Restoration
Cases
Heidelstone Company Ltd -v- Trustees Act [2006] IEHC 408
Laffoy J.
“In broad terms, what has happened in this case is that both the vendor company and the management company have been struck off the register of companies for failing to make returns and dissolved without the scheme of disposal having been fully implemented. The relief sought by the applicants in this case to remedy that difficulty is an order pursuant to s. 26 of the Trustee Act, 1893 (the Act of 1893) vesting the interest of the vendor company and/or the management company in a new management company which has been incorporated by the applicants. In general, for the reasons which I will now outline, I consider that the approach adopted by the applicants is correct and that they should be granted the relief sought. I will deal with the peculiarities of the applicants’ own circumstances later.
I have no doubt that where, as part of a scheme of disposal of apartments or townhouses, a vendor incorporates a management company to manage the common areas and enters into an agreement to transfer the common areas to the management company on the completion of the sales of the apartments and houses, the management company becomes the owner in equity on the completion of the sales of all of the apartments or houses, as the case may be, subject to the terms of the agreement and subject to payment of any nominal sum provided for therein. On the completion of such sales, the vendor thereafter merely holds the legal estate as trustee on behalf of the management company.
Section 25 of the Act of 1893 provides that the High Court may, whenever it is expedient to appoint a new trustee or trustees, and it is found inexpedient, difficult or impracticable to do so without the assistance of the court, make an order appointing a new trustee even if there is no existing trustee, and s. 26 empowers the court to make a consequential vesting order in favour of the new trustee or trustees. Section 26 also provides that in the other circumstances set out in that section, one of which is where a trustee entitled to or possessed of any land cannot be found, the Court may make an order, which is called a vesting order in the Act, vesting the land in any such person, in any such manner and for any such estate as the court may direct.
In his unreported judgment, delivered on 23rd November, 1984, in a matter entitled In the Matter of the Trustee Act, 1893, John Kavanagh and Barbara Cantwell, applicants, Costello J., as he then was, considered the appropriateness of making a vesting order under s. 26 vesting the property in issue in the persons shown to be beneficially entitled to the property where the property was vested in a company as trustee at the date of its dissolution. The problem in that case arose because the vendors to the applicants had mortgaged the relevant property in fee simple to a company called Moore Paragon Ireland Limited as security for a loan. In March, 1983, that company had gone into voluntary liquidation. The liquidator agreed to transfer the mortgaged property and the mortgage debt to another company called Moore Business Forms Limited for a consideration which, presumably, was equivalent to the mortgage debt. That sum was duly paid. However, while the mortgage debt was transferred to Moore Business Forms Limited, the mortgaged property was not. In connection with the sale to the applicants in 1984 the mortgage debt was discharged and Moore Business Forms Limited purported to reconvey the mortgaged property, which it did not possess. The purpose of the application was to procure the vesting of the outstanding legal estate in the applicants.
On those facts, Costello J. declared that Moore Paragon Ireland Limited was at and immediately before the date of its dissolution possessed of an estate in fee simple in the property as trustee for Moore Business Forms Limited upon a trust within the meaning of the Act of 1893, and that in the events which had happened the applicants were then entitled to the beneficial interest under the trust. In order to get in the outstanding legal estate, Costello J. did not consider that it was necessary to resort to the expedient of appointing a new trustee under s. 25 of the Act of 1893, with a consequential vesting order under s. 26, as was done In re No. 9 Bomore Road [1906] 1 Ch. 359, which, incidentally, was followed in this jurisdiction in In re Queenstown Dry Dock Ship Building Company [1918] 1 I.R. 356. Instead he followed the English authorities in which it was held that a dissolved company is a trustee “who cannot be found” within the meaning of s. 26 (In re General Accident Assurance Corporation Limited [1904] 1 Ch. 147; and In re Richard Mills & Co. (Brierly Hill) [1905] W.N. 36). Accordingly, he made an order pursuant to s. 26 of the Act of 1893 that the fee simple or other estate or interest vested in Moore Paragon Ireland Limited at the date of its dissolution should vest in the applicants. However, he laid particular emphasis on the fact that the Attorney General had stated that no claim to the premises was being made by the State.
In my view, a similar approach may be adopted to resolve the problem which has arisen in this case.!
Command Financial Services Ltd
[2013] IEHC 364
Laffoy J.
“The standing of the Petitioner to seek an order under s. 310
6. Section 310(1) provides that an order may be made under the section on an application being made for that purpose by the liquidator of the company or by any other person who appears to the Court to be interested.
7. The circumstances in which the Petitioner claims “to be interested” is that it indemnified the Company in relation to certain proceedings in the High Court, engaged legal representatives to act on behalf of the Company and defrayed the costs and expenses of such legal representatives. ….
Attitude of the Registrar of Companies
8. The Registrar of Companies issued a letter of 22nd April, 2013 to the Petitioner’s solicitors in which it was stated that the Registrar had obtained advice that the Petitioner does not have standing to bring an application to restore the Company to the register pursuant to s. 12B(3) of the Act of 1982. Having outlined the circumstances in which the Company became dissolved, the letter continued:
“If that dissolution is now voided pursuant to s. 310, the Company will revert to ‘Struck Off’ status, being the status which the Company had immediately prior to its dissolution on 29th April, 2011.
A section 310 order does not place a struck off company back on the register
– although its dissolution has been voided pursuant to s. 310, the company remains struck off. On that basis, it may be that your client will continue to face problems in attempting to enforce the costs order made in favour of the Company.
Subject to you and your client being aware of the fact that the effect of a section 310 being filed with CRO will be to change the Company’s status from ‘Dissolved’ to ‘Struck Off’, the Registrar of Companies has no objection to the making of the order sought by you in this matter.”
That letter was copied to the Chief State Solicitor. At the hearing of the application counsel for the Registrar informed the Court that the Registrar was not objecting to the order sought, but was not expressing any view on its effect.
Attitude of the Revenue Commissioners
9. As is usual on applications to restore a company, the position of the Revenue Commissioners was set out on affidavit, in this case, an affidavit of Joe Hughes sworn on 11th April, 2013. That affidavit exhibited letters dated 10th April, 2013 to each of the directors of the Company requiring filing of outstanding tax returns in relation to the Company. Further, it indicated that the Revenue Commissioners were reserving their right to seek an order under s. 12B(4) of the Act of 1982 to make the directors personally liable for all revenue liabilities arising during the period of dissolution. My understanding of the position of the Revenue Commissioners at the hearing was that they considered that the Court had a discretion to void the dissolution but they considered that the Court should make the usual orders which it makes on an application under s. 12B(3) of the Act of 1982.
Form of order under s. 310
10. The form of order which the Court has jurisdiction to make under s. 310(1) is –
“. . . an order, upon such terms as the Court thinks fit, declaring the dissolution to have been void . . ..”
The only other guidance which subs. (1) gives is that it provides that on the making of the order “such proceedings may be taken as might have been taken if the company had not been dissolved”. That aspect of the section is of no relevance for present purposes.
Conclusions on application
11. Subject to one qualification, being satisfied that the Petitioner is “interested”, I am satisfied that it is appropriate to make an order declaring the dissolution to have been void. The qualification is that the Court does not know what the attitude of the Chief State Solicitor on behalf of the Minister to the making of such an order is. As is pointed out in the annotation on s. 310 in MacCann & Courtney on Companies Acts 1963 – 2012, an application should be on notice to the relevant State authorities, including the Minister. Whilst the application was on notice to the Minister, it would appear that the Chief State Solicitor, on behalf of the Minister, did not come before the Court or express a view on the application because of the urgency with which the matter was dealt with on 22nd April, 2013. From the perspective of the Minister, the importance of an order under s. 310 is that any assets of the Company, which vested in the State under s. 28 of the State Property Act 1954 on its dissolution, will re-vest in the Company when the dissolution is declared to be void. The State notice parties who appeared have taken a constructive view in relation to this application, and I would anticipate that the Minister would adopt the same approach. Therefore, the qualification is that a letter from the Chief State Solicitor indicating that the Minister has no objection to an order being made under s. 310 must be filed with the registrar of the Court before an order in the terms sought can be perfected.
12. A further issue remains, which, in reality, is the most important issue. Counsel for the Petitioner submitted that the Court should not only make an order declaring the dissolution of the Company to have been voided, but the Court should also make an order restoring the Company to the register. Counsel for the Petitioner relied on two authorities:
(a) In re Belmont & Co. Ld. [1952] 1 Ch. 10, which was a decision of the Chancery Division of the High Court in England; and
(b) In re Test Holdings (Clifton) Ltd. [1970] 1 Ch. 285, which was also a decision of the High Court in England.
13. In the Belmont case, the application under the section then in force in the United Kingdom, which corresponded to s. 310(1) was made by the Commissioners of Inland Revenue, who had made various assessments to tax on the company prior to dissolution which, at the time of dissolution, were the subject of appeals which the Commissioners were unable to progress unless the dissolution was declared void. Wynn-Parry J. held that he had jurisdiction, not only to make the declaration but also to restore the company to the register. On this point, he stated (at p. 15):
“In my view section 352 is unaffected by section 353, and the effect of declaring a dissolution void under that section where a company has been struck off the register under section 353 is to bring about the same position as obtained before the dissolution took place, and that therefore under section 352 there is inherent in the court jurisdiction to order restoration to the register of the name of a company struck off under section 353.”
By way of explanation the analogue of s. 353 in the Act of 1963 was s. 311, in its original form before it was amended by the Act of 1982.
14. In the Test Holdings case, Megarry J. followed the decision in the Belmont case, having first analysed critically the finding that the Court could make an order restoring the company to the register. He observed (at p. 291) that counsel for the Registrar of Companies had not urged upon him that he ought to refuse to follow the Belmont decision, partly because the case had been relied upon in many cases. He expressed the view that, if the Belmont case had not been decided, it might have been a close question whether or not to decide the matter as it was decided in that case. However, he came to the conclusion (at p. 292) that, the decision being there, on the whole the right course for a judge a first instance was to follow it.
15. Obviously, what is of concern to the Court is to preclude a situation in which s. 310 would be invoked in circumstances in which the applicant could avail of the remedies provided for in s. 311 of the Act of 1963 or in s. 12B(3) of the Act of 1982 so as to avoid the strictures which are imposed in making orders under those sections. I accept that that is not the objective of the applicant in this case. However, because of the urgency of the matter because the time-span provided for in s. 310 is about to expire, this aspect of the matter was not, in my view, adequately explored through legal submissions and, in particular, apart from the helpful contents of the letter of 22nd April, 2013 from the Registrar, the Court has not had the benefit of submissions on behalf of the Registrar, whom I regard to be the real legitimus contradictor on the application as regards this issue.
Goode v. Phillips Electrical (Ireland) Ltd.
[2002] 2 I.R. 617
Murphy J.
“Where a particular justification existed for the restoration of the company, restoration was ordered but limited to the achievement of that purpose. The petitioner was required to give an undertaking to wind-up the company as soon as it had been achieved. That accorded with the practice which had been established in England in Langlaagte Proprietary Co. Ltd. (1912) 28 T.L.R. 529. I am satisfied that the law in practice in this jurisdiction does confer power on the High Court to ensure that the power to restore a company to the Register is used for the purpose for which it was intended but does not extend to the imposition of a penalty, such as was imposed in the present case, by an award of costs – whether taxed or otherwise – in proceedings which fall to be dealt with on their own merits independently of the application for restoration.”
Nalto Construction Ltd -v- Companies Acts
[2011] IEHC 251
Laffoy J.
“3. The authorities
3.1 The Court was referred to two authorities by counsel for the petitioner and counsel for Mr. Fitzgerald, which I propose to consider in chronological order.
3.2 The earliest is a decision of the High Court (Kenny J.) in In Re Nelson Car Hire Limited (1973) 107 ILTR 97. That decision concerned an application under s. 310(1) of the Act of 1963, which provides that, where a company has been dissolved, on an application being made for that purpose “by the liquidator of the company or by any other person who appears to the court to be interested”, the Court may make an order, upon such terms as the Court thinks fit, declaring the dissolution to have been void. The company in question had been wound up pursuant to a members’ voluntary winding up and dissolved on 19th September, 1967. Before dissolution the Revenue Commissioners had been interested in the company and, in particular, in property transactions which it had engaged in and, as Kenny J. put it, the Revenue Commissioners “became much more interested” in 1968 after the company was dissolved. In July 1969 the Revenue Commissioners issued a petition seeking an order under s. 310(1). Kenny J. in his judgment (at p. 101) contrasted the wording of s. 310 with s. 311 stating:
“The expression ‘any other person who appears to the Court to be interested’ has a wider meaning than member or creditor of the company. The words themselves have this effect but it is also shown by comparison of s. 310 with s. 311 which deals with the power of the registrar to strike off companies which are not carrying on business off the register. If the register (sic) does this, sub-s. (8) provides that if a company or any member or creditor thereof feels aggrieved by the company having been struck off, the court may restore the name of the company to the register. I think that the Revenue Commissioners are persons interested within s. 310 if they establish that they have a reasonable prospect of success in a claim for tax against the company if it is restored to the register and an assessment is made on it. The Court has a discretion in granting the application and the decisive matter must be whether the claim, which it is sought to make against the company, is one which might succeed. …”
Having stated that he did not propose to express a final view on the question whether the company was liable for tax of any kind on the property transactions in question because that was a matter to be decided in other proceedings, Kenny J. stated that there was “much to be said” for the proposition being advanced by the Revenue Commissioners. He concluded his judgment by stating (at p. 102):
“[Counsel for the respondent] says correctly that there is no liability for income tax or corporation profits tax until the assessment becomes final and that the Revenue are not, therefore, creditors and so cannot succeed on this application. This, however, is not a good answer to the contention that the Revenue Commissioners are persons interested and so entitled to the order sought. In my opinion the company should be restored to the register and there will be an order declaring that the dissolution of the company was void. The cost of this application will be reserved: if the claims for duty which the Revenue wish to make are unsuccessful, those who oppose the order will be awarded their costs of these proceedings on a solicitor and client basis.”
3.3 The judgment of Kenny J. was considered in the later authority, the decision of the Supreme Court in Re Deauville Communications Worldwide Limited [2002] 2 IR 32. That case concerned an application to have a company restored to the register pursuant to s. 12B(3) of the Companies (Amendment) Act 1982 which, insofar as is relevant for present purposes, provides:
“If any member, officer or creditor of a company is aggrieved by the fact of the company’s having been struck off the register under section 12(3) or 12A(3) of this Act, the court, on an application … by the member, officer or creditor, … may, if satisfied that it is just that the company be restored to the register, order that the name of the company be restored to the register … .”
So much of s. 12B(3) as is quoted above is very similar to so much of s. 311(8) as has been quoted earlier, one difference being that the rather peculiar reference to the struck off company being an applicant in the earlier provision is not replicated.
3.4 The company in the Deauville case had been struck off for failure to file annual returns. The petitioner claimed to be a creditor of the company. After the company was struck off, but before the petition to restore was brought, the petitioner had instituted proceedings against the company in the Supreme Court of Bermuda for conspiring with others to cause a breach of a licence agreement in relation to a patent. In his judgment, Keane C.J., with whom the other Judges of the Supreme Court concurred, stated (at p. 41):
“Unless there were authority to the contrary, I would be inclined to the view that the word ‘creditor’ in s. 12B(3) should be read as extending to contingent or prospective creditors. It would seem unjust that the question whether a person is entitled to have the company restored to the register for the purpose of recovering a judgment against him, should be determined by whether his claim against the company is for a liquidated sum – in which case he would unarguably be a ‘creditor’ – or takes the form of a claim for unliquidated damages.
Happily, however, there is authority which supports that view.”
3.5 In the Deauville case the respondents had argued that the proceedings in Bermuda were not being bona fide maintained or, at the least, that there had been insufficient evidence before the High Court to enable it to reach a conclusion that the proceedings were being bona fide maintained, in reliance of the decision of Kenny J. in In Re Nelson Car Hire Limited. Having pointed out that the application before Kenny J. was an application pursuant to s. 310(1) of the Act of 1963, Keane C.J. observed (at p. 45):
“Kenny J., while holding that the Revenue Commissioners were not creditors of the company within the meaning of s. 310, as no assessments had been raised while the company was still on the register, was satisfied that they would be ‘persons interested’, within the meaning of the section, if they established that they had ‘a reasonable prospect of success’ in a claim for tax against the company if it was restored to the register and an assessment made on it.”
On the argument advanced by the respondents in the case before him, he stated:
“Assuming that the test adopted by Kenny J. in that case is also appropriate where a court is deciding whether ‘it is just’ that the company should be restored to the register, I have no doubt that it was satisfied by the applicant in this case.”
4. Conclusion
4.1 I do not think it would be correct to interpret the final passage from the judgment of Keane C.J. in the Deauville case quoted above as a recognition that the “reasonable prospect of success” test should be applied in determining whether the petitioner, who petitions as a contingent or prospective creditor and seeks to have a company restored on the ground that it is just to do so, has standing under s. 12B(3) or the analogous provision, s. 311(8), to seek such an order. In circumstances such as the circumstances which prevail on this application, where the DPP proposes to pursue criminal proceedings against the company if it is restored, it would be clearly inappropriate to express a view on the prospect of the Revenue Commissioners being successful in recovering the amount claimed if an assessment was raised on the basis of the same factual foundation as underlines the proposed criminal prosecution. On the other hand, where a petitioner who is a creditor invokes the Court’s discretionary statutory jurisdiction to make a restoration order on the ground that “it is just” to do so (which is the ground relied on in this application, because there is no suggestion that the company was carrying on business at the time of strike off), clearly the Court must be satisfied that the petitioner is pursuing the claim against the company bona fide and not in a frivolous or vexatious manner.
4.2 In this case I am satisfied on the evidence that the Revenue Commissioners are acting bona fide in seeking to pursue a claim for the tax alleged to be due by the company together with interest and penalties. I consider it is just to restore the company to the register, so that the Revenue Commissioners can pursue that claim and so that the DPP can prosecute the criminal proceedings against the company.
4.3 It was the mistake on the part of the Revenue Commissioners in issuing the “no objection” letter which paved the way for the strike off of the company. If that letter had not issued, this application would not have been necessary. I think it was not unreasonable for Mr. Fitzgerald to contest this application, having regard to all of the factual circumstances. Therefore, I am of the view that on the making of a restoration order the petitioner should be liable for Mr. Fitzgerald’s costs of the application on a party and party basis.
4.4 Accordingly, there will be an order pursuant to s. 311(8) that the company be restored to the register. The order will contain the usual provision that it will lapse in the event of a copy of the perfected order not being delivered to the registrar of companies within three months from the date on which the order was pronounced. Further, there will be an order that the petitioner pay the costs of Mr. Fitzgerald, as respondent, on a party and party basis, the costs to be taxed in default of agreement.”
In the matter of New Ad Advertising Company Limited
[2006] IEHC 19
Laffoy J.
“In broad terms, two grounds were advanced on behalf of Mr. McNulty for the proposition that it would not be just to restore the Company.
The first ground advanced was the personal circumstances of Mr. McNulty: that he is elderly and living in retirement in France; that he has health problems, as does his wife; that he has a medical condition that prevents him travelling by air; and that he is of limited means.
The second ground was that the sole purpose of the application is to enable the petitioner to prosecute a s. 205 application. It was submitted that there is no other reason for the restoration of the Company. It ceased trading almost twelve years ago. It has no creditors, apart from Mr. McNulty, although at the hearing there was belated recognition that the petitioner was a creditor on foot of the costs orders to which I have referred.
….
In Goode v. Philips Electrical (Ireland)Ltd. [2002] 2 I.R. 613, the Supreme Court held that restoration of a company is primarily a matter between the petitioner, the regulatory authority having the duty to ensure compliance with the Companies Acts, and the Minister for Finance in whom the assets of the company would vest as bona vacantia. In that case, the notice party whose standing was questioned was a company, unconnected to the company the subject of the application for the restoration order, which was being sued by the latter. Nonetheless, the Supreme Court held that it was within the discretion of the High Court to treat the former as a notice party to the proceedings in the circumstances which prevailed in that case. The factual circumstances here are different. Here Mr. McNulty was a member and an officer of the Company before its dissolution. If it is restored, depending on the orders the court makes on this application, it will fall to Mr. McNulty to comply with the orders. In the circumstances, I have no doubt that Mr. McNulty was entitled to be heard on this application. However, the submissions made on his behalf, in my view, do not establish that it would not be just to accede to the petitioner’s application to have the Company restored. On the contrary, it would be unjust to make it impossible for the petitioner to pursue the remedies he seeks in the s. 205 application. Therefore, I propose making an order restoring the Company to the Register.
However, Mr. McNulty had another “string to his bow”. It was submitted on his behalf that, if the court was disposed to make an order under sub-s. (3) of s. 12B, the court should regard the application as one made by a member or officer of the Company, rather than an application by a creditor of the Company, so that sub-s. (5), rather than sub-s. (6), of s. 12B would apply. The distinction between the two sub-sections, it was submitted, is that, whereas sub-s. (6) mandates the courts, when making an order under sub-s. (3) on the application of a creditor, to direct that one or more of the members or officers of the company shall within a specified period deliver all outstanding annual returns or all outstanding tax returns, as the case may be, depending on whether the strike off was under s. 12 or s. 12A, sub-s. (5) gives an element of discretion where an order is made under sub-s. (3) on the application of a member or officer of the company. Sub-s. (5) provides that the court shall, unless cause is shown to the contrary, include in an order under sub-s. (3) which is made on the application of a member or officer of the company, a provision that the order shall not have effect unless within one month from the date of the order the relevant returns are delivered to the Registrar or the Revenue Commissioners, as the case may be.
The basis on which it was contended on behalf of Mr. McNulty that the court should exercise its discretion not to make the restoration of the Company conditional on outstanding returns being delivered was that there are practical difficulties in relation to filing the outstanding returns. There is uncertainty as to the identity of the directors, this being a reference to the petitioner’s contention that he is not a director. Mr. Wilson, the other acknowledged director, is elderly and Mr. McNulty has not been in contact with him for over ten years. There having been contention between them bore that, Mr. McNulty might not be able to procure the necessary two directors to “sign off” on the outstanding returns. The cost of preparation and auditing of the outstanding accounts was also cited as a reason, given Mr. McNulty’s limited means. It was also averred in the replying affidavit that, following the conclusion of the Supreme Court appeal in the s. 205 proceedings, records of the Company were put into storage in 1998 and about five years ago the records were destroyed when there was a fire in the premises in which they were stored. Therefore, it would be impossible to deliver the outstanding returns because the vast majority of the records are no longer available to enable the returns to be made.
……
In my view, a very limited discretion is given to the court in sub-s. (5). The court is mandated to make the effect of the restoration order conditional on the outstanding returns being delivered “unless cause is shown to the contrary”. The obvious situation in which cause is shown to the contrary is where, before the matter is heard in court, the outstanding returns have been delivered and there is confirmation from the relevant State authority that such is the case. In my view, it would be erroneous to assume that sub-s. (6) is more rigorous than sub-s. (5). The contrary, is, in fact, the case because under sub-s. (5) the effect of the order is postponed until delivery of the outstanding returns within the period of one month, whereas in the case of sub-s. (6) the order takes effect immediately, although there is an ancillary direction to the members or officers of the company to deliver the outstanding returns within a time period stipulated by the court. The reason for the different approach in the two sub-sections is because almost invariably a creditor petitioner will not be in a position to deliver returns on behalf of the company. In relation to both sub-sections, the legislative intent is clear. It is to ensure that the striking-off mechanism as a deterrent against breach of company law and tax law is not devalued. It would be devalued if a company could be restored to the Register without the breach which gave rise to its striking-off being remedied.
Here, the petitioner is both a creditor and a member of the Company. On the evidence, it would appear that, as a member, he is not in a position to file annual returns on behalf of the Company. In the circumstances, I propose treating this as the application of a creditor, which is what the Registrar has sought. I propose making an order under sub-s. (6) that Mr. McNulty deliver the outstanding returns to the Registrar of Companies within three months from the date of this judgment.
