Buzreel Ltd & Companies Acts: Demirca Ltd v Hughes and Another

• Jurisdiction: Ireland
• Judge: Mr. Justice Clarke
• Judgment Date: 16 July 2014
• Neutral Citation: [2014] IESC 45
• Docket Number: [S.C. No. 204 of 2014]
• Court: Supreme Court
• Date: 16 July 2014

[2014] IESC 45

THE SUPREME COURT

Clarke J.

Laffoy J.

Dunne J.

[Appeal No: 205/2014]

In the Matter of Buzreel Limited

And In the Matter of the Companies Act 1963 to 2012

Between/

Demirca Limited

Applicant/Appellant

and

Niall Hughes, Official Liquidator of Buzreel Limited (in official liquidation) and Midland Web Printing Limited

Respondents

VAN HOOL MCARDLE LTD, IN RE 1980 IR 237 1982 ILRM 340

BUZREEL LTD, IN RE UNREP HOGAN 1.5.2014 2014 IEHC 225

COMPANIES ACT 1963 S231(3)

HIBERNIAN TRANSPORT COS. LTD, IN RE 1972 1 IR 190

Liquidation – Creditors – Sale of Assets – Bidding Process – Highest Bidder – Van Hool Order – Procedure – Appeal – Winding up – Compliance of Bid – Insolvency Proceedings

The facts of this case involved the liquidation of a company and what procedure follows when creditors seek to prioritise their repayment of debt. Buzreel had been the subject of liquidation proceedings initiated by the second named respondent (Midland). Midland presented a petition to wind up Buzreel on the 2nd April, 2014. Difficulties arose in the sale and bidding process, when a number of other competing bidders appeared and the issue was brought before Hogan J. in the High Court. Hogan J declared that the Midland's bid on that second round of bidding was both the highest and most valid bid and directed the liquidator to complete the sale of the assets of Buzreel to Midland in accordance with that bid. The appellant, Demirca, a competing bidder, appealed to the Supreme Court against that judgment and order and the issue was heard before Justices Clarke J., Laffoy J and Dunne J.

The Supreme Court analyzed whether or not the bidding process followed the proper procedure and whether the previous bidding process was impeachable. The Court considered how compliant the bids from the parties where with the rules governing the sale of assets during liquidation .The Supreme Court, considering case law such as In Re Hibernian Transport Companies Limited [1972] 1 I.R. 190, concluded that the correct approach to adopt, as in Van Hool, was to take whatever measures are best designed to secure the largest amount of money for the liquidation. Applying this principle enshrined in Van Hool, the Supreme court was not satisfied that either the process directed, having regard to the terms of the Van Hool order, or compliance with that process, was sufficiently final and unimpeachable so as to require the Court, in keeping faith with that process, to regard the result of that process as binding. The Supreme Court alluded to the fact that the Midland bid was, while very close to totally compliant, deficient in a number of ways and Demirca did not seek to argue that its earlier bid should be regarded as the only compliant bid. With the goal of ensuring fairness and producing the highest possible amount from the liquidation the Supreme Court Held that the Court should reopen the bidding process and allowed the appeal

Appeal Allowed.

1. Introduction

2 1.1 When any company goes into liquidation by virtue of insolvency the risk to creditors is obvious. A principal, if not the principal, feature of the relevant insolvency laws governing such liquidations is a desire to ensure that, to the greatest extent possible, creditors will be paid. It is, however, principally for the liquidator to attempt to dispose of the assets of the insolvent company to the best advantage of the liquidation and to ensure that the funds thereby realised are paid to the creditors in the order of priority determined by law. Obviously the more funds that can be secured by the liquidator the better the overall position of the creditors generally will be, with, in an appropriate case, categories of creditors who would only have received a dividend being paid in full and other categories receiving some dividend which might not have been available had less funds been secured by the liquidator.

