Banfi Ltd v Moran and Others

• Jurisdiction: Ireland
• Judge: Miss Justice Laffoy
• Judgment Date: 20 July 2006
• Neutral Citation: [2006] IEHC 257
• Judgment citation (vLex): [2006] 7 JIC 2001
• Court: High Court
• Date: 20 July 2006

[2006] IEHC 257

THE HIGH COURT

NO. 377 COS/2005

BANFI LTD v MORAN & ORS

IN THE MATTER OF SECTION 122 OF THE COMPANIES ACT, 1963 - 2001

BETWEEN/

BANFI LIMITED

PLAINTIFF

AND

NOEL MORAN, KARINA RAY, ANDREW KAVANAGH, GARVAN FENELON AND EMERALD GROUP HOLDINGS LIMITED

DEFENDANTS

Abstract:

Company law - Rectification of register of members - Refusal to register plaintiff as member - Whether members acted in interests of the company as whole - Delay

This was an application for an order rectifying the register of members of the fifth defendant company to allow for the registration of the plaintiff as a member pursuant to s. 122 of the Companies Act 1963. The crucial question in determining whether the refusal of the board of the company to register the plaintiff was without sufficient cause was whether or not the members acted in the interests of the company as a whole.

Held by Laffoy in directing the rectification of the register of members that in refusing to register the plaintiff as a member the board were pursuing their own self interests and not the interests of the company as a whole. There was no evidence of any prejudice to the company by reason of the fact that the application was initiated more than two years after the refusal.

Reporter: R.W.

1 Miss Justice Laffoy delivered on 20th July, 2006.

The application

2 This is an application for an order rectifying the register of members of the fifth defendant (the Company) to allow for the registration of the plaintiff as a member thereon. The application is brought pursuant to s. 122 of the Companies Act, 1963 (the Act of 1963), sub-s. (1) of which provides as follows:

"If-"

3 (a) the name of any person is, without sufficient cause, entered in the register of members or omitted therefrom, in contravention of sub-ss. (1) and (2) of s. 116; or

4 (b) …

5 the person aggrieved, or any member of the company, or the company, may apply to the court for rectification of the register."

6 Section 116 requires every company to keep a register of members, which must contain certain particulars, including the names and addresses of the members and a statement of the shares held by each.

7 As it is entitled to do, the plaintiff has brought this application by way of originating notice of motion grounded on affidavit. The application has been heard on the affidavit evidence. Leave was not sought by any party to cross-examine a deponent of his opponent. In some respects there are serious conflicts of evidence on the affidavits. The court cannot resolve such conflicts.

The Company

8 The Company is a private company limited by shares. It was originally incorporated under a different name on 22 ^nd April, 1995, but it has been incorporated under its current name since 20 ^th June, 2002.

9 The most recent annual return in relation to the Company filed in the Companies Registration Office on 18 ^th October, 2005 discloses that the only directors of the Company are the first defendant (Mr. Moran) and the second defendant (Ms. Ray), who is the wife of Mr. Moran. It is clear on the evidence that the third defendant (Mr. Kavanagh) was a director of the Company from the date of its incorporation until 19 ^th February, 2004, when he retired on the grounds of ill health. The annual return discloses that the share capital comprises ordinary and A ordinary shares. It is ordinary shares that are in issue here. There are 87,777 ordinary shares, which according to the annual return, are registered as follows:

10 · 16,525 in the name of Mr. Kavanagh.

11 · 16,525 in the name of ICT Nominees Limited (ICT), being the shares in issue here.

12 · 47,327 in the name of Best Christmas Trees Limited (Best), a company which was incorporated on 7 ^th June, 2001, of which Mr. Moran and Ms. Ray are the directors and shareholders.

13 · The remaining 4,400 shares in the name of another party who does not feature in these proceedings.

14 Clause 7 of the articles of association of the Company provides as follows:

"The directors may, in their absolute discretion and without assigning any reason therefor, decline to register any transfer of any share, whether or not it is a fully paid share …"

15 There is a proviso to clause 7 which has no application here.

16 Another company, which was incorporated on 28 ^th February, 1989 and had two changes of name before it was incorporated as Emerald Group Limited (the Subsidiary) on 20 ^th June, 2002, is a single-member company and a wholly-owned subsidiary of the Company. The Subsidiary is a trading company which is involved in a scheme under which investors are able to avail of tax advantages from investment in forestry, in this case, Christmas trees. I do not pretend to understand the intricacies of the scheme. However, on the evidence, relying in particular on a report of a financial review carried out by McStay Luby, Financial Consultants, dated 12 ^th June, 2001 for what they refer to as the "Emerald Group", my understanding of the function of the Subsidiary in the overall scheme is that of managing a series of individual plantations owned or leased by other entities for investors. The husbandry and harvesting requirements of those entities are the drivers of the activity level and the cash flow of the Subsidiary.