As I understand the position, this is a case in which the Company was struck off under s. 12, rather than s. 12A. In the circumstances, the court is not mandated to make an order under sub-s. (6) in relation to the outstanding tax returns. Given the averment by Mr. McNulty’s solicitor that the Company ceased trading in or about 1993, exercising the court’s discretion, I do not propose to make any direction for submission of outstanding tax returns.
Re Barrowland Ltd.
[2004] 3 I.R. 31
Smyth J.
The case therefore concerns the construction to be put on the statutory scheme which is found originally in s. 12 of the Companies (Amendment) Act 1982 and in particular subs. (6) thereof which reads as follows:-
“If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the court, on an application made (on notice to the registrar) by the company or member or creditor before the expiation of 20 years from the publication in Iris Oifiguil of the notice aforesaid, may, if satisfied that the company was at the time of the striking off carrying on business or otherwise that it is just the company be restored to the register, order that the name of the company be restored to the register,and upon an office copy of the order being delivered to the registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off; and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off” (emphasis added).
That section of the Act of 1982 was amended by substitution by s. 46 of the Companies (Amendment) (No. 2) Act 1999.
Section 12B(3) is in identical terms to the original s. 12(6) save that it is subject to the provisions of s. 12B(4) of the Act of 1999 which deals with the alternative order and it is in the following terms:-
“An alternative order may, if the court considers it appropriate that it should do so, include a provision that, as respects a debt or liability incurred by, or on behalf of, the company during the period when it stood struck off the register, the officers of the company are such one or more of them as is or are specified in the order shall be liable for the whole or apart (as the court thinks just) of the debt or liability.”
In the case of In re Amantiss Enterprises Ltd [2000] 2 I.L.R.M. 177 it was held by the High Court (O’Neill J.) that the words “the company shall be deemed to have continued in existence as if the name had not been struck off” have the automatic effect of validating retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register. Section 12(6) was intended to preserve the validity of transactions entered into during a period of dissolution where frequently that dissolution is unknown to either the company, its officers or third parties dealing with it. The final words of s. 12(6) empowering the court to make specific orders do not qualify the scope of the preceding general words but enable the court to achieve to the fullest extent consistent with justice the “as you were” position of the company ( Tymans Ltd. v. Craven [1952] 2 Q.B. 100 followed). In my judgment the interpretation to be placed upon the original s. 12(6) is quite clear. The conjunctive “and” “upon an office copy of the order being delivered to the registrar for registration” is a clear indication by the Oireachtas that it was not sufficient merely for the court to make the pronouncement and make its order but that an office copy of the order should be delivered to the Registrar and it is upon the completion of both the making of the court order and its delivery to the Registrar that the company is deemed to have continued in existence. In the instant case the expression forthwith used in the order of 1995 means with all reasonable celerity or, in other words, as soon as reasonably possible. Where consequence is “forthwith” to follow on an event (as in the instant case) the word imperatively excludes a time within which something else may be done inconsistent with that consequence.
The provisions of s. 12 do not give rise to an order as of course or as a matter of routine but permit the court if satisfied as specified to make an order. The order of the court must not merely be pronounced in court, but perfected in written form and delivered to the Registrar to bring into operation the deemed provision or consequence. The additional discretionary power of the court to “give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off”, was embraced in the second element of the curial part of the order of the 3rd April, 1995, which obligated the company to deliver to the Registrar of Companies a copy of the order forthwith. This expression complies with both the letter and the spirit of the statutory provisions. The creditors of the company are entitled to know with certainty what its exact status is, as are persons who may have rights to sue the company but the exercise of which rights are or may be affected by the Statute of Limitations (a matter considered by Megarry J. in In Re Lindsay Bowman Ltd [1969] 1 W.L.R. 1443).
As the effect of an order which is complied with as to its terms is to validate retrospectively all acts done in the name and on behalf of the company during the period between its dissolution and the restoration of its name to the register, it follows that it is imperative that the copy of the order of the court be lodged as soon as ever possible with the Registrar of Companies. The court order does not act prospectively. The retrospective date of effect is not the date of the making of the court order but of compliance with it. However as the order can be made only if the court is satisfied with a given state of facts on a given day, it is mandatory that the shortest interval possible should exist between the date of the perfected court order and a copy of its being lodged with the Registrar of Companies. In my judgment the Registrar ought not to be bound to register restoration orders which are not lodged with him forthwith.
If the Registrar were to have a margin of appreciation, in for example, an order pronounced at the end of a legal term which was not available in perfected form until the beginning of the following legal term then at its widest, his discretion could and should not exceed three months from the date of the pronouncement of the order. Orders not lodged forthwith and at the very outside within three months should and do automatically lapse. In such circumstances a renewed application to the court is necessary: such must not only comply with this subsection but also aver to the exact state of the business and affairs of the company as from the date of the pronouncement of the lapsed order and give a full and satisfactory explanation to the court as to why its original order was not complied with in the interim.
This construction has due regard to the apparent object of the section and the character of the legislation to which it belongs.
In the instant case the interim without prejudice order of Quirke J. will be discharged and the company may bring a new or fresh application to the court in accordance with the terms of this judgment.
Amantiss Enterprises Ltd. Re
[1999] IEHC 74; [2000] 2 ILRM 177
Mr Justice O’Neill
“Central to the determination of the issues raised in the petition and in the Kilsaran Motion is the proper construction of Section 12 subsection (6) of the Companies (Amendment) Act, 1982. This section reads as follows:-
“12 – (1) Without prejudice to the generality of Section 311 of the Principal Act, where a company does not for two consecutive years make the annual returns required by Section 125 or 126 of the Principal Act, the Registrar of Companies may send to the company by post a registered letter enquiring whether the company is carrying on business and stating that, if an answer is not received within one month of the date of that letter a notice will be published in Iris Oifigiuil with a view to striking the name of the company off the register.
(2) If the Registrar after receiving an answer to the effect that the company is not carrying on business or does not within one month after sending the letter receive any answer or any annual returns which are outstanding, he may publish in Iris Oifigiuil and send to the company by registered post a notice that at the expiration of one month from the date of that notice, the name of the company mentioned therein will, unless cause is shown to the contrary or all outstanding annual returns are made, be struck off the register, and the company shall be dissolved.
(3) Subject to subsection 4 and 5 of this section, at the expiration of the time mentioned in the notice the Registrar, unless cause to the contrary is previously shown by the company, strike its name off the register, and shall publish notice thereof in Iris Oifigiuil and on the publication in Iris Oifigiuil of this notice, the company shall be dissolved.
(4) The liability, if any, of every director, officer and member of the company shall continue and may be enforced as if the company had not been dissolved.
(5) Nothing in subsection 3 or 4 of this section shall effect the power of the Court to wind up the company the name of which has been struck off the register.
(6) If a company or any member of creditor thereof feels aggrieved by the company being struck off the register the Court, on an application made (on notice to the Registrar) by the company or member or creditor before the expiration of 20 years from the publication in Iris Oifigiuil of the notice aforesaid, may, if satisfied the company was at the time of the striking off carrying on business or otherwise that it is just that the company be restored to the register, order that the name of the company be restored to the register, and upon an office copy of the order being delivered to the Registrar for registration the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may by the Order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as maybe as if the name of the company had not been struck off. …”
17. The issue which arises in these proceedings for determination, is what is the correct construction of that part of subsection (6) of Section 12 above which commences with the words “and upon an office copy of the order being delivered to the Registrar for registration the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may by order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.”
20. Before beginning to consider these submissions and the cases to which I was referred I should draw attention to Section 310 of the Companies Act, 1963 which reads as follows:-
“310(1) Where a company has been dissolved, the Court may at any time within two years of the date of the dissolution, on an application being made for the purpose by the Liquidator of the company or by any other person who appears to the Court to be interested, make an order, upon such terms as the Court thinks fit declaring that this dissolution to have been void, and thereupon such proceedings may be taken as might have been taken if the company had not been dissolved. …”
21. This section makes provision for declaring void a dissolution of a company where the company has been dissolved either as a result of a voluntary liquidation or a Court liquidation, in contra distinction to Section 12 subsection (6) which provides for the situation where a dissolution of a company results from the company being struck off the register under the provisions of Section 12 of the 1982 Act.
22. I draw attention to Section 310 of the 1963 Act only for the purpose of contrasting the language used in that section as compared to subsection (6) of Section 12 of the 1982 Act. I do so also because Section 310 of the 1963 Act is in exactly similar terms to Section 352 subsection 1 of the English Companies Act of 1948 subsequently replaced by subsections 1 and 2 of Section 651 of the English Companies Act, 1985. Similarly, Section 12 subsection (6) of the Companies (Amendment) Act, 1982 is in exactly similar terms to Section 353 subsection (6) of the English Companies Act of 1948 which in turn was replaced by subsections 1, 2 and 3 of Section 653 of the English Companies Act of 1985.
23. Mr Shipsey for the Petitioner and all Counsel for the Notice Parties and Defendants in the Plenary proceedings relied upon the majority judgments of the Court of Appeal in Tymans Limited -v- Craven [1952] 1 All E.R. 613 [1952] 2 QB. 100. In that case the Court was concerned that the construction of subsection (6) of Section 353 of the English Companies Act of 1948.
24. The Court of Appeal in this case by a majority held as the headnote reveals;
“Per Evershed M.R. and Hodson L.J.
(1) that an order of the Court made under Section 353(6) of the Companies Act, 1948 restoring to the register the name of a company previously dissolved under subsection (5) of the same section and declaring that “the company shall be deemed to have continued in existence as if its name had not been struck off” is effective to validate retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register; and that the County Court accordingly had jurisdiction to consider the application for a new lease;
(2) that the final words of the subsection empowering “to give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as maybe as if the name of the company had not been struck off” are not expository, qualifying the scope of the proceeding general words, but complimentary only to those general words so as to enable the Court to achieve to the fullest extent consistent with justice the “as you were” position of the company.
Per Jenkins L.J. dissenting; On the construction of the section an order of the Court restoring a company to the register
(1) operates only to restore and preserve the original corporate status and identity of the company and
(2) may at the discretion of the Court provide for a validation of acts done during dissolution but
(3) does not in the absence of any such provision validate any such acts.
Morris -v- Harris [1927] A.C. 252 distinguish.”
…..
28. Having carefully considered Counsel’s submissions, the cases cited and the relevant statutory provisions I find the reasoning of the majority judgments in the Tyman case preferable, and hold that the words “the company shall be deemed to have continued in existence as if its name had not been struck off” have the effect of validating retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register, and that the words “and the Court may by order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off” are not expository qualifying the scope of the proceeding general word but are complementary only to those general words so as to enable the Court to achieve to the fullest extent consistent with justice the “as you were” position of the company.
29. I have come to this conclusion for the following reasons.
Section 12 subsection (6) is there for the purpose of restoring a company to the register where the dissolution of the company is brought about by the removal from the register under subsection 3 of Section 12. Thus Section 12 subsection (6) applies when there has been no winding up of the company, save with one exception, namely that dealt with in subsection (5) of Section 12, where it is provided that the power of the Court to wind up a company is unaffected by it being struck off the register. Generally, however, it may fairly be said that apart from the foregoing exception, subsection 12(6) provides relief in circumstances where a company is struck off the register where no winding up has taken place. This may frequently happen without anyone interested in the company being aware of it. As was remarked by Evershed M.R. in his judgment in Tymans Limited -v- Craven at page 107 of the report where he says the following in reference to Section 353(6) of the English Companies Act of 1948:-
“The section is therefore specifically directed (and the subsection in its original form in the Act of 1880 was exclusively applicable) to cases, like the present where a company which has failed in the performance of its statutory duties, has nevertheless continued to trade and to transact business, and, necessarily as a consequence entered into numerous engagements with third parties.”
30. Further on at page 112 of the report the learned judge adds the following:-
“But, as I have already stated, the subsection is in terms directed to the case (like the present) when during the period, possibly of long duration of the company’s dissolution many acts will have been done and many engagements entered into by individuals purporting to act as directors or officers of the company and in its name. In this regard the subsection operates in reference to circumstance wholly different from the circumstances relevant to an order under Section 352, such as make it at least reasonable and sensible to expect that the reanimation of the company should be retroactive in its effect.”
31. In my view the plain and very reasonable and sensible intendment of subsection (6) of Section 12 is to preserve the validity of transactions entered into during a period of dissolution where frequently that dissolution is unknown to either the company and its officers or third parties dealing with it, and who conduct their business with each other and enter into engagements with each other on the basis that the company enjoys lawful existence. To remove legal validity from all of these transactions in circumstances where the parties to them at the time of their making intended them to have legal validity would in a great many instances work injustices and would provide the unscrupulous with much opportunity for mischief. I have no doubt that the legislature, in selecting the very clear language used in subsection (6) of Section 12, intended that such unfortunate consequences would not occur by reason of an unintended dissolution where no orderly process of winding up had taken place.
32. I tend to be reinforced in that conclusion by a consideration of the alternative proposition namely that for validity to accrue to transactions which took place during dissolution a specific order or direction would be required under the latter part of subsection (6). In most cases of companies who were struck off the register under Section 12(3) that would necessitate a host of parties having to be heard on an application such as the present one to restore the name of a company to the register or alternatively would lead to much separate litigation in order to determine the validity of all such transactions.
33. This problem was alluded to by Evershed M.R. at page 111 of the report where he says:-
“If on the power contained in the final words of the subsection in question to insert special directions in the order of resuscitation depended on the validation of all the multifarious engagements into which the dissolved company might have entered during the period of its statutory suspense (a period which might have lasted for twenty years), what will be the appropriate procedure? Prima facie, all of the third parties concerned would have to be given an opportunity to make representations to the Court, a proceeding which I find it well nigh impossible to contemplate.”
34. Evershed M.R. then went on to consider what meaning must be given to the final words of the subsection. He resolves that problem with these words;
“In my judgment the final words of this subsection can properly and usefully regarded as intended to give to the Court, where justice requires and the general words would or might not themselves suffice, the power to put both company and third parties in the same position as they would have occupied in such cases if the dissolution of the company had not intervened. More generally the final words of this section seem to me designed, not by way of exposition, to qualify the generality of that which precedes them, but rather as a complement to the general words so as to enable the Court (consistently with justice) to achieve to the fullest extent the “as you were position” which, according to the ordinary sense of those general words is prima facie, and their consequence”.
35. With this analysis of the final part of subsection (6) I respectfully agree.
36. Its conclusion is reinforced by a consideration of the meaning and effect of the words “and the Court may by order” which leads into the final part of subsection (6). It is clear in my view that in adopting this phrase the legislature did not intend that the retroactive effect of the preceding part of subsection (6) would be limited by the power to give direction. The use of the word “may” making it clear that the exercise of such power is essentially surplus to the existence of retroactive validation. Here I cite with approval the following passage from the judgment of Hodson L.J. in the Tyman case where he says as follows:-
“For my part I think the words of Section 353(6) are clearly designed to produce an “as you were” position and think that the latter part of the subsection is complementary and intended to provide for cases where provision is necessary in order to clarify an obscure position or give back to the company an opportunity which it might otherwise have lost. An example of this would be a case where a company had lost an opportunity of obtaining a concession or renewing a lease during the interval between its dissolution and an order under the subsection. A provision in the order could deal with such a case. That the last four lines of the section do not cut down the retroactive effect of that which precedes them is, to my mind, indicated by the introductory words “and the Court may by the order”. The directions and provisions to be made by the Order would naturally be supposed to make good what had previously been stated, namely that the company should be deemed to have continued in existence as if the name had not been struck off.”
37. In reaching an understanding of subsection (6) of Section 12 some assistance is to be obtained by looking at the different language used in Section 310 of the Companies Act, 1963 which deals with the situation where a dissolution occurs following a winding up in a voluntary liquidation, or a Court liquidation. Necessarily in these circumstances there will be no question of the company having, since dissolution, conducted trading or business operations. If acts were done in the name of the company following dissolution in these circumstances it is hard to imagine how they could have a lawful character and hence, as a matter of principle, retroactive validation could not ensue automatically on a declaration under Section 310, that the dissolution was void. The use of the phrase in Section 310:-
“And thereupon such proceedings may be taken as might have been taken if the company had not been dissolved” would seem intended to have the effect of enabling from that point, namely when the declaration is made, the company to sue or be sued.
38. Section 223 of the English Companies Act, 1908 which was replaced by Section 352 subsection (1) of the English Companies Act of 1948 and in turn was replaced by Section 651 of the English Companies of 1985 was so construed by a majority decision of the House of Lords in the case of Morris -v- Harris [1927] A.C. 252.
39. As mentioned earlier in this judgment, Counsel for all of the Notice Parties in the petition and Defendants in the proceedings relied upon the decision of the Court of Appeal in British Columbia, Canada in the case of Natural Nectar Products Canada Limited (Plaintiff) (Respondent) and Michael Theodor (Defendant) (Appellant) which judgment was given on June 6th , 1990. Here the Court was concerned with the interpretation of Sections 286 and 287 of the Companies Act of the relevant jurisdiction. In my opinion these two sections of that Companies Act seem to me to amalgamate and combine what is contained separately in Section 12(6) of the Companies (Amendment) Act, 1982 and Section 310 of the Companies Act, 1963. That being so, I do not find this decision in its reliance upon the judgment of Jenkins L.J. in the Tymans case of assistance in construing the meaning and effect of Section 12(6).
40. Mr McCann on behalf of Kilsaran cited a passage from the judgment of Judge Paul Baker Q.C. sitting as a judge of the High Court of In Re Townreach Limited at page 41 of the report. In this case there is the unusual circumstance of an application being made by the Secretary of State for an order under Section 651 of the English Companies Act, 1985 in circumstances where a company had been struck off the register under Section 653. The learned judge took the view that the term “dissolution” used in Section 651 was broad enough to encompass a dissolution resulting from a strike off the register under Section 653. Having permitted the application to be brought under Section 651 the learned judge then proceeded to consider amongst other cases that of Tymans Limited -v- Craven and in particular the dissenting judgment of Jenkins L.J. I prefer the reasoning of the majority judgments in that case and hence I can find nothing that is persuasive in the judgment in this case.
41. In summary therefore, I have come to the conclusion that an order restoring a company to the register under Section 12(6) of the Companies (Amendment) Act, 1982 has the automatic effect of rendering valid in law all acts done by or on behalf of the company or in its name during the period from its dissolution until restoration to the register. Having reached that conclusion it is not necessary for me to make any ancillary or specific orders in order to validate either the institution of the Plenary proceedings or the appointment of the Liquidator.
42. Having reached this conclusion I must now consider the submissions made by all the Notice Parties to the petition to the effect that it would not be just that the company be restored to the register. “
Command Financial Services Ltd
[2013] IEHC 364
Laffoy J.
“Conclusions on application
11. Subject to one qualification, being satisfied that the Petitioner is “interested”, I am satisfied that it is appropriate to make an order declaring the dissolution to have been void. The qualification is that the Court does not know what the attitude of the Chief State Solicitor on behalf of the Minister to the making of such an order is. As is pointed out in the annotation on s. 310 in MacCann & Courtney on Companies Acts 1963 – 2012, an application should be on notice to the relevant State authorities, including the Minister. Whilst the application was on notice to the Minister, it would appear that the Chief State Solicitor, on behalf of the Minister, did not come before the Court or express a view on the application because of the urgency with which the matter was dealt with on 22nd April, 2013. From the perspective of the Minister, the importance of an order under s. 310 is that any assets of the Company, which vested in the State under s. 28 of the State Property Act 1954 on its dissolution, will re-vest in the Company when the dissolution is declared to be void. The State notice parties who appeared have taken a constructive view in relation to this application, and I would anticipate that the Minister would adopt the same approach. Therefore, the qualification is that a letter from the Chief State Solicitor indicating that the Minister has no objection to an order being made under s. 310 must be filed with the registrar of the Court before an order in the terms sought can be perfected.
12. A further issue remains, which, in reality, is the most important issue. Counsel for the Petitioner submitted that the Court should not only make an order declaring the dissolution of the Company to have been voided, but the Court should also make an order restoring the Company to the register. Counsel for the Petitioner relied on two authorities:
(a) In re Belmont & Co. Ld. [1952] 1 Ch. 10, which was a decision of the Chancery Division of the High Court in England; and
(b) In re Test Holdings (Clifton) Ltd. [1970] 1 Ch. 285, which was also a decision of the High Court in England.
13. In the Belmont case, the application under the section then in force in the United Kingdom, which corresponded to s. 310(1) was made by the Commissioners of Inland Revenue, who had made various assessments to tax on the company prior to dissolution which, at the time of dissolution, were the subject of appeals which the Commissioners were unable to progress unless the dissolution was declared void. Wynn-Parry J. held that he had jurisdiction, not only to make the declaration but also to restore the company to the register. On this point, he stated (at p. 15):
“In my view section 352 is unaffected by section 353, and the effect of declaring a dissolution void under that section where a company has been struck off the register under section 353 is to bring about the same position as obtained before the dissolution took place, and that therefore under section 352 there is inherent in the court jurisdiction to order restoration to the register of the name of a company struck off under section 353.”
By way of explanation the analogue of s. 353 in the Act of 1963 was s. 311, in its original form before it was amended by the Act of 1982.
14. In the Test Holdings case, Megarry J. followed the decision in the Belmont case, having first analysed critically the finding that the Court could make an order restoring the company to the register. He observed (at p. 291) that counsel for the Registrar of Companies had not urged upon him that he ought to refuse to follow the Belmont decision, partly because the case had been relied upon in many cases. He expressed the view that, if the Belmont case had not been decided, it might have been a close question whether or not to decide the matter as it was decided in that case. However, he came to the conclusion (at p. 292) that, the decision being there, on the whole the right course for a judge a first instance was to follow it.
15. Obviously, what is of concern to the Court is to preclude a situation in which s. 310 would be invoked in circumstances in which the applicant could avail of the remedies provided for in s. 311 of the Act of 1963 or in s. 12B(3) of the Act of 1982 so as to avoid the strictures which are imposed in making orders under those sections. I accept that that is not the objective of the applicant in this case. However, because of the urgency of the matter because the time-span provided for in s. 310 is about to expire, this aspect of the matter was not, in my view, adequately explored through legal submissions and, in particular, apart from the helpful contents of the letter of 22nd April, 2013 from the Registrar, the Court has not had the benefit of submissions on behalf of the Registrar, whom I regard to be the real legitimus contradictor on the application as regards this issue.
Order
16. Accordingly, subject to there being forthcoming a letter of no objection from the Minister, as outlined earlier, I propose making an order precisely in the terms of s. 310, namely, an order declaring the dissolution of the Company to have been void. An order in those terms is certainly within the jurisdiction of the Court and it takes the urgency out of the matter.”
17. If any dispute arises later as to the broader implications of the order, the matter can be re-entered for further submissions.
Middleview Ltd & Companies Acts
[2015] IEHC 860 (21 December 2015)
JUDGMENT of Mr Justice Cregan delivered on 21st day of December, 2015
Introduction
1. The issue which arises in this case is who should bear the costs of preparing and finalising company accounts to bring them up to date when an order has been made restoring a company to the register. It raises a question of interpretation, and application, of section 12B (3) of the Companies (Amendment) Act 1982 as inserted by section 46 of the Companies Amendment (No. 2) Act 1999.
2. In order to understand the context to this application it is necessary to set out the background facts leading to this application.
Background
3. The company, Middleview Ltd, was incorporated on 14th October, 1993. It was an investment property company. As part of its business the company purchased certain lands and properties, and entered into loan agreements with Anglo Irish Bank Corporation, under which the bank agreed to advance loans totalling approximately €300,000,000 to the company. As security for its obligations the company executed a debenture dated 19th December, 2007 granting fixed and floating charges over its properties.
