referred to the decision of the Court of Appeal in Re J.D. Swaine Ltd. [1965] 2 All ER 762. There is a passage in the judgment of Diplock L.J. in that case which, in my view, gets to the core of how the Court should exercise its discretion in determining whether to make a winding up order, where the company is already being voluntarily wound up. In the passage (at p. 65) Diplock L.J. distinguished opposition to a petition to wind up with a view to ensuring that there would be no winding up order and the circumstances in which the Court is asked to substitute a compulsory winding up for a voluntary winding up, stating as follows:
“In the case of a petition for compulsory winding-up, if the only circumstances which are available are that the petitioner seeks a compulsory winding-up and the majority of the creditors seek that there should be no winding-up at all, then prima facie the petitioning creditor is entitled to a winding-up unless there are some additional reasons for deciding to the contrary. If, on the other hand, the petitioner seeks a compulsory winding-up and the majority of the creditors seek a voluntary winding-up, then for the wishes of the petitioner to overrule those of the majority of the creditors there must be some special reason why the wishes of the majority should be overridden. The difference or distinction seems to me to be an obvious one, namely, in the former case, what is being resisted is any winding-up at all, so that the petitioning creditor, if he fails, will be denied the class remedy which he would otherwise have if the winding-up took place; whereas in the latter case he will get the class remedy anyway under the voluntary winding-up, and the matter then turns on his being able to show some reason why the remedy under the voluntary winding-up is not an adequate remedy for him.”
How does one determine whether a petitioner has established that a voluntary winding up is not an adequate remedy for him? In the Hayes Homes case O’Neill J. stated that it is quite clear that the Court has a discretion and that it must weigh up all the factors relevant to the exercise of that discretion. He gave an example of circumstances in which the Court should intervene stating:
“In my view this court should be disposed to intervene if the circumstances deposed to on affidavit show that the assets of the company, such as the good will of its business, have gone to an associated company without any payment and the liquidation is in the hands of the nominee of the person or persons who had control over the company and the connected or associated companies, and where the nominee of the majority of the creditors who stand to lose substantial monies has been rejected.”
On the facts of that case, O’Neill J. made a winding up order, noting that the petitioner had moved with considerable expedition so that delay as a result of the replacement of the voluntary winding up with the compulsory winding up was not a significant factor.
A summary of the factors which are weighed in the balance by the Court in exercising its discretion is to be found in the following passage from the judgment of O’Hanlon J. in In the matter of Gilt Construction Ltd. [1994] 2 LRM 456 (at p. 458):
“The general approach taken in these cases is to have due regard to the costs involved in winding up by the court and the delays which will be incurred, to the over-all value of the assets to be administered and the complexity or simplicity of the task facing the liquidator, as well as other factors, such as those raised by the petitioner in the present case, having to do with questions of mala fides on the part of a person or persons involved in the dispute.”
In this case, the opposition to the making of a winding up order came from the company. Counsel for the company recognised that the exercise of the Court’s discretion in each case is fact specific.”
Eurochick (Ireland) Ltd., Re
[1998] IEHC 51
Mc Cracken J.
“7. A number of English cases have been cited to me which are put forward to establish a principle that, while the making of a Winding-Up Order in these circumstances is discretionary, the Order should be made if the creditors otherwise have a legitimate sense of grievance, or put another way, that justice must not only be done but must be seen to be done.
8. See for example Re: Magnus Consultants Limited (1995) 1 BCLC 203 and Re: Falcon R. J. Development Limited (1987) BCLC 437. Such a principle certainly appears to run through these cases, although I am not sure that it is supported by any case in this jurisdiction. However, those cases are based on circumstances where it can be shown that there is some wrongdoing by the Company itself which needs to be investigated, or perhaps can be shown that the Directors of the Company were removing assets from the Company before the winding up. There is nothing of that nature in the present case. What the Petitioner really is complaining about is the conduct of its own affairs by its own management, and by extension the conduct of the relationship between the Petitioner and the Company by its common management. Any wrongdoing by the management appears to be wrongdoing in their capacity as management of the Petitioner, in that they may have used funds of the Petitioner to support the Company, but there is no suggestion that they benefited personally in any way, or that they were guilty of any act which would reduce the assets of the Company or increase its liability to its creditors, other than to the Petitioner.
10. The only Irish cases cited to me are the judgment of O’Hanlon J. in In the Matter of Gilt Construction Limited (1994) 2 I.L.R.M. 465 and my own unreported judgment delivered on 13th February, 1995 In the Matter of Naiad Limited. In the latter case I quoted with approval from the judgment of O’Hanlon J. at page 458 of the report, and I can do no better than to quote it again. He said:-
“The general approach taken in these cases is to have due regard to the costs involved in winding up by the Court and the delays which will be incurred, to the overall value of the assets to be administered and the complexity or simplicity of the task facing the liquidator, as well as to other relevant factors, such as those raised by the petitioner in the present case, having to do with questions of mala fides on the part of a person or persons involved in the dispute.”
11. I can only repeat that it appears to me that the mala fides alleged in this case are the mala fides of the management of the Petitioner itself, and it is not for the Liquidator to investigate that matter. The assets in this case are very small compared with the liabilities, and I do not think there is any sense of grievance among the creditors generally which would justify the application of the principles in the English cases.
12. A final relevant matter is that at the creditors’ meeting at which Mr. Edison’s appointment was confirmed, the creditors also appointed a Committee of Management, which in fact consists of representatives of the Petitioner. While the powers of a Committee of Management are very vague and general, it does mean that in effect the Petitioner can oversee the actions of Mr. Edison, and could ask him to seek the directions of the Court under Section 280 of the Companies Act, 1963 should they think it necessary, which ought to be a perfectly sufficient and adequate protection for the Petitioner.
13. Accordingly, I would refuse to make a Winding-Up Order on foot of this Petition.
WMG (Toughening) Ltd., Re
[2001] IEHC 65
Ely Property Group Ltd -v- Companies Acts
[2013] IEHC 81
Emerald Portable Building Systems Limited v Companies Act
[2005] IEHC 301