3 1.2 It is as against that very general background that the difficult issue, which had to be considered in the context of this application, which arose both in the High Court and in this Court, arose. The company named in the title to these proceedings ("Buzreel") has been the subject of liquidation proceedings initiated by the second named respondent ("Midland"). Midland presented a petition to wind up Buzreel on the 2 ^nd April, 2014. The first named respondent ("the liquidator") was appointed provisional liquidator on that day. Buzreel was the owner of the only classified advertising business in Ireland being the well known magazine "Buy and Sell". It was at all times clear that achieving the maximum value for the principal assets of Buzreel, being its ownership of "Buy and Sell" and related assets, would be critical to the interests of the creditors. In that context the liquidator immediately advertised the sale of those assets (within two days of his appointment) and decided on an urgent sale process, most particularly because it was not unreasonably anticipated that the value of the title "Buy and Sell" could rapidly decline if the magazine were to be out of publication for any appreciable period. It would be fair, in that context, to describe much of the assets of Buzreel as being of a wasting nature.

4 1.3 Be that as it may, the sale process ran into difficulties. A number of bidders emerged. One was Midland itself. A second was the applicant/appellant ("Demirca"). It also should be recorded that the liquidator received two other bids although those bidders had ceased to be actively involved when the matter came before the courts. Ultimately, a dispute emerged between Demirca, Midland and the liquidator as to which bid, if any, should be accepted. Hogan J., on the 24 ^th April, 2014, took the view that he should make an order of a type similar to that made in Van Hool McArdle Limited v. Rohan Industrial Estates Limited [1980] I.R. 237 (a " Van Hool order") which gave both Demirca and Midland a final opportunity to make what were described as unconditional sealed bids.

5 1.4 Further difficulties, or at a minimum asserted difficulties, emerged in respect of that second bidding round which resulted in the matter coming again before Hogan J. For the reasons set out in a judgment delivered on the 1 ^st May, 2014 ( Buzreel Limited & Companies Acts [2014] IEHC 225), Hogan J. took the view that Midland's bid on that second round of bidding was both the highest bid and a valid bid in accordance with the terms of the Van Hool order. In those circumstances Hogan J. directed the liquidator to complete the sale of the assets of Buzreel to Midland in accordance with that bid.

6 1.5 Demirca appealed to this Court against that judgment and order. The matter came on for hearing on Thursday 5 ^th June. Having considered the arguments made and having regard to the urgency of a sale being completed, the Court indicated, just before lunch, that it was persuaded that the proper course of action to adopt, in all the circumstances, was to permit both parties one final opportunity to bid. Having consulted with counsel it was agreed to put the matter back until 2.00 pm to enable both parties to ascertain the minimum timeframe within which they would be able to make a bid supported by adequate evidence of the availability of funds. In the light of what was then said the Court fixed 4.00 pm as the latest time when such bids should be made. When the Court sat again at 4.00 pm counsel for the liquidator arranged for the two bids to be handed into court and indicated that the liquidator was satisfied that, in both cases, satisfactory evidence of the availability of funds had been provided. Given that the bid from Demirca was of a significantly higher value than the bid from Midland, the Court directed the liquidator to accept the Demirca bid. The Court also indicated that reasons would be given, in due course, for the Court reaching the conclusions which it did. The purpose of this judgment is to set out the reasons why I supported the course of action which the Court took. In order to properly understand the precise issues which arose, it is necessary to start by considering in a little more detail the precise sequence of events which led to the order of Hogan J. I, therefore, turn to those facts.

2. The Facts

2 2.1 The facts are fully set out in the judgment of Hogan J. For present purposes it is, therefore, only necessary to give a brief outline of the relevant facts. In the initial advertisement for public auction, the liquidator required prospective bidders to make final offers on the 10 ^th April, 2014 and also made reference to the availability of an information memorandum for prospective bidders. Those documents made clear that offers were to be "supported by documentary evidence of funding to the satisfaction" of the liquidator. Of four offers received, Midland made the highest bid at €303,000 and was informed on the evening of the 10 ^th April that it was the preferred bidder. The liquidator also informed Midland at that point that he intended to complete the sale on the following day, subject to court approval (which approval had been specified as a requirement in the information memorandum). It then became clear that Midland's funding was not available for somewhere between three to four weeks, as such funding was contingent on the early encashment of various investments held by the directors of Midland with Ulster Bank. The liquidator withdrew Midland's status as the preferred bidder stating that it had been made clear to all bidders that the sale would have to be completed more or less immediately after court approval.

3 2.2 The liquidator then applied to the High Court by motion dated 15 ^th April, 2014 for approval of the sale of the relevant assets to Demirca, who at that point was the highest bidder in respect of which the liquidator had...