4. On 1st November, 2010 pursuant to Part 6 of the NAMA Act 2009 (the “2009 Act”) NAMA acquired all of the rights of the bank in the loan agreements and the debenture.
5. By letter dated 27th March, 2014 the Petitioner in this case (a NAMA group entity within the meaning of the 2009 Act), informed the company that an event of default had taken place and demanded repayment of the monies then due. Despite that demand, the company failed to discharge its liability.
6. NALM then appointed Simon Coyle and Tom O’Brien of Mazars as joint receivers over the assets and property of the company on 28th March, 2014.
7. The company was struck off the Register of Companies on 28th March, 2014 for its failure to file annual returns in the Companies Registration Office.
8. NALM wanted the company to be restored to the Register of Companies so that its receivers could take steps to realise the company’s assets, in order to recover amounts due by the company under the agreement.
9. In the circumstances, on 6th February, 2015 NALM brought an application before the High Court seeking an order that the company should be restored to the Register of Companies. This order was in fact made on the 2nd day of March, 2015.
Application to restore
10. The application to restore the company came before the court on 2nd March, 2015. The application was grounded upon an affidavit of Margaret Magee of NALM who set out all the above matters.
11. On 13th March, 2015 Garrett Kelleher, one of the directors of Middleview, and a notice party in the application to restore the company to the register, swore an affidavit, stating that he had no objection to the company being restored to the Register of Companies. He also indicated that he had no objection to cooperating in any way or executing such documents as might be required to bring the returns up to date. However he stated:
“However it is entirely and solely the fault of the petitioner that the company was struck off the register and I believe that they should pay all of the costs associated with having a company restored to the register”.
4. As is set out below, for the years concerned the entire income and revenue of the company was appropriated by the petitioner who had instructed KPMG to prepare the returns. The petitioner ultimately did not pay KPMG and the returns did not get filed. This occurred when they had sole control of the income of the company and, following the appointment of Simon Coyle of Mazars as the receiver and manager on the 27th of March 2014, (sic) they had control of the books and records of the company.
5. I am resident in the U.S. and I do not have the records of the company since the petitioner assumed full control.
6. The company is part of a group of companies and there are a number of other companies which I suspect are now in the same position. I am concerned about the costs of this application and the costs of restoring companies to the register in circumstances where I have very limited funds.
7. Insofar as the petitioner had the benefit of all of the company’s income it was incumbent upon them to fund the filing of the returns which they did in respect of some of the other companies in the group.
8. The background to this matter is that on 8th November 2010 NAMA took over my loans under the heading of the “Shelbourne connection”. I cooperated with them from that date and indeed had met them in advance of that date in 2009. There was an interim support letter issued in 2011 and a further forbearance letter issued 5th February 2013. I cooperated fully for a number of years and as is the subject of the Commercial Court proceedings, NAMA simply dispensed with that cooperation and moved to enforcement once most of the assets for which they required me had been disposed of.
9. During the course of this period NAMA took the income from all of the companies including Middleview Ltd. Rental income went into dedicated bank accounts and NAMA made withdrawals. Insofar as there were any expenses which we required to be discharged, we sought to have same discharged by way of a ‘Form A’ request to NAMA. That included the accountancy fees and everything down to the wages of people working for the companies. In this regard I beg to refer to the Form As sent in in respect of the accountancy returns for the group of companies upon which I have marked with the letters ‘GK1F I have signed my name prior to the swearing hereof.
10. As is evident therefrom we had asked NALM to allow KPMG update the accounts of the group of companies. This had been agreed and the work was underway until March of 2014. My understanding is that a lot of the work had been done by KPMG and that NALM simply pulled the plug and declined to pay them to complete it. However once the receivers and managers took control of the company in March 2014 I did not know what happened subsequently or why returns were not filed.”
12. Mr. Kelleher also stated at para. 11 that he believed that prior to the dissolution of the company, NALM had been in contact with the CRO in order to ensure that the companies were not dissolved; he also stated that he believed the residential rental income which accrued to Middleview is approximately €40,000 per annum and that there were therefore ample funds for the company to discharge its obligations under the Companies Acts.
13. Mr. Peter Malbasha swore a replying affidavit on behalf of NALM. Mr. Malbasha disagreed with the assertion that it was entirely the fault of the Petitioner that the company was struck off the register; he stated that it was and remained the duty of the directors, including Mr. Kelleher, to comply with the statutory duties to file all outstanding returns; He also stated that it was incorrect to say that the petitioner NALM instructed KPMG to prepare the outstanding returns. He said the preparation of the outstanding returns was entirely a matter for the directors and this responsibility was never taken on by NALM and that NALM never had any direct dealings with KPMG in relation to this matter. However he accepted that an employee of Shelbourne Developments Group, (of which the company was a member), Mr. Wayne O’Dwyer, was responsible for any instruction to KPMG and Mr. O’Dwyer provided updates to NALM in relation to its dealings with KPMG and the progression of the preparation of the outstanding returns. Mr. Malbasha also stated that although the rental income which accrued to the company was paid to the Petitioner that was because of the security in the Petitioner’s favour and the existence of such a security could not create an obligation on the part of the Petitioner to fund an auditor’s costs.
14. However significantly Mr. Malbasha stated at para. 9 of his affidavit:
“Notwithstanding and without prejudice to the foregoing, I say that contrary to the averments in Mr. Kelleher’s affidavit, the Petitioner did in fact approve the company’s request to making of substantial monies available to fund both the company’s costs of preparing the accounts and KPMG’s fees for the sole purpose of preserving the Petitioner’s security position. This funding was made available on the basis of the director’s cooperation with the petitioner which cooperation has since ceased.”
15. Even more significantly Mr. Malbasha stated at para. 10:
“At para. 10 of Mr. Kelleher’s affidavit he states that ‘we had asked NALM to allow KPMG update the accounts of the group of companies.”
I have already referred to this in passing above. The true position is that the Petitioner had no objection to the accounts being brought up to date and in fact repeatedly requested that the group bring its accounts up to date and even approved the necessary funding for this to be done for the sole purpose of preserving the value of its security. The accounts of the company were ultimately never brought up to date and the company was struck off the register of companies for failure to file its annual returns for the period 2010 – 2013 arising from the failure by the directors to comply with their statutory obligations.”
16. Mr. Malbasha also exhibits a chain of emails between Mr. Wayne O’Dwyer and NALM in respect of Mr. O’Dwyer’s attempts to finalise the statutory accounts with KPMG. On 16th February 2014 Wayne O’Dwyer sent an email to Claire Harding of NAMA stating that the statutory accounts were with KPMG for signing, that he (Mr. O’Dwyer) had called them last week with a view to getting the various audit reports signed off and that they had reverted with some additional queries. It appears that although KPMG had prepared draft statutory accounts they were unwilling to sign off on the accounts pending the resolution of a VAT issue which still had not been resolved with the Revenue Commissioners.
17. I also note in this chain of emails an email from Peter Malbasha dated 9th October, 2013 to Wayne O’Dwyer stated as follows
“Wayne,
I’m not sure what we can do to assist. We note that we approved €20,000 additional fees for you last September 2012 with a condition that the accounts are submitted within four months. We stated at our last meeting that there was one item remaining to be sorted which related to Cratloe VAT and how it is to be disclosed in the accounts. Can you please advise that this is now sorted and if so when the accounts will be submitted.
Thanks, regards, Peter.”
18. There is one issue about Mr. Malbasha’s affidavit which is of concern to me. In the grounding affidavit of Ms. Margaret Magee sworn on behalf of NALM, she refers to para. 12 of the petition. Paragraph 12 of the petition states that
“the Petitioner is desirous of taking steps to recover the amounts due and to this end by deed of appointment dated [22nd March 2014] [sic] the petitioner appointed Mr. Simon Coyle and Mr. Tom O’Brien of Mazars, Block 3, Harcourt Centre, Harcourt Road, Dublin 2 as joint receivers” (“the receivers”) over the assets of inter alia the company.
13. The company was struck off the Register of Companies on 2nd April 2014 for its failure to file annual returns in the Companies Registration Office.”
19. In her affidavit Ms. Magee exhibits the deed of appointment of the receivers. This deed is dated 28th March, 2014. Moreover this deed of appointment is signed by Mr. Coyle and by Mr. O’Brien as receivers and dated 28th March, 2014.
20. However Mr. Malbasha in his affidavit stated:
“At para. 4 of Mr. Kelleher’s affidavit Mr. Kelleher avers that the company was in receivership at the time of strike off. Again this is simply incorrect. The Petitioner attempted to appoint receivers to the company in March 2014. However the company was stuck off the Register of Companies immediately before it could do so and the appointment could not proceed. In that regard Mr. Kelleher’s averments in relation to any purported action or inaction taken on the part of receivers are entirely mistaken. The Petitioner only appointed receivers to the company when it was recently restored pursuant to a deed of appointment dated 12th March 2015.”
21. Again at para. 10 of his affidavit he states:
“As explained at para. 7 above receivers were not appointed to the company before it was struck off.”
22. These averments are simply incorrect. It is clear on any view of the matter that NALM appointed receivers on 28th March, 2014. NALM itself exhibited the deed of appointment of the two receivers. The deed of appointment is signed by both receivers and dated. It is also witnessed. The deed is also stated to be given under the common seal of National Asset Loan Management Ltd and delivered as a deed in the presence of certain persons and those persons have signed their signatures as authorised signatories.
23. Thus it appears that Mr. Kelleher’s averments that the company was in receivership at the time of strike off are correct and that Mr. Malbasha’s averments are not only incorrect but positively misleading. The true position, insofar as I can ascertain from the documents, is that the receivers were appointed on 28th March, 2014.
24. Mr. Garrett Kelleher swore a replying affidavit on 24th April, 2015. He stated that in his view it would be entirely unjust and unequitable for the Petitioner to be able to visit the costs of bringing the company accounts up to date on him personally. It was, he said, obviously a company expense and the company had income, but that the Petitioner would not now allow that income to be used to bring the accounts up to date. Moreover he stated it was not disputed that NAMA had sole control of the income of the company at all times. Moreover he stated:
“Furthermore Mr. Malbasha does not dispute that it was intended that they would discharge the fees of KPMG in making up the accounts before the strike off.”
25. In relation to the appointment of the receivers, Mr. Kelleher exhibited an email dated 31st March, 2014 which had been sent to him by Tom O’Brien, one of the receivers, confirming that he had been appointed as receiver and requesting that Mr. Kelleher take no further action in relation to the assets of the companies. Given this email, it is surprising that Mr. Malbasha should have made the averments he did.
26. Moreover Mr. Kelleher stated at para. 4 of his affidavit:
“As is set out below, for the years concerned the entire income and remedy of the company was appropriated by the Petitioner who had instructed KPMG to prepare the returns. The Petitioner ultimately did not pay KPMG and the returns did not get filed. This occurred when they had sole control of the income of the company and following the appointment of Simon Coyle of Mazars as the receiver and manager on 27th March 2014 they have had control of the books and records of the company.”
27. Again, significantly, Mr. Malbasha in his replying affidavit sworn on 7th May 2015 states at para. 4:
“As I outlined in my affidavit sworn 9th April 2015 the Petitioner repeatedly requested that the company bring their accounts up to date and even agreed to provide funding to facilitate this. The funding was made available notwithstanding that no legal obligation arose on the part of the Petitioner to fund such costs and the sole motivation for doing so was to preserve its security position and to facilitate a sale of the underlying securities. I beg to refer to the Petitioner’s notification of decision form upon which marked PM1 I have signed my name prior to the swearing hereof which illustrates that substantial funds in the amount of €346,000 were made available to cover the group’s auditing and CRO filing costs. This document shows that NAMA made a decision to approve payment of KPMG’s fees amounting to €34,000. It also shows that NAMA made a decision to approve total fees required to their audit and CRO filing fees of €232,000 on or about 20th August 2012 and that this was to cover audit fees for 2010 and 2011. It also showed that NAMA made a decision to approve the payment of Wayne O’Dwyer to complete the 2010 and 2011 accounts for all NAMA group entities in relation to the borrower Shelbourne Properties Ltd. It also stated that Wayne O’Dwyer was to confirm once all the accounts have been signed off and if there were any issues with same. On 19th October 2012 NAMA made a decision to approve payment of KPMG tax compliance fees of €30,000 in connection with corporation tax deadlines of 21st December 2012. Likewise on 20th November 2013 NAMA made a decision to approve the payment of KPMG tax fees of €30,000 in connection with the forthcoming corporation tax deadline of 20th December 2013.
28. Therefore it is clear, even on NAMA’s own evidence, that NAMA or NALM made funding available to the company to pay the accountancy fees of KPMG to bring the company accounts up to date. It did this of course to preserve its security position and to facilitate the sale of the underlying security. It is however clear that there was an arrangement in place at the time – before the company was struck off – whereby NAMA/NALM agreed to pay Wayne O’Dwyer’s costs and to ensure that he did the underlying work to assist KPMG in bringing the company’s accounts up to date and also that they agreed to pay KPMG’s costs of bringing the accounts up to date.
29. Mr. Malbasha sought to clarify what happened in relation to the receivers by saying that the receivers were appointed on 28th March, 2014 but that the company was struck off the Register of Companies on 29th March, 2014 with a notice of this appearing in the CRO Gazette on 2nd April, 2014. He also said that the email dated 31st March, 2014 was sent by Mr. O’Brien before he became aware that the company had been struck off. That may be so. However it is clear from the emails which have been exhibited in the various affidavits that there was a real risk that the company might be struck off and that this was a live issue in people’s minds. Therefore it did not come as a bolt out of the blue.
30. Mr. Malbasha and indeed counsel for NALM in submissions strongly rejected any proposition that NAMA should be responsible for the costs of paying for the company’s accountancy bills to bring the outstanding returns up to date in circumstances where it had already incurred substantial losses arising from the company’s indebtedness.
31. That may well be so but that is not the issue I have to address. The issue I have to address is how “the court may by the order give such directions and make such provisions as seem just replacing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off”.
32. I have also had regard to the further affidavit of Peter Malbasha sworn on the 19th May, 2015. Mr. Malbasha stated at para. 4 of his affidavit that he does not accept that there was any agreement whereby NAMA/NALM would fund all costs arising in relation to the preparation audit and filing of the companies statutory accounts. He does accept however, at para. 4.3, that the Form A which was submitted by the group seeking consent for payment of KPMG in respect of audit and late filing fees for the accounts for the group to include the company for the years ended 31st March, 2010 and 2011 was approved by NAMA on 20th August, 2012 (subject to a number of conditions.)
33. In my view this again shows that NAMA/NALM had made an arrangement whereby they were prepared to agree to the payment of KPMG fees in respect of audit fees for the accounts for the group which included the Middleview company.
34. It is clear therefore that the position which existed before the company was struck off was that NAMA had approved the payment of KPMG fees in respect of the preparation of accounts for the company for the years ended 31st March, 2010 and 2011.
35. I also note that Mr. Malbasha in this affidavit at 4.7 stated:
“The relevance of these matters is that NAMA/the petitioner, acting in good faith approved specific requests for the release of charged funds to pay for the preparation of statutory accounts for 2010 and 2011. In granting such approval, NAMA/the petitioner relied on the company’s representations (in particular those of Mr. Wayne O’Dwyer) that the accounts were being prepared (indeed the sum of €20,000 was specifically authorised in order to pay Mr. O’Dwyer to prepare the accounts) and that they were with KPMG.”
36. I note that Mr. Malbasha seeks to contend that the petitioner was misled because Mr. Wayne O’Dwyer states that “the stat [sic] accounts are with KPMG for signing”. However in my view the evidence does not go that far and as there is no affidavit from Mr. Wayne O’Dwyer before the Court, it is not entirely clear what the exact position is. However in my view that is not entirely necessary for me to decide the net question in this matter.
37. Mr. Malbasha also states that the position at the date of dissolution is that the audit accounts for 2010, 2011, 2012 and 2013 are outstanding.
38. I have also considered the affidavit of Tom O’Brien dated 17th May, 2015. At para. 2 of this affidavit Mr. O’Brien states that Simon Coyle and he were appointed as joint receivers and managers of the assets of the company by deed of appointment dated 12th March 2015. Extraordinarily, he makes no reference to the fact that he was also appointed as receiver and manager to the assets of Middleview Ltd on the 28th of March, 2014. This is a troubling omission from his affidavit. He also makes no attempt to explain what happened after his appointment on 28th March, 2014 which is less than satisfactory.
The legal issues
The statutory section
39. Section 12B of the Companies (Amendment) Act 1982 (as inserted by s. 46 of the Companies Amendment (No. 2) Act 1999) provides as follows:
“12B. (1) The liability, if any, of every director, officer and member of a company the name of which has been struck off the register under section 12(3) or 12A(3) of this Act shall continue and may be enforced as if the company had not been dissolved.
(2) Nothing in subsection (1) of this section or section 12(3) or 12A(3) of this Act shall affect the power of the court to wind up a company the name of which has been struck off the register.
(3) If any member, officer or creditor of a company is aggrieved by the fact of the company’s having been struck off the register under section 12(3) or 12A(3) of this Act, the court, on an application made (on notice to the registrar of companies, the Revenue Commissioners and the Minister for Finance) by the member, officer or creditor, before the expiration of 20 years from the publication in Iris Oifigiúil of the notice referred to in section 12(3) or, as the case may be, 12A(3) of this Act, may, if satisfied that it is just that the company be restored to the register, order that the name of the company be restored to the register, and, subject to subsection (4) of this section, upon an office copy of the order being delivered to the registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off; and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off or make such other order as seems just (and such other order is referred to in subsection (4) of this section as an ‘alternative order’).
(4) An alternative order may, if the court considers it appropriate that it should do so, include a provision that, as respects a debt or liability incurred by, or on behalf of, the company during the period when it stood struck off the register, the officers of the company or such one or more of them as is or are specified in the order shall be liable for the whole or a part (as the court thinks just) of the debt or liability.
(5) The court shall, unless cause is shown to the contrary, include in an order under subsection (3) of this section, being an order made on the application of a member or officer of the company, a provision that the order shall not have effect unless, within 1 month from the date of the court’s order—
(a) if the order relates to a company that has been struck off the register under section 12(3) of this Act, all outstanding annual returns required by section 125 or 126 of the Principal Act are delivered to the registrar of companies,
(b) if the order relates to a company that has been struck off the register under section 12A(3) of this Act, all outstanding statements required by section 882 of the Taxes Consolidation Act, 1997 , are delivered to the Revenue Commissioners.
(6) The court shall, in making an order under subsection (3) of this section, being an order that is made on the application of a creditor of the company, direct that one or more specified members or officers of the company shall, within a specified period—
(a) if the order relates to a company that has been struck off the register under section 12(3) of this Act, deliver all outstanding annual returns required by section 125 or 126 of the Principal Act to the registrar of companies,
(b) if the order relates to a company that has been struck off the register under section 12A(3) of this Act, deliver all outstanding statements required by section 882 of the Taxes Consolidation Act, 1997 , to the Revenue Commissioners.”
40. The key provision of this statutory section which applies to the fact of this case is the second part of s. 12B:
“and the court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off or make such other order as seems just (and such other order is referred to in subsection (4) of this section as an ‘alternative order’).”
(Emphasis added).
Case Law
41. A number of cases have been opened by the parties in this matter. In Richmond Building Products Ltd v. Soundgables Ltd [2005] 3 I.R. 321 the plaintiffs sought judgment against the defendants of a sum in respect of goods sold to the first defendant, a limited company, in a period during which it was struck off the Register of Companies. The High Court (Finnegan P.) held in refusing the order sought by the plaintiff that the effect of the restoration of the company to the register was that the personal liability which might otherwise have been attached to the directors was extinguished.
42. In the course of his judgment Finnegan P. considered the meaning of s. 12B(3) of the Act and also considered the judgment of O’Neill J. in respect of this section in Re Amantiss Enterprises Ltd [2000] 2 ILRM 177.
43. As Finnegan P. stated at page 324 of his judgment:
“The effect of such an order pursuant to the Companies (Amendment) Act 1982 was considered in re Amantiss Enterprises Ltd. [2000] 2 ILRM 177. For the petitioner in that case it was argued that the effect of the statutory provision was to validate all acts done by the company between its dissolution and its restoration. For the notice parties, it was submitted that the effect of the section was merely to restore the status of incorporation to the company as to its identity but did not have the effect of validating retrospectively acts done between dissolution and restoration to the register. The court held in favour of the petitioner. In his judgment O’Neill J. relied upon Tyman’s Ltd. v. Craven [1952] 2 Q.B. 100, the majority decision in which was relied upon by the petitioner. He cited with approval a passage from the judgment of Lord Evershed M.R. at p. 111:-
‘In my judgment, the final words of the subsection can properly and usefully be regarded as intended to give to the court, where justice requires and the general words would or might not themselves suffice, the power to put both company and third parties in the same position as they would have occupied in such cases if the dissolution of the company had not intervened. More generally the final words of the section seem to me designed, not by way of exposition, to qualify the generality of that which precedes them but rather as a complement to the general words so as to enable the court (consistently with justice) to achieve to the fullest extent the “as-you-were” position which, according to the ordinary sense of those general words, is prima facie their consequence’.” (Emphasis added.)
44. In Re Lindsay Bowman Ltd [1969] 1 WLR 1443 Megarry J. considered a similar provision in the UK companies legislation. In that case a creditor claiming one debt incurred before the dissolution and another incurred afterwards supported the petition to restore the company to the register on condition that the court order should be expressed to be without prejudice to any remedy which a creditor who became such after dissolution might otherwise have against anyone prior to the date of the order. (the so called “Rugby Auto Electric clause”). Megarry J. however rejected this claim holding that the power of the court was available only to give effect to the statutory fiction that the company had not been struck off whereas the effect of granting the plaintiff his order would be to negative that statutory provision. As he stated at page 1446:
“In the present case the position seems to me to be very different. What is sought is a provision that will preserve to the creditor the rights that he acquired while the company was defunct. The statutory fiction that results from an order under the subsection is that the company continued in existence throughout; and this, with all that flows from it, is the necessary consequence of the order. One of the consequences is that any liabilities properly incurred by a director in the name of the company would be liabilities of the company and not of the director. What the concluding limb of the subsection empowers me to do is to give directions or make provisions for placing the company and others in the same position as nearly as may be as if the name of the company had not been struck off. What Mr. Hamilton seeks is a direction or provision putting him in the same position as if the company had been struck off, as in fact it was. In other words he seeks a direction or provision which will negative the statutory fiction whereas all that the subsection empowers me to do is to give a direction or make a provision which supports or carries out the statutory fiction as nearly as may be. I do not see what power I have to include such a direction or provision in the order.”
“In saying this, I am conscious of differing from a judge of great experience. Unfortunately In Re Rugby Auto Electric Services Ltd was not reported and there is nothing in the file of that case which has suggested to me the reasoning which Roxburgh J. may have had in mind when inserting the clause. In those circumstances all that I can do is to apply the language of the statute to the best of my ability. I cannot see any escape from the conclusion that the power of the court is limited to giving directions and making provisions for the sole purpose of effectuating the statutory fiction, namely that the name of the company has not been struck off. Such a power cannot in my judgment be used for the purpose of negativing the statutory fiction. The words governing the exercise of the power are “for placing the company and all other persons in the same position as nearly as may be as if” and it is for this purpose and this alone that the court may give such directions and make such provisions “as seem just”. If the section had ended with the words “as seem just” thus omitting the purpose of words “replacing …” and all that follow or if the final “not” had been omitted the position might have been very different. Again the subsection might have been qualified by authorising the order to be made “subject to such modifications as the court thinks fit”. But I must take the subsection as I find it and not as it might have been; and in my judgment it does not authorise the insertion of the Rugby Auto Electric clause in the order. It may be that there are grounds for widening the discretionary powers of the court under the subsection but that is for the legislature and not for me.