17 The fourth defendant was joined on the application on the basis that he was a director of the Company. On the basis of the evidence I accept that he is not, and never has been, a director of the Company. Therefore he was incorrectly joined in the proceedings. As I understand the position, there has been no appearance on his behalf. Unless the plaintiff or any of the other respondents objects, I propose to strike out the proceedings against him.

The shares in issue

18 The shares in issue are still registered in the name of ICT, although by virtue of a stock transfer dated 16 ^th May, 2003 ICT transferred 16,525 ordinary shares in the Company to the plaintiff. The stock transfer form was executed by Mr. Moran and Ms. Ray for and on behalf of ICT. Mr. Moran and Ms. Ray certified that the transfer was being made to the beneficial owner of the shares pursuant to a declaration of trust dated 1 ^st December, 1995 in order to show that the transfer was not subject to ad valorem stamp duty. The declaration of trust dated 1 ^st December, 1995, which was executed by Mr. Moran, declared that ICT held 25,325 ordinary shares in the Company, which was then registered by its former name, as nominee of, and on behalf and in trust for, the plaintiff. There followed an irrevocable undertaking to transfer the shares to the plaintiff on request and a further irrevocable undertaking at all times to exercise the right of voting only in accordance with the plaintiff's instructions. The plaintiff's stake in the company was reduced to 16,525 shares by virtue of a subsequent transfer of 8,800 shares by ICT to Mr. Moran and Ms. Ray, which gave effect to a sale by the plaintiff to Mr. Moran for IR£11,000.

19 The plaintiff was incorporated on 17 ^th April, 1991 as a private company limited by shares. David Hasslacher (Mr. Hasslacher) is a director of the plaintiff and this application was grounded on affidavits sworn by him. His case is that in 1995 the shares in the Company the subject of the declaration of trust, which were approximately 30% of the ordinary shares of the Company, represented his original stake dating from 1989 (22.5% of the share capital) in the Subsidiary, together with an accretion acquired when one of the four original promoters left in 1995, bringing the stake up to approximately 30%. Mr. Hasslacher averred that for personal financial reasons in 1990/1991 he was advised by his then solicitors that his shares in the Subsidiary should be held on trust. He also averred that Mr. Moran, who is a chartered accountant, and who was his financial adviser, advised him to purchase a shelf company which would hold his stake in the Subsidiary solely for him and that Mr. Moran arranged for him to acquire the plaintiff, a shelf company, for that purpose. Mr. Hasslacher also averred that the scheme devised by Mr. Moran involved ICT holding shares in trust for the plaintiff.

20 ICT is a company which is solely owned by Mr. Moran and Ms. Ray. Mr. Moran has denied that he took any part in advising Mr. Hasslacher in relation to settling the shares in trust. He has averred that he understood that his role as company secretary of ICT was to give effect to Mr. Hasslacher's instructions, which he did. It is not possible to resolve the conflict raised on the affidavit evidence as to whether Mr. Moran advised Mr. Hasslacher in relation to the creation of the trust. I record, for what it is worth, that the evidence establishes that Mr. Hasslacher and the plaintiff made a complaint to the Institute of Chartered Accountants in Ireland (the Institute) in February, 2005 against Mr. Moran. The Complaints Committee of the Institute, in ruling on the complaint, was unable to form an opinion as to whether or not Mr. Moran "advised" Mr. Hasslacher on the transfer of the shares but adjudicated on the complaint on the basis that Mr. Moran "assisted" Mr. Hasslacher to transfer the shares to ICT to be held in trust for the plaintiff. I will return to that ruling later.

21 It is obvious from the evidence that there was some sort of restructuring of the "Emerald Group" in 1995, whereby the Subsidiary became a single member company and former shareholders of the Subsidiary became the holders of an equivalent shareholding in the Company. While details of that process have not been deposed to, it is clear that the shares in issue on this application, as I have said, represent shares in the Subsidiary held by Mr. Hasslacher in 1989. Ignoring the restructuring in 1995 in the interests of simplicity, the following is...