C.H. (Ireland) Inc. ((in Liquidation)) v Credit Suisse Canada

• Jurisdiction: Ireland
• Judgment Date: 01 January 1999
• Date: 01 January 1999
• Docket Number: [1992 No. 3121P]
• Court: High Court

High Court

[1992 No. 3121P]

C.H. (Ireland) Inc. (in liquidation) v. Credit Suisse Canada

In the matter of C.H. (Ireland) Inc. (in liquidation) and in the matter of the Companies Acts, 1996 to 1990: C.H. (Ireland) Inc. (in liquidation)

Applicant

and

Credit Suisse Canada

Respondent

Cases mentioned in this report:-

Bank of Ireland v. Rockfield Ltd. [1979] I.R. 21.

Belmont Finance Corporation Ltd. v. Williams Furniture Ltd. [1979] Ch. 250.

Charterhouse v. Tempest [1986] B.C.L.C. 1.

Company - Shares - Purchase - Financial assistance by company in purchase of its shares - Transaction voidable if lender had notice of facts constituting breach of legislation - Onus on applicant to prove that respondent had notice of facts constituting breach of legislation - Whether person with notice of facts must also have notice of their legal implications - Companies Act, 1963 (No. 33), s. 60.

Motion on notice.

The facts have been summarised in the headnote and are set out in the judgment of McCracken J., infra.

Section 60 of the Companies Act, 1963, provides:-

"(1) Subject to subsections (2), (12) and (13), it shall not be lawful for a company to give, whether directly or indirectly, and whether by means of a loan, guarantee, the provision of security or otherwise, any financial assistance for the purpose of or in connection with a purchase or subscription made or to be made by any person of or for any shares in the company, or, where the company is a subsidiary company, in its holding company.

[…]

• (4) The statutory declaration shall state -

  • (a) the form which such assistance is to take;

  • (b) the persons to whom such assistance is to be given;

  • (c) the purpose for which the company intends those persons to use such assistance;

  • (d) that the declarants have made a full inquiry into the affairs of the company and that, having done so, they have formed the opinion that the company, having carried out the transaction whereby such assistance is to be given, will be able to pay its debts in full as they become due.

• (5) Any director of a company making the statutory declaration without having reasonable grounds for the opinion that the company having carried out the transaction whereby such assistance is to be given will be able to pay its debts in full as they become due, shall be liable to imprisonment for a period not exceeding 6 months or to a fine not exceeding [£500] or to both; and if the company is wound up within the period of 12 months after the making of the statutory declaration and its debts are not paid or provided for in full within the period of 12 months after the commencement of the winding up, it shall be presumed until the contrary is shown that the director did not have reasonable grounds for his opinion.

[…]

• (7) Unless all of the members of the company entitled to vote at general meetings of the company vote in favour of the special resolution, the transaction whereby such assistance is to be given shall not be carried out before the expiry of 30 days after such special resolution has been passed or, if an application under subsection (8) is made, until such application has been disposed of by the court.

[…]

• (14) Any transaction in breach of this section shall be voidable at the instance of the company against any person (whether a party to the transaction or not) who had notice of the facts which constitute such breach."

An official liquidator was appointed to the applicant company by order of the High Court on the 25th May, 1992. By order of the High Court on the 4th August, 1994, the liquidator was given leave to institute such proceedings as he might be advised by counsel against CSZ and the respondent, arising out of any alleged breach of s. 60 of the Companies Act, 1963.

Pursuant to this leave, the applicant applied by notice of motion dated the 30th January, 1995, for certain declaratory reliefs, including, inter alia, declarations that certain transactions entered into between the applicant and the respondent and CSZ in December, 1989 and August, 1991, were in breach of s. 60 of the Companies Act, 1963, and that the official liquidator had validly avoided them. Motions were issued by both CSZ and the respondent to stay those proceedings and by order of the High Court (Keane J.) on the 2nd February, 1996, the proceedings were stayed as against CSZ, but not as against the respondent.

The motion was heard by the High Court (McCracken J.) on the 4th, 5th, 6th, and 7th November, 1997.