45. I have also considered Davy v. Pickering and Others a decision of the UK High Court Chancery Division dated 19th February 2015 of Judge Keyser Q.C. sitting as a judge of the High Court.
46. As he stated at para. 43 of his judgment:
“Consideration of what is required to place persons in the same position, as nearly as may be, as if the Company had not been dissolved or struck off the register is made more difficult, particularly in a case such as the present, by the unavoidable element of the counterfactual that is involved. It does seem to me, however, that Mr Oram is correct to say that there was a window of opportunity, if only a small one, in which Mr Davy might have established the merits of his claim to the satisfaction of the FOS[Financial Ombudsman Service] and been able to present the petition that he now seeks to present and bring the claim that would underpin such a petition. It is quite impossible to know whether he would have achieved those steps; that impossibility, however, arises out of the conduct of Mr and Mrs Pickering in bringing about the dissolution of the Company. If justice requires that the effects of the striking-off of the Company be undone by restoring to Mr Davy his lost opportunity, the risk that his position will be improved over what it might have been—perhaps because he is better able to take advantage of the opportunity—seems to me to be the price of seeking the best attainable equation of positions under section 1032(3).”
Assessment
47. The issue which therefore arises in this application is what directions or what provisions should be made which seem just in order to place the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off.
48. In my view the court can not avail of the second option (i.e. to make such other order as seem just) because such order is referred to in subsection 4 as an alternative order and under subsection 4 an “alternative order” only appears to deal with debts or liabilities incurred by or on behalf of the company during the period when it was struck off the register. However the debts and liabilities which arise in this case were not incurred by or on behalf of the company during the period when it was struck off the register but are instead liabilities which arose before the company was struck off.
49. Therefore the issue which the court has to consider is what provisions or directions are just in order to place the company and all other persons in the same position as nearly as may be as if the company had not been struck off.
50. It should be noted that the statutory subsection refers to “all other persons”. On the facts of this case that refers to both NAMA/NALM and indeed the directors and Mr. Kelleher.
51. I would also observe that the statutory section only provides that the court should make such provision as seem “just” to place all other persons in the same position “as nearly as may be”. In other words, it does not say in “exactly the same position as they were” before the company had been struck off.
52. It is clear from the affidavit evidence that the issue between the parties is who should bear the costs of carrying out the company audit for the years 2010, 2011, 2012 and 2013.
53. I am satisfied that the affidavit evidence establishes that NAMA/NALM had agreed to pay the accounting fees of KPMG to carry out the preparation of audited accounts for the company for the year ended March 2010 and the year ended March 2011. There is ample evidence to show that this is so and indeed this matter is explicitly accepted in the affidavits of Mr. Malbasha. I would therefore conclude that the costs of preparing the audited accounts for the year ended 2010 and the year ended 2011 should be borne by NAMA/NALM. Such an order places the company and all other persons in the same position as nearly as may be as if the company had not been struck off.
54. However the position is slightly different for the costs of preparing the audited accounts for the following two years. Counsel for NAMA/NALM argued that, whatever about the position for the first two years, there was absolutely no agreement and no evidence of any agreement that NAMA would pay the costs of the audited accounts. Whilst that is true, the issue which then arises is what would have been a more likely outcome if that question had arisen. One possibility is that NAMA would have said to the directors that it was no longer going to pay for the accountancy costs of preparing the accounts for the company; a second possibility is that NAMA would have agreed to continue funding the accountancy costs for preparing the accounts for the company. Having considered the affidavit evidence in this matter and having considered the underlying commercial logic as to why NAMA agreed to pay for the accountancy costs for the first two years of accounts (i.e. that NAMA wished to ensure that the company continued to be maintained on the Register of Companies in order to protect its security) – I am of the view that it is more likely than not that NAMA would have continued the arrangement of funding the KPMG fees to prepare the accounts for the final two years.
55. However given that this might not have turned out to be the situation, in my view it would not be entirely just and fair to impose the full financial obligation on NAMA for this and the directors and Mr. Kelleher certainly have some legal responsibility for ensuring the company has the means by which it should discharge its auditor’s fees to prepare the audited accounts of the company.
56. I am of the view therefore that a fair and just order in this case would be to direct that NAMA and Mr. Kelleher/the directors should bear the costs of preparing the last two sets of accounts equally. This does not mean that Mr. Kelleher should bear the costs of one year and NAMA should bear the costs of another year. Instead NAMA and Mr. Kelleher should each bear the costs of both years on a 50/50 basis.
57. The Petitioner sought to argue that the jurisdiction of the court under s. 12 (B) (3) is not engaged. The essence of its argument was that it was only if the dissolution of the company had altered Mr Kelleher’s position in a manner which is not remedied by the general restoration order made by the court that the jurisdiction is engaged. In my view that argument is not correct as a matter of principle. Moreover I can find no language in the statutory section to limit the operation of s. 12 (B) (3) in this way.
58. It is also argued by the Petitioner that the effect of the order sought by Mr Kelleher is to obtain an order for specific performance of a disputed agreement. However in my view, that is an overstatement. Firstly, the effect of the order which I am proposing to make is to put the parties back “as nearly as may be” into the position they were (as far as I can glean from the evidence) for the 2010 and 2011 accounts; secondly I am not proposing to make any order for specific performance of any agreement for the 2011 and 2012 accounts but rather to consider the counterfactual situation of what might have occurred had the company not been struck off.
59. The Petitioner also sought to argue that a refusal to make the order sought by Mr Kelleher does not preclude Mr Kelleher from pursuing the funding agreement with the Petitioner by separate proceedings in the ordinary way. However that is to ignore the manner in which this application came before the court. NAMA appointed receivers the day before the company was struck off the register; NAMA brought the application to restore the company to the register so that it could protect its security and recover part of its debt; the company was restored to the register by order of the Court but this issue of dispute was held over for further argument. It would, in my view, be entirely wasteful of costs and court time that separate proceedings should be issued to resolve this very net issue in circumstances where the legislation specifically grants a jurisdiction to the High Court to decide such matters as part of a restoration application.
Conclusion
60. I would therefore conclude:
1. That NAMA/NALM should bear the costs of preparing the audit of accounts for the year ended 2010 and 2011.
2. That NAMA/NALM and the directors/Mr. Kelleher should bear the costs of preparing the accounts for the year ended 2012 and 2013 on a 50/50 basis.
Richmond Building Products Ltd. v. Soundgables Ltd. t/a Munster Radon Protection & Ors
[2004] IEHC 382 (4 November 2004)
Judgment of Finnegan P. delivered on the 4th day of November 2004
By Summary Summons dated the 28th August 2001 the Plaintiff sought against the Defendants the sum of £39,566.83 together with interest in respect of goods sold and delivered. The goods were sold to the first named Defendant in the period 26th August 2000 to 31st December 2000. However the first named Defendant was struck off the Register of Companies on the 25th August 2000 and restored to the Register on the 20th April 2001. Accordingly at the dates relevant to this claim it was not in existence. The Plaintiff has obtained judgment against the first named Defendant and the third named Defendant the action being sent for plenary hearing as against the second named Defendant and the fourth named Defendant and it is the claim against those Defendants with which I am concerned.
Taking it that had the first named Defendant not been restored to the Register the Plaintiff could maintain a claim against the Directors what is the effect of the restoration of the first named Defendant to the Register on that claim? The Plaintiff contends that the claim survives while the Defendant relies on the provisions of the Companies (Amendment) Act 1982 section 12 as substituted by the Companies (Amendment) (No. 2) Act 1999 section 46 which provides in short that on restoration the company shall be deemed to have continued in existence as if the name had not been struck off.
The Companies (Amendment) Act 1982 section 12 as substituted by the Companies (Amendment) (No. 2) Act 1999 section 46 at 12B(3) provides in relation to a company struck off pursuant to section 12(3) to be restored by Order of the Court the effect of such Order being that the company shall be deemed to have continued in existence as if its name had not been struck off. Where a company is struck off under section 12A(3) an application can be made to the Registrar of Companies pursuant to section 12C(1) for the restoration of the company. While the matter proceeded before me upon the basis that the application to restore was made pursuant to section 12B(3) documentation introduced in evidence suggests that the application may in fact have been made under section 12C(1). This it seems to me makes no difference to the issue before me as if the application to restore was made under the latter provision the company is nonetheless deemed to have continued in existence as if its name had not been struck off. This is so notwithstanding the provisions of section 12B(1) which provides in relation to an application pursuant to section 12(3) as follows –
“The liability, if any, of every director, officer and member of a company the name of which has been struck off the Register under section 12(3) or 12A(3) of this Act shall continue and may be enforced as if the company had not been dissolved.”
This provision I am satisfied is intended to operate where the company is not restored and in any event affects a director, officer or member qua director, officer or member and does not relate to liability incurred by any such person by purporting to act in the name of the company while the company was dissolved.
Again it may be that the restoration was effected pursuant to the provisions of section 311A as inserted by the Companies Act 1990 and amended by the Companies (Amendment)(No. 2) Act 1999 section 49 by an application to the Registrar. Again the effect will be the same as a company so restored is deemed to have continued in existence as if its name had not been struck off.
The effect of such an Order pursuant to the Companies (Amendment) Act 1992 was considered in Re Amantiss Enterprises Limited (2000) 2 ILRM 177. For the Petitioner in that case it was argued that the effect of the statutory provision was to validate all acts done by the company between its dissolution and its restoration. For the Notice Parties it was submitted that the effect of the section was merely to restore the status of incorporation to the company as to its identity but did not have the effect of validating retrospectively acts done between dissolution and restoration to the Register. The Court held in favour of the Petitioner. In his judgment O’Neill J. relied upon Tymans Limited v Craven (1952) 2 Q.B. 100 the majority decision in which was relied upon by the Petitioner. He cited with approval a passage from the judgment of Evershed M.R. –
“In my judgment the final words of the subsection can properly and usefully be regarded as intended to give to the Court, where justice requires and the general words would or might not themselves suffice, the power to put both company and third parties in the same position as they would have occupied in such cases if the dissolution of the company had not intervened. More generally the final words of the section seem to me designed, not by way of exposition, to qualify the generality of that which precedes them but rather as a complement to the general word so as to enable the Court (consistently with justice) to achieve to the fullest extent the “as you were” position which according to the ordinary sense of those words is prima facie, and their consequence.”
The Plaintiff before me relied upon in Re Brown Bayley’s Steelworks Limited 21 T.L.R. 374. In that case Buckley J. was considering the provisions of the Companies Act 1880 section 7(5). Section 7 provided for the striking off of a company not carrying on business. Subsection (5) provided for the restoration of the company’s name on application to the Court and provided that if the Court was satisfied that it was just so to do it “may order the name of the company to be restored to the Register” and provided that – “thereupon the company shall be deemed to have continued in existence as if the name thereof had never been struck off; and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had never been struck off.” In the course of his judgment Buckley J. said –
“From the time when the company was struck off there was no corporation and its officers were personally liable for the engagements made as its agents. By simply making an order to restore the name to the Register his Lordship would not relieve them – the personal liability would still remain. The Court could make an order under section 7(5) giving such directions that the officers would be relieved from liability. His Lordship would not make that order, but would make an order which would not relieve them, by simply ordering the name of the company to be restored on the terms of its making the proper returns and paying the costs of the Board of Trade.”
Further Counsel for the Plaintiff argues that section 12C(3) in its terms refers to the rights or liabilities of the company and not to those of the directors. Section 12C(3) provides as follows –
“Subject to any order made by the Court in the matter, the restoration of the name of a company to the Register under this section shall not affect the rights or liabilities of the company in respect of any debt or obligation incurred, or any contract entered into by it, to, with or on behalf of, the company between the date of its dissolution and the date of such restoration.”
This provision does not avail the Plaintiff. It enables the company to sue and be sued on any contract entered into by it or on its behalf: it has nothing to say as to the position of those purporting to act on the company’s behalf.
In the United Kingdom an opposite view appears to have been taken to that of Buckley J. in Re Brown Bayley’s Steelworks (Limited) in a series of cases on successive Companies Acts commencing with Morris v Harris 1927 A.C. 252 and followed in Tymans Limited v Craven – the “as you were” position. This line of authority has been consistently followed in the United Kingdom – see Re Rugby Auto Electric Services Limited (14th December 1959) Unreported Roxburgh J, re Huntington Poultry Limited 1969 1 All E.R. 328, re Lindsay Bowman Limited 1969 3 All E.R. 601, re Priceland Limited (1997) 1 B.C.L.C. 467. The effect of these cases is that the Directors on the company being restored do not remain personally liable.
In Re Lindsay Bowman Limited 1969 3 All E.R. 601 an application was made for the restoration of the company which had been struck off the Register and also as the company was insolvent a winding up order. The petition was supported by a creditor with debts incurred prior to the dissolution and after the dissolution. The creditor sought a Rugby Auto Electrics clause in the Order if the company was to be restored. That clause reads as follows –
“Is to be without prejudice to any remedy which any creditor who became such on or after the date of dissolution might otherwise have against any person prior to the date of this order taking effect.”
In short the creditor sought to have preserved rights against the directors personally which on the restoration of the company would otherwise be lost. Megarry J. distinguished the Rugby Auto Electrics Clause cases from Re Donald Kenyon Limited 1956 3 All E.R. 596 where creditors who were not statute barred at the date of dissolution were statute barred at the date of restoration and a provision was included in the order that the period between dissolution and restoration was not to be counted for the purposes of any statute of limitations. The effect of that order was to put that creditor, so far as the Statute of Limitations was concerned, in the same position as nearly as may be as if the name of the company had not been struck off. He went on to say in relation to a Rugby Auto Electrics Clause –
“In the present case, the position seems to me to be very different. What is sought is a provision that will preserve to the creditor the rights that he acquired while the company was defunct. The statutory fiction that results from an order under the subsection is that the company continued in existence throughout; and this, with all that flows from it, is the necessary consequence of the order. One of the consequences is that any liabilities properly incurred by a director in the name of the company would be liabilities of the company and not of the director. What the concluding limb of the subsection empowers me to do is to give directions or make provisions for placing the company and others in the same position as nearly as may be as if the name of the company had not been struck off. What Counsel for the supporting creditor seeks is a direction or provision putting him in the same position as if the company had been struck off as in fact it was. In other words he seeks a direction or provision which will negative the statutory fiction, whereas all that the subsection empowers me to do is to give a direction or make a provision which supports and carries out the statutory fiction as nearly as may be. I do not see what power I have to include such a direction or provision in the order.”
In effect Megarry J. differed from Re Rugby Auto Electric Services Limited and held that there was no power to make the Directors personally liable for debts incurred during the period in which its name had been struck off. This is consistent with the well established principle in East End Dwellings Company Limited v Finsbury Council 1951 2 All E.R. 587 at 599 – “If one is bidden to treat an imaginary state of affairs as real, one must surely, unless prohibited from doing so, also imagine as real the consequences and incidents which, if the putative state of affairs had in fact existed, must inevitably have flowed from or accompanied it.”
On the basis of the foregoing I am satisfied that the Order restoring the Company had the effect of releasing Directors from the personal liability which they had incurred while the Company was struck off.
If the company has been restored on foot of an application to the Registrar pursuant to section 12C(1) it was argued on behalf of the Fourth named Defendant that the effect of such restoration is limited by the words of section 12C(3) which I have set out above – the restoration shall not affect the rights or liabilities of the company in respect of any debt or obligation incurred, or any contract entered into by, to, with or on behalf of, the company between the date of its dissolution and the date of such restoration. However this argument ignores the provisions of section 12C(2) which provides as follows –
“Upon the registration of an application under subsection (1) of this section and on payment of such fees as may be prescribed, the company should be deemed to have continued in existence as if its name had not been struck off.”
On the authorities I am satisfied that the effect of the restoration of the first named Defendant and whether effected under the Companies (Amendment) Act 1982 section 12(3), 12B or 12C is that the personal liability which might otherwise have attached to the directors is extinguished. Accordingly the Plaintiff fails in his claim against the Second named and Fourth named Defendants.
National Asset Loan Management Ltd -v- Middleview Ltd & Anor
[2017] IECA 290 (26 October 2017)
JUDGMENT of the President delivered on 26th October 2017
Introduction
1. This appeal is concerned with the jurisdiction of the High Court when making an order for the restoration of a company that has been struck off the Register of Companies. If the High Court is satisfied it is just, it may order that the company be restored to the register and may by the order give directions and make provisions to put the company in the same position as if it had not been struck off and to put all other persons in the same position as if the company had not been struck off. The judgment of Cregan J. that is the primary subject of appeal in this case opens with a succinct statement of the issue that the Court had to address as follows:
“The issue which arises in this case is who should bear the costs of preparing and finalising company accounts to bring them up to date when an order has been made restoring a company to the register. It raises a question of interpretation, and application, of section 12B (3) of the Companies (Amendment) Act 1982 as inserted by section 46 of the Companies Amendment (No. 2) Act 1999.”
2. Middleview Ltd. was an investment company with large borrowings from Anglo Irish Bank which were taken over under the National Asset Management Agency Act 2009 and then acquired by National Asset Loan Management (“NALM”). The company was struck off the Register of Companies on 28th March 2014 for failing to file returns. NALM applied to the High Court to have it restored, giving notice to parties specified by company law and also to Mr. Garrett Kelleher, a director of the company. On 2nd March 2015, Cregan J. made the order sought and left over for further consideration a claim by the notice party, Mr. Kelleher, for a direction that NALM pay the accountancy fees of preparing the company’s audited accounts. When that matter was heard, the Court found in favour of the notice party, ordering NALM to pay for the accounts for 2010 and 2011 in full and to cover 50% of the cost of years 2012 and 2013. In his judgment on the issue, Cregan J. made observations about the affidavit evidence furnished by a senior official of NALM, Mr. Peter Malbasha, and that body’s lawyers returned to court to request reconsideration by the judge, not of his decision but of the perceived personal criticisms. Cregan J. delivered a second judgment on 29th January 2016 addressing his previous comments, rejecting the complaints made by NALM and confirming what he had said in the previous judgment. In the result, the issues in this appeal are first the original orders as to the payment of accountancy costs and, secondly, the justifiability of the judge’s criticisms of Mr. Malbasha.
3. It is convenient to consider the arguments about the substantive issue of statutory interpretation and application separately from the judicial comments on the affidavit evidence proffered by NALM. The decision of the High Court under that primary head did not depend on the judge’s observations or conclusions on the affidavits.
Background
4. Following failure by the company to meet a demand for repayment of money due on 28th March 2014, NALM appointed receivers over Middleview. As it happened, earlier on the same day, Middleview had been struck off the Register of Companies for failing to file annual returns with the Companies Registration Office. NALM applied to the High Court on 6th February 2016 to have Middleview restored to the Register for the purpose of realising the company’s assets and recovering some of the loans. The CRO did not object to the application on condition that an order under be sought under the Companies Acts providing for delivery of the outstanding returns. Mr. Garrett Kelleher, one of Middleview’s directors, did not object to the application, but raised an issue concerning payment of the cost of preparing the returns and the Court put the matter back for later consideration. In an affidavit dated 13th March 2015, Mr. Kelleher complained that the company or the directors should not have to pay for preparation of the returns. He argued that sole responsibility lay with NALM for the company’s being struck off because they would not pay the auditors, KPMG, despite promising to do so and having the benefit of all the company’s income. He sought an order pursuant to section 12(B)(3) for payment of the cost by NALM.
5. In response, Mr. Peter Malbasha swore a replying affidavit dated 9th April 2015 on NALM’s behalf. He said that it was the responsibility of the directors to discharge their duties under the Companies Acts notwithstanding any receivership process. Nevertheless, NALM had attempted to release funds to discharge the audit fees but that was done in contemplation of cooperation from the directors which was not forthcoming. The approval of such funding was done for the purpose of preserving the value of its security. NALM argued that it was the lack of co-operation from the directors that caused Middleview to be struck off for having failed to file its annual returns, rather than any default on its part. Mr. Malbasha also claimed that the receivers had only been validly appointed in April 2015 following the restoration of Middleview to the register.
6. In a replying affidavit dated 24th April 2015, Mr. Kelleher insisted that bringing the accounts up to date was a company expense and as such, it was a cost to be discharged with the company’s income. NALM had sole control over Middleview’s income and that it was not disputed that it was their intention to discharge the necessary auditing frees prior to a strike off. Mr. Malbasha responded in a replying affidavit sworn on 7th May 2015, acknowledged that NALM made funding available to the company to pay the accountancy fees of KPMG despite, from its perspective, there being no legal obligation to do so. The agreement was to pay the auditors and a Mr. Wayne O’Dwyer whatever costs were necessary to bring the accounts up to date.
The Statutory Provision
7. On the substantive matter, the High Court held that section 12(B)(3) of the Companies (Amendment) Act 1982, as inserted by section 46 of the Companies (Amendment) (No.2) Act 1999 permitted the making of the orders and that it was just in the circumstances to do so. The subsection as inserted into the 1982 Act is as follows:
“(3) If any member, officer or creditor of a company is aggrieved by the fact of the company’s having been struck off the register under section 12(3) or 12A(3) of this Act, the Court, on an application made (on notice to the registrar of companies, the Revenue Commissioners and the Minister for Finance) by the member, officer or creditor, before the expiration of 20 years from the publication in Iris Oifigiúil of the notice referred to in section 12(3) or, as the case may be, 12A(3) of this Act, may, if satisfied that it is just that the company be restored to the register, order that the name of the company be restored to the register, and, subject to subsection (4) of this section, upon an office copy of the order being delivered to the registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off; and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off or make such other order as seems just (and such other order is referred to in subsection (4) of this section as an ‘alternative order’).”
8. The court said that the key provision for the decision is the second part above, which I have highlighted in italics. The subsection means that if the High Court is satisfied that it is just to do so, it may order that the name of the company be restored to the register, and may by the order give directions and make provisions to put the company in the same position as if it had not been struck off and to put all other persons in the same position as if the company had not been struck off.
High Court Decision and Reasoning
9. NALM argued that s. 12(B)(3) did not apply in the circumstances of the issue between the parties as to who should bear the costs of auditing the company’s accounts for the years 2010 to 2013. They submitted that it was only if the dissolution of the company had altered Mr. Kelleher’s position in a manner which was not remedied by the general restoration order made by the Court that the jurisdiction arose. The Court rejected that as a matter of principle and held that there was nothing in the words of the provision to support such a restriction.
10. Having decided that the subsection was available, the court considered what provisions or directions were just in order to place the company and all other persons including NALM, the directors and Mr. Kelleher in the same position as nearly as may be as if the company had not been struck off. NALM had agreed to pay KPMG to prepare audited accounts for years ended March 2010 and March 2011 and so they should bear the cost for those years. Such an order placed the company and all other persons in the same position as nearly as may be as if the company had not been struck off.
11. In respect of the years ended 2012 and 2013, the court held that “the position was slightly different”. While there was no agreement to pay for auditing those years, the court held that it was “more likely than not that NAMA would have continued the arrangement of funding the KPMG fees to prepare the accounts for the final two years”. The underlying commercial logic for agreeing to pay for the earlier two years applied equally to the later period. But that might not have happened and the directors had some legal responsibility to pay auditors’ fees and so it was fair and just to split these costs equally between NALM and Mr. Kelleher.
12. The court also dismissed the argument by NALM that the effect of the order sought by Mr. Kelleher would be to grant specific performance of a disputed agreement. The decision was putting the parties back into the position they were in by agreement prior to striking off in regard to 2010 and 2011. As for the latter two years, the court had ascertained “the counterfactual situation of what might have occurred had the company not been struck off”.
13. As to the submission that Mr. Kelleher was able to pursue his claim on the funding agreement by separate proceedings in the ordinary way, the court held that the manner in which the application came before the court suggested that it would be “wasteful of costs and court time that separate proceedings should be issued to resolve this very net issue in circumstances where the legislation specifically grants a jurisdiction to the High Court to decide such matters as part of a restoration application”.
