Carlo Tassara Assets Management Sa. v Éire Composites Teoranta

• Jurisdiction: Ireland
• Judge: Ms. Justice Costello
• Judgment Date: 02 March 2018
• Neutral Citation: [2018] IEHC 182
• Docket Number: [2014 No. 10087 P.]
• Court: High Court
• Date: 02 March 2018

[2018] IEHC 182

THE HIGH COURT

COMMERCIAL

Costello J.

[2014 No. 10087 P.]

BETWEEN

CARLO TASSARA ASSETS MANAGEMENT SA

PLAINTIFF

AND

ÉIRE COMPOSITES TEORANTA, WILLIAM COSTELLO, PATRICK FEERICK, CONCHUR Ó BRÁDAIGH

AND

THOMAS FLANAGAN

DEFENDANTS

Companies – The Companies Act 2014 – Personal guarantees – Conversion of loan note – Transfer of shares – Breach of property and contractual rights.

Facts: The plaintiff/creditor sought a declaration that the loan note remained valid and payable by the defendants/debtors to the plaintiff and it was entitled to have its property restored. The plaintiff also sought various orders pursuant to s. 842 of the Companies Act 2014. The defendants contended that for the transfer of share made by the plaintiff in the first defendant/company, there was no prior written consent by the other shareholders and therefore, the purported transfers were in breach of the Shareholders Agreement. The defendants argued that the plaintiff was not prepared to invest further monies to save the company and therefore, they were entitled to convert the loan note in order to perform their duty to save the company.

Ms. Justice Costello granted the declaration sought by the plaintiff regarding the validity of the loan note and the payment of liability secured by personal guarantees. The Court held that the guarantees entered into by the second, third and fourth defendants were valid and they had failed to pay the amount claimed by the plaintiff; therefore, the plaintiff was entitled to judgment on a joint and several bases against the second, third and fourth named defendants for a relevant sum. The Court, however, refused to grant the declaration sought by the plaintiff pursuant to s. 842 of the Companies Act 2014 and directed that the matter should be referred to the Director of Corporate Enforcement for his consideration as the Court was not in a position to adjudicate fairly on the matter.

JUDGMENT of Ms. Justice Costello delivered on 2nd day of March, 2018

Introduction

1 The plaintiff ('CTAM') is a private company limited by shares and incorporated in Luxembourg. At all material times up until 2014 it was part of the Carlo Tassara Group of Companies. CTAM was a shareholder in the first named defendant ('Éire') up and until the point in 2014 that the defendants converted a Loan Note held by CTAM into shares in Éire. The shares in Éire were then sold to the fifth named defendant. CTAM claims that these transactions were unlawful and challenges the validity of the conversion of the Loan Note into shares in Éire and the subsequent sale of its shares in Éire to the fifth named defendant.

2 In addition, CTAM is also suing the second, third and fourth named defendants pursuant to personal guarantees entered into on 5th November, 2009 and it seeks various orders pursuant to s. 842 of the Companies Act 2014.

3 Éire is a limited liability company incorporated in 1998 which specialises in the design, manufacture and testing of lightweight high performance composite material for the aerospace, marine and auto sectors. It carries on business from its registered office at Údarás Industrial Estate, An Choill Rua, Indreabhan, County Galway.

4 The second, third and fourth named defendants were at all material times shareholders in and directors of Éire. The fifth named defendant states that at a date prior to November 2014 he purchased the entire shareholding in Éire and became a director of Éire. The manner in which this occurred is the subject matter of these proceedings.

Background

Carlo Tassara SpA Investment in Éire

5 Éire was engaged in developing cutting edge materials and technology and it was in constant need of money to fund the development of its technology. Its bank, AIB Plc, (AIB) initially advanced a number of loans. Éire subsequently came under considerable pressure from AIB. This became a critical problem in 2009 and later in 2013. Údarás na Gaeltachta were prepared to offer limited support to the company but Éire required a joint venture partner to invest significant sums of capital in the company rather then simply providing loan finance.

6 In 2007, Éire found a partner who was prepared to invest in its enterprise. Carlo Tassara SpA was part of a group of companies based in France, Luxembourg and Italy referred to as the Carlo Tassara Group. The major shareholder in the Carlo Tassara Group was Mr Romain Zaleski, a reputed billionaire. In 2007 the shareholders in Éire entered into a Shareholders' Agreement with Carlo Tassara SpA. Carlo Tassara SpA invested €3.3 m for 74,830 ordinary shares in Éire pursuant to a Shareholders Agreement dated 16th January, 2007. Clause 8.1.1 of the agreement provided:-

'For the purposes of this clause, where any person is unconditionally entitled to be registered as the holder of a share, he and not the registered holder of such share shall be deemed to be a member of the company in respect of that share.'