The applicant, a company incorporated in this jurisdiction, was a wholly owned subsidiary of CHNB, and was involved in financing the purchase of properties, chiefly in the United States of America. The respondent (a Canadian bank and subsidiary of CSZ) made a credit facility of Stg. £18.8 million available to Castor (a Canadian customer of the respondent), which was subject to the prior approval of CSZ (a Swiss bank) and was to be secured by a payment obligation by CSZ to the respondent. Castor used the Stg. £18.8 million to subscribe for shares in CHNB (its Canadian subsidiary), which used the monies to subscribe for shares in the applicant. The applicant deposited the monies with CSZ, indemnified CSZ against any liability on foot of its payment obligation to the respondent and pledged the deposited monies as security. CSZ executed a payment obligation in favour of the respondent, which was in effect a guarantee of the repayment of the loan made by the respondent to Castor.

The applicant went into compulsory liquidation and a liquidator was appointed by order of the High Court. It was alleged by the liquidator that the monies paid by CHNB to the applicant as a subscription for shares in the applicant were deposited by the applicant as the ultimate security for the monies advanced by the respondent to Castor, contrary to s. 60 of the Companies Act, 1963. The liquidator also submitted that a guarantee given by the applicant to both CSZ and the respondent, which guaranteed all liabilities of Castor to either of the banks in very wide terms, including the liability of Castor to repay the Stg. £18.8 million advanced to it by the respondent, constituted a breach of s. 60 of the Act of 1963.

Held by the High Court (McCracken J.), in declaring that the transaction was void as against the respondent, 1, that the only or main purpose for which the applicant deposited monies with CSZ was to ensure that the respondent, on the direction of CSZ, would advance monies to Castor and then to CHNB to enable it to purchase shares in the applicant and this was clearly the giving of financial assistance within the meaning of s. 60 of the Act of 1963.

2. That the giving of financial assistance for the purchase of shares was not the only or main purpose of the guarantee given by the applicant to CSZ and the respondent.

Charterhouse v. Tempest [1986] B.C.L.C. 1 followed.

3. That, having regard to the use of the word "transaction" throughout s. 60 of the Act of 1963, a transaction in breach of that section must be one which was in breach of s. 60(1), which was the giving of financial assistance for the purpose of or in connection with the purchase or subscription of shares, it must be a transaction whereby the company gave financial assistance and the only transaction which could be attacked under s. 60 was a transaction directly involving the company.

4. That the onus was on the applicant to prove that the respondent had notice of the facts which constituted the breach of s. 60 of the Act of 1963 but the question had to be decided as a matter of probability.

5. That s. 60(14) of the Act of 1963 related to a person having notice of the facts constituting a breach of s. 60 but it did not require that the person who had notice of the facts also had notice that it was in law a breach of s. 60, or was aware of the existence of s. 60.

Bank of Ireland v. Rockfield Ltd. [1979] I.R. 21 applied.

6. That the transaction, which was the deposit of the monies by the applicant with CSZ as security, and the consideration for that deposit, which was the giving of the payment obligation by CSZ to the respondent, was void as against the respondent.

Cur. adv. vult.

McCracken J. 12th December 1997

In this judgment I will refer to certain companies in the following manner:-

C.H. (Ireland) Inc. ("the applicant").

Castor Holdings Limited as "Castor".

C.H. Investments. (New Brunswick) Inc. as "CHNB"

Credit Suisse as "CSZ".

Credit Suisse Canada ("the respondent").

These proceedings

The applicant is in compulsory liquidation and Mr. Tom Grace was appointed liquidator by order of the court on the 25th May, 1992. By further order made on the 4th August, 1994, the liquidator was given leave to institute such proceedings as he might be advised by counsel against CSZ and the respondent in Ireland or elsewhere as he may be advised in respect of or arising out of any alleged breach of s. 60 of the Companies Act, 1963.

Pursuant to this leave, the liquidator applied by way of notice of motion dated the 30th January, 1995, for certain declarations in relation to both CSZ and the respondent. Proceedings were brought by both CSZ and the respondent to stay the said proceedings and by order dated the 2nd February, 1996, the proceedings were stayed as against CSZ, but not as against the respondent. As the...