The Order
14. On 5th February 2016, the court ordered that Mr. Kelleher, as director of Middleview, was to deliver all outstanding annual returns in line with his statutory duties within three months. NALM was to bear the costs of preparing Middleview’s accounts for years ended 2010 and 2011. Mr. Kelleher and NALM were to bear the costs of preparing the audited accounts for Middleview for the years ended 2012 and 2013 on a 50/50 basis. Mr. Kelleher was awarded 75% of his costs in the application. The Order was stayed pending the final determination of the appeal.
The Appeal
15. There are 14 grounds of appeal:
(i) The learned High Court judge erred in law as to the proper ambit and extent of the jurisdiction and discretion conferred on the Court by the “final words” provided by s.12(B)(3);
(ii) the learned High Court judge erred in law in concluding that the “final words” were not a “complementary”, limited jurisdiction confined to situations where a party’s position has been altered by the dissolution and has not been otherwise remedied by the general restoration order;
(iii) the learned High Court judge erred in considering that the “final words” offered a broad discretion on the Court to grant a substantive remedy to a party where it considers it fair and just to do so;
(iv) the learned High Court judge erred in granting relief that would have been available in separately issued court proceedings;
(v) the learned High Court judge erred in law and in fact by granting an order that did not return the parties to their previous positions, but rather improved the Respondents to the disadvantage of the Appellant;
(vi) the learned High Court judge erred in fact and in law in concluding that the evidence established an agreement to pay the accounting fees of KPMG for the years ended 2010 and 2011;
(vii) the learned High Court judge exceed his jurisdiction under s.12(B)(3) in determining disputed issues as to fact without any cross-examination;
(viii) the learned High Court judge erred in fact and in law in granting an order without having due regard to the disputed nature of the agreement, the failure of the Respondent to explain why no returns were made despite the Appellant having made funding available, and the tendency of the Order to devalue the strike of mechanism as a deterrent against the abdication of statutory duties;
(ix) the learned High Court judge erred in fact and law in engaging in “counterfactuals” as to what might have happened if Middleview had not been struck off the register in relation to the payment of accounting fees for years ended March 2012 and 2013;
(x) the learned High Court judge erred in fact in exercising its s.12(B(3) jurisdiction in circumstances where there was no agreement to pay the outstanding accounting fees for years ended March 2012 and 2013;
(xi) in the alternative, the learned High Court judge erred in using his discretion where their was disputed and unsatisfactory evidence along with a failure on the part of Mr. Kelleher to fulfil his statutory duties;
(xii) the learned High Court judge erred in law and fact in finding parts of Mr. Malbasha’s affidavit as being misleading;
(xiii) the learned High Court judge further erred in refusing to revise his judgment to reflect the fact that Mr. Malbasha’s affidavit was factually correct and not misleading as to Middleview being struck off before receivers were appointed and
(xiv) the learned High Court judge further erred in law in directing that the Respondent pay 75% of the Appellant’s costs.
Issues
16. Issues for determination on the appeal:
(i) Did s. 12 (B) (3) give the High Court jurisdiction in the circumstances of the case to order NALM to pay the costs of auditing the company?
(ii) If there was jurisdiction, was the trial judge entitled on the evidence in the affidavits and particularly having regard to the matters disputed in the affidavits of Mr Garrett Kelleher and Mr Peter Malbasha to make the order that he did regarding the audit costs for 2010 and 2011?
(iii) If so, was the judge entitled to make an order for NALM to pay 100% of the audit costs for 2010 and 2011 and 50% of the costs for 2012 and 2013?
17. For later consideration:
(iv) In the second judgment, which followed submissions by NALM that the trial judge was in error as a matter of fact in regard to the conclusions he reached on the affidavit of Mr. Peter Malbasha, did the trial judge err as a matter of law in a manner that is open to this court to correct?
(v) If the answer to this question is yes, is it nevertheless appropriate or prudent to embark on a review of this second judgment?
Jurisdiction under the Section12(B)(3) (Grounds (i) to (vi))
Summary of Appellant’s Submissions
18. NALM submits that the jurisdiction under s. 12(B)(3) is “largely, if not exclusively” procedural in nature. The general effect of a restoration order is to validate retrospectively acts done by the company between its dissolution and restoration to the Register. Citing the decision of O’Neill J. in Re Amantiss Enterprises Ltd [2000] 2 ILRM 177, they argue that the final words of the subsection provide the Court with a complementary jurisdiction to make an order to create the “as you were” position of the company prior to dissolution. They also referred to similar passages from the judgments of Lord Evershed M.R. and Lord Hodson in Tymans Limited v. Craven [1952] 2 QB 100.
19. As recognised by Finnegan P. in Richmond Building Products Ltd v. Soundgables Ltd [2005] 3 IR 321, the final words of s. 12(B)(3) cannot serve to undo the statutory fiction that the company was considered never to have been struck off. In that case, a claim against the directors was held to no longer be sustainable upon restoration. The purpose of the relevant part of s. 12(B)(3) is to address specific consequences of the dissolution that would not otherwise be addressed by the restoration order’s retrospective application.
20. NALM submits that Davy v. Pickering & Ors [2015] EWHC 380 shows that the court’s admittedly broad discretion to grant an order to bring about the “as you were” position cannot be wholly separated from the underlying statutory purpose. The fact that some loss or injustice has occurred does not, of itself, give the court jurisdiction to right it through s. 12(B)(3). It must not only be just, but justifiable having regard to the Act.
21. In this case, the relief granted by the High Court was substantive in nature and went beyond the limited jurisdiction under s. 12(B)(3). Mr. Kelleher was placed in a better position than he was at the time of dissolution. Consequently, It was for Mr Kelleher and his company to make a claim against NAMA/ NAML for payment of the accountancy fees in separate proceedings
Summary of the Respondent’s Submission
22. From 1st November 2010, NALM were in control of the Middleview’s assets and income. Middleview only had access to whatever income NALM allowed, supporting it so as to protect its security. Statutory returns are generally considered company expenses paid for out of company funds. It is argued that this would have been the position had Middleview not been struck off. As to NALM’s suggestion that the funding agreement was no longer effective as Mr. Kelleher had ceased co-operating. He submits that there was no evidence before the Court that cooperation had ceased. The question of his co-operation is the subject of separate Commercial Court proceedings. Mr. Kelleher submits that NALM has opted to focus on a number of technical arguments rather than the substantive commercial situation. The court’s role is to determine the “as you were” position of the parties when Middleview was dissolved. It is argued that at that time, NALM was supporting Middleview to protect its security. NALM purported to appoint receivers, and even if they failed to do so, the receivers acted in that capacity and Mr. Kelleher was never informed of such failure.
23. The wording of the subsection does not suggest that it is limited to circumstances in which the dissolution alters a party’s position in a way that is not remedied by the general restoration. Secondly, to suggest, as NALM does, that the jurisdiction is merely procedural is to imply additional wording into the subsection. The explicit wording of the subsection is inconsistent with NALM’s interpretation.
24. It is further submitted that NALM’s reliance on authority is misguided. Both parties accept the applicability of Re Amentiss Enterprises and Tyman as to the purpose and intent of the subsection. In that latter case, Lord Evershed M.R. noted:
“Where justice requires [the subsection]…to enable the Court (consistently with justice) to achieve to the fullest extent the ‘as-you-were’ position which, according to the ordinary sense of the ordinary sense of those general words, is prima facie their consequence.”
25. In Re Amentiss Enterprises, O’Neill J. cited with approval the judgment of Hodson J. in holding that the subsections exists “in order to clarify an obscure position or give back to the company an opportunity which it might otherwise have lost”. Mr. Kelleher submits that this is such an obscure position wherein a creditor will not allow a company to use its funds to discharge statutory obligations, having promised to do so prior to dissolution. He further rejects that the subsection’s broad jurisdiction is limited beyond what is necessary to maintain the statutory fiction.
26. Mr. Kelleher claims that this case is one of exceptional circumstances as referred to in the authorities wherein he, as director, allowed one of its creditors control over all of Middleview’s income on the basis that they would fund the statutory accounts. The subsection allows for orders or directions necessary to ensure justice between the parties. It is also argued that the cases of Re Lindsay Bowman [1969] WLR 1443 and Richmond Building Projects Ltd v. Sound Gables Ltd [2005] 3 IR 321 cited by NALM are of limited relevance. They merely highlight that any order made under the subsection cannot undermine the statutory fiction that the company was never struck off.
27. Mr. Kelleher rejects NALM’s argument that Davy v. Pickering and Ors is precedent for claiming that the jurisdiction of s. 12(B)(3) is merely procedural. In that case, the striking off had prevented the applicant from proceeding with a claim and issuing a winding up petition. As such, the court considered his position to have been issued three years prior to the restoration order date provided it was issued within 14 days of said order. Judge Keyser QC recognised that determining the “as you were” position can involve the “unavoidable element of the counterfactual”. More importantly, the court noted:
“If justice requires that the effects of the striking-off of the Company be undone by restoring to Mr. Davy his lost opportunity, the risk that his position will be improved over what it might have been – perhaps because he is better able to take advantage of the opportunity – seems to me to be the price of seeking the best attainable equation of positions under [the Act]”
28. Finally, it was submitted that the court does not require an assessment of the “counterfactual” in order to do justice in the case. Mr. Malbasha’s evidence showed that NALM agreed to pay the audit fees: “However, the strike off and separate proceedings between the parties led to them deciding not to uphold the agreement. They elected to pay legal fees, rather than audit fees”.
Discussion
29. Finnegan P. in Richmond Building Products Ltd v. Soundgables Ltd [2005] 3 I.R. 321 and O’Neill J. in Re Amantiss Enterprises Ltd. [2000] 2 ILRM 177 adopted the view of the corresponding English provision taken by Lord Evershed MR in his judgment for the majority in Tyman’s Ltd. v. Craven [1952] 2 Q.B. 100 in a passage at p. 111. The Court of Appeal in that case held that the words of the relevant part are a complement to the deemed continued uninterrupted existence that is expressed in the general words and that their purpose was “to enable the Court (consistently with justice) to achieve the “as-you-were” position to the fullest extent”. The restored company’s existence has in fact been interrupted, but restoration is deemed to remove the suspension; the subsection enables the court to fulfil the statutory purpose by making complementary provisions.
30. Cregan J. cited Re Lindsay Bowman Ltd [1969] 1 WLR 1443, in which Megarry J. explained the similar provision:
“The words governing the exercise of the power are “for placing the company and all other persons in the same position as nearly as may be as if” and it is for this purpose and this alone that the Court may give such directions and make such provisions “as seem just”. If the section had ended with the words “as seem just” thus omitting the purpose of words “replacing …” and all that follow or if the final “not” had been omitted the position might have been very different. Again the subsection might have been qualified by authorising the order to be made “subject to such modifications as the Court thinks fit”. But I must take the subsection as I find it and not as it might have been . . . It may be that there are grounds for widening the discretionary powers of the Court under the subsection but that is for the legislature and not for me.”
31. The trial judge also considered Davy v. Pickering and Others [2015] EWHC 380 Ch in which Judge Keyser Q.C. sitting as a judge of the High Court ordered restoration of a company and gave a series of directions under the statutory jurisdiction in complex proceedings where alleged wrongdoers had dissolved a company which the plaintiff applicant sought to have restored for liquidation and further pursuit of his funds. The judge held that:
“If justice requires that the effects of the striking-off of the Company be undone by restoring to Mr Davy his lost opportunity, the risk that his position will be improved over what it might have been—perhaps because he is better able to take advantage of the opportunity—seems to me to be the price of seeking the best attainable equation of positions under section 1032(3).” [At para. 43]
32. It is clearly established on these authorities that the provisions and directions that may be made with the restoration order are complementary to the order and not freestanding. There is not a general jurisdiction to make orders as seem just to the court but only as are required for effectuating the statutory purpose. The power to give directions and make provisions as seems just is conditional, contingent and dependent on the specific statutory purpose.
33. If the High Court is satisfied it is just to do so, it may order that the company be restored to the Register and may by the order give directions and make provisions as seem just to put the company in the same position as if it had not been struck off and to put all other persons in the same position as if the company had not been struck off. The relevant cases establish the point that arises as a matter of interpretation of the subsection, which is that the court is empowered to make an order in conjunction with the putting back of the company onto the Register. The order of the court is that the company be restored to the Register, and by that same order it is entitled under the subsection to make further provisions as seem just. There is not a freestanding power given to the court to make provisions according to what seems to be just; justice is exercised in this regard for the purpose of putting the company and other persons back into place as if the striking off had not happened. This point is made clear in the authorities and explicitly demonstrated by Megarry J.
34. The High Court found that as a matter of principle the subsection was applicable to the auditing costs dispute, but I do not think that can be correct. It seems to me that the section was intended to do something different, namely, to provide for circumstances or conditions that would not otherwise represent the same situation as if the company had not been removed. It could not provide a means for dealing with a matter outside the specified statutory objective.
35. Prior to being struck off, the company had an obligation to file audited annual returns, which subsisted whether or not it was the subject of receivership. NAMA was willing to pay the costs of auditing for the years ending March 2010 and 2011, subject to certain conditions that it required to be satisfied. The order made by the High Court that the company should be restored actually changed the situation by providing also that NAMA pay the costs as described. The appellant is accordingly correct in saying that the Court resolved a dispute and in effect ordered specific performance of the agreement. The situation of the company and other persons concerned was therefore different and did not reflect putting the company back in the situation as if it had not been struck off. The Court’s order produced this different situation and that was not authorised by the subsection.
36. If Mr. Kelleher and his company chose to do so they could make their claim against NALM/NAMA for payment of the accountancy costs in separate proceedings. Essentially, it is a question of agreement: did NALM/NAMA agree to pay the accountancy costs for 2010 and 2011 unconditionally or subject to conditions that were fulfilled? If so, the Court would no doubt find a liability to discharge the costs. If it is a matter of agreement, then I do not see how it comes in under subsection (3).
37. The first conclusion therefore is that the interpretation placed on the subsection by the High Court whereby it held that the dispute about auditing costs could be resolved by the order restoring the company was incorrect. The court actually appears to have made the error identified by Megarry J. in the brief citation above.
The Auditing Fees (Grounds (vii)to (xi))
Summary of Appellant’s Submissions
38. NALM submits that Cregan J’s mistake stems from an interpretation of the “as you were” position as allowing him to engage in a counterfactual scenario. The High Court misunderstood that Davy v. Pickering dealt with directions that were purely procedural in nature as the company’s dissolution prevented the applicant from bringing proceedings to have the company wound up. Cregan J. went beyond that jurisdiction in finding that NALM would have likely provided funding to cover the auditing fees for the 2012 and 2013 accounts. The disputed nature of any such purported agreement prevents any order enforcing it from being simply procedural. As such, it acted ultra vires its jurisdiction. It is also argued that the High Court should not have determined disputed issues surrounding the 2012 and 2013 accounts without cross-examining the deponents. Moreover, NALM considers that the judgment is unclear on the High Court’s basis for rejecting Mr. Malbasha’s outlining of the parties’ positions upon dissolution which they claim went unchallenged. They highlight that Mr. Kelleher’s application would not have succeeded if advanced on a summary judgment basis. NALM further submits that it is insufficient for the High Court to brush off the suggestion of separate proceedings as being “wasteful of costs and court time”. In the alternative, if the High Court acted intra vires in exercising its jurisdiction under s. 12(B)(3) then Mr. Kelleher’s failure to comply with his statutory duties as a director should have led to a different result.
Summary of the Respondent’s Submissions
39. Mr. Kelleher argues that s. 12(B)(6) does not require that a director pay for the preparation and delivery of the returns themselves, just that they deliver them to the CRO. It is not punitive in nature requiring the director to pay for the audit out of pocket. The High Court Order does not undermine the statutory framework as regards the duties of a director. Mr. Kelleher accepts that it is his duty to deliver the accounts; his argument is that NALM’s refusal to pay KPMG’s fees as promise prevents him from doing so. It is emphasised that the agreement to give NALM control over Middleview’s income was voluntary in nature, conditioned on their commitment to release funds to pay for the statutory accounts. Mr. Kelleher recognised that the extent of their debt made is “right and proper” to do so, but argues so too holding NALM to their side of the agreement. Without such agreement, Mr. Kelleher would have been forced to wind up the company and a liquidator could have been appointed.
40. Mr. Kelleher submits that evidence upon which NALM claims that the agreement was disputed is unsatisfactory. Mr. Malbasha’s affidavits do not suggest that the agreement was disputed in terms of its contents. The first suggestion of a dispute sufficient to require cross-examination came about in submissions made to this Court. It is noted that NALM never served notice to cross-examine Mr. Kelleher in the High Court. As such, if the court was of the opinion that cross-examination was necessary then Mr. Kelleher accepts that the matter should be remitted, but argues that the costs for the appeal should be paid by NALM for having failed to demand a cross-examination at an earlier stage.
Discussion
41. The question is whether the judge was correct in holding that that there was an agreement by NAMA/NALM to pay for the auditing costs for 2010/2011. It is clear, as Mr. Malbasha acknowledged that his principals were prepared to pay for the auditing of the company’s accounts for 2010 and 2011, in each case y/e March. But he maintained that it was not an unconditional agreement. Mr. Malbasha’s affidavits make clear that NAMA/NALM was prepared to pay for these audits on certain conditions which were basically that the company and an employee of that company and associated companies were actively pursuing the matter and cooperating with NAMA/NALM. That does not amount to an agreement that is freestanding and available to be invoked in all circumstances. Rightly or wrongly, there was a dispute in which NAMA/NALM said one thing, through Mr. Malbasha, and Mr. Kelleher and the company said something else. I do not think that the judge was entitled to resolve that dispute that arose on the affidavits simply by working things out for himself as to what was agreed. The height of the matter as far as NAMA/NALM was concerned is that they were indeed prepared to pay for the audit but on condition. The question, therefore, was whether the condition or conditions were met. The judge does not appear to have addressed the question whether there were conditions attached to the offer or willingness to pay for the audits.
42. As for the finding in respect of 2012 and 2013, I think this is even clearer. The judge engaged in what he called a counterfactual consideration. Having held that it would be in NAMA/NALM’s interest to pay for the auditing, he decided that NAMA/NALM might not after all have done so, and so he made liability for those two years be divided evenly between Mr. Kelleher and NAMA/NALM. There is not, as the judge acknowledged, an agreement of any kind by NAMA/NALM to pay for the accounts. The judge, however, decided that they should pay for the accounts, but there is no question of putting the company back in the position that it was in as if it had not been struck off the Register.
43. If there was dispute about the matter, then my view is that it was not open to the court to resolve a dispute as to yes or no to an agreement to pay the accountancy fees when the only material before the court was on affidavit. The fact is that for whatever reason NALM had not actually discharged the accountancy/auditing payments and the order of the court altered the pre-existing position. Any dispute about an agreement to pay for the costs of auditing the company that existed prior to the striking off was not a matter that could be disposed of by an order made at the same time as the company was being restored even if the subsection permitted such jurisdiction to be exercised.
44. The objections of the appellants in regard to the costs of auditing years 2012 and 2013 apply with greater force. There was no agreement. The court held that it was probable that the appellants would discharge the accountancy fees for those later years but that conclusion, whether sound or otherwise, did not give rise to a legal liability, still less to one that could be attached to the restoration order. Neither can I find justification for the 50/50 split of the charges.
The Second Judgment of the High Court
45. On 15th January 2016, NALM made an application to Cregan J. requesting that he review and revise his judgment in regard to comments he had made at para. 23 that Mr. Kelleher’s averments that the company was in receivership at the time of strike off were correct and that Mr. Malbasha’s averments were “not only incorrect but positively misleading”. They submitted that this was not an accurate understanding of the situation and that it had caused Mr. Malbasha “reputational damage”.
46. The judge heard submissions and delivered a further judgment on this issue on 29th January 2015. The judge reviewed the affidavit evidence that had led him to reach his conclusion, noting errors that appeared in NALM affidavits sworn by Mr. Malbasha and Ms. Magee and also in Mr. Kelleher’s deposition. A particular matter of concern to Cregan J. was the temporal relationship between the striking off and the appointment of receivers by NALM, both of which occurred on 28th March 2014, the former at the start of the day and the latter at 18:00 hours, and the affidavit evidence in relation thereto. He outlined the facts and circumstances that brought him to his conclusions, including at paragraph 24 of this judgment a tabular chronology of relevant events as follows.
“Thus, the situation before Mr. Malbasha swore his affidavit was:
(1) The company was struck off on 28th March, 2014 (at the start of the day);
(2) The Petitioner appointed receivers to the company on 28th March, 2014 at 6.00pm;
(3) As is clear from later averments, the receivers wrote to the directors of the company on 31st March, 2014 saying that they had been appointed as receivers, relieving the directors of their powers over the assets of the company and asking the directors to transmit to them all the books and records of the company;
(4) The CRO published its Gazette on 2nd April, 2014 and the company was dissolved as and from that date;
(5) As is clear from later averments, this fact only became known to the receivers when they sought to lodge their notification of appointment as receivers in the CRO and the CRO drew their attention to the fact that the company had been dissolved on the 2nd April, 2014 and struck off on 28th March, 2014.”
In the next paragraph, he concludes: “[a]ll of these facts were or ought to have been known to Mr. Malbasha when he swore his affidavit”.
47. After further consideration Cregan J. completed his judgment:
“Conclusion
41. Having considered again the Petition and all of the affidavit evidence in this matter, having considered the relevant paragraphs of my judgment and the submissions of counsel for the Petitioner, I remain of the view that paragraphs 8 and 10 of Mr. Malbasha’s first affidavit (particularly in the light of the errors in the Petition and Ms. Magee’s affidavit) all combined to leave the Court with a misleading impression of what had happened. Whilst I accept that Mr. Malbasha did not intend to mislead, nevertheless a misleading impression was given to the Court by his affidavit evidence in the light of the Petition and the affidavit evidence of Ms. Magee.
42. In the circumstances I do not believe it is necessary or appropriate for me to review this part of the judgment as requested by the Petitioner.”
48. Thus, in his second judgment, Cregan J. restated his criticisms of Mr. Malbasha’s depositions but in significantly moderated terms. The errors he complained about had, the judge said, left the court with a misleading impression and he accepted that Mr. Malbasha did not intend to mislead.
Discussion
49. There is a fundamental distinction between the approach of this Court to the substance of appeal and to the complaints by the appellants in respect of the second judgment. It is understandable that the appellants would wish to have the adverse comments that the judge made about Mr. Malbasha set aside. However, the hearing at which the trial judge permitted his original judgment to be revisited was not as I understand in any sense a re-hearing. It was an application at the request of a party to the judge that he would reconsider a particular section of his judgment. The present appellants did make clear that they were not seeking to secure a different outcome to the case, but merely to apply for a reconsideration of the comments about Mr. Malbasha. The judge was free to entertain the application or to refuse to do so, in his discretion. He was satisfied to revisit the matter and he then delivered a further judgment. I think that a wide margin of appreciation has to be allowed to the court of trial in such circumstances. The judge is entitled to express views about the evidence in the case before him. When matters come before the court on affidavit and it transpires that errors are made, many judges will think it appropriate to comment and criticise and even to make severe criticisms. In regard to comments that are not necessary for the appeal, I think that the Court of Appeal should be slow to embark on an evaluation of the validity of observations and comments made by the judge in the course of a judgment unless there is some apparent error of law or fact or that there is some otherwise exceptional circumstance where justice seems to require it. Even if the court might take a different view on written material including affidavits, there is a zone in which the trial judge is free to express his or her view and that will sometimes include expressions of irritation or exasperation about things the judge thinks are wrong or should have been done differently or better. Appeal courts would be full with cases in which the decision was not being challenged, but rather something that the judge said or did would be the matter of debate. So, it seems to me that this Court should be careful to ensure that we spend our time on matters that are in dispute between the parties at affecting liability of one or the other in respect of legal wrongs. My approach, therefore, to this part of the appeal is reluctant and hesitant. That is not because I do not appreciate Mr. Malbasha’s concern that his reputation might be impaired by things that the judge in the High Court said about him. It is simply that my conception of the function of this Court reflects a severe limitation on our capacity to endeavour to put right what he may consider to be erroneous in what the judge said.
