Comhlucht Páipéar Ríomhaireachta Teo. (in Voluntary Liquidation) v Údarás na Gaeltachta, G.T. Carpets Ltd (in Voluntary Liquidation) and Vincent Duignan

• Jurisdiction: Ireland
• Judgment Date: 24 March 1987
• Date: 24 March 1987
• Docket Number: [1985 No. 680 Sp]
• Court: High Court

Comhlucht Páipear Riomhaireachta Teo. v. Údarás na Gaeltachta

Comhlucht Páipear Riomhaireachta Teo. (In Voluntary Liquidation)

Plaintiff

and

údarásÚdarás na Gaeltachta, G.T. Carpets Ltd. (In Voluntary Liquidation) and Vincent Duignan, Defendants

[1985 No. 680 Sp]

High Court

Practice - Security for costs - Limited company - Payment made by insolvent company - Action by liquidator for return of payment alleging fraudulent preference - Application by defendants for security for costs - Discretion of court - Special circumstances - Strength of plaintiff's case - Conduct of defendants - Defendants' response to liquidator's enquiries - Difficulty in establishing facts surrounding payment by plaintiff - Defendants having relevant documents in their possession or procurement - Companies Act, 1963 (No. 33), ss. 286, 390.

Section 390 of the Companies Act, 1963, provides:—

"Where a limited company is plaintiff in any action or other legal proceeding, any judge having jurisdiction in the matter, may, if it appears by credible testimony that there is reason to believe that the company will be unable to pay the costs of the defendant if successful in his defence, require sufficient security to be given for those costs and may stay all proceedings until the security is given."

The plaintiff company was insolvent and was in voluntary liquidation. The second defendant was a wholly owned subsidiary of the first defendant. The directors of the second defendant were the nominees of the first defendant of which they were also officers. At the time the proceedings were instituted the second defendant was in liquidation but was solvent.

In investigating the affairs of the plaintiff, the liquidator discovered that it had borrowed a sum of £170,000 in January, 1982, and that those monies had been repaid in June, 1982, at a time when the plaintiff was clearly insolvent. The terms on which the loan had been made provided that it should be repayable with interest on demand but it had not been anticipated that any demand for repayment would be made before October, 1982. The monies advanced were the proceeds of two cheques drawn on the second defendant but the circumstances surrounding the making and repayment of the loan were unclear.

The third defendant, an accountant, was the first defendant's agent in relation to the loan. Under the terms of the loan he was to supervise the preparation of monthly management accounts for the plaintiff and, jointly with the plaintiff's managing director, was authorised to order payments from the plaintiff's funds.

The repayment of the loan had been effected by transferring monies from the plaintiff's bank account to the third defendant's bank account. No interest had been claimed or paid on the loan but the payments out of the plaintiff's account exceeded the capital sum advanced. The surplus was used by the third defendant to pay himself a sum owed for fees and to pay "expenses" to the directors of the plaintiff.

In an attempt to clarify the circumstances surrounding the loan and in particular the original source of the monies, the liquidator raised a number of queries with each of the defendants. The first and second defendants answered some of those queries but there was conflict between the answers given by the various officers. Other queries were evaded or ignored. The third defendant gave some general information but refused to deal with a series of specific queries until he was paid a sum of money for fees for co-operating with the liquidator.

The liquidator commenced proceedings in the name of the plaintiff claiming the return of the monies paid by the plaintiff on the grounds that the payments were a fraudulent preference. The defendants each applied, pursuant to s. 390 of the Companies Act, 1963, for an order for security for their costs.

Held by Costello J., in refusing the defendants' applications, 1, that the court had a discretion as to whether to order an insolvent company to give security for costs but there was an onus on the liquidator of such a company to show that special circumstances existed which would justify the court exercising that discretion in the company's favour.

Peppard & Co. Ltd. v. Bogoff [1962] I.R. 180, S.E.E. Company Ltd. v. Public Lighting Services Ltd. [1987] I.L.R.M. 255 and Jack O'Toole Ltd. v. MacEoin Kelly Associates[1986] I.R. 277 applied.

2. That the court in exercising its discretion should have regard to all the circumstances of the case including the strength of the plaintiff's case and the conduct of the defendants.

3. That the conduct of the first and second defendants in offering conflicting versions of the transaction and in ignoring and evading the liquidator's attempts to resolve that conflict constituted special circumstances justifying the refusal of their applications.

4. That the third defendant's refusal to deal with the liquidator's request for information until a substantial sum for fees was paid was not reasonable and constituted special circumstances justifying the refusal of his application.

5. Furthermore, that there were clearly documents in the possession and procurement of each of the defendants which were highly relevant to the issues in the case and whose production might materially assist in establishing where, if anywhere, liability for fraudulent preference arose. In those circumstances it would be inappropriate to make an order which might have the effect of permanently staying the action.

Cases mentioned in this report:—

Peppard & Co. Ltd. v. Bogoff [1962] I.R. 180; (1957) 97 I.L.T.R. 12.

S.E.E. Company Ltd. v. Public Lighting Services Ltd. [1987] I.L.R.M. 255.

Jack O'Toole Ltd. v. MacEoin Kelly Associates [1986] I.R. 277; [1987] I.L.R.M. 269.

Special Summons.

By special summons issued on the 13th September, 1985, the plaintiff claimed declarations that the payment by the plaintiff to the first and/or the second defendant of sums totalling £170,000 and to the third defendant of the sum of £6,200, which payments had been made within 6 months of the plaintiff going into liquidation, constituted a fraudulent preference of the defendants and were void accordingly: and orders for the repayment of those monies with interest.

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

The defendants each applied to the court by notice of motion for an order pursuant to s. 390 of the Companies Act, 1963, requiring the plaintiff to to give security for their costs.

The applications were heard by Costello J. on the 19th February, 1987.

Cur. adv. vult.

Costello J.

The plaintiff company is insolvent and is in voluntary liquidation. Its liquidator in its name has instituted these proceedings against three defendants alleging that prior to its liquidation monies were paid by the company in circumstances which amounted to a fraudulent preference within the meaning of s. 286 of the Companies Act, 1963, and claiming their return.

Údarás údarás na Gaeltachta, the first defendant, is a company established by the Údarás údarás na Gaeltachta Act, 1979, empowered inter alia to carry on and to develop schemes of productive employment in the Gaeltacht area. G.T. Carpets Ltd., the second defendant, is a wholly owned subsidiary of an t Údarás údarás. It had, as its name implies, carried on business as carpet manufacturers but had ceased trading at the times relevant to these proceedings. It was, however, solvent and had been put into liquidation by its parent company. Mr. Duignan, the third defendant, is an accountant and a principal in the firm of Duignan and Co. He has admitted that he acted as agent for an t Údarás údarás in relation to the loan the subject matter of these proceedings. I now have to decide on motions brought by all three defendants whether I should order the plaintiff to give security for the costs of each of the defendants.

The inquiries which the liquidators of insolvent companies have to make in order to carry out their statutory duties may prove to be extensive and troublesome. This case has proved to be no exception. Here, the liquidator discovered that G.T. Carpets Ltd. had apparently lent the plaintiff company (which had gone into liquidation on the 4th August, 1982), a sum of £170,000 in the month of January, 1982, and that this loan had been repaid in the same year, at a time when the company was clearly insolvent. The terms on which the loan was made were contained in a letter of the 13th January, 1982, written to the plaintiff company by G.T. Carpets Ltd. As the contractual terms are important to the issues which I am now considering I should set them out in full. Having referred to the proposed loan facilities...