7 Clause 8.8 provided:-

'No shares shall be transferred save as provided in this clause 8. A transfer of shares to a company wholly owned by a shareholder or to a wholly owned subsidiary or affiliate shall not be considered a transfer for purposes hereof and the provisions of this Clause 8 shall not apply to any such transfer, provided, however, that the transferee shall agree to be bound by the terms of this agreement.'

8 The shareholders' agreement included a clause described as a Drag Along clause. As it is central to the dispute in these proceedings, I set out the provisions in detail:-

'8.3.1 If it is proposed by one or more of the shareholders (excluding any of their successors or assigned) to transfer all of their shares as part of a bona fide arms length transaction and where those shareholders together holding a minimum of 50% of the issued shared capital in the company, those shareholders (the selling shareholders) shall have the option (the drag along option) to require all the other holders of shares to transfer their shares as beneficial owners, on the same terms and conditions (including price and payment terms) to any party wishing to take a transfer of such shares (the third party purchaser) or as the third party purchaser shall direct in accordance with this Clause 8.3.

8.3.2 The selling shareholders may exercise the drag along option by giving notice to that effect (a drag along notice) to the other shareholder(s) (the called shareholder) at any time before the transfer of shares to such third party purchaser. A drag along notice shall specify that the called shareholder is required to transfer all his shares (the called shares) pursuant to Clause 8.3.1 to the third party purchaser, the price at which the called shares are to be transferred, the proposed date of transfer and the identity of the third party purchaser.

8.3.3 Any drag along notice shall also state:-

(i) all conditions to the acceptance by the selling shareholders (or any of them) of the offer by the third party purchaser for their shares;

(ii) the price per share offered to each of the selling shareholders by the third party purchaser for their shares (expressed as a numerical price per share);

(iii) any other form of consideration (whether in cash or kind) payable by or on behalf of the third party purchaser to the selling shareholders in connection with the sale of their shares.

8.3.4 The called shareholder shall be obliged to sell the called shares at the price specified in the drag along notice which shall attribute an equal value to all shares and for the avoidance of doubt, the third party purchaser may purchase the called shares at the same price and on the same terms as offered by the third party purchaser to the selling shareholders for their shares.

8.3.5 Subject to compliance by the selling shareholder with the foregoing provisions of this Clause 8.3, the called shareholder shall on service of the drag along notice be deemed to have irrevocably appointed each of the selling shareholders severally to be his attorney to execute any stock transfer and to do such other things as may be necessary or desirable to accept, transfer and complete the sale of the called shares pursuant to this Clause 8.3. Any rights of pre-emption and other restrictions contained in this agreement shall not apply to any sale and transfer of shares to the third party purchaser named in a drag along notice.'

9 Clauses 12.3 and 12.9 of the agreement provided:-

'12.3 Variation

This agreement may not be released, discharged, supplemented amended, varied or modified in any manner except by an instrument in writing signed by each of the shareholders.'

'12.9 Assignment

None of the parties hereto may assign his rights or obligations in whole or in part hereunder without the prior written consent of the other parties hereto'.

10 Despite the investment of €3.3m by Carlo Tassara SpA in Éire in January 2007 by the end of 2007 Éire required a further injection of funds. Carlo Tassara SpA agreed to lend Éire the sum of €2m. The terms of the loan were governed by a Loan Note Instrument issued by Éire and accepted by Carlo Tassara SpA dated 17th December, 2007. The Loan Note was a convertible Loan Note. The terms of the Loan Note and the operation of same and the purported conversion of the Loan Note into ordinary shares in Éire are central to the dispute, the subject matter of the proceedings herein.

11 The Loan Note bore interest at a fixed rate of 7% per annum, accrued monthly and to be payable on each anniversary of the date of issue of the Loan Note. The principal amount of the Loan Note was to be repaid five years from the date of issue. The Loan Note could, at the discretion of the holder of the Loan Note, be converted into ordinary shares in Éire. This requires the holder to serve on the issuer a conversion notice, defined in the deed as ' a notice of conversion in the form set out in the...