50. For my part, I believe that these recast determinations by the trial judge represent a careful, measured response to the issues raised by the appellants in respect of Mr. Malbasha. Although I said at the outset of this section that I did not consider it the function of this Court to exercise an appellate function on this matter, I think that the conclusions in the later judgment are grounded in the affidavits in the case.
51. It may also be worthwhile to mention that the High Court’s new conclusions reflect the care that is necessary when a court endeavours to resolve disputed issues on affidavit evidence and to reach conclusions as to the motivations of deponents in complex factual conflicts.
Conclusion
52. I would accordingly allow the appeal in respect of the substance of judgment on the order under s. 12B (3) of the Companies (Amendment) Act 1982 as inserted by s. 46 of the Companies Amendment (No. 2) Act 1999 for the payment of the accountancy fees. I would not interfere with the conclusions or order made in respect of the judge’s comments on the affidavit evidence.
Skytours Travel Ltd -v Companies Acts
[2011] IEHC 517 (29 July 2011)
URL: http://www.bailii.org/ie/cases/IEHC/2011/H517.html
Judgment of Miss Justice Laffoy delivered on 29th day of July, 2011.
1. Previous judgment
1.1 In a judgment delivered on 9th July, 2010 on an interlocutory application in these proceedings, in which the petitioner claims relief under s. 205 of the Companies Act 1963 (the Act of 1963), I set out the reasons for dismissing a motion which had been brought by the respondent seeking the following orders:
(a) an order that these proceedings be heard in camera; and
(b) an order “pursuant to the inherent jurisdiction” of the Court precluding evidence being adduced in relation to a communication in respect of which the respondent contended that he was entitled to legal professional privilege.
The judgment and the order of the Court, which was perfected on 28th July, 2010, were the subject of an appeal to the Supreme Court. By order of the Supreme Court made on 8th October, 2010, which recited that the relief which the respondent was seeking was –
(i) an order that the matter be heard in camera, and
(ii) an order staying further prosecution of the High Court proceedings pending the determination of the appeal by the respondent,
the application for a stay was refused.
1.2 The substantive proceedings were heard in open Court. While issues were raised in relation to privilege during the course of the hearing and certain evidence was taken de bene esse, for the avoidance of doubt, I record that I consider that none of the evidence on which this judgment is based was evidence in respect of which legal professional privilege could be properly invoked.
2. The substantive proceedings and the factual background thereto
2.1 In the substantive proceedings, which were initiated by a petition which was presented on 18th March, 2010, the reliefs claimed by the petitioner are:
(a) a declaration that, by reason of certain actions of the respondent adverted to in the petition, the affairs of Skytours Travel Ltd. (the company) are being conducted in a manner oppressive to the petitioner and/or that the affairs of the company are being conducted in disregard of his interests as a member of the company; and
(b) an order that the respondent and/or the company be compelled to purchase the petitioner’s shares in the company at a value to be determined by the Court.
Unfortunately, a confused picture of how the interest of the petitioner in the company was acquired was presented in the pleadings.
2.2 The company was incorporated on 30th October, 1987. From 1988 it was the corporate vehicle through which the respondent carried on his travel agency business, which over time developed into a very successful business. The current issued share capital of the company comprises 30,000 shares, as I understand it, at €1.20 per share (although I would have expected the nominal value to be at the Euro equivalent of IR£1 per share), of which 28,420 are owned by the respondent and the balance of 1,580 shares are owned by the petitioner. In other words, the petitioner owns 5.266%, rounded to 5.3%, of the issued share capital of the company. Neither the pleadings in the case nor the evidence of the petitioner or the respondent properly reflected how the petitioner and the respondent built up their respective shareholdings until, on the third day of the hearing, an agreed position was put before the Court, albeit in what I found to be a rather confusing manner.
2.3 In the points of defence delivered on behalf of the respondent it was pleaded that at the time the petitioner acquired his shareholding he was, and still is, the principal of the solicitors’ firm known as Actons. It was pleaded that he had acted in family law proceedings on behalf of the respondent and that as part of the settlement of those proceedings in 1990 the respondent’s wife relinquished her shareholding and directorship in the company. Therefore, it was necessary to have a replacement director. The petitioner proposed himself as a replacement director and it was agreed between the petitioner and the respondent that the petitioner would acquire the respondent’s wife’s shareholding of 1,000 shares in the company at their nominal value. It was not disclosed how the petitioner acquired the remaining 580 shares. As was clear from his evidence, the petitioner’s recollection was that in 1990 he purchased 1,580 shares which had been owned by the respondent’s wife at the price of IR£l,580.
2.4 The true position, however, is difficult to extrapolate from the transcript of the evidence. Working back from the current position, I assume that in October 1990 the respondent was already the owner of 14,000 shares in the company. On 31st October, 1990, 4,400 shares were issued for cash, of which the respondent acquired 3,400 shares and the petitioner acquired 1,000 shares. The annual returns for 1990, accordingly, show the respondent as the owner of 17,400 shares and the petitioner as the owner of 1,000 shares. On 23rd March, 1995, a further 11,600 shares were issued on capitalisation of reserves, of which 11,020 were allotted to the respondent and 580 allotted to the petitioner. Therefore, as appears, apparently, in the annual returns for 1996, the respondent was then the owner of 28,420 shares and the petitioner was the owner of 1,580 shares, which remains the position. When the agreed true position was put before the Court, it remained the position of the petitioner that he had paid IR£1,000 for 1,000 shares. I accept his evidence on that point.
2.5 There was no shareholder agreement put in place to regulate the rights and obligations of the petitioner and the respondent inter se. Both on the pleadings and on the evidence there was a conflict as to the incidents attaching to the petitioner’s position as director and shareholder.
2.6 It was pleaded in the points of defence that the understanding between the respondent and the petitioner was that, when the petitioner’s directorship and shareholding would no longer be of mutual assistance to the company and the petitioner, in terms of the petitioner and Actons providing legal advice to the company, the petitioner would return the shares to the respondent at the price the petitioner paid for them. A letter dated 5th March, 1990 from the petitioner to the respondent was relied on as corroboration of the alleged agreement. In the letter in question, the petitioner stated:
“In relation to the shares held by me, I confirm that in addition to the safe-guards given by the Company’s articles of association, the shares in the event of my death are to be offered to you or to your nominee at the price which I paid for them plus the Consumer Price Indexation from the date of purchase.”
Further, it was represented that the petitioner furnished to the respondent a draft codicil to his will to be executed in 1990 to that effect. The petitioner’s evidence was that the codicil was, in fact, executed. However, as the petitioner has remarried, the codicil has been revoked by operation of law (s. 85 of the Succession Act 1965). The evidence of the petitioner was that the codicil was designed specifically to give the respondent comfort that, if anything happened to the petitioner, the respondent, who had just come through a marriage breakdown, would not have to deal with the petitioner’s widow, who did not know the respondent and did not have any connection with, or understanding of, the travel industry and was not a lawyer. The petitioner’s evidence was that there was no agreement or understanding between the respondent and himself that the respondent would be entitled during the lifetime of the petitioner to get the petitioner’s shares back at par value.
2.7 I am satisfied, on the evidence, that the understanding of the parties was that in the event of a situation arising during the lifetime of the petitioner which would give rise to the petitioner’s shareholding being realised, for example, if the company was sold to a third party, the petitioner would be entitled to be paid the value of his shares on the transfer thereof. In an e-mail dated 13th December, 2007 from Cathal Saunders, the principal of the firm of McInerney Saunders, the company’s auditors, to the respondent, which was forwarded by the respondent to the petitioner, Mr. Saunders stated that his understanding was that, if the company was sold at a future date, both parties “would share in the sale”. Indeed, as late as 28th January, 2010, the respondent, in the context of a suggestion by the petitioner that the respondent should get independent advice in relation to a joint venture in which the respondent was considering the company should engage, pointed out that what was in the proposal for the petitioner was “that the business may gain some value over the next few years and in a sell out they (sic) may be some gravy”, from which I infer that what was being suggested was that the petitioner would share in the “gravy”. I cannot find in the mountain of communications which passed between the parties from 2003 onwards any suggestion by the respondent that the petitioner’s shareholding was not worth its real value to the petitioner.
2.8 The position of the respondent as pleaded, and in his evidence, was that the petitioner agreed to become a director on the basis that no dividend would be paid to him and that the benefit he would derive was exclusively travel related discounts and workflow for Actons and that he would not receive directors’ fees. The evidence of the petitioner was that his understanding was that there were not going to be any dividends in the early stages of his involvement in the company. However, as the business grew he took the line with the respondent that he should get a reward for his involvement with the company. In the late 1990s he started to raise that issue with the respondent. There is plenty of documentary evidence available corroborating the attempts by the petitioner to procure a reward in the form of dividends or directors’ fees, and the resistance of the respondent to that approach.
2.9 In broad terms, the position of the respondent, both as pleaded and in his evidence, was that the petitioner was in fact remunerated by being given “travel perks”, that is to say, free and discounted travel, and by his firm, Actons, being given opportunities to earn fee income through advising the company. The respondent’s position was that the petitioner never made any contribution to the direction or management of the company and, for instance, that he did not attend board meetings. The petitioner on the other hand testified that, while the respondent did not call board meetings, he did meet the respondent on a regular basis in a coffee shop for “lattes” and at those meetings issues in relation to the running of the company were discussed. The respondent also had access to him on his “mobile” and his “landline”. I do not intend those observations, which, replicate the evidence, to sound trite, because I am satisfied on the evidence that the petitioner did contribute as much as any non-executive director in his position would be expected to contribute and, in reality, the only reward he got was discounted travel. Most significantly, as a director, he performed the functions which a director is required by law to perform, for example, in signing off the annual returns and suchlike, until the beginning of 2010.
2.10 In summary, therefore, I find that the allegations which the petitioner has made of oppression and disregard of his interests fall to be considered on the basis that the petitioner is the owner of a 5.3% stake in the shares of the company and his ownership thereof is not subject to any special agreement between the petitioner and the respondent governing the incidents of ownership during the lifetime of the petitioner, or affecting the consequences of any finding of oppression of the petitioner, or disregard of his interests. It is on that basis that I will now consider the allegations of oppression and disregard of his interests made by the petitioner against the respondent.
3. Oppression
3.1 The principal allegations of oppression against, and disregard of the interests of, the petitioner pleaded are that –
(a) between March 1997 and May 2006, unbeknownst to the petitioner, the respondent fraudulently operated a secret bank account into which rebates from travel companies and cheques drawn on the company’s accounts were lodged, the total amount of which, as disclosed by the respondent to the Revenue Commissioners, was €1,220,090, and
(b) in June 2009, again unbeknownst to the petitioner, the company entered into a settlement with the Revenue Commissioners in the sum of €1,164,297 in relation to the undisclosed income.
As a result of the actions of the respondent set out at (a) and (b) the total loss to the company is €2,384,387. The text of the voluntary statement of disclosure to the Revenue Commissioners made by the respondent in October 2008 is quoted in the judgment of 9th July, 2010.
3.2 It was also pleaded by the petitioner that the respondent consistently failed to provide the petitioner with information to which he was entitled as a director and shareholder, or, alternatively, the respondent gave him false information. Further, it was pleaded that the petitioner was never apprised of the true financial position of the company and that his opportunity to sell his shareholding at a significant profit, of which he would have availed, was thereby lost as a direct result of the oppressive conduct of the respondent.
3.3 The petitioner also relied on the fact that, after he became aware of the expropriation by the respondent of the rebates and money which were the property of the company and of the settlement with the Revenue Commissioners on the basis of the company’s liability for the tax, interest and penalties due to the Revenue Commissioners on the undisclosed rebates and money, he was requested to “sign off” on the accounts of the company for the year ended 31st October, 2009, which accounts referred to the expropriation and subsequent Revenue settlement, without sight of independent legal advice and tax advice, which he was informed had been obtained by the company. He considered that, without sight of the independent legal advice, he was constrained to refuse to sign the accounts, which were signed by the respondent and the third director of the company, despite the petitioner’s objection. Thereafter, the petitioner remained a director of the company but, at the time the petition was presented, he had not been shown the independent legal advice or tax advice. That treatment, it was contended, is another incidence of oppression and disregard of his interests.
3.4 Since the petition was presented the following events have occurred:
(a) By letter dated 9th November, 2010 the respondent, as a director of the company, has made the following statement to the Director of Corporate Enforcement (DCE):
“During the period from March 1997 to May 2006 I operated two deposit accounts with First Active Building Society, one in the name of [the company] and the other held personally. The details of the transactions for the account in the name of [the company] were not previously included in the financial statements of the company. The source of lodgements to these accounts was rebates from travel companies and some cheques drawn on the current account of [the company]. The lodgements to these deposit accounts ceased in December 2003, and some subsequent rebate cheques received were cashed by me for personal use. I had personal use of the funds which were lodged in each of these accounts until I closed the accounts in May 2006. The undisclosed income in question totalled €1,220,090.
In June 2009 [the company] finalised a settlement with Revenue in the amount of €1,164,297. This followed on from an unprompted voluntary statement of disclosure which I made to the Revenue Commissioners.”
(b) On 9th December, 2010 the company’s auditors, McInerney Saunders, submitted a report entitled “Indictable Report” in respect of the company to DCE, reporting that they had “formed the opinion that there are reasonable grounds for believing that … indictable offences under the Companies Acts may have been committed” arising from the voluntary statement of disclosure made by the respondent to the Revenue Commissioners, which was quoted. The provisions of the Companies Acts particularised as giving rise to the indictable offences were s. 202(10) of the Companies Act 1990 (the Act of 1990) (failure to keep proper books of account), s. 242(1) of the Act of 1990 (furnishing false information), and s. 297(1), (2) of the Act of 1963 (fraudulent trading).
(c) At the end of 2010 McInerney Saunders submitted to the Companies Registration Office (CRO) a form H.4 (Notification of notice that proper books of account not kept: s. 194 of the Act of 1990), to which was annexed the “Auditors’ Special Report”, to the directors of the company pursuant to s. 194 of the Act of 1990 which stated:
“With respect to the period March 1997 to May 2006, in our opinion the company failed to maintain proper books of account in accordance with s. 202 of the Companies Act, 1990.
The failure to maintain proper books of account related specifically to the exclusion of two bank accounts, and related receipts and payments, from the accounting records of the company.
We understand that this matter has since been rectified.”
(d) On 16th February, 2011 McInerney Saunders made a report to An Garda Síochána pursuant to s. 59 of the Criminal Justice (Theft and Fraud Offences) Act 2001 reporting a possible offence arising from the expropriation of money by the respondent from the company between 1997 and 2006. The report referred to the company settlement with the Revenue Commissioners and it also stated that the matter had “been rectified and recompense made to the Revenue for the tax liability arising”.
3.5 On the basis of the evidence, I have a number of observations to make in relation to those matters. First, as regards the reference to “an unprompted voluntary statement of disclosure” in the letter of 9th November, 2010, in which the respondent exercised the option which a director of a company has to furnish a separate statement with the company’s auditors’ report to the DCE regarding reporting possible indictable offences, it is clear on the evidence that the statement of disclosure made by the respondent to the Revenue Commissioners on 20th October, 2008 was made subsequent to the notification of Revenue audits of both the company and the respondent given by the Revenue Commissioners in July 2008. While, on the evidence, I am satisfied that the petitioner became aware in the summer of 2008 that Revenue audits of the affairs of both the company and the respondent were taking place, he did not become aware of the existence or content of the voluntary statement by the respondent to the Revenue Commissioners, or the settlement with the Revenue Commissioners, until the e-mail of 8th February, 2010 from McInerney Saunders, to which there was attached the “Memo” of 4th February, 2010, the contents of which are outlined in the judgment of 9th July, 2010, was forwarded to him by the respondent. Secondly, while the taxation implications of the defalcation by the respondent of rebates and monies due to the company may have been rectified, the wrong to the company and its members has not been rectified nor has the additional wrong whereby liability for the tax due, coupled with the interest and penalties imposed, has been borne by the company pursuant to the settlement with the Revenue. In my view, as a matter of probability, those wrongs will never be rectified. Thirdly, the actions of the respondent necessitated the auditors’ special report pursuant to s. 194 of the Act of 1990, which is registered in the CRO, and, as such, is a public document. The consequence is that the world at large has been told that, while the petitioner was a director of the company, the company failed to maintain proper books of account. The evidence of the petitioner was that it caused him a great deal of personal embarrassment that it had been made public and had been the subject of comment in a magazine that he had been involved with a company which had not been keeping proper books and records. Further, as the report related the failure specifically to the exclusion of the two bank accounts from the accounting records of the company, the report conveyed the impression that he, as a director, was aware that this had been done, which I am satisfied was not the case.
3.6 Sub-section (1) of s. 205 provides:
“Any member of a company who complains 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, may apply to the court for an order under this section.”
Sub-section (3) deals with the type of order the Court may make and provides as follows:
“If, on any application under subsection (1) ….. the court is of opinion that the company’s affairs are being conducted or the directors’ powers are being exercised as aforesaid, the court may, with a view to bringing to an end the matters complained of, make such order as it thinks fit, whether directing or prohibiting any act or cancelling or varying any transaction or for regulating the conduct of the company’s affairs in future, or for the purchase of the shares of any members of the company by other members of the company or by the company and in the case of a purchase by the company, for the reduction accordingly of the company’s capital, or otherwise.”
3.7 In my view, it is absolutely clear in this case that, when the petition was presented, the affairs of the company were being conducted and the powers of the directors were being exercised in a manner oppressive to the petitioner and I so find. If authority is needed to support that finding, it is to be found in a decision of the High Court (Keane J. as he then was) relied on by both counsel for the petitioner and counsel for the respondent: Re Greenore Trading Co. Ltd. [1980] ILRM 94. An issue in that case concerned the sale by one of the shareholders, who was also the manager of the company, of his shares to the respondent. The seller received either consideration of £22,500 for the shares or, alternatively, received consideration of £8,000 for the shares at par value together with a severance payment from the company of £14,500. In any event, £14,500 of the total amount which he received, £22,500, came out of the company. In relation to that transaction, Keane J. stated (at p. 100) that it was immaterial whether the real price for the shares was £22,500 or whether the sum of £14,500 represented compensation to the seller for quitting the company, as the respondent had claimed. If it was compensation, the transaction was clearly unlawful because the proposed payment had not been disclosed to the other member of the company, the petitioner, nor had it been approved by the company in general meeting, and the illegality was compounded by the fact that the sum paid in respect of compensation was not specified in the company’s accounts. On the other hand, if the sum of £14,500 represented consideration for the shares, the transaction was unlawful, since it was in violation of s. 60 of the Act of 1963, which prohibits a company from giving financial assistance for the purchase of its shares. Keane J., having characterised the transaction as “grossly irregular” went on to say:
“I am satisfied that this latter transaction constituted conduct of such a nature as to justify, and indeed require, the making of an order under s. 205(3) of the Act. Prior to that transaction, [the respondent], as a result of the issue of 10,000 shares to him in 1975 was the holder of over 50% of the issued share capital. Had the transfer of shares by [the seller] to him gone unchallenged, he would have become the owner of more than 75% of the company share capital. ‘Oppressive’ conduct for the purposes of the corresponding s. 210 of the English Companies Act, 1948 has been defined as meaning the exercise of the company’s authority ‘in a manner burdensome, harsh and wrongful’. (See Scottish CWS Ltd. v. Meyer [1959] AC 324 at p. 342). The patent misapplication of the company’s monies for the purpose of giving [the respondent] a dominant position in its affairs seems to me to be properly described as ‘burdensome, harsh and wrongful’ quoad the petitioner. … Nor can the actual misapplication of the funds be properly treated as an isolated act of oppression (which would not normally be sufficient to justify relief under the section: see Re Westbourne Galleries [1970] 1 WLR 1378. As I have already noted, not merely were the company’s monies purportedly applied towards an unlawful purpose, i.e. the payment of compensation to a director for loss of office without sanction of a general meeting: the payment of that compensation was not separately dealt with in the company’s accounts for the relevant year, as required by law.”
3.8 Courtney in the Law of Private Companies (2nd Ed., 2002) considers the concept of oppression under various headings including fraudulent and unlawful transactions. In that context he refers to the decision of the High Court (Kenny J.) in Re Westwinds Holding Company Ltd. (21st May, 1974, unreported), in which it was found that the sale of lands owned by the company at a gross undervalue was “a fraud on the other member of the company” and that the sale benefited the respondent only at the expense of the company and the petitioner. On that ground alone, Kenny J. held that the conditions for the exercise of the powers of the Court under s. 205(3) had been fulfilled.
3.9 In this case, the position which has been adopted by the respondent in denying that his actions constituted oppression of the petitioner is utterly untenable. It is difficult to imagine conduct by one director, who is the majority shareholder, of a company, which is more burdensome, harsh and wrongful to another director who is a minority shareholder of the company, than the admitted conduct of the respondent in this case. For over almost a decade he expropriated for his own use monies due to the company. In consequence of that, the company failed to comply with its statutory obligation to maintain proper books of accounts. The petitioner was put in the position of unwittingly signing accounts which did not represent the true financial position of the company. The respondent made a disclosure to the Revenue Commissioners of which the petitioner was wholly unaware, and he made a settlement with the Revenue Commissioners which resulted in liability for tax, interest and penalties on the undisclosed income being borne by the company without any notification to, or the approbation of, the petitioner. As I have stated, the oppression was ongoing when the petition was presented and it is properly regarded as still operative and ongoing because, as regards the company and its members, the adverse effect of the acts complained of, in reality, has not been redressed. In my view, as regards the petitioner, an order under subs. (3) of s. 205 is necessary “with a view to bringing to an end the matters complained of” by the petitioner.
3.10 Accordingly, I propose making a declaration in the terms sought by the petitioner that the affairs of the company are being conducted in a manner oppressive to him. I also propose making an order that the respondent be compelled to purchase the petitioner’s shares in the company. The only difficult issues in this case which require careful consideration, in my view, are issues concerning the proper approach to the valuation of the petitioner’s shares.
4. Valuation: the law
4.1 Two issues of law arise in relation to the proper approach to be adopted by the Court in valuing the petitioner’s shares, namely:
(a) the date at which the valuation should be carried out; and
(b) whether the value should be discounted on the ground that the petitioner’s shareholding is a minority shareholding.
There is little by way of relevant authority in this jurisdiction which directly bears on those issues. I propose considering first the authorities in this jurisdiction which address, in general terms, the valuation of shares on a forced sale under s. 205(3).
4.2 In Re Greenore Trading Co. Ltd., Keane J. decided that the petitioner’s shares should be purchased by the respondent at a fair price. Having concluded that it was unlikely that, having regard to the uncertain financial future of the company, a majority shareholder or an outsider would pay more than par value for the shares (£8,000), Keane J. continued:
“That, however, does not conclude the matter, since it is clear that, in prescribing the basis on which the price is to be calculated, the court can, in effect, provide compensation for whatever injury has been inflicted by the oppressors. (See Scottish Co-Operative Wholesale Society v. Meyer [1959] AC 324). The accounts in the present case show that the company has been pursuing a conservative policy in relation to the payment of dividends in the years immediately preceding the wrongful purchase of [the petitioner’s] shares; and this policy may well have been justified by the company’s uncertain trading future. There seem[s] to me, however, no reason why the petitioner should be deprived of the share to which he would have been entitled of the £14,500 wrongfully applied in the transaction regarding Mr. Boyle’s shares. It is immaterial whether that sum comes back to the company following these or other proceedings and it is ultimately paid out by way of dividend or as a return on capital to the contributors, since the petitioner will derive no benefit from that once the shares have been purchased by [the respondent]. It follows that he is entitled, in my view, to be paid a sum bearing the same proportion to that sum of £14,500 as his shareholding of £8,000 did to the total issued share capital of £34,000 prior to the unlawful transaction in relation to [the seller’s] shares; and I will order that sum to be paid, in addition to the sum of £8,000 representing the par value of his shares.”
4.3 Counsel for the petitioner, in this case, advocated a somewhat similar approach, which was referred to as the “straightforward” approach to the valuation of the petitioner’s shares in the company. I will return to that submission later.
4.4 In Irish Press Plc. v. Ingersoll Irish Publications Ltd. [1995] 2 I.R. 175 the Supreme Court held that, while in cases under s. 205, where the oppressor is ordered to purchase the share of the oppressed member, the determination of a fair price for the oppressed member’s shares might include an incidental element of compensation, there was no general right to compensation for loss arising from the oppression. On that point, in his judgment, Blayney J., with whom the other Judges of the Supreme Court concurred, quoted the first sentence in the second passage from the judgment of Keane J. in Re Greenore Trading Co. Ltd. quoted at 4.2 above and also the following passage from the judgment of Lord Denning in Scottish Co-Operative Wholesale Society v. Meyer [1959] AC 324 (at p. 369):
“One of the most useful orders mentioned in the section – which will enable the court to do justice to the injured shareholders – is to order the oppressor to buy their shares at a fair price: and a fair price would be, I think, the value which the shares would have had at the date of the petition, if there had been no oppression. Once the oppressor has bought the shares, the company can survive. It can continue to operate. That is a matter for him. It is, no doubt, true that an order of this kind gives to the oppressed shareholders what is in effect money compensation for the injury done to them: but I see no objection to this. The section gives a large discretion to the court and it is well exercised in making the oppressor make compensation to those who have suffered at his hands.”
Having noted that the statutory provision to which Lord Denning was referring was exactly similar to the provision in s. 205, in that it provided that one of the reliefs which the Court might give was an order “for the purchase of the shares of any members of the company by other members of the company”, Blayney J. went on to state:
“While compensation was included in the relief given in each of these two cases, it was given in an extremely limited context – where the oppressor had been directed to purchase the shares of the oppressed shareholder, and where the compensation resulted from the court’s determination of what would be a fair price for the shares in the particular circumstances. The element of compensation was incidental to the main relief which was the purchase of the shares. The cases are not authority for a general right to compensation for loss resulting from oppression, which is what is being contended for, and in my opinion this submission is not well-founded.”
The Supreme Court also held that it is not open to a Court to award damages under s. 205(3).
4.5 The most recent decision of the High Court on the question of valuation of shares in the context of a forced purchase under s. 205(3) to which the Court has been referred is the decision of the High Court (Finlay Geoghegan J.) in Re Emerald Group Holdings Ltd., Banfi Ltd. v. Moran and Ors. [2009] IEHC 440. Both parties referred the Court to paragraph 71 of that judgment, in which Finlay Geoghegan J. recorded that the accountancy expert on behalf of the respondent contended that the value put on the shares in issue there should be discounted by 30%, as the shares constituted a minority interest. There was a complication in that case, in that the Court ordered that the 19.5% shareholding of the petitioner, Banfi Ltd., in Emerald Group Holdings Ltd. be valued having regard to the probable value of a 19.5% shareholding in Best Christmas Trees Ltd., an associated, not using that expression in any technical sense, company of Emerald Group Holdings Ltd. Finlay Geoghegan J. stated that the contention of the respondents’ accountancy expert –
“… was opposed on behalf of the petitioner and reference made to authorities which, undoubtedly, suggest that whilst this might be a typical discount for the sale of a minority shareholding, it should not apply where the Court is directing a forced sale pursuant to s. 205 of the Companies Act 1963. I accept those authorities. Nevertheless, what I am dealing with, on the facts of this case, is something slightly different.”
The comment in relation to the authorities, which, apparently, had been cited but which are not identified, in that passage was clearly obiter.
4.6 A considerable number of decisions of courts in the United Kingdom on the question of valuation of shares in the context of an order that an oppressor acquire the oppressed shareholder’s minority shareholding under the corresponding legislation in the United Kingdom were cited.
4.7 The line of authorities commences with the decision of the High Court in England and Wales In Re Bird Precision Bellows Ltd. [1984] 1 Ch. 419. The question which was being addressed by Nourse J. there, as stated in his judgment (at p. 425), was whether the price of shares in a small private company, which were ordered to be purchased pursuant to the then United Kingdom analogue of s. 205(3) (s. 75 of the Companies Act 1980), should be fixed pro-rata according to the value of the shares as a whole or should be discounted on the ground that they constituted a minority in number. In addressing that question, Nourse J. distinguished two different categories of company. The first was a quasi-partnership company, which he addressed in the following passage (at p. 430):
“I would expect that in a majority of cases where purchase orders are made under section 75 in relation to quasi-partnerships the vendor is unwilling in the sense that the sale has been forced upon him. Usually he will be a minority shareholder whose interests have been unfairly prejudiced by the manner in which the affairs of the company have been conducted by the majority. On the assumption that the unfair prejudice has made it no longer tolerable for him to retain his interest in the company, a sale of his shares will invariably be his only practical way out short of a winding up. In that kind of case it seems to me that it would not merely not be fair, but most unfair, that he should be bought out on the fictional basis applicable to a free election to sell his shares in accordance with the company’s articles of association, or indeed on any other basis which involved a discounted price. In my judgment the correct course would be to fix the price pro rata according to the value of the shares as a whole and without any discount, as being the only fair method of compensating an unwilling vendor of the equivalent of a partnership share.”
Nourse J. dealt with the second category of cases in which, broadly speaking, shares in a small private company are acquired in the following passage (at p. 431):
“It is not of direct relevance for present purposes, but I mention it briefly in order finally to refute the suggestion that there is any rule of universal application to questions of this kind. In the case of the shareholder who acquires shares from another at a price which is discounted because they represent a minority it is to my mind self-evident that there cannot be any universal or even a general rule that he should be bought out under section 75 on a more favourable basis, even in a case where his predecessor has been a quasi-partner in a quasi-partnership. He might himself have acquired the shares purely for investment and played no part in the affairs of the company. In that event it might well be fair – I do not know – that he should be bought out on the same basis as he himself had bought, even though his interests had been unfairly prejudiced in the meantime. A fortiori, there could be no universal or even a general rule in a case where the company had never been a quasi-partnership in the first place.”
It is worth recording that Nourse J. stated (at p. 436) that the question of any discount is a question of law to be decided by the Court.
4.8 The Court of Appeal, on the appeal in that case, which is reported as In Re Bird Precision Bellows Ltd. [1986] 1 Ch. 658, dismissed the appeal holding that the relevant section (s. 75) conferred on the Court a wide discretion to do what was fair and equitable in all the circumstances, so as to put right the unfair prejudice to a petitioner and cure it for the future. It was held that Nourse J. was right in concluding that it was appropriate to treat the company as a quasi-partnership and value its shares as a whole and that the petitioners be paid the proportionate part of that value which corresponded to their shareholding, not its market value as a minority shareholding.
4.9 It is interesting to note that in Courtney (op. cit.) it is stated that it has been accepted as the law in Ireland by Costello J. in Colgan v. Colgan & Colgan (the High Court, 22nd July, 1993, unreported), a case in which the valuation was being carried out on an application under s. 205, that in a quasi-partnership private company a minority shareholding should not be discounted, nor a majority shareholding attributed a premium. Costello J. stated that “all the authorities indicate that there should not be a discount when dealing with a quasi partnership, as this was”.
4.10 The discount or non-discount issue has been considered more recently by the Court of Appeal of England and Wales in Strahan v. Wilcock [2006] 2 BCLC 555. In that case (at para. 17) Arden L. J. made the following general observations in relation to the issue before the Court of Appeal:
“The burden of the dispute between the parties on this appeal is as to the basis of valuation in the buy out order. Shares are generally ordered to be purchased on the basis of their valuation on a non-discounted basis where the party against whom the order is made has acted in breach of the obligation of good faith applicable to the parties’ relationship by analogy with partnership law, that is to say where a ‘quasi-partnership’ relationship has been found to exist. It is difficult to conceive of circumstances in which a non-discounted basis of valuation would be appropriate where there was unfair prejudice for the purposes of the 1985 Act but such a relationship did not exist. However, on this appeal I need not express a final view on what those circumstances might be.”
4.11 That decision of the Court of Appeal was applied by the High Court of England and Wales in Irvine v. Irvine [2006] 4 All ER 102. There, the petitioner’s shareholding which was being valued was a 49.96% shareholding. Having considered the authorities, Blackburne J. stated (at para. 11):
“A minority shareholding, even one where the extent of the minority is as slight as in this case, is to be valued for what it is, a minority shareholding, unless there is some good reason to attribute to it a pro-rata share of the overall value of the company. Short of a quasi-partnership or some other exceptional circumstance, there is no reason to accord to it a quality which it lacks.”
On the facts, Blackburne J. held that the company in issue was not a quasi-partnership and that there were no exceptional circumstances. The shareholdings were to be valued as minority shareholdings and the extent of the discount applied was to be a matter for the valuers.
4.12 The most recent authority of a court in the United Kingdom cited was a decision of the Court of Session (Outer House of Scotland) in Fowler v. Gruber [2010] 1 BCLC 563. There, Lord Menzies, having referred to the passage of Arden L. J. in Strahan v. Wilcock, which I have quoted at para. 4.10, and to the passage from the judgment of Blackburne J. in Irvine v. Irvine which I have quoted at para. 4.11, stated as follows (at para. 186):
“In the present case, the company was not a quasi-partnership at the relevant times. Even at its formation, the petitioner did not own a majority shareholding. Originally he held a 40% shareholding, but voluntarily reduced this by sale of one quarter of his shareholding … . Thereafter his shareholding was further diluted by the acquisition of shares by Aberdeen City Council, in an arrangement of which the petitioner was aware and in which he played some part. To value his shares on a pro-rata basis would be to give him a benefit to which he is not entitled. I consider that it is appropriate that his shares should be valued on a discounted basis. This is not a case of a quasi-partnership, there are no circumstances sufficiently exceptional so as to justify no discount being applied.”
4.13 I am persuaded by the decisions of the courts of the United Kingdom to which I have referred above that it is only in the case of a quasi-partnership company or where some other exceptional circumstance exists that a minority shareholding should be valued on a non-discounted basis where the Court has directed that the petitioner’s minority shareholding should be purchased by the respondent shareholder or by the company pursuant to s. 205(3) of the Act of 1963. In this case, the company is not, and never was, a quasi-partnership company. There is nothing in the circumstances of the case which would justify a non-discounted basis of valuation of the petitioner’s shareholding. Accordingly, in the valuation process, in order to fix a fair price, the appropriate discount, having regard to the minority nature of the petitioner’s shareholding, must be applied.
4.14 Turning to the other issue, namely, the date at which the shares are to be valued, counsel for the respondent relied on the following dictum of Nourse J. in Re London School of Electronics Ltd. [1985] BCLC 273 (at p. 281):
“If there were to be such a thing as a general rule, I myself would think that the date of the order or the actual valuation would be more appropriate than the date of the presentation of the petition or the unfair prejudice. Prima facie an interest in a going concern ought to be valued at the date on which it is ordered to be purchased. But whatever the general rule might be it seems very probable that the overriding requirement that the valuation should be fair on the facts of the particular case would, by exceptions, reduce it to no rule at all.”
In Courtney (op. cit.) it is stated (at para. 16.122) that the case law demonstrates that the general rule has been departed from in a great many situations and the courts have fixed the appropriate valuation date variously, giving the following examples: the date of the oppression (Re Clubman Shirts Ltd. [1983] ILRM 323); the date the shares were ordered to be purchased at the value which they would have had at the date of the petition, if there had been no oppression (Scottish Co-Operative Wholesale Society Ltd. v. Meyer [1959] AC 324 referred to at para. 4.4 above); and a date a few weeks before the court’s order to purchase the shares (Colgan v. Colgan, the High Court, 22nd July, 1993, unreported).
4.15 There is very little guidance as to what is the appropriate date of valuation in the more recent decisions of the courts in the United Kingdom which have been put before the Court. In Re Sunrise Radio [2010] 1 BCLC 367, there is a quotation from the judgment of Robert Walker L. J. in Profinance Trust SA v. Gladstone [2002] 1 BCLC 141, where having referred to the judgment of Nourse J. in Re London School of Electronics Ltd., Robert Walker L. J. stated:
“The general trend of authority over the last 15 years appears to us to support that [the date the shareholding is ordered to be purchased] as the starting point, while recognising that there are many cases in which fairness (to one side or the other) requires the court to take another date. It would be wrong to try to enumerate all those cases … .”
Of the examples enumerated by Robert Walker L.J., it was stated that the strongest example from the point of view of the petitioner in Re Sunrise Radio was Re Cumana Ltd. [1986] BCLC 430, where a fall in the market during the currency of the petition justified an earlier valuation and the Court had strongly disapproved of the respondent’s conduct.
4.16 In this case, the expert called on behalf of the petitioner, Brendan Traynor, Chartered Accountant, of the firm BDO, carried out valuations based on the company’s financial statements for 2003 and the company’s audited accounts for 2009, which were the most up to date accounts available at the date of the presentation of the petition. The expert called on behalf of the respondent, Peter Dawson, Chartered Accountant, of the firm Leahy & Co., had available to him the company’s audited accounts for the year ended 31st October, 2010, for which year the results were marginally better than the previous year. From a purely pragmatic standpoint, on the basis of the evidence before the Court, there would, in reality, be little or no material difference in the outcome were the Court to adopt the date of the presentation of the petition rather the date of this judgment, or vice versa, as the appropriate valuation date. The real issue is whether the valuation should be carried out by reference to the accounts for 2003 or the most recent accounts.
4.17 There is no doubt that utilising the accounts for 2003 as the basis of the valuation of the petitioner’s shareholding will produce the optimum result, because the company performed better in that year than in any other year. It is true that at first instance in Irish Press Plc v. Ingersoll Irish Publications Ltd. (the High Court, 15th December, 1993, unreported) Barron J. addressed a submission made on behalf of the respondent that the date of the presentation of the petition should be the date at which the shares should be valued by stating:
“This may be the correct approach when the wrongdoer is being compelled to buy the shares but not if their value has already fallen by that date by reason of the oppression.”
It was submitted on behalf of the petitioner that, in line with that statement, which was obiter because in that case it was the oppressing respondent which was ordered to transfer its shares to the oppressed petitioner, the Court should determine the value of the petitioner’s shareholding as at 2003. It was further submitted that such approach was the correct approach because the petitioner’s evidence was that he would have commenced proceedings in 2003 if he had been aware of the respondent’s expropriation of the company’s monies, which had been going on for about six years at that stage.
4.18 In my view, in order to determine a fair price for the petitioner’s shareholding, it is not necessary that it should be valued by reference to the company’s accounts for the year 2003 and there is no basis in law or in equity for adopting that approach. Therefore, I consider that the proper course is to determine the value by reference to the most recent accounts, the accounts for 2009 or 2010, or by reference to the so called “straightforward” method.
5. Valuation: application of the law to the facts
5.1 Mr. Traynor did two valuations on the basis of the accounts for 2009, the second of which adjusted the figures from the 2009 accounts to factor in the accumulated amounts of profit which would have arisen from the misappropriated rebates and also the Revenue penalty. He described the methodology as being a hybrid of an earnings basis plus surplus assets. On the basis of that methodology, he valued the company at €2,708,000 and the petitioner’s share, non-discounted, at €144,000. Mr. Traynor’s valuation of the company at 31st October, 2009 on the basis of the balance sheet at that date was between €200,000 and €300,000. He recognised that the company was not trading profitably.
5.2 On the basis that the company does not currently have any future maintainable earnings, Mr. Dawson valued the company at zero. However, he did do an exercise similar to the exercise carried out by Mr. Traynor calculating future maintainable earnings on the basis of an average of recent results, which included the results for the year ended 31st October, 2010 and factoring in the surplus cash of the company as adjusted for the Revenue audit settlement and also the after tax value of undisclosed income, assuming the income had been retained in the company. The value he put on the company on that basis was €2,365,508. He valued the petitioner’s share, on the basis that it is a 5% share rather a 5.3% share, before discount, at €118,275. On the basis that the petitioner’s shareholding is 5.3%, his figure before discount, would have been €125,372.
5.3 The various technicalities canvassed in the cross-examination of the experts, for example, whether the starting point in valuing on a maintainable earnings basis is earnings before interest, tax, depreciation and amortization, which was the approach adopted by Mr. Traynor, or average profit or loss after tax, as advocated by Mr. Dawson, or whether the adjustment to substitute an open market emolument for the emolument actually taken by way of remuneration by the respondent should be €140,000 (Mr. Traynor’s figure) or €150,000 (Mr. Dawson’s figure) are, in reality, wholly immaterial, because Mr. Traynor’s valuation of the company on an earnings basis was €169,000 and Mr. Dawson’s, as I have stated, was zero. The reality is that they both came up with figures for the petitioner’s 5.3% shareholding which were approximately similar when adjustment was made for the misappropriated monies and the Revenue penalty. That brings me to the so called “straightforward” method of valuation. It was submitted on behalf of the petitioner that it is open to the Court to determine the value of the petitioner’s shares at 5.3% of the aggregate of the misappropriated monies and the Revenue settlement for which the company assumed liability (€2,384,387), which is €125,371 less corporation tax at an approximate rate of 10% plus the par value of the 1,580 shares. Mr. Dawson acknowledged that that was a fair way to value the loss of cash to the company, which I understand to mean loss as a result of the conduct of the respondent. As he correctly pointed out, that, in essence, represented his alternative valuation to which I have referred to above, because he had put zero value on the company on an earnings basis.
5.4 The so called “straightforward” approach seems to me to be a fair method of valuing the petitioner’s shareholding. It is reasonable to assume that, but for the actions of the respondent which I have found to constitute oppression, the asset value of the company would be in the region of €2.3m greater than it is. That approach is in line with the approach adopted by Keane J. in Re Greenore Trading Co. Ltd., although that authority indicates that the petitioner should also be refunded the par value which he paid for his shares. The other methodologies deployed by the experts certainly did not produce any fairer figure. Accordingly, I find that, for the purposes of applying s. 205(3), the value of the shareholding of the petitioner, before discount, is €115,000. However, in the light of the view I have expressed earlier in para. 4.13, that value must be discounted. The evidence of both Mr. Traynor and Mr. Dawson was that the minority discount rate would be in the region of 40% to 60%. In view of the size of the petitioner’s shareholding, I consider it appropriate to apply a discount of 50%. Accordingly, for the purposes of applying s. 205(3), I find that the discounted value of the petitioner’s shares is €57,500. That figure plus the par value (IR£1,000 equivalent to €1,269.74) which he paid for the 1,000 shares he purchased, totalling €58,769.74, is the price that the respondent should pay for the petitioner’s 1,580 shares in the company.
5.5 By way of general observation, in adopting the approach that the petitioner’s shareholding be valued, before being discounted, as a percentage of the monies expropriated from and the liability for the Revenue settlement imposed on the company by the respondent, there is a notional redress of the defalcation of the respondent for the purposes of the valuation. Accordingly, the basis on which counsel for the petitioner sought to distinguish the decisions of the United Kingdom courts to which I have referred earlier, that those cases were concerned with mismanagement rather than misappropriation does not stand up to scrutiny. Applying a discount, in my view, results in a fair price, in accordance with the evidence.
6. Order
6.1 There will be a declaration that by reason of the matters complained of in the petition the Court is of opinion that the company’s affairs are being conducted in a manner oppressive to the petitioner and in disregard of his interests and an order directing the respondent to purchase the shareholding of the petitioner for cash in the sum of €58,769.74 by 16th September, 2011.
Barrowland Ltd.,Re
[2003] IEHC 54 (23 January 2003)
JUDGMENT of Mr. Justice T.C. Smyth delivered on Thursday 23rd January 2003.
This is an application brought by the Registrar of Companies concerning an order of the Court dated 3rd April 1995 which was made in relation to an application pursuant to section 12 (6) of the Companies (Amendment) Act, 1982 for the restoration of the name of (Barrowland Ltd. “The Company’) to the Register of Companies. The company was incorporated on 30th November 1967. On or about 6th November 1990, the company was dissolved and after its name had been struck off the Register of Companies for failure to file annual returns, the last annual return having been made on 31st December 1978. On 24th March 1995, the company presented a petition to the Court seeking the restoration of the name of the company to the Register of Companies. The Registrar did not object to the application as annual returns for the years 1979-1994 had been delivered to the Companies Registration Office by the company prior to the hearing of the petition.
On 3rd April 1995 the company’s application came before the Court and its order was expressed thus –
“IT IS ORDERED that the said company be restored to the Register of Companies and pursuant to the Companies Acts 1963 and 1990 upon an office copy of this order being delivered to the Registrar of Companies for registration the said company is to be deemed to have continued in existence as if its name had not been struck off. And it is ordered that the said Registrar of Companies do advertise in his official name in a form to be settled by him in “Iris Oifigiuil ” the making of this order – a
-2-
copy of which has to be delivered to him forthwith by the petitioner by whom the costs of such advertisement is to be paid”
[Emphasis supplied]
Notwithstanding the requirement that the company deliver a copy of the said order to the Registrar forthwith it failed to deliver a copy of the order to him until 3rd November 2000 some five years and seven months after the making of the order. Annual returns were intermittently delivered by the company to the Companies’ Registration Offices, date of the order with returns for 1995-1997 being delivered in January 1998 and returns for 1998 and 1999 being delivered in April 2000, returns for the years 2000-2002 were filed during the currency of the present application before the Court.
At the time of the receipt of the order of 1995 by the Registrar of Companies he had become greatly concerned about a practice which had developed of restoration orders being delivered to the Companies Registration Office some considerable time after they had been obtained. He considered that it was appropriate to seek directions from the Court in this case as to whether he was obliged to accept the order without any further order of the Court or whether the order requires to be extended or confirmed by the Court having regard to the significant time period which has elapsed since the making of the order. He was concerned and is concerned at the possibility of creating an undesirable precedent in relation to future cases where the interval might be even larger than in the instant case were the order in the instant case to be accepted for filing was without query. The Registrar was of the view that as registration is an integral part of the restoration process that by necessary implication, the order ought to be delivered to the Companies Registration Office for registration within a reasonable time from the date of its perfection. When a restoration application is made to the Court, it is entitled to have regard to any matters which have occurred since the company was struck off and, since the enactment of the Companies (Amendment) (No. 2) Act of 1999 to include an “alternative order” where appropriate. Where the order is subsequently not
-3-
delivered to the Registrar of Companies for a significant period of time and the company is then restored on its delivery, the Court is not in a position to have regard to any matters which have occurred during that intervening period.
The case therefore concerns the construction to be put on the statutory scheme which is found originally in section 12 of the Companies (Amendment) Act 1982 and in particular subsection 6 thereof which reads as follows:
“(6) If a company or any member or creditor thereof feels aggrieved by the company being struck off the register, the Court, on an application made (on notice to the registrar) by the company or member or creditor before the expiration of 20 years from the publication in Iris Oifigiuil of the notice aforesaid, may if satisfied that the company was at the time of the striking off carrying on business or otherwise that it is just the company be restored to the register, order that the name of the company be restored to the register, and upon an office copy of the order being delivered to the registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as maybe as if the name of the company had not been struck off. “
[Emphasis supplied]
The section of the 1982 Act was amended by substitution by section 46 of the Companies (Amendment) (No. 2) Act, 1999.
Subsection 12(b)(3) is in identical terms to the original section 12 subsection 6 save that it is subject to the provisions of subsection 4 of the 1999 Act which deals with the alternative order and it is in the following terms:-
“(4) An alternative order may, if the Court considers it appropriate that it should do so, include a provision that, as in respects of debt or liability incurred by or on,
-4-
behalf of, the company during the period when it stood struck off the register, the officers of the company are such one or more of them as is or are specified in the order shall be liable to the whole or apart (as the Court thinks just) of the debt or liability. “
In the case of In re Amantiss Enterprises Ltd [2000] 2 I.L.R.M. 177 it was held by O’Neill J. that “the words the company shall be deemed to have continued in existence as if the name had not been struck off” have the automatic effect of validating retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register. Section 12 (6) was intended to preserve the validity of transactions entered into during a period of dissolution where frequently that dissolution is unknown to either the company, its officers or third parties dealing with it. The final words of section 12 (6) empowering the Court to make specific orders do not qualify the scope of the preceding general words but enable the Court to achieve to the fullest extent consistent with justice the `as you were’ position of the company – Tymans Ltd. -v- Craven [1952] 2 Q.B. 100 followed. In my judgment the interpretation to be placed upon the original subsection 6 and section 12 is quite clear. The conjunctive “and”
“Upon an office copy of the order being delivered to the Registrar for registration ” are a clear indication by the Oireachtas that it was not sufficient merely for the Court to make the pronouncement and make its order but that an office copy of the order should be delivered to the Registrar and it is upon the completion of both the making of the Court order and its delivery to the Registrar that the company is deemed to have continued in existence. In the instant case the expression forthwith used in the order of 1995 means with all reasonable celerity or in other words as soon as reasonably possible. Where consequence is `forthwith ” to follow on an event (as in the instance case) the word imperatively excludes a time within something else may be done
inconsistent with that consequence.
-5-
The provisions of section 12 do not give rise to an order as of course or as a matter of routine but permit the Court if satisfied as specified to make an Order. The Order of the Court must not merely be pronounced in Court, but perfected in written form and delivered to the Registrar to bring into operation the deemed provision or consequence. The additional discretionary power of the Court to “give such directions and make such provisions as seen
just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off … ” was embraced in the second element of the curial part of the Order of 3rd April, 1995 which obligated the company to deliver to the Registrar of Companies a copy of the Order forthwith. This expression complies with both the letter and the spirit of the statutory provisions. The creditors of the company are entitled to know with certainty what its exact status is, as are persons who may have rights to sue the company but the exercise of which rights are or may be affected by the Statute of Limitations (a matter considered by Megarry, J. (as he then was) in In Re Lindsay Bowman Ltd [1996] 1 WLR 1443).
As the effect of an Order which is complied with as to its terms is to validate retrospectively all acts done in the name and on behalf of the company during the period between its dissolution and the restoration of its name to the registrar: it follows that it is imperative that the copy of the Order of the Court be lodged as soon as ever possible with the Registrar of Companies. The Court Order does not act prospectively, the retrospective date of effect is the date not of the making of the Court Order but of compliance with it. However as the Order can only be made if the Court is satisfied with a given state of facts on a given day it is mandatory that the shortest interval possible should exist between the date of the perfected Court Order and a copy of its being lodged with the Registrar of Companies. In my judgment the Registrar ought not to be bound to register restoration orders which are not lodged with him forthwith.
If the Registrar were to have a margin of appreciation in for example, an Order pronounced at the end of a legal term which was not available in perfected form until the
-6-
beginning of the following legal term then at its widest, his discretion could and should not exceed three months from the date of the pronouncement of the Order. Orders not lodged forthwith and at the very outside within three months should and do automatically lapse. In such circumstances a renewed fresh application to the Court is necessary: such must not only comply with this subsection but also aver to the exact state of the business and affairs of the company as from the date of the pronouncement of the lapsed Order and give a full and satisfactory explanation to the Court as to why its original Order was not complied with in the interim.
This construction has due regard to the apparent object of the section and the character of the legislation to which it belongs.
In the instant case the interim without prejudice order of Quirke J. will be discharged, the company may bring a new or fresh application to the Court in accordance with the terms of this judgment.
Nalto Construction Ltd -v- Companies Acts
[2011] IEHC 251 (22 June 2011)
Judgment of Miss Justice Laffoy delivered on 22nd day of June, 2011.
1. The application
1.1 This application was initiated by a petition presented on 10th May, 2011 by the Collector General of the Revenue Commissioners (the petitioner) seeking an order pursuant to s. 311(8) of the Companies Act 1963 (the Act of 1963), as amended, restoring Nalto Construction Ltd. (the company) to the Register of Companies. The petition was served on, inter alia, the directors of the company, Rosaleen Fitzgerald and Patrick Fitzgerald, and on the secretary of the company. It was responded to by Mr. Fitzgerald.
1.2 Section 311(8), insofar as is relevant for present purposes, provides as follows:
“If a company or any member or creditor thereof feels aggrieved by the company having been struck off the register, the court, on an application made … by the company or member or creditor …, may, if satisfied that the company was at the time of the striking off carrying on business or otherwise that it is just that the company be restored to the register, order that the name of the company be restored to the register … .”
2. The circumstances of strike off/application to restore
2.1 The company was incorporated on 2nd June, 1982. Its last annual return (Form B1) was made up to 14th June, 2010 and, according to the Company Printout exhibited in the grounding affidavit filed on behalf of the petitioner, was registered on 26th June, 2010.
2.2 On 12th October, 2010 the Companies Registration Office (CRO) received a request for voluntary strike-off (Form H15), which was dated 16th June, 2010 and signed by Mr. Fitzgerald, in which Mr. Fitzgerald requested that the company be struck off the register pursuant to s. 311 of the Act of 1963 on the basis that it was not carrying on business. Mr. Fitzgerald confirmed that the company had no assets “or outstanding liabilities, including contingent or prospective liabilities”. According to the Company Printout the company was listed for strike-off on 24th October, 2010 and was struck off on 9th January, 2011.
2.3 The lodgment of the form H15 in the CRO was accompanied by a letter of no objection from the Revenue Commissioners. That letter was dated 6th October, 2010. It stated that, based on the information then currently available, and without prejudice, the Revenue Commissioners had no objection to the company being struck off the register. The position of the petitioner is that the letter was issued due to inadvertence and oversight. At the time it was issued, the Investigation and Prosecution Division of the Revenue Commissioners had obtained directions from the Director of Public Prosecutions (DPP) in relation to prosecuting the company for certain alleged Revenue offences and this was flagged on the internal central Revenue system at the time, but, notwithstanding that, by mistake the letter of “no objection” was issued by the Companies Unit of the Revenue Commissioners.
2.4 On 4th November, 2010 three applications were made on behalf of the DPP to the District Court to issue three summonses alleging criminal offences against the company and three summonses were issued, in each case returnable on 2nd February, 2011. The offences alleged related to the making of an incorrect return, delivering incorrect accounts and knowingly or wilfully claiming a repayment of corporation tax to which the company was not entitled contrary to s. 1078(2) and (3) of the Taxes Consolidation Act 1997, as amended by s. 111 of the Finance Act 1999. In each case, the alleged offence related to the tax year ending on 31st March, 2000. The criminal proceedings have been adjourned pending the determination of this application.
2.5 The position of the petitioner is that he is a contingent creditor of the company on the basis that the company has an undischarged liability to the Revenue Commissioners arising from what the Revenue Commissioners believed to have been the fraudulent claiming by the company of a repayment of corporation tax to which the company was not entitled. The petitioner has quantified the liability of the company to the Revenue Commissioners at €152,166, comprising €49,710 for tax, a 100% penalty of €49,710 and interest amounting to €52,746. In broad terms, the contention of the Revenue Commissioners is that there was a fraudulent abuse of a self-administered pension scheme set up by the company for the benefit of Mr. Fitzgerald, who was a director of the company, and who was the sole member of the pension scheme.
2.6 Mr. Fitzgerald, in his replying affidavit sworn on 3rd June, 2011, disclosed that summonses have been issued against him personally, which he intends to fully defend. He has averred that there is no substance to the allegations made against the company. He has disclosed that he has been aware of an investigation commenced by the Revenue Commissioners in July 2004 on foot of which, in August 2004, the Revenue Commissioners sought and obtained a substantial volume of the company’s business records. However, no notice of assessment was raised against the company or claim made for the alleged outstanding tax prior to his request for voluntary strike off, which was acceded to six and a half years after the Revenue Commissioners’ investigation commenced.
2.7 On this application letters of consent to the restoration of the company from the CRO (dated 17th May, 2011) and Chief State Solicitor on behalf of the Minister for Finance (dated 24th May, 2011) have been exhibited in an affidavit filed on behalf of the petitioner on this application.
3. The authorities
3.1 The Court was referred to two authorities by counsel for the petitioner and counsel for Mr. Fitzgerald, which I propose to consider in chronological order.
3.2 The earliest is a decision of the High Court (Kenny J.) in In Re Nelson Car Hire Limited (1973) 107 ILTR 97. That decision concerned an application under s. 310(1) of the Act of 1963, which provides that, where a company has been dissolved, on an application being made for that purpose “by the liquidator of the company or by any other person who appears to the court to be interested”, the Court may make an order, upon such terms as the Court thinks fit, declaring the dissolution to have been void. The company in question had been wound up pursuant to a members’ voluntary winding up and dissolved on 19th September, 1967. Before dissolution the Revenue Commissioners had been interested in the company and, in particular, in property transactions which it had engaged in and, as Kenny J. put it, the Revenue Commissioners “became much more interested” in 1968 after the company was dissolved. In July 1969 the Revenue Commissioners issued a petition seeking an order under s. 310(1). Kenny J. in his judgment (at p. 101) contrasted the wording of s. 310 with s. 311 stating:
“The expression ‘any other person who appears to the Court to be interested’ has a wider meaning than member or creditor of the company. The words themselves have this effect but it is also shown by comparison of s. 310 with s. 311 which deals with the power of the registrar to strike off companies which are not carrying on business off the register. If the register (sic) does this, sub-s. (8) provides that if a company or any member or creditor thereof feels aggrieved by the company having been struck off, the court may restore the name of the company to the register. I think that the Revenue Commissioners are persons interested within s. 310 if they establish that they have a reasonable prospect of success in a claim for tax against the company if it is restored to the register and an assessment is made on it. The Court has a discretion in granting the application and the decisive matter must be whether the claim, which it is sought to make against the company, is one which might succeed. …”
Having stated that he did not propose to express a final view on the question whether the company was liable for tax of any kind on the property transactions in question because that was a matter to be decided in other proceedings, Kenny J. stated that there was “much to be said” for the proposition being advanced by the Revenue Commissioners. He concluded his judgment by stating (at p. 102):
“[Counsel for the respondent] says correctly that there is no liability for income tax or corporation profits tax until the assessment becomes final and that the Revenue are not, therefore, creditors and so cannot succeed on this application. This, however, is not a good answer to the contention that the Revenue Commissioners are persons interested and so entitled to the order sought. In my opinion the company should be restored to the register and there will be an order declaring that the dissolution of the company was void. The cost of this application will be reserved: if the claims for duty which the Revenue wish to make are unsuccessful, those who oppose the order will be awarded their costs of these proceedings on a solicitor and client basis.”
3.3 The judgment of Kenny J. was considered in the later authority, the decision of the Supreme Court in Re Deauville Communications Worldwide Limited [2002] 2 IR 32. That case concerned an application to have a company restored to the register pursuant to s. 12B(3) of the Companies (Amendment) Act 1982 which, insofar as is relevant for present purposes, provides:
“If any member, officer or creditor of a company is aggrieved by the fact of the company’s having been struck off the register under section 12(3) or 12A(3) of this Act, the court, on an application … by the member, officer or creditor, … may, if satisfied that it is just that the company be restored to the register, order that the name of the company be restored to the register … .”
So much of s. 12B(3) as is quoted above is very similar to so much of s. 311(8) as has been quoted earlier, one difference being that the rather peculiar reference to the struck off company being an applicant in the earlier provision is not replicated.
3.4 The company in the Deauville case had been struck off for failure to file annual returns. The petitioner claimed to be a creditor of the company. After the company was struck off, but before the petition to restore was brought, the petitioner had instituted proceedings against the company in the Supreme Court of Bermuda for conspiring with others to cause a breach of a licence agreement in relation to a patent. In his judgment, Keane C.J., with whom the other Judges of the Supreme Court concurred, stated (at p. 41):
“Unless there were authority to the contrary, I would be inclined to the view that the word ‘creditor’ in s. 12B(3) should be read as extending to contingent or prospective creditors. It would seem unjust that the question whether a person is entitled to have the company restored to the register for the purpose of recovering a judgment against him, should be determined by whether his claim against the company is for a liquidated sum – in which case he would unarguably be a ‘creditor’ – or takes the form of a claim for unliquidated damages.
Happily, however, there is authority which supports that view.”
3.5 In the Deauville case the respondents had argued that the proceedings in Bermuda were not being bona fide maintained or, at the least, that there had been insufficient evidence before the High Court to enable it to reach a conclusion that the proceedings were being bona fide maintained, in reliance of the decision of Kenny J. in In Re Nelson Car Hire Limited. Having pointed out that the application before Kenny J. was an application pursuant to s. 310(1) of the Act of 1963, Keane C.J. observed (at p. 45):
“Kenny J., while holding that the Revenue Commissioners were not creditors of the company within the meaning of s. 310, as no assessments had been raised while the company was still on the register, was satisfied that they would be ‘persons interested’, within the meaning of the section, if they established that they had ‘a reasonable prospect of success’ in a claim for tax against the company if it was restored to the register and an assessment made on it.”
On the argument advanced by the respondents in the case before him, he stated:
“Assuming that the test adopted by Kenny J. in that case is also appropriate where a court is deciding whether ‘it is just’ that the company should be restored to the register, I have no doubt that it was satisfied by the applicant in this case.”
4. Conclusion
4.1 I do not think it would be correct to interpret the final passage from the judgment of Keane C.J. in the Deauville case quoted above as a recognition that the “reasonable prospect of success” test should be applied in determining whether the petitioner, who petitions as a contingent or prospective creditor and seeks to have a company restored on the ground that it is just to do so, has standing under s. 12B(3) or the analogous provision, s. 311(8), to seek such an order. In circumstances such as the circumstances which prevail on this application, where the DPP proposes to pursue criminal proceedings against the company if it is restored, it would be clearly inappropriate to express a view on the prospect of the Revenue Commissioners being successful in recovering the amount claimed if an assessment was raised on the basis of the same factual foundation as underlines the proposed criminal prosecution. On the other hand, where a petitioner who is a creditor invokes the Court’s discretionary statutory jurisdiction to make a restoration order on the ground that “it is just” to do so (which is the ground relied on in this application, because there is no suggestion that the company was carrying on business at the time of strike off), clearly the Court must be satisfied that the petitioner is pursuing the claim against the company bona fide and not in a frivolous or vexatious manner.
4.2 In this case I am satisfied on the evidence that the Revenue Commissioners are acting bona fide in seeking to pursue a claim for the tax alleged to be due by the company together with interest and penalties. I consider it is just to restore the company to the register, so that the Revenue Commissioners can pursue that claim and so that the DPP can prosecute the criminal proceedings against the company.
4.3 It was the mistake on the part of the Revenue Commissioners in issuing the “no objection” letter which paved the way for the strike off of the company. If that letter had not issued, this application would not have been necessary. I think it was not unreasonable for Mr. Fitzgerald to contest this application, having regard to all of the factual circumstances. Therefore, I am of the view that on the making of a restoration order the petitioner should be liable for Mr. Fitzgerald’s costs of the application on a party and party basis.
4.4 Accordingly, there will be an order pursuant to s. 311(8) that the company be restored to the register. The order will contain the usual provision that it will lapse in the event of a copy of the perfected order not being delivered to the registrar of companies within three months from the date on which the order was pronounced. Further, there will be an order that the petitioner pay the costs of Mr. Fitzgerald, as respondent, on a party and party basis, the costs to be taxed in default of agreement.
Barrowland Ltd., Re
[2003] IEHC 54 (23 January 2003)
JUDGMENT of Mr. Justice T.C. Smyth delivered on Thursday 23rd January 2003.
This is an application brought by the Registrar of Companies concerning an order of the Court dated 3rd April 1995 which was made in relation to an application pursuant to section 12 (6) of the Companies (Amendment) Act, 1982 for the restoration of the name of (Barrowland Ltd. “The Company’) to the Register of Companies. The company was incorporated on 30th November 1967. On or about 6th November 1990, the company was dissolved and after its name had been struck off the Register of Companies for failure to file annual returns, the last annual return having been made on 31st December 1978. On 24th March 1995, the company presented a petition to the Court seeking the restoration of the name of the company to the Register of Companies. The Registrar did not object to the application as annual returns for the years 1979-1994 had been delivered to the Companies Registration Office by the company prior to the hearing of the petition.
On 3rd April 1995 the company’s application came before the Court and its order was expressed thus –
“IT IS ORDERED that the said company be restored to the Register of Companies and pursuant to the Companies Acts 1963 and 1990 upon an office copy of this order being delivered to the Registrar of Companies for registration the said company is to be deemed to have continued in existence as if its name had not been struck off. And it is ordered that the said Registrar of Companies do advertise in his official name in a form to be settled by him in “Iris Oifigiuil ” the making of this order – a
-2-
copy of which has to be delivered to him forthwith by the petitioner by whom the costs of such advertisement is to be paid”
[Emphasis supplied]
Notwithstanding the requirement that the company deliver a copy of the said order to the Registrar forthwith it failed to deliver a copy of the order to him until 3rd November 2000 some five years and seven months after the making of the order. Annual returns were intermittently delivered by the company to the Companies’ Registration Offices, date of the order with returns for 1995-1997 being delivered in January 1998 and returns for 1998 and 1999 being delivered in April 2000, returns for the years 2000-2002 were filed during the currency of the present application before the Court.
At the time of the receipt of the order of 1995 by the Registrar of Companies he had become greatly concerned about a practice which had developed of restoration orders being delivered to the Companies Registration Office some considerable time after they had been obtained. He considered that it was appropriate to seek directions from the Court in this case as to whether he was obliged to accept the order without any further order of the Court or whether the order requires to be extended or confirmed by the Court having regard to the significant time period which has elapsed since the making of the order. He was concerned and is concerned at the possibility of creating an undesirable precedent in relation to future cases where the interval might be even larger than in the instant case were the order in the instant case to be accepted for filing was without query. The Registrar was of the view that as registration is an integral part of the restoration process that by necessary implication, the order ought to be delivered to the Companies Registration Office for registration within a reasonable time from the date of its perfection. When a restoration application is made to the Court, it is entitled to have regard to any matters which have occurred since the company was struck off and, since the enactment of the Companies (Amendment) (No. 2) Act of 1999 to include an “alternative order” where appropriate. Where the order is subsequently not
-3-
delivered to the Registrar of Companies for a significant period of time and the company is then restored on its delivery, the Court is not in a position to have regard to any matters which have occurred during that intervening period.
The case therefore concerns the construction to be put on the statutory scheme which is found originally in section 12 of the Companies (Amendment) Act 1982 and in particular subsection 6 thereof which reads as follows:
“(6) If a company or any member or creditor thereof feels aggrieved by the company being struck off the register, the Court, on an application made (on notice to the registrar) by the company or member or creditor before the expiration of 20 years from the publication in Iris Oifigiuil of the notice aforesaid, may if satisfied that the company was at the time of the striking off carrying on business or otherwise that it is just the company be restored to the register, order that the name of the company be restored to the register, and upon an office copy of the order being delivered to the registrar for registration, the company shall be deemed to have continued in existence as if its name had not been struck off and the Court may by the order give such directions and make such provisions as seem just for placing the company and all other persons in the same position as nearly as maybe as if the name of the company had not been struck off. “
[Emphasis supplied]
The section of the 1982 Act was amended by substitution by section 46 of the Companies (Amendment) (No. 2) Act, 1999.
Subsection 12(b)(3) is in identical terms to the original section 12 subsection 6 save that it is subject to the provisions of subsection 4 of the 1999 Act which deals with the alternative order and it is in the following terms:-
“(4) An alternative order may, if the Court considers it appropriate that it should do so, include a provision that, as in respects of debt or liability incurred by or on,
-4-
behalf of, the company during the period when it stood struck off the register, the officers of the company are such one or more of them as is or are specified in the order shall be liable to the whole or apart (as the Court thinks just) of the debt or liability. “
In the case of In re Amantiss Enterprises Ltd [2000] 2 I.L.R.M. 177 it was held by O’Neill J. that “the words the company shall be deemed to have continued in existence as if the name had not been struck off” have the automatic effect of validating retrospectively all acts done in the name or on behalf of the company during the period between its dissolution and the restoration of its name to the register. Section 12 (6) was intended to preserve the validity of transactions entered into during a period of dissolution where frequently that dissolution is unknown to either the company, its officers or third parties dealing with it. The final words of section 12 (6) empowering the Court to make specific orders do not qualify the scope of the preceding general words but enable the Court to achieve to the fullest extent consistent with justice the `as you were’ position of the company – Tymans Ltd. -v- Craven [1952] 2 Q.B. 100 followed. In my judgment the interpretation to be placed upon the original subsection 6 and section 12 is quite clear. The conjunctive “and”
“Upon an office copy of the order being delivered to the Registrar for registration ” are a clear indication by the Oireachtas that it was not sufficient merely for the Court to make the pronouncement and make its order but that an office copy of the order should be delivered to the Registrar and it is upon the completion of both the making of the Court order and its delivery to the Registrar that the company is deemed to have continued in existence. In the instant case the expression forthwith used in the order of 1995 means with all reasonable celerity or in other words as soon as reasonably possible. Where consequence is `forthwith ” to follow on an event (as in the instance case) the word imperatively excludes a time within something else may be done
inconsistent with that consequence.
-5-
The provisions of section 12 do not give rise to an order as of course or as a matter of routine but permit the Court if satisfied as specified to make an Order. The Order of the Court must not merely be pronounced in Court, but perfected in written form and delivered to the Registrar to bring into operation the deemed provision or consequence. The additional discretionary power of the Court to “give such directions and make such provisions as seen
just for placing the company and all other persons in the same position as nearly as may be as if the name of the company had not been struck off … ” was embraced in the second element of the curial part of the Order of 3rd April, 1995 which obligated the company to deliver to the Registrar of Companies a copy of the Order forthwith. This expression complies with both the letter and the spirit of the statutory provisions. The creditors of the company are entitled to know with certainty what its exact status is, as are persons who may have rights to sue the company but the exercise of which rights are or may be affected by the Statute of Limitations (a matter considered by Megarry, J. (as he then was) in In Re Lindsay Bowman Ltd [1996] 1 WLR 1443).
As the effect of an Order which is complied with as to its terms is to validate retrospectively all acts done in the name and on behalf of the company during the period between its dissolution and the restoration of its name to the registrar: it follows that it is imperative that the copy of the Order of the Court be lodged as soon as ever possible with the Registrar of Companies. The Court Order does not act prospectively, the retrospective date of effect is the date not of the making of the Court Order but of compliance with it. However as the Order can only be made if the Court is satisfied with a given state of facts on a given day it is mandatory that the shortest interval possible should exist between the date of the perfected Court Order and a copy of its being lodged with the Registrar of Companies. In my judgment the Registrar ought not to be bound to register restoration orders which are not lodged with him forthwith.
If the Registrar were to have a margin of appreciation in for example, an Order pronounced at the end of a legal term which was not available in perfected form until the
-6-
beginning of the following legal term then at its widest, his discretion could and should not exceed three months from the date of the pronouncement of the Order. Orders not lodged forthwith and at the very outside within three months should and do automatically lapse. In such circumstances a renewed fresh application to the Court is necessary: such must not only comply with this subsection but also aver to the exact state of the business and affairs of the company as from the date of the pronouncement of the lapsed Order and give a full and satisfactory explanation to the Court as to why its original Order was not complied with in the interim.
This construction has due regard to the apparent object of the section and the character of the legislation to which it belongs.
In the instant case the interim without prejudice order of Quirke J. will be discharged, the company may bring a new or fresh application to the Court in accordance with the terms of this judgment.